California once again will look under sofa cushions and scour every sector of state government to find another $20.7 billion to balance its budget over the next 19 months.

This time, however, state leaders won't be able to reap savings from some of the state's largest spending categories.

California can't touch most funding for K-12 schools or colleges because the state already is spending close to a minimum amount required by the federal government. The state can't cut Medi-Cal until January 2011 for the same reason. Those programs make up more than half the state's $84.6 billion general fund budget.

"We cannot reduce those areas very much more, so that closes off a very big piece of your budget," said nonpartisan Legislative Analyst Mac Taylor, who released his $20.7 billion deficit projection Wednesday.

The news brings relief to education groups, but it puts more pressure on other programs that lack federal spending requirements. State leaders likely will pursue additional cuts in prisons, state parks and social service programs not associated with federal spending requirements or matching funds.

The legislative analyst's report assumes that three-a-month state worker furloughs would end in June. But Gov. Arnold Schwarzenegger could seek to extend them further, pending the outcome of court challenges.

Another target could be Healthy Families, the low-cost children's health insurance program. Schwarzenegger once proposed eliminating Healthy Families and did cut its funding this summer, although he and lawmakers restored coverage for 600,000 low- and middle-income children in September.

"I think we've exhausted cuts that don't shock the conscience," said Anthony Wright, executive director of Health Access California. "We need to look to other solutions, including raising taxes and revenues, because the cuts that are left are unforgivable, including denying children coverage."

California faces a new shortfall in part because lawmakers and Schwarzenegger relied on several risky solutions in budget agreements earlier this year.

They include a $1 billion partial sale of the State Compensation Insurance Fund, now under legal challenge by Insurance Commissioner Steve Poizner. They also include $800 million in transit money that courts said the state could not use for general purposes.

The $20.7 billion gap could grow even larger if courts toss out a $1.7 billion shift of redevelopment funds that faces review, or deem furloughs illegal.

Another reason for the looming deficit is that lawmakers relied on one-time savings, such as delaying state worker paychecks by one day from June 30 to July 1. State leaders likely will search for similar solutions to help solve the next gap.

Taylor recommended Wednesday that state lawmakers move quickly and consider not only cuts but any possible revenue sources. He specifically warned against increasing tax rates, which could further stress the economy.

Taylor suggested the state could consider ending certain tax breaks for businesses by mandating that all multi-state firms use the same method to calculate their California taxes or eliminating enterprise zones, which provide tax credits to employers in specified areas. He said benefits of the latter program are questionable.

But Michael Shaw, California legislative director with the National Federation of Independent Business, said curtailing business incentives would hurt the state's economic recovery.

"Additional tax increases are going to take more money out of Californians and small business owners in particular," he said. "At best it would prolong our economic recession and at worst lead to longer-term job losses."

Democrats are likely to revisit ideas from last year, such as a tax on oil production in California. Schwarzenegger again may seek to allow oil drilling off the coast of Santa Barbara in exchange for royalties.

But after signing several temporary tax hikes in February, the governor said Wednesday in Milan, Italy, that he doesn't want to consider any new tax increases, according to Dow Jones Newswires.

"I think it's important not to raise revenues, not to raise taxes," he said. "We have to live within our means."

Taylor recommended that the state lobby for a new round of federal relief to help plug its budget hole.

He also suggested lawmakers could return to the ballot to take tax money dedicated now for mental health services, First Five early childhood development and after-school programs.

Voters rejected measures in May that would have taken money from the first two.

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Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548.