In his latest effort to patch California's cash-strapped budget, Gov. Arnold Schwarzenegger has resurrected an idea to convert overhead freeway displays into electronic advertising billboards.

Under the plan, a billboard company would replace existing digital displays that show abduction-related Amber Alerts and traffic updates with sophisticated color screens that also show advertising. The state currently operates 708 electronic boards on highways.

The proposal faces significant hurdles, particularly obtaining a U.S. Department of Transportation waiver of federal highway regulations. The governor sees the plan as a way to generate revenue and improve the technology of the warning signs, but critics fear the new signs would distract drivers and lead to more accidents.

The governor's Department of Finance quietly submitted a draft bill to the Legislature this week to help raise money for the 2010-11 budget as leaders seek to close a $19.9 billion deficit. Finance spokesman H.D. Palmer compared the proposed signs to one installed at California State University, Sacramento, along Highway 50, although they would appear directly above drivers rather than alongside roadways.

The draft proposal, which calls the project "experimental," would allow the state to contract out its highway signs for up to 20 years. The Department of Finance has not estimated how much money the plan would generate, but Palmer said it would help reduce the deficit in 2010-11.

"We think this has the potential to generate significant revenue," he said.

A legislative source close to budget talks said the administration estimated late last year that California could raise as much as $2 billion for 500 message boards over 20 years. The state could obtain a sizable portion of that money as a lump sum to use in the 2010-11 budget.

Palmer said "advertising could not take precedence over the public safety role" of the signs. The displays would give preference to Amber Alerts and traffic information. They would not be able to display or advertise "tobacco, firearms or sexually explicit material."

Caltrans plans to install an additional 597 message boards for a total of 1,305 around the state. The department envisions a phase-in that would replace 50 signs at first. The state could strike a deal with an outside firm within six months of the Legislature's approval. Caltrans is preparing a federal waiver application, Palmer said.

Mary Tracy, president of Scenic America, which advocates for scenic roads, said that electronic billboards are designed to distract drivers and take attention away from the road.

"Everybody has been worried about cell phones and how we can legislate that," Tracy said. "But they're not paying attention to all of this electronic signage and billboard clutter competing for driver attention."

California has been among the first states to regulate driver distractions, with Schwarzenegger's blessing. The state requires motorists to use an earpiece while talking on the phone and bans text messaging while driving.

Tracy doubted the federal government would authorize a waiver for California, especially because it could lead to a flood of other states seeking the same exemption, commercializing highways nationwide. The Department of Transportation is currently conducting a study of how electronic billboards along highways affect drivers.

The governor has vowed not to raise income, corporate or sales taxes this year, and is instead searching for other forms of revenue. He proposed installing speed cameras at intersections to raise nearly $300 million for the state, but lawmakers spurned the idea Wednesday in committee. His plan to obtain $6.9 billion in new federal dollars is also likely to fall short.

In recent years, Schwarzenegger has embraced state partnerships with private firms. He proposed borrowing against future lottery proceeds last year to generate cash from private investors, but voters rejected that plan.

Sen. Bob Huff, R-Diamond Bar, said he supports selling advertising on overhead highway signs. "I think everything that's creative has got to be on the table," Huff said. "In particular, we need to look at things that are not reaching into taxpayers' pockets at a very difficult time."

Proponents in the past have argued that electronic boards could display more effective Amber Alerts by including pictures. But Mark Sektnan of the Association of California Insurance Companies, which supports billboard restrictions, warned that drivers also may learn to ignore signs that become advertising heavy.

Caltrans pursued the plan in 2008, but it ran into opposition from Democrats in the Legislature, as well as Sen. Dianne Feinstein, D-Calif.

Since late 2008, Clear Channel Outdoor has spent $74,000 to lobby state lawmakers and the Schwarzenegger administration for highway sign conversion, state records show.

Clear Channel has been heavily involved in building new digital roadside billboards, including the one at Sacramento State. In 2008, the university signed a 25-year lease with Clear Channel worth $750,000 plus an additional share of ad revenues.

Assemblyman Mike Feuer, D-Los Angeles, proposed Assembly Bill 109 last year to restrict electronic billboards along the side of highways, as well as ban through 2011 the conversion of freeway signs. The bill died in committee.

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