With the clock ticking toward insolvency, talks on fixing California's budget this week hit a bottleneck on Highway 50 in Rancho Cordova – where officials are at odds over the state's iconic and controversial environmental protection law.

Because of the jobs it would create, Gov. Arnold Schwarzenegger is pushing for a fast-track launch this spring of a project to build a seven-mile-long carpool lane between Sunrise Boulevard and Watt Avenue.

The Highway 50 project and nine other state highway expansions would boost California's sagging economy, Schwarzenegger said.

To speed those projects, the governor wants them exempted from further review under the California Environmental Quality Act, and to give them immunity from future lawsuits.

But legislative Democrats, led by Sacramento's Darrell Steinberg, the Senate president pro tem, argue that such exemptions would undermine the landmark law and dilute California's leadership in the fight against global warming.

That highway fight is one of several state budget issues the governor and legislators failed to settle this week.

They say they have given some ground in negotiations, but insist the state complete a full, court-ordered environmental review of the Highway 50 project.

The state law in question, the monumental 1970 environmental quality act, requires large projects to be analyzed for potential adverse impacts on the environment and on surrounding communities, and requires steps be taken to blunt them.

The act is credited with giving the public more say over large-scale projects in California and with reducing air pollution and other environmental degradation.

But the law has long been criticized by some public officials and developers for causing delays and increasing costs, and for opening projects to lawsuits.

Despite the stalemate, Schwarzenegger pressed forward this week in a letter to President-elect Barack Obama, asking him to ease federal environmental requirements on a number of major projects.

It's all about helping the economy, Schwarzenegger administration officials argue.

The state faces a historic $40 billion budget imbalance over the next 18 months. State Controller John Chiang has warned the government will run out of cash as early as February and would have to start issuing IOUs for some bills if a deficit-closing deal isn't concluded before then.

Schwarzenegger this week rejected an $18 billion, one-year fix proposed by Democrats. The governor counter-proposed a $40 billion balancing act for the entire projected 18-month deficit – including quick starts on the highway projects.

"We're in the economic doldrums as a state," state Department of Transportation head Will Kempton said. "One of the best ways is through immediate creation of jobs. The notion is to get a certain amount of work out the door as soon as possible."

Kempton said the highway projects already have had some environmental review, and that Caltrans would be diligent in dealing with environmental issues during construction.

"We are not talking about backing away from our environmental standards," Kempton said.

The 10 projects, worth $1.2 billion, would generate 22,000 jobs, he said.

Planning and legal experts say the governor's attempt to circumvent environmental law is not new.

"When times get tough, it is almost predictable you will hear some people say let's streamline, repeal or exempt projects from CEQA," Sacramento environmental law attorney Jim Moose said.

He and William Fulton, publisher of the California Planning & Development Report, say they have seen the governor and Legislature exempt projects during emergencies, such as floods and earthquakes, but not as a means to stimulate the economy.

Democrats and environmentalists contend Schwarzenegger's proposal would do little to boost the economy.

Instead, they said, it will be a setback for California's efforts to reduce greenhouse gas emissions to 1990 levels by 2020.

"I think it sets a horrible precedent," said Eric Davis of the Environmental Council of Sacramento.

Davis called it a cynical move by a governor who has promoted himself as a champion for the environment and wants California to set international standards for reducing global warming gases.

"We urge the governor to return to his earlier principles that the economy and the environment are compatible," said Warner Chabot, head of the California League of Conservation Voters.

Democrats and environmentalists say they are particularly concerned about the governor's efforts to pre-empt two ongoing environmental lawsuits.

One involves a $420 million fourth bore for the Caldecott Tunnel on Highway 24 in the East Bay hills.

A local group has sued Caltrans for not doing enough to handle adverse impacts, including added noise and traffic in surrounding areas and pollution effects on nearby schools.

A judge is expected to issue a ruling shortly.

The other, the $165 million Highway 50 carpool project through Rancho Cordova, has become a cause célèbre among environmentalists.

Local residents and environmental activists sued Caltrans last year, claiming the agency did not adequately study, among other things, the possible increase in greenhouse gas emissions, which are linked to global warming.

In July, Sacramento Superior Court Judge Timothy Frawley ruled Caltrans' environmental review was inadequate and needed to be redone. It is believed to be the first court ruling on a transportation project to use global warming as a legal backdrop.

Caltrans officials said they are redoing the environmental review to include greenhouse gas studies while they await the outcome of the state budget negotiations.

That additional review could take more than a year, local Caltrans district head Jody Jones has estimated.

Call The Bee's Tony Bizjak, (916) 321-1059.