Democratic legislators trotted out a stick-and-carrot approach to closing the state's budget gap Sunday night, negotiating with the governor on one floor of the Capitol while voting for a package of cuts and taxes on another.

Majority Democrats in the Assembly were voting on a $23.4 billion package of spending cuts, tax and fee increases and accounting tricks designed to close a gaping hole in the budget for the fiscal year that starts Wednesday. It was unclear whether the state Senate would follow the Assembly's lead.

Unlike last weeks' efforts, when at least some Republican votes were needed to pass the bills so they could take effect immediately, Sunday's package required simple majority votes, which Democrats could provide.

The difference is the bills would not take effect until 90 days after Gov. Arnold Schwarzenegger signs them - and Schwarzenegger has made clear he opposes any deal that includes taxes and fees.

Sunday night's package included a 9.9 percent tax on oil production, a $1.50-per-package tax on cigarettes, and a $15 per vehicle registration fee.

While tax hikes normally require a two-thirds' approval, Democrats argued that by eliminating an 18-cent-per-gallon excise tax on gasoline, the net revenue to the state becomes zero and thus doesn't represent a tax hike. Sunday's bills would then replace the excise tax with an equivalent fee, which Democrats argue does not require a two-thirds' vote.

Besides facing almost certain veto by the governor, the plan would do nothing to head off a warning by state Controller John Chiang that he will be forced to issue IOUS Thursday if a balanced budget is not in place by Wednesday.

Assembly Speaker Karen Bass, D-Los Angeles, said it was important for the Assembly to act quickly.

"At the same time, we are in conversation with the governor," she said. "There is a possibility ....that while debate is taking place on my floor, I will be meeting with the governor and let's just say we come to some arrangement, the debate will stop and we will proceed differently."

Earlier in the day, Bass and Senate President Pro Tem Darrell Steinberg, D-Sacramento, emerged from Schwarzenegger's office but gave no specific details on where negotiations stood.

"There's going to be a little, or a lot, of shuttling," said Steinberg. "It's shuttle diplomacy."

On Saturday, Schwarzenegger gave legislative leaders a list of structural changes in state government that he'd like to see, including a major change in state employee pensions.

Schwarzenegger is asking Democrats to establish a far less lucrative retirement plan for state employees who are hired after Wednesday.

The plan would roll back for newly hired employees pension enhancements that lawmakers and former Gov. Gray Davis approved a decade ago. The plan, if approved, would not affect the retirement plan of current state employees.

Schwarzenegger spokesman Aaron McLear acknowledged the pension change would save no money in the coming fiscal year. However, he noted that Governor's Office documents estimate it could save as much as $74 billion in reduced pension costs by 2040.

Steinberg hinted that the governor raised additional issues Sunday.

"There have been a lot of policy-related issues that have been floating around, you might say, for a while, and the administration wants to talk about some of those," Steinberg said.

"We are always willing to listen to anything, but our responsibility is to fashion a $20-plus billion deficit solution before John Chiang begins issuing IOUS."

Last week, it became known that Senate Republicans want to see changes in some of the state's workplace rules, including giving employers more flexibility in scheduling shifts of more than eight hours without overtime pay, and the ability to schedule work and meal breaks according to workload.

Many of the reforms have been floated before, and shot down after heavy political pressure from organized labor.

Bass said adding such issues to the budget negotiations was "the moral equivalent of hijacking the process."

Reach Capitol Bureau Chief Dan Smith, 916-321-5249