Faced with a mounting deficit and tax revenue that has slowed to a trickle, he released a $144.3 billion budget proposal on Wednesday that relies on billions in cuts and a lottery bond plan that many lawmakers immediately criticized as risky.

He called his plan painful, and the frustration was evident as he fielded queries from reporters - one of whom compared the state's present financial quagmire to the one that led to the recall election against his predecessor, Democrat Gray Davis.

The comparison seemed to get under Schwarzenegger's skin.

"We are not a dictatorship, so one man doesn't run the state," the former "Conan the Barbarian" and "Terminator" star responded. "So I need the Legislature to go along with it, and I need the people to go along with it."

Davis left a deficit projected at $16 billion when Schwarzenegger took over in November 2003. The current deficit is nearly the same, $15.2 billion, although it's a smaller percentage of the overall budget.

He proposed cutting health care and social service programs by $2.9 billion. That includes nearly $200 million in health care for legal immigrants and poor people who have been in the country five years or less and reducing home care services for the disabled and seniors.

Environmental programs and education also face cuts.

"I know this is going to be very difficult. The absolute bottom line is we cannot spend money we do not have, plain and simple," Schwarzenegger said in releasing the plan.

Groups representing some of those affected by his proposed cuts rallied at the Capitol.

Sandra Varga, 59, of Los Angeles, was among a handful of disabled people and their advocates who gathered outside the Sacramento office building where Schwarzenegger delivered his budget address.

She is confined to a wheelchair after she suffered an overdose while undergoing medical treatment in a hospital. She said the governor's proposal would further slash her already limited access to services such as the in-home care she needs for basic living and doctors' visits under the state's Medi-Cal program.

"Why pick on the most defenseless, the most helpless, the most needy people?" she asked. "I'm devastated. Because what we thought the cuts were going to be? This is much, much worse."

The deficit comes as Schwarzenegger has just 2 years remaining in his final term and with some of his most ambitious plans - universal health care, education reform and an expanded state water system - unrealized.

After repeatedly pledging not to raise taxes, the Republican governor's options for reducing the deficit in the fiscal year that begins in July were limited. So he turned to a combination of cuts and a plan to borrow against future lottery sales.

The lottery plan would raise $15 billion, with $10 billion going to create a rainy day fund that could be tapped in the future when the state's finances turned gloomy. It must go to the ballot because the lottery was created by initiative. If voters reject it, a sales tax increase would kick in.

The state's fiscal picture has worsened since the governor released his initial budget proposal in January, which included deep spending cuts to education, social services and transportation.

Under the new plan, most state agencies still face similar cuts of about 10 percent for the fiscal year that starts July 1. The governor also proposed diverting more than $828 million in gas tax money from public transportation projects toward general expenses.

In January, Schwarzenegger believed he could balance the budget solely through cuts. Those included midyear cuts approved by the Legislature during a special session, such as a 10 percent cut in the reimbursement rate paid to doctors and hospitals that accept Medi-Cal patients.

Since then, the usually upbeat governor watched the deficit climb as the economy worsened and was forced to abandon his cuts-only plan, he said.

So on Wednesday he proposed the $15 billion lottery borrowing plan. About a third would go toward closing the 2008-09 budget gap, while the rest would be saved in the rainy day fund Schwarzenegger said would ease the pain of yearly revenue fluctuations.

But Democrats and Republicans alike dismissed the lottery proposal as a gimmick that would do little to help the state's long-term revenue problems.

Schwarzenegger's frustration with what he has called autopilot spending and the inability of the Legislature to solve California's persistent budget problems spilled over as he answered questions from reporters.

"How many more years, how many more decades should we go through this crisis, that every single time we have a downturn in the economy, that we go through this, that we face $15 (billion) or $20 billion in deficit, just because we can't get our act together and have a sound budget system like other states have?" he said.

Even worse for the tax-averse governor, he was forced to include the potential tax increase in the lottery plan. If voters reject the lottery plan in November or the lottery fails to yield the higher revenue necessary to repay the bonds, a temporary 1 cent sales tax would be triggered.

Schwarzenegger's fellow Republicans said they disagree with his plan because it links the lottery with the sales tax proposal. They have taken a pledge to oppose any tax increase.

Sen. George Runner, R-Lancaster, said Schwarzenegger had reversed his long-standing opposition to a tax increase.

"The fact is, you're tying to secure future dollars on a scheme that has yet to be proved and ... if it doesn't work, triggering a tax increase," he said.

The Democratic leaders of both houses also were critical.

Assembly Speaker Karen Bass, D-Los Angeles, praised Schwarzenegger for trying to find new ways to raise money and not reducing the deficit solely through cuts. But she decried the massive cuts to social services and transportation funding.

State Sen. President Pro Tem Don Perata compared Schwarzenegger's plan to sell lottery bonds based on future revenue to the kind of ill-advised lending that led to the housing crisis.

Schwarzenegger's budget proposal backs away from a politically unpopular plan to suspend the state's minimum school funding guarantee. Instead, he will boost education funding by about $1.8 billion in the coming fiscal year when compared with current year spending.

Schools still would lose about $4 billion in anticipated revenue because Schwarzenegger's plan would not include program cost-of-living increases.

Schwarzenegger also proposed a surcharge on homeowners insurance policies that would raise $69 million a year for firefighting and other emergency services statewide.

The governor's updated budget plan also reverses some other politically unpopular proposals he made in the spending plan he released in January.

He is dropping plans to release 22,000 low-risk prison inmates early, close 48 state parks and reduce lifeguards at 16 state beaches. He proposes to boost fees $1 to $2 at some of the most popular state parks.

He also wants lawmakers to set aside a $2 billion reserve fund for the 2008-09 fiscal year.

KCBS' Doug Sovern reports