Schwarzenegger calls for $12.4 billion in cuts

The spending cuts in Schwarzenegger's proposed $83.4 billion budget would include eliminating the CalWORKS welfare program and many child care programs and cutting funding for local mental health services by 60 percent.

"We are left with nothing but tough choices," Schwarzenegger said at a press conference in Sacramento. The proposed spending cuts are expected to face tough opposition from the Democrat-controlled legislature.

California's budget deficit had been estimated at $19.9 billion at the beginning of the year. California's credit ratings, which are now only a few notches above speculative, or "junk," status, are under pressure.

Schwarzenegger in January acknowledged his proposed spending cuts for health and welfare programs were "draconian."

But in a move that will likely put him at loggerheads with the Democrat-controlled legislature, the governor said he would oppose any new taxes in favor of cuts and stimulating job growth.

California already has some of the highest income and sales tax rates of any U.S. state.

"There is something wrong with our system. That is what I'm trying to tell people. There are going to be people scream ing for more taxes -- we've done that," Schwarzenegger said. "Let's stimulate the economy and let's create the jobs. That's the important thing."

Analysts expect the state legislature and Schwarzenegger, a Republican, will fail to put a spending plan in place for the next fiscal year by its start in July, a concern for rating agencies.

Though Democrats control both halves of California's state legislature, the budget requires two-thirds support in both chambers in order to pass, which makes it difficult for them to to muster the needed votes to pass their version of a budget.

Fitch Ratings and Standard & Poor's rate the California's general obligation bonds A-minus. Moody's Investors Service rates them A1.

Financial problems for the most populous U.S. state wereexacerbated by disappointing April personal income tax revenue, which came in below target.

Although legislators have changed financial rules to ease a cash-flow crunch and investors have snapped up recent bond offerings, California's fiscal future is cloudy.

(Reporting by Peter Henderson and Jim Christie, writing by Dan Whitcomb)