The report by Legislative Analyst Elizabeth Hill shifted the state's fledgling budget debate to whether new taxes should be part of the solution — an approach the Republican governor has opposed.

It also sparked the kind of partisan sniping that Democrats and Republicans had so far avoided in hopes of preventing a repeat of the protracted budget debate that paralyzed the capital last summer.

Schwarzenegger last month pegged the shortfall at $14.5 billion through June 2009, but Hill said it has grown to $16 billion. She said Schwarzenegger's proposal for the 2008-09 budget year was flawed because it fails to set funding priorities or correct the state's chronic imbalance between spending and revenue.

"A decline in revenue means we have a larger shortfall than the governor projected," she said. "Our recommendations will affect all Californians in some way. However, we think that will benefit all Californians in the long run."