Schwarzenegger threatens to Terminate state government

Gov. Arnold Schwarzenegger vowed Wednesday to let California government come to a "grinding halt" rather than agree to a high-interest loan to keep the state afloat if he and the Legislature do not close the yawning budget gap in coming weeks.

At the same time, the governor reversed himself on a proposal to end health insurance for families of police officers and firefighters who died in the line of duty. Schwarzenegger called the plan, first reported by The Times on Tuesday, a "terrible screw-up" that is being corrected.

The proposed cut was tucked away in a list of regulations that would be suspended if Schwarzenegger's latest budget revisions are adopted. It would have saved the state $1 million in 2009-10.

State finance officials say California coffers will be empty in late July unless the projected $24-billion budget shortfall is resolved quickly. Schwarzenegger said that emergency borrowing would be too expensive and that his threat to block it was necessary to prod lawmakers into swift action. More