Gov. Arnold Schwarzenegger is expected to line-item veto more than $600 million in state programs to rebuild California's reserve fund when he signs a budget revision today.

Gov. Arnold Schwarzenegger talks with his staff about potential line-item vetos while going over the recently-revised state budget in Sacramento, Calif. on Monday, July 27, 2009. On Tuesday, Schwarzenegger is expected to sign the spending plan that includes additional cuts to social welfare programs and other changes to the $88 billion spending. (Rich Pedroncelli/AP Photo)

The cuts will not include a fourth state worker furlough day, Schwarzenegger's office said Monday.

The governor's signature on an $85 billion general fund budget should conclude California's months-long dispute over how to bridge its latest shortfall and, leaders hope, ultimately end the state's reliance on IOUs.

Schwarzenegger will exercise his line-item veto authority after the Assembly last week rejected nearly $1.1 billion in solutions that legislative leaders and the governor had negotiated behind closed doors.

By rejecting bills to approve an offshore oil drilling lease and to take local gas tax money, the Assembly wiped out a proposed $918 million reserve and left the budget plan unbalanced. The Assembly understood that the governor would cut enough today to balance the budget and rebuild the reserve.

"The governor is playing the hand he was dealt," said Department of Finance spokesman H.D. Palmer. "The budget we got on Friday erased the reserve in the agreement and put us under water, so the governor has no choice but to use his line-item veto authority."

Schwarzenegger and Republican lawmakers have advocated for a higher reserve as a buffer against further state revenue declines in the next year and emergency costs such as fire suppression.

The Republican governor still wants about a $500 million reserve, according to Assembly Speaker Karen Bass, D-Los Angeles. To get there, he would have to cut roughly $670 million through line-item vetoes.

Education expenditures are generally protected from further cuts due to the state's constitutional guarantee for K-12 schools and community colleges, as well as federal restrictions that limit how much the state can take from universities. Schwarzenegger likely will look at areas of the budget agreement other than schools, ranging from parks to welfare to corrections.

The governor has used his executive authority to order three monthly furlough days for state workers through June 2010, but he will not seek savings through a fourth day, said his spokesman, Aaron McLear.

Bass spoke with the governor Friday about the Assembly's rejection of major revenue items, but she said she had no agreement from Schwarzenegger that he would protect any particular area in his line-item vetoes.

"I'm concerned very much that health and human services have already been cut so much that I'm certainly hoping he will not cut anymore there," she said. "We worked as good partners. I would never want to think he would veto areas because he wanted to retaliate."

Bass said she was "clear all along" that she wasn't sure she could convince her caucus to vote for the offshore oil drilling lease that would have provided $100 million in 2009-10. She also said her caucus was not responsible for rejecting the local gas tax option, suggesting that Republicans were opposed to that nearly $1 billion idea.

Anthony Wright, executive director of Health Access California, said he fears Schwarzenegger could further eliminate a block funding grant that pays for Healthy Families low-cost medical insurance for children. The program is already slated to lose $124 million.

Wright and other social service advocates suggested Monday that Schwarzenegger could face limits in what he can veto because the package of 27 bills constitute a series of budget reductions, rather than the spending approvals in February's full budget act.

But Palmer said Monday that the governor is confident he can line-item veto most programs in the main 487-page budget revision bill. He said the constitution does not say the governor's line-item veto power applies only to the original budget act.

"The Legislature has presented the governor with a budget bill that contains items of appropriation, and the governor has the ability under the constitution to veto individual items of appropriation," Palmer said.

If Schwarzenegger vetoes areas that lawmakers want to protect, it remains possible for them to submit other revenue proposals in August to offset those cuts.

Former Gov. Pete Wilson used line-item vetoes to cut legislative priorities and place money in the state's reserve, telling lawmakers they didn't send him all the bills he wanted, said Fred Silva, senior fiscal policy adviser with think tank California Forward and a former legislative budget aide.

"I wouldn't be at all surprised if (Schwarzenegger) goes in and vetoes a billion dollars and then there's a discussion about how the Legislature will decide to put those programs back," Silva said.