SACRAMENTO — Gov. Arnold Schwarzenegger plans to save $1.6 billion in state employee costs by extending monthly furloughs past June, laying off staff or shifting general fund workers into state jobs financed by other revenues, according to sources familiar with the governor's forthcoming budget proposal.

Schwarzenegger and lawmakers must eliminate an estimated $20.7 billion general fund budget deficit over the next 18 months. The governor already has dismissed higher taxes as an option after temporarily raising them in February. Instead, he hopes to rely on spending cuts, a massive infusion of federal aid and creative ways of reassigning revenues to cover the gap.

The Republican governor is hoping for about $8 billion in cash from the federal government beyond stimulus funds that the state already will receive, sources said. He sent a letter to Congress on Tuesday warning that without additional cash, the state might be forced to eliminate in-home care for low-income disabled and elderly Californians, and to slash Medi-Cal coverage for hundreds of thousands of poor residents.

The governor is considering whether to seek a federal waiver to cut school funding below what stimulus guidelines allow, according to an education advocate familiar with his budget preparations. K-14 education makes up roughly 40 percent of the general fund budget. Such a move likely would touch off a fierce response from teachers' unions and other education groups, which contend that the governor can't cut schools any further.

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