Conservative Republicans often oppose issuing state bonds for school construction and other purposes, arguing that using cash is much cheaper than paying interest on bonds.

But faced with a record state budget gap, Assembly Republicans are proposing an unprecedented $10 billion bond to ease pressure for something they like even less than borrowing – a tax increase.

In what they call an "olive branch" to majority Democrats, the Republicans are proposing to close part of the gap with a bond that would be paid off over five years with a portion of the sales tax.

"Our caucus and the Senate caucus are united, and we are not going to have any new taxes," said Assemblyman Ray Haynes, R-Murrieta, a longtime opponent of borrowing who supports the new plan.

A big question is whether Gov. Gray Davis, when he issues a revised budget proposal tomorrow, will include something like the Republican proposal some are calling a "deficit-reduction" bond.

The budget Davis originally proposed in January for the new fiscal year beginning July 1 contained an $8.3 billion increase in the taxes on sales, upper-bracket income and cigarettes. Any budget solution will require a handful of Republican votes.

"My original idea was let's get this problem behind us, take the bitter medicine now and be prepared to take advantage of what I expect will be an economic rebound over the next 31/2 years," Davis said last week.

The governor acknowledged that a deficit-reduction bond has bipartisan support in the Legislature. He said he would only agree to a bond that is done in "a way that is financially responsible."

Republicans proposed the bond be paid off with a half-cent of the sales tax, which varies among counties. It is 73/4 cents on each $1 of a purchase in San Diego County.

Davis said bankers told him the Republican plan would require a half-cent sales tax increase, bringing strong disagreement from Republicans who said Wall Street firms told them the existing sales tax could be used.

Another Davis administration argument for a tax increase: avoiding a drop in revenue that would trigger a provision in Proposition 98 requiring that deep school cuts be repaid first when the economy rebounds.

If schools get first call on all new revenue until their expected cut of more than $7 billion is repaid, deep cuts in health, welfare and other programs could be prolonged for years.

"We are looking into the implications of that," said Haynes, whose district includes part of northern San Diego County. "That doesn't necessarily argue in favor of raising taxes."

Using a long-term bond to help close a budget gap would be a first for modern California. In 1994, a budget carried over $1 billion into the next fiscal year, a debt that would have been made up by automatic spending cuts if revenue fell.

The proposal for a large deficit-reduction bond is regarded as a bad idea by Democratic state Treasurer Phil Angelides, who said borrowing would only delay difficult decisions needed to balance a budget.

A bond is a one-time solution that, unlike a spending cut or a tax increase, does not help balance the budget in the years after the bond money is spent.

Angelides said the budget is already dependent on a number of one-time bond solutions: a $2 billion debt refinancing, a partially delayed $4.5 billion tobacco-settlement bond and a $1.8 billion pension bond.

At best, he said, any discussion of a deficit-reduction bond should come after good-faith negotiations have narrowed the budget gap to $2 billion or $3 billion.

The lead Assembly GOP budget-writer, John Campbell of Irvine, said that attempting to solve in one year a deficit that has been growing for about three years is too difficult.

"So effectively what we are doing," said Campbell, "is we will take what took three years to build up as a deficit and deal with it over five years."