SACRAMENTO -- With the passage of a workers' compensation reform package that was very close to his original proposal, it was a banner week for Gov. Arnold Schwarzenegger and legislative Republicans. Now comes the hard part: addressing the state's $17 billion budget shortfall.

After a string of victories -- highlighted by refinancing the state's massive debt and overhauling the troubled workers' compensation insurance system -- Schwarzenegger faces possibly his toughest test yet: achieving his goal of signing a state budget by the June 30 constitutional deadline that does not include tax increases.

In the first two battles, the governor was able to keep fellow Republicans in line and use his ability to rally the public behind him as a powerful weapon to effect compromise with legislative Democrats. Given Schwarzenegger's record thus far, no one is betting against him heading into the budget fracas.

"Legislative bodies admire, respect and react to strong chief executives," Senate Minority Leader Jim Brulte, R-Rancho Cucamonga, said. "Gov. Schwarzenegger is a strong leader, and he was able to use that strength to get Republicans and Democrats to support a compromise measure."

While some now view him as more politically unstoppable than ever and able to implement policy almost at will, the governor on Friday avoided talk of invincibility, saying he is in Sacramento for the people's benefit -- not his own -- and that he sees himself as their advocate.

Still, a gleam in his eye appeared when asked by reporters following legislative approval of the workers' compensation package to explain his hardball tactics of threatening lawmakers with an initiative if they failed to act on his schedule. A campaign he lead to place his original proposal on the Nov. 2 ballot was prepared Friday to submit 1.2 million signatures -- only 600,000 were needed -- but was canceled after Senate Bill 899 passed.

"I like the idea of using the stick; I like the idea of using deadlines," Schwarzenegger said. "Why would we hang here for the next two years and negotiate and debate over this issue?"

Even as Democrats overwhelmingly went along Friday with the workers' compensation deal, many bemoaned Schwarzenegger's refusal to include rate regulation in the final bill. They viewed this stubbornness as a signal his penchant for bipartisanship has limits -- and may not extend to the budget and taxes -- as opposed to the compromise he accepted in December to put Propositions 57 and 58 on the March 2 ballot.

"It was definitely a different tactic on the governor's part this time around," said Assemblywoman Jenny Oropeza, D-Carson, the former Budget Committee chairwoman and a key negotiator in those discussions.

The scene Friday in the Capitol was starkly different, and deemed significant heading into the political debate over the state budget, from the one following the vote that put Propositions 57 and 58 on the March 2 ballot. Then, Republicans reluctantly supported a $15 billion deficit-financing bond and diluted spending limit that Schwarzenegger negotiated exclusively with Democratic leaders.

This time, Republicans scored a key policy victory.

Schwarzenegger included them in the negotiations from start to finish and refused to blink on rate regulation. Democrats dropped it as a condition for approving workers' compensation reform after originally insisting it be a part of any agreement, largely because the governor promised to take his original plan to the ballot in November if the Democrat-controlled Legislature failed to act.

Republicans did not hide their happiness over passage of a reform package that is expected to reduce the nation's highest workers' compensation premiums, which have tripled since 2001 despite declining accident rates and improved safety standards.

"I'm happier with this than I was with (Propositions) 57 and 58," Assemblyman Bob Dutton, R-Rancho Cucamonga, said. "And I'm confident (on the budget) that Gov. Schwarzenegger is going to provide the leadership we have lacked over the last five years to get us to a position to do something good for California."