Gov. Arnold Schwarzenegger unveiled a revised $103 billion budget Thursday that abandons steep cuts to health services for the poor and fulfills his no-tax-increase pledge, but seeks to wipe out upcoming state worker raises and relies heavily on borrowing to erase $15 billion in red ink.

The Republican governor reshaped his 2004-05 spending plan to take into account more than $2 billion in higher-than-expected tax receipts and to respond to some concerns of lawmakers and interest groups who will play prominent roles in budget negotiations in coming weeks.

The budget overhaul contains a handful of significant reversals from his January plan, most notably scrapping proposals to cap enrollment in state health programs.

He also softened his call to cut money for roads, instead proposing that the state borrow from its transportation fund and pay it back with extra money he expects to collect as a result of negotiations with Indian gaming interests.

Absent from the plan are promised dramatic plans to reform Medi-Cal, close prisons and streamline state bureaucracy.

But included are roughly $6 billion in cuts and other money-saving proposals ranging from eliminating sack lunches for prisoners on weekends to raising fees at state universities and community colleges.

The cuts include a deal he struck with the state teachers' union to withhold $3 billion in school funding.

"It is a compassionate budget that spends tax dollars more effectively to support essential services," Schwarzenegger said. "It will meet our basic needs today, and it will make California stronger for the future."

State revenues, Schwarzenegger said, are expected to climb $1 billion higher than expected by year's end, and the treasury is plump with a one-time windfall of $1.2 billion from an amnesty program for users of illegal tax shelters.

Schwarzenegger's revised budget also calls for another tax amnesty program next year - this one more widespread - for people who owe back taxes.

The governor seized this year's unexpected cash to help smooth negotiations with lawmakers and, he hopes, deliver a rare on-time budget.

Members of the Democratic-controlled Legislature will review the proposal and are supposed to submit their version to the governor by June 15, a seldom-met deadline that Schwarzenegger has said he is determined to meet. Under state law, the budget is supposed to be signed by June 30.

"The budget did what all budgets do if there's a problem - try to push it forward and hoping some solution will come to pass. And that's budgeting as usual," said Senate President Pro Tem John Burton, D-San Francisco, adding that he has seen every governor from Republican Ronald Reagan to Democrat Gray Davis do the same.

Democrats acknowledged Thursday that Schwarzenegger had succeeded in removing some potential hurdles to negotiations by reversing proposals to cut or cap health and social service programs.

"It helps narrow the issues that are to be debated in the weeks ahead," said Assembly budget chairman Darrel Steinberg, D-Sacramento.

But they promised a battle over his plans to turn some students away from universities this year and make continued cuts in some transportation projects.

They also questioned some of the budget-balancing measures the governor is counting on.

"This budget continues to rely on some phony money," said state Treasurer Phil Angelides, a Democrat who has been among the most outspoken critics of Schwarzenegger's fiscal policies.

Angelides cited Schwarzenegger's request that state workers' unions reopen contract talks to save the state $464 million, including a plan to coax $300 million in concessions from the state's powerful prison guards union.

Schwarzenegger said he was seeking "responsible budget relief by asking public employee unions to renegotiate contracts that were recklessly based on the dot-com boom and now unsustainable."

But union leaders immediately called the plan "smoke and mirrors."

"It would be more fair if he would ask his super-rich corporate friends to help out with the crisis," said Jim Hard of the California State Employees Association.

Schwarzenegger's budget chief, Donna Arduin, said the budget balances in 2004-05 and the following fiscal year, but the plan still includes borrowing and some plans that are not guaranteed to materialize, including $1 billion in borrowing to help pay the state's pension obligations and $500 million in gambling revenues from talks with Indian tribes.

The governor also hopes to collect $450 million from a new proposal to change state law to require plaintiffs to give the state two-thirds of all punitive damages awarded to them by juries.

Schwarzenegger said his plans to present a massive overhaul plan for the state's health plan for the poor, also expected to prompt a fight with lawmakers, will come later.

"We couldn't do everything at the same time," Schwarzenegger said. "It's just so complex."

In previous weeks, Schwarzenegger has hammered out deals with key leaders who stand to be affected by his budget.

He persuaded executives from cities and counties, universities and K-12 schools to support his budget - including steep cuts to each of these entities - in exchange for promises of more funding and protection in future years.

The deals infuriated some Democratic lawmakers, who accused Schwarzenegger of attempting to shut them out of the budget negotiating process.

An agreement with higher education leaders drew the most criticism.

Schwarzenegger's deal with University of California and California State University leaders asks them to swallow cuts next year in exchange for modest increases starting in 2005.

His latest proposal continues to call for raising community college fees from $18 per unit to $26 despite a protest that brought thousands of students to the Capitol in March.

Most shifts came in state financial aid, where he agreed to spend an extra $34.2 million on noncompetitive Cal Grants to help recipients cover the 14 percent increase in undergraduate fees expected at UC and CSU. But Schwarzenegger will ask the Legislature to shrink the much smaller competitive Cal Grant program by nearly 6,000 students to save $5.4 million, despite high demand. Last year, there were six qualified applicants for every award offered, according to state financial aid officials.

"That one really affects community college students and students at CSU who tend to be older, going part time and working," said Diana Fuentes-Michel, executive director of the California Student Aid Commission. "We have been trying to get more of them into the pipeline, and this will hurt that."

The governor sought to reassure lawmakers angered by the recent private deals he made before presenting them in his new budget, calling them "partners."

"I will nurture this partnership because I alone cannot do it," he said.

Burton said lawmakers "can't be bypassed."

"We are the ones who take a budget, work our will up, down or sideways and send it back to the governor," he said. "So I view all of the deals that have been cut as a suggestion from the governor."

Highlights
Gov. Arnold Schwarzenegger has backed off a variety of proposals since taking office six months ago. Among them:
• He proposed suspending the Lanterman Act, which guarantees access to programs for the developmentally disabled. He withdrew his proposal after an outcry a few weeks later, saying "It was just one of those things that slip through when you make decisions very quickly."

• His January budget proposed cutting the program that pays relatives to care for housebound family members; he withdrew the plan pending receipt of a federal waiver.

• The January budget proposed a variety of health savings, including caps on program enrollment and co-payments for some recipients. All were scrapped in the revision submitted Thursday.

• A plan to limit subsidized child care to one year for mothers coming off welfare was softened.

• A prostate cancer program axed in December was restored in March after officials came up with unspent funds from previous years.

• A hiring freeze imposed last fall was relaxed to bring on 400 workers to alleviate long waits at DMV offices.

• A contract freeze was revised to reimburse some nonprofits and counties for health-related program costs.

• The January budget suspended Proposition 42, which dedicates sales taxes on gasoline to transportation projects. In the revision, the state promises to repay the money in the future. In addition, the governor agreed to restore about $350 million in road projects.

• The revised budget restores $42,000 for a state-supported telephone service that blind people use to have newspapers and periodicals read to them.