The governor recently announced that his 2007-08 budget proposal would leave the state with a $1.4 billion structural deficit -- even if lawmakers approve his requested cuts in transportation funding, welfare and other programs.

Thursday, the governor's finance department reported that tax revenues the state has received to date this fiscal year were below expectations.

Officials said much of the shortfall was due to the fact California paid out $160 million more than expected in state income tax refunds in May and also took in $377 million less than expected in income tax payments. Meanwhile, the state reported a $227 million shortfall in general tax revenues.

"The financial shortfall the state is experiencing puts even more importance on the savings I outlined in the May revision" for the state's 2007-08 budget, Schwarzenegger said in a statement Thursday. "This is a difficult budget year, and we need to be responsible. ... This new information forces us to exercise more discipline."

But legislative budget analysts say the current tax shortfall may be only a temporary blip because hundreds of millions of dollars in income tax payments aren't yet reflected in state coffers.

"I'm sure to a certain degree this is gamesmanship," Assemblyman John Laird, D-Santa Cruz, said of the governor's budget warning.

Laird, chairman of the legislative budget conference committee, said lawmakers "are making some hard choices" to pass a budget that "doesn't do any new programs and holds the line on existing spending."

Schwarzenegger and legislative leaders are squabbling over the Republican governor's $1.3 billion in proposed transportation funding cuts. State finance officials say the money actually represents increased revenues to the state from rising gas prices and should be moved out of California's transportation account into the state's general fund to help balance the budget.

Lawmakers and Schwarzenegger also are at odds over planned cuts and restructuring of the state's CalWORKs welfare program, which the Governor's Office says will save $324 million next fiscal year.

In a letter to legislative leaders Thursday, state Finance Director Mike Genest said "it is too early to know the impact, if any," that will be created by the current year shortfall in tax revenues.

Laird said Schwarzenegger is increasing California's budget challenges by pushing to make $1 billion more in early payments on the state's outstanding debt.