(05-26) 04:00 PDT Sacramento - --

Assembly Democrats on Tuesday unveiled a plan to fully fund education and save welfare and government jobs in California by borrowing billions of dollars, just one day after Senate Democrats proposed raising nearly $5 billion in taxes to stave off cuts to the same social programs.

The proposal by Assembly Speaker John Pérez, D-Los Angeles, calls on the state to borrow $8.7 billion in bonds to be repaid over 20 years, plus interest, with a new tax on oil companies that would raise roughly $1 billion a year.

Pérez said his proposal would help the state's economic recovery by giving more money to cities, counties and school districts in the year starting July 1, investing $1 billion in job creation measures and avoiding the deep cuts to California's social safety net that Gov. Arnold Schwarzenegger has proposed.

The state is facing a $19 billion budget deficit, and Pérez said Tuesday that putting Californians back to work should be Sacramento's No. 1 priority.

"Job creation is central to solving our central crisis. Our economy will not recover until the 2.3 million Californians who lost their jobs have found new work," Pérez said. "Many of the proposals that have been put forward to close the budget deficit will harm our economy, drastic cuts will result in thousands of jobs lost throughout California ... in police, teachers and firefighters being laid off."

He argued that the Republican governor's plan would cost 430,000 Californians their jobs and state coffers more than $5 billion in lost federal dollars.

Pérez's plan would borrow $8.7 billion from Wall Street against the California Beverage Recycling Fund, which collects deposits on bottles, cans and other recyclable containers and is underfunded because of past raids by state officials.

New oil tax

The state would repay the bond with revenue raised from a severance tax on all oil production in the Golden State. The oil tax, Pérez said, is similar to a tax that "every other oil producing state - including Texas and Alaska - impose on oil companies."

The idea of imposing an oil severance tax is not new but has never been successful. This year alone, Democratic lawmakers have floated two separate proposals to adopt the tax as a way to plug the deficit or raise money for public universities.

The oil tax would fluctuate from year to year but, according to the Assembly plan, would generate $900 million next fiscal year.

Crucial to the plan, Assembly staff members said, is that the oil tax could be passed by a simple majority vote of the Legislature - meaning no Republican support is necessary - because the new tax would be offset by a decrease in the sales tax.

The plan includes no "broad-based tax increases," the speaker said, but it would delay $2.1 billion in planned corporate tax breaks that have not been implemented, an element also included in Senate Democrats' plan.

Assembly Republican Leader Martin Garrick, R-Carlsbad (San Diego County), slammed the proposal as a "complicated scheme of one-time borrowing to pay for ongoing health and welfare programs, paid for by raising taxes on job creators and working Californians." He repeated GOP leaders' calls for no new taxes.

Criticism

Schwarzenegger spokesman Aaron McLear also characterized the proposal as the kind of budgeting gimmicks Democratic leaders have criticized in the past. The administration, however, did not appear to reject it out of hand.

"The Assembly Democrats' budget proposal includes no real spending cuts and no real reforms - only legal gymnastics for majority-vote tax increases," McLear said. "This practice of punishing taxpayers for Sacramento's failure to live within its means must stop. That's why the governor will not sign a budget unless it includes budget and pension reforms without further increasing taxes."

Officials with the state's largest union, however, praised the plans from both Senate and Assembly Democrats.

"These sensible alternatives to a cuts-only budget that would hurt our families and our economy recognize that California's families have already sacrificed too deeply," said Bill Lloyd, president of the Service Employees International Union California. "There is now broad agreement that it is time to come together and end the sweetheart deals oil companies and other corporations have walked away with budget after budget."

In other budget action, the Senate Budget Committee rejected proposals by the governor to eliminate drug-treatment programs, the state welfare-to-work program and most state assistance for child care.

E-mail Marisa Lagos at mlagos@sfchronicle.com.

This article appeared on page A - 1 of the San Francisco Chronicle