By Jim Christie and Peter Henderson
SAN FRANCISCO (Reuters) - Governor Jerry Brown pressed California lawmakers in his state-of-the-state address on Monday to let voters decide on his budget plan, saying any attempt to block a special election would be irresponsible in light of protests in Egypt and Tunisia.
California, the most populous U.S. state, faces a $25 billion deficit caused by the combined effects of recession, high unemployment and turmoil in financial and housing markets. Its deficit is the largest of any of the 50 U.S. states in absolute dollar terms.
Weak U.S. state finances are a growing concern in Washington, with some in Congress mulling legislation that would allow states to declare bankruptcy, adding to the turmoil in the U.S. municipal debt market.
Brown, a Democrat, wants to fill the gap with a split of $12.5 billion in spending cuts and $12 billion in tax hikes that voters would need to approve, a compromise that neither Democrats nor Republicans legislators like -- which might make it politically palatable.
He urged lawmakers to help him prepare a ballot measure for a special election in June, in order to ask voters to extend tax increases scheduled to expire this year and back the cuts.
"The only way forward is to go back to the people and seek their guidance. It's time for a legislative check-in," Brown said in a 14-minute speech.
The governor also said California had a duty to let the people vote in light of struggles in Egypt and Tunisia, where crowds have taken to the street to force political change.
"It would be irresponsible for us to exclude the people from this process" in California, he said.
Republicans immediately rejected the idea of tax increases and said voters had already spoken in previous elections.
"I do not support a special election," State Assembly Republican Leader Connie Conway told reporters after the speech. But she signaled room for compromise and said Republicans were talking to Brown, who lingered after the speech to talk to legislators.
"Maybe the dance has just begun," she said, indicating that pension reform was a key Republican goal. "If we can do some actual structural reform it makes the dialogue on the other items people hope to accomplish maybe a little easier."
Brown signaled a willingness to work on easing regulations and reforming pensions, saying public employees' retirement plans must be fair to workers and taxpayers alike.
"Those are two very big bones to toss Republicans to get them off the porch," said Bill Whalen, a fellow at the Hoover Institution and former aide to former Republican Governor Pete Wilson.
Senate President pro tem Darrell Steinberg, a Democrat who has thrown his support behind Brown, predicted that legislators would meet the governor's target for a budget framework and would back the special election for June.
"We will not miss the timetable," he said.
Recent attempts to raise taxes have been soundly defeated but a poll of voters last week showed support for Brown and his budget proposal.
Under Brown's plan, revenue from the tax extensions, proposed spending cuts and other measures would help balance the state budget in the near term and bolster the state government's finances in future years.
Without the revenue, lawmakers and the governor would have to find another $12 billion in spending to cut.
(Editing by Mary Milliken and Bill Trott)