As Gov. Arnold Schwarzenegger outlines this week how he intends to deal with an estimated $8 billion budget deficit, the big question is whether he will try to deal with Democrat lawmakers or go directly to the people again.

Up first is the annual State of the State speech on Wednesday (5th), which will set the tone for the months of tough words and negotiations to follow. Then, next Monday (10th), the governor presents his 2005-06 budget to the Legislature. His new budget chief, Tom Campbell, has already hinted at a slew of cuts to health and welfare programs and no revenue increases.

Schwarzenegger may be able to skirt some of the most difficult budget choices for another year, since there will be some money left over from last year’s $15 billion deficit bond offering and the state can still take $1.5 billion from local governments. But if he chooses a patchwork approach, the 2006-07 budget has the makings of a fiscal disaster, just at the time Schwarzenegger could be running for re-election.

“To get a handle on this budget deficit, Schwarzenegger must show he can listen to legislators,” said Sherry Bebitch Jeffe, professor of political science at the University of Southern California. “But he doesn’t think he has to listen to legislators. He thinks he can go around them and take things to the voters. If he tries this, things will turn very, very ugly.”

There’s been talk around Sacramento that the governor will support initiative measures for a stricter spending cap, redistricting reform and other state government reforms contained in the mammoth California Performance Review.

While Schwarzenegger has not tipped his hand, such an approach will have him on a collision course with the Democratic leadership and could prompt them to propose their own initiatives on a special election ballot.

“It’s already clear that bipartisanship is a mess and it’s not likely to get any better,” Jeffe said.