Gov. Arnold Schwarzenegger’s ambitious policy agenda collided with fiscal reality Thursday as he rolled out a proposed budget that threatens to unravel his investment in schools, healthcare and criminal justice programs.

At the same time he is pushing a $14-billion expansion of healthcare to nearly all Californians, his budget calls for a rollback of existing medical programs for the needy.

His hope of improving schools may be dashed by what he says is a need, for the first time in years, to cut by hundreds of dollars the amount spent on each student.

And an expansion of the prison system he hoped to reform is now eclipsed by his proposal to release tens of thousands of inmates and lay off prison guards.

Schwarzenegger’s budget recommendations put into stark contrast the disparity between his vision of what the state can accomplish and what it can afford in the current economy -- especially, say state finance experts, if he sticks to his promise not to raise taxes.

“I do not believe in tax increases,” the governor said in releasing his spending plan at a news conference in the capital. “I think the people of California are sending to Sacramento plenty of dollars. . . . If we cannot function with that money, there is something wrong with the system.”

Yet his vision for the state is costly -- and contradictory. Proposing that the state more than double the borrowing voters approved 14 months ago for public works, the governor compared himself to Franklin D. Roosevelt with the New Deal.

Bewildered lawmakers and activists said that reference was inconsistent with his administration’s bid to close nearly one of every five state parks.

“I don’t think it represents the governor’s values,” Assembly Speaker Fabian Nuñez (D-Los Angeles) said of the proposed budget, which is intended to close a $14.5-billion gap over the next 18 months.

The plan includes some immediate cuts and others scheduled for the fiscal year that begins July 1.

The Democrats who control the Legislature said they would reject most of the governor’s recommendations. Many in the majority party are already at work on an alternative: bills to raise taxes on high earners, oil companies and alcoholic beverages, among other targets. Those bills will be opposed by Republicans, who hold enough votes to block any tax hike.

“There is no way to move us on that,” said Assembly Budget Committee Vice Chairman Roger Niello (R-Fair Oaks).

Months of gridlock appear likely as lawmakers set priorities and negotiate with the administration for a compromise budget.

The Capitol is rife with speculation that the harsh budget approach is intended to soften opposition to higher taxes, thus allowing Schwarzenegger ultimately to break his pledge not to raise them. The governor dismissed such talk.

“I have made it very clear that we cannot tax our way out of this problem,” he said.

The governor’s proposal would involve keeping as many as 50,000 convicted criminals out of state prisons through early releases and changes to the parole system. It would also mean excusing thousands of criminals sentenced to 20 months or less from serving any time at all.

The governor has also said he is prepared to drop the amount the state spends on each school student by more than $300 a year, and to eliminate cash grants for some children at risk of homelessness.

All of these options are preferable to raising taxes, he said.

“I can see every single person hurt by those cuts, and I understand how difficult they will be for many, many people,” Schwarzenegger said. “But the old way of balancing the budget by just grabbing money anywhere we can, . . . that time is over.”

The governor’s fellow Republicans already are criticizing his proposal for a surcharge averaging $10 a year on the property- insurance policies of millions of Californians, to pay for fire protection. The administration says that idea is not a tax but a fee; fiscal conservatives disagree.

“We cannot ‘tax and fee’ our way out of the crisis we are in today,” Assemblyman Michael Duvall (R-Yorba Linda) wrote Thursday on a conservative blog.

The proposed budget also includes an $11 increase in vehicle registration fees to fund the Department of Motor Vehicles and the California Highway Patrol.

Schwarzenegger has offered an austerity budget that conflicts with nearly everything he said about healthcare last year when he pushed his plan to expand coverage and increase efforts for preventive care.

That plan, which passed the Assembly and is pending in the Senate, would raise payments to those who care for the poor and enlarge the very programs the governor now suggests reducing.

The proposed budget would cut $4.7 billion from health and human services spending. It would cut $1 billion in payments for doctors and hospitals that take care of the poor. State- subsidized dental and optometry visits for the needy would be eliminated. State AIDS programs would be rolled back by $11 million.

Advocates for the poor say such cuts could lead to long-term costs for the state, undermining the governor’s pledge to wipe out what he says is a “hidden tax” paid to care for the uninsured. Medi-Cal patients could have a harder time finding doctors, limiting their access to preventive care and leading to a spike in costly emergency room visits.

A suggested $109-million cutback in a program that provides the frail elderly with workers to do their food shopping, laundry, meal preparation and other chores could force some out of their homes and into institutions, which are far more costly to the state.

The governor says he never again wants to be in the position of calling for such cuts.

His long-term solution is an approach that voters overwhelmingly rejected when he put it before them in 2005 but continues to enjoy strong support from Republican lawmakers: putting a constitutional cap on spending that would take effect during years when revenues are robust.

California would be forced to put the extra money into a rainy-day fund and use it to keep the budget in balance when the economy falters and revenues drop. The governor said such a system works well in Arkansas.

Like many Democrats, Sen. Dean Florez (D-Shafter) said he was not impressed.

“If the governor is looking at rural Arkansas as a model for addressing California’s budget issues,” he said, “perhaps California is just too big of a state for him to handle.”

evan.halper@latimes.com

Times staff writers Patrick McGreevy, Jordan Rau, Michael Rothfeld and Nancy Vogel also contributed to coverage of the governor’s proposed budget.