California’s budget shortfall has swollen to $16 billion from $14.5 billion, according to the state’s chief budget analyst, who says the governor’s proposal for closing the deficit is so flawed that her office took the rare step of drafting an alternative state spending plan for legislators to consider.

The plan offered by Legislative Analyst Elizabeth G. Hill, whom lawmakers of both parties look to for advice on fiscal matters, calls on lawmakers to raise taxes by at least $2.7 billion. It urges them to reject Gov. Arnold Schwarzenegger’s plans for a 10% across-the-board reduction in state spending, suggesting that such an approach is short-sighted.

Hill says the lawmakers should target a dozen tax breaks she says are ripe for modification or elimination. They include tax credits that individuals can claim for dependent children and seniors and that companies can claim for research and development as well as for hiring low-income workers.

And she suggests eliminating a loophole that allows buyers of yachts to avoid paying sales tax if they keep their newly purchased boats out of California for 90 days. Democrats call it the “sloophole.”

Democrats embraced Hill’s ideas. But the governor and Republican lawmakers said they would continue to block any tax increases.

“While I believe that we should begin negotiations with all ideas on the table, I have been very clear in my position against raising taxes to fix Sacramento’s spending problem and our budget,” Schwarzenegger said.

The increase in the size of the deficit, detailed in a report Hill released this morning, essentially erases the emergency spending cuts lawmakers have made so far to bring the budget into balance.

Those actions, approved by the Legislature and governor late last week, amounted to about $2 billion in service reductions, largely in school programs and healthcare for the poor.

evan.halper@latimes.com