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By Jim Christie

SAN FRANCISCO, May 21 (Reuters) - After the U.S. Treasury declined to guarantee short-term debt for California, Gov. Arnold Schwarzenegger said on Thursday he would scrap his plan to sell $6 billion in short-term debt to fund the state's massive budget deficit and seek deep spending cuts instead.

Following meetings with state lawmakers and officials in Washington, Schwarzenegger said he decided to dump the debt plan and instead seek deeper spending cuts than he urged last week to tackle the state's financial crisis.

California faces cuts to health, education and other services, along with thousands of lay-offs for state employees as the nationwide economic slump slashes tax revenues.

On Tuesday, voters soundly rejected ballot measures aimed at bolstering the state's finances, leaving Schwarzenegger and lawmakers facing a budget gap of more than $21 billion.

"Based upon information I gathered in meetings I held while in Washington, discussions with the legislative leaders, and the will of the people who said loudly and clearly in Tuesday's election that they want Sacramento to live within its means, I directed my Department of Finance to bring me additional options to cut state spending so that we can eliminate the need to seek borrowing in the form of a revenue anticipation warrant," Schwarzenegger said in a statement.

OUT OF FAVOR IN LEGISLATURE

Lawmakers disliked the plan Schwarzenegger unveiled last week to sell revenue anticipation warrants, or RAWs, and opposition in the legislature hardened after a scathing report on Thursday from California's Legislative Analyst.