Republican gubernatorial hopeful Tom Campbell Thursday called for budget cuts and a temporary gas tax to close California's $26.3 billion budget gap.

Campbell, the state's finance director in 2004-2005, said $16 billion in savings could be achieved if automatic increases in social-welfare benefits and state employee pay were slowed and brought into line with the national average.

Another $4 billion could be carved out with an "expenditure freeze," he said. The final $6 billion should come from new revenue -- a one-year gasoline tax that would raise the price of gas from roughly $3 per gallon to $3.32 per gallon, he said.

The former Stanford Law School professor and five-term GOP congressman made his budget proposals to the business-oriented Association for Corporate Growth in a dinner meeting at Fremont Hills Country Club in Los Altos Hills.

California's current fiscal emergency results from an unprecedented drop in revenue caused by the national recession combined with the state's penchant for spending beyond its means, Campbell said.

Noting that the state's operating budget relies heavily on revenue from the notoriously cyclical personal-income tax, he also called for long-term reforms in state finance.

"If we don't have systemic improvement in how we conduct our state finances we will drive businesses to other states" such as Nevada, Arizona and Texas, he warned.

To control overspending, Campbell advocated restoration of the "Gann limit," a constitutional amendment in effect from 1979 to 1989 that limited annual spending to a formula based on inflation and population growth.

Had the Gann limit been operating for the past decade, California would have a $2 billion surplus today despite the recession, he said.

Campbell also called for an automatic five-year sunset on state regulations, at which point they would require re-evaluation before they could continue. He expressed skepticism that cap-and-trade rules, a market system for controlling pollution, could be implemented well in California.

He also advocated litigation reforms to place a greater burden on losing parties for the cost of "frivolous lawsuits."

Eventually, he said, California should move to a budget cycle in which the state would accumulate revenues one year that would not be spent until the following year, clarifying for all parties exactly how much is available.

Saying that just 3 percent of Californians are responsible for 50 percent of personal-income tax revenues, he argued that adding taxes will drive business from the state.

"It is widely believed we can solve our problem if only the wealthy would pay their fair share. When I was a state senator and finance director I heard this on a daily basis," Campbell said, adding that it is a misconception.

Campbell predicted the current budget emergency would be solved through some combination of a fire sale of state assets, possibly with the involvement of a judicial master; a "plug" in the budget calling for elimination of unspecified waste; and the possibility of Gov. Arnold Schwarzenegger employing the line-item veto.

He raised the possibility of an "Obama ex machina" scenario, in which the federal government bails out the state while imposing tough reforms, allowing the president to solve the crisis while establishing a record of fiscal responsibility.

The professorial Campbell, currently on leave from the Haas School of Business at the University of California at Berkeley for a term as visiting professor at Chapman University in Orange, handed out charts on the federal budget, GDP (gross domestic product) rates, trends in housing and oil prices and taxes.

"Republicans in Berkeley are a little bit more rare than Republicans in Orange County," he joked.

Campbell, who took a leave from the Stanford Law School faculty to represent Silicon Valley in Congress for most of the 1990s, joins a Republican field of gubernatorial candidates with strong ties to the Palo Alto area.

Former eBay CEO and Atherton resident Meg Whitman announced her candidacy in February. Silicon Valley entrepreneur, cybersecurity expert and current state Insurance Commissioner Steve Poizner also is seeking the 2010 GOP nomination for governor.

Democratic contenders are San Francisco Mayor Gavin Newsom and former governor and current State Attorney General Jerry Brown, who served as mayor of Oakland from 1998 to 2006. Another Democrat who was considered likely, Los Angeles Mayor Antonio Villaraigosa, has bowed out of the race.