By Dan Whitcomb

LOS ANGELES, June 12 (Reuters) - As California teeters on the brink of a financial meltdown, big interest groups led by public employee unions are complicating the picture, with chances slim of near-term reform.

Little gets done in state and local politics across California without the involvement of unions for teachers, nurses, firefighters and state employees.

"The Democratic state party is really just an extension of the unions," said Tony Quinn, co-editor of the California Target Book, a non-partisan analysis of the state legislature and Congressional elections.

"The unions now control the legislature and they helped bring about the situation in which we simply spend more money than we take in because of the union pensions, the welfare programs they support and because the teachers union wants more money spent on teachers' salaries and education," he said.

The state is expected to miss a deadline on Monday to close a $24.3 billion budget gap, with moderate Republican Governor Arnold Schwarzenegger proposing major spending cuts.

Unions, which defeated a ballot box proposition by Schwarzenegger to curb their power, have a new ad campaign against his budget move.

"One of the reasons you have the budget mess right now is that everybody can veto it," said Republican political consultant Alan Hoffenblum.

"The governor can veto it, the legislature can veto it and the public employee unions can veto it," he said.

'THE WORKERS OR THE PEOPLE?'

Schwarzenegger told the Los Angeles Times in an interview that Democrats would have to stand up to the unions if the state was ever to make the deep spending cuts necessary to balance the budget.

"Do they want to protect the workers that provide the services or do they want to protect the people that get those services?" Schwarzenegger said. "The choice is up to them."

Unions represent a greater percentage of public sector workers than ever in California, up from 57 percent in 1983 to 61 percent last year, the Sacramento Bee newspaper said.

The California Teachers Association last year spent $10 million on political causes, with the California Correctional Peace Officers Association spending nearly $4 million and the SEIU Local 1000, which represents state workers, chipping in more than $3 million, the newspaper said.

Unions are not the only big interests. Although the Republican party has little clout, many from the party in the state senate and assembly feel beholden to the conservative anti-tax activists that got them elected.

The influence of California's public employee unions and conservative hardliners may be set to wane due to a fundamental change in the state's political system -- redistricting.

Thanks to California's closed primary system and gerrymandered electoral districts, moderates struggle to win statewide office in either the Republican or Democratic parties, deeply polarizing the legislature with Schwarzenegger in the middle.

California voters approved a redistricting ballot initiative in 2008, Proposition 11, which political analysts say was a good first step.

Others recommend relaxing term limits so that legislators are less influenced by the unions or other special interests and campaign spending reforms.

Union representatives meanwhile defend their involvement in state politics, saying that they play by the rules and have the interests of the working class at heart.

"We are a very strong organization in Sacramento (the state capital). They like to talk to us a lot about our opinions on issues they like to vote on," said David Sanchez, president of the 300,000-member California Teachers Association, considered the most powerful special interest group in the state. (Editing by Howard Goller)

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