updated 12/11/2008 7:37:57 PM ET 2008-12-12T00:37:57

California's budget deficit will reach $41.8 billion over the next 18 months, potentially forcing the state to halt payment for services such as utilities for state offices and food for prison inmates if lawmakers don't solve the problem, Gov. Arnold Schwarzenegger's administration said Thursday.

The gap is far worse than already abysmal estimates, which a Legislature's nonpartisan analyst had pegged at $28 billion through June 2010.

The shortfall for the current fiscal year, which ends June 30, has grown to nearly $15 billion. That together with deficit estimates for the next budget year total $41.8 billion, said Matt David, a spokesman for Schwarzenegger.

California is projected to run out of cash in February and may have to issue IOUs for its bills. It is obligated by law to pay employees, schools and its debts, but it could halt payments to vendors who provide services such as the gas for California Highway Patrol vehicles, food service in prisons and utilities for state offices.

State Treasurer Bill Lockyer also had that unless lawmakers agree to take action, the state would have to stop financing $5 billion in infrastructure projects next week, which could mean a loss of about 200,000 jobs.

The state already has lost its ability to borrow because of its fiscal mess.

Futile meetings
Michael Genest, the governor's finance director, said the administration made the budget figures public before their typical release in January because Schwarzenegger wanted state residents to understand the unprecedented scope of the problem. The governor also declared a fiscal emergency for the second time this month.

But the grim news didn't seem to inspire legislative leaders, who failed again to make progress in a budget meeting with the governor Thursday.

Senate Minority Leader Dave Cogdill said Republicans would prefer to work out a deal with Democrats in the state Legislature rather than continue talking with the Republican governor, calling those meetings futile.

"I just don't see this process as being productive or helpful," Cogdill said.

California leads the nation in the sheer size of its budget gap, according to the most recent survey of states by the National Conference of State Legislatures.

Fourteen other states are facing double-digit percentage gaps in their 2010 fiscal year budgets, with Arizona and New York leading the way in the percentage size of their deficits, followed by California, Wisconsin, Minnesota and Kansas.

Schwarzenegger said Wednesday that sales, personal and corporate tax collections had continued to tank, and that the state was heading toward "a financial Armageddon."

He also said that the shortfall for the current fiscal year was $3.6 billion higher than the deficit that lawmakers had been unable to solve during two special sessions of the state Legislature.

Consensus is elusive
California has a particularly hard time passing budgets because of its stringent budget vote requirements. It's one of three states — along with Arkansas and Rhode Island — that require two-thirds majorities to pass a budget and one of seven states that require two-thirds of the votes to pass taxes.

Because of that, the Republican minorities in the state Assembly and Senate hold unusual sway in negotiations.

This summer brought about the longest budget stalemate in state history at 85 days, and the November election left Democrats three votes shy of a supermajority in both houses.

Democrats and Republicans have been unable to reach consensus on how to close the shortfall caused by the troubled housing market and economic recession.

Republicans have remained steadfastly against raising taxes, rejecting a Democratic proposal for $8.1 billion in cuts and $8.1 billion in tax increases. They had failed to present their own plan, but promised to release a package next week that is expected to contain spending cuts, a cap on future spending and relaxing labor and environmental regulations. had pegged at $28 billion through June 2010.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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