Image: Sam Blakslee
Rich Pedroncelli  /  AP
Assemblyman Sam Blakslee, R-San Luis Obispo, looks over paperwork during a late night session at the Capitol in Sacramento, Calif., on Saturday. Lawmakers worked into the early hours of Sunday morning trying to approve a state budget plan.
updated 2/15/2009 6:22:40 PM ET 2009-02-15T23:22:40

Gov. Arnold Schwarzenegger tried Sunday to salvage a proposal to close California's $42 billion deficit after an all-night legislative session failed to produce a new budget.

The governor and legislative leaders from both parties warned that California faces insolvency unless the Legislature enacts a midyear budget fix.

Blame for the inaction was fixed on the state Senate, where Republicans were refusing to put up the three votes necessary to reach the required two-thirds majority. The Assembly appeared ready to pass the mix of deep spending cuts and tax increases but was awaiting signals that the Senate would do the same.

After meeting all night, both chambers called recesses Sunday morning so lawmakers could nap and shower.

The Senate resumed budget debate Sunday afternoon, though there was no indication it had the votes to adopt the spending plan. The Assembly was still in recess Sunday afternoon

"I don't know what it takes for people to believe this really is a crisis," said Senate Budget Committee chair Denise Ducheny, D-San Diego. "Maybe with a little sleep folks will appreciate the fact the governor and the leaders and many of us believe we have a budget."

The budget crisis is dire: tax refund checks and payments to state vendors have been delayed; some 2,000 public works projects have been stopped because the state has no money to pay for them; and California's credit rating is so bad the state can't get loans.

Schwarzenegger, meanwhile, has ordered furloughs for state government workers and has threatened layoffs for as many as 10,000.

"The only alternative now is to literally go insolvent and over the cliff, and many of us believe that is irresponsible and giving up our constitutional responsibilities," said Assembly Minority Leader Mike Villines, a Republican.

The Assembly and Senate approved the relatively non-controversial bills in the package late Saturday night, but action stalled early Sunday morning with the tax votes still to come.

The hang-up came in trying to reach the required two-thirds majority in each house, where three Republican votes are needed. The Assembly appeared to have sufficient votes lined up, but the Senate was falling one short.

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Debate halted after Republican Sen. Dave Cox told reporters he was against tax increases and would not support the two-year budget fix. Before the Legislature convened on Saturday, it was thought that Cox might have supported the plan.

"You can't help the economy of the state of California by raising taxes. Yes, there's a big deficit. But in the final analysis, you're going to have to find another way to do it," Cox said. "My answer is no, and I'm not looking for additional information. I've made my decision."

Cox said he received a call from Schwarzenegger, who remained in the Capitol trying to secure the necessary votes. "My guess is everybody's arm is getting twisted," Cox said.

The broad outlines of the latest budget proposal have not changed for several days: $15.1 billion in cuts, $14.4 billion in temporary tax increases and $11.4 billion in borrowing. The package also would send five ballot measures to voters in a special election to be held May 19.
Schwarzenegger's spokesman, Aaron McLear, said the governor was continuing to prod lawmakers toward a final vote.

"We know we're close, and the governor's not going to give up until we pass a budget that Californians deserve," he said.

The weekend session came at the end of a frenetic week of closed-door negotiations, and disrupted Valentine's Day and holiday weekend plans for lawmakers, their staffs and others.

California's deficit has exploded in the face of a worsening recession that has seen the state's unemployment rate rise to 9.3 percent, a 15-year high. Sales, property, capital gains and income taxes have plunged in recent months.

Lawmakers have been deadlocked over finding a compromise for months in large part because of the legislative hurdle they must overcome to pass a budget. California is just one of three states, along with Arkansas and Rhode Island, to require a two-thirds majority vote, a threshold that requires at least three Republicans in each house to side with majority Democrats.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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