California Gov. Arnold Schwarzenegger has begun openly talking about laying off state workers, in what many see as the newest threat to a state that has already been ravaged by recession longer than the country has as a whole.
Meanwhile, State Treasurer Bill Lockyer has warned that unless lawmakers quickly approve a budget deal, the state will stop financing construction projects for roads and bridges.
Lockyer was scheduled to join State Controller John Chiang to address a rare joint session of the legislature on Monday to deliver the bad news that California is falling deeper in debt and likely to run out of money by February.
The state is currently facing an $11 billion budget shortfall.
The Golden State, the world's fifth or sixth largest economy, may have to pay vendors with IOUs for only the second time since the Great Depression, according to State Finance Director Mike Genest.
The last time that occurred was when Pete Wilson was governor.
Meanwhile, Controller John Chiang said the state's cash account will decline to $882 million by February, below its preferred cushion of $2.5 billion.
The state's cash account is expected to be negative $1.9 billion by March., Chiang said.
Despite the rough economy, gasoline prices have become on of the bright spots in the economy for consumers.
However, the prices are actually not good for state or county governments.
That is because California has about a 7 percent sales tax, built into the price of gas. So when gas prices fall, the state collects less money.
Schwarzenegger has, in recent weeks, said he is willing to undertake unpopular measures in order to help the budget situation.
He has said he would consider legislative proposals such as raising the car tax, or sales tax.
Republicans in the State Legislature have balked at the ideas.
Schwarzenegger has said he would be willing to make painful cuts in education and health care. Democrats have scoffed at those.
After the November election, there are three additional Democrats in the Assembly. However, even with a commanding lead in both houses, Democrats do not have a two-thirds majority they would need in order to pass a budget.
Assembly Speaker Karen Bass has said she hopes to pass a measure that would allow a budget to be passed even with only a regular majority of greater than 50 percent.