Gov. Arnold Schwarzenegger and state lawmakers ended talks Thursday night without reaching a deal on how to close California's $19 billion deficit, breaking a state record for the longest budget impasse.
Friday will mark the 79th day the state has gone without a resolution to its annual spending plan. The last record was set two years ago at 78 days.
"We are not proud of the fact that this is the latest we've gone without passing a budget," said the governor's spokesman Aaron McLear. "We don't want this be the latest we've gone without signing the budget."
The latest that a California governor has signed a budget is Sept. 23.
Schwarzenegger, a Republican, and lawmakers disagree on the amount of cuts to make and whether to adopt new taxes as the economic downturn erodes state revenues. Lawmakers in recent years have cut billions of dollars from state spending, the bulk of which goes to fund schools and health care programs.
Democrats want a combination of spending cuts, new taxes and fees, and delay corporate tax breaks granted last year. Republicans have rejected taxes and fees, demanding that the state bridge the gap mostly with cuts and federal assistance.
Schwarzenegger met with legislative leaders for more than two hours Thursday and talks were scheduled to resume Friday. Senate President Pro Tem Darrell Steinberg of Sacramento reported "significant progress" as he left the governor's office.
Steinberg, who leads Democrats in the state Senate, hinted that legislative leaders could work through the weekend.
Schwarzenegger has demanded lawmakers agree to long-term tax, budgeting and pension reforms. He said Thursday night that he was dropping a proposal to borrow from the California Public Employees' Retirement System, known as CalPERS.
"California's leaders have to solve the budget deficit in a responsible way, and any idea to borrow money from the CalPERS pension fund is off the table," the governor said. "The Legislature must pass a budget that lets us live within our means, and includes the necessary reforms to fix our broken budget process and rein in out-of-control pension costs."