SACRAMENTO, California (Reuters) - California lawmakers may not be called into a special session on the state's budget stalemate, Governor Arnold Schwarzenegger said on Wednesday after Democrats and Republicans in the legislature killed rival plans to fill a $19 billion shortfall to balance the state's books.
The two sides in the Democrat-led legislature blocked each other's spending plans on Monday, leaving the government of the most populous U.S. state more than two months into its current fiscal year without a budget.
Democrats rejected Schwarzenegger's plan, backed by minority Republicans, largely to balance the budget by slashing spending. Republicans rejected the Democrats' plan to increase some taxes and postpone corporate tax breaks to raise revenue to limit spending cuts.
Analysts had expected as much since both sides have for weeks been criticizing each other's plan and because there is little urgency in the state capital on reaching a compromise -- even as the potential looms for the state controller to issue IOUs to many expecting state payments to preserve the government's dwindling cash amid the budget impasse.
Notes promising payment would allow the government to honor its top priority payments, which include paying investors holding its debt. California has $803 million in general obligation debt service coming up on October 1.
The current budget stalemate could set a record if it goes past September. Two years ago the legislature set a record for a late state budget by approving one on September 16.
Schwarzenegger's office has been trying to prod lawmakers into action on the budget and has held out the possibility he would call them into a special session if they failed to reach an agreement on Tuesday, which marked the end of their regular session.
But at a press event in Sacramento, the governor said: "There's no reason yet to call a special session." Instead, Schwarzenegger said he would hold budget talks with top lawmakers.
He also stressed that he will not sign any budget agreement unless it includes provisions for overhauling the state's public pension system to reduce its cost.
California pensions have become a top political issue as the November election nears. Both of Schwarzenegger's aspiring successors, Democratic gubernatorial nominee Jerry Brown, currently California's attorney general, and Republican rival and former eBay Inc Chief Executive Meg Whitman are in favor of reform.
Even at the California Public Employees' Retirement System, the biggest U.S. public pension fund, officials expect potentially dramatic changes to how the state provides pensions for government workers.
Fund officials at a retreat in July told Reuters they expect changes, potentially with public employees having to increase personal contributions to their retirement accounts and new government workers receiving reduced retirement benefits.
(Reporting by Marianne Russ in Sacramento; Writing by Jim Christie; Editing by Dan Grebler)
