SACRAMENTO — The failure to balance the state's main checkbook and the looming IOUs prompted Gov. Arnold Schwarzenegger on Wednesday to declare a fiscal state of emergency.

Under the declaration, state offices will be closed three days a month to conserve cash. If the Legislature fails to solve the deficit within 45 days, it cannot adjourn or act on other bills until the crisis is resolved.

The partial government shutdown also will lead to a third furlough day for 235,000 state employees, bringing their total pay cut this year to about 14 percent.

"California needed the Legislature to act boldly and with conviction. Their response was not a solution to California's budget problem but an invitation to actually a bigger financial crisis," Schwarzenegger told reporters Wednesday.

The new furloughs would begin on July 10, the administration said.

A state appeals court panel clouded the budget picture further Tuesday with a ruling that could cost the state nearly $3.5 billion. The judges in the 3rd District Court of Appeal said that since 2007, gasoline-tax funds intended for mass transportation had been improperly diverted by the governor and lawmakers to cover other expenses. The state will appeal to the California Supreme Court, said H.D. Palmer, a spokesman for the Department of Finance.

Hours earlier, as the previous fiscal year was drawing to a close, the Senate rejected three bills designed to save $5 billion, including $3.3 billion in education funding cuts that had to be enacted by Tuesday. Passing those bills would have given the Legislature time to work out a broader solution to the deficit and delayed the need for IOUs.


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Gov. Arnold Schwarzenegger has ordered state workers to take a third day off without pay each month after Republican lawmakers acting with his support blocked a Democratic proposal to ease the state's deficit and allow the government to keep paying bills.

Schwarzenegger criticized lawmakers for engaging in "endless hearings" instead of negotiating and said they had rejected his proposals to overhaul state government with so-called reforms in deference to special interests.

Schwarzenegger blasted Democratic lawmakers Wednesday, saying they were more interested in protecting special interests and "kicking the can down the alley" than protecting taxpayers. "At the end of the day, nothing was accomplished," Schwarzenegger said.

"They are debating about cowtails," Schwarzenegger said, referring to a bill discussed in a legislative committee last week that would ban a practice of docking cow tails. "This is inexcusable."

Schwarzenegger had promised to veto any bills unless they are accompanied by a complete plan to balance the budget.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, saying Republican lawmakers had taken their direction from Schwarzenegger in voting it down, accused all of them of "the most irresponsible act I have seen in my 15 years of public service."

Schwarzenegger said he won't sign any legislation unrelated to the budget until a full budget agreement is reached.