Governor Schwarzenegger publicly admonished lawmakers for the current stalemate.
"This is shameful, and it has already imposed difficult hardship on Californians across our state," said Governor Schwarzenegger.
Schwarzenegger even told each party to get out of their ideological corners and meet in the middle.
Republicans have long opposed any sort of tax hike, while Democrats were unwilling to stomach massive cuts to social programs.
To prove his willingness to compromise, the normally anti-tax governor publicly said he will support raising taxes for the first time.
"I'm willing to compromise on the temporary one-cent increase in the sales tax," said Governor Schwarzenegger.
Republicans feel it is the wrong time to raise taxes during this economic downturn. Some Republicans even stormed out of a meeting with the Governor when he brought the hike up on Tuesday.
"We fundamentally believe it will make California a worse place, if you do taxes. It's not because we're somehow dug in ideologically," said Assemblyman Mike Villines (R-Minority Leader).
Democrats want a permanent tax solution to a recurring problem. They don't understand why the Governor cannot convince any of his own members to go along.
"He's in the wrong party, I guess. They think he's a Democrat. He's not a closed deal with us ... so he's really out there on an ice float by himself," said State Senator Don Perata (D-Senate President).
The Governor also threw a punch at State Controller John Chiang. A judge is set to hear Schwarzenegger's lawsuit against the controller on September 12. The lawsuit aims to force Chiang to pay state workers minimum wage until a budget is passed. Chiang says the master payroll will begin printing full paychecks Friday for the month of August.
"I'm upset he's not a team player, and I think our state can only function if we are all part of one team," said Governor Schwarzenegger.
"Next week, we get a full paycheck! That's always nice. Basically, we have to worry about the next one in September," said Greg Savage, a relieved state worker.
The Republican National Committee listed Governor Schwarzenegger for a prime speaking spot for the first night of the convention. However, the governor said he may have to decline if there is no budget in place.