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Democrats have grudgingly agreed to some big spending cuts, but not as big as Gov. Arnold Schwarzenegger is demanding.
State treasurer John Chiang said if there isn't a deal by Tuesday, he will start sending IOUS, which have already been printed.
Schwarzenegger said the impasse will add pain to an already difficult time.
"I think that they know I would never sign those kinds of things. So why waste the time, and why run out of time, and all of a sudden we have to hand out IOUS," Schwarzenegger said.
"The harmful prospect of us issuing IOUs really should not happen on his watch," said Assembly Speaker Karen Bass.
The governor wants to cut out money for college aid, health care and welfare programs, but Democrats say that's not necessary.
They propose raising the vehicle fee by $15 and adding taxes to tobacco products and oil drillers, but the governor and Republican legislators insist those are nonstarters.
At least one other state is offering to help, but it comes with a price.
Michigan says it has unused prison space and could take inmates from California's overcrowded cells.
Michigan's governor, however, expects something in return, but she's not saying how much.
She may have to accept an IOU.