With his decision Tuesday, state Controller John Chiang exercised for the first time unprecedented authority voters gave him last fall to withhold pay and per diem for every day the budget is late.
The 120 legislators will not get back the money they lost. They will start being paid again once they pass a balanced budget. A typical state lawmaker receives about $400 a day.
The state budget was unbalanced by nearly $2 billion.
Democratic lawmakers passed a state budget on time last week, but Gov. Jerry Brown vetoed the package saying he didn't want to see billions in borrowing. Brown's veto was the first time a California governor has rejected a state budget.
Under Proposition 25, lawmakers don't get paid their salary or living expenses if they miss the deadline.
Lawmakers said their action was sufficient enough to continue receiving paychecks.
However Chiang said the package did not meet the constitutional requirements for a balanced budget adding, "the numbers simply did not add up."
Some Democrats, members of Chiang's own party, were not happy with his decision, saying Prop. 25 doesn't say they had to pass a balanced budget. They also point out it's not good to give another branch of government the power to withhold pay.
"It's shifted the level of power. I think that's what's so sad about the whole thing," said Sen. Ron Calderon (D-Montebello).
Others say that budget was rushed through with just Democratic votes so paychecks wouldn't be docked.
"That budget was an embarrassment, it was a sham, it was an insult to the people," said Assm. Tim Donnelly (R-Twin Peaks).
The Associated Press contributed to this story