SAN FRANCISCO: California's Governor, Arnold Schwarzenegger, said he will shut state government offices on the first three Fridays of every month and declared a fiscal emergency, forcing politicians into a special session to tackle the state's growing deficit.

The legislature's failure to fix the budget before the fiscal year began on July 1 pushed the size of the spending gap to more than $US26 billion ($32 billion) from $US24 billion, Mr Schwarzenegger said.

Mr Schwarzenegger ... money we don't have. Photo: AP/Rich Pedroncelli

Without a revised budget in place, California's top finance officials say the state can't secure a loan it needs to pay bills until the bulk of its tax collections arrive later in the budget year. The Chief Financial Officer, John Chiang, has said such a borrowing would be too costly, and potentially impossible, without assurances that investors will be repaid.

Because of a recession-driven drop in revenue, California has started paying some of its bills with IOUs to avoid running out of cash.

"Every day we wait, the problem is getting bigger, the deficit is getting bigger, because right now we are spending money that we don't have," Mr Schwarzenegger said.

Mr Schwarzenegger and the Democrats who control the legislature are at an impasse over how to eliminate a budget gap that emerged less than five months after the passage of tax increases and spending cuts intended to shore up the state's finances. California, the most-populous US state, has been battered by a recession that caused its revenue collections to tumble.

The Republican governor, who has sought spending cuts that would eliminate welfare programs and push nearly 1 million low-income children out of government health insurance, ruled out further tax increases and sought measures to crack down on fraudulent welfare claims and other government waste. Democrats want fewer reductions and some tax increases to make up the difference.

"The governor has said we can't kick the can down the road, but instead he wants to kick California in the stomach," said Charles Calderon, a Democrat from Montebello, near Los Angeles.

"When the people of California elected 'The Terminator' as governor, they didn't know that the state would be his latest victim," he said.

The governor's order to close much of the State Government for three days a month will force about 200,000 employees to take unpaid days off. The shutdown is set to begin on July 10 and run to the end of the fiscal year, in June 2010. Prisons, hospitals, highway patrol offices and fire stations will not be closed.

www.smh.com.au/world/schwarzenegger-to-shut-state-offices-to-save-money-20090702-d6jn.html