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California to enter fourth month without budget

By Jim Christie

SACRAMENTO, California (Reuters) - California will enter the fourth month of its fiscal year on Friday without a state budget in place after Governor Arnold Schwarzenegger and top lawmakers failed to agree on Thursday on a spending plan.

A spokesman for the governor told reporters in the state capital of Sacramento that Schwarzenegger and top lawmakers did not reach a budget agreement after meeting throughout Thursday but that they were inching toward a deal.

"Every day they meet they get closer," spokesman Aaron McLear said Thursday night, adding that budget talks would resume Friday.

The state government of the most populous U.S. state is in the midst a record stalemate pitting Schwarzenegger and fellow Republicans in the legislature's minority against Democrats who control the body over a spending plan to balance the state's books. Thursday marked the 92nd day of the impasse.

California's leaders must close a $19.1 billion shortfall caused by weak revenue, the result of a state economy battered in recent years by recession, double-digit unemployment and housing, mortgage industry and financial market turmoil.

The lengthy stalemate is taking place amid a contentious governor's race between Democrat Jerry Brown, California's attorney general and a former governor, and Republican Meg Whitman, the former chief executive of eBay Inc.

Schwarzenegger and Republican lawmakers are pressing for steep spending cuts as the main tool for tackling the shortfall. Democrats have proposed some cuts along with selective tax increases and delaying corporate tax breaks to raise revenue.

Lawmakers were supposed to have approved a budget plan for the current fiscal year in mid-June for Schwarzenegger to have signed it by the start of the year on July 1.

State Senate President Pro Tem Darrell Steinberg emerged from budget talks in Schwarzenegger's office on Thursday night, a week after a "framework" for an agreement on a spending plan had been announced, and said lawmakers and the governor were making "progress" toward a budget.

Each day without a spending plan puts California's finances under increasing strain -- and nearer to State Controller John Chiang issuing IOUs to preserve cash for priority payments.

Chiang has said he may issue IOUs in early October. He issued IOUs during a budget standoff last year -- only the second time since the Great Depression that the state has resorted to the controversial tactic.

(Reporting by Jim Christie in Sacramento, California; Editing by Nick Macfie)