California lawmakers fail on first try to close deficit

"We'll work every day to get it done by July 1," said the Senate's leader, President Pro Tem Darrell Steinberg.

Even before the debate began, Gov. Arnold Schwarzenegger said he would not sign the Democratic package because it contained more taxes on oil drilling, tobacco products and vehicle licensing. Republicans also said the plan did not contain enough spending cuts.

Unless Schwarzenegger and lawmakers agree to revise the current spending plan, state Controller John Chiang said he would begin issuing IOUs to thousands of state contractors starting next week. The IOUs would mean no immediate funding to local governments for social services and private vendors that provide an array of programs for the poor, elderly and frail.