The news keeps getting more dire. Personal income and corporate taxes keep dropping, adding to the state's financial woes.
"We have another shortfall, just in the month of June alone of $1.1 billion. So as you can see, our revenues are still falling and we have not bottomed out," said California Governor Arnold Schwarzenegger (R).
The drop in taxes adds even more urgency for lawmakers to fix the state budget which is now more than $24 billion out of balance.
For the third time this week, state lawmakers tried to vote on proposals that would help solve the deficit. This time, the package included: withholding a little more from people's paychecks; adding about $48 to property insurance policies for firefighting and other emergency services, and tacking on $15 to car registrations to keep state parks open.
The Senate President made a plea to Republicans to end the stalemate now.
"We need two of your votes. That's all it's about. We need two of your votes in order to avoid the payment of IOUs and a resolution of our budget crisis," said State Senate President Darrell Steinberg (D).
But Republicans, who are typically anti-tax, wouldn't give in.
"The last thing we need for Californians is to raise their taxes. Hardworking Californians didn't cause this problem," said State Senator Tony Strickland (R) of Moorpark.
So without a budget fix in place, the state trudges closer to that Thursday deadline when the controller says he has to take the embarrassing step of issuing IOUs to pay California's bills.
Adding to the ante, the Governor just directed all state agencies to prepare for a third furlough day for state workers beginning next week, to conserve cash. No one's sure if the IOUs or third furlough days will actually happen, but it seems all sides are willing to find out.
"It's a very dangerous game of chicken. And we're not playing," said Senator Steinberg.