ALAMEDA, Calif. — This week, ­California is on track to set a record for its latest-ever budget.

On Thursday, the state would match the record set in 2008, when Gov. Arnold Schwarzenegger signed the budget on Sept. 23.

The top lawmakers from each party last held a “big-five” meeting with ­Schwarzenegger Thursday. A planned meeting Monday was canceled because the governor was sick and stayed home in Los Angeles.

The big-five meetings, so named because they bring the governor together with the Legislature’s four party leaders, typically mark the end stage of budget negotiations, which require bipartisan compromise because it takes a two-thirds vote to adopt a budget.

Neither majority Democrats nor minority Republicans have indicated any public willingness to compromise on the fundamental issues preventing them from agreeing on a budget that would close a projected $18 billion structural gap in the general fund.

Democrats want to protect health and welfare programs, and raise new revenue to do so. Republicans say they won’t approve any new taxes.

The Republican governor, whose term ends in January, is also insisting on reforms to reduce public employee pension costs.

If the stalemate continues, California’s plans to issue more than $6 billion of general obligation debt this fall are threatened. The state won’t go to market without a budget agreement in place.

Once a budget is signed, Treasurer Bill Lockyer’s first order of business will be to sell a multibillion-dollar note sale for cash flow. Only after that will the state put together a bond sale.

“If something doesn’t come together really quickly, it’s going to be real tough to get those deals together,” said Joe ­DeAnda, spokesman for Lockyer’s office. “It just makes it harder every day that goes by.”

After the budget is in place, it will take between three to five weeks to put together a revenue anticipation note deal, he said; then another three to five weeks for the GO deal.

Adding to the deadline pressure, the state enters a bond-sale blackout period in late November that lasts until the governor unveils his next budget proposal in early January.

Without a budget deal soon, Controller John Chiang has indicated he will have to start issuing IOUs for some creditors to conserve cash for those with higher legal priority, such as bondholders.

Local governments and agencies would be among those receiving IOUs instead of cash.

But local government credits would be unlikely to see their credit harmed, ­according to a special comment Moody’s Investors Service released Friday.

“The possibility of a temporary interruption in cash flow to local government issuers from the state is not likely to create cash-flow problems for them despite the fact that warrants could weaken cash flow at a time when most are already struggling with weak or declining revenues,” wrote analyst Michael Wertz.

“School districts and counties are ­significantly reliant upon the state for their operating revenues and, as such, ­potentially have the most meaningful challenge in maintaining stable cash flows,” he added. “However, the portion of their revenues likely impacted by warrants is small in the context of their overall resources. Thus, at this time, the cash-flow impact of state warrants appears likely to be manageable.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.