An exterior of the state capitol is shown on January 5, 2006 in Sacramento, California.
California lawmakers remain at an impasse over solving the state's $24.3 billion deficit as the state controller prepares to hand out roughly $3 billion in IOUs.
A Friday morning vote on a portion of the Democratic budget plan fell short of the necessary two-thirds support in the Assembly. Lawmakers were planning to work through the weekend.
State Controller John Chiang says without a budget revision, he will have to start issuing IOUs as soon as Thursday. The state will not have enough cash to meet all of its payment obligations as the new fiscal year begins.
Among those who would not get paid until after October are students expecting college fee assistance, low-income seniors and the disabled, and vendors that provide an array of services.
Also Friday, California regulators have expanded a state car-scrapping program to provide incentives of as much as $4,000 to motorists who surrender high-polluting vehicles and replace them with cleaner cars.
Unlike the federal "cash for clunkers" program signed into law Wednesday by President Barack Obama, California's effort is not primarily designed to replace gas guzzlers with more fuel-efficient vehicles.
Instead, the state will target those cars with the worst smog-forming tailpipe emissions -- pollutants that give areas of California some of the country's dirtiest air.