August 18, 2010, 8:27 P.M. ET

By Stu Woo

California’s top accountant said Wednesday that the state would have to issue IOUs in two to four weeks if Gov. Arnold Schwarzenegger and the state legislature don’t agree to a budget by then.

State Controller John Chiang said without a new spending plan that closes a $19 billion shortfall, the state would run out of money by late October. “We will run out of money if everything remains the same,” he said in an interview.

If California resorts to IOUs, it will be the latest humiliation for the cash-strapped state. Last year, California, facing a $26 billion budget shortfall, issued about 450,000 IOUs valued at a total of $2.6 billion.

State legislators have not yet sent the governor a spending plan for the fiscal year that began July 1.

Democratic legislators are in a stalemate with Mr. Schwarzenegger, a Republican, and GOP legislators. Democrats want a budget that includes tax increases, while Republicans want a plan that raises no taxes and relies more heavily on spending cuts.

Consensus is difficult to achieve because California is one of three states that require at least two-thirds of its legislators to pass a budget. Democrats hold a statehouse majority but fall just short of the two-thirds threshold.

The state Senate president, Darrell Steinberg, said his Democratic colleagues have laid out their budget proposals. “I’m sure the controller does not endorse the draconian cuts pushed by the governor,” Mr. Steinberg said in a statement. “We’re ready to close on a budget that ensures our kids can still receive a quality education and protects our state and our people from economic collapse.”

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