California is on the brink of issuing IOUs and state workers will take a third unpaid furlough day in July after Gov. Arnold Schwarzenegger and

state lawmakers failed to strike a budget compromise late Tuesday.

The new deficit number will be roughly $26.3 billion, about $2 billion higher than the governor’s May budget, according to Schwarzenegger’s Department of Finance.

By allowing the fiscal year to end without trimming $3.3 billion from the 2008-09 education budget, lawmakers and Schwarzenegger lost the chance to cut spending in a manner considered crucial to bridging the $24 billion deficit.

Instead, Senate Republicans, Democrats and the GOP governor remained in a political standoff over other parts of the budget, particularly how much to slash health and welfare programs. Schwarzenegger plans to declare a new state of fiscal emergency today, launch another special session and propose additional program cuts to solve the larger deficit problem, spokesman Aaron McLear said.

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