State budget negotiations collapsed Tuesday in a war of words and a round of vetoes, as Gov. Arnold Schwarzenegger rejected a Democratic deficit reduction plan that fell short of meeting his demands.
The move forces state leaders to recalibrate their efforts to close a budget deficit estimated at $40 billion over the next 18 months. It jettisons, for now, what Democrats hailed as "the only game in town" because it included tax increases that did not require Republican approval.
It also increases the likelihood that California will run out of cash next month, a scenario that would halt payments to vendors and possibly delay tax refunds.
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