The governor issued an executive order that requires state agencies to reduce payroll by 10 percent, which could lead to massive layoffs. He also ordered the state's 235,000 employees to take two days off a month without pay, starting Feb. 1.
Schwarzenegger also issued an executive order calling lawmakers back into session to deal with the budget for the third time in two months. On Thursday he announced he would veto an $18 billion Democratic deficit-cutting package that he said didn't do enough to address the financial crisis.
In a letter to state workers, Schwarzenegger said California must take emergency steps that will require sacrifices from everyone.
"It is imperative that state government look inside itself and be part of the solution," the governor wrote. "We simply have no other choice."
Union officials said they were considering filing a lawsuit to prevent job losses.
"We definitely think we have grounds for filing an unfair labor charge," said Jim Herron Zamora, a spokesman for the Service Employees International Union, Local 1000, the largest state employee union. "Our contract doesn't allow him to do this."
Officials warn that the state will run out of cash in February unless Schwarzenegger and lawmakers can reach a deal to close the budget gap with spending cuts, revenue increases or a combination of both.
Schwarzenegger ordered all state employees to take two days off a month without pay or take a similar salary cut to achieve $1.3 billion in savings through the next fiscal year.
On top of that, the governor directed agencies that get their money from the state's largest budget account, the general fund, to achieve a 10 percent payroll savings. Officials said that could lead to an undetermined number of layoffs.
Department of Personnel Administration spokeswoman Lynelle Jolley said any workers who lose their jobs as a result of the order could seek employment at other state departments that use special state funds.
"We're hoping we can do this with the least number of layoffs possible but the goal is to address this imminent cash crisis," Jolley said.
Lawmakers adjourned for the holidays Thursday after Democrats pushed through a package of spending cuts and tax increases using a creative maneuver to bypass Republican opposition.
Schwarzenegger's decision to veto the package left Democratic leaders scrambling to save their plan. They argued that it met some of his demands for speeding up public works projects and selling surplus state property.
