Lawmakers refused to help the governor attack the budget by closing the so-called "yacht tax" loophole.
Assembly Republicans believe they are saving a lot of jobs by leaving the tax loophole alone. Apparently California has a huge yacht customizing industry.
Meanwhile, both healthcare and education each will have to make due with $500 million dollars less.
Efforts to close a loophole that enables Californians to buy yachts tax-free fails again to get Republican support in the Assembly, that's twice in less than a week.
"It is unconscionable to cut education and healthcare while not closing this loophole. Everyone needs to be part of a budget solution, including yacht owners," said Assemblyman John Laird (D) Santa Cruz.
Had the loophole been closed, it could have brought in roughly $25 to $26 million to state coffers over the next year or so.
Assembly Republicans argue the cost to California could be even greater if the yacht industry starts laying off workers, as a result of fewer people making those purchases.
"That isn't the best for California. We're actually going to cost more jobs, because more hardship for families than actually what we gain in revenue to the state of California," said Assemblyman Rick Keene (R) Chico.
Just hours earlier ,Governor Schwarzenegger had signed an executive order for more emergency cuts, another $100 million from state agencies, which means there'll be hiring, purchasing and travel freezes.
He really wanted the loophole closed.
"This is $26 million dollars that we could use for education and other important programs," said Gov. Arnold Schwarzenegger (R) California.
Closing California's deficit has been difficult to address because 87-percent of the state budget is off limits, mandated by initiatives voters approved.
The mental health tax, the gasoline tax, cigarette tax -- they're among the pot of money lawmakers cannot touch by law.
"Everyone who carried one of these to the people said: 'This is so important, let's lock it in so Sacramento can't play around with it. The problem with that is when we get into a little bit of budget difficulty, we have very little flexibility to fix the problem," said California Finance Director Mike Genest.