The state's revenue gap is expected to hit $28 billion over the next 19 months unless the governor and lawmakers take bold steps.
Schwarzenegger and Democrats have proposed a combination of tax hikes and spending cuts, but Republican lawmakers have remained steadfast in their refusal to raise taxes.
Unless budget corrections are made quickly, the state is likely to run out of cash in February.
In a statement Monday, Schwarzenegger said California is headed toward "fiscal disaster" without immediate action.
Lawmakers failed to reach a compromise during the special session Schwarzenegger declared last month, pushing the problem to the new Legislature that was sworn in Monday.