Liquor and shot glasses were the most popular gift-exchange presents at the California Assembly budget staff’s holiday party.

“Last year one person brought Jack Daniels and two shot glasses,” says John Laird, former assemblyman and Budget Committee Chair. “This year there were 10 variations on it.”

It’s no wonder.

Finance officials expect the state to run out of cash in a little more than a month. Gov. Arnold Schwarzenegger recently renewed his fiscal emergency declaration and ordered state employees take two unpaid furlough days each month starting in February. California’s facing a $41.8 billion budget deficit by 2010, and there’s no fix to the economic crisis in sight.

Bring on the whiskey.

Late last week the governor vetoed Democrats’ $18-billion spending plan that included program cuts and higher taxes. Using creative legislative maneuvers, the Dems deemed the budget package “revenue neutral,” which allowed lawmakers to approve the plan with a simple majority – and without a single GOP vote. (The state constitution requires a two-thirds vote for tax increases.)

Schwarzenegger said he rejected the plan not because it included $9.3 billion in taxes, but because it didn’t do enough to create new jobs and provide mortgage relief for homeowners. He also said the budget bills should have included an additional $1.2 billion in cuts to welfare programs and state workforce.

“THE REPUBLICANS SIMPLY ARE NOT PARTICIPATING IN GOOD-FAITH NEGOTIATIONS.”

“This proposal that they have sent down and this package that they are sending down does really only one thing, and this is punish the people of California,” Schwarzenegger said at a Dec. 18 press conference. “They [legislators] are saying, you pay more fees… but we are not willing to look inside government and make the necessary changes so we can create a stimulus package, an economic stimulus package and an economic recovery package so we can put people to work.”

He also called for a new special legislative session and told lawmakers to fix the budget gap by Christmas.

Meanwhile, state officials stopped funding on thousands of projects (see sidebar, this page), ranging from schools to prisons and roads, value at more than $16 billion.

“Statewide, the losses of those loans could cost tens of thousands, even 100,000 jobs, driving California even deeper into a fiscal abyss,” Schwarzenegger said at a Dec. 19 press conference, the same day officials announced California’s latest unemployment rate reached 8.4 percent, the highest in decades.

“We need to get back up there and keep trying to get a budget together for the people of California,” says Central Coast Sen. Abel Maldonado, a Republican who voted against the budget bills. “We are in a crisis in California.”

While Maldonado and other Republicans praised Schwarzenegger for vetoing the spending plan, Democrats railed against the GOP and the governor.

“The Republicans simply are not participating in good-faith negotiations,” Laird says, “and they had the best of both worlds – they got to help the Democrats solve the budget problem and criticize the Democrats without their votes being necessary to approve the bills.

“I just cannot believe the governor is doing what he’s doing,” Laird continues, saying Schwarzenegger should have approved the budget plan. “What he wanted were really small things, things over in the margins, and even if he wasn’t getting all of them, he could get them in the next bunch. For him to say, ‘It’s not perfect, let’s face a $40 billion problem without doing anything, and still I’m perfect’ makes no sense. Now he’s part of the group that is taking California over the cliff.”