SACRAMENTO (AP) — California's Democratic-led Legislature is putting union interests over taxpayers' well-being, Gov. Arnold Schwarzenegger said Thursday as the state prepared to issue IOUs for the first time in nearly 20 years.

The Republican governor said Democrats have resisted reforms he believes must be part of solving the state's $26.3 billion shortfall.

"It steps on the turf of the people they want to protect," Schwarzenegger said during a press conference in Los Angeles. "At some point, it has to be Judgment Day. Who do we protect?"

Democrats said they are willing to compromise on the governor's ideas but insist they will protect children's health insurance, welfare-to-work and human assistance programs.

"I choose not to respond to stale rhetoric," said Senate President Pro Tem Darrell Steinberg. "I'll never ever apologize for standing up for people and neither will my colleagues."

The governor recently proposed changes to cut state employees' pensions and adopt fraud-prevention measures for in-home caregivers and those who receive support services. Steinberg said while it makes sense to fingerprint workers, it may not make sense to require fingerprints from seniors and the disabled, such as a quadriplegic.

"I'm not sure that particular reform is necessary," he said.

Schwarzenegger said the Legislature's failure to pass a balanced budget revision sent a message that they expect Californians to make sacrifices but will not do the same. The governor on Wednesday ordered some 235,000 state employees to take a third day off a month without pay, a move that would cut their pay by 14 percent.

"We have to get rid of the waste. We cannot promise things to people that we can't deliver," Schwarzenegger said.

Key lawmakers are expected to work through the weekend and Steinberg said he hoped to reach a compromise soon. The Senate is scheduled to resume Monday, but lawmakers were directed to stay within four hours of the Capitol over the holiday weekend.

"While it's clear we have had and continue to have real differences, it is time to bring this to a close," Steinberg said. "I think it'll take a couple of days but I think it will get done."

Lawmakers passed a budget in February for the fiscal year that began Wednesday, but a sharp decline in tax revenue quickly put it out balance. The national recession has battered California's economy, leading to record-high unemployment and a 34 percent drop in personal income tax revenue during the first five months of the year.

With far less money flowing to the state, Democrats have found it difficult to protect core social programs and the jobs overseen by the public employee unions that make hefty donations to their campaigns.

At the same time, Schwarzenegger and Republican lawmakers refuse to raise taxes beyond those already increased in February. It's not clear how the sides will compromise to close the budget shortfall.

Democrats likely will have to accept deeper cuts beyond the ones they've proposed, while Republicans would have to accept the governor's ideas for an emergency services surcharge on property owners and borrow $2 billion from local government.

The state controller is scheduled to begin printing IOUs Thursday afternoon after lawmakers failed earlier this week to address the deficit. With revenue running well short of the state's spending obligations, California does not have sufficient cash to meet all its payment obligations.

The IOUs primarily will affect the thousands of small businesses that contract with the state for a variety of services, from providing office supplies to cleaning services.

Lawmakers' failure to act before the fiscal year ended Tuesday widened the state's problem by $2 billion, in large part of because of the state's complex education funding formula.

On Wednesday, the governor declared a fiscal state of emergency and ordered most state offices to close three days a month to conserve cash.

Schwarzenegger said Thursday he would not sign any bill that comes to his desk unless it pertains to the budget. Under the fiscal emergency order, if the Legislature fails to solve the deficit within 45 days, it cannot adjourn or act on other bills until the crisis is resolved.