SACRAMENTO -- As the Senate rejected a Democratic budget plan Wednesday for the second day in a row, the state controller warned that a lengthy budget deadlock would leave the deficit-ridden state nearly out of cash.

"We are dangerously close to not having enough money to make our financial payments and that is a terrible place to be for what is the world's fifth or sixth largest economy," Steve Westly told reporters.

If there is no budget in place when the state begins a new fiscal year next Tuesday, Westly said, he may not be able to make millions of dollars in on-time payments to schools, community colleges, courts, state suppliers and others.

He also said he would continue the tradition of not paying legislators and other state elected officials until a budget is passed.

"Real people will not be paid," he said. "Real businesses will not be paid, which will create enormous hardships for literally thousands of vendors around the state who are absolutely innocent of the gyrations of the budget battles in Sacramento."

Because it is one of the few states that requires a super majority of lawmakers to approve a budget, California has started a new fiscal year without a budget in place 14 times in the last 26 years.

Westly said the lack of a budget would have a "relatively minor" impact for the first two weeks of July but then would be felt more as payments come due and his office can't make them.

If lawmakers don't approve a budget and agree on a way to erase a $38.2 billion deficit by the end of July the state would be dangerously short of money and he would announce more cutbacks, what he referred to as "extraordinary cash management."

"The state does not shut down, but we can't pay out what doesn't come in," he said. "We will have to even more severely cut back the payments that are made."

He said he had been told by Wall Street financiers that the state would not be able to borrow any more money to paper over the deficit.

Most state employees will continue to be paid their normal wages in July, but Westly said a state Supreme Court decision could limit them to minimum wage if no budget is passed by August or September.

He said it would take that long for his office to make the payroll changes needed to comply with the ruling.

Westly's warnings came as Senate Republicans shot down a Democratic budget plan for the second day in a row because it includes a half-cent sales tax increase to help eliminate the state's red ink.

The vote was 24-14, three short of the two-thirds majority needed to approve a budget bill. Two senators, one Democrat and one Republican, were absent.

Democrats say they are unwilling to accept more budget cuts and challenged Republicans to offer a compromise plan.

"The Republicans have their feet in concrete," said Senate President Pro Tem John Burton, D-San Francisco. "It just looks like nothing is going to give."