SACRAMENTO - Even as the state is poised to give 181,000 public employees scheduled pay raises July 1, state officials are preparing to cut off crucial payments for community colleges and summer-school programs -- the first tangible impact of the state's budget crisis.

State Controller Steve Westly warned legislators Wednesday that he will freeze millions of dollars in payments to public schools if a new budget is not in place by the start of the new fiscal year Tuesday. The move, required under a court ruling in May, would be a first for the state and would send school officials scrambling to keep programs running as usual.

At the same time, California is on the hook to provide thousands of state workers with pay raises of at least 5 percent -- costing hundreds of millions of dollars -- as part of long-term contract agreements that the Davis administration is now trying to unwind.

The state's June 30 constitutional deadline to enact a new spending plan is often missed. What is different this year is the mounting effort to recall Gov. Gray Davis, which is adding to the partisan climate in the Capitol. In addition, the state Supreme Court decision prohibits Westly from paying certain bills -- to fund summer school and special education and to keep community colleges running -- until a new budget is in place.

``This is a financially dangerous place to be,'' Westly said. ``This is going to be real hurt for the state of California and the problem gets worse every day we go without a budget.''

Political rhetoric is historically heated in the days leading up to the annual deadline as a way to pressure lawmakers to reach consensus. It is unclear whether this year's dire predictions will come true, but more than 8,000 state employees have already received notices of potential layoffs.

`Clock is ticking'

All bets appeared off Wednesday for a timely resolution. For the second day in a row, Senate Democrats failed to muster the two-thirds vote necessary to pass a budget blueprint. The spending plan, which needed 27 votes to pass, was defeated 24-14.

Republicans again accused Democrats of out-of-control spending during flush times and refused to support any tax or fee increases to fill a $38 billion budget gap. GOP Senate Leader Jim Brulte of Rancho Cucamonga acknowledged that ``the clock is ticking.'' But he said the Democratic proposal ``is nothing but a continuation of what you all have done for the last three years that has nearly bankrupted this state.''

Elected officials, political appointees and legislative staffers, who are not protected by federal law, are accustomed to missing paychecks when the Legislature blows its deadline. But the court decision, which was sparked by budget gridlock in the late 1990s, bars the controller from paying certain state bills, and from paying public employees more than minimum wage.

Westly has promised to pay full salaries to state employees until the antiquated payroll system can be reprogrammed. But as soon as late August, when computers are overhauled, Westly said he would have to pay minimum wage.

The more immediate impact would be felt at public schools, which are on course to miss a $250 million payment at the end of July that funds programs such as special education and remedial math and reading.

``How do we keep the lights on for year-round programs and summer programs?'' said Kevin Gordon of the California Association of School Business Officials. ``Eventually we get our money -- the issue is, how do we deal with cash flow?''

Money for schools

Community colleges would miss a $192 million monthly payment at the end of July. San Jose-Evergreen Community College District can ride out the problem for several months, but if the impasse drags on into August and September, schools will have to find creative ways to keep the doors open.

Vice Chancellor Mike Hill, who oversees school finances, is considering putting off payments, seeking an advance on property taxes and borrowing from other internal funds.

While Westly prepares to freeze education payments, state officials are pressing to undo employee contracts that provide a 5 percent raise beginning July 1.

In 2001, the state persuaded employee unions not to take salary increases for two years. Now, to help close the budget gap, Davis is seeking to save $855 million through renegotiating employee contracts. Already, the state has decided not to offer raises to an estimated 20,000 managers and supervisors who are not represented by employee unions.

But Perry Kenny, president of the California State Employees Association, which represents 110,000 employees, said workers are committed to keeping planned raises.

Mark Muscardini, a Highway Patrol officer and president of the Association of California Highway Patrolmen, acknowledged the state is in poor financial shape, saying, ``We know what a mess the state is in.''

But officers agreed two years ago to forgo pay raises in exchange for a future boost. According to Muscardini, officers are due to receive an increase of between 6 percent and 7 percent as a way to catch up with the salaries paid by other big-city police and sheriff's departments.

``We did our time in the barrel. We did our two years,'' he said. ``We have to enforce it now.''

In another indicator of the state's rocky financial condition, the CHP this week issued 1,500 so-called pink slips to uniformed officers, 911 dispatchers and clerical assistants.

Despite the gloomy outlook for an on-time budget, Davis predicted in a radio interview Wednesday that at least one house of the Legislature would approve a budget blueprint by the July 1 deadline. But Davis will not be in California for face-to-face negotiations this weekend. He will be in New York for his mother's 80th birthday and his niece's wedding.