California’s protracted budget imbroglio is intensifying as the constitutional deadline of June 15 looms for the Legislature to send Gov. Gray Davis a spending plan.

State Controller Steve Westly and Finance Director Steve Peace traveled to New York City trying to secure $11 billion in short-term loans so that California can pay for its daily operations through the summer. If there is no budget in place by September, Westly says, the state will shut down because it won’t be able to obtain additional loans.

Their mission to Wall Street is complicated by the $38 billion budget crisis, which shows no sign of being resolved soon. This makes investment bankers skittish about providing California with $11 billion in “bridge” loans, let alone another $10.7 billion in general obligation bonds to help pay off the monster deficit.

Wall Street’s skittishness promises to become even more pronounced in the wake of last week’s meeting in Sacramento between bankers and the Assembly Republican Caucus. GOP lawmakers rejected calls for a half-cent sales tax increase dedicated to repaying the bonds. The bankers say they will be unlikely to lend the money without a new tax.

Meantime, Treasurer Phil Angelides is warning legislative leaders to refrain from approving any more general obligation bonds until the state’s budget is balanced. There are currently 16 bills seeking $61.7 billion in bonds.

Angelides’ admonition follows Legislative Analyst Elizabeth Hill’s cautioning the Legislature to be very careful about amassing additional debt. Hill’s reservations resonate in Sacramento, in part because the office she heads is nonpartisan. Hill views a heavy reliance on borrowing, combined with shaky revenue assumptions, as a prescription for financial disaster.

She is correct, and Wall Street agrees, which is why the bankers are watching California’s budget standoff so closely. They see the steady increase in the state’s debt-service ratio as a chronic refusal to face fiscal reality. Their negative perception is borne out by California’s lowest-in-the country bond rating, which reflects its low credit worthiness.

Hill was exactly right when she said the “precariously balanced” budget put forth by Davis this month will saddle the state with gaping budget holes in future years. Rather than bicker and point fingers, the governor and the Legislature should focus on crafting a credible spending plan that includes real structural reforms, like revamping the state’s highly volatile tax system. And they better do so before California’s bonded indebtedness spins out of control.