LOS ANGELES -- California's longest budget stalemate is expected to continue through another weekend following an impasse over cuts in local aid.

Gov. Pete Wilson and key lawmakers said Wednesday they had reached a tentative agreement on funding for correctional facilities and higher education, but that officials are deadlocked over how much to take from cities, counties, and special districts.

"It will be at least another week," Cynthia Katz, spokeswoman for the state Department of Finance, said yesterday. "All the issues are open. Nothing has been locked down."

State leaders failed to reach a budget accord on July 1, the start of the current fiscal year. This year's impasse marks the longest time in California's history that the state has entered a new fiscal year without a spending plan, and the delay helped contribute to recent rating agency downgrades.

Now Democratic and Republican leaders are dividend over how much to take from local governments, and whether to take more from cities or counties. Officials also disagree on whether to give local entities additional taxing powers to compensate for the lost revenues.

"We're still negotiating, but we're not getting very far," said Jim Lewis, press secretary for Assembly Speaker Willie Brown, D-San Francisco. "The governor, a former mayor, thinks police and fire, which are the cities' responsibility, is of greater priority than taking care of the poor and the ill, which is the counties' greatest responsibility."

Several Democrats reject the governor's proposal to allow counties to set their own levels of health and welfare services.

But they agree that state payments to local governments should be partially repealed. Depending on the extent of cuts, the state could save from $932 million to $1.7 billion. These payments were approved after the 1978 passage of Proposition 13, a voter initiative that slashed property taxes.

Budget talks are expected to continue this weekend. Some observers in Sacramento speculated that Gov. Wilson would like to solve the budget crisis before Aug. 15 so he can attend the Republican National Convention.

"He's scheduled to go," said Ms. Katz. "But the won't go unless there is a budget. He wants a budget more than he wants to go to the convention."

California cannot borrow money without a budget. Instead, it has been forced to issue $1.97 billion of IOUs, or registered warrants, to pay its bills.

Many financial institutions have cashed the IOUs, but on Tuesday Bank of America quit honoring the warrants. Wells Fargo Bank said it will not accept warrants after today.

Several smaller banks and savings and loan associations have also said they will quit accepting the warrants. But First Interstate Bank, based in Los Angeles, has said it will cash warrants indefinitely.

Some warrants also are being bought and sold outside the banking industry. Attracted by the 5% interest rate on the IOUs, Los Angeles County has purchased more than $237,000 of IOUs at face value from schools and community colleges. The county also is holding on to warrants it received as payments from the state.

"Five percent is not a bad yield," said Ms. Katz. "They're actually making money on these."

The city of Sacramento announced Thursday it would begin accepting warrants, albeit with a small service fee.

"Our treasurer thinks it is important to do this to help the local economy so that local business won't be hurt," said a spokeswoman for the city.

Some commercial entities and check-cashing services are also accepting the warrants. Some, however, are cashing them for less than face value.

In at least one instance a Wall Street firm also has acted as an intermediary to provide liquidity in the IOU market.

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