California has enough cash available to pay its priority bill through September thanks to the IOUs it has been issuing, but it may not be able to make payments in October due to the state's budget crisis, the state controller's office said on Friday.

California last week began issuing IOUs in lieu of payments to taxpayers owed refunds and to vendors to manage its cash amid declining revenues and the impasse between Governor Arnold Schwarzenegger and lawmakers over balancing the state's books.

State Controller John Chiang issued his outlook on the state's ability to pay its bills in a statement, pressing Schwarzenegger and lawmakers to reach an agreement to close a $26.3 billion state budget shortfall to avert a cash crisis.

General obligation debt payments are constitutionally protected and are California's second highest priority payment behind education.

Chiang plans to issue more than $3 billion of the IOUs, technically registered warrants, this month.

California faces a cash shortfall in October unless its budget is balanced, and that threatens it ability make its priority payments, according to Chiang's office.

Without IOUs, the state would have run out of cash and begun missing those protected payments at the end of July, the statement said.

While updated cash projections show that IOUs will preserve enough cash to make those protected payments through September, the cash shortfall in October will endanger the state's ability to make those payments, the statement said.

Schwarzenegger, huddling with top lawmakers in budget talks as Chiang's office released the statement, is intent on honoring the state's debt payments, Schwarzenegger's spokesman on state finance matters, H.D. Palmer, said.

Going back to the Great Depression, the state of California has never missed a scheduled payment to a bondholder or noteholder and we will move heaven and earth to make sure we don't break that streak, said Palmer.

California