The state budget was signed into the law just two weeks ago, but the governor warned that additional cuts may have to be made because of declining revenues.
State Controller John Chiang said revenues for the first quarter of the state's fiscal year were down more than $1 billion from previous projections.
Chiang said the state is in danger of running out of money by the end of the month.
Schwarzenegger said he would try to create an action plan so the state can pay thousands of state employees, including California Highway Patrol Officers.
State Treasurer Bill Lockyer also searched for ways to raise cash on Wednesday. He said he was trying to raise $4 billion in short-term loans to keep the state afloat financially.
"The state has been having a terrible time trying to sell short term notes to investors basically," Lockyer said.
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That is because of California's credit crunch. With the state now drowning in a sea of red ink, sales tax revenues are down, along with corporate taxes and other revenues, leaving the state more than $1 billion in the hole for just the first quarter of the fiscal year, Lockyer said.
California is now projected to run out of money and be unable to pay all its bills by Oct. 29.
"We want to avoid that as much as possible," said H.D. Palmer of the California Department of Finance. "That's exactly why the Governor took the step of asking Treasury Secretary Paulson to consider being a conduit for financing in the event we have trouble accessing the credit markets."
Schwarzenegger has asked the federal government to help provide cash so the state can continue to pay teachers and law enforcement.
Wednesday the state's top legislative leaders met with the governor to explore options.
Compounding the problem is that California's unemployment rate is now nearly 8 percent. So many people have applied for assistance in recent months that the state's unemployment insurance fund is expected to run out of money by January.
Brian Foster, who said he is desperately trying to find work, said he is troubled by the unemployment rate.
"That's kind of alarming because that's the only stop gap we have for a lot of us who are just barely making ends meet," Foster said.
He said he is hoping the state can find a way to stop the bleeding.
Schwarzenegger said he would look at the possibility of calling a special session of the legislature.