Oct. 21 (Bloomberg) -- California Governor Arnold Schwarzenegger said lawmakers will need to return for an emergency session to cut spending or raise taxes to address a $3 billion budget shortfall.

Lawmakers would likely need to come back in November, once Schwarzenegger's finance office completes an analysis of how big the hole might be by the end of the fiscal year on June 30, said Aaron McLear, his press secretary.

Schwarzenegger signed a $143 billion budget Sept. 23, ending an 85-day stalemate with lawmakers over how to close a $15 billion deficit. Tax revenue tied to income and capital gains is declining in the state as the U.S. economy falters and stock markets slide.

``We don't think that we can wait until Dec. 1 to solve the budget deficit,'' McLear said in a telephone interview.

Ordering a special session to begin next month would allow any temporary tax increases or deep spending cuts that might be proposed to be heard by lawmakers who are to leave office because of term limits or have been voted out during the general election Nov. 4.

California, the biggest borrower in the municipal-bond market, has $51 billion in general-obligation debt outstanding. The state is rated A+ by Fitch Ratings and Standard & Poor's, the fifth-highest rankings, and a comparable A1 by Moody's Investors Service.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net.

Last Updated: October 21, 2008 17:44 EDT