12:30 p.m.SACRAMENTO — Gov. Arnold Schwarzenegger’s administration warned Tuesday that it will begin proceedings to lay off thousands of state workers if the governor and legislative leaders do not reach a budget deal by Friday.

Notices would go to employees with the least seniority in the state’s corrections and health and human services departments, as well as all other agencies that receive money from the state’s general fund, said Schwarzenegger’s communications director, Matt David.

The move is part of the governor’s order to cut 10 percent from the government payroll as California faces a $42 billion deficit through June 2010.

“This is simply a matter of needing to realize savings and running out of time to do that,” David said.

The governor’s proposal to balance the budget through a mix of spending cuts and tax increases assumed the fix would be enacted by Feb. 1, but he has been unable to reach a compromise with lawmakers after weeks of meetings.

“We’re losing savings the longer we go into February,” David said. “We’re at the point where time’s up.”

Administration officials are seeking to eliminate up to 10,000 jobs. Because of seniority and so-called bumping rights, however, they will need to send about 20,000 layoff notices.

They project $150 million in savings through the end of the 2009-2010 fiscal year.

Under labor agreements, the procedure to lay off a large number of state workers takes about six months, said Lynelle Jolley, a spokeswoman for the state Department of Personnel Administration, which oversees employee pay and benefits.

She said employees first receive a type of pre-layoff warning that gives them 120 days’ notice.

“It gives the employee the opportunity to shop for other state jobs that they will be given preference for, compared to a non-state employee or even another state employee,” Jolley said.

Employees who receive a notice will have a chance to transfer to other branches of state government that are not paid through the general fund.

Schwarzenegger spokesman Aaron McLear said the first notices will be sent Friday if a deal is not reached by then, although he characterized ongoing budget talks as encouraging.

“It’s not a threat. This is not a tactic. It’s a necessity. The state is starting to run out of money. The governor has very few options that he can take to unilaterally cut back on state spending,” McLear said.

Schwarzenegger has the authority to start the layoffs under an executive order he issued in December, in which he also ordered the first furloughs in state history.

Some 200,000 state workers were forced to take last Friday off without pay, as part of twice-a-month furloughs Schwarzenegger ordered to save money. The furloughs amount to a 9.2 percent pay cut for affected employees.

The administration also wants to eliminate two of the 14 paid holidays state employees get each year, a move it estimates would save about $75 million through June 2010.

Lance Corcoran, a spokesman for the California Correctional Peace Officers Association, which represents most prison guards, said mass layoffs would hurt the state economically without solving California’s budget woes.

“Wholesale layoffs is a drop in the bucket with respect to the state’s overall fiscal problem,” Corcoran said. “Even with a 10 percent reduction in pay, state employees are only one 40th of the problem.”

California has issued mass layoff notices because of precarious financial conditions before.

In summer 2003, then-Gov. Gray Davis issued about 16,000 surplus notices, or pre-layoff notices, Jolley said.

In the end, lawmakers agreed to cut 9,300 state government positions when they finally reached a budget accord. Most were vacant at the time, so about 1,200 people lost their jobs or were demoted, she said.

Schwarzenegger and lawmakers are approaching the 100th day since the governor called the special session to deal with the state’s fiscal crisis.

Republican legislators remain opposed to tax increases, while Democrats are trying to preserve as much education and social service funding as possible.

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Associated Press Writer Judy Lin contributed to this report.