SACRAMENTO — Gov. Arnold Schwarzenegger’s administration warned Tuesday that it will start the process of laying off thousands of state workers if the governor and legislative leaders do not reach a budget deal by Friday.

The move came as the state controller released the latest grim numbers about California’s financial health. Revenue from personal income taxes plummeted nearly 20 percent in January compared with a year ago as the state took in almost $2.2 billion less.

Under the governor’s layoff plan, 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 $750 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.

The controller’s office already has delayed by at least 30 days refunds owed to taxpayers, payments to contractors and social service funding for local governments. Controller John Chiang said California has just $6 for every $10 in bills it owes.

As part of his December budget plan, Schwarzenegger had proposed laying off enough state employees to save around        $150 million — likely fewer than 2,000 workers. But after months without a deal to solve the shortfall, the state’s fiscal condition has worsened and more layoffs are needed, McLear said.

The governor 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 the twice-a-month furloughs. State workers will see their pay trimmed by 9.2 percent.

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

Prison employees are likely to be among those hardest hit by any layoffs. Department of Corrections and Rehabilitation workers make up nearly two-thirds of the approximately 100,000 employees who are paid out of the state general fund, according to the nonpartisan Legislative Analyst’s Office.

Analyst Jason Dickerson said it might not be possible to lay off so many corrections employees without major reductions in the number of inmates or jeopardizing health and safety in state prisons.

Coincidentally, a panel of three judges issued a tentative ruling this week that would force California to release tens of thousands of inmates to relieve overcrowding in state prisons, although the judges set a timeframe of two to three years. State officials said they would appeal to the U.S. Supreme Court if the ruling becomes final.

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.