The workers, members of Service Employees International Union Local 1000, were dressed in purple and chanted in protest against the governor's move.
"People are going to get put out of their homes," said Debra Martin, a union steward. "The governor says he's sorry. . . . We can't pay with sorry."
Schwarzenegger said he would file suit against the controller in court "if that's what it takes." But the governor also expressed hope of signing a budget within days, which would make a battle unnecessary.
Assembly Speaker Karen Bass (D-Los Angeles), calling Schwarzenegger's action "most unfortunate," said she was confident a budget compromise would be reached before the end of August, when most employees would feel the effect in their monthly paychecks.
The budget dispute has broken down along party lines. Democrats have insisted on increasing taxes to help close a $15-billion budget gap. Republicans are banking on cuts in government services and, like Schwarzenegger, have focused on changing the state budget process to create a more secure rainy-day fund.
Both sides have seemed open to compromise in recent days.
"We believe budget reform is an essential element, and we also appreciate there may be some tax loopholes that need to be closed," said Assemblyman Sam Blakeslee (R-San Luis Obispo). "We're willing to talk about all those issues."
An agreement, if one is reached, will have come too late for the 10,300 part-time, seasonal and occasional employees who Schwarzenegger's aides said received pink slips Thursday, without any guarantee of being rehired later. That is about half of all such state workers.
Derek Pettersen, 21, a student who was working full time this summer for the Commission on Teacher Credentialing in Sacramento, was told not to show up Thursday.
"It's not my fault that the budget hasn't been signed yet, and I'm the one paying for it," said Pettersen, who will forgo $1,600 if he remains unemployed for all of August. "I don't really understand why I had to lose my job temporarily because someone else isn't doing their job."
Jim Herron Zamora, a spokesman for SEIU Local 1000, said the group would file a lawsuit Friday to fight the governor's use of its members as "pawns" in his dealings with lawmakers.
"We are not pawns," Zamora said. "We are 95,000 living, breathing human beings."
