They are working on the details of a tax-and-cut package worth $18 billion that is needed to close a growing gap between state spending and revenue.
Republican lawmakers have been left out of the discussions because they refuse to agree to any deal that increases taxes. Democrats and Schwarzenegger say the size of the deficit is so large that spending cuts alone will not be enough.
California's deficit is projected to hit $42 billion over the next 18 months.
Senate leader Darrell Steinberg said talks were going well, with lawmakers "getting down to the nitty-gritty details."