"We can't do a budget unless the legislature and the executive branch get together," said Secretary of the Budget Michael Masch.
Senators say they will return to the capitol building to debate the budget and work with house members and democratic Gov. Ed Rendell.
Republicans in both the house and the senate say they are opposed to the governor's demands on a new energy bill and spending on transportation, bio-tech, and health care funding.
"We need to pass a budget, keep the government operating, then we can come back to the table and go with a whole host of other issues," said State Rep. Dave Reed of Indiana County.
But the governor insists his agenda items are right for Pennsylvania.
"Let the people determine policy for Pennsylvania," said Gov. Ed Rendell. "If we do that, by next week I can sign a good, good budget that protects important things and has reduced spending."
The governor's office warns if there is no budget, the state cannot pay "non-essential" workers.
This means up to 40,000 state employees at places like driver's license centers, state parks, and the gaming commission would be off the job.
No gaming commission means casinos like Erie's Presque Isle Downs could have to close.
"I would think to lose that employment base right after you gain the momentum that we're going to be gaining would not be a good thing for the state in the infancy of this program as it is," said Ted Arneault, CEO of MTR Gaming Group, the company that owns Presque Isle Downs.
"I hope everybody can get together and figure out how to get beyond this impasse," he added.
The governor's office plans to send out notices to "non-essential" state workers beginning tomorrow.
Those workers could be off the job by Monday.