Prospects for a resolution of the state’s financial crisis darkened further Monday, with a top lawmaker saying negotiations were “getting worse,” as the state’s credit rating dropped to its lowest level in years.

Assembly Speaker Karen Bass (D-Los Angeles), who had left closed-door talks Sunday night “very discouraged,” boycotted a morning negotiating session, saying Gov. Arnold Schwarzenegger’s demands are unrelated to a deficit now swollen to $26.3 billion.

The governor has asked for sweeping changes to California’s in-home healthcare, Medi-Cal and welfare programs, as well as to the public employee pension system. Experts say some of those would change the state’s long-term fiscal outlook, but they differ on how far such moves would go toward closing the current budget gap.

“They’re getting worse,” Bass said of the negotiations between the governor and legislative leaders, “because I believe we’re not talking about the subject -- we need to be talking about closing the deficit.”

Schwarzenegger, speaking to reporters in his office Monday morning, declined to criticize Bass, calling her a “great public servant” and “very passionate.”

But after a Wall Street agency, Fitch Ratings, lowered California’s credit rating from A- to BBB, its lowest since 2004, the governor issued a statement saying, “This is not the time for boycotting budget meetings.”

As Bass complained about side issues, contention was growing over cuts to schools, in particular the governor’s proposal last week to suspend voter-approved funding guarantees. The spending formula is sacred to the well-funded California Teachers Assn., whose members delivered 10,000 postcards to Schwarzenegger’s San Diego office Monday, calling on him to protect schools money.

Education officials and advisors said they were readying a possible statewide television campaign to fight any meddling with Proposition 98, the school funding formula. They declined to reveal the content of or budget for the ads.

Schwarzenegger was noncommittal on the subject Monday.

“It’s a very, very complicated issue,” he said. “Do we need to suspend it, can we do it without suspension? . . . Everyone is working on this.”

Bass said a suspension of the funding formula would be “unacceptable.”

Senate President Pro Tem Darrell Steinberg (D-Sacramento) said such a proposal “could have been easily avoided.”

Steinberg was referring to an opportunity to cut about $3 billion from schools that evaporated with the end of fiscal year last week. Republicans in the state Senate blocked the effort, and the projected deficit grew. That soured the tenor of budget talks.

To account for the larger deficit, Schwarzenegger proposed some new changes and revived others, including a plan to fight “fraud, waste and abuse” in the state’s In-Home Supportive Services program.

“There is no program that has more of that,” he said.

Schwarzenegger said his proposal, which would require fingerprinting workers and recipients of the assistance, which goes to the elderly and disabled, “will save us money down the line -- billions of dollars down the line.”

Democrats say the plan should not be part of current budget negotiations.

“One person’s reform is another person’s unacceptable cut,” Steinberg said.

Meanwhile, with California issuing IOUs in lieu of paying some bills, requests have appeared on Craigslist from people wanting to buy the paper promises, presumably to sell them for profit.

State Treasurer Bill Lockyer issued guidelines for third-party sales that require a notarized bill of sale signed by the person whose name appears on the IOU.

shane.goldmacher

@latimes.com