(Repeats to broaden distribution)

* Proposal voted down largely along party lines

* State controller says may have to issue IOUS next week (Adds quotes from both sides, other details)

By Marianne Russ

SACRAMENTO, June 24 (Reuters) - The California Legislature on Wednesday voted down $11 billion in cuts to state services, sending members back to the drawing board as they grapple with a $24 billion budget gap.

The proposal failed largely along party lines in both the Assembly and state Senate, as expected, with Republicans saying it fell far short of the savings needed and amounted to posturing by Democrats.

Controller John Chiang said earlier on Wednesday that he will have to begin issuing IOUs next week if the gridlocked Legislature and Governor Arnold Schwarzenegger cannot agree on a budget.

"This is June the 24th and this is serious business, and if (the Republicans) position is that they do not want the state to go into IOUs then we need to see how they would make up the magic number of 24 billion," Senate Democratic leader Darrell Steinberg said.

"If this is some sort of a thing to see whether or not we will blink ... you can't see them but I actually have toothpicks holding my eyes open," he said.