The state Legislature approved a plan to close California's $42 billion budget deficit early Thursday after an epic battle that involved several all-night sessions, sending the governor a package of bills that raises taxes and cuts spending.
It was not immediately clear when Gov. Arnold Schwarzenegger would sign the bills.
During an afternoon news conference, the Republican governor praised the effort to forge a compromise. It required Democrats to back away from their opposition to deep spending cuts and some Republican lawmakers to set aside their opposition to tax increases.
He called the Legislature's work, after a grueling week of late-night sessions, courageous.
"Now, instead of worrying every day only about IOUs and about red ink, we can start moving California forward once again. This action to solve our $42 billion deficit was difficult but courageous and just what California needs," he said. "This is the perfect medicine for our ailing economy, and it will boost public confidence in California, reassure the financial community and allow us to start selling bonds and rebuild our state."
Shortly after the budget-balancing plan passed the Legislature, Schwarzenegger emerged from his office and disconnected a large deficit clock counting the number of days -- 106 as of Thursday -- that the Legislature had failed to act since he declared a special session to deal with the state's fiscal problems.
The budget deal flew through the Assembly less than an hour after it won approval by a single vote in the Senate after late-night horse-trading to win over a final Republican vote. The vote marked the end of the Senate's longest-ever session at 45½ hours.
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The package contains $12.8 billion in tax increases, including a 1 cent hike in the state sales tax, a boost in the personal income tax rate and a higher vehicle license fee. It also includes $15.1 billion in spending cuts, mostly to education, and $11.4 billion in borrowing.
The package of bills is intended to close a budget deficit that had been projected to hit nearly $42 billion by June 2010.
Despite the tax increases, the plan reduces California's current fiscal year, general fund spending by nearly $13 billion -- from $103 billion to $90.7 billion. For 2009-10, it sets a spending plan of $96.3 billion.
It marked the earliest time lawmakers had approved a spending plan for the coming fiscal year.
Senate leaders secured the final vote needed from moderate Republican Abel Maldonado in late-night negotiations by agreeing to his demands for election changes, government reform and removal of a 12-cent-a-gallon increase in the gasoline tax. That provided the required two-thirds vote needed to pass the package.
To win Maldonado's support, legislators also agreed to ask voters to revise the state's Constitution to allow open primaries for legislative, congressional and gubernatorial elections. The move is designed to help moderate candidates such as Maldonado, of Santa Maria, who often have difficulty winning partisan primaries.
Leaders also met Maldonado's demands to freeze legislators' salaries during years when the state is running a budget deficit and to eliminate new office furniture budgeted for the state controller's office.
Assembly Speaker Karen Bass, D-Los Angeles, said members of her party are torn about the potential for open primaries.
"Our commitment was, tonight, to pass it out of our houses and to put it on the governor's desk. This ends our commitment," said Bass. "I will say that within our house, as well as within the other house, our caucuses are divided because some members of our caucus support the idea of an open primary and there are some that are opposed to it."
Republicans who broke from their party in passing the tax portion of the package harkened back to former Gov. Ronald Reagan's decision to approve tax increases during hard economic times.
"What would Ronald Reagan do? Ronald Reagan would vote yes," said Sen. Roy Ashburn, R-Bakersfield.
Maldonado brought out a photograph of Reagan at a tax bill signing in 1972. He said he never thought he would have to defend California against members of his own party.
"This is not about my political career. This is about the health and safety for the people of California," Maldonado said. "My friends, this might be the end for me. This ensures it's not the end for California."
For Ashburn's support, legislative leaders included an amendment he backs that provides a $10,000 tax credit for those who buy new homes. The credit, supported by home builders, would be available starting in March and run through 2010. It would be capped at $100 million.
Californians would be able to use the credit to offset their state income taxes over three years.
Lawmakers also agreed to help the horse racing industry in his district -- and throughout California -- by using $32 million in state funding each year to offset maintenance fees at fairgrounds.
Senate Majority Leader Darrell Steinberg, D-Sacramento, was asked after the vote if all the late-night giveaways would set a bad precedent for future negotiations. The senator said he's more interested in lowering California's two-thirds threshold for passing budgets.
"It's an unpleasant part of the process. But I'll tell you what the answer is. The answer is to take this two-thirds supermajority requirement -- we're one of three states in the country that allows a small minority of members to hold up the process," he said.
Steinberg said the state still has many more items on its to-do list, including bolstering the state's water delivery system and reforming the state's prison system, where health treatment for inmates is under federal receivership.
During the middle of the marathon budget battle, Republicans in the Senate ousted their leader over opposition to tax increases. Former Senate Minority Leader Dave Cogdill ultimately provided Democrats the first of the three necessary GOP votes in the Senate.
In the Assembly, Republican Leader Mike Villines of Clovis, Roger Niello of Fair Oaks, a suburb outside the capital, and Anthony Adams of Hesperia joined Democrats to pass the budget.
"I think we came together and everybody had to give something," Villines said.
But Assemblyman Chuck DeVore of Irvine said the tax increase will further harm the depressed economy.
"We will be right back here in one year with the same problem," he said during the floor debate. "No economist argues increasing taxes especially during weak economic times is going to result in people adding payroll, in people getting back to work. ... The opposite will happen."
You can calculate how the tax increases could affect your household at Sactobee.com.
