SACRAMENTO, Calif. — The California Legislature approved a state budget Friday after ceding to Gov. Arnold Schwarzenegger's demands for financial reform and winning his approval for the plan, which will end the state's record three-month stalemate.
The $143 billion budget plan will allow the nation's most populous state to resume payments to schools, medical clinics, day-care centers and state vendors that haven't been paid since July 1, the start of the fiscal year. Legislators had to bridge a $15.2 billion budget deficit.
Schwarzenegger, a Republican, said he was pleased that leaders of the Democratic-controlled Legislature agreed to stronger controls on the state's rainy day fund and gave him the authority to make spending cuts during the year. But he added that he wanted more reforms to prevent the state from spending more than it takes in.
He said he could sign the package as early as Monday, though there might not be much fanfare.
"There's nothing to really celebrate," the governor said at a news conference Friday. "As I said, great things were accomplished, but there are certain things that were not accomplished."
Senate President Pro Tem Don Perata, one of the lead negotiators, said state finances will only get tougher as partisan ideology dominates the Legislature.
"I don't know what the governor does next year, but he's got a much bigger problem," said Perata, whose term ends in November. "He's right: We just kicked the can down the street. I don't understand how he's going to get any Republican votes next year for a tax increase."
The impasse dragged on because of an ideological feud. Legislative Republicans opposed any tax increase, while Democrats sought to combine budget cuts with higher taxes on corporations and the wealthiest Californians. Schwarzenegger proposed a temporary 1-cent increase in the state sales tax that would drop after three years.
"Everybody realized it's not a pretty budget this year," said Senate Minority Leader Dave Cogdill. "Republicans met their goal, which was to try to find a way to get a budget that didn't do further harm to an economy that's already hurting."
Schwarzenegger has been trying to fulfill his central campaign promise in the 2003 recall election: to organize the state's finances.
He had promised to veto the budget lawmakers agreed to without him and passed early Tuesday, saying it didn't meet his demands for a more robust rainy day fund. He also said it relied on accounting tricks — such as collecting an extra 10 percent of workers' income tax in advance and repaying it later — that could lead to an even larger deficit next year.
The four legislative leaders conceded they were uncertain whether they could muster the two-thirds vote of the Legislature required to override his veto and returned to his office to negotiate Thursday.
They agreed to take out the provision calling for the earlier collection of workers' income tax and replace it with a larger fine against businesses that fail to report or underreport tax liabilities. Lawmakers also agreed to ensure the state's rainy day fund could be tapped only when revenues fall below projected spending — the last remaining piece of the budget reforms Schwarzenegger sought.
The rainy day fund and a proposal to borrow $10 billion against anticipated lottery revenues to help stabilize future budgets will require voter approval, probably in a special election next year. Schwarzenegger said that would likely be set for June.
The rest of the budget approved Tuesday will stand, including $7.1 billion in spending cuts that advocates say will trigger deep cuts to health care in the future.
Education and social service groups criticized the Legislature for ceding to the Republican governor's demands. They said the restriction on when money could be taken out of the rainy day fund would limit the state's ability to maintain programs in lean years.
"You could say it's full of gimmicks, it's full of sleight of hand," Rick Pratt, assistant executive director of the California School Boards Association, said of the budget package. "We're going to be back next year fighting the same battles."
The governor lamented the long delay in getting a spending plan, saying it had hurt ordinary citizens. He said he would like to see lawmakers face consequences when they fail to reach a deal by their constitutional deadline.
"We know that the system itself is not working, that it's flawed. Therefore we should revisit it and come up with ways so that we can speed up this process," he said at the Capitol. "I don't think it will get done in this building."