Image: California state Sen. Abel Maldonado
Rich Pedroncelli  /  AP
California state Sen. Abel Maldonado, R-Santa Maria, gives a thumbs up to cast the deciding vote for passage of the state budget plan at the Capitol in Sacramento on Thursday.
updated 2/19/2009 4:13:10 PM ET 2009-02-19T21:13:10

California Gov. Arnold Schwarzenegger says state lawmakers were courageous in approving a combination of tax hikes and spending cuts to close the state's massive budget deficit.

The state Legislature approved a budget-balancing package early Thursday intended to close California's $42 billion deficit through June 2010.

Schwarzenegger, a Republican, praised the package of bills, which was passed by the Democratic-controlled Senate and Assembly.

He says Democrats compromised on their opposition to deep spending cuts while some Republican lawmakers set aside their opposition to tax increases.

He also says the legislature's work, after a grueling week of all-night sessions, was "difficult but courageous, and just what California needs."

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 session at 45.5 hours.

Late-night concessions
The package included a combination of spending cuts, tax increases and borrowing.  Some 10,000 state workers could have lost their jobs without the budget package.

The plan cut California's current fiscal year spending by nearly $13 billion from $103 billion to $90.7 billion. For the 2009-2010 bookkeeping year, which begins July 1, it sets a spending plan of $96.3 billion.

Video: Future shock 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 gas tax increase, giving them the 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.

Leaders also met Maldonado's demands to freeze legislators' salaries in deficit budget years and to eliminate new office furniture budgeted for the state controller.

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'What would Reagan do?'
Republicans who broke from their party in passing the tax portion of the package harkened back to former Gov. Ronald Reagan's decision to pass tax increases during hard economic times.

"What would Ronald Reagan do? Ronald Reagan would vote yes," said Sen. Roy Ashburn of 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 the state — by using $32 million in state funding each year to offset maintenance fees at fairgrounds.

A change at the top
During the middle of the marathon budget battle, Republicans in the Senate ousted their leader over opposition to tax increases. Senate minority leader Dave Cogdill ultimately provided Democrats the first of the three necessary GOP votes.

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."

Newly installed Senate Minority Leader Dennis Hollingsworth warned about the crippling effects of passing the state's largest tax increase in California history.

"You may count this as a win because you got a few Republicans to vote for it," he said. "The taxpayers of California are going to view this as a loss."

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Video: Schwarzenegger praises Calif. budget

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