Image: Governor Arnold Schwarzenegger of California.
Rich Pedroncelli  /  AP
Gov. Arnold Schwarzenegger says thanks to the newly approved state budget, "we can start moving California forward once again."
updated 2/20/2009 12:06:41 PM ET 2009-02-20T17:06:41

Gov. Arnold Schwarzenegger called California lawmakers "courageous" in narrowly approving a massive tax increase along with cutting billions in spending in a package of bills that await his signature Friday.

Both houses of the Legislature got the bare minimum of votes Thursday to reach the two-thirds requirement needed to pass the measures, ending a grueling week of negotiations over closing the state's $42 billion budget deficit.

"Now, instead of worrying every day only about IOUs and about red ink, we can start moving California forward once again," the Republican governor said of the package he was expected to sign into law. "This action to solve our $42 billion deficit was difficult but courageous and just what California needs."

He noted that Democrats had to back away from their opposition to deep spending cuts: The package includes $15.1 billion less in spending. Republicans, for their part, set aside their opposition to tax increases — allowing $12.8 billion in tax hikes.

The deal also calls for billions in borrowing and measures intended to stimulate the state's economy.

If the economy doesn't worsen considerably, the plan is intended to balance the state's budget through June 2010. The Senate began debating before dawn Thursday after a moderate Republican, Sen. Abel Maldonado of Santa Maria, agreed to provide the final vote.

In exchange, he won major concessions from Democrats and the governor. Maldonado was able to strip out a 12 cent-a-gallon gas tax from an earlier version of the package and have two measures placed on a future ballot: One seeks fully open primary elections and another would freeze lawmakers' pay when the state runs a deficit. He also got $1 million for office furniture in the controller's office deleted.

Maldonado acknowledged voting for tax increases could come back to haunt him in a future election but said it was the right decision.

Video: Schwarzenegger praises Calif. budget "My friends, this might be the end for me," he said. "This ensures it's not the end for California."

The accord came after both houses began meeting on Valentine's Day and set two records for the longest continuous legislative sessions in state history — one by the Assembly earlier in the week and the 45 1/2-hour marathon that ended Thursday in the Senate.

"This has been a long, very painful journey," said state Assembly Speaker Karen Bass, D-Los Angeles.

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The ordeal began in December, when Schwarzenegger called the second of three successive special sessions to deal with California's growing fiscal crisis.

Refunds to taxpayers were delayed, payments to state vendors stopped, state workers were ordered to take unpaid days off and the Schwarzenegger administration began sending layoff notices that would have affected some 10,000 state workers.

Even under the budget deal struck Thursday, some employees might have to be laid off as part of Schwarzenegger's plan to save 10 percent from the government payroll, said Vicki Bradshaw, the governor's cabinet secretary.

As California's deficit grew and the impasse dragged on, the state's bond rating sunk to the lowest in the nation, preventing the state from borrowing money for daily expenses or infrastructure improvements.

Thousands of public works projects ground to a halt, putting tens of thousands of construction workers out of a job. Hours after the budget package was approved, the state Department of Finance announced that work on 276 road, school and other projects would continue.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Is this the budget deal California needs?

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