Gov. Vetoes $175 Million in Services, Signs Budget

The $131-billion spending plan signed by the governor will use a surge of unanticipated revenue that filled California's coffers this year to pay back billions the state borrowed from schools in recent years as well as to accelerate repayment of other state debt.

The governor used his veto pencil to eliminate more than $175 million in spending that the Legislature had approved. He vetoed tens of millions of dollars from the budget that would have been used to reduce air pollution, expand hospital trauma care, provide interpreters to non-English speakers in civil court cases and make dental care available to more low-income children, among other services.

The vetoes drew a muted response, however. Most of the program expansions that Democrats had secured in the budget approved by the Legislature Tuesday night remained intact.

"This is a great budget," Schwarzenegger said just before signing the document at a ceremony under the Capitol dome. Schwarzenegger said he and legislative leaders were able to meet the deadline for passing a budget for the first time since 2000 because "we put politics aside."

"We were driven by one overwhelming desire: to do what is best for the people of California," he said.

The budget does not solve the state's financial problems. It relies on this year's $7.5-billion windfall -- unanticipated tax revenue resulting from higher than expected capital gains, corporate profits and the hot housing market -- to expand programs and close a shortfall that had been projected for the fiscal year that begins today.

But the state is still projected to spend more than it brings in over the coming years. Lawmakers expect a deficit of at least $3.3 billion for the fiscal year that begins in July of 2007.

On Friday, Democratic gubernatorial nominee Phil Angelides warned that Schwarzenegger would deal with that deficit as he has dealt with past deficits, "by cutting school funding, raising tuition and fees and cutting healthcare."

But Assembly Speaker Fabian Nunez (D-Los Angeles) had a different take.

He said the budget agreement shows "you can be fiscally conservative but at the same time be compassionate."