SACRAMENTO — Gov. Arnold Schwarzenegger and legislative leaders have reached a deal on a new state budget that would allow California to begin paying its bills again, ending a showdown over the governor's vow to veto the spending plan lawmakers approved earlier this week.
"It appears we have an agreement," Schwarzenegger spokesman Aaron McLear said Thursday afternoon. He said the governor would meet with legislative leaders this morning to finalize it.
Lawmakers are scheduled to vote on the deal -- which does not include new taxes -- this afternoon.
The agreement would resolve a months-long fiscal crisis that has left officials unable to make billions of dollars in payments to schools, hospitals, medical clinics, nursing homes and other service providers. While state services would be cut under the new agreement, government spending would increase overall.
"Hopefully this will bring an end to the 80-plus days of pain," said Assembly Speaker Karen Bass (D-Los Angeles).
Lawmakers surrendered to Schwarzenegger's demand for tighter restrictions on their access to the state's rainy day fund. And they eliminated a proposal to raise $1.6 billion by increasing tax withholdings from Californians' paychecks.
They plan to raise that money instead by doubling penalties on corporations that are late in paying more than $1 million in taxes, according to details provided by legislative leaders.
A corporate tax amnesty program approved by the Legislature, intended to raise hundreds of millions of dollars in new payments, would be eliminated. Business groups had complained that it would have pressured companies to pay money they did not necessarily owe out of fear that they might lose a tax dispute with the state.
The amnesty revenue would be replaced partly by cuts the governor intends to make by line-item veto. And the rainy day fund -- which Schwarzenegger has insisted must be built up in the future -- would shrink.
Although the budget deal might eliminate some accounting gimmicks, it would still push much of the state's $15.2-billion shortfall into future years.
"I'm not proud of this budget -- it just kicks the can down the road," Senate President Pro Tem Don Perata (D-Oakland) said after a meeting in the governor's office Thursday.
Perata called the changes demanded by the governor "tweaks."
When Schwarzenegger issued his budget veto threat Tuesday, he also declared that if lawmakers were to override him, he would reject most of the legislation passed this year.
