Legislature working on final steps to end budget impasse

SACRAMENTO — The Legislature voted Friday afternoon to send Gov. Arnold Schwarzenegger the final measures needed to resolve the budget deadlock that has dragged on a record 81 days past the start of the fiscal year.

The spending plan, with $104.3 billion in the general fund, allots more to education and social services than last year, but not enough to avoid cutbacks in schools, healthcare facilities and payments to the disabled, aged and blind. It includes no new taxes; Republicans rejected assertions from Democrats and Schwarzenegger that the state needs to raise more revenue to ensure long-term fiscal stability.

"Now that we have a budget, hospitals and nursing homes and day care centers and other services will be able to get paid," Schwarzenegger told reporters at a news conference.

Both the state Senate and Assembly passed the measures without any debate, highlighting the degree to which the year's protracted wrangling has exhausted legislators. They had passed most of the spending plan Tuesday, but Schwarzenegger said he would veto it unless lawmakers altered it.

He wanted to restrict lawmakers from tapping the state's rainy day fund except when California does not have enough money to maintain its spending plan. And he wanted to eliminate a proposal to raise $1.6 billion by increasing Californians' withholding taxes -- a measure that legislative officials said his own fiscal experts first proposed.

To replace that revenue, the new budget would double the penalty for companies that are late in paying $1 million or more in state taxes.

Schwarzenegger plans to sign the budget early next week, once he has had a chance to review thousands of spending items and decide which ones to remove. His line-item deletions are expected to bolster the $826 million reserve specified in the budget.

With the state's unemployment rate up to 7.7% and the Wall Street crisis continuing, lawmakers may be forced to make more changes early next year.

Schwarzenegger said he expected the Legislature to call a special election sometime next year, probably around June, to increase the state's rainy day fund to 12.5% of its budget and allow the state to borrow against its lottery. Democratic leaders, frustrated at the ability of the GOP minority to prevent tax increases, are considering launching a ballot proposition to get rid of California's rule that requires a two-thirds vote of the Legislature to pass a budget -- something done in only two other states.