Gov. Arnold Schwarzenegger says he hopes to strike a budget deal with Democratic leaders before Christmas to help tackle the state's $42 billion shortfall.
Schwarzenegger said Monday he and Democrats are making progress on an $18 billion proposal that was passed without Republican support.
The governor had said he planned to veto the bills because they failed to meet his demand for an economic recovery plan.
Taxpayer groups have threatened to sue if the governor signs the budget plan.
They say it violates the state Constitution because it would raise taxes without a two-thirds vote in the Legislature.