California Gov. Arnold Schwarzenegger signs the state budget during a small ceremony in his office at the Capitol in Sacramento, Calif., on Tuesday, Sept. 23, 2008.(AP Photo/Steve Yeater)
The California Legislature passed a long-awaited budget early Thursday after an epic battle that involved several all-night sessions, sending the governor a package of bills that raise taxes and cut spending to help close a $42 billion deficit.
Gov. Arnold Schwarzenegger, a Republican, praised the bill, passed by the Democratic-controlled Senate and Assembly. He came out of his office after the budget vote and disconnected a large deficit clock counting the number of days -- 106 as of Thursday -- that the Legislature had failed to act since he declared a special session to deal with the state's fiscal problems.
"I'm absolutely delighted about the budget passing," Schwarzenegger said outside his office. He scheduled an 11:30 a.m. news conference.
The budget deal flew through the Assembly less than an hour after it won approval by a single vote in the Senate after late-night horse trading to win over a final Republican vote. The vote marked the end of the Senate's longest session at 45.5 hours.
The package included a combination of spending cuts, tax increases and borrowing, intended to close a projected multibillion dollar deficit and avert fiscal disaster for the state.
It trims California's current fiscal year spending by nearly $13 billion from $103 billion down to $90.7 billion. For 2009-10, it sets a spending plan of $96.3 billion.
Senate leaders secured the final vote needed from moderate Republican Abel Maldonado in late-night negotiations by agreeing to his demands for election changes, government reform and removal of a gas tax increase, giving them the two-thirds vote needed to pass the package.
To win Maldonado's support, legislators also agreed to ask voters to revise the state's constitution to allow open primaries for legislative, congressional and gubernatorial elections.
Leaders also met Maldonado's demands to freeze legislators' salaries in deficit budget years and to eliminate new office furniture budgeted for the state controller.
Maldonado is being hailed as the key dealmaker, agreeing to a "yes" vote authorizing billions of dollars in new taxes in return for some key government reforms that include:
A state constitutional amendment for voters to approve that bans lawmakers from getting more green (salary hikes) when California is in the red
A voter approved constitutional amendment for an open (non-partisan) primary system that's expected to bring more Independent voters to the polls and more success for moderates as opposed to party partisans
The 12 cents a gallon gasoline tax is gone...replaced by an increase in the state income tax and about $600 million in line-item vetoes that Gov. Schwarzenegger can make with his blue pencil
Maldonado's move for a "No Budget, No Pay" constitutional amendment was shot down. It would likely have passed overwhelmingly at the polls and politicians were afraid they wouldn't get paid if they failed to get a budget done on time in future years.
Also new Thursday, the deficit clock outside the Governor's office that's been's documenting California's budget blues, has been removed.
Republicans who broke from their party In passing the tax portion of the package harkened back to former Gov. Ronald Reagan's decision to pass tax increases during hard economic times.
"What would Ronald Reagan do? Ronald Reagan would vote yes," said Sen. Roy Ashburn of Bakersfield.
Maldonado brought out a photograph of Reagan at a tax bill signing in 1972. He said he never thought he would have to defend California against members of his own party.
"This is not about my political career. This is about the health and safety for the people of California," Maldonado said. "My friends, this might be the end for me. This ensures it's not the end for California."
For Ashburn's support, legislative leaders included an amendment he backs that provides a $10,000 tax credit for those who buy new homes. The credit, supported by home builders, would be available starting in March and run through 2010. It would be capped at $100 million.
Californians would be able to use the credit to offset their state income taxes over three years.
Lawmakers also agreed to help the horse racing industry in his district -- and throughout the state -- by using $32 million in state funding each year to offset maintenance fees at fairgrounds.
Senate Majority Leader Darrell Steinberg of Sacramento was asked after the vote if all the late-night giveaways would set a bad precedent for future negotiations. The senator said he's more interested in lowering California's high threshold for passing budgets. California, along with Arkansas and Rhode Island, are the only three states in the nation that require such a high bar.
"It's an unpleasant part of the process. But I'll tell you what the answer is. The answer is to take this two-thirds supermajority requirement -- we're one of three states in the country that allows a small minority of members to hold up the process," he said.
Steinberg said the state still has many more items on its to-do list, including bolstering the state's water delivery system and reforming the state's prison system, where health treatment for inmates is under federal receivership.
During the middle of the marathon budget battle, Republicans in the Senate ousted their leader over opposition to tax increases. Senate minority leader Dave Cogdill ultimately provided Democrats the first of the three necessary GOP votes.
In the Assembly, Republican Leader Mike Villines of Clovis, Roger Niello of Fair Oaks, a suburb outside the capital city, and Anthony Adams of Hesperia joined Democrats to pass the budget.
"I think we came together and everybody had to give something," Villines said.
But Assemblyman Chuck DeVore of Irvine said the tax increase will further harm the depressed economy.
"We will be right back here in one year with the same problem," he said during the floor debate. "No economist argues increasing taxes especially during weak economic times is going to result in people adding payroll, in people getting back to work ... The opposite will happen."
Newly installed Senate Minority Leader Dennis Hollingsworth warned about the crippling effects of passing the state's largest tax increase in California history.
"You may count this as a win because you got a few Republicans to vote for it," he said. "The taxpayers of California are going to view this as a loss."