Gov. Arnold Schwarzenegger and California's legislative leaders have agreed on a plan to close the state's $26 billion budget shortfall.
The agreement would be a first step toward ending the IOUs the state has been issuing this month, but it must make it through both houses of the Legislature. A vote is expected Thursday.
Schwarzenegger emerged from his office shortly before 7 p.m. to announce the deal after more than five hours of closed-door talks. He told reporters: "We are very happy to have a basic agreement."
The plan will include $15 billion in cuts. The rest of the deficit will be made up by a combination of borrowing, shifting money from other government accounts and accelerating the collection of certain taxes.
Schwarzenegger and Republican lawmakers refused to raise taxes any further, limiting lawmakers' options. Democrats fought to keep basic social services including welfare, in-home support, and health care for low-income children. "We have closed the deficit... We have protected the safety net," said Assembly Speaker Karen Bass, D-Los Angeles.
State financial officials hope that once a balanced budget is passed, the state will be able to obtain short-term loans to cover daily expenses until tax revenue arrives in the spring. If the loans are granted, the state will be able to stop sending IOUs.
The $26.3 billion shortfall is roughly a quarter of the state’s general fund. Details of the agreement reached Monday are scarce, but the governor and lawmakers say education will be fully funded.
"This is a sober time because there isn't a lot of good news in this budget," said state Senate leader Darrell Steinberg, D-Sacramento. "We have cut in many areas that matter to real people, but I think we have done so responsibly."
Cities and counties already are laying off firefighters, police officers, sheriff's deputies and park workers because of their own budget problems. Some are threatening to sue if the state takes their tax revenue for its own needs.
"This is, of course, one of the most difficult economic times to face our state since the Great Depression, so none of these were easy choices," said Assembly Minority Leader Sam Blakeslee, R-San Luis Obispo. "I think we selected a path which will lead the state back to the point where we will be strong."