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Calif. plan will close $42b budget gap

Associated Press / February 20, 2009
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SACRAMENTO - The California Legislature approved a plan yesterday to close a $42 billion budget deficit after an epic impasse that involved several all-night sessions, sending Governor Arnold Schwarzenegger a package of bills that raises taxes and cuts spending.

During an afternoon news conference, the Republican governor praised the effort to forge a compromise. It required Democrats to back away from their opposition to deep spending cuts and some Republican lawmakers to set aside their opposition to tax increases.

He called the Legislature's work, after a grueling week of late-night sessions, courageous.

"Now, instead of worrying every day only about IOUs and about red ink, we can start moving California forward once again. This action to solve our $42 billion deficit was difficult but courageous and just what California needs," he said. "This is the perfect medicine for our ailing economy, and it will boost public confidence in California, reassure the financial community, and allow us to start selling bonds and rebuild our state."

Shortly after the plan passed the Legislature, Schwarzenegger emerged from his office and disconnected a large deficit clock counting the number of days - 106 as of yesterday - that the Legislature had failed to act since he declared a special session to deal with the state's fiscal problems.

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 1/2 hours.

The package contains $12.8 billion in tax increases, including a 1 percent hike in the state sales tax, a boost in the personal income tax rate, and a higher vehicle license fee. It also includes $15.1 billion in spending cuts, mostly to education, and $11.4 billion in borrowing.

The package of bills is intended to close a budget deficit that had been projected to hit nearly $42 billion by June 2010.

Despite the tax increases, the plan reduces California's current fiscal year spending by nearly $13 billion, from $103 billion to $90.7 billion. For the 2009-2010 bookkeeping year, which begins July 1, it sets a spending plan of $96.3 billion.

Senate leaders secured the final vote needed from Abel Maldonado, a moderate Republican, in late-night negotiations by agreeing to his demands for election changes, government reform, and removal of a 12-cent-a-gallon 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 cut new office furniture for the state controller.

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