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WEST SACRAMENTO — Bringing an end to the state's longest-ever budget fight, California lawmakers approved changes to their $143 billion spending plan and gave in to Gov. Arnold Schwarzenegger's demands for a more robust rainy day fund.
Still, the governor said elected officials failed to fix California's ongoing fiscal imbalance that allows the state to spend more money than it takes in.
"There's nothing to really celebrate," Schwarzenegger said at the Capitol Friday. "As I said, great things were accomplished, but there are certain things that were not accomplished."
Democrats, who hold a majority in the Legislature and had proposed tax increases to help fill the state's $15.2 billion shortfall, countered that it was the governor who lacked leadership.
California is one of three states that require a two-thirds vote to pass a budget. Democrats needed a handful of Republican votes in both houses to accomplish the task.
"The real question was, could we have done any better without a tax? The answer was no," said Senate President Pro Tem Don Perata. "The governor couldn't get anybody to support his tax in his party. Republicans had the final say. They said no."
Schwarzenegger said he will sign the compromise plan next week, allowing California to resume payments to schools, medical clinics and state vendors that haven't been paid since the July 1 start of the fiscal year.
The governor said he was pleased legislative leaders agreed to stronger controls on the state's rainy day fund and gave him the authority to make spending cuts during the year.
The impasse dragged on because Republicans opposed any tax increase, while Democrats sought to combine budget cuts with higher taxes on corporations and the wealthiest Californians. Schwarzenegger proposed a temporary 1 cent increase in the state sales tax that would drop after three years.
"Everybody realized, it's not a pretty budget this year," said Senate Minority Leader Dave Cogdill. "Republicans met their goal, which was to try to find a way to get a budget that didn't do further harm to an economy that's already hurting."
Schwarzenegger promised to veto the budget lawmakers passed early Tuesday, saying its rainy day fund was not strong enough. He also said it relied on accounting tricks — such as collecting an extra 10 percent of workers' income tax in advance and repaying it later — that could lead to an even larger deficit next year.
Legislative leaders conceded they were uncertain they could muster a two-thirds vote to override his veto and returned to his office Thursday to negotiate.
They agreed to take out the provision to collect workers' income tax early and replaced it with a larger fine against businesses that fail to report or underreport tax liabilities. They also removed a tax amnesty program that would have let businesses and people pay overdue taxes without penalty.
Lawmakers agreed to ensure the state's rainy day fund could be tapped only when revenues fall below projected spending — the last remaining piece of the budget reforms Schwarzenegger sought.
The rainy day fund and a proposal to borrow $10 billion against anticipated lottery revenues to help stabilize future budgets will require voter approval, probably in a special election next year. Schwarzenegger said that would likely be set for June.
The budget includes $7.1 billion in spending cuts that advocates say will trigger deep cuts to health care in the future.
