California Senate passes budget-balancing plan

SACRAMENTO, Calif. -- The California Senate on Friday approved a plan to close the state's $26 billion budget deficit, providing a glimmer of hope after weeks of fiscal gloom.

But work on the complex legislative package of 31 bills dragged on as the Assembly -- struggling to secure enough votes to pass several measures -- took a three-hour break just after dawn, then got back to work.

Failure to approve any of them could jeopardize the entire deal, potentially sinking California further into fiscal chaos.

Senators started their session Thursday evening and worked through the night to get enough votes to pass the more controversial measures, including three that took or borrowed billions of dollars from cities and counties.

Senate leader Darrell Steinberg, D-Sacramento, said lawmakers could take pride in dealing with difficult budget decisions during an unprecedented economic collapse.

"And California is still standing," he said moments after the final vote.

The compromise plan before the 80-member Assembly and 40-member state Senate was announced Monday by Gov. Arnold Schwarzenegger and the Democratic and Republican leaders of each house.

It eliminates nearly 60 percent of the deficit with spending cuts to core state services such as education, state parks and prisons.

The rest is reached by one-time raids on local government funding and accounting maneuvers, such as deferring state employee paychecks by one day for a savings on paper of $1.2 billion.

Both legislative houses quickly passed a key bill with cuts to higher education, college grants, health programs, welfare, in-home supportive services and state prisons. But measures aimed at filling the rest of the deficit proved more difficult.

Some required two-thirds approval, meaning they needed support from a handful of Republicans, the minority party in each house.

That vote threshold was proving to be an obstacle, with Republicans refusing to support a bill that would repay schools for funding cuts in previous years.

After the Senate's final vote Friday, the Assembly still had a dozen bills left to resolve, several of which were controversial with some members in both parties.

Republicans were balking at a plan to repay California schools billions of dollars once the state's economy rebounds. Some Democrats opposed permitting oil drilling off the Santa Barbara coast and requiring fingerprinting for recipients and caregivers of state aid programs. Borrowing money from local governments was controversial with both parties.

Legislative leaders of both parties have acknowledged the budget solution is imperfect and cuts deeply into basic programs, including education, prisons, health care and welfare. But they say it is vital to address the state's cash-flow crisis.

California's budget shortfall represents nearly 30 percent of its $92 billion general fund. The revision under consideration Friday would bring total spending down to about $88 billion, returning to 2005 levels.

The nation's most populous state has been hammered by the national recession, leading to a steep plunge in income, sales, property and capital gains taxes.

The cash crisis and the lack of a balanced budget have forced the state to issue IOUs to thousands of state contractors and vendors. Closing the shortfall is expected to allow the state to obtain short-term loans, eventually ending the need for IOUs.

The rapid decline in tax revenue and Republicans' insistence on no tax increases left the state with few options.

The attempt to take or borrow nearly $5 billion from cities and counties over two years became one of the most difficult issues.

Several big-city mayors criticized the raids Thursday and said at least 130 local governments have agreed to sue the state to block the transfer of some money.

Under the budget package, the state would borrow $2 billion from local governments' property tax revenue and repay it with interest within three years. It would take another $1 billion in redevelopment money and nearly $2 billion over two years in local transportation funds.

Facing withering criticism from counties and cities, the legislative leaders early Friday agreed to alter part of the plan, committing to repay the transportation money over 10 years rather than take it outright.

"Some of my counties, where they have rural roads, this money is all they have," said Sen. Lois Wolk, a Democrat from Davis who opposed the raid on transportation money, which passed with the bare majority needed.

Many Democratic lawmakers also criticized a provision authorizing an expansion of oil drilling off the California coast in exchange for royalties. They said it amounted to an end run around the public-review process and would invite legal challenges.

The budget package also included reforms to welfare and social service programs that Republicans believe will save the state money in the years ahead.

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Associated Press Writers Steve Lawrence, Don Thompson, Juliet Williams and Samantha Young contributed to this report.