California's Chaotic Finances Almost in Order

SACRAMENTO, Calif. (AP) -- California legislators were poised Friday to pass a compromise spending plan for the second time in a week to meet Gov. Arnold Schwarzenegger's demands for budget reform, ending the state's 81-day fiscal impasse.

The $143 billion budget plan would allow the nation's most populous state to resume payments to schools, medical clinics, day care centers and state vendors that haven't been paid since July 1, the start of the fiscal year. Legislators had to bridge a $15.2 billion budget deficit.

Schwarzenegger said he's pleased legislative leaders agreed to approve stronger controls on the state's rainy day fund and the authority to make spending cuts during the year. But he added that he wanted more reforms to prevent the state from spending more than it takes in.

He said he could sign the package as early as Monday, though there might not be much fanfare.

"There's nothing to really celebrate," the governor said at a Capitol news conference Friday. "As I said, great things were accomplished, but there are certain things that were not accomplished," he said.

Schwarzenegger has been trying to fulfill his central campaign promise in the 2003 recall election: to organize the state's finances.

He had promised to veto the budget lawmakers agreed to without him and passed early Tuesday, saying it didn't meet his demands for a more robust rainy day fund. 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.

The four legislative leaders conceded they were uncertain whether they could muster the two-thirds vote of the Legislature required to override his veto and returned to his office to negotiate Thursday.

They agreed to take out the provision calling for the earlier collection of workers' income tax and replace it with a larger fine against businesses that fail to report or underreport tax liabilities. Lawmakers also 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 early next year.

The rest of the budget approved Tuesday will stand, including $7.1 billion in spending cuts that advocates say will trigger deep cuts to health care in the future.

Education and social service groups criticized the majority Democratic Legislature for ceding to the Republican governor's demands. They said the restriction on when money could be taken out of the rainy day fund would limit the state's ability to maintain programs in lean years.

"You could say it's full of gimmicks, it's full of sleight of hand," Rick Pratt, assistant executive director of the California School Boards Association, said of the budget package. "We're going to be back next year fighting the same battles."

The impasse dragged on because of an ideological feud. Legislative 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.

The governor lamented the long delay in getting a spending plan, saying it had hurt ordinary citizens. He said he would like to see lawmakers face consequences when they fail to reach a deal by their constitutional deadline.

"We know that the system itself is not working, that it's flawed. Therefore we should revisit it and come up with ways so that we can speed up this process," he said at the Capitol. "I don't think it will get done in this building."

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Associated Press writer Samantha Young contributed to this report.

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