California legislature passes revised budget

Both houses of California's legislature passed a budget bill on Friday that was hammered out between top lawmakers and Governor Arnold Schwarzenegger a day earlier, bringing a long-awaited spending plan for the state's fiscal year that began in July a step closer to taking effect. The agreement averted the Republican governor's threatened veto of the bipartisan budget bill passed by the Democrat-led legislature on Tuesday.
Schwarzenegger threatened a veto unless lawmakers revised a provision in their budget for a rainy-day account to include strict controls for when they could use its funds. They agreed to that and other changes on Thursday, arriving at the new $104.3 billion spending plan after a record delay for a state budget of more than 80 days.
Widespread criticism of the legislature's budget had stunned lawmakers and they quickly retreated from their threat to override any veto of their spending plan. Top lawmakers had crafted the legislature's plan over the weekend. It denied Democrats the higher taxes they sought, blocked deeper spending cuts pressed by Republicans and backed Schwarzenegger's proposal to allow the state to borrow against the future revenues of its lottery system.
They also agreed to keep a reserve and surrender some of their budget authority by expanding the governor's power to cut spending. But Schwarzenegger threatened a veto mainly over their plan for a rainy-day fund. He pressed for stricter rules for when it can be tapped, which aides said would mark a long-overdue step toward overhauling California's budget process by imposing fiscal restraint.
Schwarzenegger told reporters on Friday many more steps are needed to overhaul how California's manages its finances after he signs the budget, perhaps as early as Monday: "We know that the system itself is not working, that it's flawed and therefore we should revisit it."
Senator Don Perata, the top officer of the state Senate, said the revised budget leaves much to be desired but needed to be put on the governor's desk as soon as possible because of the financial uncertainty facing state employees and those who receive state aid.
"This is the art of the possible," Perata said. "What was possible today was to make sure that tens of thousands of people would not continue being hurt." The final budget agreement approved by the state Senate and Assembly received mixed reviews from analysts.
The deal closed a $15.2 billion shortfall and ended a long stalemate that had the potential to drag on even more. That could have forced the state into an expensive form of short-term borrowing, delayed its plans for issuing more general obligation debt for the rest of the year and cut off payments to vendors and local agencies.
Those short-term concerns were addressed, but lawmakers and Schwarzenegger side-stepped the root problems of California's so-called "structural" budget imbalance that ensures future budget deficits. The persistent inability of California officials to tackle the imbalance is a major reason why Wall Street is reluctant to raise the state's credit rating, which makes borrowing more expensive for the nation's biggest issuer of municipal debt.