California resolves budget standoff

(CNN) -- California lawmakers passed the state's budget early Thursday, and it now awaits the signature of Gov. Arnold Schwarzenegger, who hailed the lawmakers.

The budget package includes tax increases, spending cuts and borrowing to close a $42 billion deficit.

The state Senate approved the measure shortly after 6 a.m. PT (9 a.m. ET) after Democrats agreed to demands from a holdout Republican senator. The state Assembly gave final approval minutes later.

"I am extremely proud of the members of the Legislature, both Republicans and Democrats, who had the courage to stand up and put the needs of Californians first," Schwarzenegger said in a statement.

"Rather than approaching this unprecedented crisis with gimmicks and temporary solutions, we took the difficult but responsible steps to address our entire $42 billion budget deficit and pass historic bipartisan reform measures." Watch how the deadlock was broken »

Schwarzenegger said he was pleased that his budget proposal served as a blueprint for this spending plan, which included "spending reductions, revenue increases, economic stimulus and government efficiency."

"This is a very difficult budget, but we have turned this crisis into an opportunity to make real, lasting reforms for California," he said.

The budget stalemate had caused Schwarzenegger to declare a fiscal emergency and send layoff notices to 10,000 state workers.

Democrats in the Senate needed one Republican vote for passage. Sen. Abel Maldonado was the one Republican amenable to vote for the measure in exchange for certain demands, and lawmakers worked through the night to meet them.

Senators voted to approve Maldonado's demands to revise the state's constitution to permit "open" primaries for legislative, congressional and gubernatorial elections. They also passed another, the removal of a 12-cent additional gas tax.

Even though several members didn't like the open primary plan, they still voted for it to get the budget passed.

Speaking on the Senate floor, Maldonado said the passage of the budget is imperative for people across the state, even if it would imperil his political career.

"This might be the end for me, but this vote ensures that it's not the end for the state of California. I'm asking for an aye vote," he said.

While he said it's an "ugly budget" that "takes a lot away" from California, he stressed that it keeps people working and keeps the state solvent.

"For many Californians, this budget is a real life-and-death situation," Maldonado said. "This budget is about shared pain and shared sacrifices." iReport.com: What you'd fix first

State Senate President Pro Tem Darrell Steinberg, D-Sacramento, urged lawmakers to pass the budget during a news conference just after midnight.

All Democrats were prepared to vote for the budget, but one more Republican was needed to reach a majority, Steinberg said.

"We need one more member. One more member. We need one more," said Steinberg, raising his voice as he pointed to a large placard with No. 1 written in red. "My door is open for any Republican that wants to put the state first."

After the Senate vote, Steinberg was exhausted and relieved.

"This is not really a time of celebration, when you think about the difficult decisions that we have been called upon to make," Steinberg told colleagues in the Senate chamber. "It is, however, a time of great relief that this crisis is behind, not us, but behind the people of California."

U.S. Sen. Barbara Boxer, D-California, had been there the previous morning, reminding lawmakers that Democrats in the U.S. Senate were able to get just enough Republican votes to pass President Obama's $787 billion stimulus plan. Interactive: See where the stimulus money is going »

"We have to put aside all this ego and put the people of California first," Boxer said. "The people of California do not deserve the fate they will receive if it is not passed."

Without a new budget, 276 public works projects would have halted Thursday, an additional 10,000 state workers could have received layoff notices and California might have been ineligible for parts of the federal economic stimulus package.

The Republican governor had butted heads for months with the Democratic majority over easing the state's $11.2 billion revenue shortfall this fiscal year alone.

The California Legislature was one of several to meet this week to address budget concerns in a time when 43 states are starting the year short on funds, according to the National Conference of State Legislatures. Map: See projected state budget gaps »

"This is an equal-opportunity recession. States in virtually every part of the country are suffering. ... Even the energy states are starting to report problems," Corina Eckl of the National Conference of State Legislatures said.

"For most, it has only gone downhill. They have tried to make up the difference with expanded gambling, with delays of construction projects, with hiring freezes, with fee and tax increases. But almost all of this has failed to regain lost ground, merely serving as a firebreak against worse troubles."

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