State budget deal reached

SACRAMENTO -- Gov. Schwarzenegger and legislative leaders agreed Monday night to balance California's $26 billion deficit by cutting broadly across state government, shifting costs into the future and capturing funds from cities and counties.

The governor's office said the plan has $15 billion in new cuts.

"We came to a basic agreement, a budget agreement that of course has be ratified by the Legislature," Schwarzenegger said. He said the final hours of talks were "like a suspense movie."

Despite the accomplishment, Senate President Pro Tem Darrell Steinberg said that "this is a sober time."

"There isn't a whole lot of good news in this budget. We have cut, and we have cut in many areas that matter to real people," said Steinberg, D-Sacramento. "But I think we have done so responsibly."

Details of the plan will be distributed today, with votes expected Thursday. The budget requires a two-thirds vote in each house to pass, meaning all Democrats and a handful of Republicans must support it.

State leaders believe their budget plan is credible enough to acquire billions of dollars in short-term loans that will end the state's reliance on IOUs. California is in the throes of a cash shortage because it is relying on a February spending plan that assumed higher revenues and solutions rejected by voters in May.

The proposal includes spending cuts to programs ranging from schools to welfare-to-work to prisons. It takes money from local governments, including borrowing $2 billion that the state will repay starting in 2013.

A legislative source said the cuts include $6 billion to schools and community colleges.

Democrats ensured California will pay $9.5 billion to education when the state's economy rebounds as compensation for 2008-09 school cuts. They avoided suspending Proposition 98, the state's constitutional guarantee for education funding.

Other cuts are $3 billion to the California State University and University of California systems, $1.2 billion to the prison system and $1.3 billion to Medi-Cal.

Changes for welfare

Welfare, in-home support services and a health care program for low-income children would suffer cuts but would not be eliminated as Schwarzenegger had proposed.

The compromise package is filled with changes to state government not normally associated with budget deals. It increases sanctions on welfare recipients in an attempt to encourage more people to work.

The agreement also relies on $1.3 billion in savings from three furlough days per month for state workers.

Schwarzenegger succeeded in having a proposal to expand oil drilling off Southern California included in the budget agreement.

Under that plan, drilling would be allowed from an existing rig off Santa Barbara, generating about $1.8 billion in revenue over time. The proposal, opposed by many conservation groups, would be the state's first new offshore oil project in 40-plus years.

At least part of a Schwarzenegger plan to sell state assets, such as San Quentin State Prison and the Los Angeles Memorial Coliseum, was included, but it was unclear which ones.

Some state parks will close, but the vast majority of the 220 initially targeted will remain open.

The Associated Press contributed to this report.

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