The budget was approved early Thursday morning, less than an hour after it won approval by a single vote in the Senate following late-night wrangling to win over a final Republican lawmaker.
The budget includes spending cuts, tax increases and borrowing, intended to close a projected $42 billion budget deficit and to stop a fiscal disaster for the state. Gov. Schwarzenegger is expected to sign the measure.
Sen. Abel Maldonado of Santa Maria provided the final Republican vote. In exchange, Democrats agreed to ask voters to revise the state's Constitution to allow open primaries for legislative, congressional and gubernatorial elections. Leaders also met Maldonado's demands to remove a provision to increase the gas tax, freeze legislators' salaries in deficit budget years and to eliminate new office furniture budgeted for the state controller.
"I'm very relieved for the people of California," said Senate President Pro Tem Darrell Steinberg, reported the Los Angeles Times. "There's not a lot of good news to come out of a $41-billion budget deficit, except that we in fact solved it."
Senators came to agreement Wednesday night following seven unsuccessful votes held throughout the day and into the night at the state Capitol, which Steinberg had locked down Tuesday, barring senators from leaving, reported the Los Angeles Times.
"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."
Without the budget agreement, the state was poised to lay off 20,000 government employees and suspend public works projects. Schwarzenegger had already ordered layoffs of 10,000 state workers, the suspension of hundreds of public-works projects, and early income-tax refunds have been delayed.
The budget cuts billions of dollars to schools, health care institutions, higher education and programs for the poor, the Times reported. It also would raise personal income taxes and the state sales tax, but a gasoline tax increase was eliminated in the final hours.
"You may count this as a win because you got a few Republicans to vote for it," Senate Minority Leader Dennis Hollingsworth said, the Associated Press reported. "The taxpayers of California are going to view this as a loss."