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California Senate Approves Budget, Tax Hikes

The Associated Press
Thursday, 19 Feb 2009 | 12:34 PM ET

The California Legislature passed a long-awaited budget early Thursday after an epic battle that involved several all-night sessions, sending the governor a bill that raises taxes and cuts spending to help close a $42 billion deficit.

Gov. Arnold Schwarzenegger, a Republican, praised the bill, passed by the Democratic-controlled Senate and Assembly. He came out of his office after the budget vote and disconnected a large deficit clock counting the number of days—106 as of Thursday—that the Legislature had failed to act since he declared a special session to deal with the state's fiscal problems.

"I'm absolutely delighted about the budget passing," Schwarzenegger said outside his office.

The budget deal flew through the Assembly less than an hour after it won approval by a single vote in the Senate after late-night horse trading to win over a final Republican vote.

The package included a combination of spending cuts, tax increases and borrowing, intended to close a projected multi-billion dollar deficit and avert fiscal disaster for the state.

Senate leaders secured the final vote needed from moderate Republican Abel Maldonado in late-night negotiations by agreeing to his demands for election changes, government reform and removal of a gas tax increase, giving them the two-thirds vote needed to pass the package.

Watch the video below to see what CNBC's Jane Wells has to say about California's budget battle.

Cali Has Budget! Cali Has Budget!
California's epic battle has come to an end, reports CNBC's Jane Wells.

To win Maldonado's support, legislators 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.

In a statement, Schwarzenegger said: "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. ... we took the difficult but responsible steps to address our entire $42 billion budget deficit and pass historic bipartisan reform measures."

In passing the tax portion of the package, Republicans who broke from their party harkened back to former Gov. Ronald Reagan's decision to pass tax increases during hard economic times.

"What would Ronald Reagan do? Ronald Reagan would vote yes," said Sen. Roy Ashburn of Bakersfield.

Maldonado brought out a photograph of Reagan at a tax bill signing in 1972. He said he never thought he would have to defend California against members of his own party.

"This is not about my political career. This is about the health and safety for the people of California," Maldonado said. "My friends, this might be the end for me. This ensures it's not the end for California."

Senate Minority Leader Dennis Hollingsworth warned the crippling effects of passing the state's largest tax increase in California history.

"You may count this as a win because you got a few Republicans to vote for it," he said. "The taxpayers of California are going to view this as a loss."

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