Deal reached on California financial crisis

California's governor Arnold Schwarzenegger and legislators have agreed a plan to solve the state's multi-billion-dollar budget crisis after months of bitter wrangling. After a day of talks on Monday to close California's US$26.3 billion (Dh96.6bn) deficit, Mr Schwarzenegger emerged alongside Democratic and Republican legislators at the state capital in Sacramento to announce a deal had been reached.

Few details of the agreement were announced although Mr Schwarzenegger and legislators said the revised budget did not include any significant tax increases or cuts to essential services such as education. "As you can see, we came to a basic budget agreement and obviously we're very happy," Mr Schwarzenegger said. "We've accomplished a lot and I want to thank the legislator leaders for hanging in there. It was like a suspense movie."

Mr Schwarzenegger and state legislators had been at loggerheads for months over how to solve California's deficit, which had pushed the state to the brink of bankruptcy and forced the world's eighth largest economy into issuing IOUs. Mr Schwarzenegger, a Republican, had vowed to narrow the deficit by cutting funding for a wide range of social services while steadfastly vowing to veto any proposals that would increase taxes.

"This is a budget that has no tax increases and a budget that is cutting spending," Mr Schwarzenegger said on Monday. "We're protecting education and making government more efficient and cutting waste and abuse. All around this is a really great achievement." The Democratic majority leader Karen Bass said the state had reached agreement on plugging the budget hole without slashing funding to programmes designed to help California's neediest as had been threatened by Mr Schwarzenegger.

"After several weeks we have closed the deficit in a responsible manner," Ms Bass said. "We have protected the safety net and that was very important in these times." The State Assembly minority leader Sam Blakeslee said the budget would help the state return to fiscal stability. "None of these were easy choices," he said. Precise details of the proposed budget were not clear although US media reports said the deficit would be closed by about $15bn in cuts and $4bn borrowed from local governments.

Other monies would be raised through the early collection of taxes and shifting more than $1bn worth of pay to state workers from this fiscal year to the next. Mr Schwarzenegger's proposal to allow oil drilling off the coast of Santa Barbara, north-west of Los Angeles, would also help generate revenues of about $100 million (Dh367m) a year, according to reports. California's latest budget crisis came less than five months after marathon negotiations resulted in tax increases and spending cuts to eradicate a $42bn hole in the budget.

Since then, California's deficit has spiralled as soaring unemployment and one of the worst home foreclosure crises in the United States have sent state revenues plummeting to levels not seen since the 1990s. The latest proposed budget is due to be voted upon on Thursday in Sacramento. * AFP