Lawmakers pass budget to close $26B gap

SACRAMENTO The Assembly rejected two of the most controversial measures, one that would take about $1 billion in transportation funding away from local governments, and another that would allow oil drilling off the California coast.

"What's wrong with oil drilling off California is that it threatens a $40 billion a year industry. Recreational fishing, commercial fishing, tourism, visitor serving, all of those sorts of services depend on clean beaches and beautiful vistas," said Assemblyman /*Pedro Nava*/.

"It would have been the first new drilling in state waters in forty years and the Assembly Democrats said no way," said Bill Magavern from the Sierra Club California.

Gov. Arnold Schwarzenegger will now have to make up the difference. He said he may use some reserve money or his line item veto power to make up the difference.

"I just want to assure everyone that we will build up our reserve, we will make the necessary cuts, I have the blue pencil authority to do that, and we will go carefully though all the numbers in a sensitive way this weekend," Schwarzenegger said during a news conference Friday afternoon.

"Social services, including those for the disabled and the elderly, education and local governments, all will take a financial hit with this new budget."

The thought of more cuts is something that vulnerable Californians can't stomach anymore.

"No! There are no more cuts to be made from our community. We can't do it. We can't keep cutting from the poorest," said Ana Acton, a disabled activist.

The legislative package of about 30 bills, with final passage coming in the Assembly in the afternoon after an all-night session, was similar to the deal announced earlier this week by Schwarzenegger and legislative leaders from both parties.

The plan eliminates nearly 60 percent of the deficit with spending cuts to core state services, and is designed to close the deficit without raising taxes.

The assault local counties and cities mounted against Sacramento apparently worked.

The proposal to siphon off gas tax money totaling a billion dollars in each of the current and next year fiscal years was taken off the table in the Assembly. It's the money local governments use for pothole repair and other transportation needs.

Leaders admit that the pressure played a huge role.

"It's very difficult to get the votes, especially over these last few days, when we had cities and counties up and down the state declaring war on the Legislature," Assembly Speaker Karen Bass, D-Los Angeles. When it comes to the repayment of education funds, Assemblyman /*Tony Mendoza*/ said as a former teacher, he fully supports it.

"Our kids deserve and depend on this money, and we took it away. We need to give it back," Mendoza said.

Critics say the budget includes accounting gimmicks, such as deferring state worker paychecks by one day to the next fiscal year, a savings on paper of $1.2 billion.

"Accounting gimmicks just make things worse the next year. Accounting gimmicks are false. They give a false security that the books are all balanced," said Ted Costa, People's Advocate, Inc.

Some key lawmakers say the budget proposal makes a number of painful cuts, but there are no options on the table at this point.

The recession has taken a toll on California. Income tax revenue plunged by 34 percent in the first five months of this year, on top of declining sales, property taxes and capital gains taxes.

Bass thanked members for their days of hard work, saying by the time the vote took place "I don't even remember if it's afternoon, evening or night."

At a news conference after the vote, she said the Assembly would work with the governor's office when lawmakers return in August to find ways to make up the lost revenue.

On whether the problem is solved: "We do not exactly know where the economy is going right now."

The Associated Press contributed to this report.

Eyewitness News Reporters Nannette Miranda, John North, Rob McMillan, Leslie Miller and Subha Ravindhran contributed to this report.

For more information on the budget package, please see these documents released by the governor:

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