Legislative leaders say they reached a budget deal governor will sign

SACRAMENTO -- Legislative leaders said today that they have reached a deal on the long overdue state budget that will satisfy demands made by Gov. Arnold Schwarzenegger.

The Republican governor has said he would veto the $104.3 billion plan lawmakers passed this week. He demanded that a proposed rainy day fund to help the state though bad economic times be tightened to prevent its balance from being depleted in good times.

And he said lawmakers must remove a maneuver, worth $1.6 billion, that would have increased the amount of withholding tax paid by personal income taxpayers.

Republican leaders and Senate President Pro Tem Don Perata emerged from a meeting this afternoon saying they had agreed to the governor's demands. They have proposed making up the lost revenue by increasing penalties on corporations that underpay taxes. The leaders also agreed to lower the amount of the state's reserve fund from $1.2 billion to $800 million. Under the proposal, corporations who underpay their taxes by $1 million or more would see penalties rise from 10 percent to 20 percent. The deal also assumes a cancellation of a proposed tax amnesty program.

"We're just going to have to wait and see what happens, but I feel that we're done," said Assembly Republican Leader Mike Villines of Clovis.

Assembly Speaker Karen Bass, D-Los Angeles, left the meeting without comment, but after consulting with her caucus said Assembly Democrats were on board.

"Those two points close the deal," she said.

Schwarzenegger spokesman Aaron McLear said the administration did not disagree with the proposed solution, but said he would withhold comment.

The Senate and Assembly are scheduled to vote on the plan Friday afternoon, a record 81 days after the beginning of the fiscal year. If Schwarzenegger signs off, the longest budget delay in history will end and billions in payments to health care providers, community colleges, schools and vendors who do business with the state can go out.