BUDGET FINALLY IN HAND POLITICAL STANDSTILL REACHES RESOLUTION - 26 DAYS LATE.

Byline: David M. Drucker Sacramento Bureau

SACRAMENTO - Ending a 26-day impasse, Gov. Arnold Schwarzenegger and legislative leaders shook hands Monday on a $103 billion state budget that closes a $15 billion deficit without raising taxes, but still protects spending for health and welfare services for the poor.

A deal to protect cities' and counties' tax revenues - a key barrier to putting the 2004-05 budget to bed - was adopted, as were compromises on other obstacles to a spending plan that had frustrated the Republican governor so much he was still on the campaign trail a week ago threatening to oust Democratic lawmakers in the November election if they did not support his fiscal agenda.

``I'm a very happy governor today, because we just have agreed on a budget. It's a budget that California needs, that the people of California deserve,'' Schwarzenegger told reporters late Monday night. ``We negotiated very hard, we gave proof that by working together ... we can do the impossible.''

The governor and top Democrats and Republicans from the Senate and Assembly, collectively known as the Big Five, met for almost five hours Monday night, emerging just before 11 to announce a final budget agreement.

``When we accepted the fact that we were really 'girly men,' we just were able to get over that and agree to a budget,'' joked Senate President Pro Tem John Burton, D-San Francisco.

Legislative aides worked over the weekend looking for solutions, as the state was prepared to withhold $570 million in payments to public schools, community colleges and local road projects Wednesday if a budget was not in place by then.

Agreement on the local government funding issue paved the way to resolve political differences over funding for higher education and health and human services for the poor, allowing the final components of the budget to come together. A vote by the full Legislature is expected Wednesday or Thursday.

The local-government compromise protects the sales tax revenues that cities like Simi Valley, in Ventura County, and Rancho Cucamonga, in San Bernardino County, need to fund police protection and other services required by their growing populations, said lobbyist Jason Gonsalves, who represents both cities' interests in Sacramento.

``It looks like we'll have a local-government deal that's better than existing law.''

Also on Monday, Senate Republicans and Democrats agreed to amend legislation known as the ``sue your boss'' bill, which was also blocking a final budget compromise. The pact to amend the law was reached by Ackerman and the bill's author, Sen. Joseph Dunn, D-Garden Grove.

Republicans - backed by Schwarzenegger - had sought to repeal Senate Bill 796, which former Gov. Gray Davis signed into law before leaving office last year. Detractors said it makes it too easy for workers to shake down employers in court for labor-code violations.

Republicans dropped another demand - repeal of a bill that makes it difficult for public schools to hire private bus companies and other contractors. Republican and Democratic leaders in the Assembly said they would deal with Senate Bill 1419, authored by Sen. Richard Alarcon, D-Van Nuys, separate from the budget process during the month of August.

The developments Monday came nearly six weeks after the June 15 constitutional deadline for the Legislature to pass the budget, and nearly a month after the governor's June 30 deadline for signing it.

An on-time budget was one of Schwarzenegger's major promises, a goal he said would send a strong signal to Wall Street that California was putting its financial house in order.

By late Monday, however, Schwarzenegger and Democratic and Republican leaders reached a handshake agreement on a spending plan that will spend roughly the same as the governor's $103 billion budget proposal.

``The governor was working all weekend, and the conversations he had with his local-government partners and at the staff level went very well, and that momentum seems to have carried into today,'' Press Secretary Margita Thompson said. ``Conversations continue, but a few things remain to be worked out, so we're hoping to be able to work through the final issues and announce something soon.''

A two-thirds vote of the Legislature is needed to pass a budget, requiring some GOP support in the Assembly and Senate. At least two Senate Republicans and six GOP assemblymen must support a spending plan if Democrats are unified.

Schwarzenegger's budget plan calls for using $2.6 billion in local property and sales-tax revenues in the next two years to help fill the state's shortfall, in exchange for providing cities and counties protection from future state raids on local funds.

The governor originally proposed ending any future raids on local funds in exchange for this contribution. But under the pending compromise pushed by the Democrats, Sacramento will be able to borrow local money twice each decade if such action is approved by two-thirds of the Legislature.

A compromise on Schwarzenegger's plans to cut funding for higher education and health and human services for the poor also was headed for approval by the Big Five as the governor and legislative leaders met.

``There have been a number of changes that I do like in higher education (and) that I do like in health and human services,'' Sen. Sheila Kuehl, D-Los Angeles, said.

The Assembly's minority leader said it was time to close a deal on the budget.

``One year makes a big difference,'' Assembly Minority Leader Kevin McCarthy, R-Bakersfield, said. ``I give this governor a lot of credit. It takes leadership to want to bring us together.''

David M. Drucker, [phone]

david.drucker(at)dailybulletin.com