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http://www.sacbee.com/1089/story/1248296.html

Leaders say final budget deal reached

By Dan Smith and Kevin Yamamura, Sacramento Bee 9/18/08

Assembly Speaker Karen Bass, D-Los Angeles, speaks at a press conference on the budget Thursday. Lezlie Sterling / lsterling@sacbee.com

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.

Senate President Pro Tem Don Perata said Senate Democrats would support the deal. "I am glad it's over," Perata said in a statement. "As I said before, I don't think any of us would put this on our highlight reels. It's 80 days late, and real people are getting hurt."

The governor is poised to sign the tentative deal, but he does not want to commit until he finalizes an agreement Friday with lawmakers, said his press secretary, Aaron McLear.

"It appears that we have an agreement," McLear said. "We will be able to confirm that once the governor meets with the legislative leaders tomorrow ... I'm not in a position to discuss the details of the agreement other than it has met the governor's demands to provide real budget reform and not take money from people's paychecks."

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.