California's legislature approved a $24 billion (Dh 88.08bn) package of bills to close a deficit that had driven the state to the edge of financial ruin, although Governor Arnold Schwarzenegger said the weak economy could create new budget holes.
Forced to pay with IOUs as coffers ran nearly dry, battling a record 11.6 per cent unemployment and a lingering housing crisis, the so-called Golden State is still struggling, but the agreement should let it return to debt markets.
Exhausted legislators in the state Assembly passed their package late on Friday after working through the night. Assembly members dropped a scheme to allow oil drilling and other measures in the Senate plan, but Schwarzenegger said he could make up lost revenue with line-item cuts.
Education and funding for local governments are high on the list of cuts by the most populous US state, which has the eighth-largest economy in the world
Schwarzenegger's administration had calculated the budget deficit at $26bn, including a $2bn reserve sought by the governor.
The governor congratulated legislators but was hardly jubilant, conceding that additional cuts may be necessary because of the weak economy. "We are still in troubled waters," he told reporters after the votes.
Standard & Poor's, one of the three credit agencies that has lowered California's rating near "junk" levels, will look to see how many one-time measures were included in the final bills passed.
"It is definitely a necessary step but it is not clear if it is a sufficient one to improve our credit concerns over the state," said S&P's analyst Gabriel Petek.
California's budget also faces threats from opponents of the bills before the legislature. Unions for state workers have said they would challenge the bills in court because they contain more than $15bn in spending cuts.
Under the legislation, public schools would lose nearly $6bn, higher education about $3bn and prisons more than $1bn. Social services would lose more than $1 billion and health programs would lose $2bn.
In addition, furloughs will continue for state workers for three days a month, cutting their pay by 15 per cent.
The legislation also provides for redirecting billions of dollars from local governments.
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