Lawmakers: 'Huge progress' made in Calif. budget

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By Judy Lin ASSOCIATED PRESS

SACRAMENTO, Calif. (AP) -- A deal to solve California's $26.3 billion budget deficit could come as early as this weekend after legislators and Gov. Arnold Schwarzenegger made "huge progress" during hours of closed-door negotiations, state lawmakers said.

"This thing is coming to an end sooner than later," Senate President Pro Tem Darrell Steinberg, D-Sacramento, said Friday. He said an agreement could come as soon as Sunday night, when talks are scheduled to resume.

Democratic Assembly Speaker Karen Bass said late Friday that she was optimistic they would reach a deal soon, adding that both sides "made huge progress today."

Hours before lawmakers and Schwarzenegger began their latest round of talks, the U.S. Department of Labor reported that California's unemployment rate remained at a record high of 11.6 percent, underscoring the challenges facing the state's economy.

Income tax revenue to the state has plunged 34 percent during the first five months of the year, leading to a massive imbalance between the state's income and its spending obligations.

It's that imbalance the governor and lawmakers are trying to fix in a budget that was passed in February.

Despite the renewed sense of optimism, negotiators still have not resolved the main points of disagreement that have prevented a deal so far, including whether to repay billions of dollars to public schools for money that was cut from earlier budgets and whether the state should maintain a reserve fund for emergencies.

"We are closer than we have been, but we still have a ways to go," said Aaron McLear, Schwarzenegger's spokesman.

Schwarzenegger, a Republican, disagrees with the Legislature's two Democratic leaders over how the state should guarantee that schools will always get back what is cut during lean budget years. Both parties agree schools should be repaid about $11 billion from recent budget cuts, but Democrats want a written guarantee enshrined in the state's complex education funding formula that schools will always get such repayments.

The administration believes such a change would require voter approval.