STATE LURCHES TOWARD BUDGET

SACRAMENTO —  In a dramatic late-night session Saturday, California lawmakers made progress toward passing a budget to end the state’s fiscal crisis, even as GOP legislators troubled by the plan’s tax hikes demanded last-minute concessions that threatened to stall the vote.

Republican and Democratic leaders, in a rare holiday weekend meeting, in a rare expressed confidence that they had enough votes to break a three-month logjam and approve a bipartisan proposal to close what is projected to be a $41-billion deficit by the middle of next year.

Voting on the package of 27 bills began shortly after 8:30 p.m. and was expected to stretch late into the night . GOP lawmakers launched into floor speeches sharply critical of the $14.4 billion in tax increases. Some also used parliamentary maneuvers hoping to delay the vote.

The deal includes several concessions that minority Republicans have been seeking for years. Among them are $1 billion in tax breaks for businesses and constitutional limits on government growth. Other concessions were targeted at several GOP lawmakers, such as redevelopment and transportation funds for their districts.

Despite the continued horse-trading, there was a sense of momentum in the Capitol, and lawmakers and staff were cautiously optimistic that the Senate and Assembly would approve the package overnight.

At least three Republican votes are needed in each house to pass a budget, which must be approved by a two-thirds majority of the Legislature.

Gov. Arnold Schwarzenegger is likely to sign the budget once it is approved.

“I believe the Legislature, and more importantly the people of California, are ready to put this behind us,” said Senate leader Darrell Steinberg (D-Sacramento). “I hope people will say we solved the single biggest budget deficit in California history and tonight represented a real turning point in California in a real positive way.”

Many Republicans had little to say as the session began at 5 p.m. They were under tremendous pressure from anti-tax activists and had signed a pledge never to raise taxes.

“It’s a tough vote,” said Sen. Tom Harman (R-Huntington Beach). “I don’t want to say anything more.”

The plan would nearly double the vehicle license fees Californians pay, increase sales taxes by 1 cent, increase gasoline taxes by 12 cents per gallon and add a surcharge of as much as 5% to income tax bills.

It also would reduce the dependent care credit by about $200 per year. The increased taxes would remain in effect for two to four years.

In addition to the tax hikes, the proposal includes $15.1 billion in program cuts and $11.4 billion in borrowing, some of which would be erased by the stimulus package Congress just approved.

Sacramento’s spending plan would balance the state’s books through mid-2010.

But even some Democrats were hedging Saturday.

Sen. Lou Correa (D-Santa Ana), a moderate who pledged never to raise taxes, demanded some last-minute concessions for his own district.

He insisted on a late addition to the package of budget bills that boosts education spending in Orange County by allowing the county to keep $35 million to $50 million more property tax revenue a year.

“I’m hoping that will be part of a possible agreement tonight,” Correa said.

The state program cuts would be felt throughout California. They include reductions for the state’s public schools, universities and colleges; cuts in programs for the developmentally disabled; and the elimination of cost-of-living increases for the blind and disabled as well as people on welfare.

Transportation and transit programs would also take a hit, as would some payments to local governments.

If California does not get as much federal stimulus aid as budget experts anticipate, an additional $1 billion in cuts would kick in.

Even if the deal makes it through the Legislature and Schwarzenegger signs it, it will unravel if voters do not approve several provisions that would be on the ballot this spring.

One of those would allow the state to borrow $5 billion against the California Lottery’s future receipts.

Two others would allow the state to siphon away hundreds of millions of dollars voters had previously set aside for mental health and children’s programs. A fourth measure would change the formulas in Proposition 98, the 20-year-old initiative that sets minimum funding levels for public schools and community colleges.

As lawmakers struggled with the budget, a union representing state workers reached a deal with the administration that will end the mandatory furloughs of 95,000 workers two Fridays a month.

Under the agreement, state offices that had been shut on those days would reopen. The tentative contract, which includes the workers making alternative sacrifices that would save the state money, must still be approved by the rank and file.

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evan.halper@latimes.com

jordan.rau@latimes.com

Times staff writer Patrick McGreevy contributed to this report.