California budget vote on track after prisons snag

California Governor Arnold Schwarzenegger speaks during a news conference at the State Capitol in Sacramento, California July 1, 2009.

SAN FRANCISCO (Reuters) - Republicans in California's Assembly backed away on Wednesday from their threat to scuttle a budget agreement secured by the governor and top lawmakers over a plan for prison spending cuts, clearing the way for a vote on it perhaps on Thursday.

"We will be able to move forward with the agreement," Assembly Republican Leader Sam Blakeslee told reporters in the state capital of Sacramento.

"We will vote on the budget now and we will have a full and fair and honest and open discussion about how to handle corrections in August," said Blakeslee, who on Tuesday had said Assembly Republicans would not vote for the budget deal if it included early release of thousands of prison inmates to shave the state's expenses.

Blakeslee's warning came a day after Republican Governor Arnold Schwarzenegger and top lawmakers ended weeks of often tense negotiations by agreeing on a plan that relies heavily on deep spending cuts to close a historic $26.3 billion budget deficit to balance the state's books.

They also held out hope the legislature could vote by Thursday on the agreement, which proposed cutting $1.2 billion in prison spending.

"The bottom line is that we are going to get this budget done. We are going to get the vote, most likely tomorrow night," Schwarzenegger said on Wednesday.

PRISON PLAN ROIL

Details of how savings in prison spending would be posted emerged on Tuesday and included provisions for reducing the size of the state's prison population by 27,000 inmates -- which Blakeslee took as throwing prison gates wide open.

He warned the Democrat-led legislature's leaders that Republican votes needed to pass the budget deal would be withheld if it included a sweeping prisoner release.

"It's a very sensitive issue ... because we are the party of law and order," said Ted Gaines, floor leader for the Assembly Republican caucus.

The roil among Assembly Republican prompted damage control by Schwarzenegger's administration, which included the state's prisons chief on Tuesday night outlining how he would cut inmate costs.

The "budget package would reduce the inmate population by 27,000 inmates over time, but those reductions are not obtained through early release," California Department of Corrections and Rehabilitation Secretary Matthew Cate said in a statement.

"This proposal would help divert some inmates and parole violators from prison, allow some low-level offenders to serve the last 12 months of their sentence on house arrest, and deport select criminal alien felons," Cate added.

FOCUS ON CASH FLOW

Shannon Murphy, a spokeswoman for Assembly Speaker Karen Bass, said the row erupted from a "misunderstanding" and would not derail a vote on a budget this week.

"Everything's on track," added state Senate President Darrell Steinberg.

The sooner Schwarzenegger signs a budget the faster his finance department can put the finishing touches on its cash-flow estimates.

The state's treasurer and controller need the estimates to firm plans for issuing short-term debt, either in the form of revenue anticipation notes or revenue anticipation warrants, said finance department spokesman H.D. Palmer.

"This isn't a situation where you can pass a budget on a Friday and go to the cash window the following Monday," Palmer said, adding his department needs a week to get its cash-flow analysis to the treasurer and controller.

Proceeds from the sale of short-term debt will help the state government smooth out its cash balance and maintain its target of $2.5 billion in cash at the end of each month to pay all of its bills, many now being covered with IOUs until a budget is signed into law, Palmer said.

(Additional reporting by Marianne Russ in Sacramento; Editing by Diane Craft)