California lawmakers endorse spending cuts

SAN FRANCISCO (Reuters) - The California Assembly's budget committee on Thursday approved spending cuts to close the budget shortfall in the state's current fiscal year and dramatically narrow next year's expected deficit.

The votes follow similar votes late on Wednesday by the state Senate's budget committee and come ahead of a report next week by the legislature's budget watchdog that many in Sacramento, the capital, expect will show the state's finances are worsening as the economy slows.

The votes mark a dramatic embrace by the Democrat-led legislature of Republican Gov. Arnold Schwarzenegger's call for spending cuts.

"What it does is take a $3.3 billion hole in this year's budget and turns it to a positive $1 billion," Assemblyman John Laird, chairman of the Assembly budget committee, told Reuters in a telephone interview.

The votes also will take a combined budget shortfall for California's current and next fiscal year, which had been expected to top $14 billion, down to just over $7 billion, Laird said.

"We took a significant bite out of the budget problems," he said.

However, Laird said talks over how to balance next year's budget will be difficult because the governor and lawmakers may have to put popular programs on the cutting block.

"Those are the hardest things. That includes K-12 education, higher education, early prison release and parks closures."

Assembly Speaker Fabian Nunez said the spending cuts approved by the Assembly and Senate budget committees will not be as harsh as those urged by Schwarzenegger, who had proposed across-the-board cuts for state agencies.

"I am hopeful this smart, careful and bipartisan approach, which avoids unworkable across-the-board slashing, can carry forward into meeting the challenges we face in the 2008-2009 budget," Nunez said in a statement.

The committee votes underscore the urgency of the financial challenges California faces amid flat revenues brought on by a sharp housing downturn, said H.D. Palmer, a spokesman for Schwarzenegger's finance department.

"Both houses not only get the gravity of the situation, but they also understand the importance of acting sooner rather than later to address the shortfall," Palmer said.

Fitch Ratings last month warned that California was at risk of a credit rating downgrade if state officials failed to tackle the state's budget shortfalls promptly.

(Editing by Dan Grebler)