UPDATE 4-California governor, lawmakers agree on state budget

* Deal to close $26.3 bln deficit, balance budget

* Spending plan would include no tax increases - governor

* State legislative leaders hope for votes on Thursday (Adds details on spending cuts, reserve)

By Jim Christie

SACRAMENTO, Calif., July 20 (Reuters) - California Governor Arnold Schwarzenegger and top lawmakers agreed on Monday to close a $26.3 billion deficit in the state's budget in a deal that includes $15.5 billion in spending cuts, they said.

The government of the most populous U.S. state, also the world's eighth-largest economy, began its fiscal year on July 1 facing the massive shortfall due to a plunge in revenues caused by the recession and rising unemployment.

Schwarzenegger, a Republican, said during a news conference the budget would be balanced through deep spending cuts and borrowing and shifting of state funds but without raising taxes.

"All around I think it is a really great, great accomplishment," said the former Hollywood action star, noting the closing rounds of budget talks, which dragged on for weeks, had been like a suspense movie.

The Legislature's top Democrats and Republicans said they would brief rank-and-file lawmakers on the agreement in the hope of holding votes in the Democratic-controlled state Assembly and Senate on Thursday.

Democratic leaders acknowledged the agreement contained painful spending cuts in popular programs, the result of mounting financial woes for the state's government since 2007.

Public schools, colleges and universities would lose $9 billion in funding, prisons more than $1 billion and cities and counties roughly $4 billion. Many state employees would have to take three furlough days each month through June 2010, which amounts to a roughly 14 percent pay cut.

"There isn't a whole lot of good news in this budget," said Senate President Darrell Steinberg.

STATE'S ECONOMIC WOES

The state's revenues have been sliding amid the lengthy housing slump, the mortgage crisis and credit crunch, turmoil on Wall Street, the recession and rising unemployment.

State officials reported on Friday that California's jobless rate in June was unchanged from May at 11.6 percent, its highest level in modern state records, and up from 7.1 percent a year earlier.

Double-digit unemployment is striking hard at the money the state collects in personal income taxes, its biggest revenue source. Those revenues are suffering their worst decline since the Great Depression.