California Budget Deal Headed for Vote Thursday

By VAUHINI VARA

California's statehouse leaders said they reached an agreement on a budget that would close a $19.1 billion shortfall for the fiscal year ending next June.

They didn't immediately release details of the deal, which comes after a three-month delay.

California requires a two-thirds vote by lawmakers to pass a budget, which has recently led to routine delays. The agreement signals that the state's longest-ever budget impasse could soon come to a close, with lawmakers set to vote this week on the revised budget, which was due when the fiscal year began in July.

"We've reached an agreement, and there will be a vote on the budget Thursday," Gov. Arnold Schwarzenegger wrote on Twitter.

Rank and file legislators don't always follow their leaders' recommendation, though. Last year, budget talks dragged on well past when the governor and legislative leaders struck a deal, triggering marathon sessions until a final deal was reached.

The long-delayed agreement followed intense arguments, in Sacramento and on the campaign trail, over how to craft a budget that would take into account the ailing economy. Californians have been hit especially hard by the recession because of the outsized role of the housing boom, and subsequent bust, in the state. With huge numbers of construction workers and people in related fields still out of work, the unemployment rate rose in August to 12.4 percent.

Economists expect the recovery to be more sluggish in California than elsewhere, with unemployment in the double digits for at least a few more years. The state doesn't expect to return to its peak level of revenue collections until 2016, later than many other states including Arizona and Florida, according to the National Conference of State Legislatures.

Republican lawmakers and the governor have focused on slashing expenses, while Democrats wanted to increase revenue in part by delaying certain corporate tax breaks.

Gov. Schwarzenegger was also keen on including long-term pension reform—a key issue for him throughout his term as governor—in the budget. That led to last-minute wrangling, as Democrats have argued that reform should be undertaken through negotiations with unions. It's unclear whether or how pension reform is addressed in the deal.

Write to Vauhini Vara at vauhini.vara@wsj.com