California Assembly approves budget package, but Schwarzenegger says he'll veto it

The Assembly's action came despite earlier declarations by GOP lawmakers that they would block any proposals that did not close the entire $24-billion deficit. With the prospects of IOUs going to local governments, welfare recipients and college students as early as next Thursday, Assembly Republicans joined the majority Democrats to pass the measures.

As lawmakers debated, the controller and the state treasurer issued a joint statement warning that IOUs -- if made necessary by California's cash crunch and the continuing lack of a balanced budget -- would cause "substantial, long term damage" to the state's standing on Wall Street. Assembly GOP leader Sam Blakeslee of San Luis Obispo said that approving Thursday's budget bills was "the responsible and prudent thing to do."

But Schwarzenegger said the $5 billion in budget revisions, which could avert IOUs for much of July, "amounts to nothing more than a piecemeal proposal."

"Since the first day we began working to solve this $24-billion deficit, I have been clear: The Legislature must solve the entire deficit," he said. He vowed a veto if the bill package made it to his desk, "because it doesn't solve the problem."