Mr Schwarzenegger has avoided unpopular tax hikes

Democrat and Republican politicians finally consented to a budget that neither raises taxes nor cuts spending too deeply.

In order to keep solvent, however, California will have to borrow heavily.

State officials have already warned that some payments that will soon fall due may not be made.

The fiscal year began, without a budget, on 1 July, and disbursements to schools and community centres have already been postponed.

'Girlie men' give in

The deal is a triumph for Mr Schwarzenegger, whose hopes of relying on borrowing had come under severe pressure.

The budget still needs to be signed off by both houses of the legislature, but this final approval is expected to be a foregone conclusion.

Mr Schwarzenegger was desperate to avoid either raising taxes or reining in spending. He has already secured a popular mandate for a $15bn bond issue.

Some economists and politicians have warned that the policy will only postpone - and possibly exacerbate - the state's mammoth fiscal woes.

Schwarzenegger has done a deal with prison officers

Among the critics are California's Democrat state treasurer Phil Angelides, who has denounced the proposal as a reckless step that just passes the burden of debt onto the next generation of Californian taxpayers.

Mr Schwarzenegger took office in October 2003 after his Democrat predecessor was kicked out by voters in a recall poll, and promised to tackle the soaring budget deficit.

Disagreements over the budget have at times been rancorous: Mr Schwarzenegger hit the headlines earlier this month when he called his Democrat opponents "girlie men" and "children".

Skirmishes

Mr Schwarzenegger's budget does not entirely avoid spending cuts. Education spending is to be reduced, as well as payments to municipalities - but only on a temporary basis.

He has been able to neutralise much potential opposition outside the Senate by agreeing a series of bilateral deals with interest groups such as teachers and prison officers.

Senators, including many within Mr Schwarzenegger's Republican Party, have been less easy to convince.

A whole series of fights have broken out over individual items in the budget.

One of the hardest-fought was over a proposal to exempt some luxury-yacht owners from sales tax - a loophole that was opposed by many Democrats.