Jerry Brown vetoes California budget

California Governor Jerry Brown vetoes the budget passed by lawmakers.

NEW YORK (CNNMoney) -- California Governor Jerry Brown vetoed Thursday the budget passed by state lawmakers the day before that relied on spending cuts, fund transfers and one-time revenue boosts.

Brown, who has promised for months that he would present Californians with a gimmick-free budget that solves the state's $26 billion deficit with a combination of tax extensions and spending cuts, said the legislators' budget was not a balanced solution.

"It continues big deficits for years to come and adds billions of dollars of new debt. It also contains legally questionable maneuvers, costly borrowing and unrealistic savings," he said. "We can -- and must -- do better."

In vetoing the budget, the governor, a Democrat, once again lashed out at Republican lawmakers. He called on them to put his plan to extend personal income and sales tax hikes on the ballot.

"If they continue to obstruct a vote, we will be forced to pursue deeper and more destructive cuts to schools and public safety -- a tragedy for which Republicans will bear full responsibility," Brown said.

Republicans, on the other hand, blasted their Democrats counterparts for passing an "irresponsible budget" on Wednesday and Brown for halting negotiations in March. Republicans have said they would let voters have their say on the tax extension if the governor would agree to certain reforms.

"Californians deserve a budget that stands the test of time, and that requires the real reforms that they are demanding -- meaningful pension reform, a spending limit and business-regulation relief for job creation," said Senate Republican Leader Bob Dutton.

The rejection dismayed Democratic lawmakers who had raced Wednesday to pass a budget that did not include the tax extensions. By doing so, they also sought to meet a deadline that would allow them to continue getting paid. California voters last year required that legislators approve a balanced budget by June 15 or forfeit their pay.

While the ballot measure did not say the governor had to approve that budget, the state controller is reviewing whether the budget passed Wednesday meets the state constitution's requirement.

Democratic legislative leaders called on Brown to either secure the Republican votes needed to put the tax extensions on the ballot or to produce a new detailed plan for crafting a balanced budget.

"We are too far down the road for the governor to continue avoiding a specific set of proposals of what he intends to do or wants to be done if he can't gain those Republican votes," said Senate President Pro Tem Darrell Steinberg.

Budget talks had essentially been at a standstill until Wednesday, when the Democratic-led state legislature passed a budget that relied on cuts and fiscal sleights-of-hand. Lawmakers only needed a majority to approve it, thanks to a ballot measure voters approved last year.

California's $10.8 billion budget battle

The budget would have sent $3 billion less to schools and delayed the repayment of $744 million that the state borrowed from school districts. It also depended on tax revenues coming in higher than originally forecast, as they have been doing.

The state's universities would have had another $300 million cut in funding, while the courts would have gotten $150 million less.

The proposal also relied on revenue shifts and one-time maneuvers. For instance, it called for sending some motor vehicle fees to the state general fund, while raising registration fees by $12 to support the state Department of Motor Vehicles. And it took $1 billion from a fund dedicated to early childhood development.

The budget plan would have resurrected the sale of $1.2 billion of public buildings, which Brown called off earlier this year.

It also would have added a quarter percentage point to the local sales tax and extended the sales levy to online retailers, such as Amazon.com (AMZN, Fortune 500). An Internet sales tax would have brought in an estimated $200 million.

The path to a balanced budget has taken many turns since Brown unveiled a plan in January to close the state's massive shortfall by extending temporary personal income and sales taxes passed in 2009 and cutting spending.

Two months later, the legislature approved several measures that closed $14 billion of the gap. Then, the Golden State learned in early May that tax revenues were coming in $2.5 billion higher than forecast.

Brown released a revised budget in mid May that reduced the amount the state needed to raise in taxes and to cut in spending. But Republican lawmakers refused to put the measure on the ballot without securing the spending cap and pension and regulatory reforms.