July 6 (Bloomberg) -- California Governor Arnold Schwarzenegger and legislative leaders reached an agreement on a $116 billion spending plan for fiscal 2006, ending an impasse that had left the state without a new budget for the fifth year in a row.

The proposed budget, which is expected to be voted on as early as tomorrow, doesn't raise any taxes and relies on gains in tax revenue from an improving economy to keep a $6 billion deficit from growing. The state has been operating without a budget since the start of the fiscal year July 1.

Lawmakers and Schwarzenegger said the agreement will allow them to focus on negotiating a compromise on a series of ballot initiatives proposed by the governor that would place retired judges in charge of redrawing legislative districts, keep the growth of government spending in line with revenue and make it easier to fire poorly performing teachers.

``Now we must work together to reform and repair our broken budget process and break the cycle of budget deficits so that nothing will stand in the way of creating more prosperity and opportunity in California than ever before,'' Schwarzenegger said in a statement.

Schwarzenegger, 57, has called a special election for Nov. 8 to let voters decide on those measures. He has said that if he and lawmakers can reach a compromise on them, he wouldn't campaign for his initiatives and instead would ask voters to approve the compromise.

Compromise

The Republican governor had criticized a budget proposed by the Democrats who control the Legislature for adding $2.8 billion to the budget deficit that lawmakers will have to close next year. Democrats earlier this month backed off a plan to raise taxes on residents earning more than $285,000.

The budget will need approval by two-thirds of the legislature and a signature by the governor. Democrats outnumber Republicans by 25 to 15 in the Senate and 48 to 32 in the Assembly, meaning that eight Republicans must support the plan in order for it to pass.

``Both Democrats and Republicans are represented in this budget,'' Speaker of the Assembly Fabian Nunez, a Los Angeles Democrat, said in a statement.

California hasn't had a budget in place before the July 1 start of the fiscal year since 2000, before the recession and stock market drop left it with less revenue than needed to meet its obligations.

Four years of record deficits and late budgets have left California with the highest borrowing costs and lowest credit rating of all U.S. states.

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net.

Last Updated: July 6, 2005 11:43 EDT