The longest budget battle in California's history came to an end after the two houses of the State Legislature agreed to 104 billion dollars in spending that was 80 days overdue, dpa reported.
Governor Arnold Schwarzenegger said that in the coming week, he would sign the budget passed Friday night in Sacramento.
He had threatened to veto an earlier version of the budget passed Tuesday because it did not contain his demand for spending limits in times of surplus so the state could invest in a "rainy day fund." Lawmakers gave in to his demands after they realized they didn't have the votes to override a veto.
The latest version passed contains no tax increases but cuts education and health programmes to bridge a revenue shortfall caused by the US financial crisis sparked by the subprime mortgage crisis.
Democrats were stymied by Schwarzenegger's Republicans in their bid to raise taxes to overcome the 15-billion-dollar shortage for the fiscal year that began July 1.
The lack of a state budget had wreaked havoc on providers of government services and those who rely on them in the most populous US state and the world's sixth-largest economy. Billions of dollars in scheduled payments to medical clinics, day-care centres and group homes for the disabled have been withheld since July.
Schwarzenegger fired 10,000 part-time state workers and also tried to cut the pay of most other state employees to the federal minimum wage of 6.55 dollars per hour until a budget was passed, but State Controller John Chiang, who runs the state payroll, refused to carry out his order.