San Francisco  - California lawmakers are set to approve a new budget for the largest state in the US Monday night, allowing Governor Arnold Schwarzenegger to end the longest budget impasse in California history.

The 77-day impasse was prompted by a record 15 billion dollar shortfall in state finances. The Democratic majority in the legislature wanted to raise taxes and avoid drastic cuts but were stymied by the Republicans. The budget needs a two-thirds vote to pass.

The compromise proposal increases spending for education and healthcare, while borrowing huge sums against the state lottery. It d relies heavily on manoeuvres that would push the state's financial problems into the future at a time when economists have little hope that revenue is on the rebound.

The Democrats dropped their proposal for a 1 per cent increase in sales tax.

The absence of a state budget has wreaked havoc on providers of government services and those who rely on them. Billions of dollars in scheduled payments to healthcare clinics, day-care centers, group homes for the disabled and others have been withheld since July.

Schwarzenegger has also been trying to cut the pay of most state employees to the federal minimum wage of 6.55 dollars per hour until a budget is passed. The governor, however, has been unsuccessful so far in getting the courts to force State Controller John Chiang, who runs the state payroll, to carry out his pay-cut order.

As the sixth largest economy in the world, California's total state budget totals 110 billion dollars. (dpa)