San Francisco  - Governor Arnold Schwarzenegger on Friday signed a 130-billion-dollar budget including tax increases and spending cuts into law, ending a four-month crisis in California.

The largest and richest state in the US was in a deadlock, which saw it unable to pay its bills. Lawmakers finally passed the bill Thursday.

The new budget closes the state's projected 42-billion-dollar deficit over the next two years, with more than 12 billion dollars in annual tax hikes, 16 billion dollars in spending cuts and more than 11 billion dollars in borrowing. The rest of the deficit is expected to be bridged with money from the federal economic stimulus package.

"During a down economy and facing a historic budget deficit we had to make some very difficult decisions. But I am very proud that California is back on the best path forward," Schwarzenegger said in a statement.

The impasse, which led the Republican governor to issue layoff notices to 20,000 state workers and order a halt in all public works projects, was broken after he succeeded in persuading Republican Senator Abel Maldonado to break ranks with his party and back the spending plan despite strong opposition.

Schwarzenegger has worked more closely throughout his term with the Democrats who dominate the legislature. But they needed the support of a few Republicans for the budget because the state constitution requires it to be passed with a two-thirds majority.

Maldonado only agreed to back the budget after Democrats pledged to change election rules, in a move expected to boost moderate Republicans against the hardline anti-tax politicians who now dominate the party and who blocked any budget deal. (dpa)