San Francisco  - After months of deadlock, which saw California unable to pay its bills, the largest and richest state in the US solved its budget crisis on Thursday.

The impasse, which led Republican Governor Arnold Schwarzenegger 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 a Republican legislator to back the spending plan despite strong opposition from their rightwing party.

The Republican governor 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.

Republican Senator Abel 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.

The new budget plans to address 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 stimulus package.

"This is a very difficult budget, but we have turned this crisis into an opportunity to make real, lasting reforms for California," said Schwarzenegger.

He has long been a proponent of the election-law changes included in the final package. "Some special interests may not like this budget - but like I always say, what's good for the people is not always good for special interests." dpa