**Governor Arnold Schwarzenegger and leading California legislators say they have agreed a plan to close a state deficit of more than $26bn (£17bn).**Mr Schwarzenegger said the plan would include $15bn of spending cuts and no significant tax increases.
Legislators said they are hoping to vote on the plan on Thursday.
Mr Schwarzenegger declared a fiscal emergency earlier this month after legislators missed a deadline to agree a budget for the coming financial year.
Amid a protracted fiscal crisis, the office of the state controller has been sending promissory notes, or IOUs, to thousands of contractors and sellers providing state services.
Monday’s deal came after more than two weeks of intense negotiations.
“We are very happy to have a basic agreement,” Mr Schwarzenegger said as he announced the plan.