California Closes Budget Gap -- For Now

This post first appeared on Minyanville.

The Golden State appears to have eked out another nail-biter, as Governor Arnold Schwarzenegger and California lawmakers struck a deal to (hopefully) solve the state's spiraling budget crisis.

Tricky accounting, borrowing from Peter to pay Paul, and a modicum of spending cuts enabled California to close its nearly $26 billion budget gap, according to Bloomberg. The agreement still has to win approval from the state senate, but legislators are hopeful they can muster the requisite support for a vote later this week.

The plan calls for $15 billion in true spending cuts, diverting $2 billion in tax receipts intended for local governments (the money will be repaid, with interest) and shifting state employees' final paycheck to the next fiscal year. Education will see the largest spending cuts, but lawmakers promise the coffers will be refilled -- as soon as the economy turns around.


This isn't the first time California thought it had cleared the worst of its budgetary hurdles. Earlier this year, an agreement that matched spending cuts with tax breaks failed to win popular support in a May referendum. This rejection sent bureaucrats back to the drawing board, ultimately forcing the state to begin issuing IOUs to avoid going truly broke by the end of this month.

Not insignificant in forging a resolution to the crisis, last week major US banks Citigroup (C), JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) said they'd stop honoring California IOUs. As I wrote then, since the country's banks are defacto controlled by the White House, it appears the Obama Administration's strong-arm tactic worked to force a resolution in California.

And despite the tentative compromise, it's reasonably certain California's fiscal woes are far from history. By acknowledging the need to "give back" budget cuts when the economy bounces back, lawmakers are implicitly refusing to address the state's fundamental problems.

These are many, to be sure, but few recent stories capture California's propensity to shovel taxpayer dollars into the proverbial blender than does the plight of the San Diego seals.

For decades, tourists have flocked to sunny La Jolla -- just north of San Diego proper -- to catch a glimpse of the seals frolicking at Children's Pool, one of the 2 Southern California beaches where harbor seals give birth and raise their young. The trouble, however, is that state law requires that the beach be safe and clean for children.

Of course, removing a sizable seal population from a beach is no easy task, especially without harming the seals. The solution (truly, only in California) was to amplify the sound of barking dogs in the hope it would spook the seals into moving on to a new beach. Tack on security for the unfortunate soul doing the amplifying and other logistical efforts, and the cost for the entire project was tagged at $688,000.

Yesterday, amidst the turmoil in Sacramento, Governor Schwarzenegger signed a bill expanding the current law, penciling in a marine reserve as one the acceptable uses for Children's Pool, according to the Associated Press.

Bryan Pease, attorney for several pro-seal groups, summed the issue up nicely, and again, in true California form: "This is really the end of the road for the anti-seal forces."

Indeed.