CHESSNOID

California is such a big economic force that it will hurt the rest of the union.  For whatever reasons, the lawmakers were not able to agree to a budget, thus continued chaos will follow.  Everyday without an approved budget sinks the state into further despair.

LOS ANGELES, Feb 15 (Reuters) -

California lawmakers narrowly failed to pass a $40 billion budget on Sunday, casting doubt on Gov. Arnold Schwarzenegger’s ability to prevent the nation’s most populous state from sinking into the abyss.

Bleary-eyed senators in the state capital of Sacramento adjourned for the day after all-night horse-trading failed to generate the one Republican vote needed to ensure passage of the bitter mix of tax hikes and spending cuts.

California, the world’s eighth-biggest economy, is constitutionally barred from running a budget deficit, and has begun forcing state employees to take unpaid leave.

State spending on infrastructure work has also largely wound down, adding to the drag on the broader U.S. economy, which appears to be facing a long and deep recession.

All I can say is things are going to get really ugly for California residents and the rest of the country will feel it. The lawmakers have been working on this budget for months and still no agreement. There lack of cooperation will hurt everyone.

Wall Street Journal:

With the state set to run out of cash in weeks, state leaders have already shut off funding for $3 billion in construction projects and delayed $3 billion in tax refunds, welfare checks and other payments. Unless budget solutions are adopted soon, a state board on Wednesday may shut down another $4 billion in construction, while the state controller warns that he may issue IOUs to keep the state from going into default.

The budget struggle began in early November, when Gov. Schwarzenegger declared a fiscal emergency after it became clear that the recession was shrinking the state’s tax revenues. But he and state lawmakers got tangled in a three-way clash over ways to balance a budget projected to have a $42 billion shortfall by July 2010. Democratic legislators wanted new taxes and moderate cuts, Republican lawmakers wanted deep cuts and no new taxes, while the moderate Republican governor wanted a combination of the two approaches.

The state bled cash as the stalemate dragged on, forcing officials to delay the construction and payments. In addition, the governor began furloughing 200,000 state workers for at least one day a month and threatened to send layoff notices to 20,000 workers.

Meanwhile, Standard and Poor’s Corp. cut the California’s credit rating to the lowest among 50 states. Shut out of Wall Street, the state treasurer looked for creative funding alternatives, eventually negotiating an unprecedented deal to sell $200 million in bonds to a municipal agency.