Serious Budget Troubles Coming

California has not solved its structural budget problems and the crash of the housing market has exacerbated the situation. We are not the money into our coffers that we expected. It is a serious problem, one that will not be solved with patches. LAT:

Gov. Arnold Schwarzenegger on Monday ordered all state departments to draft plans for deep spending cuts after receiving word that California's budget is plunging further into the red -- largely because of the troubled housing market.

State officials have warned the governor that the likely deficit for next year has jumped from a few billion dollars to as much as $10 billion, threatening to wipe out the progress Schwarzenegger has claimed in getting the state's accounts in order.

Claimed is an accurate word to use, given that he never actually solved the real underlying financial imbalances. Instead of doing the hard work, he has gone for cheap fixes.

The state is also being forced to confront the consequences of not saving money when times were better.

When the economy improved nationwide several years ago, most states erased chronic deficits and began building rainy day funds. California did not. It continued to spend more money than it brought in.

"We never fixed the problem," said Chris Thornberg, a principal with Beacon Economics. "It's been Scotch tape and glue and staples and just praying we will never have to face the reality that state government is on a path that is not sustainable."

It is likely that the state's credit rating will be downgraded due to our declining fiscal projections. That makes it tougher and more costly for the state to borrow money. Not a good scene all the way around.

Will Arnold have the courage and willpower to actually face the state's fiscal problems, or will he try and stave off disaster and pass the buck?