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Calif. Strikes Deal to Close $26 Billion Budget Gap

Lawmakers in California on Tuesday agreed on a plan to close a $26 billion budget gap, ending weeks of stalemate that left the state's chief accountant having to issue IOUs to creditors. Ray Suarez reports.

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    Finally tonight, a closer look at the budget deal in California. Ray Suarez has that story.


    It's been almost three weeks since California's budget crisis reached the tipping point. That's when the state started paying contractors and vendors in IOUs because of a $26 billion shortfall.

    Last night, lawmakers and the governor finally reached a deal, and a painful one at that. It includes billions of dollars in cuts to state services and borrowing money from local governments.

    NewsHour correspondent Spencer Michels has been covering this story, and he joins us from San Francisco.

    Spencer, last night when the governor made his announcement of a deal with top state legislatures, he said, "We dealt with the entire $26 billion deficit." Did he? And if he did, how?


    Well, first of all, the deficit was actually much more than that. It was about $60 billion, but it's been whittled down through cuts over the past several months.

    He did deal with it. The legislature dealt with it, but they dealt with it the old-fashioned way. They made deals. They made some cuts, a lot of big cuts. They did not put any new taxes into play. But they made a bunch of little deals that transferred money from here to there, and they came up with what they say is a balanced budget.


    Since this crisis first began, they've paid state contractors and some taxpayers with more than 150,000 IOUs, the state, in effect, taking on to itself hundreds of millions of dollars in future obligations. Were those part of the deal? Are those going to be paid off now?


    Well, eventually, they'll be paid off. They're supposed to be paid off starting October 2nd, but that could change. It depends. The state controller — I talked to the state controller's office today, and they said it depends on what this big budget deal comes up with.

    If it really does make enough money for the state and the cuts make the expenses less, then they will be able to redeem the IOUs, but they're not sure that's going to happen and they're going to have to have a big process where they decide how much money the state has and if it can pay off the IOUs.