WSJ:

California legislators Sunday night failed to pass a budget to close the state’s $42 billion deficit, with legislative leaders aborting the vote when it became clear they lacked the one additional Republican vote they still needed for the two-thirds majority required to pass the budget.
Lawmakers will reconvene Monday morning to reconsider the nearly 30 bills that make up the proposed budget. Senate leaders and Gov. Arnold Schwarzenegger are working to persuade one more Republican senator to join two others who have agreed to vote for budget that would generate $14 billion in revenue through tax increases.

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

My comment: Any "fix" in the budget of California will only be temporary as real estate will continue to fall in value, payroll taxes decline, and the productive class will continue to migrate away from the parasitic class. The only long term fix is to cut spending massively. The legislature can either do it or the market will force them. California’s debt rating is already one of the lowest in the country and will be heading lower.

John Polomny
The Real Deal