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1. California Has a Budget!
By Tom Graff
8:22 a.m. EDT

California's budget deal, at first glace, is exactly what observers feared it would be. There are about $15 billion in legitimate spending cuts, but another $11 billion in tricks and games. $1 billion is saved by delaying payroll payments that would be due on June 30 to July 1 (a different fiscal year). $1.7 billion is saved by borrowing from Redevelopment Agencies, but that exact plan was ruled unconstitutional just last year. I have no idea why they think it will be ruled otherwise this year. $1.9 billion is taken from local governments, but needs to be paid back within three years. The Los Angeles Times is reporting that public employee unions are already talking strike.

Legally the state will probably get away with calling their budget balanced for now while things like constitutional challenges and employee strikes are worked out. But since a lot of these one-time items will either not save as much as planned or else not be available again next year, it will almost certainly mean a large budget deficit next year. Maybe not $26 billion, but something.

No early read on how CA bonds are trading, but given the dicey nature of this budget as well as the rapid run-up in recent days, I wouldn't be surprised if they are wider today.

No positions.

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