ALAMEDA, Calif. — The recently adopted California budget dumps a huge problem into the lap of the next governor and Legislature, according to the state’s independent Legislative Analyst’s Office.

Gov. Arnold Schwarzenegger signed the budget Friday, a record 100 days into the 2010-2011 fiscal year, after a long struggle to find consensus on how to close a $17.9 billion budget gap in the general fund.

“We estimate that well over two-thirds of the 2010-11 budget solutions are one-time or temporary in nature,” the Legislative Analyst’s Office wrote in a report released Tuesday. “This means that California will continue to face sizable annual budget problems in 2011-12 and beyond.”

Those problems will soon be a new governor’s headache, with Democrat Jerry Brown or Republican Meg Whitman replacing the GOP’s termed-out Schwarzenegger after the November election.

The new governor will promptly wade into a political battle over the next budget deficit that is already underway. They will be required to submit a spending plan within a week of their Jan. 3 swearing-in ceremony.

Senate President pro tempore Darrell Steinberg, D-Sacramento, who positioned himself during the previous budget debate as a defender of health and welfare programs, criticized the $963 million in line-item vetoes Schwarzenegger issued Friday, which brought the projected budget reserve above $1 billion.

The line-item vetoes included cuts to subsidized child care, funding for student mental health services, and child welfare services.

“The governor’s vetoes were misguided, cruel, unnecessary, and preventable,” Steinberg said. “These vetoes will place more children in harm’s way, force working parents to forfeit their jobs by eliminating critical child care programs, and force more Californians who did not create our economic crisis to bear the brunt of its consequences.

Steinberg said his first action in January will be to begin work restoring the vetoed funding.

California received a spot of good fiscal news Monday, when the state controller reported that September revenues were $1.1 billion above projections.

The state still has a tight cash position, Controller John Chiang said. Because of the long-delayed budget, California has yet to conduct its usual short-term note borrowing to smooth out its intra-year cash flows.

To compensate for that, one of bills in last week’s budget package authorizes payment deferrals for welfare programs, K-12 education, community colleges, and tax refunds.

That will allow the controller to make payments to creditors, such as vendors, who had to wait through the 100-day budget delay.

“It’s difficult to celebrate a budget deal that does so little after so long,” Chiang said in a statement.

“The latest casualties of this historically late budget include the many schools, taxpayers, and daycare providers whose payments will now be delayed so that long-suffering Californians who received nothing from the state for the past 100 days will finally get some financial ­relief.”

The state’s ongoing budget follies present bond investors with both opportunities and risks, according to a long-term report issued Tuesday by Municipal Market Data.

California GO spreads have been artificially compressed by Build America Bonds and the lack of new-issue supply created by the long budget deadlock, which prevented the state from preparing deals for the market. California is expected to return to the bond market soon.

“We expect the flood of new issues, combined with the spotlight focused on its financial stresses, will cause tax-exempt spreads to experience their historical pattern of rising, once again, during the fourth quarter of this year,” the report said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.