California's $26 Billion Budget Deal Comes at a Cost

California officials say they've reached an agreement on the $26-billion state budget shortfall. Still, they're not quite ready to say when they'll be done sending out IOUs to their creditors.

The Wall Street Journal reports that $15 billion will come in the form of budget cuts, the bulk -- $9 billion -- from education. More than $4 billion is being borrowed or redirected from local governments, a measure that has drawn fire from local officials.

Gov. Arnold Schwarzenegger and California lawmakers have been at a stalemate for weeks as they tried to close the budget gap. During the deadlock, the state finally resorted to a measure more commonly seen on playgrounds than in government, issuing IOUs.

Though the agreement solves the most immediate problems faced by the state, economists are concerned about the long-term impact. "It will certainly offset a fraction of the federal-stimulus effect this fall," Roger Noll, an economics professor at Stanford University, told the Journal. "That will mean the depth and duration of the recession (in California) will both be bigger than otherwise would've been the case."