No easy scenarios for California budget crisis

By Jim Christie

SAN FRANCISCO (Reuters) - Tom Campbell aims to become governor of California after serving as the state's finance director, arguably the kind of job experience the state's cash-strapped government could use in its top office.

But there are no easy scenarios that will lead to a resolution of the state's budget crisis, Campbell said in an interview on Thursday.

Recession and rising unemployment are hammering California, the world's eighth-largest economy, and have opened a historic $26.3 billion state budget gap.

The deficit could be plugged if state leaders truly feared the state tipping into a financial abyss, said Campbell, who also has been a state lawmaker, U.S. House representative and University of California, Berkeley business school dean.

Instead, talks between Governor Arnold Schwarzenegger and lawmakers over closing the budget gap have ground to a halt amid partisan bickering, Campbell told Reuters.

"Right now it's at a stalemate ... It's really depressing," Campbell said as California entered the second week of its fiscal year without a balanced budget.

Campbell said he is especially concerned about more budget turmoil arising from the state issuing "IOUs" promising payments to vendors and for tax refunds. More than $350 million of the IOUs have been issued since July 2 in an effort to preserve the state's dwindling cash for priority payments, including to investors holding state debt.

But Campbell, who had served Schwarzenegger as his second finance director, sees the IOUs triggering lawsuits compounding the state's already messy budget troubles.