California governor, Arnold Schwarzenegger, signed the newly trimmed California budget after making cuts to child welfare programs, medical care for the poor and AIDS prevention efforts on Tuesday.
Schwarzenegger termed the budget, the good, the bad and the ugly as he signed the $85 billion compromise spending plan through to June 30, 2010.
The governor said the plan forces California to live within its means but makes severe cuts to government programs from schools to prisons.
Schwarzenegger used his line-item veto authority to save an additional $656 million that will let the state restore a reserve fund he says is needed for tough times.
California's economy has been hard hit by the housing market slump and soaring unemployment, and the latest efforts to close a $26 billion shortfall came just five months after lawmakers and the governor ended months of negotiations to close a previous $42 billion deficit.
The governor and lawmakers hope the revised spending plan will end California's cash crisis and stop the state from issuing more IOUs.