Under a widespread recognition of California's failed approach in youth corrections, Governor Schwarzenegger, supported by the California Legislature, has launched a large-scale restructuring of youth corrections. Reforms underway include significant management, oversight, and administrative staffing changes, which are intended as a prelude for sweeping structural changes at the operations level. This report presents research findings that show these structural changes will require closing structurally outdated large correctional institutions to be replaced by smaller county or regionally based facilities. The report examines the significant budgetary, legal, and political constraints on the implementation of this new system. Despite the Governor's promises of broad systemic reform, no new resources are present in this year's budget for youth corrections. This implies that reform efforts will have little or no additional State funding. If the proposed structural changes are to be achieved, a permanent funding stream should be created, so as to reallocate resources from State-run correctional institutions to county probation departments. Further, a State-administered oversight body should be created to provide technical assistance and monitoring for county and regional juvenile justice treatment and custodial programs. In addition, the range of correctional options at the county and regional levels should be expanded through the evidence-based programs and services of private and nonprofit agencies. 10 figures and 30 references