State’s financial trauma just beginning

After a year in which the policy agendas of the governor and legislative leaders were devoured by the state’s colossal financial mess, the budget deal struck last week all but guarantees the same political misery next year.

The spending plan is expected to fall out of balance quickly. Come winter, emergency cuts will probably be needed. Proposals to invest in -- or merely maintain -- the state’s roads, schools and healthcare facilities will be put on the shelf again. The discord may well spill over into a ballot fight as lawmakers and interest groups, frustrated with the inaction at the Capitol, take their goals to voters.

And the bickering over who caused the mess will no doubt begin anew.

Senate President Pro Tem Don Perata (D-Oakland), now serving his final term in the Legislature, offered this prediction for the incoming class of legislators: “If they are not drinking hard liquor by now, they’ll start.”

In times of budget crisis, California governors and legislators are fond of counseling that when in a hole, one should stop digging. But they disregarded their own advice last week.

“It’s the most irresponsible budget of the past half-century,” said state Treasurer Bill Lockyer.

The spending plan that Gov. Arnold Schwarzenegger may sign as soon as Monday pushes much of the state’s $15.2-billion deficit forward. It employs accounting gimmicks and creates billions of dollars in corporate tax breaks with no plan for covering them.

This is not the way the budget is done in many other states. But California can’t seem to break the cycle.

“The system itself is not working,” Schwarzenegger said at a news conference Friday.

The restraints on spending that Schwarzenegger won from the Legislature last week will take years to provide any relief to the state. Republicans say the measures will do nothing to control spending. Democrats say the constraints will further squeeze services without solving the state’s long-term fiscal problems.

The latest deficit punt comes at a particularly inopportune time. Even if California were in the black, the state would face an extremely tough budget next year; work on that plan will begin in January.

The deteriorating economy, compounded by the global credit crisis, makes further sharp revenue declines likely. The state has 240,000 fewer people working than it did last summer.

Stephen Levy, director and senior economist at the Center for Continuing Study of the California Economy in Palo Alto, said the state’s financial situation is “going to be much worse next year.”

The idea of borrowing billions of dollars against future lottery profits, which lawmakers had hoped would help keep the state solvent into 2010, increasingly appears unfeasible. The banks that would put up the money are fighting for survival, leaving many in the Capitol doubtful that the state would ever see the cash. And voters may choose not to authorize the borrowing when the question comes before them next year.

As the energy in the Capitol focuses on another budget fight, policy advancements could go by the wayside again.

Budget problems are the reason that plans by lawmakers and the governor to bring healthcare to millions of uninsured Californians died. They are the reason Schwarzenegger and the Legislature had to put aside plans to overhaul the state’s troubled education system this year. And they are the reason that serious concerns about the state’s water supply are not being addressed.

Jim Mayer, executive director of California Forward, a bipartisan think tank devoted to reforming the state’s budget process, said the financial dysfunction means Californians are “not getting the government they want and need.”

Lawmakers seem resigned to at least one reality: The only bills they may be able to pass in the upcoming session are those that won’t require money.

“It certainly does have a dampening effect,” said Assemblyman Ted Lieu (D-Torrance).

Few denizens of the Capitol deny that elected officials have abdicated responsibility on their most important task: keeping the state’s books in order. Policy analysts say the statehouse paralysis now resembles the gridlock that preceded the passage of Proposition 13 and the recall of Gov. Gray Davis -- sea-changing events brought about by extreme voter anger. Public approval ratings for the Legislature have hit record lows. The climate is ripe for a fundamental shift.

“There is a lot of emotion and energy and anger about the inability of the system to solve this problem,” Mayer said. “There is going to be some response from the public. I’m hoping it is a positive response.”

Mayer’s group, along with Schwarzenegger and some lawmakers, would like to see changes to the political system -- such as the redrawing of legislative districts or open primary elections -- that would ease partisanship in the Capitol.

California Forward wants more oversight of state expenditures and measures that would force lawmakers to address future projected deficits instead of simply balancing the budget one year at a time.

Others have more punitive ideas. Schwarzenegger said Friday he “very strongly” recommends a measure “to create consequences” for lawmakers when the budget is late. Still others advocate moving to a part-time Legislature.

Legislators are scurrying to get control of the situation by crafting their own proposals to put before voters. Democrats have already announced they will push to change the state Constitution to allow a budget to be passed with a simple majority of the Legislature, which would essentially wipe out the influence of GOP lawmakers on the budget under the current makeup of the Legislature.

Such a proposal, rejected by voters before, could add to the gridlock.

“It’s truly the nuclear option,” said Assemblyman Kevin Jeffries (R-Lake Elsinore).

Jeffries predicted that taxpayer and business groups would counter with measures against unions that heavily back Democrats. One might be an effort to make California a right-to-work state, in which employees are allowed to opt out of union membership.

“So we’ll have this really ugly ballot-box fight,” he said. “Odds are voters will get turned off, vote no on everything and all this money will have been wasted.”

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evan.halper@latimes.com

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Times staff writer Nancy Vogel contributed to this report.