As policy wonks and issues-based progressives, most of the writers here tend to understand the implications of the decisions in this train wreck of a budget. The savings are phony, but the cuts are real, and it makes you want to scream when you realize that the budget is a vast tax on the future of California.

One dollar stolen from road maintenance easily turns into an eight dollar liability in the future when you need to tear a street down to the roadbed and replace it all, rather than continue with routine patching, overlays, and slurry seal.

Cuts in health services and social welfare are leveraged by losses of matching Federal funds, and the savings may prove illusory. Patients who lose in-home health services may prove to be a greater burden on the state as they are still eligible under Medical for nursing home care, at a cost five times greater than the in home services.

Cutting back on treatment programs, vocational programs in prisons, and community college programs are negative investments that will produce negative long-term returns.

The piratization reforms, particularly outsourcing eligibility and selling part of the State Compensation Insurance Fund, are projected to save money and generate revenue, but real world experience, both in California and in other states, shows that these are more likely to be costly failures that will increase costs while wrecking services.

I could keep this list going, but it isn’t the point of this rant.

Getting past all of the issues with the specifics, there’s a fundamental failure of our state leaders to understand the macro-economic problem at hand. Our most recent California bubble was built on extraordinary leverage and reckless borrowing.

When Mortgage Equity Withdrawal (People using their houses as ATM’s) peaked in Q4 2006, an amazing 9% of consumer income, nationally, was coming from mortgage equity withdrawal. In California, ground zero for mortgage fraud, with soaring housing prices, that number was much higher. A substantial part of our entire economy was based on borrowing against assets that have now tanked.

We have permanently lost 10% of our consumer economy, the part that was based on absolutely unsustainable leverage, and it’s not coming back. Our sales tax revenues aren’t coming back. Our property taxes will keep declining. Incomes will continue to sag for years as we’ve lost jobs that won’t return in finance, real estate, insurance, construction and affiliated fields. Every sector of real estate is overbuilt, including housing, commercial, hotels, and industrial, so we won’t have any upsurge in construction jobs, especially after the state raids the local funds for road maintenance and redevelopment.  And it’s all still overpriced and over-leveraged, with more failures and foreclosures coming for hotels, commercial real estate, and industrial properties. Agriculture is a disaster. Read John Chiang’s monthly reports on our plunging revenue, and follow the unemployment numbers, and you can see how these numbers are playing out.

State and local revenues will not miraculously return as they have in previous recessions, because this is not like previous recessions. Jobs won’t bounce back as retail continues to tank, and small businesses close their doors.

And our cuts in state spending amplify the problem, as furloughed and laid off government employees spend less, lose homes, pay less in taxes, and the people they buy from spend less, lose homes, and pay less in taxes. Twenty billion in government cuts will act push the economy into another downward leg, forcing unemployment up another two per cent, and translating into billions less in state and local government revenue.

When legislators pretend that they will somehow have money to pay back local government or education, they show that they have failed to grasp the reality of our de-leveraging economy. We won’t revert to our previous income levels any more than housing prices will return to their peak of the bubble prices. Se we won’t have more revenue to pay back this ridiculous scheme of borrowing that we are taking from local government, much less paying back education.

We need to start with the knowledge that the California economy is resetting, and that we need to restructure our government, implement national health care reform, and come up with a new basis for our tax system that is much fairer, and corrects some of the worst flaws we have written into our Constititution.