Anyone who is willing to look closely at the most recent budget deal will quickly realize that as an effort to balance the state’s budget and address the deficit, the deal is a complete joke. Jean Ross of the California Budget Project has called the supposed savings illusory and as Kevin Yamamura at the SacBee points out much of the budget relies on assumptions that are barely credible:

The state is counting on a $1.7 billion payment from redevelopment agencies that faces a tough legal fight….

But Mitchell warned that asset sales [of the State Compensation Insurance Fund] in this climate will be depressed, and it may be difficult to find enough buyers at the price the state expects. The nonpartisan Legislative Analyst’s Office said in May that it doubted whether an SCIF sale could help the budget in 2009-10, and classified the plan as a significant risk….

Lawmakers left unanswered roughly $600 million in specific cuts to prisons that may invite controversy when the Legislature reconvenes next month….

And so on. This budget deal is a particularly flimsy house of cards that will do nothing to address our structural revenue shortfall. Perhaps most significantly, the state budget for 2010-11 is already projected to be $8 billion in the red, a lede being buried by most reporters, Yamamura included:

Department of Finance Director Mike Genest said the state faces a $7 billion to $8 billion structural deficit in the next fiscal year, with even worse shortfalls after that because temporary sales, vehicle taxes and income taxes end starting in 2011.

So it has to be concluded that this budget deal is a cruel joke being played on the people of California. The cuts made in both the budget approved by the Legislature and in the governor’s line-item vetoes are horrific and will kill people – and yet we’re going to be back at this within 6 months, just as we’re getting ready for the governor’s January budget proposal for 2010-11 that will show yet another deficit.

The ramifications of this are enormous. California now functions under what I’ve called a political spending cap – lacking the force of law as would have been the case had Prop 1A passed, but just as real in its effect on legislative decision-making. The 2/3rds rule enables Republican insistence on massive cuts. The media almost always goes along with this, and Democrats always accept that cuts must happen, hoping to negotiate them down from a catastrophic level to a merely disastrous level.

By agreeing to these cuts, Democrats have signaled their acquiescence to the political spending cap. And by using a series of budget gimmicks to try and solve the state’s cash crisis, they have ensured that there will be cries for future cuts that will be harder to resist now that the precedent has been set – Democrats will vote for Republican cuts early and often.

More over the flip.

So why would Democrats support such a budget deal, that failed to fully address the existing deficit, that failed to find new revenue, and that assures an ongoing deficit that will repeatedly be used to push for further insane cuts to core programs?

The answer is that these budget deals aren’t about the deficit at all. They’re about the state’s cash flow crisis. From the perspective of Democrats, the most important thing to do is to ensure that California can pay its bills. That we’re not issuing IOUs and that we’re not in danger of missing payments owed to bondholders, which would cause long-term damage to our credit rating and make it nearly impossible to borrow in the future.

At least, that’s the argument we keep hearing from the Democratic caucus in order to justify kicking the can down the road, to justify crippling cuts. Dems continue to assume that there will be some magic asset bubble to fuel economic growth to pull us out of the crisis, as happened in the 1980s, the 1990s, and the mid-2000s. By that time, they hope, Dems will either have won 2/3 majorities or will have repealed part or all of the 2/3 rule, enabling them to make better budget decisions free from Republican demands.

This hardly seems a likely outcome. As OC Progressive has pointed out we have lost 10% of the consumer economy and with it the jobs and tax revenues that debt-fueled spending created in each of the last 3 decades. By embracing short-term cashflow solutions at an enormous long-term cost, including budget cuts that will retard economic recovery for many years to come, the Legislature and Democrats in particular have ensured budget crisis after budget crisis is in our future.

It is time for Democrats to break out of this cycle. Sure, it’s difficult to do so given the broken government we possess, the constitutional factors that give a center-left population a deeply right-wing government.

But it is necessary for Democrats to start advancing new and more forward-thinking solutions. California’s credit rating is slipping into oblivion anyway, and it’s hard to see how we’ll avoid junk status with ongoing budget deficits. We need to consider whether some form of strategic default is workable and valuable. Perhaps it is time we started cramming them down instead of cramming down children, the disabled, people with HIV/AIDS. Or at least find new ways to work out repayment of debt, a restructuring that ensures the bondholders will get paid without destroying California’s economy and society in the process.

Dems could also embrace innovative solutions found around the country. Ellen Brown’s proposal for California to follow North Dakota’s example and charter its own bank to generate credit, to pay its bills, and to escape financial collapse.

One thing is clear: the next budget fight, to come perhaps as early as October, cannot be fought on the same terms as this fight, or the February 2009 fight, or the summer 2008 fight, or the summer 2007 fight. It’s time for Democrats to stop focusing on the cashflow problem and start focusing on economic recovery, on the needs of California’s people.