That’s the outlook for the California budget according to the state Department of Finance projections released yesterday. Our recent exercise in massive, insane program cuts may have given us a few months’ reprieve on the bond markets, but it has not obviated the basic fact that California still has a structural revenue shortfall. Unless we are able to generate significant new revenues, California’s economic crisis is likely to continue for some time to come:

Operating Deficits in coming budget years:

2009-10: $4.958 billion

2010-11: $7.419 billion

2011-12: $15.467 billion

2012-13: $15.097 billion

The primary cause of the big jump in 2011 is the expiration of the temporary tax increases approved in the February budget deal (which, wouldn’t you know it, haven’t produced the economic armageddon the wingnuts predicted). As Jean Ross points out, the recent budget deals have a role to play in the size of those deficits:

Back up materials to the forecast, not posted on the web, but circulating among Sacramento budget wonks, provide interesting insights into the implications of the recent agreement.  The forecast assumes, for example, that the state will repay local governments for property tax dollars borrowed pursuant to Proposition 1A of 2004 in 2012-13. The state will repay local governments $2.37 billion in 2012-13 in exchange for the $1.935 billion borrowed in the recent agreement – that’s an extra $435 million in interest and other amounts owed.

2011 is also the year that the corporate tax cuts from the February budget deal will fully kick in, costing the state another $2 billion.

Ross also points out that the DOF projections assume that the insane cuts of February and June 2009 will continue, including the cuts to Healthy Families. She also notes that the DOF projections assume no transfers to the budget stabilization account, for which we can thank the successful campaign to defeat Prop 1A in May (had it passed, those transfers would have continued in the face of severe ongoing deficits).

The policy implications of these ongoing deficits, primarily caused by what will likely be a sustained recession with persistent unemployment, are significant. First and foremost they should prove that California DOES NOT have a spending problem. We’ve seen $30 billion in cuts and still deficits are projected. Yet we are almost certainly going to hear more demands for spending cuts over the next 3 to 4 years, demands that Democrats have shown every indication they will cave to and accept.

This is exacerbated by the recent CBO projections of rising federal deficits. As Paul Krugman and Dean Baker point out the deficits aren’t really the problem, instead high unemployment is the real issue. Baker noted that the US deficit at the end of World War II was $18 trillion in 2008 dollars, but that didn’t prevent 30 years of sustained economic growth.

Unfortunately, the likely reaction to these projections in both Sacramento and Washington DC will be further demands for spending cuts. President Obama may well repeat FDR’s crippling mistake of 1937, where he let concerns about spending and deficits lead him to cut back on public expenditures, driving the economy back into a severe recession. And, surprise surprise, instead of the cuts appeasing the right-wing, conservatives used the recession to achieve a game-changing victory in the 1938 elections.

If anything the state DOF projections show the need for a second federal stimulus, aimed primarily at state and local governments. Unless Democrats break themselves out of the conservative fiscal mindset they’ve embraced lately, we aren’t likely to see that outcome.

And California will continue to suffer the consequences.