Once upon a time, California built universities, schools, freeways and water projects that were the envy of the world. An ambitious public agenda, advanced by mainstream politicians from both parties, became the engine that drove the state’s prosperity – and made all things possible.

During that time, state government paid its bills and managed its business affairs in a responsible fashion. You know, the way grown-ups do.

But politics and politicians changed. Today, California finds itself in a world of trouble. The economy faces another six months of bad news, maybe more, and people are hurting.

Meanwhile, in the cocoon called Sacramento, state government’s finances are in a shambles.

The sorry condition of state government emerges from a decade of drift and dysfunction The state Legislature – once admired – now serves no identifiable function, save to pander to special interest groups, engage in partisan feuds and remind us why we are so cynical about government.

This budget crisis will be worse than it needs to be because lawmakers have been papering over deficits and otherwise ignoring the problems – declining school performance, population growth and sprawl, inadequate transportation systems – for a long time.

Five years ago, a political outsider, Republican Arnold Schwarzenegger, won a recall election in which he promised to make state government work again.

In subsequent years, the new governor vowed to re-organize state government – “to blow up the boxes,” he said. And he warned, “If we here in this chamber don’t work together to reform government, the people will rise up and reform it themselves. And I will join them.”

On Thursday, Schwarzenegger was confronted by the futility of all these efforts.

The state is “incapacitated,” he told a joint session of the legislature. But the word didn’t seem adequate to the approaching train wreck. A week earlier, he warned of a “fiscal Armageddon.”

Around Feb. 1, the great state of California – with an annual budget of more than $103 billion – will run out of money. If the state owes you money, you may be paid in IOUs, or you may not be paid at all.

The Sacramento Bee on Friday reported the latest insult: Without a budget agreement, State Controller John Chiang will delay payment of state income tax refunds. Yes, it is your money, and yes, it is shameful. If you don’t pay your tax obligation because you’re having trouble paying your bills, the state will come after you. But it’s OK if the state ducks out on its responsibilities.

By tradition, the governor is supposed to use the annual State of the State address to propose new initiatives that raise the standard of living for all Californians.

But what’s the point when the state is confronted by a $42 billion shortfall over the next 17 months (and more in future years)?

“It doesn’t make sense. . . ” said the governor, bowing to the obvious.

Schwarzenegger supports the kind of compromise favored by most Californians. But the peculiarities of California law give a handful of his fellow Republicans the power to block the majority from taking decisive action.

So here we are – rushing head-long toward a fiscal collapse. Already, the state has been forced to pull the plug on vital construction projects that could generate tens of thousands of new jobs.

In a country that jettisoned more than a half million jobs last month, jobs seem like a good thing to have.

If the Republican minority worries about the small businesses that won’t be paid or the workers who will lose their jobs, it has been careful not to let on.

Californians have witnessed these melodramas before, but this one is different. This crisis threatens long-term consequences that we don’t fully understand.

Which makes it dangerous and reckless not to find a way out.

The early signposts of a disaster are all around us.

Local government agencies are preparing what amount to disaster plans. Sonoma County cut $10 million worth of spending programs last week. Rohnert Park cut $1.5 million. No one doubts this is only the beginning for local government.

Local school districts are preparing to gut programs and lay-off teachers (while Education Week magazine reports that California ranks 47th in per student spending).

At a time in which education will be the key to California’s economic future, universities are being forced to turn away qualified students.

For a long time, California was able to live off its press clippings and off the inheritance of a previous generation’s commitment to long-term prosperity.

Now, the state desperately needs leaders who will unload the political baggage of the past decade. To get California moving again, we know where to start:

-Cover the chronic deficit through a combination of spending cuts and new revenues.

-Impose controls that guarantee that annual spending doesn’t exceed revenues and available reserves.

-Mandate a budget reserve, resources gathered in prosperous times and available in case of natural disaster or economic downturn.

-Establish open primaries that empower mainstream voters and limit the influence of special-interest groups and ideologues.

-Permit the legislature to pass a budget with simple majorities in each house. The current requirement – two-thirds majorities – guarantees that no one is responsible for the state’s financial well-being.

-Reform the tax system so that local government has a reliable source of revenue.

Urgency is a word often used when Barack Obama talks about a fresh start for the government in Washington.

As Obama prepares to take the oath of office on Tuesday, Californians should wish for state leaders with the same sense of renewal, the same understanding that this once magic place is drifting toward mediocrity. Unless we change quickly, time will not be our friend.