Gov. Arnold Schwarzenegger and legislative leaders today agreed to a deal that seeks to close a $26 billion gap in the current year’s state budget.

The agreement, which must be ratified by the state Legislature,  calls for broad cuts in spending, more borrowing and the transfer of money from local to state government. Now California begins to pay the price for all those years in which politicians ducked the hard choices.

In case you missed it, here’s my Sunday column on the state’s long-term prospects:

Most Californians didn’t notice when state government began its skid toward mediocrity. The special interest groups that came to dominate politics were busy fighting off reforms and otherwise scrambling to get theirs – securing long-term money commitments that were bound to break the bank over time.

And most of the rest of us were busy doing something else. We were turned off by politics because it had become bureaucratic, manipulative and nasty.

Oh, we would occasionally parachute in and pass a half-baked ballot measure – ballot initiatives are the “crack cocaine” of California democracy, The Economist magazine observed last week – but we would always go back to our regular lives.

It didn’t matter. We lived in California. The good life in the Golden State was guaranteed.

In the early 1990s, I remember being surprised by friends who said that their school kids got more of what they needed – modern classrooms, books, computers, support for art and music  – in Texas and Florida than they did in California.

How could that be? For people who grew up enjoying the bounty of the post-World War II boom, it was unimaginable that we could trail Florida and Texas in anything that mattered.

Recent years have left us with fewer illusions. The engines of the state’s prosperity – schools and universities, highways, water projects, other public improvements – were once the envy of the world. Not any more.

And then there is the comic relief – the politicians, lobbyists, bureaucrats and schemers who steered California into a ditch. What happens in Sacramento doesn’t stay in Sacramento. Our political dysfunction will mean a lesser standard of living for everyone who lives here – all 38 millions of us.

“We are in some ways the laughing stock of other countries and other states,” observed the Sonoma State University political scientist David McCuan.

The Economist last week served up the latest testimony to the state’s decline. Texas may not have passed California, the magazine opined, but it is coming closer. “California could adopt not just Texas’ leaner state,” the magazine said, “But also its bipartisan approach to politics. And its more welcoming attitude toward Mexico. . . at this moment,  America’s two most futuristic states look a lot more like equals than ever before.”

McCuan is writing a book about how California became politically unhinged. I asked him about the state’s prospects.

While Gov. Arnold Schwarzenegger and the state Legislature were scrambling last week to resolve the latest budget deficit – $26 billion and change – the future appears even more ominous.

McCuan is pessimistic about state government’s capacity to confront  future shortfalls. “The budget numbers go to 30 billion, 40 billion, 50 billion. In terms of the drama – how deep the hole is and how really catastrophic – it’s quite sobering.”

Without reforms, he said, “We are in a world of hurt.”

McCuan thinks “the bottom line” is that the federal government will be forced to bailout California. State government will become like AIG and General Motors – badly managed and bloated, but too big to be allowed to fail.

Some have suggested a constitutional convention.

McCuan said he remains “agnostic” on the subject because it is not difficult to imagine how a constitutional convention could lead to disaster. “It’s riddled with unintended consequences. What’s up for discussion? Everything?”

On the other hand, what we have now, he agrees, also qualifies as a disaster.

In McCuan’s view, the state suffers from “antiquated institutions designed for a world that doesn’t exist anymore,” from an inefficient and unreliable tax system, and from the dominance of “identity politics and symbolic politics over substantive politics.”

The tribalism of our politics is now all-too-familiar. We don’t elect people who think first of what’s best for the common good. We elect people who are pro-business or slow-growth, who side with public employees unions or who oppose new taxes.

Then we are surprised that when these people are thrown together, they can’t find common ground to solve problems before they morph into one crisis and then another and another.

People who are not invested in state and local politics often find that it is irrelevant to their lives – because it is irrelevant to their lives.

Hometown governments are being gutted. A record number of housing foreclosures is devastating neighborhoods and families. Local business are going broke. Thousands of local people can’t find the work they need to support their families.

And what’s going on in local government? The Petaluma City Council is re-arranging the deck chairs on the Planning Commission, and the Healdsburg City Council is taking a firm stand against Starbuck’s.

Think about the problems facing California and about what preoccupies our politicians. Is it because they can’t see the world outside their tribes? Because they think worrying about hard economic times is beneath our status as Californians?

Ann Richards, the late governor of Texas, once said about the older President Bush and his life of privilege: “He was born on third base and thinks he hit a triple.”

The line was good for a laugh for folks like us, but maybe we’re not so different. We landed in California and thought we were special.

Now, it turns out, we were living off the hard work, innovation and sacrifice of Californians who came before us. Unless we re-discover these values, we will be left wishing that we didn’t take our prosperity for granted.