In 2000, then-Gov. Gray Davis and legislators of both parties squandered most of a one-time, $12 billion windfall of income tax revenues on permanent spending and tax cuts — one of the most indefensibly irresponsible political actions in California history.

As brain-dead as that action was, however, Davis & Co. made it worse by trying and failing to paper over the budget deficits that quickly emerged after the spending orgy.

Rather than undo their horrendous error, the governor and the legislators adopted the first of a years-long series of bookkeeping gimmicks, upfront and backdoor loans and raids on other funds to keep the state fiscally, if not morally, afloat.

One of those Enron-like tricks was suspending income-tax write-offs of business losses for a couple of years, with the proviso that they would be reinstated later at a much higher rate.

It was officially "scored" as a budget revenue gain, but in fact it was a very short-term, very high-interest loan from corporate California to the state, repaid in the form of permanent corporate income-tax reductions.

When voters ousted Davis in 2003 for fiscal mismanagement, successor Arnold Schwarzenegger declared that he would end "crazy deficit spending" and balance the state's books.

But he's never done it for a variety of reasons, and five years later, the deficit is as bad as or worse than when he took office.

The much-delayed 2008-09 budget, finally enacted last month, not only fails to bridge the gap but includes blast-from-the-past corporate tax changes that trade short-term revenue gains for long-term revenue losses — even worse, if that's possible, than the earlier giveaway.

One new gimmick suspends corporations' ability to carry forward net operating losses to offset future profits for two years, and then allows them to carry back losses against past profits and claim tax refunds from prior years, thus fattening up a major benefit from the earlier action.

The state gains something over a billion dollars a year during the suspension, but probably will be repaying a half-billion a year forever — another extremely high-interest loan from business to the state.

Even worse, the budget package includes a second corporate tax break, suspending income-tax credits meant to encourage certain kinds of investment for a couple of years, and then allowing businesses to transfer those unused credits to affiliated companies in the future.

That change picks up about $600 million a year in revenue, but the cost in revenue losses will be many times over that.

"This giveaway makes the budget a massive corporate boondoggle that does nothing to fix our structural deficit and, in fact, will make it substantially worse," Treasurer Bill Lockyer thundered as the package was enacted.

He's absolutely correct, and Schwarzenegger and lawmakers should be ashamed of themselves for trading short-term gain for long-term loss.

They now qualify for employment in the investment banking industry.

— Dan Walters writers for the Sacramento Bee. His e-mail addres is dwalters@sacbee.com. Back columns can be found at http://www.sacbee.com/walters.