If the tentative ruling issued today by a Sacramento Superior Court judge holds up, Governor Schwarzenegger will be able to return to the kind of initiative campaigns he has run in the past– ones that collect money in unlimited individual amounts.

Judge Shelleyanne Chang’s tentative ruling (which you can read here) seems to have effectively found major flaws in the regulations adopted by the state’s Fair Political Practices Commission when it comes to candidate-controlled ballot issue committees.

The FPPC says donations to those committees are just like a donation to the candidate themself, and therefore subject to the limits contained in Proposition 34. The governor and his allies say that’s not only inconsistent with the state’s landmark Political Reform Act of 1974, but it also effectively violates the candidate’s rights to free speech.

And Judge Chang apparently is inclined to agree on both counts… throwing out the current limitations, and paving the way for the governor’s own committee, the California Recovery Team, to once again gear up a fundraising engine that’s drawn in some $26 million since Schwarzenegger took office.

Former Senator Bruce McPherson wasn’t fully confirmed this week as Secretary of State, after Assembly Democrats decided they wanted more time to deliberate. But many local elections officials say the longer the wait, the more time lost on some important work left undone by Kevin Shelley.

On this week’s newsmagazine version of The California Report (click here for airtimes), we’re taking a look at the many challenges facing the state’s next chief elections officer. Most notable are federal and state deadlines of January 1, 2006 for changes to voting machines and systems.

For example: a relatively new state law mandates a voter-verified paper record of ballots that are cast. While the law was prompted by fears about the accuracy of electronic touchscreen machines, even paper-ballot systems… used in dozens of counties… will now have to produce a second paper record of every vote that is cast. And regardless of what machines any given county now has on hand, not a single machine is fully certified as having met the requirement.

The possibility of missing these federal and state deadlines is the story that got lost in the storm surrounding Kevin Shelley. But some local elections officials I spoke with believe it may be the real legacy of the six months or so that the Secretary of State’s office was consumed with policy and political scandals.

The political group of Schwarzenegger allies known as Citizens To Save California has settled on a package of reform initiatives for a special election. But the real question might be how dissension among Republicans will affect a campaign to get some of those measures passed.

Most notable in the CSC package, outlined in a briefing this morning for Capitol reporters, is the decision to endorse the Live Within Our Means initiative (read it here). Among other things, the budget reform proposal would use the level of state spending in years past to calculate the level of state spending in any new budget proposal… and presumably, to keep that spending from growing too fast. The initiative also gives the governor the power to balance the budget with mid-year cuts.

By mid-morning, Schwarzenegger quickly released a statement of his own endorsing the measure, saying it will “put an end to the runaway spending.”

So, everyone on the Schwarzenegger side of politics is happy, right? Wrong.

The internal battle over what kind of budget reform initiative should be on the ballot seems to again highlight deep divisions within Republican circles about Schwarzenegger’s budget reform credentials.

In fact, the backers of a different– and more stringent– budget initiative quickly called Schwarzenegger’s endorsement a “huge mistake.”

“It’s a shame to waste the governor’s political capital on pretend government reform,” said Dave Gilliard, a longtime GOP political consultant. Gilliard is representing an alternate initiative that would limit state spending based partly on the cost of inflation, a formula that he says would reign in spending more tightly than the initiative Schwarzenegger has now endorsed.
Gilliard echoes what I’ve heard privately from other Republicans: a fear that Schwarzenegger is going down the same path as he did in 2004, when he agreed to Democrat demands that a relatively strict spending cap proposal be modified to a simple balanced budget amendment that became Proposition 58.

Now, with Democratic battle lines hardening against the governor’s reform campaign, it will be interesting to see whether Republicans rally around the governor, or whether the internal disagreements turn into public squabbles.

(With apologies to the late great Louis Armstrong and the song of the same name…)

The morning photo op with Governor Schwarzenegger was supposed to be him signing legislation to create a new California Museum for History, Women, and the Arts. But the photo that will likely be remembered is one of the kiss he planted on the cheek of Assembly Speaker Fabian Nunez.

Yes, you read that correctly. And to make things even more bizarre Nunez had, just minutes before, joined teachers in a rally against Schwarzenegger outside of the Capitol.

After the smooch and the laughter, the governor said, “If I would have known that it’s so little that it takes.” The warm and fuzzy gathering continued after the bill signing, with an impromptu Big 5 meeting between the governor and legislative leaders.

But did the meeting actually plant the seeds of compromise instead of an initiative battle and a special election? Democrats hope so.

“I don’t think he’s spoiling for this kind of a fight, despite the rhetoric we’ve heard,” said Senate President Pro Tem Don Perata. Still, the governor’s aides insist he remains committed to the idea of a special election. The question is whether the election will focus on measures sent to the ballot by lawmakers, or measures placed on the ballot by partisan–and expensive– signature campaigns.

Either way, the deadlines are now becoming very tight. The Legislature may not have more than 5 weeks to work on all of the reform issues Schwarzenegger has proposed before a special election is called and signatures are submitted.

Meantime, the governor’s allies over at Citizens To Save California keep on taking in the cash, now totaling more than $3.5 million. And the governor’s role in that fundraising has sparked a new lawsuit claiming he is purposely skirting campaign finance laws. (Click here to see the lawsuit filed today in Sacramento Superior Court).

A new statement opposing plans for a Bay Area Indian casino may have thrown a major monkey wrench in the casino’s future. And it comes from the lawmaker who paved the way for the casino in the first place.

In a two page letter from Rep. George Miller (D-Martinez) to the leaders of the Legislature, Miller states emphatically that he’s opposed to the proposed agreement between Governor Schwarzenegger and the Lytton Band of Pomo Indians.

That agreement, which calls for as many as 2,500 slot machines in a new casino (downsized from 5,000) has been in limbo since last summer. And the Lytton’s right to a casino in the East Bay city of San Pablo all began with legislation written by Miller, and passed by Congress, in 2000.

In his letter, Miller says “If the compact remains in its current form it should be rejected by the legislature.” Miller goes on to say he was told the casino would be “modest” with 1,000 slot machines. And in a swipe at the governor, Rep. Miller says the act of Congress bill did not “obligate the governor to approve a casino of any size.

For their part, the tribe released a statement that claims it was Miller’s input that downsized the original deal. And in a retort to the letter, supporters of the tribe say they were told by Miller he supported the scaled-back agreement.

The Lytton gaming agreement was the subject of closed-door discussions among Senate Democrats earlier this week. This afternoon, Senate President Pro Tem Don Perata told me he thinks the entire issue will be resolved in the Legislature in a couple of weeks. And he says key to a final vote is the need for some sort of criteria for urban gaming in California in general.

None of this bodes well for the Lytton deal. Sources on both sides say there is very little support for the agreement. And if the Legislature rejects the proposal, the tribe could take the state to court.

More debate today over the use of what the TV biz calls video news releases, or VNRs.

While Democrats launched new criticism over VNRs being used by the governor’s administration, Republicans suggested there were two sides to the story.

The VNR, in essence, gives TV stations footage of lawmakers or the issues they’re talking about. Almost two weeks ago, the issue was brought back to life when questions were raised about a VNR the administration released promoting its stance on relaxing the lunch/rest break rules for workers and employers (scroll down on this page for our coverage of the dust-up).

This morning, Senate Democrats held a hearing to examine reports of still more VNRs from the Schwarzenegger administration. Democrats have gone so far as to suggest the VNRs violated state regulations banning propaganda. Republicans, however, have launched a counter-attack, distributing to reporters old press releases from Democratic news conferences in which interest groups offered up VNRs on issues and events.

Reality check: both parties work hard to package the news from the Capitol with their own spin. Both caucuses, in both chambers, have staffers whose sole responsibility is to provide video and audio clips from their party’s lawmakers. These clips (in English and Spanish) are on subjects chosen not by reporters, but by the taxpayer-paid staffers and lawmakers.

And as several Capitol reporters privately said when this began a couple of weeks ago, the issue may be more about the ethics of news organizations that use these canned items… sans scrutiny or rebuttal… than about the VNRs themselves.

If the early money decisions of the pharmaceutical industry are any indication, the 2005 special election is going to end up costing an awful lot of cash.

With the election still not official, some of the nation’s big drug manufacturers are already ponying up serious cash. A quick check of state campaign finance records shows that the Pharmaceutical Research and Manufacturers of America (PhRMA) has now squirreled away some $7.7 million dollars for the 2005 election season.

And $5.1 million of that amount is just from the last 10 days.

The companies contributing to the fund so far include well-known names like Eli Lilly and Johnson & Johnson, plus several others. And again, we don’t know for sure what will– or won’t– be on the ballot, although there are competing initiatives in the works favored by both the pharmaceutical industry and consumer health advocacy groups. For now, it’s probably safe to assume the money is being stockpiled as a precaution.

Meantime, the fundraising season continues for other big players. The friends-of-Schwarzenegger committee known as Citizens To Save California has reported more than $2.4 million in donations, including some help from the governor’s fundraising efforts in Ohio and a $200,000 check from American Financial Group CEO Carl Linder. The governor’s own reelection committee is also likely to report big bucks in the coming days, after several days of East Coast fundraisers.

A new audit of grants handed out by the Legislature largely calls the process in need of reform.

You’ll remember the public scrutiny of some of these grants began last year, when questions were raised about a grant secured for a San Francisco non-profit organization by then Assemblymember Kevin Shelley. Some of the money from that grant, according to allegations, may have been funneled back into Shelley’s political campaign.

Today, State Controller Steve Westly released an audit of 20 grant projects that received funding in the 2000-01 and 2001-02 budget years. The audit raises questions about how $1.1 million was spent, but leaves the issue of whether the money should be paid back to the state Department of Parks and Rec. A spokesman for the department says they’re still conducting their own review, which is covering all of the grants awarded in that time period.

Westly’s report also dovetails with a bill in the Legislature (AB 725) to change the way these grants are handed out.

You can read the audit here.

Today was the end, for now, of the Kevin Shelley saga.

The Secretary of State quietly left office as the day ended. Undersecretary of State Kathy Mitchell takes over as acting Secretary until the job is filled. The governor, as you know, has nominated former Senator Bruce McPherson for the post.

Shelley leaves an office that has a lot of work on its plate in the coming weeks and months, including a likely 2005 special election and several federal voting requirements by 2006. And his departure will not end either the criminal investigations into his campaign activities or the questions regarding how he spent federal election reform money.

As for final actions, Shelley’s office released a statement saying that he had dropped requirements for lobbyists to file their reports both on paper and online.

Not very exciting news, but probably a welcome break from the headlines as the Shelley era comes to a close.

That’s the total fundraising success so far this week for the “Friends of Schwarzenegger” committee known as Citizens To Save California.

Campaign finance records (most easily seen on the website Election Track) show that CSC’s success is, in large part, due to one large contribution: a $1.5 million dollar check from Univision CEO Jerry Perenchio.

Perenchio is a wealthy and well-known donor to both sides of the political aisle, but this week’s contribution is big even for him. State records show he made contributions totaling just under $1.7 million in all of 2004.

The donation is a clear sign that the 2005 special election season is already paying off for the governor and his allies, who are pushing a set of government reform proposals. It’s also a donation that’s sure to attract the attention of those who are questioning how much Governor Schwarzenegger can be involved in the CSC campaign, given the FPPC regulations that the committee– and the governor– are now challenging in court (expect more on that issue next week).

On Friday morning’s edition of The California Report, we’ll take a closer look at the scramble now underway to line up not only money for the special election, but also which issues might ultimately make it to the ballot.