While everyone was smiling for the cameras at the budget signing in the Rotunda this morning, down the hall in Governor Schwarzenegger's Department of Finance was where reporters could find the other side of the story: a 31 page list of line-item vetoes.

Schwarzenegger decided to cross out more of this year's budget spending than he did last year with his blue pencil: $190 million in overall cuts compared to $115.6 million last year.

The following are some highlights... or, depending on your political persuasion, lowlights:

* $20 million cut out of the $50 million earmarked for local agencies and mitigation of Indian gaming. Schwarzenegger's veto said that local officials haven't provided enough detail to justify the additional spending.

* $1.226 million which would have created a new program at the Franchise Tax Board designed to crack down on tax cheats. The governor thinks Democrats have overestimated how much money this program would bring in, and wrote that it "might result in charges against persons who innocently failed to recognize that they had taxable income."

* A $3 million cut that effectively will end the IMPACT program, a one-time pilot program for prostate cancer patients.

* Cutting $3 million of the $5.2 million budget for the California National Guard, with budget staffers saying it will be up to a new permanent Adjutant General (once selected) to assess funding needs next year.

In what will quickly become a battle of legal opinions and political accusations, Attorney General Bill Lockyer has filed a lawsuit to remove the redistricting initiative, Proposition 77, from the November 8 special election ballot.

The announcement, made late this afternoon, pits the Democrat Lockyer against GOP Secretary of State Bruce McPherson, not to mention Governor Arnold Schwarzenegger.

The lawsuit, filed in Sacramento Superior Court, claims that activist Ted Costa's initiative campaign broke the law, because some of the forms circulated for signatures had different language than the one submitted for approval to the state.

How significant the language changes were depends on who you ask, and it will now be up to a judge to decide. In a letter to Lockyer on Thursday, McPherson vowed to place Prop 77 on the ballot unless a court says otherwise.

"The use of different initiatives cannot be tolerated," said Lockyer in a written statement.

As the Capitol guessing game goes from the budget to the special election, Assembly Speaker Fabian Nunez says Democrats may be willing to give the governor some power to make mid-year budget adjustments on his own.

In a brief news conference after the passage of the budget (34-14 in the Senate, 64-13 in the Assembly), Nunez laid the idea of mid-year cuts on the table, even before substantive negotiations begin with Governor Schwarzenegger.

You'll remember that California governors had power to make course corrections in state spending during any budget year until 1983, when then Governor George Deukmejian agreed to a proposal that scrapped that power. Governors still have the power of a line-item veto when signing a budget, the "blue pencil" authority that is rarely used these days.

Mid-year spending cuts, however, are only part of what the Schwarzenegger ballot initiative known as "Live Within Our Means" would do. That initiative (which is actually now Proposition 76) also would impose spending limits calculated by an average of spending from the previous 3 years.

It also would give the governor the power to cut across the board... including cuts in school funding now protected by Proposition 98. Interestingly enough, that protection only dates back to 1988... five years after governors lost the power to make mid-year budget cuts on their own.

So, what's the timeline for actually trying to seek a compromise on budget reforms (or redistricting, for that matter)? Nunez says he still intends to adjourn for a monthlong summer recess next Friday... arguing that the Legislature has until mid-August to place something on the November ballot.

Of course, Schwarzenegger has said he thinks the deadline is around the beginning of August. And neither of those dates would actually make the deadline for the main ballot pamphlet to be published... but as mentioned in this space yesterday, that's been little cause for concern in the past.

Now that the budget is effectively settled, a lot of political watchers will turn their attenion to whether lawmakers and Governor Arnold Schwarzenegger can agree to compromise ballot measures, or whether we're in for a knock-down, drag-out battle this fall.

And it looks like there isn't a lot of time.

A spokesperson for Secretary of State Bruce McPherson is now advising that the deadline for the Legislature and governor to place any item on the ballot is Thursday, July 21st... only two weeks away.

In a brief Q&A this afternoon during a meeting of his Cabinet, Schwarzenegger said he has been told that the deadline is the first week of August.

And the reality is, he may be right. Historically, these are the kinds of deadlines that are often "stretched" at the Capitol. You only have to look as far back as last summer, when even after the deadline, a deal was struck on what became Proposition 1A, the local government financing proposal. That lateness of that measure forced the printing of a supplemental ballot pamphlet.

Schwarzenegger said today that legislative leaders told him on Tuesday that they'd like to begin negotiating as soon as he signs the budget, which could be this weekend.

Of the three initiatives considered in play-- the budget spending cap, redictricting, and teacher tenure-- redistricting has seemed to hold the most promise in recent weeks for a compromise.

Still, the governor declined today to offer any opinions about alternatives-- in particular, saying that he hadn't reviewed the redistricting proposal being pushed by a bipartisan pair of senators. That proposal, SCA 3, calls for a citizens commission-- rather a panel of retired judges, as suggested by Schwarzenegger-- to draw political districts.

But he also didn't rule anything out. "We are going to have an open mind," said the governor, "and we are going to work together with them on this."

Of course, there's no guarantee that either legislative Democrats or Republicans want to cut a deal on any of the proposals, with some still seeming to prefer a winner-take-all contest on Election Day.

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Some of the legislative leaders standing beside Governor Arnold Schwarzenegger late this afternoon looked more relieved than pleased, after a budget agreement that may have something for everyone to like... or hate.

Details are still pending, but the big picture of the deal seems a familiar one in recent years: Democrats kept some of the spending they wanted, Republicans got a few more of the savings they wanted.

As Tuesday afternoon wore on, it seemed safe to say that the budget was again a test of the complex relationship between the governor and his fellow Republicans in the Legislature.

Several GOP lawmakers were seen quietly making their way in to see Schwarzenegger's budget team, and at least one Republican legislator said privately that there's still a lot of angst among some colleagues about the governor, and the way he's approached the job. Might that mean another budget vote with just the bare minimum of GOP votes to pass?

For a more comprehensive look at the policy issues in the budget deal, tune in tomorrow morning to The California Report.

The reporters waiting in the Capitol hallway outside the governor's office this past Saturday had a dilemma: they were hungry and wanted to go in together for lunch, but suppose legislative leaders emerged with a deal while the eating was in progress? And who was willing to likely miss the guaranteed scrum of post-meeting interviews to go pick up the food?

As it turned out, the entire press corps could have left for a local restuarant, sat for several hours, returned, and still not have missed anything. Six anda half hours on Saturday, XX hours on Sunday... and no deal.

In the end, there was a lot of talk but little action in meetings between Governor Arnold Schwarzenegger and the four leaders of the Legislature. Reporters sitting through the "Big 5" budget meetings of the year whiled away the time with everything from card games to what the Saturday afternoon arrival of First Lady Maria Shriver meant ("is she involved in the talks?") to tracking down what the participants ate for lunch (news flash: Schwarzenegger had a turkey sandwich with fruit on Saturday).

But for all the talk afterwards that they were making "progress", legislators still seemed stuck on the essential issues: how much of a deficit in the 2006-07 year is acceptable? How much spending this year is acceptable? And which side would emerge stronger politically if the standoff continues?

If the all-nighter in college worked for that term paper due the next day, why not apply the same principle to the state budget?

That's what the Senate tried as the calendar went from one fiscal year to the next. And to stay with the collegiate theme, they ended up having to ask for an extension... having crashed-- and adjourned-- sometime around 2:30am.

For those outsiders who wonder why senators didn't simply get up and leave, it's because they couldn't. The chamber was actually in "lockdown" (although there was access to a few anterooms near the floor). Former Assembly Speaker Herb Wesson did the same thing on the green carpeted side of the Capitol in 2003, and that one continued even after sunrise.

Most reporters who talked to Senate President Pro Tem Don Perata after his meeting with Governor Schwarzenegger on Thursday afternoon thought the lockdown threat had been called off. But after Perata went back to his Democratic caucus something changed, and the sleepover was on... even as the governor and many members of the Assembly had already left town.

So what's it like in the Senate chambers as lawmakers are forced to stay and talk for more than 10 hours? Well, since you asked...

* Food: Staffers kept stomachs happy. Dinner was served in the hallway adjacent to the chambers around 6:15pm, with seasoned chicken breasts, red baby potatoes, pasta, and salad. Around 10:00 pm, almost a couple dozen pizzas from Round Table Pizza showed up. And as midnight approached, a late night supermarket run from staffers produced cookies and cake.

* Entertainment: Make no mistake, there were indeed negotiations underway most of the evening. But in the members' lounges, there were also movies. Among the titles in favor: Blazing Saddles, Fargo, and the TV comedy Reno 911. There was also a DVD of a certain Austrian's breakout performance, Pumping Iron, on hand if needed.

* Two lawmakers, Senator Kevin Murray (D-LA) and Senator Jim Battin (R-La Quinta) took part in a discussion with reporters in the rear of the chambers about what kind of music was on their iPod. Battin's tastes apparently include music from rockers like Korn and the White Stripes, but Murray may have won the contest... with about 7,000 songs on his iPod ranging from 50 Cent to The Beatles.

* And in the "Random Moments" category: young children of staffers sitting in the chamber with pillows and blankets... Los Angeles Times reporter Jordan Rau trying out what sounded like his budding standup routine to anyone who would listen... and Senator Gloria Romero (D-LA), who brought out the formal gown she had been planning to wear that night to a southland party in honor of new LA Mayor Antonio Villaraigosa, a party she missed while searching for a budget deal.