The year’s big policy debate will be back in the spotlight tomorrow as the Assembly Health Committee convenes to examine Governor Schwarzenegger’s health care proposal.

Depending on who you believe, health care reform at this point either has a lot of work left to forge a compromise… or may be dead for 2007. As has been the case for most of the year, there are still strong disagreements about who should be covered and who should pay.

The most recent public spat began a few weeks ago when organized labor walked away from negotiations. And in a letter to the governor, California Labor Federation executive secretary Art Pulaski criticized Schwarzenegger for not demanding more from pharmaceutical companies when it comes to reining in the cost of prescription drugs.

Today, labor fired another salvo… releasing a report that raises a lot of questions about the governor’s call to lease the California Lottery and use some of the proceeds to help pay for his $14 billion health care overhaul.

The report echoes some of what was said at a recent legislative hearing on the issue — namely, that getting $37 billion from Wall Street investors is a very optimistic scenario, and that an amount about half that big might be more realistic. If that’s true, say the labor researchers, Schwarzenegger’s lottery contribution to paying for health care could run out in less than a decade. They also take aim at the governor’s call to swap out K-12 education’s lottery proceeds with General Fund revenues, arguing that this would only take money away from another needy state program.

Meantime, an early look at the agenda for tomorrow’s hearing shows it’s going to be a long day… with the governor’s plan being presented by state health and human services secretary Kim Belshe and then presentations from another two dozen witnesses. The governor’s press secretary said today that Schwarzenegger and Assembly Speaker Fabian Nunez met privately for about 90 minutes yesterday to talk about the status of health care negotiations.