As the state Capitol continues to sit smack in the middle of the political news doldrums, the Capital Notes Podcast develops a “pervasive malaise.”

Okay, not our malaise… (and that’s Anthony’s description) but perhaps one for lawmakers and political insiders, with talk of a new major state budget problem, elusive agreements on health care and water, and an election season right around the corner.

Anthony York of Capitol Weekly and I hash out the goings-on… slim as they were… from the week in politics.

Related Information:

“The Great State of… Emergency?,” by John Myers, KQED Capital Notes

“Speaker Cancels Session,” by Shane Goldmacher, Sacramento Bee Capitol Alert

“Prop 93 Opponents Asked to Disclose Donors,” by Steve Harmon, Contra Costa Times

“Who’s Next In Line?,” by Anthony York, Capitol Weekly

An analysis from the state treasurer’s office suggests that rather than privatizing the California Lottery, it might be more profitable for the state to sell bonds paid back by future lottery revenues.

The issue was raised in a legislative hearing last month on the pros and cons of lottery privatization. Governor Schwarzenegger has suggested a long-term lease of the lottery to private investors, with an upfront payment of as much as $37 billion. Some of that money would be used to pay off the deficit bonds approved by voters in 2004; the remaining money would be invested, and used to pay for health care reform.

But an analysis conducted by the office of Treasurer Bill Lockyer suggests that a better plan might entail the state continuing to operate the lottery, and instead borrow money against future lottery profits.

A letter from deputy treasurer Paul Rosenstiel to Sen. Dean Florez (D-Shafter) says that three Wall Street investment banks were asked to analyze so-called “lottery revenues bonds.” Each of those analyses found that selling bonds could mean more money for subsidizing health care reform than would be collected by a long-term lease. One analysis suggested the bonds could produce as much as $7.2 billion more than a lottery lease.

(The letter is here.)

Of course, the analysis also assumed that voters would approve a plan to operate the lottery in a more profitable way than the constraints imposed by the original 1984 initiative. And Rosenstiel cautions that there are many unknowns in the analysis — including the interest rates that the bonds could attract on Wal Street.

But the letter may encourage a dialogue at the state Capitol that moves beyond the concept of lottery privatization. And while many legislators have been lukewarm to Schwarzenegger’s leasing proposal, they may be more receptive to a long-term borrowing plan that brings in more cash.

And now, the worst kept secret in California political reporting: it’s a slow news season.

With health care reform stuck in a perpetual state of “private negotiations” and water bond talks apparently all but finished for the year, there’s slim pickings in state Capitol news.

That probably explains today’s two items: seperate demands to stop the mortgage crisis… and the prison crisis.

First, mortgages. Democrats are unveiling a package of legislative proposals (to be introduced in January) that they say will help prevent foreclosures and protect borrowers with subprime mortgages. Those proposals include a ban on mortgage pre-payment penalties, restrictions on some subprime loan fees, and more credit counselors.

Governor Schwarzenegger has also been talking about the subprime mortgage crisis. This morning in Riverside County, he announced a $1.2 million public awareness campaign to help citizens fearing foreclosure know what options they have. “We hope to prevent more than 100,000 California families from losing their homes,” he said at this morning’s event. “Seek out a solution now, before it’s too late.”

Last week, the governor touted a deal with major lenders to extend the current low interest rate for some homeowners.

Meantime, the governor’s fellow Republicans at the state Capitol are talking about a different kind of lock down.

Assembly Republicans decided today to launch a website that warns of the dangers of releasing prisoners early. As has been reported over the past few months, overcrowding in the state’s prisons could lead a panel of federal judges to release inmates as a way of easing the pressure.

The GOP website chronicles what it calls the dangers of a prison population cap. It also includes what seems to be a questionable chart of how many prisoners would be sent back to each county if the judges cap the inmate population.

In truth, the chart is based on a rudimentary and decidely unscientific calculation — by assuming that prisoner releases would mirror the overall prison population. Using the GOP logic, if 10% of the inmates are from a particular California county, then 10% of those released would be returned to that same county.

Not only does that pre-judge the judges’ actions… but it also assumes a prisoner release would not be tailored to account for the prisoner’s crime.

But hey, it’s the slow news season.

It’s not just beauty that’s in the eye of the beholder. Today’s legislative hearing on California’s mounting deficit included a lesson on the gray areas of state government — specifically, the vagueness of a “fiscal emergency.”

You’ll remember that three and a half years ago, voters approved two ballot measures championed by Governor Arnold Schwarzenegger. Proposition 57 authorized the sale of bonds to help pay off accumulated debt. Proposition 58 required (ostensibly) balanced budgets while also banning any future borrowing to pay off debt.

The underlined passages above were at the heart of a wonkish but illuminating discussion during this morning’s hearing.

It began when Sen. Bob Dutton (R-Rancho Cucamonga) wondered aloud whether the new predictions of $10 billion in red ink are a sign of a “fiscal emergency.” Dutton posed this question to Legislative Analyst Elizabeth Hill, the main witness testifying before the Senate Budget Committee.

The ever-cautious Hill politely sidestepped the chance to speculate, saying instead that recent economic data is inconclusive. But she was not cautious when assessing Prop 58 and the definition of a fiscal emergency.

“It’s really left to the governor’s discretion,” said Hill.

Later in the hearing, it became clear that Schwarzenegger’s advisers themselves may not be sure what merits a formal declaration of fiscal doom and gloom. “There is a substantial debate within the administration as to what’s that tipping point,” said deputy finance director Vince Brown.

This is not merely a philosophical debate. If the LAO’s projections are accurate, state lawmakers will return to Sacramento in 2008 to face one of the most severe budget problems since Prop 58 was enacted by voters.

Deputy finance director Brown told the committee that the Schwarzenegger administration hopes to have a clearer sense of the fiscal picture once new data arrives in about two weeks.

[update 4:29pm — As the governor’s budget team points out, that data will include things like revised property tax estimates from local officials, data that the LAO didn’t have when estimating the depth of the hole. The data could make things better… of course, it could also make things worse.]

But legislative Republicans may already be beating the drums for the fiscal emergency declaration. In part, that’s because they’ve always believed that the state’s financial problems stem not from a lack of revenue but rather an overabundance of spending on state programs.

And GOP committee members suggested today that waiting until the governor proposes a new budget on January 10 will be too late. “More money [will have] gone out the door,” said Sen. Dennis Hollingsworth (R-Murieta), “in that period of time that you’ve delayed.”

For their part, Democrats focused on a different kind of fiscal pressure. “One of the questions,” committee chair Sen. Denise Ducheny (D-San Diego) told reporters afterwards, “is do we keep pre-paying debt?”

Ducheny was referring to the governor’s push in recent years to pay back the Prop 57 deficit bonds earlier than the law requires. She and fellow Democrats suggested that given the multi-billion dollar shortfall, a less aggressive repayment plan might be more fiscally responsible.

All of this, however, comes back to the governor. Not only is he the only one with the power to declare an emergency, but he’s also the guy in the crosshairs… still stuck in the middle of the annual partisan battle about the appropriate size and scope of state government.

The arguments both for and against four Indian gaming referendums have been submitted, with Governor Schwarzenegger making the formal plea for a yes vote.

The draft documents are now posted online for Propositions 94, 95, 96, and 97. The four measures on the February ballot ask voters to either approve of the new gaming deals for four southern California tribes, or reject those deals.

It’s no surprise that Schwarzenegger wants the deals approved, as they were negotiated by his administration last year. Still, it won’t hurt for voters to see his name attached to the official arguments in the supplemental ballot pamphlet in their mailboxes.

As expected, the official support argument focuses on the gaming agreements’ requirement to share tribal casino revenues with the state. And the official opposition argument focuses on the size of the gambling expansion being allowed.

It should be noted that while each Indian gambling deal is a separate ballot measure, the arguments for and against are the same for each one… in other words, expect an “all yes/all no” campaign.

Also lending their names, along with the governor, to the official support arguments are Superintendent of Public Instruction Jack O’Connell and Gene Gantt of the California Fire Chiefs Association.

Signatories of the official opposition arguments: Marty Hittelman, president of the California Federation of Teachers, John Gomez of the American Indian Rights and Resources Organization, and Lenny Goldberg of the California Tax Reform Association.

Now that the effects of all of that tryptophan-laced turkey have worn off, it’s back to the trenches.

WHO’S IN YOUR COMMUNITY? One of the more intriguing parts of the political redistricting debate has always been defining one’s community of interest. Those in favor of changing the way political maps are drawn often say that such communities shouldn’t be sliced into separate districts when it comes to electing representatives in the Legislature and Congress. Trouble is, there’s no great definition of a community of interest; is it your city and county, or rather is it the people in your region that think like you do?

One group that’s examining the issue is the CommonCensus Map Project, which hopes to gather info through surveys of citizens. (Their site is here, and a blogging hat-tip to the folks at Claremont McKenna College’s Rose Institute for the information). Whether this research turns out to be valid remains unknown… but just a quick glance at the California map suggests that like-minded people aren’t bound by traditional borders. And that’s one of the challenges for drawing political maps that allow full participation by all.

WATER WORKS: Governor Schwarzenegger and the four leaders of the Legislature are scheduled to meet this afternoon to discuss a possible multi-billion dollar water bond ballot measure. Negotiations have been… well, fluid… for some time. Last week, Senate President pro Tem Don Perata released a statement implying that a deal on the issue may not happen until 2008.

LOS ANGELES VOTING MACHINES: A formal hearing was held this morning to determine whether Los Angeles County can use its existing election system for the 2008 elections. LA is home to roughly one in every four of the state’s registered voters, so the stakes are high. County elections officials have a system that was largely “home grown”– in other words, a elections system they had developed specifically for LA. Secretary of State Debra Bowen will have to decide whether to approve, reject, or approve with specific conditions the system for the February 5 primary.

See you next week, after the holiday.

“There can be no more important duty in a representative democracy than to conduct elections, and it is a travesty to see that duty so flagrantly undermined by the fraudulent conduct of an election systems vendor.”

That’s the statement released today by San Francisco City Attorney Dennis Herrera, who filed a multi-million dollar lawsuit against voting machines manufacturer Election Systems & Software. The legal action comes less than a day after a lawsuit against ES&S was filed by Secretary of State Debra Bowen.

The San Francisco case touches on similar issues as the state lawsuit– namely, accusations that last year ES&S shipped out to five California counties voting machines that had not yet been certified by state elections officials. SF received more of the machines in dispute — 565 — than any of the other counties in question.

Local officials in San Francisco borrowed machines from Contra Costa County for their November 6 election, and have demanded ES&S make good on the situation… a situation the lawsuit says was never resolved.

In a written statement, the Omaha-based ES&S calls the claims in the lawsuit both “inflated” and “distorted.” It goes on to say that “contrary to the allegations included in the lawsuit, we have met our contractual obligations to San Francisco” (the entire statement is here).

As they say, the story… both in San Francisco and statewide… is developing.

The state’s top elections officer is going after one of the companies that provides voting machines to California counties, alleging that the company broke the law when it sold five counties new voting machines that did not have state certification .

This battle’s been brewing for months between Secretary of State Debra Bowen and Election Systems & Software (ES&S). The Nebraska-based ES&S declined to submit its existing voting system for Bowen’s review of machines earlier this year, saying it intended to roll out a new version in time for the 2008 elections. But this summer, state elections officials allege that ES&S admitted to already shipping 972 machines to five California counties without telling anyone about the changes… and without having those changes go through the formal certification process.

This was the focus of a formal hearing last month, where ES&S officials testified that the changes were minor, and therefore not ones that needed to be approved by Bowen.

Today, she came firing back… filing a lawsuit against the company with attached penalties of $15 million. The formal statement of findings accuses ES&S of multiple violations of the state elections code. No formal comment yet from ES&S.

Also no word yet on what the counties in question– Colusa, Marin, Merced, San Francisco, and Solano– will be allowed to use for the February 5 presidential primary.

[update 4:35 p.m. — In a written statement, ES&S argues that it was “established practice” that minor changes did not require a new state certification… and if they did, then did other voting machine vendors also make minor changes during the period in question? Meantime, Bowen told reporters in an afternoon conference call that she hopes to have state testing of ES&S’ latest system complete by December 3… and that she may, if needed, impose additional reliability restrictions on the company’s machines so that they can be used on February 5.]

(above photo: Tamara Keith, KQED)