Budget discussions this year keep coming back to the issue of tax credits and tax loopholes, and closing some of each to help resolve the state's $15 billion shortfall in the fiscal year that begins on Tuesday.

There are more than 300 tax credits on the books, valued at about $50 billion. But can a budget solution really hinge on removing tax credits?

That's one of the questions examined in my report on this morning's edition of The California Report. And the answer seems to be: probably not.

The big problem is the size and scope of tax credits, exemptions, and deductions on the books. To get the most financial bang, lawmakers would have to go after tax savings laws that are enormously popular. But if lawmakers choose tax credits that aren't widely popular, then they have to erase a heck of a lot of them to make a real fiscal impact.

The discussion also highlights an enormous problem surrounding tax credits and exemptions: they can be placed on the books through a simple majority vote in each house of the Legislature, but taken off the books only with a supermajority vote... becasue such an action is considered a tax increase.

You can hear this morning's story below (a couple of minutes in to the newscast).

If you only remember two things about the crisis in California prisons, might I suggest the following: (1) the prisons are overcrowded and in the crosshairs of the federal courts, and (2) the prison system is apparently in need of billions of dollars to solve problem number 1.

The above Problem (2)... the money... was the focus of today's announcement by GOP legislators of a proposed "fix" to the landmark $7.7 billion prison construction bond signed into law by Governor Schwarzenegger in May 2007.

The new proposal, SB 1705, gives the Department of Corrections and Rehabilitation more flexibility over how to spend the bond money, and attempts to expedite the design and construction process of expanding prison capacity.

It's somewhat unclear as to just who asked for the changes included in the new GOP bill. Republicans legislators said today that many of the changes were requested by Attorney General Jerry Brown, but a spokesman for Brown declined to comment on any requests that might have been made in "legal advice" between the state's lawyer and his clients.

Also unclear is whether these modifications to the 2007 prison bond will have any impact on the stalemate over a separate $7 billion bond to pay for prison health care needs, a bond measure blocked by Republicans and demanded by the federal court-appointed receiver for prison health care.

"I believe that, combined with this fix, that out of the Senate there are votes in order to move the receiver's bond forward," said Sen. George Runner (R-Lancaster).

But there wasn't the same level of confidence from Assembly Republicans. "I think we would just have to look at [the receiver's proposal] and see what it looks like," said Assembly GOP Leader Mike Villines (R-Fresno). Villines said he'd like to see some of the prison health care needs paid from the first bond package before borrowing more.

And even then, Democrats in the state Senate say that all of this still ignores the need for actually reducing the population behind prison walls.

In other words, the endgame in the prison crisis is still unclear, and the issue is the hottest of hot potatoes under the Capitol dome... looming large over an already ominous budget shortfall for the fiscal year that begins next Tuesday.

Early summer is deadline season at the state Capitol. Legislation must move out of policy committees, the state budget is supposed to be enacted, and... in an election year... legislators and the governor must act to place proposals on the fall statewide ballot.

As of today, scratch that last deadline off the list.

Using the state's election laws... and counting backward from election day... today is the deadline for measures to be in place for the November 4 ballot.

11 proposals are already on the weighty November ballot, 10 of them placed there by voter circulated initiatives and one -- the previously delayed high-speed rail bond -- placed there by the Legislature.

Governor Schwarzenegger has been pushing for three more ballot measures: a budget reform plan, a proposal to modify the California Lottery and borrow money against its future revenues, and a bond measure to solve the state's water woes.

The budget reform issue and the lottery borrowing plan are both mired down in the seemingly going nowhere negotiations over a new state budget. And while some sort of lottery proposal has support in both parties, Democrats have pretty resoundingly shot down all budget reform ideas placed on the table.

The water bond's fate is especially murky, even in the midst of drought like conditions across the state, and no new signs of compromise have appeared.

Having said all this, missing today's deadline doesn't mean any -- or all -- of these measures have missed the November ballot. Lawmakers have stretched their time limits on ballot proposals several times in recent years. And the reality is that once they blow past today's official deadline, it becomes a question of how long do local elections officials need to design and print their ballots... and how much are lawmakers in Sacramento willing to spend to send out an extra ballot pamphlet to millions of voters?

"I love deadlines," British author Douglas Adams is quoted as once saying. "I especially like the whooshing sound they make as they go flying by."

The ongoing saga of whether some reproductively intact pets in California should be spayed or neutered goes on, after today's approval by a state Senate panel of controversial legislation on the subject... but approval that came only after the change of a single word in the bill.

AB 1634 by Assemblymember Lloyd Levine (D-Van Nuys) began its legislative life as a strong requirement to sterilize most dogs and cats. But recent amendments moved the focus to sterlization for animals deemed by animal control officials to be problem pets.

The debate this morning before the Senate Local Government Committee attracted a large crowd of both supporters and opponents. And it focused on AB 1634's requirement that a citation must be issued after animal control officials receive a report of a problem pet. On the third citation, a dog would have to be fixed; a cat would have to be fixed after two citations.

So what happens, asked Sen. Tom Harman (R-Orange), if the complaint made to animal control officials is "frivolous or false"? Could a dispute between neighbors over something entirely different lead to mandatory sterlization of a dog after three complaints?

After a long discussion, Assemblymember Levine -- who either saw merit in the above scenario or simply decided that some bill was better than no bill -- agreed to once again amend AB 1634.

Now, instead of saying a pet owner "shall be cited" when a complaint is made... the bill says a pet owner "may be cited." And that wiggle room for local animal control officials was enough to draw the vote of Sen. Mike Machado (D-Linden), who cast the deciding vote.

Pet Sterlization is an emotional issue (after my last posting on this bill, I received more emails than on just about any topic). As such, it's unclear whether the two sides have found a proposal they can both live with... or are going to continue to battle it out as the bill heads next to the Senate Appropriations Committee.

With the looming deadline for legislation to clear policy committees in the state Capitol, some of the more noteworthy bills of the two year sesssion are being either tweaked or virtually rewritten.

Two of the bills that are newly modified have been the source of a lot of attention.

First is the hugely debated proposal to require most dogs and cats to be spayed or neutered. The bill, AB 1634 by Assemblymember Lloyd Levine (D-Van Nuys), ran aground in 2007 after organized and vocal opposition.

Late last week, Levine all but scrapped the mandatory sterlization plan. The new bill says that a dog impounded at a shelter will be sterilized on the third visit; the first two impoundments of an "intact" pooch will result in monetary fines. For cats, it's spaying or neutering on the second visit to the shelter. AB 1634's only other required sterilization is for a pet that's the subject of a complaint to a local animal control agency.

In other words... if you control your dog or cat, he or she can keep all of his or her parts. So will that mollify the critics?

Nope.

The group known as PetPAC plans to lobby legislators tomorrow in their continued opposition to AB 1634, now calling it a "three strikes for pets" bill.

[UPDATE Tuesday, 8:32 am -- Note to self: don't write about AB 1634 again. Thanks to all of you who read the posting and then promptly fired off an email to me. Yes, I've read the bill. No, I'm not brain dead. Yes, I understand that this is a controversial bill. No, I'm not brain dead. Seriously though... the sheer number of emails that arrived that used the exact same arguments, and even same language, only reminds me of the 4,210,923 reasons I'll never run for elected office. And again, to the nice lady who loves cats: No, I'm not brain dead. At least not today.]

Meantime, the highly publicized push for a new tax on the adult entertainment industry has been scaled back. After being scaled up, that is.

AB 2914 by Assemblymember Charles Calderon (D-Whittier) proposes a new tax on everything from adult entertainment stores to the XXX movie industry, with the money earmarked for programs to "ameliorate the secondary effects" of the industry on communities.

The original version of the proposal, submitted on April 3, called for an 8% tax on stores that specialize in "adult materials" and adult entertainment clubs. Then on May 8, Calderon upped it to a 25% tax and added in businesses that "produce" adult movies.

Now, in amendements filed last Thursday, Calderon has gone back down to an 8.3% tax on most of these businesses.

No word yet on whether that eased the adult entertainment industry's mind... though it's doubtful that it has.

With all of the talk this week, and this budget season, about a new constitutionally mandated cap on state spending, we decided to take a wider view of the issue.

On this morning's edition of The California Report, I reported not just on the spending cap proposals being talked about by both legislative Republicans and Governor Schwarzenegger, but also a look back at why some say the state's exisiting spending cap (yes, there's already one on the books) was modified in 1990.

The story is about 2:40 into this morning's program, which you can hear below.

Henry Hill: "You're a pistol, you're really funny. You're really funny."

I mean funny like I'm a clown? I amuse you? I make you laugh?"

The new federal court receiver for prison health care, Clark Kelso, has a reputation for a calm and reasoned demeanor. And yet, I can't get Joe Pesci's tough guy character from Goodfellas out of my mind.

This morning, Kelso filed documents with U.S. District Judge Thelton Henderson again demonstrating his intentions to get the money he says is needed to bring California's prison health care up to constitutional standards.

Kelso's new filing adds Controller John Chiang to the state officers listed as defendants. The receiver also filed a request to begin a legal discovery process at Chiang's office to examine the state's bank accounts.

“The reason is simple," says Kelso's filing. "The State has declined to fund major capital projects the Receiver considers essential to fulfilling the charge given to him by this court. As a result, the Receiver may find it necessary to ask this court to order the Controller to draw warrants on the State Treasury to provide the Receiver with the necessary funds."

Today's action is just the latest ratcheting up of the pressure. Last month, Republicans in the state Senate refused to provide votes for a $7 billion bond proposal to improve prison health care.

Part of the problem, said Assembly GOP Leader Mike Villines, is the price tag. Villines, in comments to reporters on Wednesday, said the proposal is the equivalent of giving a mid-size city lavish health benefits.

"We have someone [Kelso] saying they need $7 billion for 180,000 population," Villines said. "It seems astronomical, and it doesn't seem well justified."

Goodfella Tommy DeVito wouldn't like that answer. And it seems doubtful Kelso or the federal courts will, either.

UPDATE [3:30pm] In a written statement, Controller Chiang paints a gloomy picture if the courts simply come in and pluck the money needed from the state's bank account: "If the Court does order the State to make payments as requested by the Receiver, we would be forced to tap transportation, victim’s compensation, mental health and other special funds earmarked by voters for specific purposes. Such action likely would invite protracted and costly litigation at taxpayer expense."

On the surface, the pitched PR battle waged today between Democrats and Republicans seems like it's flavored with a dash of the same old spin.

But in reality, it goes to the heart of the literal budget problem that's plagued California's statehouse for years: a stalemate caused by virtually incompatible political ideologies.

Today's first volley was fired by Republicans. In a morning news conference, GOP legislators placed plans for a new government spending limit on the negotiating table. The proposal outline calls for a constitutional amendment to limit the annual growth in budget expenditures to the percentage change in California's population growth and inflation. Any revenues above that estimate would be automatically transferred into a reserve fund earmarked for resolving budget shortfalls and/or debt repayment.

That part of the proposal is a dead ringer for plans submitted in 2003 by both a former GOP legislator and one backed by the newly elected Governor Schwarzenegger after the 2003 recall. Those plans used the same "cap" formula, one that a 2003 analysis by the California Budget Project suggested could result in extra deep cuts to almost everything but public school funding, which would still be protected by the Proposition 98 guarantee. But the proposal differs from the latest call for budget reform by the governor, whose much-ballyhooed plan focuses on revenue forecasting.

The dilemma of which side of the ledger to focus on is why today's skirmish is really a clear view of the chasm between the two parties. For several years, legislative Republicans have stuck to a saying that Schwarzenegger himself latched on to during the 2005 special election: "We don't have a revenue problem, we have a spending problem."

Senate GOP Leader Dave Cogdill put it even more bluntly in comments to reporters this morning: "This state has a spending addiction."

An hour later, Democrats took Republicans to task, using-- for the first time I've heard-- the exact converse of the now well-worn GOP adage.

"We don't have a spending problem," said Assemblymember Noreen Evans (D-Santa Rosa). "We have a revenue problem." Democrats are pushing hard for a solution this year that includes some new source of revenue... as much as $6 billion... to pay for the state services that they say everyone in California, regardless of party, is demanding.

Some of this divergence in world views is clearly due to a dispute over just what kinds of factors should be considered when building a state budget. Should spending decisions only be made once revenues are known? Should the state first decide what services it values and then figure out how to pay for them? Should spending be tightly linked to the budgets of years past? Or should it be flexible -- both in tax increases and tax cuts -- depending on the needs of the time?

That's the problem that's kept several years worth of budget talks dragging into the sizzling Sacramento summer. And it's the problem that threatens to do the same this time, too.

A long November ballot for California voters just got longer, as Secretary of State Debra Bowen has certified a proposal to strip legislators of the power to draw their own political districts.

The redistricting proposal was penned by representatives of California Common Cause, AARP, and the Los Angeles Chamber of Commerce; but it was undoubtedly carried across the goal line by the fundraising prowess of Governor Arnold Schwarzenegger's campaign operation.

If voters approve the measure, a bipartisan citizens commission would draw legislative districts after the 2010 census, while the Legislature would retain the power to draw congressional districts.

Redistricting reform is a cause celebre among government reform advocates, but has been summarily rejected by California voters several times -- most recently in 2005 as Schwarzenegger's doomed Proposition 77.

As noted here before, this may not be the end of the November 4 ballot. Although it's doubtful any more initiatives will be certified in time, the governor and legislators are toying with the idea of two budget-related measures (budget reform and lottery revenue borrowing) and a measure to sell bonds to help stabilize California's ailing water supply.

It's sayings like the one above that go to the heart of how the sausage is made under the statehouse dome here in Sacramento.

So let me decipher. The "book" is officially the Conference Committee Agenda, the unreasonably thick document that's a micro examination of state government spending, agency by agency.

To "work the book" is the tedious process whereby the joint budget conference committee examines -- and ideally votes-- on items unreconciled between the Assembly's budget committee process and that of the Senate.

With three days of hearings now under their belt, the conferees have only gotten warmed up. The hearing room was filled today with the rustling of pages in "the book" and thumbs clicking away on BlackBerrys.

What remains elusive is any serious progress to closing the state's $15 billion budget gap.

Today's gathering ended just minutes ago, following the kickoff gala last Thursday and a second huddling over the weekend. The six lawmakers -- three from each chamber, and Democrats outnumbering Republicans 2-1 -- queried Governor Schwarzenegger's budget team, experts from the Legislative Analyst's Office, and each other about particular spending categories.

Republicans continued to give voice to their preference for cutting spending. "To say the budget is in stress is a huge understatement," said Assemblymember Roger Niello (R-Sacramento).

Democrats lamented the task of cuttting programs many consider a priority. "We have too many priorities," said Sen. Denise Ducheny (D-San Diego), chair of the conference committtee.

In tough years like this one, the conference committee will "work the book" several times over, saving most of the thorny issues for the very end.

But the sausage making is unlikely to resolve the two fundamental questions this summer, one for each party. For Democrats, what are the specific revenues, between $6 billion and $11 billion, to be raised to solve the shortfall? And for Republicans, what programs will be cut down so dramatically... cuts that would need to total at least $9 billion? That's assuming there are actual votes for the governor's budget, an overly optimistic assumption according to most folks around the Capitol.

Those issues may only get resolved behind closed doors, where legislative leaders and ultimately the governor often make the final deal.