Governor Schwarzenegger, at an event signing SB 1420, legislation requiring restaurant chains with at least 20 locations to post caloric information on menus and menu boards, a law to be phased in between 2009 and 2011:

"The last decade, Californians have gained 360 million pounds. Think about that for a little bit. Now when I was in the Austrian army, I drove a tank that weighed 50 tons. Now multiply that by 3,500. That's as many pounds as Californians have gained. That's huge."

Political watchers know well that the single fastest growing, and most influential, group of Californians are those who decline to pick a party when they register to vote. As such, there may soon be a new push to reshape state elections in favor of non-partisan politics, while pushing the major parties to the side.

On Monday, an initiative was filed with the Attorney General's office to reinstate an "open primary" system in California, but one with some new twists. Those twists seek to resolve the problems with the 1996 system which was approved by California voters but later struck down by the courts.

The proponent of the measure is well known in California politics: Steve Peace, who served in the Legislature for almost two decades.

In a brief phone chat this morning, Peace said the initiative he filed is the exact same "open primary" system that now exists in the state of Washington -- one which was upheld by the U.S. Supreme Court earlier this year.

"We wanted to make sure we didn't deviate" from the Washington measure, said Peace, in order to ensure it would not be overturned by the courts if ultimately enacted by the voters.

The measure would return the June primary to an open system where any voter can choose any candidate, with the top two vote getters -- regardless of party -- then duking it out in November.

What makes the proposal intriguing is additional language that favors non-partisan politics. First, Californians who register to vote would no longer be considered Democrats or Republicans or any other party. And second, candidates would be able to opt out of identifying themselves as belonging to a political party, potentially allowing them to tap into the growing number of voters who identify as "independent."

The system doesn't mean there won't be candidates with a "D" or "R" beside their name, but it obviously changes the dynamics of state elections. It also means that a November election could pit two non-partisan candidates against each other... thus leaving voters to consider two candidates solely on the issues that arise in that campaign.

As to the requirement that all voters are registered without a party preference, Peace thinks that's a big selling point. "Voters like that a lot," he said, because no longer will campaigns be able to target certain mailings and messages based on one's party affiliation. Peace says it also ensures a voter's privacy rights.

The California effort has a long ways to go. Peace says he now works with an organization called the California Independent Voter Project, but that the group won't be the one pushing this initiative through the signature-gathering process; rather, the hope is that a public conversation about the proposal will generate its own group of supporters who will come forward.

With the fatigue of the budget saga slowly starting to fade (especially for those of us who took a few days off, which explains for the missing podcast last week), the annual process of bill signings and vetoes is also about to draw to a close.

Governor Schwarzenegger has a little more than 24 hours left to weigh in on bills sent to his desk by the Legislature. The weekend saw a flurry of signings and vetoes, too many to really keep track. In fact, one of the less talked about truths of this week is whether anyone truly can watch all of these bills. Certainly the shrinking Capitol press corps struggles more and more every year to do so.

Nonetheless, the intriguing side story to all of this is all of the vetoes that are being blamed on the budget impasse.

"Given the [budget] delay, I am only signing bills that are the highest priority for California," says Schwarzenegger in the boilerplate veto being attached to dozens and dozens of proposals.

Of course, determining "priority" is a subjective exercise and the supporters of some of these bills have questioned the governor's own standard. One poignant questioning of the standard came this morning from California's top elections official, Secretary of State Debra Bowen.

Bowen was critical of the governor's blanket veto of several elections-related proposals, including new ways for vote-by-mail to learn if their ballots have been rejected, and why; a bill making it easier for voters to change their mind after signing an initiative petition; and two measures helping indepedent voters understand their rights in choosing party ballots in primary elections.

"I'm dismayed the governor doesn’t believe it is a high priority to let voters know about their polling-place rights or if their votes were counted," said Bowen in a written statement. "I understand the governor is not fond of the Legislature these days, but it's California voters who are being punished."

The audio is here:

In next year’s special election, voters will be ask to change… and essentially sever… the almost 24-year relationship between the California Lottery and public education. They’ll also be asked to approve a borrowing plan related to the lottery with no specific limits.

On this morning's edition of The California Report, we examined the measure being sent to voters next year to "securitize" future profits from the long struggling California Lottery, a plan now estimated to provide $10 billion to the state budget over the next two years.

Securitization is, for all intents and purposes, borrowing… in that it asks for money now, to be paid back over time. In this case, Wall Street investors would receive their money back – with interest – over 30 years from lottery revenues.

The proposal that will appear on a special election ballot (June 2, 2009 as it now appears) will ask voters to remove K-14 education from its historic place as the recipient of lottery revenues. Instead, an amount roughly equal to current lottery education dollars ($1.2 billion) will be built in to the Proposition 98 school funding guarantee. The existing lottery revenues, says Governor Schwarzenegger's budget team, will then be sent to the state's General Fund to cover that extra Prop 98 funding.

But the interesting changes lie elsewhere in the deal.

For starters, the ballot measure voters will consider removes all limits on how much revenue can be pushed back into prizes, thus ensuring the biggest jackpots in California Lottery history. Bigger jackpots, as other lotteries know, bring more revenues… and the lottery's new focus will be almost exclusively on bringing in more money.

That's because those extra revenues will go to investors who loaned the state money. And while the investors won't be holding debt backed by the "full faith and credit" of the state (as in general obligation bonds), it will no doubt be in the state's interest to have those payments made, with interest. Might that put the state's General Fund on the line if everything goes bust? Perhaps.

The real question, says Jason Dickerson of the Legislative Analyst’s Office, is how much will Wall Street lend the state… and at what interest rate? Dickerson says it's likely that lottery notes will require a higher interest rate, simply because they’re not backed up – technically – by the state treasury.

"This is a good investment," said Schwarzenegger's finance director, Mike Genest, in a budget briefing with reporters yesterday. He rejects any concern that the current volatility on Wall Street might affect the appetite for lottery debt.

The existing plan is to borrow $5 billion for the 2009-2010 budget year, and another $5 billion the year after that. But is that the end of it?

Maybe. However, our reporting discovered that neither the actual constitutional amendment to be approved by voters nor the accompanying bills signed by the governor Tuesday mention that $10 billion amount.

"The measure going before the voters would allow unlimited borrowing in the future," says Dickerson. Finance director Genest says that's an unrealistic assumption, because the financial markets have only a limited appetite for such a product. However, he conceded on Tuesday that there technically are no limits to how many times future lawmakers could go back to Wall Street and ask for more. Of course, that would require even more revenue from the lottery.

The other question that voters probably won't know the answer to: how much more money can be squeezed out of the lottery? The governor’s original plan for allowing new games to be offered was rejected by the Legislature; the proposal that will appear on the ballot only removes the specifics on how lottery revenues must be divvied up.

Schwarzenegger bragged earlier this year about doubling lottery profits; expect such promises to get some serious scrutiny should voters approve what might amount to a serious expansion of state government’s gambling enterprise.

BUDGET DAY PLUS 84 – At last, the count has ended.

The final stanza of the 2008 budget saga was finally written this morning, as Governor Schwarzenegger signed the budget into law… on this first day of autumn.

Only 280 days to go until the next countdown for fiscal year 2009-2010.

A few items are worth noting, as the drama comes to a close:

The Blue Pencil: Schwarzenegger’s vetoes… $714 million ($510 General Fund)… are not the most he’s ever crossed out of a budget. The record was set last year; however, remember that the summer 2007 vetoes were ones largely already anticipated by the Capitol community, given they were a crucial part of the final deal with the “Gang of 14.”

The governor said today that this year’s vetoes were all about creating a larger reserve than the one was left with by the Legislature, which was about $800 million. The vetoes were in all kinds of programs, but the real dollar savings – close to 60% -- came from just two places: housing assistance for senior citizens and public transit. Several interest groups took particular aim today at Schwarzenegger for the $190.8 million cut from rent and property tax assistance for seniors.

Photo Op vs. Politics: Schwarzenegger decided to do a low-key budget signing… with his staff only allowing photographers in to see the official event. But his political team decided to link the budget impasse with the governor’s support of Proposition 11, the redistricting proposal on the November ballot. They clearly wanted the Prop 11 story line as part of today’s budget coverage. But some reporters… present company included… opted to not mention the Prop 11 event at all in their stories. Today’s news was the budget, not a proposal that is still being hotly debated as to its possible long-term impact on political paralysis at the Capitol. And, not surprisingly, the governor got questions from reporters at the Prop 11 event that were almost exclusively about… the budget.

Bonds and Ballots: At that Prop 11 event, the governor mentioned that he’d like to see a water bond on the special election ballot, an election (we think) will be scheduled for June 2, 2009. But as reported on Sunday, the state Constitution seems to limit bond measures from the Legislature to general election and primary ballots. Trouble is, the constitution is about as clear as… mud on this issue. Some are suggesting a water bond could be submitted as an initiative, though that route takes a lot of time and money.

Bills: Now the focus switches to the bills left on the governor’s desk. 875 of them, according to his office, that must be acted on in the next 6 days, or else become law without Schwarzenegger’s signature. No rest for the weary, it seems.

[see update after this posting...--JM]

Now that we all know a special statewide election is in store for next year, a quick discussion seems in order to consider when it would be held, and what would the voters be asked to consider?

One thing seems clear: Governor Schwarzenegger wants more on that ballot than what the Legislature sent him on Friday.

In that day's budget news conference, I asked Schwarzenegger about a special election for voters to ratify three parts of the budget deal: the now larger rainy day fund (modifying 2004's Proposition 58) , a lottery bond, and a change to the governor's 2002 pet initiative, Proposition 49.

"Yes," he said, "we will be calling a special election."

But when? One logical date discussed in Capitol circles would be March 3. But Schwarzenegger didn't seem to jazzed on that date.

"I think March is probably too early, so it could be June," he said.

So he's eyeing June 2 for a statewide election... but why?

The notion that March is "too early" suggests that the governor wants more on the ballot than just the three budget issues listed above. The most likely other candidate is a water bond, the subject of lots of discussion over the past few months but very little consensus. Schwarzenegger and U.S. Senator Dianne Feinstein put their names on what they called a compromise proposal this summer, hoping to spark agreement on a new plan to deal with California's water woes. But the legislative session ended with no deal.

If such a water bond were to be placed on a March special election ballot, state election law says the Legislature has only until late October to do so. Such deadlines have been stretched before, but there's a larger problem: the Legislature has adjourned, and is unlikely to return before the November elections, when many members will be termed out.

The real question facing Schwarzenegger in the coming days and weeks is this: is it worth the gamble of delaying the budget measures in order to try and strike a water bond deal?

After all, should voters reject any or all three budget measures, the 2009-2010 budget negotiations will get worse almost overnight, mainly because the $5 billion lottery bond is being counted on for next year. A March special election would leave lawmakers some time to come up with a Plan B. But defeat of the lottery bond in June could be really tough -- after all, the new fiscal year begins just 28 days later.

That kind of calculus is in addition to what will no doubt be a debate over the cost to hold a special election. Consolidating a statewide special ballot with local elections makes things cheaper. There are local elections scheduled on both dates in some parts of California, but it's unclear which option would be cheaper.

A stand-alone special election, such as the 2005 Schwarzenegger debacle, is the most costly option.

And finally... how many voter-circulated initiatives might appear on a special election ballot? After all, the law simply states that once an initiative qualifies, it's placed on the next statewide ballot. Strategists always assume they know when that will be, but as we saw in 2005, some initiatives all ready for a vote can get thrust forward... ahead of schedule, into elections where voter turnout predictions may differ from original plans, thus complicating the campaign. You can bet there are politicos who will either want to be on that ballot with their own proposals... or will hold off on signature gathering efforts, because they don't want to be on that ballot.

A disclaimer that this is all just speculation at this point. For now, everyone's merely happy... and exhausted... to be finished with the 2008 budget saga. But the timing, and content, of the 2009 special election is just on the horizon.

Update: That pesky thing known as the California Constitution always gets in the way. An astute political insider reminds me, quite correctly, that Article XVI Section 1 of said document states that bond measures are to be submitted to voters "at a general election or at a direct primary." Translation: a water bond wouldn't be eligible for a special election.

Of course, that begs the same question about the $5 billion lottery bond, right? Au contraire. While the lottery plan is a borrowing mechanism in just about every way, it's technically a securitization of future lottery revenues... thus not a bond... thus, it would seem, exempt from the constitutional check on bond measures stated above.

By the way, same insider suggests the Legislature is in the driver's seat for calling this election, not the governor. Which begs the question: why didn't the Legislature address that issue before adjourning? The lack of action before packing their bags and leaving Sacramento for the election season only further lessens the likelihood of a March statewide special election.

On this week's edition of the Capital Notes Podcast, a look at this long and chaotic... and final... week of the 2008 state budget impasse.

The Legislature gives its final seal of approval later today, and we examine the deal... how it scores on the gimmick scale... and what happens next.

Capitol Weekly editor Anthony York and I also chat briefly about what's headed to a ballot near you thanks to this budget... and why it's going to be a little harder for the public to understand next year's budget as the Capitol press corps continues to shrink.

epilogue 3:25pm -- No major news out of the governor's afternoon news conference on the budget deal, but a small preview of what's next, and when: Schwarzenegger said a special election will be called next year for voters to consider the budget reserve fund changes, the lottery bond proposal, and the amendments to the Proposition 49 after-school law.

He said March 3 -- a date already slated for some local elections in the state -- is probably too soon, and suggested more likely is a special election on June 2. Of course, that comes awfully late in the budget writing season... and the $5 billion lottery borrowing proposal could be crucial to next year's spending plan.

So is the impasse over? It would seem so.

More tomorrow as budget votes are scheduled in both chambers, and after all four legislative leaders emerged today with confirmation that they'd found a way to avoid Governor Schwarzenegger's veto.

So what changed?

One: the governor appears to have gotten much of what he wanted in strict rules about taking money out of the new and improved rainy day fund.

Two... well, here's the way it's being described by legislative staffers:

OUT: The Governor's controversial 10% withholding "accelerated revenue" ($1.5 billion) and tax amnesty (approxmately $400 million)

Corporations that significantly underreport their taxes are required to pay 10% in interest for their underpayment. Establishing penalties of 20 percent for all open tax years for corporations that understate their taxes by $1 million or moe will increase revenues in the short term, as companies will pay taxes due to the state for prior years, and reduce the rate of underreporting and increase tax compliance going forward. Companies would have the opportunity in 2009 to file amended tax returns and make payments to avoid the new penalty.

Again, more tomorrow...

"So many tears I've cried. So much pain inside. But baby it ain't over 'til it's over." -- Lenny Kravitz

BUDGET DAY PLUS 78 -- An unexpected and curious meeting took place this afternoon between the four legislative leaders and Governor Schwarzenegger, the kind usually done while budgets are still in flux.

So is this one still in flux? After yesterday, it was understandable if most folks considered the budget script to have been written: Schwarzenegger vetoes budget, Legislature overrides veto, everyone goes home.

And so what was today's confab all about? "Everybody's goal is the same here, said Senate GOP Leader Dave Cogdill after the meeting. "Try and avoid the veto."

Others seemed not so optimistic of changing the governor's mind. "I think he's pretty dug in," said Senate President pro Tem Don Perata upon leaving the meeting.

Perata also suggested the meeting ended earlier than it should have. "I wish he would've stayed, but he didn't," he said.

Schwarzenegger later left Sacramento and flew to Fresno for a previously scheduled budget rally. There, numerous speakers took whacks at the ratified budget as though it were a pinata at a birthday party. "How in God's name can you support that?" said Fresno Mayor Alan Autry.

Schwarzenegger was a little more subdued, telling the crowd that "the important thing now is not to point fingers."

The buzz around the Capitol today is all about figuring out what can be fixed in this budget to gain Schwarzenegger's blessing. On Monday, his focus seemed to be the new rainy day reserve fund, with legislators giving him two of three modfications to the proposal outlined in a now well-publicized letter.

But today's Fresno rally, and yesterday's veto news conference, reinforced the sense that the governor has many more problems with the spending plan.

Is there room to make major changes? Certainly some think there should be; several newspaper editorials and even an organized protest today at the Capitol all were in demand of a new deal.

Troube is, not everyone wants the same changes... which is why the impasse has lasted now more than seven weeks.

The next few days will be interesting. Schwarzenegger isn't scheduled to veto the budget until Friday, leaving everyone some time to think... and some to squirm.

BUDGET DAY PLUS 77 -- So what should we call it? Extra Innings? The Throw Down in Sac Town? Maybe various riffs on Governor Arnold Schwarzenegger's movie career?

Whatever it ends up being labeled, the budget saga took a decidedly confrontational turn today when the governor announced that he will veto the spending plan... and... just for good measure, "hundreds" of other pieces of legislation sent to his desk from the just concluded legislative year.

In other words, it's on.

"Enough is enough," a defiant Schwarzenegger said at this afternoon's news conference. "Californians have put through this roller coaster ride too many times."

No need to belabor the issue here, as just about every news organization (including us) will have this story out before the sun goes down. The governor was somewhat evasive on how many bills he'll veto, which may mean that some proposals in 2008 he supported or sponsored will still become law.

As for other tibits...

Did Schwarzenegger ever specifically promise Democratic leaders that he could deliver GOP votes for a tax increase?

Senate President pro Tem Don Perata, speaking early this morning after the budget vote, said yes:

But when asked about that this afternoon, the governor painted a different picture.

The governor also took a jab at the budget's systemic reform plan -- specifically, the provision to create a rainy day fund equal to 12.5% of revenues. Schwarzenegger wanted to make it tougher to take money out, and today called the proposal "fake budget reform."

And in a sign that he's already moved on... sort of... the governor predicted his veto will be overriden, something that's starting to seem certain based on statements from even Republicans, like Senate GOP Leader Dave Cogdill.

The governor predicted the budget deal will force either a "huge tax increase next year, or to cut education severely."

Of course, the veto and theoretical override (which could begin as soon as tomorrow in the Assembly, depending on the outcome of private legislative meetings today) allow the governor to do something else: wash his hands of the spending deal from a PR perspective... thereby saying, hey, I tried to stop it.

Legislators and others will no doubt quibble with that perception... given they believe many elements of the budget were either the administration's ideas or at least agreed upon by the governor.

But Schwarzenegger has proven himself to be a master at the simple and direct political kind of messaging -- something that could easily fit with a budget that the Legislature seems to go around him to implement.