There didn't seem to be any big news this week on budget negotiations inside the hallways of the state Capitol, but there were a number of things outside those hallowed halls that made it feel like we're getting to some sort of breaking point.

On this week's Capital Notes Podcast, we gab about everything from Governor Schwarzenegger's court victory in the fight over state worker furloughs to next week's first unpaid state bills and invoices. And if that's not enough, a new poll that shows Californians may finally be paying attention.

Capitol Weekly editor Anthony York and I are back in the studio this time, after last week's podcast road show.

Admitting that he fully knew the weight of his decision, a Sacramento judge said this morning that Governor Schwarzenegger has the authority to impose a two-day-a-month furlough on state employees, in hopes of saving California government some cash.

Sacramento Superior Court Judge Patrick Marlette ruled against a consortium of labor unions seeking to block the governor's executive order -- a furlough decision that could reduce the monthly pay of as many as 230,000 state employees by about 9%.

"I cannot help but recognize the huge impact this will have on state workers," said Marlette as he issued the ruling. Nonetheless, the judge ruled that both state law and existing labor agreements give Schwarzenegger the power to act on his own in the event of a fiscal crisis.

If nothing else, today's hearing (in a courtroom packed with reporters and what appeared to be a lot of rank-and-file state workers) showed how muddled the relevant laws and agreements really are. And time and again, attorneys on all sides debated whether the case is about the interpretation of existing labor contracts, about the constitutional powers of Schwarzenegger versus the Legislature... or both.
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Californians sure are caught up in this hope and change vibe in politics. But only when it applies to what's happening in the nation's capital, not the state capital.

That's one of the conclusions to draw from tonight's new poll from the Public Policy Institute of California. Most striking: 79% of those surveyed believe Barack Obama will be a "strong and capable president." And lest you think that's being driven by the state's majority Democrats, the poll found 66% of Republicans feel the same way.

73% say they think the nation will unite behind the man from Illinois; only 44% said the same about his predecessor, the man from Texas, in 2001.

But asked about the men and women in charge of state government, and things get ugly. Governor Schwarzenegger's job approval rating is down to 40% in the new PPIC poll, and just 30% on specifically his handling of jobs and the economy. In January 2007, when he began his second term, Schwarzenegger's overall approval rating stood at 58%.

21% approval for the Legislature overall; a measly 15% approve their work on jobs and the economy.

Worse still, 75% think the state is headed in the wrong direction, and most think the state budget fiasco is a big deal. And how would they solve it? A mix of spending cuts and tax increases was the most picked choice (44%). Also worth noting: while K-12 education was most chosen as the part of the budget to protect from the axe, health and human services was second among all subgroups... again, including Republicans. Least desired to be protected by all groups: prison spending.

The governor's proposal to temporarily increase the state sales tax to help solve the problem is okay with 52% of those surveyed; his call to possibly shorten the school year to save money was roundly rejected by 63%.

And the result that will no doubt get the tongues wagging among those who hate the state's supermajority budget vote requirement: 54% of respondents favor reducing it to a 55% vote in each house of the Legislature, an eight point uptick since 2003.

Schwarzenegger was asked about that today during his appearance at the Sacramento Press Club (yes, we get the polls early and thus ask about it before we can ever actually report the results). His response? Fix other things, from redistricting to the polarized political primary system, first. "I think it's not the two-thirds vote that is the problem, I think that the political system that we have in place is really the problem," he said.

It's worth noting that PPIC's poll does not ask whether voters would change the requirement of a supermajority vote on tax increases. Remember that without this provision of Proposition 13 being changed, the current $40 billion budget mess still would need GOP support if the solution includes taxes... that is, unless the Democratic no-GOP-tax plan was resurrected.

And before those on the left get too excited about the willingness to consider scrapping the supermajority budget vote, they should note another PPIC poll finding: 70% say they support a strict limit on annual state spending increases. That sounds like a new spending cap... one of the issues being demanded by Republican legislators.

If you're looking for the voters to figure this one out, it would seem, keep on looking.

There are some in government circles who think that times of great crisis actually provide the most opportunity for change.

That's a familiar narrative in the nation's capital these days, and one that the Legislature's corps of budget analysts is now embracing with the following suggestion: shift the responsibility for all juvenile and drug possession offenders to counties... and increase the car tax to pay for it.

Today's report from the Legislative Analyst's Office lays out a bold proposal that its authors say would not only consolidate programs now split between local and state control, but also ultumately free up $1.4 billion in badly needed state revenues.

Setting aside for a moment the political and parochial battles such a proposal will no doubt spark, here's the basic outline (the full report is here):

The LAO suggests California's 58 counties be given "full program authority and the corresponding financial responsibility" for juvenile offenders and adult substance abuse offenders. The current system, in the LAO's words, is "fragmented." The most serious juvie offenders are housed in state facilities, and a number of drug offenders have been sentenced to state prisons.

This proposal says the Legislature should give local officials full control -- and responsibility -- for managing these cases, partly because there's a greater likelihood that local solutions, and not 'one size fits all' solutions from the state, ultimately have the greatest chance for success.

Of course, the budgetary savings is hard to ignore. $359 million of the realignment price tag would come from Governor Schwarzenegger's own budget suggestion to transfer existing VLF revenues ($359 million) from the state to the counties for increased public safety responsibilities. Notice we're talking about the Vehicle License Fee... the infamous "car tax" at the center of so many budget debates since Schwarzenegger rescinded a VLF increase upon taking office in 2003.

The LAO proposal suggests a partial reinstatement of the higher VLF to pay for the rest of the realignment costs --increasing the VLF from its current .65% of a vehicle's value to 1%.

(This isn't the first time the Leg Analyst has suggested raising the car tax to 1%, using the argument that vehicles are property... and therefore it's reasonable to tax them at the same rate as other property owned by Californians.)

The shift suggested in the proposal wouldn't happen overnight; many state operations, especially the state facilities now housing the most serious juvie offenders, would probably keep housing these young people in the short term. Similarly, adult drug offenders already in state prisons would serve out their terms... and the shift to local control would begin with those who are newly convicted.

County officials are still looking over the proposal, which would clearly increase their responsibility over two very challenging criminal justice problems. Of course, the LAO report also seems to give them enough money to actually address those issues, and says the money should come with very few strings attached -- thereby allowing local officials the freedom to actually control the programs for which they've been made responsible.

Sacramento Loves Obama. For now, at least.

Two bits of news trickling in from the nation's capital are creating a stir inside the fiscally drained statehouse as the week begins. First, today's headline that President Barack Obama is asking the federal EPA to take another look at California's request for strict new tailpipe exhaust standards. That long battle that resulted in the Bush administration saying 'thanks, but no thanks' last year in its rejection of California's request.

"We never gave up," said Governor Schwarzenegger at a news conference this afternoon reacting to the Obama announcement. "Now California finally has a partner and an ally in Washington."

That comment makes it impossible to ignore the irony: Schwarzenegger campaigned for George W. Bush in 2004. Had a Democrat been in the White House, many would argue the EPA would have never rejected the waiver. Schwarzenegger also campaigned for Sen. John McCain against Obama, though McCain's position on global warming issues wasn't as in conflict with California's guv as was that of the former president.

Meantime, state lawmakers are starting to see estimates of how big the federal helping hand will be in terms of a fiscal bailout... er... economic stimulus. A report from the National Conference of State Legislatures suggests California could receive as much as $21.5 billion of the $198 billion package.

Of course, that number comes with some caveats; not only does it not match up to our budget process (federal fiscal years begin in October, ours begins in July)... but it also wouldn't all go towards solving the $40 billion hole in California's general fund. That number may be closer to about $11 billion.

In his Q&A with reporters today, Schwarzenegger didn't dismiss the importance of the money. "We will take that money," he said. But at the same time, he made it clear he's not ready to necessarily shrink the gap that needs to be resolved through private negotiations with legislative leaders (which continue today). And on those talks, he would only say this: "We're getting closer and closer."

Call this our first mobile edition of the Capital Notes Podcast. And it might be the last.

This week, Capitol Weekly editor Anthony York and I chat up the week's small state budget news from inside the statehouse -- more specifically, the hallway outside Governor Schwarzenegger's office, where we waited for "Big 5" negotiations to wrap up.

We also ended up with a guest... because, well, he happened to come up and wonder why we were whispering into a microphone. That guest: Jim Evans, communications director for Senate President pro Tem Darrell Steinberg.

As you'll hear, our casual analysis was abruptly halted when legislators started emerging from their negotiations. No budget white smoke yet, which means the debate goes on.

Governor Schwarzenegger and legislative leaders met for about three and a half hours this afternoon to discuss the state government budget mess. They emerged to call the talks productive. So productive, apparently, that they said little else.

Yes, Franco fans; the refererence still holds.

A new state audit concludes the original federally court appointed receiver overseeing health care in California prisons "improperly" approved $26.7 million in spending on information technology needs.

State Auditor Elaine Howle's new report raps the knuckles of the receivership program for not following proper proceduresl, though the knuckles rapped belong the guy who used to be prison health care receiver: Robert Sillen. Sillen was replaced in January 2008 by Clark Kelso, a law professor who's been called upon to fix a number of state government messes in recent years.

The audit (summary here, full report here) concludes that under Sillen's watch, the receivership operation spent $26.7 million on IT goods and services without following proper competitive bidding procedures. The auditor says that one of two processes could have been used: state government's competitive bidding process, or an "alternative" method for the receivership approved by U.S. District Judge Thelton Henderson, who created the receivership a few years back as part of a long-running lawsuit against health conditions in the prisons.

"Staff at various levels," says the audit, "had little, if any, understanding about the competitive bidding requirements imposed by the federal court."

The audit also says that "wok environment" in the receivership offices discouraged staffers from raising concerns about how the IT money was being spent.

In a press release, Kelso said he's taken steps to fix the problems created before his arrival, and to ensure the IT services in question are "appropriate and in the best interest of the state."

[update 10:39 a.m. -- Kelso told reporters in a conference call this morning that he's referred the matter to Attorney General Jerry Brown. Those could be interesting conversations, given Brown's ongoing attack against Kelso's $8 billion prison health care plan.]

As the festivities wrap up back east and California's top officials wing their way westward, it seems that they bring with them some of that Obamoptimism, even as some new Wall Street angst arrives first.

First, the angst. The credit rating agency Moody's Investor Services has placed tens of billions in outstanding state bonds on its watchlist, a move that signals the possibility of a downgrade in the state's creditworthiness. That includes not only general obligation bonds, but also the revenue anticipation notes (RANs) that were sold last fall to help bridge the state's cash flow problems. And yes, it could impact the state's need for additional short-term cash flow loans in the coming months.

Those cash flow problem seem particulary troubling to the agency's analysts. "We will be acutely focused on liquidity," says the Moody's report.

"This is more evidence of how urgently our state needs its legislators to act to resolve our fiscal emergency," said gubernatorial budget director Mike Genest in a written statement. "Holders of California bonds should not be penalized by a downgrade which diminishes the resale value of the bonds, just because agreement has not yet been reached."

Meantime, Democratic legislative leaders say they're confident that some federal assistance is on its way in the near future. In a conference call with reporters this morning, Assembly Speaker Karen Bass and Senate President pro Tem Darrell Steinberg said meetings with the state's congressional delegation during the inaugural festitivities were positive.

They said exact dollar amounts weren't a focus of the talks, though a $10 billion figure for the state continues to be out there and the leaders said it's a reasonable guess. Bass and Steinberg said the most likely help would come in funding for low-income health care services, education (including higher education programs), and public works/infrastructure projects.

And they think California's needs will be hard for either Congress or President Barack Obama to ignore. "There is great concern that if California gets deeper into trouble," said Steinberg, "the country will get deeper into trouble."

Legislative leaders and Governor Schwarzenegger are expected to reconvene to talk about the budget crisis tomorrow here in Sacramento.

Well, you won't be surprised to learn things are quiet on this day in California's statehouse, with all the political oxygen sucked out towards the east and the inauguration of the 44th President of the United States.

Many of California's leaders are bundled up and in Washington, D.C. Governor Schwarzenegger was on hand for the inauguration of President Barack Obama, as was Assembly Speaker Karen Bass, Senate President pro Tem Darrell Steinberg, Lt. Governor John Garamendi, Attorney General Jerry Brown... and the list goes on.

Budget negotiations were put on hold, allowing staffers time to flesh out some of the proposals apparently being talked about in closed door meetings (that from gubernatorial press secretary Aaron McLear, who declined to say more about those proposals). We're told the legislative leaders and Schwarzenegger are likely to regather on Thursday here at the state Capitol.

In the meantime, I encourage you to check out some of the great inaugural coverage being done by my colleagues at The California Report -- namely, host Scott Shafer and producer Suzie Racho, who have been in Washington for about a week chronicling the Golden State experience of this moment in history.