Red Ink, Green Proposals, No White Smoke (Yet)

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The chatter continues over California's $40 billion budget hole, as Democrats pitch some new economic stimulus ideas, all sides continue to meet in private, and the Republican faithful start ratcheting up the pressure on the issue of a tax increase.

Talks continue today between legislative leaders and Governor Schwarzenegger. For those of you outside CapitolLand, these are closed door negotiations... open only to the occasional photo op to prove to Californians (and reporters, perhaps) that they're indeed talking.

Brian Baer/Sacramento Bee

Yesterday's photo op is worth noting, thanks to this instant classic from the Sacramento Bee and photographer Brian Baer. Again for you non Capitolites, that's the infamous Conan the Barbarian sword that Schwarzenegger keeps in his conference room.

The photo has been the source of many a good joke around the Capitol, and was especially poignant this morning with the appearance of a small bleeding nick on the chin of Senate President pro Tem Darrell Steinberg this morning. Okay, so he probably cut himself shaving. Still...

Steinberg and Assembly Speaker Karen Bass summoned reporters today to put forward what they call a "green" economic stimulus package... a rebuttal of sorts to demands from the governor in recent weeks for a package that allowed exemptions from the California Environmental Quality Act.

"There is no need to gut environmental laws, and risk public health and safety," said Bass.

So what's in the package? In short, it uses about $2 billion in borrowing approved by voters in 2006 for public works projects, and directs that money toward everything from wetlands restoration and flood protection to repair and building projects at state and local parks; the latter proposals, according to Democrats, would be geared toward putting some of the state's idled construction workers back to work.

Of course, selling bonds on Wall Street isn't a slam dunk these days... especially until lawmakers close the $40 billion budget gap. "For all of this to become successful, we need to finish the negotiations we are engaged in," said Steinberg.

That's also the assessment of the Legislative Analyst's Office, which says as much in the report released today on the state's cash flow crisis. That cash flow crisis is expected to kick in next month, forcing Controller John Chiang to either issue IOUs... to formally defer some state payments for a period of time... or some combination of both.

The LAO report covers some familiar ground -- global credit crunch plus evaporating tax revenues leaving the state with too little cash on hand. But it also suggests things could be getting worse.

For example, the LAO says that the state began January with $445 million less on hand than the governor's budget team expected when crunching numbers before the end of 2008. And a great comparison: California is expected to have $3.2 billion cash in hand at the end of this month to pay its bills... compared to the $10.6 billion the state had on hand at the end of January 2008. Yowza.

The LAO suggests that the Legislature may need to dust off a controversial action taken during the 1990s fiscal crisis: legislation that requires the state to reduce specific spending if there's any danger that some short-term loans from Wall Street might go unpaid.

"Given the current environment in the financial markets and investors' shaken confidence in California's credit quality," the report states, "such legislation may be necessary."

Such dire scenarios have led to new chatter about what it will take for Democrats and Republicans to agree on a budget fix -- and yes, chatter about what it might take for GOP legislators to approve a tax increase. GOP leaders did put some non tax-hike solutions on the table a month ago, but not enough to erase the full gap.

If... and that's a huge if... there are Republican votes for a tax increase, they will be votes in defiance of the party faithful, who either want no new taxes... or major concessions from Democrats in exchange for a tax hike.

That seems to be the dilemma posed by GOP blogger Jon Fleischman, who wrote today that Dems haven't explained why they can't just roll back the calendar and put in place a budget plan that spends, say, what the state spent a couple of years ago.

But he also says this:

"If Democrats really want to create an incentive for Republicans to violate the 'Holy Grail' of campaign pledges... perhaps they should offer up some equally painful reforms. They could include an end to collective bargaining agreements for public employee unions -- or better yet, why don't we just ban public employee unions all together? How about the state immediately end all defined benefit retirement programs, moving to a defined contribution program for all new state employees?"

No one knows for sure exactly what, if any, deals are on the table where Schwarzenegger displayed his sword. But chances are that someone ain't gonna be happy with how it all turns out.

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About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk.  He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.

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