"We've Stalled Over Education"

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That was the assessment of Assembly Speaker Karen Bass as negotiations over the state's massive budget deficit ended tonight with no deal, a major change in tone from earlier in the day when a deal seemed imminent.

The 'Big Five' meeting of legislative leaders and Governor Arnold Schwarzenegger ended just before 10:00 p.m., with Democrats saying that future payments to public schools are now a key sticking point.

The education money discussion is not new; much of it dates back to the February budget negotiations, which resulted in a ballot measure asking voters to offer blessings upon a supplemental payment. Voters rejected that measure, Proposition 1B.

And as with most education financing debates, this one lands squarely back at the maze of formulas and calculations that embody the 21-year old funding guarantee enshrined into the state constitution by voters, Proposition 98.

In a nutshell, the current debate focuses on whether schools are owed money in the future to make up for some of the recent spending reductions, and whether that obligation (the so-called "maintenance factor") should be codified in law as part of the current $26.3 billion deficit deal.

"The Prop 98 law is so confusing," said Senate President pro Tem Darrell Steinberg to a throng of reporters outside the governor's office, "that we want to make sure that there is clarity."

And this isn't any small issue, dollar wise or issue wise. The estimate of the supplemental payment to schools is now at about $11 billion, and education advocates say it's an essential issue if the schools are going to take further cuts in the short term.

The audio of tonight's opening remarks by Democratic leaders is below.

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But Schwarzenegger's team sees the issue differently. "The Governor has consistently supported repaying education," said spokesman Aaron McLear in a stament. "But he does not support the Democrats' efforts to slip in a constitutional amendment without going back to the people."

Democratic staffers later disputed the notion that the supplemental cash for schools is a constitutional issue, arguing it's actually a statute that can be approved by the Legislature and Schwarzenegger.

But setting that squabble aside, this stall in negotiations has the potential to be a pretty big setback. In fact, it's one of a number of open issues, according to sources who agreed to speak only on background. Those issues reportedly include the plan to solve part of the deficit with money from local governments, another thorny issue and one that cities and counties are fighting tooth and nail.

Is there the chance for a deal on Thursday? Perhaps. But the mood when tonight's talks ended was not very upbeat. And while none of the leaders in question probably want to call this a game of chicken... someone's going to have to blink if the state's going to ever stop issuing IOUs and avoid a fiscal collapse. As of Wednesday, IOUs issued totaled more than $588 million and counting.

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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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