Where else would a headline like that be written than here at the state Capitol? A few items of note as the week begins…

A NEW TAXXX: Today was lobbying day for the adult entertainment industry, one of the more unusual annual rituals at a statehouse was unusual is the norm. The fully clothed ensemble that made their way to Sacramento had a particular gripe this time around: pending legislation to impose a new (and extra) 8% tax on adult DVD stores, theaters, and nightclubs. The money collected by the tax in Assemblymember Charles Calderon’s bill, AB 2914, would create a new fund to supposedly mitigate the impact of such businesses on local communities.

Let’s just answer that burning question now, shall we? Yes, adult film stars were in attendance. And no, I shouldn’t have Googled them in advance when I didn’t recognize the names listed on the press advisory (seriously, KQED, I was doing research).

Now that we have that out of the way… the industry representatives argued the tax would send many in the multi-billion dollar sex industry packing to other states. “You do not want this industry to relocate,” said Jeffrey Douglas of the industry-sponsored Free Speech Coalition.

Of course, AB 2914 could pose an interesting dilemma for some legislators, namely Republicans. After all, if you’re a social conservative you’d probably love nothing more than to see the XXX industry move out. But if you’re a fiscal conservative, you’re probably loathe to enact a new tax. Oh, the irony.

A FALL CLASSIC AT THE CAPITOL? Hundreds of college students from around the state descended on Sacramento this morning to protest Governor Schwarzenegger’s proposed budget cuts, and the likely ensuing tuition hikes. Such a protest has become a predictable, though unfortunate, reality at the state Capitol in recent years. And among those speaking from the podium on the Capitol steps, Senate President pro Tem Don Perata… perhaps the best situated of any of the speakers to reject the governor’s budget plan.

“We need to raise taxes in order to educate Californians,” he told the crowd. And if that wasn’t enough tough talk, Perata repeated his recent pledge to stay in session as long it takes to get the budget Democrats want. “If we have to watch the World Series from this building, we will do it.”

SADDLED UP: Speaking of budget cuts, a smaller group of protesters was on the other side of the Capitol this morning to lament another part of the governor’s spending plan. About two dozen folks had marched from the nearby Sutter’s Fort to protest Schwarzenegger’s proposed spending cuts for California state parks, many of them wearing clothes from the 1800’s. Others made the journey on horseback and in vintage wagons… which led to a different kind of spectacle: one of the many hitched-up horses relieving himself on the street in front of the Capitol, just as a repulsed group of college students from the other event happened to stroll by.

Legislation to change how, and possibly where, new Indian casinos are built in California cleared its first hurdle today at the state Capitol.

For years, the most controversial part of the tribal gaming process has been casinos proposed for land that either isn’t an ancestral reservation… or land that the federal government hasn’t yet recognized as part of a tribe’s reservation. Critics have derided such proposals as examples of “reservation shopping,” accusing tribes and their deep-pocketed investors of choosing locations solely based on how much money can be made.

The legislation in question, SB 1695, would change the way new casinos are approved, by prohibiting the governor from negotiating with any tribe whose casino land hasn’t yet been sanctioned by the U.S. Department of Interior.

(A quick explainer to those who don’t follow this issue much: federal law lays out a long process for non-Indian land to become a reservation. It also requires a tribe to negotiate a formal gaming agreement, known as a compact, with the governor of the state before opening a casino.)

Governor Schwarzenegger has negotiated a number of casino compacts with Indian tribes since he took office, but his most controversial deals have seemed to be ones where the land hadn’t yet secured a federal OK. Most notable on this list: the long saga of the two tribes wanting to build side-by-side casinos in Barstow… even though the tribes’ reservations are in another part of the state. Schwarzenegger agreed to the casinos long before the feds had ruled on the proposal; earlier this year it was rejected.

The bill, authored by Sen. Dean Florez (D-Shafter), simply says that the governor can’t negotiate a formal compact until the feds have had their say. The current version of the legislation is notably more tame than the original, which would have essentially banned any tribe from opening a casino on land away from its ancestral home… presumably even if that tribe no longer has a reservation (and many don’t).

The bill sailed out of the Senate Governmental Organization committee this afternoon, which Florez chairs (its one dissenting vote: Sen. Pat Wiggins, a Democrat whose northern California district includes one of the tribes that wanted to go to Barstow).

A spokesperson for Schwarzenegger said the guv won’t take a position on the bill until it reaches his desk.

If the Legislature sends it to him, it certainly puts him in an interesting position: if he signs it, it would seem to imply that some mistakes were made in the past. And it would seemingly derail secret negotiations he might currently be conducting with some tribes (though there’s no official confirmation that any casno negotiations are even underway).

But if he vetoes it, critics of the rapid expansion of Indian gambling will say the governor is ignoring the plight of communities that don’t want casinos, and that he’s being inconsistent with his earlier pronouncements about the siting of new tribal gambling facilities.

A controversial piece of legislation linking the human rights records of some foreign governments to how and where California’s pension funds can invest… has been shelved for the time being.

Several weeks of intense behind-the-scenes debate over new efforts to change how California’s two major pension funds invest was supposed to move today to an Assembly committee hearing. At issue are investments made by both CalPERS and CalSTRS in private equity firms, one of the hottest investment sectors on Wall Street.

Assembly Bill 1967, the bill in question, says in order for the state pension funds to invest in a private equity firm, they must make sure that no foreign government that’s also invested in that firm has a controversial record on human rights.

First, today’s news: the bill got clobbered in a Los Angeles Times op-ed this morning, penned by none other than Governor Schwarzenegger. A few hours later, the bill’s author, Assemblymember Alberto Torrico (D-Fremont), pulled it from this morning’s committee agenda.

AB 1967’s mechanism for ensuring that certain private equity firms would be okay for the pension funds to invest money with: five international treaties covering everything from the rights of women and children to bans on discrimination and torture. If a country hasn’t voiced support for those treaties, then any private equity firm in which it’s invested would be off limits to CalPERS and CalSTRS.

Click below to hear my story that aired last week on AB 1967.

“In my opinion,” said Assemblymember Torrico in a recent interview, “it doesn’t make sense for the state pensions to be profiteering indirectly from rogue nations.”

Torrico says his bill is the next logical step to previous pension fund restrictions in the name of doing what’s right — most notably, last year’s law requring the two pension funds to cut off more than $3 billion in investments in Iran.

But leaders of the pension funds say the proposal is misguided.

Jack Ehnes, the CEO of CalSTRS, says these countries — who are investing in private equity firms using their “sovereign wealth funds” — are almost always passive investors. And regardless, he says, AB 1967 overstates the pension funds’ power in the private equity market.

Staff analyses from both CalSTRS and CalPERS project the pension funds could lose more than $7.5 billion combined in just the first five years under AB 1967.

“If you are denied access, by law, to the best performing investment players,” says Enhes, “by definition you’re going to start putting your money in mediocre investments.”

But it should come as no surprise that there’s possibly a political angle at play, too.

For weeks, there have been questions being asked inside the state Capitol about the impetus for the bill, which is mostly the work of the Service Employees International Union, the union that represents more than 200,000 state workers.

“Our members don’t want to see their investment dollars being used in any way to exploit or abuse or in other ways harm workers or the environment around the globe,” said SEIU spokesman Jono Shaffer.

But the #1 investment of the pension funds that would be impacted by AB 1967 is the Carlyle Group. SEIU is locked in a fierce battle with Carlyle over the desire to organize workers at some nursing homes owned by the firm, as you can see below:

And so some Capitol denizens have wondered: is the labor union trying to use its political muscle at the state Capitol to put a different kind of pressure on Carlyle?

“That’s not the motivation for this,” said SEIU’s Shaffer. Torrico said he had no knowledge of the SEIU-Carlyle grudge match.

No word on what happens to AB 1967 now. In a written statement issued just before noon, Torrico said he remains committed to “pursuing this issue during this legislative session.”