You know that old saying about the "elephant in the room"? The thing on everyone's mind but not being mentioned?

In Governor Schwarzenegger's hastily arranged budget news conference, the elephant in the room... was the elephant-logoed party members who sit upstairs in the state Capitol, refusing to budge on a tax increase.

One way to gauge the icy nature of the governor's demeanor, consider the following Harper's-inspired factoid.

Number of times Schwarzenegger mentioned the name of dethroned Senate GOP leader Dave Cogdill: 3.

Times he mentioned the new guy, Senate GOP Leader Dennis Hollingsworth: 1.
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Yowza.

Drama is nothing new in politics, and certainly not in state budget standoffs. But you've got to take your hat off to Republicans in the state Senate after the midnight massacre, where now former leader Sen. Dave Cogdill was unceremoniously shown the door. In his place, the caucus chose Sen. Dennis Hollingsworth, the vice-chairman of the upper house's budget committee and a senator termed out of office in 2010.
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Legislative Republicans have crunched the numbers on their proposal for erasing some, but probably not all, of the shortfall facing the state over the next 18 months -- a $22 billion proposal that suggests more than $2 in cuts for every $1 in new revenues.

First, those revenues: the GOP plan would grab $6 billion in revenues generated from the state's 10-year-old tobacco tax (Proposition 10) and about $4 billion from a 2004 initiative that hiked the income tax on millionaires. The tobacco tax dollars are designated for childhood development programs; the millionaire's tax dollars are set aside for mental health programs (Proposition 63).

But don't call the plan the "B" word: borrowing.

"We don't consider that borrowing," said Senate GOP Leader Dave Cogdill. The proposal would, however, have to be ratified by voters because that's how the current designations were created. Cogdill says the $6 billion is sitting "idle" in the bank, and could be used to solve the state's short-term cash woes. Assembly GOP Leader Mike Villines calls the money "surplus," adding: "I don't think taxpayers realized they paid money into programs that are surplus. Let's put the question to them: would you rather that [money] go into the budget crisis?"

More on the revenues in a moment.

As for cuts, the proposal includes a trim to the Legislature's own budget (which, in the end, may be the one element that no lawmaker can defend not including, given the low esteem in which the body is held by the public); that proposal calls for a 5% across-the-board cut, including a cut in lawmaker salaries.

But the big cuts come in education (about $905 million beyond plans offered by Democrats and Governor Schwarzenegger) and an additional $86 million in social services programs. The education cuts are mostly in K-12, with about $75 million cut through GOP demands for repeal of the state law allowing in-state college tuition for undocumented immigrants.

The biggest education cut, by the way, is a polite jab to the governor: a $550 million cut in Proposition 49 funding, the afterschool initiative the guv championed in 2002.

(And jab #2 to the guv: a zeroing out of the budget for Schwarzenegger's famed "hydrogen highway," to the tune of $6 million).

The GOP plan also calls for loosening some of the state mandates on how education dollars are spent, as well as some of their pro-business demands that they say will stimulate the economy.

"If we do this today," Villines said to reporters, "it won't be as bad next year."

Back to those revenues... the advocates for Prop 10 and Prop 63 programs say the GOP legislators lack an understanding of how those programs work. In particular, they say the seemingly "surplus" dollars have been committed to valuable programs that are funded through two and three year grants, not annually.

"You might not think the [tobacco tax] dollars are not allocated, or earmarked, but they are," said Kris Perry, executive director of the California First 5 Commission.

"This proposal is like a Trojan Horse," said Rusty Selix, one of the authors of Prop 63, in a written statement. "While it looks like there is a lot of revenue available, inside that package are the costs of caring for thousands of people with severe mental illnesses who are currently succeeding in county programs." Selix says using this money elsewhere would just lead to mental health patients ending up in other state supported programs. "The savings are illusory," he said.

So now what? Hard to say. The proposal released today is not unexpected, and neither is its bottom line position on how to get out of the state's fiscal mess. That being said, it does seem to put the ball back in the court of Democrats to say if any of these ideas are ones they'll consider... in exchange for something else. It also allows GOP legislators to now dismiss criticisms that they haven't come forward with a plan.

[update: Assembly Speaker Karen Bass says in a statement the GOP plan will be vetted tomorrow by her chamber's Budget Committee. "The Republicans have to show they are finally serious about accepting real revenues as well," she said in a statement. "We'll learn tomorrow just how serious they are."

And even less enthusiasm from the governor. The GOP plan "is not a negotiated compromise," says gubernatorial spokesman Aaron McLear, "it's simply a [political] drill."]

"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.

[see below for update]

BUDGET DAY 50 -- Welcome to the newest saga in the budget drama of 2008: will the budget impasse be resolved with borrowing big bucks earmarked by voters for other government services, and are legislative Republicans leading the charge?

In fairness, this isn't actually a new topic; rather, it's newly prominent... after Governor Schwarzenegger called out his fellow Republicans yesterday at the end of yet another unsuccessful budget meeting.

At issue: the possibility of borrowing a few billion dollars from money set aside for everything from local government (through 2004's Proposition 1A) and transporation (through 2002's Proposition 42 and 2006's Proposition 1A) to early childhood programs (through 1998's Proposition 10 tobacco tax) and even money for mental health programs (2004's Proposition 63).

While there's not enough money in these accounts to completely close the budget gap, it's believed that these bucks, plus spending cuts and... well, some good old-fashioned budget gimmicks... could probably get the state at, or near, closing the $15 billion deficit.

But the voter-approved initiatives require the money to be paid back sooner rather than later, sometimes with interest. In other words... it would be a one-time solution that would probably add to fiscal headaches in years to come.

Schwarzenegger's accusation yesterday that it's Republicans pushing this as a solution left the leaders of both GOP legislative caucuses angry.

But it's been mainly Republicans who have expressed public willingness to consider such a plan; Democrats have pretty consistently shot down such talk when it's surfaced the last few weeks.

One interview in particular with reporters that immediately stuck in the craw of local government folks and others (and I know, because a portion of it aired in a story of mine the next day and the phone started ringing just after our newscast) was given by Senate GOP Leader Dave Cogdill two weeks ago today.

Cogdill didn't necessarily say that he wanted to borrow the money, but acknowledged such action as a way out of the jam.

His unedited comments, first to the idea of a tax hike, and then to the issue of borrowing, can be heard below.

In a written statement released yesterday after the governor's public dressing down of Republicans, Cogdill tried to make the point that such borrowing would only happen if Democrats refused to cede any ground off their program priorities.

"If Democrats want to increase spending," Cogdill's statement reads, "they are going to have to either raise taxes or borrow money."

In other words, is it Democrats demanding certain spending... or Republicans rejecting certain revenues? Such ponderances lead to the same kind of brain freeze as a good milkshake.

One thing seems certain: should such borrowing be the ultimate solution to this standoff, it will probably be impossible to ever figure out just whose fingerprints are on it.

[update 2:38pm Schwarzenegger, in a news conference laying out a new budget proposal, seemed to close the door on the borrowing plan, but only after a little prodding from my follow-up question. His final comments on the suggestion: "It is not a wise idea, and I will not do that, no."]

With a stroke of the pen, Governor Schwarzenegger has added a twelfth proposal to the November statewide ballot... a big ballot that may still grow bigger.

The governor placed a $900 million bond measure on the ballot to provide low-interest home loans to returning veterans of current and recent wars. And in swift order, Secretary of State Debra Bowen then designated the vets bond as Proposition 12.

The backers of Prop 12 say the bonds will be repaid, over time, through loan payments made by veterans. The measure sailed through the Legislature with not a single vote in opposition, and quickly made its way to Schwarzenegger's signing desk in a ceremony in Sacramento this morning.

So that's 12 measures in all, and more are in the hopper. Remember there's a possible water bond (which was the subject of new discussions last week), a budget reform proposal pitched by the governor (with a separate idea on the issue floated by GOP legislators), and a possible reform of the 24-year-old lottery initiative to raise cash for state budget needs.

That would be 15. And even more new voter decisions were mentioned this afternoon by Senate GOP Leader Dave Cogdill in his appearance before the Sacramento Press Club. Cogdill said Republicans may push for balancing the current state budget by borrowing or using money currently earmarked for other voter-approved initiatives.

Such a plan would, you guessed it, require a vote of the people. If all of those "tweaks" could be placed in one proposal, that would be 16. If not, it could mean as many as 18 ballot measures. Wow.

Direct democracy is alive and well in California.

With all of the talk this week, and this budget season, about a new constitutionally mandated cap on state spending, we decided to take a wider view of the issue.

On this morning's edition of The California Report, I reported not just on the spending cap proposals being talked about by both legislative Republicans and Governor Schwarzenegger, but also a look back at why some say the state's exisiting spending cap (yes, there's already one on the books) was modified in 1990.

The story is about 2:40 into this morning's program, which you can hear below.

On the surface, the pitched PR battle waged today between Democrats and Republicans seems like it's flavored with a dash of the same old spin.

But in reality, it goes to the heart of the literal budget problem that's plagued California's statehouse for years: a stalemate caused by virtually incompatible political ideologies.

Today's first volley was fired by Republicans. In a morning news conference, GOP legislators placed plans for a new government spending limit on the negotiating table. The proposal outline calls for a constitutional amendment to limit the annual growth in budget expenditures to the percentage change in California's population growth and inflation. Any revenues above that estimate would be automatically transferred into a reserve fund earmarked for resolving budget shortfalls and/or debt repayment.

That part of the proposal is a dead ringer for plans submitted in 2003 by both a former GOP legislator and one backed by the newly elected Governor Schwarzenegger after the 2003 recall. Those plans used the same "cap" formula, one that a 2003 analysis by the California Budget Project suggested could result in extra deep cuts to almost everything but public school funding, which would still be protected by the Proposition 98 guarantee. But the proposal differs from the latest call for budget reform by the governor, whose much-ballyhooed plan focuses on revenue forecasting.

The dilemma of which side of the ledger to focus on is why today's skirmish is really a clear view of the chasm between the two parties. For several years, legislative Republicans have stuck to a saying that Schwarzenegger himself latched on to during the 2005 special election: "We don't have a revenue problem, we have a spending problem."

Senate GOP Leader Dave Cogdill put it even more bluntly in comments to reporters this morning: "This state has a spending addiction."

An hour later, Democrats took Republicans to task, using-- for the first time I've heard-- the exact converse of the now well-worn GOP adage.

"We don't have a spending problem," said Assemblymember Noreen Evans (D-Santa Rosa). "We have a revenue problem." Democrats are pushing hard for a solution this year that includes some new source of revenue... as much as $6 billion... to pay for the state services that they say everyone in California, regardless of party, is demanding.

Some of this divergence in world views is clearly due to a dispute over just what kinds of factors should be considered when building a state budget. Should spending decisions only be made once revenues are known? Should the state first decide what services it values and then figure out how to pay for them? Should spending be tightly linked to the budgets of years past? Or should it be flexible -- both in tax increases and tax cuts -- depending on the needs of the time?

That's the problem that's kept several years worth of budget talks dragging into the sizzling Sacramento summer. And it's the problem that threatens to do the same this time, too.