[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."]

BUDGET DAY PLUS 29 -- The hallmark of a good horror movie is that just when everyone thinks they've stabbed, or strangled, or mutilated the monster to death... he rears up again, scaring the bejeebers out of everyone.

In budget terms, Senate President pro Tem Don Perata appears to be trying again to kill the ugly budget beast that is talk of raiding transportation funds.

In an emailed letter from his campaign this afternoon, the Oakland Democrat emphatically stated he is not on board with any plan to take money from the Proposition 42 and Proposition 1A transporation funding guarantees.

"Raiding these funds now would break faith with voters who joined us in supporting the plan to rebuild California," Perata writes. "I can't stop people from floating trial balloons in Sacramento, but I can sure shoot this one down before it gets very far."

This is not the first time Perata has rejected such Capitol budget chatter. And transportation groups are already growling at legislators, through a media campaign, to stay away from their money.

But still the talk persists, with more and more Capitol denizens seemingly braced for some kind of eventual deal that relies on borrowing -- a theory espoused today in a piece by Sacramento Bee columnist Dan Weintraub.

Of course, one could parse the words in Perata's letter and observe that his pledge to not borrow only specifies transportation funding, and not the myriad of other funds approved by voters in recent years. But on previous occasions, the pro tem has condemned talk of all such borrowing schemes... so perhaps he's still referring to the whole concept.

But as the budget impasse drags on, and Governor Schwarzenegger prepares to issue his minimum wage executive order tomorrow, today's promise from a leading Democrat only further confuses those of us watching the process as to how it'll all get resolved.

BUDGET DAY PLUS 16 -- Today's confab between legislative leaders and Governor Schwarzenegger certainly didn't resolve the budget impasse, but it did feature some serious talk on a familiar subject: the California Lottery.

The roughly two hour meeting of the "Big Five" came as both houses of the Legislature sit in recess with rank-and-file members on what many critics have called an undeserved vacation. And while leaders exiting the meeting indicated there was a lot of broad discussion on issues, all confirmed that the governor's team brought in analysts to discuss ways to squeeze money out of the lottery.

You'll remember that Schwarzenegger placed a plan on the table several months ago to balance the budget, in part, through the sale $15 billion in bonds repaid with future lottery revenues. The specific pitch never gained much traction at the state Capitol, with Democrats saying it was unrealistic to expect the money to show up in time to help this year's dilemma... and Republicans decrying the lottery proposal's backup plan -- a sales tax increase.

A phalanx of financial advisers, along with the governor's economic guru, David Crane, were seen exiting the meeting just after noontime. And yet Democrats still said the issue was a possible source of cash for the future... but not now.

"I think it's pretty conclusive that it's a not a budget solution for this year," said Senate President pro Tem Don Perata.

Of course, the voters haven't seemed hot on the idea, either.

Republicans came out of the meeting saying they remain focused on some kind of budget reform proposal, still a tough sell to Democrats.

And as for what happens next... don't expect full legislative action soon. Almost two weeks ago, Democratic leaders vowed to work towards a full budget vote in both chambers by next week. Will that still happen?

"I don't believe so," said Assembly Speaker Karen Bass.

A nasty war of words is raging among Democrats over the state party's recent -- and hefty -- contribution to the legal defense fund of Senate President pro Tem Don Perata.

Less than two weeks ago, the California Democratic Party gave $250,000 to help defray the legal bills of the Oakland Democrat for an FBI investigation into his business dealings. It was the second big donation from the party in less than a year, bringing the total to $450,000.

Perata's legal defense fund reported 2008 expenses as of mid May of $290,000 and very few contributions; outstanding debts were reported at just about $250,000. Other than the Democratic Party contribution, the Senate leader's defense fund received a $25,000 check from the Pechanga Band of Luiseno Mission Indians in June.

But the donation of Dem party cash has ignited some furor among party activists. On the grassroots blog Calitics this morning, Democratic activist Bob Brigham took aim at party chairman Art Torres for approving of the donation, calling for the veteran leader's resignation:

"[Democrats] have every right to expect that contributors' money will be pumped into districts where Democrats are locked in tough election fights with Republicans, or into struggles with the GOP over the budget. Instead, it's paying the legal bills for Perata..."

Perata was asked about the donation yesterday after a news conference on the state budget. He disagreed with those who said he shouldn't be getting financial help from the party. "I believe Democrats respond to defend Democrats," he said.

And, though he was asked only about the controversial cash assistance from the party, Perata appeared to take a swipe at the FBI investigation itself, even as one Bay Area newspaper reported yesterday that something new may be brewing in the case.

"I believe this is a partisan attack," Perata said. "It's no mistake who's in the White House and when this started... I'm the leading Democrat in the state of California."

BUDGET DAY PLUS 9-- With legislative leaders resuming their private negotiations today over a new state spending plan, it seems worth noting what is... and isn't... negotiable, at least according to their public pronouncements.

Much ado was made yesterday of whether Democrats were drawing the idiomatic "line in the sand" over further cuts in state spending. But it doesn't take a trip out to the beach (which might be nice, considering the Sacramento heat wave continues) to know that sand drawings have a way of... disappearing.

With that in mind, here's a look at -- as of now-- what the political leaders have said they are, or aren't, willing to do.

TAXES: Republicans remain adamant that they're unwilling to accept tax increases as part of a budget deal. Even so, I'm still trying to decipher the words of Assembly GOP Leader Mike Villines in an interview almost a month ago after an anti-tax event on the Capitol steps: "There are going to have to be some things that we look at, potentially with the business community, to help us get out of this, and say, 'You know, if we give you some reforms, can you, you know, help us with some different kind of revenues?"

Of course, one could be persuaded that this isn't really a big deal, because "revenues" may not necessarily be "tax increases."

But the award for mixed messaging on taxes... thus far... must surely go to Governor Schwarzenegger, when asked yesterday whether he was rejecting Democratic calls for increasing taxes:

BORROWING, INTERNAL STYLE: Borrowing is one way of getting those elusive "revenues" without actually raising taxes. While there are pretty strong restrictions now in place on external, Wall Street borrowing (in the wake of Propositions 57 and 58)... there's always the chance that money set aside for other programs and projects could be dipped into to solve the problem. Some Republicans have suggested legislators might want to look at money collected under voter initiatives on tobacco taxes, transportation funding, and even mental health programs. But Senate President pro Tem Don Perata seemed to squelch such talk yesterday, saying it "goes against the promise" made to voters who support those programs.

SPENDING CUTS: This one seems just as hard for Democrats to swallow as a tax hike would be for Republicans. "We can't cut anymore," said Assembly Speaker Karen Bass. "Line in the sand? Yeah."

It will be interesting to see what lines stand the test of time once the budget is finally enacted, and what ones disappear once push comes to shove. As most Capitol watchers know, much longer standoffs than this one have become the norm when it comes to the budget.

BUDGET DAY PLUS 8-- With year after year of California budget impasses scarred by sharp partisan debates over spending versus revenues, it seems almost silly to say that there hasn't been much of a debate about a tax increase. But there hasn't.

And so, in the immortal words of Monty Python, now for something completely different...

Every multi-billion dollar budget deficit over the last few years has been papered over with an elixir of spending deferrals, accounting changes, and borrowing. But this time, the Legislature's Democratic majority seems ready to wield the very budget balancing tool that all of those schemes were designed to avoid: higher taxes.

The budget plan adopted by the joint budget conference committee last night (and, to be fair, adopted without any Republican support) calls for $9.7 billion in additional tax revenues, with more than half that amount coming from higher income taxes for high-income earners. Also in the mix, as reported last night, are more tax revenues from businesses and middle-income earners, as well as a new push to collect taxes that aren't being paid.

Of course, the tax debate isn't new for some Democrats, most notably Senate President pro Tem Don Perata. The Oakland legislator has been calling for new tax revenues for several months, and told reporters today that the proposal on the table is about fairness, in light of several years of cutting back programs and services for the most needy.

"We're asking those who have benefitted the most to pay the most," said Perata.

And pay the most they would. Adding two new tax brackets for wealthy Californians -- a 10% rate for joint returns above $321,000 and an 11% rate for joint returns above $642,000 -- would reinstate taxes levied during the state budget crisis of the 1990s. But those tax increases were temporary; Democratic budget staffers confirmed today that this proposal would make those tax rates permanent.

If enacted, it would mean California would have the highest state income tax bracket for the wealthy in the nation, according to data compiled by the Federation of Tax Administrators. And the very wealthy -- those earning more than $1 million -- would be subject to a 12% rate, because of the surcharge imposed by voters through Proposition 63 in 2004 (money for mental health programs).

Needless to say, Republicans seem almost giddy in these early hours of the debate. "That's a dysfunctional approach to the crisis that we're in," said Assemblymember Roger Niello (R-Sacramento) in comments to reporters this morning. "Those proposals, especially in a weak economy, have been proven time and again not to produce the revenue that's expected."

Niello and his fellow Republicans want more cuts in spending to resolve the $15 billion shortfall; Democrats, who are proposing to close the gap with slightly more in cuts than in tax revenues, adamantly refused such suggestions today. "We can't cut anymore," said Assembly Speaker Karen Bass. And so far, GOP legislators have not submitted specific cuts that would, alone, balance the budget.

So perhaps, for once, there might be a real debate about appropriate taxes and appropriate expenditures. One that forces Californians to think about what services they want, and what they're willing to pay. That would, indeed, be something completely different in the annual summer slugfest over the state budget.

The big policy and politics debate of the year in California begins in earnest tomorrow, as the joint legislative budget committee will convene here at the state Capitol. The battle lines are familiar enough, but the battle strategy is a mystery.

In fact, it seems impossible to find anyone who's willing to predict how this multi-billion dollar budget problem is going to get resolved... or when.

Democrats and Republicans both got in their final pre-scrum talking points today. Collectively, they face the task of erasing a deficit of $15 billion using fewer of the one-time solutions leaned on in the past, and doing so in the midst of an economy where the shifting sands could potentially widen the budget gap even further.

While there have been very few easy budget deals struck in Sacramento in recent years, this year's dilemma seems unique. Critics of past budget deals have lamented the fiscal sleight of hand that's ended with what are affectionately called a "get out of town alive" budgets.

But in recent years, largely through a push from Governor Schwarzenegger, many of the tricks in that bag have been retired, from using deficit bonds to diverting local government funds to borrowing transportation dollars.

But that means something real's probably gotta give.

One popular starting point for Democrats is to come to agreement on what services the state should provide, calculate the cost, and then decide how to pay for them. That's the stance Senate Democrats took in a briefing with reporters this morning, where they pegged the total cost of their desired services provided by the state's general fund at $105.8 billion.

That's $4 billion more in spending than called for by the governor in his May budget proposal.

To get there, Senate Democrats weren't shy in admitting that they need $11.5 billion in new revenue. "We're proposing to raise taxes," said Senate President pro Tem Don Perata. But Perata said his side will wait until negotiations begin with Republicans before trying to determine exactly which taxes should be increased.

More of Perata's comments can he heard below.

If Republicans are actually willing to consider taxes during budget deliberations, they're doing a great job of bluffing. An Academy Award winning performance, in fact.

"We're not going up [with votes] on taxes," said Assembly GOP Leader Mike Villines after an anti-tax event today outside the Capitol. "It's total insanity."

More of Villines' comments can be heard below.

So where should you look for compromise? Hard to say. Some sort of way to squeeze money out of the California Lottery appears to be fertile ground, though there's disagreement over how much and how it would be used. An examination of existing tax credits could be mulled, but Democrats seem to want to go much further than Republicans, who seem to be talking so far mostly about temporary suspensions of a few tax credits.

Where it goes from here remains a mystery. There are serious policy issues at hand. But because politics is so often a blood sport, there are also calculations being made about who has the most to lose from a protracted standoff.

Who has the most to lose, that is, other than the public.