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.

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.

Budget discussions this year keep coming back to the issue of tax credits and tax loopholes, and closing some of each to help resolve the state’s $15 billion shortfall in the fiscal year that begins on Tuesday.

There are more than 300 tax credits on the books, valued at about $50 billion. But can a budget solution really hinge on removing tax credits?

That’s one of the questions examined in my report on this morning’s edition of The California Report. And the answer seems to be: probably not.

The big problem is the size and scope of tax credits, exemptions, and deductions on the books. To get the most financial bang, lawmakers would have to go after tax savings laws that are enormously popular. But if lawmakers choose tax credits that aren’t widely popular, then they have to erase a heck of a lot of them to make a real fiscal impact.

The discussion also highlights an enormous problem surrounding tax credits and exemptions: they can be placed on the books through a simple majority vote in each house of the Legislature, but taken off the books only with a supermajority vote… becasue such an action is considered a tax increase.

You can hear this morning’s story below (a couple of minutes in to the newscast).

That title has only been used once before in the California Assembly (and then only under unusual circumstances), but it’ll be the buzz word for today when Karen Bass is sworn in as the 67th speaker of the lower house.

Bass hooked the top job several weeks ago, but today formally assumes the title and the power. The 53-year-old Los Angeles Democrat replaces Fabian Nunez at the helm, three months after Nunez’s gambit to modify the existing term limits law was rejected by voters.

Speaker Bass spent some time with several Capitol reporters over the past few days, including a brief interview with me late last week.

In such a setting, it quickly becomes clear that she’s much more succinct than the often verbose Nunez. That truncated communication style may be the perfect fit for her similarly slim agenda as leader of the Assembly. In almost every recent interview, including ours, Bass has said that there are only three things on her to do list: solving this year’s budget mess, examining systemic reform of the state tax code, and strengthening California’s overburdened and often neglected foster care system.

Click below to hear my profile of Bass that aired this morning on The California Report.

Aside from the big items on her agenda, a few other comments on recent issues from my interview with the new “Madam Speaker”:

Redistricting: Bass says she supports an effort to remove political map drawing duties from the hands of the Legislature… but she’s stopping short of an endorsement of the proposal that appears headed for the ballot thanks to the work of Governor Schwarzenegger and government reform groups. In fact, she expressed reservations about the proposal, and a desire to see what might come out of a new effort on the issue pledged by the outgoing Speaker Nunez.

Health care reform: Bass also said she’d like to return to last year’s discussion on changes to the state’s health care system… and dismisses any speculation that legislative efforts on the issue are all but dead in the near future.

Foster care reform: And back on her pet issue, Bass explained her interest in a future ballot initiative to find a new way of paying for the state’s troubled foster care system… and why the needs are so great.

Today’s big ceremony in the Assembly chambers will feature a who’s who of VIPs, including many of the politicos who once held the job of speaker. And then it’s back to work… and Bass’ greatest challenger… as Governor Schwarzenegger unveils his much anticipated revised budget tomorrow afternoon.