Capitol Alert

As the budget impasse slips into its second month, just how close are the state's leaders to passing the overdue budget?

Here's an update, based on the words of the leaders doing the negotiating:

Gov. Arnold Schwarzenegger shook up the political landscape on Thursday, signing an executive order temporarily slashing state worker pay. He also flashed signs of hope.

"My intention is to get a budget within the next few days and if that is the case then we will never have to use any of those kind of things and everyone will get paid," the governor said.

Schwarzenegger, however, has a history of overly-ambitious optimism.

Assembly Speaker Karen Bass, who questioned "why he needed to do this action" if leaders were days away from a budget, also expressed hope of a deal - albeit on a longer timeline.

"I know this action doesn't go into effect until the end of the month and I feel confident we will be able to bring resolution by the end of the month," Bass said.

Of course, today is only August 1 and the Legislature has never passed a budget past August.

Assembly Republican leader Mike Villines said the executive order adds further impetus to strike a deal. "We have felt pressure from day one but this does add pressure," the Clovis GOPer admitted.

Republicans, he said, "are committed to reaching a budget agreement as soon as possible so state workers are fully paid for their service to California."

But none of the sides seem prepared to abandon their core principles - be it opposition to tax hikes, opposition to deep cuts or belief in a state spending cap.

Don Perata, the Democratic state Senate leader, just seemed angry with yesterday's news.

"The governor's suggestion that the Legislature did nothing on the budget prior to May 14 shows how little attention he has paid to this process," Perata said in a statement. He promised the Senate would hold a hearing Monday "examining the far-reaching impact of the governor's executive order."

That certainly won't help negotiations.

As for what will actually be in the budget, that, too, remains a guessing game.

The talk persists that lawmakers will craft some type of borrowing package - possibly using the potential "securitized" lottery revenues to show a revenue stream to pay off the loans.

Perata keeps trying to kill those rumors.

"I can't stop people from floating trial balloons in Sacramento, but I can sure shoot this one down before it gets very far," he wrote to supporters this week.

Regarding raiding transportation funds, Perata wrote, "I have a one-word answer: NO!"

There is also talk that Republicans might agree to some new revenues - though not the broad taxes Democrats would prefer.

Villines added fuel to that fire Thursday, when he said he's open to closing tax loopholes: "I don't believe you have to do this budget with tax increases. I do believe you may have to look at some loophole closures."

One "loophole closure" currently bandied around is the Democrats' plan to suspend the "net operating loss" for corporations (which represented $1.1 billion of the new funds in the Democrats' budget proposal.)

But Republicans say they aren't going to agree to much of anything without some type of spending cap for the state. Which, of course, Democrats oppose.

"The Legislature wishes to continue to spend like a rap star even when the hits are over and our "posse" has moved on," is how Assemblyman Doug LaMalfa, R-Oroville, put it.

Legislative GOPers also have pushed for a free-market economic stimulus plan in the negotiations.

In his press conference on Thursday, Schwarzenegger signaled that could be in the works. "And when it comes to stimulating the economy, we hopefully have, as part of our budget, a stimulus package that will stimulate the economy," he said.

On Fox and Hounds, Joel Fox, president of the Small Business Action Committee, made light of all the back-and-forth, relating it to baseball's recently passed trading deadline.

REPUBLICANS: Isn't there any deal we can do?

REPUBLICANS AND DEMOCRATS: Done!

If only.