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Dan Walters: State crisis shifts by minute

The only constant about how politicians are responding to the deepening state budget crisis is that they are constantly changing, especially Gov. Arnold Schwarzenegger.

Last week, Democrats sent Schwarzenegger an $18 billion package that included new revenues based on a legally dubious theory that it could be done without Republican votes. The governor immediately said he would veto it without more spending cuts and "economic stimulus" provisions.

Schwarzenegger declared, "This package that they are sending down does really only one thing, and this is punish the people of California," then semi-contradicted himself, adding, "Absolutely I would have signed it if we would have gotten the cuts and the economic stimulus package."

On Friday, the governor told local government officials in Fresno that the Democratic package contained "illegal taxes."

Then on Monday, he sidestepped questions about legality, saying, "There is a legal debate about that, there's no two ways about that, as there is with many legislation that is being passed in Sacramento. I myself say always one thing, and that is, I'm interested in a revenue increase."

There was some teleconference negotiating over the weekend, and by Monday, Schwarzenegger was optimistic about a deal.

"It could easily be that before Christmas Eve or Christmas Day that we have an agreement, that the legislators can be brought back between Christmas and New Year's to vote on it," he said in Los Angeles.

So where are we, really?

Although nothing about this mess is certain, it appears likely Schwarzenegger and Democrats will do a deal.

The questions are whether Democrats will accept something their allies in labor and environmental groups abhor, or whether, despite his tough talk, the governor will cave on his demands.

But if they do agree, what then?

Republicans and antitax groups will quickly sue, contending that extracting revenues by simple-majority votes violates the constitutionally required two-thirds votes on new taxes.

"It is counterproductive to be spending hours and hours in negotiations based on the $11 billion in tax increases passed by Democrats when they are clearly illegal and will be tied up in court for months and even years," Assembly GOP leader Mike Villines said.

At best, the Democratic plan takes care of less than half of the $40 billion deficit forecast for the next 18 months. Meanwhile, the state will run out of cash in about two months. Even if it's approved quickly, the Democratic plan would not prevent that from happening.

State Treasurer Bill Lockyer says lenders wouldn't respond to any new short-term notes, even lower-quality "revenue anticipation warrants" (RAWs), to get emergency cash.

But Controller John Chiang, who would issue the RAWs, is not convinced and told other officials Monday he is working on contingency borrowing plans.

Like everything else in this situation, that's very fluid.

Dan Walters is a columnist for The Sacramento Bee.