EDUCATION SQUABBLE STALLS CALIFORNIA BUDGET DEAL: Schwarzenegger offers his promise that school money would be restored when the economy rebounds. Democrats want it in writing

By Evan Halper and Eric Bailey |LA Times Online

5:43 AM PDT, July 16, 2009 Reporting from Sacramento -- Fresh off a disappointing evening of budget negotiations that halted amid simmering frustration, legislative leaders and Gov. Arnold Schwarzenegger vowed to forge ahead today in hopes of settling on a final package to stem California's $26.3-billion deficit.

The prime obstacle that reared up to undercut the talks late Wednesday was a difference over how to tweak voter-approved school funding formulas so the state can cut billions of dollars it still needed to balance its books -- but guarantee that school funding was restored when the economy rebounded.

"I hate to describe it as a setback," said Assembly Speaker Karen Bass (D-Los Angeles), referring to the talks, "but it is definitely a stall."

Schwarzenegger's spokesman, Aaron McLear, said resolution is nearer, "but there are still some difficult issues to be resolved."

Aside from the disagreement over education funding, McLear said Democrats remain "unwilling" to make deeper cuts to create a healthy reserve so the state can weather an economy that could get worse before it gets better.

Schwarzenegger and legislative leaders ended talks just after 10 p.m. As the lawmakers left the Capitol before midnight, no time had been set to resume today, though Bass promised that more bargaining sessions would take place.

Among the issues still unresolved are how to adjust voter-approved school funding formulas so the state can cut from education while offering assurances that school funding would be restored once the economy rebounds.

"When times are better and we can afford it," said state Senate leader Darrell Steinberg (D-Sacramento), "we want education to be paid back."

Democrats are pushing for the budget package to include formal assurances of the education repayment, which they pegged at $11 billion, but say Schwarzenegger has insisted on a simple handshake agreement while pressing for reforms to public employee pensions and fundamental changes in the state's tax code.

Schwarzenegger and school leaders have jousted before over school funding, with educators accusing the governor in 2004 of reneging on a promise to restore funding cuts. The powerful California Teachers Assn. sued and won a settlement two years later.

With distrust still lingering, Democrats are pushing for formal assurances in a bill as part of the budget package.

McLear, the governor's spokesman, said such a legislative fix would amount to improperly tampering with a voter-approved law now enshrined in the state Constitution.

"The governor has consistently supported repaying education," McLear said. "But he does not support the Democrats' efforts to slip in a constitutional amendment without going back to the people."

Though the education funding tiff drew most of the attention, several other sticking points remain.

Among them are changes to the structure of state government that the governor is demanding as part of any final deal. Schwarzenegger says the changes would produce long-term savings by making various programs more efficient. Democrats have resisted, saying there is not enough evidence that they would be effective, and they have not been properly evaluated through normal legislative hearings.

One contentious proposal would change the state welfare program to increase penalties for participants who do not meet minimum federal work requirements. Currently, emergency cash is available for children of parents in that category; those grants could be eliminated under Schwarzenegger's plan.

Participants in the discussions had expressed optimism before Wednesday's talks began.

"There is no nastiness in the discussions -- no blowups, chairs flying and what usually are the routines -- there's none of that," Schwarzenegger said at a morning news conference. "So I think that we have a good shot of getting the budget done today. But there are still, I have to just caution, there are still some very important things that are not resolved."

Against the backdrop of goodwill, however, political bickering persisted. The teachers association continues running advertisements attacking the governor for his plan to cut money from schools. And the governor is running advertisements that Democrats say wrongly accuse them of trying to sneak tax hikes into the budget.

The California Democratic Party filed a complaint Wednesday with the state's ethics agency, seeking to force the governor's spots off the air. The ads, the party says, are paid for with funds that may be spent only to promote initiatives and referendums. The governor's campaign team called the complaint a baseless "political attack."