Generalissimo Francisco Franco is still dead.

If you missed that cultural reference, then here's the straight ahead approach: the budget impasse is still an impasse.

Democratic legislative leaders summoned reporters this afternoon to announce that have now sent their recently approved budget package downstairs to the office of Governor Schwarzenegger (along with this letter).

You thought they'd already done that, right? Nope. The package of bills, including the now legally challenged majority-vote-tax increase, was being held in hopes that Dems could strike a deal with the guv to avoid him making good on his promise to veto the proposals.

Apparently, that plan of attack is now over. "We have agreed to virtually all of the governor's demands," said Senate President pro Tem Darrell Steinberg. "If he vetoes the bills, we'll await for him to tell us exactly what he will sign."

Steinberg claimed that an agreement was in the works this past weekend (a "common framework," said Steinberg), only to fall apart last night in talks with Schwarzenegger.

That's not how the big guy remembers things.

"We're not sure what they're referring to," said gubernatorial spokesman Aaron McLear. "We've not moved any more close with the Democrats in the negotiations the past several weeks."

As reported many times before... many... many... you get the point... the clash continues to be over whether the Democratic proposal goes far enough on jump starting the state's weak economy and whether it offers enough spending cuts to justify the corresponding tax increases. Dems insist the governor keeps, in their words, "moving the goalposts" or that he getting "cold feet" about the tax increases.

You can imagine the administration's response to that. Enough said.

In which case, we're still where we were. Franco is still dead. Now back to our regular programming.

There's a palpable sense around the Capitol that the budget saga is entering a phase probably best described as "time to fish or cut bait."

In other words, the negotiations between Governor Schwarzenegger and Democratic legislative leaders on a budget solution can only last so much longer... before one or both sides chooses a new route.

For the governor, such a route would probably mean returning to some kind of revenue raising proposal that requires GOP votes. The current saga, featuring a novel majority-only-tax-package, seems stuck on Schwarzenegger's demands for an economic stimulus package more to his liking, and on additional spending cuts than those agreed to by Democrats. And with last week's new budget proposal, the governor clearly signaled he's prepared to move on. And sources say he has been meeting with Republicans, including Senate GOP Leader Dave Cogdill.

And that may be why Senate President pro Tem Darrell Steinberg seemed to offer a deadline of sorts today. In brief comments with reporters before stepping into a private meeting, Steinberg said the following: "Give us 24-48 hours."

He didn't elaborate on exactly what that means... a deal? a stalemate? Either way, it's hard to see the current chapter of "California Fiscal Doom 2008-2010" lasting much more than another few pages.

Wow, what did I miss?

The short answer, apparently is... not much.

A drizzling rain is falling here in Sacramento on this first day after the holiday break. And yes, Virginia, there is still a budget crisis.

Governor Schwarzenegger is apparently back in town as negotiations will no doubt reengage; he and I both missed the unveiling of his 2009-2010 budget on New Year's Eve. My public radio colleague Marianne Russ of Capital Public Radio was gracious enough to discuss the proposal on the New Year's morning edition of The California Report:

More on all things budget later today and this week and... well... forever, it seems.

Meantime, a quick mention of a story I filed before escaping to the other coast: a look at the possible impact of the troubled economy on one of California's most successful business sectors in recent years: Indian gaming.

Several gaming tribes are now faced with the toughest business climate since Indian casinos were legalized in California. And don't forget, their challenges also have a direct impact on the state budget -- after all, the governor and others have counted on tens of millions of dollars in casino revenue sharing to help pay the state's bills.

The story aired last week on our program.

Our holiday edition of the Capital Notes Podcast features a conversation with Leon Panetta about the issue of the year: budget gridlock.

Panetta, the well-known former White House chief of staff and congressman from Monterey, is now spending considerable time leading the bipartisan organization California Forward. Their mission: help provide substantive ideas on how to end the annual saga of stalemate over the state budget in Sacramento.

I spoke to Panetta for a story on budget reform that aired this morning on The California Report; this podcast includes the entire interview. The ideas put forward are intriguing, and substantive. Getting any of them put into place, though, is no easy task... and Panetta knows that.

The organization's proposals are listed in detail here.

[Note: Barring breaking news that I can cover, or add something substantive to, from back east while on holiday... return for more Capitol news the week after next. In the meantime, Happy New Year... and wake me when the budget crisis is solved. --JM]

And now, a pause from our regularly scheduled program. I'm headed back east for a few days with family... here's hoping all of you have a safe and happy holiday. Except for tomorrow's podcast (which was pre-recorded), no new postings are likely until after the New Year.

Yes, there might be budget news. But for now, I've settled in for a long winter's nap. Here's hoping you get to do the same.

An agreement on solutions to the state's fiscal crisis is still not in place, but it now seems pretty clear that Governor Schwarzenegger will ultimately accept the most contentious, and possibly risky, part of the plan: a tax increase approved with only votes from legislative Democrats.

The governor all but put the issue to rest at a budget crisis photo op this afternoon here in Sacramento. Though he's been asked several times in the last week as to whether he'd support such a tax increase, he's always left his stance on the issue somewhat murky.

Consider it much less murky now, as I asked him today whether he would ever sign a tax increase that did not have approval of a two-thirds majority.

"In order to save California," said Schwarzenegger, "I am forced to go and just negotiate with the Democrats at this point, and then also resolve this issue just with the Democrats."

That's not necessarily a surprise, given that most sources say the negotiations at this point are largely about the depth and specificity of spending cuts; even the infrastructure issues -- which were the subject of the governor's event next to a threatened levee on the Sacramento River -- seem on the way to being resolved.

But assuming the deal is struck, the majority-only tax increase sets the stage for a certain legal challenge and... once again... a series of "Arnold vs. the GOP" stories. The governor himself added to that storyline today:

"This [tax proposal] is an issue that I was, a situation that I'm forced in because of a lack of participation by the Republicans."

On the subject of the legal challenge, Schwarzenegger simply said this about lawsuits: "Some you win, and some you lose."

"Pay no attention to that man behind the curtain."

It's a great line from a great movie.

And in politics, it's used to convey the sleight of hand that's so common when it comes to fiery campaign rhetoric that occasionally doesn't fit with the nitty gritty of governing.

That tactic may very well be at the heart of Governor Schwarzenegger's latest Budget Armageddon Road Show, which touched down in Fresno on Friday and in Los Angeles this morning. Schwarzenegger certainly wants to make the point, and rightly so, that the impasse here in Sacramento is threatening dozens of important public works projects around the state. Not to mention the state's fiscal survival.

But both events seemed to force Schwarzenegger to borrow a page from the Wiz, by directing attention toward the impacts of the impasse... and away, somewhat, from the solutions to the impasse.

And yes, we're talking about the T word... taxes.... or, ummm, the more family friendly R word: revenues.

"They passed legislation with a whole bunch of high taxes, to punish you," said the governor on Friday, "as if they didn't do anything wrong, you did something wrong."

He was obviously referring to legislative Democrats and their non-Republican revenue proposal. But compare the above comment with one made today in Los Angeles by the governor:

"I'm interested in revenue increases, that's the bottom line."

Republicans have picked up on the apparent misalignment of the two statements. Balking at reports that Schwarzenegger met only with Democratic leaders on Sunday, Assembly GOP Leader Mike Villines said this in a written statement today: "We believe the Governor should instead keep his promise to the people of California and reject the Democrat tax increases."

The morale of this story: message-focused campaign events are sometimes a tough fit with with the complicated, and sometimes contradictory, world of budget negotiations.

And that leads to this question: if the governor and Democrats can, as some now believe, find a compromise on the issue of economic stimulus and spending cuts... how might the rhetoric change when it comes to the tax increase proposal?

Tis the season to be... squabbling about a solution to California's fiscal crisis.

On this week's Capital Notes Podcast, we look back at a very busy week on the state budget front. From competing proposals to defeated bills, controversial solutions, and the threats of Governor Schwarzenegger to veto the Democratic plan... and lay off state workers.

Phew.

Capitol Weekly editor Anthony York and I check in for what that week might mean in terms of an eventual deal, and whose interests might be left out when it's all said and done.

And yes, the podcast is actually a few days late; the flurry of events at week's end pushed our weekly chat into Monday.

"I always set goals that are so high, they are almost impossible to achieve. Because then you're always hungry for climbing."

That was, for my money, the most noteworthy insight gleaned from the long profile of Governor Schwarzenegger on Sunday's 60 Minutes. The quip is probably the defining image of the governor, an image seen by both his admirers and his detractors.

The rest of the segment? Well, the online reviews from both the left and right on the political spectrum weren't that great. By the way, it should be noted (since CBS did not) that correspondent Scott Pelley didn't just interview Schwarzenegger... he was also the moderator of the governor's climate summit last month in Los Angeles. There were clips of the guv at the event in last night's segment, but no mention of journalist Pelley's dual role.

That's Governor Schwarzenegger's take on the Democratic deficit relief package sent to him this afternoon, an opinion that he said will lead him to veto the $18 billion proposal.

The governor didn't waste much time knocking the plan down; the Legislature had wrapped up work just a little bit before he appeared before reporters and declared the package dead on arrival.

"I was very disappointed," Schwarzenegger said. He then went on to say that the plan never met his definition of a solid economic stimulus, and rattled off a list that Capitol watchers have been hearing about since last night, like not enough public-private partnerships, and not enough public works projects exempted from the California Environmental Quality Act (CEQA).

"It is one thing when you say economic recovery package," he said. "But when you read through it, it actually doesn't do anything."

And he made special note of the package's spending cuts, especially its approach on state employee salary reductions, declaring that the "special interests" had apparently won again (comments reminiscient of Arnold 2004/2005).

The governor took on that issue, and more, in the clip you can hear below.

Democrats immediately struck back for what they say was a too hasty rejection of their work.

"The governor claims he wants to negotiate but then says things must be exactly as he wants," said Assembly Speaker Karen Bass in a written statement. "That is astonishing given the crisis we face."

What was perhaps more interesting was that the governor didn't reject the $18 billion package because of its unusual, and controversial, majority-only tax increase that dominated the legislative debate today.

"I don't get into those debates," he said. "I let someone else do that." Later, as he walked off stage, Schwarzenegger told one reporter that had the stimulus/cuts part of the plan been to his liking, he would've signed it.

So what next? That's the $40 billion question. Democratic leaders say they've sent legislators home for the holidays, but the governor urged them not to leave. And if they come back, what's the key to a deal? Less deference to labor unions when it comes to state worker cuts? More deference to the business community? Less demands from Schwarzenegger?

(An interesting moment today: the guv made it clear that some demands made by the GOP -- worker overtime laws and the like -- weren't deal breakers; "I'm more than happy to compromise on that," he said.)

Hard to see how this process just needs a little more time. Meanwhile, the fiscal crisis looms even larger, even as most thoughts will now turn to the holiday week ahead.