Tightening vice

Saying that borrowing money without a balanced budget in place "would be irresponsible," Gov. Arnold Schwarzenegger revoked a financial mechanism Thursday that he agreed to last year for seeking emergency loans," The Bee's Steve Wiegand reports.

"In a letter to state Controller John Chiang, the governor said he was rescinding his authorization for a General Cash Revolving Fund, which he had approved in April 2008.

The fund is legally necessary to enable the controller to borrow money on the commercial credit market through the issuance of Registered Anticipation Warrants, or RAWs. The warrants usually carry steep interest ratesand up-front fees, but would give the state more than a year to repay.

"I have informed legislative leaders that under no circumstances will I agree to issue a RAW to paper over our current  budget shortfall ," Schwarzenegger said. "This revocation ends any chance that the state could issue a RAW  and helps to clarify that our only alternative to running out of cash is to enact the budget solutions needed to restore the 2009-10 budget to balance."

The LAT's Shane Goldmacher reports. "Legislative Democrats reacted angrily Thursday to Schwarzenegger's statements.

"To threaten to shut down the state is, in the governor's own words, 'hallucinatory' and 'irresponsible, ' " said a visibly frustrated Assemblywoman Noreen Evans (D-Santa Rosa) during a session of the Legislature's joint budget committee, which she chairs.

"Come on, governor," said Sen. Mark Leno (D-San Francisco). "We can do it, and we can do it together. Don't put out there that it's not going to get done and we're going to collapse the world."

Jim Sanders picks up on the story of the fracturing Assembly Democratic caucus . "Bass sits squarely in the hot seat of an angry Democratic caucus that doesn't have its own plan for bridging the state's $24.3 billion budget gap and doesn't support Gov. Arnold Schwarzenegger's proposal.

"Interviews with a half-dozen Assembly Democrats, from party liberals to moderates, reveal a frustrated caucus thrashing about behind closed doors, often loudly, for consensus on fixing the budget.

"The 50-member caucus is split on how deeply to cut health, welfare and social service programs, how strongly to demand revenue-raising measures – and which taxes, fees or "creative" mechanisms to target for more funds."

Assemblyman Jared Huffman, D-San Rafael, conceded that the caucus feels a "huge amount of angst and pressure" over the state's massive shortfall. But the long hours of raucous debate are vital, and Bass remains firmly in charge, he said.

"Is her leadership threatened? Absolutely not," Huffman said.

"The fact that we're able to talk openly within our caucus, which hasn't always been the case, is I think a healthy thing," he said.

James Koren enters the "When is a reserve not a reserve?" debate between the governor's office and Darrell Steinberg. "

John Myers says that while politicians like to say that crisis brings opportunity, this particular crisis has brought mostly confusion.

"As California's state budget fracas begins to heat up, it's getting awfully hard to sort through the numbers, data, and pitches that are being presented to prove particular points."

Lots of numbers and math ensue. Did we mention that we're writing this on our first cup of coffee?

This week's Capital Notes podcast focuses on, well, what else? The latest and greatest from budget land...

Josh Richman reports Caltrans contracts are being challenged in federal court.