Things can change quickly at the Capitol.  Early in the day Governor Schwarzenegger was upbeat about the chances for an agreement:

"We have a good shot of getting the budget done today.”

But when Democratic leaders emerged from Schwarzenegger’s office around 10 p.m. the tone was subdued.  Here’s Democratic Assembly Speaker Karen Bass:

“I hate to describe it as a step back, but it was definitely a stall.”

The biggest reason for the impasse?  Education funding.  Senate Leader Darrell Steinberg says Democrats want to guarantee schools get eleven billion dollars in future supplemental payments to make up for recent spending cuts:

“We are getting so use now to deal with the difficult and troubled economic times that we sometimes don’t think about preparing for the better times, and when the times are better and we can afford it, we want education to be paid back.”
 
But Assembly GOP Leader Sam Blakeslee says that shouldn’t be part of this budget agreement, since it deals with future years.

“We think that’s a stall.  We should be talking about the tough cuts now and not inventing new problems to delay the resolution of this difficult budget.”

Republicans are also pushing for deeper cuts in order to increase the size of the state’s savings account.  Another sticking point throughout the negotiations has been the question of whether to borrow money from local governments to help the state close its 26 billion dollar budget gap.   Meantime, because of the budget crisis, the State Controller has already issued hundreds of millions of dollars in IOU’s instead of payments to thousands of Californians.