Status of the state budget

SACRAMENTO -- Despite optimism earlier in the day that a deal to close California's $26.3 billion deficit could be close at hand, talks between Gov. Arnold Schwarzenegger and legislative leaders stalled late Wednesday over cuts to public schools.

After huddling most of Wednesday, the Big Five -- Schwarzenegger and the Democratic and Republican leaders of the Assembly and Senate -- appeared to be within striking distance of a deal.

But emerging from the governor's office around 10 p.m. Wednesday, Democratic leaders said talks had broken down over a proposal to repay schools about $11 billion in recent budget cuts. Democrats want to make schools whole in future years once the economy rebounds, but Republicans say writing such a guarantee into the budget would skirt Prop. 98, the voter-approved constitutional amendment that spells out how public schools and community colleges are funded.

"I hate to describe today as a step back, but it's definitely a stall," said Assembly Speaker Karen Bass, D-Los Angeles.

After weeks of partisan sniping, the budget talks have taken on a more serious, determined tone over the past few days, the governor said at a noon news conference. Both sides plan to reconvene today for further talks.

Among the outstanding questions are how much to slice education spending and whether to suspend Proposition 98, which mandates that about 40 percent of the state's budget go to education.