Capitol Alert

As Standard & Poor's urged lawmakers Tuesday to pursue "credible" budget solutions to bridge the state's $16 billion deficit, the ratings agency did not approve of Senate leader Darrell Steinberg's idea to forego a reserve this year.

In the report, S&P suggested it could lower the state's ratings outlook or even impose a downgrade if lawmakers and Gov. Jerry Brown don't pursue real solutions that bolster the state's cash situation this summer. The state still has a "positive" outlook but an A- credit rating, which rates lowest in the nation.

Brown built a $1.05 billion reserve into his $91.4 billion general fund budget for 2012-13. Steinberg said yesterday that one idea was to use that money instead on public programs.

"Look at the size of the reserve," Steinberg said. "You build up a reserve during good times and during the most difficult times, you don't want the resources sitting necessarily in the bank, you want to use it on mitigating the impact on people in the economy."

"It's raining," observed Sen. Mark Leno, D-San Francisco, a reference to the reserve nickname of "rainy-day fund."

But S&P said today, "In our view, this reserve level is low but important considering that the potential Facebook initial public offering-related income tax revenue is especially difficult to forecast."

On the eve of a series of public hearings on hydraulic fracturing, a controversial but little-regulated method of oil extraction in California, an industry group said today that its members will voluntarily post information about their "fracking" operations on a disclosure website, Frac Focus, likely by the end of June.

The disclosure comes as Gov. Jerry Brown's administration, pressured by lawmakers, prepares to draft the state's first regulations for fracking, in which water and chemicals are injected thousands of feet underground to break up rock formations. Unlike some other states, California does not have special regulations for that method of oil production, and regulators say they do not know how prevalent it is.

The Western States Petroleum Association said today that hydraulic fracturing was used in 628 of California's tens of thousands of wells last year by association member companies, mostly in Kern County. Those companies represent about 80 percent of oil production in the state.

Association president Catherine Reheis-Boyd said companies will disclose what chemicals they use in fracturing jobs, but not in exactly what combination.

Environmentalists warn fracking can damage wells and pollute groundwater. Industry representatives say the technology, used at least since the 1950s, is routine, with no evidence of any hazard in California.

The state Department of Conservation is hosting a series of workshops on the technology this summer, starting Wednesday in Bakersfield. In addition to developing regulations for fracking, it is reviewing how the state regulates cyclic steam injection drilling, in which steam is used in shallow rock formations to help extract oil.

That method of oil recovery was linked to the death of a Chevron oil worker in Kern County last year.

The latest plan for building a California bullet train system got a very conditional blessing Tuesday from a "peer review committee" of transportation experts.

Will Kempton, the veteran transportation official who heads the committee, told a Senate hearing that the latest revision is "measurably improved" from previous versions.

"It's more reasonable and realistic than previous proposals," said Kempton, who runs the Orange County Transportation Authority.

Senators are weighing whether to give the California High-Speed Rail Authority permission to begin construction on a $6 billion initial segment in the San Joaquin Valley.

Kempton stopped short of recommending approval, but he did say that before money is committed, the Legislature should make sure that there's a competent management structure in place, that the risks are fully weighed, especially whether more money will be forthcoming from the federal government, and that the authority update ridership and operating cost projections.

The rail authority and Gov. Jerry Brown have floated the idea that if the feds don't appropriate more high-speed rail money, the state could complete the $68 billion project with proceeds of the new "cap-and-trade" fees on carbon emissions. The legality of using those funds has been questioned.

Gov. Jerry Brown, who in the past year has likened Republican resistance to tax increases to a pope's resistance to abortion or to a broader audience's fear of "some kind of a sexually transmitted disease," tried a new line this morning.

The one involved conditioned dogs.

"It's difficult for Republicans because they have a theological imperative that says every time that somebody says, 'Tax,' they say, 'No,' " the Democratic governor told a crime victims group in Sacramento.

" 'Tax?' 'No.' That's built-in stimulus response," Brown said. "I don't know how many of you remember, studied about Pavlov."

For those who didn't remember or know about the Russian scientist, Brown briefly explained to the chuckling crowd that Pavlov studied dogs' tendency to salivate in anticipation of food.

The Chicago Tribune caught up recently with California Gov. Jerry Brown's sister, Kathleen Brown, the former state treasurer and Goldman Sachs executive who moved to Chicago after her brother won election in 2010.

Inevitably they talked about Sutter, the Pembroke Welsh corgi Kathleen Brown left behind.

"He humanizes my brother, makes him more approachable," she told the paper.

Kathleen Brown said Sutter, who lives with the governor and is referred to by the administration as California's "first dog," was "a celebrity waiting to be discovered."

PHOTO CREDIT: Sutter Brown, 2011.

An anonymous site attacking Republican congressional candidate Sam Aanestad has sparked legal action, allegations of campaign violations and calls for staff firings in the 1st Congressional District contest.

Voters who came across the site Sam4Congress.com in the past month would find unflattering pictures, criticisms and a banner reading "Sam Aanestad NOT for Congress," instead of the typical endorsements and biographical information they might expect to find at a URL carrying the candidate's name.

"Unlike the real deal -- the real Sam Aanestad has had a long history of bad votes and out of touch elitism," the site said on Monday. It has since been taken down.

The website originally carried the disclaimer "Free Thinkers for D'Acquisito," apparently a reference to another Republican candidate running for the open seat, according to a screenshot that the Aanestad campaign provided. But candidate Michael Dacquisto says he had no part in the site, and records released by the company hosting the site show that the domain name was registered in the name of Mark Spannagel, the chief of staff of yet another Republican candidate, state Sen. Doug LaMalfa.

The Aanestad campaign obtained the domain records as part of a lawsuit it filed to find out who was behind the site. Today, the campaign issued a press release accusing LaMalfa's campaign of violating a litany of federal campaign and disclosure laws, including failure to disclosure campaign communication or independent expenditures and fraud "in disclaiming its own campaign communication to that of another candidate."

Gov. Jerry Brown this morning defended his proposal to use $410 million in proceeds from the national mortgage settlement to help solve California's budget deficit, offsetting other costs.

The Democratic governor said he would consider any "vital programs" that may be affected, but he suggested much of the money from the settlement with large banks would otherwise have been used for lawyers.

"Any program that will help homeowners I will take a good look at," Brown told reporters one day after releasing his May budget revision. "We have time to work on the budget, but we're looking for money where we can find it."

In a written statement Monday, Attorney General Kamala Harris said the bank settlement was designed to help struggling homeowners and that money "should be used to help Californians stay in their homes."

Brown said before speaking to a crime victims group in Sacramento that budgeting is "all a balance."

"Whether it's courts or children or teachers or vulnerable people, it's not pretty," he said.

Brown is seeking a mix of spending cuts, borrowing and tax increases to close a $15.7 billion budget deficit.

Gov. Jerry Brown has weathered criticism for making an aggressive bet on revenues in last year's budget act, but the state's top fiscal analyst approves of his latest forecast, which is more conservative.

The nonpartisan Legislative Analyst's Office said today that its own forecasts "now are fairly similar to the administration's in both 2011-12 and 2012-13, with just a few hundred million dollars of bottom-line differences each year." LAO forecaster Jason Sisney would not specify whether his estimate is higher or lower than the governor's, only that they are "fairly close, and in the revenue forecasting world, fairly close means a great deal."

That is a significant change after the LAO had disagreed since November with Brown's revenue estimates, saying the governor had been too optimistic in thinking the state would remain flush with capital gains revenue after a hot spring 2011. Several economists and fiscal experts said in today's Bee that last year's optimistic assumption was driven much more by politics than economic data.

Interestingly enough, the scaling back of capital gains forecasts comes on the eve of the highly anticipated Facebook initial public offering slated for Friday morning that will generate billions for California tax coffers. The Analyst's Office said transactions related to the IPO would be responsible for one-fifth of California's economic growth over the next 13 months.

The LAO estimates that California will receive $2.1 billion through June 2013 from the Facebook IPO alone as employees and insiders cash in their stock options. That figure also assumes that voters will pass Brown's tax hike on wealthy earners and sales. The LAO increased its projection after Facebook increased its per share estimate this week.

The LAO assumes the Facebook IPO will start at $38 and that shares will trade at $45 in six months, when a new round of insiders are slated to cash in.

Brown's Department of Finance was more conservative on Facebook, estimating the state would receive $1.9 billion, which includes $400 million if his tax plan passes. Finance assumed a $35 per share IPO and a $35 per share price after six months.

Finance spokesman H.D. Palmer said the department had even calculated the state's tax benefit from Facebook CEO Mark Zuckerberg's initial transaction alone. California is slated to receive $195 million this month when Zuckerberg exercises his option on 60 million shares, Palmer said.

PHOTO CREDIT: In this Feb. 5, 2007 file photo, Facebook CEO Mark Zuckerberg smiles in this office in Palo Alto, Calif. AP Photo/Paul Sakuma, File

VIDEO: Dan Walters wonders whether Gov. Jerry Brown will live up to his "no more gimmicks" promise.

Have a question you'd like Dan to answer? Post it on our Facebook page.

See other Dan Walters Daily clips here.

Read Dan Walters' columns here.

DAN WALTERS DAILY: As California absorbs the magnitude of the newly estimated budget deficit, Walters wonders whether voters will demand a gimmick-free spending plan.

Kevin Yamamura hosts a live chat today on the state budget at noon today. Follow the conversation (and schedule a reminder for yourself) here.

Sam Stanton reports that UC Davis Chancellor Linda P.B. Katehi and Cruz Reynoso, who headed a task force probe into last year's pepper spray incident that was highly critical of her leadership, are among officials scheduled to appear before a legislative panel today:

Katehi, Reynoso and a number of other officials are among those expected to be heard from during a joint oversight hearing by the Senate Education Committee and the Assembly Higher Education Committee.

The hearing, set for 1:30 p.m. in Capitol Room 4202, follows a December hearing that was called in the wake of the Nov. 18 incident that created worldwide outcry after video of campus police pepper spraying protesters went viral on the Internet.

Tuesday's session is scheduled to include a report from Linda Bisson, chair of the UC Davis Academic Senate, and a student representative.

The hearing also is scheduled to include remarks from UC President Mark G. Yudof and other UC officials on the university system's overall responses to campus demonstrations.

The report by Reynoso, a former state Supreme Court justice, was released last month and was highly critical of the campus police and the university leadership.

SUSTAINABLE FARMING: Cuts to agricultural conservation programs and will be among the topics at a hearing today of the Assembly Select Committee on Sustainable and Organic Agriculture. The committee, chaired by Assemblywoman Mariko Yamada of Davis, will meet at 1:30 p.m. in room 126 at the Capitol.

Those testifying include Alan Forkey, farm bill program manager for the Natural Resources Conservation Service, Dr. Jeff Dlott, chairman of the Environmental Farming Act Science Advisory Panel for the California Department of Food and Agriculture and Brise Tencer, policy director for California Certified Organic Farmers.

Find more information here. Watch the hearing live here.

BOOK-SIGNING: The California Legislative Women's Caucus and The 20 Million Minds Foundation host a book-signing reception today at 4:30 p.m. The session is just 45 minutes long, so don't be late. The author is Lisa Bloom, a TV legal analyst and lawyer. The book is "Swagger: 10 Urgent Rules for Raising Boys in an Era of Failing Schools, Mass Joblessness and Thug Culture." The location is Ambrosia Cafe, 1030 K Street.