Tomorrow morning around 7:40 AM I am going to be on Roy Ulrich’s Morning Review Friday on KPFK 90.7 FM to discuss the state’s structural revenue shortfall. One major element of that is the $2.7 billion in tax loopholes that LAO Elizabeth Hill identified. George Skelton reports in today’s LA Times that Arnold appears serious about closing these – but that much remains to be done:

Give him credit: Gov. Arnold Schwarzenegger is the first Republican in California’s Capitol to begin taking off the budget blinders.

He’s actually advocating tax increases, give or take some semantics….

It was clear to Schwarzenegger that, for political and practical reasons, the deficit hole could not be filled with spending cuts alone. He decided to support loophole closings. But advisors were surprised when the governor spontaneously popped out with the idea the next morning during an audience Q&A after addressing Town Hall Los Angeles.

“I’m a big believer,” he said, “that when we have a financial crisis like this that we all should chip in. And this is why I totally agree with the legislative analyst’s office when she says that we should look at tax loopholes….

Democratic leaders should consider it an invitation to offer Schwarzenegger a tax proposal. The governor finally agrees with them, it seems, that the state does have a revenue problem — not simply a spending problem.

This is a productive development, as it is becoming obvious that catastrophic education cuts are not the answer to our budget crisis. But even this welcome news has to be tempered by some political and fiscal realities.

First, there seems to be some disagreement among Sacramento Democrats on what to do about the budget. Skelton believes that the Arnold-Núñez vs. Perata dynamic is about to replay itself:

Senate President Pro Tem Don Perata (D-Oakland) wants to fashion a budget proposal through the traditional legislative process, with public hearings, and avoid closed-door negotiations between leaders and the governor. That’s fine. But this is ominous: He’s vowing “the fight of a lifetime,” threatening to block budget passage all summer if necessary to protect school funding, insisting loophole-closing isn’t enough and talking up a sales tax increase.

Assembly Speaker Fabian Nuñez (D-Los Angeles) is more attuned to Schwarzenegger.

“If other Democrats want to beat up the governor, I respect their views,” he says. “But I think the governor is a good man and doesn’t want to make cuts any more than I do. Now it’s up to us to show him a road map to a balanced budget.”

Nuñez isn’t ready to support a general tax increase, like on sales. That should be a “last resort,” he says. For now, he advocates closing business loopholes. For example, he’d impose an oil severance tax — California is the only state without one, he says — and raise $1 billion.

Núñez is simply wrong to believe that a general tax increase can be avoided. An oil severance tax has its place, but even with loophole closures, something like a sales tax increase – or sales tax modernization – or the restoration of the VLF is a necessity if we are to avoid crippling cuts. Tax loophole closure and an oil severance tax would bring in around $3.7 billion, but that leaves over $4 billion in cuts. The VLF sits as a fat target, with the potential to bring $6 billion a year into the state’s account. It would be nice if someone in Sacramento started talking more loudly about that.

Of course, it’s by no means clear what role Núñez, who has grown closer politically to Arnold over his term as speaker, will actually play in these negotiations. Whereas the Senate handover of power from Perata to Darrell Steinberg is scheduled for August 21, the transition from Núñez to Karen Bass is much less clearly defined. And we don’t yet seem to know where Speaker-elect Bass stands on the tax issue.

We do know where the Yacht Party stands. Capitol Alert reports today that Dick Ackerman and Mike Villines have both come out strongly against any new taxes. They’ve decided to stake their party’s future on the construction of an aristocracy in California, where low taxes are paid for by permanent inequality as our education, transportation, and health care services are destroyed and with it, the state’s economy.

A united front is going to be necessary to break the Republicans. Democrats need to work out their differences soon and present that unity, for the sake of Californians and the state’s future.