High-pressure negotiations on a massive water reform package ended in a stalemate again Saturday night with Gov. Arnold Schwarzenegger and Democratic leaders saying they would restart talks this morning.

Hanging in the balance are about 700 bills — the work product of the lawmakers' year — that the governor has threatened to veto if no agreement on water is reached.

"The Governor believes we are making progress toward a comprehensive water solution and we'll stay at it until we get the job done," Schwarzenegger spokesman Aaron McLear said in a statement.

With a deadline pending tonight at midnight, McLear said the governor would start signing or vetoing bills after a meeting with the Legislature's top Democratic and Republican leaders.

McLear said there is no agreement on any of the major provisions of a water deal and that the governor and legislative leaders were still haggling over such issues as the size of a water bond, which Republicans have wanted to construct dams, along with Democratic requests to regulate groundwater use for the first time, something farmers have resisted.

"They haven't finalized on anything. Every element depends on the others," he said.

Senate President Pro Tem Darrell Steinberg, meanwhile, said negotiators were on the verge of breaking through, according to his office.

Even if political leaders reach a deal, however, a long road lies ahead before a package that works is signed and paid for.


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Details of the negotiations are secret, but in all likelihood either the governor will have to back away from his insistence on money for new dams or voters will have to approve a massive and unprecedented investment at a time when the state can scarcely afford it.

But even before those decisions are made, the road ahead for any deal is full of pitfalls.

The water package is two parts: a policy piece that needs a majority vote from lawmakers and a finance piece that needs two-thirds approval from both chambers plus approval by voters.

It is the finance package that has a much harder path, but even the policy reforms face difficulty.

Those reforms include such things as sweeping conservation measures for cities and suburbs, a new Delta Conservancy to buy and preserve Delta land, monitoring of groundwater use and a new council and standards for the Bay Delta Conservation Plan.

Backed by Schwarzenegger and the state's major water agencies, the conservation plan features as its centerpiece a controversial peripheral canal to carry water around the Delta.

Though the policy changes are environmentally focused, the package has split environmental groups because of the boost it would give the conservation plan.

Many environmental groups are adamantly opposed because of their conviction the canal could not be operated in an environmentally sustainable way, contending more efficient use of water will save enough water to make a canal unnecessary.

"We need to make sure all agricultural and all urban water users are metered and (on) tiered (rates) to send the right price signals," said Jim Metropulos of the Sierra Club.

Others believe it can lead to improved Delta ecosystems under the right conditions.

The Natural Resources Defense Council, Environmental Defense Fund, The Nature Conservancy and The Bay Institute backed the water package rejected by lawmakers last month, while the Sierra Club, Planning and Conservation League, Restore the Delta and others are strongly against it.

The finance package faces higher hurdles. The versions publicly discussed so far have all relied on general obligation bond financing to pay for new dams and for Delta property that would be bought and restored to wetlands to offset the damage caused by construction of a peripheral canal. The cost last month was set at $12 billion, but negotiators are trimming that number and it could come down significantly.

Getting two-thirds approval for dam construction is a tall order in the best of economic times.

What makes passage even more difficult this year is the state budget cuts and the reality that borrowing money is not free. Servicing new debt would cut further into the state budget that suffered deep cuts this year.

State Treasurer Bill Lockyer has sent strong signals that he favors repayment of the bonds by fees on water users that benefit from the projects but so far that kind of financing has not been in any of the plan's details that have been made public.

Still, even if the bond deal passed in the Legislature, it would have to be approved by a majority of voters. If the measure was put on the ballot next year, it would have to be approved by voters with the pain of recent budget cuts fresh in their minds.

Given the difficulty of getting financing, the question arises whether the governor would sign the policy piece without a guarantee that the finance piece would pass — in other words, would the policy reforms be somehow linked to the voters' verdict on the bonds?

Schwarzenegger has said repeatedly that funding for new dams was necessary for fixing the state's water system. On the other hand, the policy reforms alone might provide the Bay Delta Conservation Plan added momentum and burnish his environmental credentials, despite the continued opposition of many environmental groups.

But for a governor long intent on securing major water reforms and infrastructure as part of his legacy, time is running out.

This could be his last chance.