It’s the latest big week of the Arnold Era, his first State of the State address and first budget. Think of the budget as Scream IV. But if you think this is how things will end up, I have a bridge to sell you.

It figures to be a long and winding road to the final results. Some of it by design and some by trial and error. Just as has been the case in the first seven weeks of his governorship. Now comes the Budget Mess, phase two, which is hard to see solved without tax increases.

Jerry Brown sees that in Arnold’s future. “He’s not as conservative as the people who work for him,” says the former governor. Schwarzenegger proved to be more open to compromise than much of his staff, which suffered through years of painful defeats for most offices. “It wasn’t Arnold’s idea to pull [finance director] Donna Arduin out of that hearing,” says one Arnista, referring to her sudden and embarrassing departure from an Assembly Budget Committee hearing, which caused much tongue-wagging.

Rescinding the car tax increase was easy, though it created even more of a budget problem. Forcing the repeal of the driver’s-license law for illegal immigrants impressed observers, as did his swift move to work with L.A. Senator Gil Cedillo to begin crafting a compromise bill later this year which will grant those driver’s licenses but build in the post-9/11 security checks wanted by more than 70 percent of the voters.

All that is merely a prologue to the main event: what Schwarzenegger will do with the state’s ongoing fiscal crisis. Democrats haven’t wanted to cut programs (Assembly Budget Committee chair Jenny Oropeza said the plan was to keep spending and cajole Republicans to raise taxes), Republicans have not wanted to raise taxes (Senate Minority Leader Jim Brulte threatened to destroy any Republican who voted for tax hikes). Most of the voters have not wanted to cut programs or raise taxes. What support for tax increases there has been has been slender, with marginal support for tax hikes on the wealthy and greater support for taxes on tobacco.

It’s a muddle that Gray Davis, who presented the only serious budget plan of the last two years, with steep cuts and tax increases, never solved. The likely resolutions will follow a circuitous path, just as has Schwarzenegger’s ultimately successful compromise push to place a massive debt restructuring in the form of $15 billion in deficit bonds and balanced-budget reforms on the March primary ballot.

When negotiations on Schwarzenegger’s drive to restructure the state’s massive debt and enact future limitations on spending stalled out after a less than wildly successful last-minute Arnold blitz of screaming crowds in shopping malls, Team Arnold flashed partisan fangs.

Following Brulte’s lead, spokesman Rob Stutzman vowed a yearlong battle over a November ballot initiative for a hard spending cap. Brulte, at times very influential with the new governor, was insistent that a hard spending cap be pushed, seeing it as a major Republican opportunity to pick up some legislative seats in November.

But it would have distracted from the rest of Schwarzenegger’s big agenda. And so First Lady Maria Shriver and others in the governor’s circle urged compromise on resolving phase one of the budget mess, which Schwarzenegger quickly recognized as necessary.


It’s no stretch to say that Schwarzenegger is establishing a permanent campaign. His team of consultants is on call, with strategist Mike Murphy opening offices in Los Angeles and Sacramento, and several initiatives are on tap, including casino gambling and workers’ compensation, which he can either embrace or use as leverage to get his way in negotiations.

For Schwarzenegger has many complex and challenging proposals ahead to explain to the voters and power through both the election and legislative processes. Workers’ compensation reform. Ongoing budgetary reform. Education reform. Environmental reform. Governmental reform. A new driver’s-license bill for illegal immigrants. Reapportionment reform. To name a few. Many may end up on the ballot, either this coming November or in the future. They will not be particularly easy to focus on. “It was important for some people to get over the hurts of the past and move something good off the table instead of fighting all year over a spending cap,” says one adviser.

Fighting a November ballot initiative for a hard spending cap would have been disastrous. While it might have helped a few Republicans win legislative seats, the partisan rancor would have rendered the Capitol an even more dysfunctional place, and made Schwarzenegger the ongoing target of many constituencies, some of them quite sympathetic to the general public.

The fighting and maneuvering over the cuts to come in the 2004-2005 budget, not to mention the question of tax increases, will be engrossing and combative enough.


Ironically, the only person last year who proposed a serious budget is Gray Davis. Of course, he never fought for his plan. Some said they would have alternatives to the Davis budget, like the California Taxpayers Association
on the right, and the Latino Legislative Caucus, aided by the California Budget Project, on the left. But, as Davis predicted to me, none of them actually stepped up to
the plate. Now it is the action superstar–turned–
governor’s turn.

In some ways, Schwarzenegger’s budget cuts will mirror those proposed a year ago in Davis’ nonstarter of a budget, with higher education and prisons added to the mix. Probable targets for major budget cuts include health and welfare programs like Medi-Cal and the Healthy Families program for children, the state universities, and the prisons. It will be ugly.

Budget cuts, reliance on increased revenues from the improving economy, a partial suspension of the Proposition 98 requirement that much of those new revenues goes to increasing the education budget, and stiff new fees on parks and other state functions can go a long way. But it is not easy to see how the budget gets solved without tax increases. It is what Schwarzenegger’s hero, Ronald Reagan, did after he was elected governor.

But this is a different era, with legislators mostly representing safe gerrymandered seats in which they are free to be as conservative or liberal as they want. The Republicans have not had to deal with questions of governing a big complex state and had been content to sit back and say no to what the majority Democrats wanted.

Democrats would like nothing better than to turn Schwarzenegger into his Predator co-star Jesse Ventura, the surprise sensation as Minnesota governor who turned into a fading celebrity phenomenon bereft of institutional support. One of the best ways to do that is to force his hand early on taxes, hoping that his party abandons him.

It’s possible that Schwarzenegger, a champion of the Special Olympics, as he says, didn’t notice that he was proposing to cut funding for the disabled in midyear budget corrections, an idea he dropped. It’s also possible that he wanted a backlash to show his fellow Republicans. There will be more backlashes.


Schwarzenegger was forced into a no-tax stance in several ways. His appointment of liberal Democratic investor Warren Buffett as his chief economic adviser was a signal that he was not a Bush Republican. But it backfired when Buffett mused with a Wall Street Journal reporter about how much less he pays in property tax on his Laguna Beach vacation home than on his principal residence in Nebraska.

Schwarzenegger’s problem was then exacerbated by the replacement ballot, in which he had to win a de facto Republican nomination while running in a general election. And it grew when the vanquished Republican, right-wing Senator Tom McClintock, refused to drop out. McClintock as a live Republican option made it harder for Schwarzenegger to move left.

But Schwarzenegger has worked his way through many complex situations in his careers in bodybuilding and movies, and is hardly someone easily daunted. “Where there is a will, there is a way,” as he likes to say.

The former Mr. Universe is already emerging as a fusion Republican. His social liberalism is well-known, and his more progressive tack on environmental and crime issues, and even some labor matters, is coming into focus. He wants to expand the state’s already big commitment to renewable energy resources, symbolized by the biggest renewable power requirement in the country.

He backs the state’s landmark anti–global warming bill calling for sharp reductions in tailpipe emissions of greenhouse gases, and will fight for it in court against the Bush administration. And Schwarzenegger allowed Davis to appoint two pro-labor members to the state’s Agricultural Labor Relations Board, which will help the farmworkers union retain the new clout it won with the 2002 law requiring mediation in stalled contract negotiations.

Schwarzenegger is likely to move against the prison-industrial complex that has sprung up in California over the past 20 years, in part because of money. Included will likely be a more lenient approach to lesser offenses such as minor drug violations. None of which Davis wanted to touch.

Schwarzenegger is far more liberal on parole policy, having already allowed the parole of nearly as many convicted murderers as did Davis in his five years in office. Davis was always worried about being tagged as soft on crime because of his close friendship with the late Rose Bird, who as chief justice of the Supreme Court consistently threw out death penalty cases.

As a famous bodybuilder and action superstar, Schwarzenegger is less concerned with the need to appear relentlessly tough on crime, approving more than a third of recommended paroles, compared to barely two percent by Davis.


Schwarzenegger hopes to enjoy a similar tolerance from most Californians as he works his way toward budget solutions. It’s going to be one rough ride of a year.

“I can sell anything,” he said in his State of the State speech. “If I can sell Red Sonja and Last Action Hero . . .” Actually, Red Sonja was a rare Arnold bomb, only $6.9 million in domestic box office. Budget Mess II will have to go a lot better than that.

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