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Schwarzenegger's freshman report card finds him politically astute amid hits and misses

Originally published: 11/14/04

The biggest surprise in Gov. Arnold Schwarzenegger's first year on the job is that he turned out to be maddeningly competent. His first 12 months were neither as revolutionary as his supporters had hoped nor as disastrous as some of his critics had warned they might be.

While Schwarzenegger has stumbled at times, he hasn't fallen on his face. Neither has he swept through the Capitol as a dramatic agent of change.

If anything, he seems to have mastered the culture of the Capitol as well as the politicians he promised to confront. He has raised record amounts of money from interest groups, cut back-room deals in the dark of night and used the ballot and the bully pulpit to build a formidable policy-making - and policy-stopping - machine.

He has also brought his superior marketing skills to bear, relentlessly spinning every event as a victory for his side, feeding the public a diet of infectious optimism that has turned a string of modest successes into an impression of thorough dominance.

What Schwarzenegger has not done is bring a revolution to California politics. He has brought glitz and charm but not fundamental transformation. He has carefully set the agenda at a level within his reach, and, with the glaring exception of the state budget, has mostly met his own standard. But he has barely begun to address the fundamental problems in California government and politics that he vowed to address.

Schwarzenegger, upon taking office, promised to give the public "action, action, action," and everything he has done since then has built on that pledge. He is in constant movement, attacking new problems and proposing solutions. And always, always, making sure that the public knows what he is working on, and what he has accomplished.

A fast start

On his first day in office, minutes after taking the oath, Schwarzenegger went to his desk in the Capitol and signed a series of executive orders fulfilling some of the promises of his campaign.

One rolled back the car tax, undoing a tripling of the fee that his predecessor, Gray Davis, had engineered a few months before. Another called a special session of the Legislature to repeal a controversial measure that would have given driver's licenses to illegal immigrants.

The car tax rollback cost the treasury nearly $4 billion, and many unsolicited advisers had urged Schwarzenegger to renege on that pledge. He already was facing a $10 billion gap between spending and revenues, and reducing the car tax would just make it more difficult to balance the budget. Besides, Ronald Reagan and Pete Wilson, two previous Republican governors, had raised taxes in their first years in office and survived to win second terms and high approval ratings. Couldn't Schwarzenegger do the same?

But the new governor had run on a tax-cutting platform, and to back away from that promise would have taken most of the air out of the movement that spawned the recall. Voters would have concluded on his first day that Schwarzenegger, despite all the fancy trimmings, was no different from all the other politicians populating government. By following through, he sent the unmistakable message that he stood for change.

The driver's license bill carried a similar dynamic. Many Democrats and members of the Latino caucus urged Schwarzenegger to compromise. He had already signaled that he was willing to agree to some form of license for undocumented immigrants if it satisfied his security concerns. Why not negotiate on that up front and do the deal all at once? If he pressed his agenda, he was warned, he would quickly alienate an important bloc of lawmakers and their constituents.

But Schwarzenegger had promised that the bill would be repealed before he would negotiate on a measure to replace it. And that's what he demanded when he called the Legislature into special session on that first day. Two weeks later, it was done.

First confrontation

As the first step in getting the state's budget mess under control, Schwarzenegger proposed two measures that would have to go on the ballot: a $15 billion bond and a companion spending limit that would have capped the growth in state government to no more than population and inflation.

The bond would refinance the debt Schwarzenegger inherited from Davis and provide billions more to ease the state's way back to a balanced budget. The spending limit was Schwarzenegger's way to sell the idea of a bond to the voters, a commitment that after this last bit of borrowing, the government would get its act together.

Not surprisingly, the Democrats in the Legislature quickly agreed to place the governor's bond on the ballot. But they balked at the spending limit. Schwarzenegger set a deadline and threatened to take the measure to the voters by initiative if the Legislature did not comply. The Democrats called his bluff, and this time, Schwarzenegger blinked.

Instead of a spending limit, the governor agreed to what he called a balanced budget amendment.

Except that it didn't really require that future budgets be balanced. And while the measure included a new reserve requirement that arguably could help avoid future crises during economic downturns, that provision, too, was riddled with loopholes that would allow governors and lawmakers to evade its strictures if they please. It was, essentially, a fig leaf.

The confrontation and its resolution showed that Schwarzenegger, for all his bluster, didn't really have the stomach for an all-out war with the Legislature. He wanted to push them, to nudge them along, but he was unwilling to engage them in bloody battle. Getting things done, moving the ball forward, was just as important as what was done. He needed the bond measure to avoid politically unpalatable taxes and spending cuts, and he was willing to accept just about anything as a companion measure to get the package onto the ballot.

The March election

Schwarzenegger's two measures became Proposition 57 and Proposition 58 on the March ballot.

The voters loved the fig leaf - renamed the balanced budget amendment - from the start. Nearly half of those surveyed told the Field Poll that they supported Proposition 58 before the governor even began to campaign in earnest.

Proposition 57, the bond measure, wasn't faring so well. The first Field Poll in mid-January found that only 33 percent of voters supported the proposal. People did not want to borrow, preferring tax increases and program cuts to a proposal that they perceived was pushing the problem into the future.

Typically in California, ballot measures that begin the campaign with so little support do not pass. Generally voters sour on proposals the longer a campaign goes on, as opponents make arguments against them and raise questions about their provisions. This time would be different.

First, Schwarzenegger made sure there was almost no organized opposition. He recruited supporters from among his Republican allies who were bound by loyalty to support his agenda and from the liberal interest groups that depend on state spending and would see their programs cut if the bond did not pass. He brought on the business community, labor unions, local government, law enforcement - just about anybody with any connection to state government.

He also brought on Steve Westly, a centrist Democrat, former e-Bay executive and the state controller as his sidekick, and the two barnstormed California campaigning for the measures. At shopping mall rallies and community centers, the pair did their best impression of a daytime talk show, handing the microphone back and forth, making bad jokes as they pitched the proposals and took questions from voters. At several events, Schwarzenegger cut an oversized credit card prop in half to symbolize what he said was the end of the era of borrowing in state government - even as he asked voters for the first time to approve borrowing to pay for operating costs rather than for public works projects.

Before long, the measure began to rise in the polls, as more and more Democrats came on board and Republicans held their noses to support their new governor. Among major state figures, only treasurer Phil Angelides, a Democrat who plans to run for governor in 2006, campaigned against the bond measure, arguing that it amounted to an irresponsible shirking of the state's current obligations on to future generations.

But Angelides was drowned out by the massive, bipartisan coalition that Schwarzenegger assembled, which eventually included even the chairman of the California Democratic Party and U.S. Sen. Dianne Feinstein, then the state's most popular politician.

The Democrats knew that by helping Schwarzenegger pass his measures, they would give him added stature in the eyes of the voters, building his political capital, which in turn he might then use against them. But they helped him anyway, in part because he charmed them into it and in part because they knew that the alternative, cutting programs and raising taxes, would be far more painful.

In the end, the measures passed easily, with Proposition 57 getting 63 percent of the vote and Proposition 58 winning with 71 percent. And even before all the votes were counted, Schwarzenegger was already planning his next move.

Workers' compensation

The funny thing about Arnold Schwarzenegger is that while running a campaign that seemed to be based on nothing but celebrity and platitudes, he managed to lay out an expansive agenda that called for tackling some of the state's most intractable problems, including the troubling, runaway growth in the cost of workers' compensation.

Schwarzenegger all but made workers' compensation - that arcane system for taking care of people injured on the job - a household phrase in California, setting the stage for a confrontation on the issue with the Democrats who control the Legislature.

Fresh off his victories on the March ballot, Schwarzenegger endorsed a business-backed overhaul of the workers' compensation system and began raising money to qualify it for the ballot. He and his allies quickly amassed $5 million and spent it to gather nearly 1 million signatures, enough to place their measure before voters in November.

But rather than submit the signatures to the secretary of state, Schwarzenegger offered to negotiate a compromise with the Democrats in the Legislature. He knew that going to the ballot would be a big gamble. His proposal would be controversial, and the ballot would be crowded with other measures. A presidential campaign would be raging to further steal the attention of voters. And Schwarzenegger had no way of knowing how the coming budget battle would turn out, and whether any bruises he absorbed there would reduce his ability to sway voters in the fall.

And so, after weeks of talks, the governor split the difference with the Legislature. He gave up some of the business community's more ambitious goals, such as eliminating disability payments to workers for injuries that could not be measured by objective means. But he won passage of a package of reforms designed to reduce disputes, get workers back on the job more quickly and focus compensation on the most severely injured employees.

In the end, the plan was supported by insurers, doctors and employers. Organized labor was neutral.

Of the major interest groups involved in the issue, only the lawyers who represent injured workers were strongly opposed. And the Democrats, while usually allied with those lawyers, broke from them this time to vote with Schwarzenegger.

The governor did not get all that he wanted. But independent analyses of the plan predicted that its provisions would, eventually, reduce insurance rates by between 10 percent and 30 percent. This was far more than Schwarzenegger could have achieved without having the ballot measure as a threat to prod the Democrats into action. It was also the first real example of his ability to use his popularity with the voters to get the Democrats to do things they did not want to do.

With the workers' compensation legislation in the bag, Schwarzenegger turned his attention to the budget. And there he faced a problem he could not solve with a ballot initiative, one that required more finesse than blunt political force.

The state budget

Schwarzenegger set two objectives for his first budget deliberations with the Legislature, one substantive and the other procedural. He wouldn't raise taxes. And he wanted the job done on time. He achieved the first but failed at the second.

After rolling back the car tax on his first day in office, Schwarzenegger faced an ongoing gap between projected spending and revenues of about $15 billion. With a combination of spending cuts and higher revenues than expected, the governor managed to cut that ongoing shortfall in half, to somewhere around $7 billion. The rest of the gap he closed temporarily with borrowing.

What was remarkable about Schwarzenegger's first budget wasn't the bottom-line numbers but the political dynamic he created. Where past governors had run up against a wide array of interest groups with a stake in state spending, hostile to any calls for reductions, Schwarzenegger was able to co-opt much of his potential opposition.

Meeting behind closed doors, the governor brokered a series of side deals that divided the spending lobbies from their allies in the Legislature. The teachers unions and school officials agreed to slice $2 billion from the growth in school spending that would have been required by a strict reading of the state constitution. Local government officials agreed to a plan to shift $1.3 billion in property tax revenue from their coffers in each of the next two years to help balance the state budget. And the leaders of the state's two university systems consented to cuts of more than $700 million.

In each case, Schwarzenegger offered something in return: a promise of steady future funding for the schools and universities and support for a constitutional amendment to protect cities and counties from future state raids on their treasuries.

Through these agreements, the governor was able to build alliances that had the teachers, local officials, university leaders, police and firefighters all pounding on the Legislature to pass a budget that would, at least in the short term, damage their interests.

The governor was never able to bring health and welfare advocates into his big tent, and it was there that he made the most concessions. Between January and July he abandoned almost all of the cuts he had proposed in those services, adding hundreds of millions of dollars in additional spending to satisfy the Democrats in the Legislature and win approval for his budget.

Those restorations will complicate his plan to cut the structural deficit in half again in the coming year and keep the budget on a path toward balancing by the end of his term. If he is going to fulfill his pledge to erase the deficit without raising taxes, there is no way he can do so without also slowing the growth in state spending on health care and assistance to the poor. That task remains his biggest challenge.

The coming year

Schwarzenegger more than any recent governor, perhaps more than any governor since Hiram Johnson, has grasped the power of the ballot to make or shape state policy. He has placed his own measures before the voters, used the threat of initiative to push the Legislature to act, supported proposals placed on the ballot by his allies and campaigned to defeat ideas he opposed.

The governor took positions on more than a dozen issues on the Nov. 2 ballot, but the most important to him was Proposition 70, which sought to expand Indian casino gambling without restrictions. Had it passed, the measure would have undermined Schwarzenegger's strategy of allowing a limited expansion of casino gaming coupled with restrictions on tribal sovereignty. And it would have blown a hole in his plan to float a $1 billion bond backed by gaming revenue to pay for transportation improvements in the state.

More broadly, the measure would have established a precedent for well-financed interest groups to go around the governor and enact their priorities by going directly to the people. Schwarzenegger believes in a strong executive, and in fighting Proposition 70, he wanted to send a message to everyone in the state that policy will be made only with his active participation and assent. When the measure failed, and failed to even get 30 percent of the vote, that message was sent, loud and clear.

Schwarzenegger has clearly overcome any doubts about his ability to do this job. The only question is whether he can channel his energy, his talents and his political skills for the long-term benefit of the state.

Which issues will be on the Schwarzenegger agenda in 2005? First, again, will be the budget. He will once again try to make progress toward balance without raising taxes. While state revenues will probably climb by at least $5 billion from a $78 billion base, spending is programmed to rise even faster, and he will have to take some painful steps to slow its growth.

Beyond that, expect him to focus much of his energy on government reform. Schwarzenegger is already committed to pushing a plan that would take the job of drawing district lines away from the Legislature and give it to an independent commission.

He may want to couple that idea with proposals on campaign finance and open government. A major push on these issues, possibly including a special election, would keep the energy of the recall alive and keep his political momentum moving forward.

The governor is also on track to propose major changes to Medi-Cal, the health program for the poor that is the state's second biggest expense after education, and to push for a reorganization of government drawn from his sprawling California Performance Review, an audit of state operations that produced more than 1,200 recommended changes. And he has promised reforms in the state's much-criticized prison system.

More than anything, expect Schwarzenegger to talk expansively while moving cautiously. He likes to win, not only to satisfy his ego but because he believes that success breeds success. His high levels of public approval - more than 60 percent of voters say he is doing a good job - are as much a product of the perception that he is getting things done as they are a reflection of the public's understanding of exactly what he has accomplished.

So far, his success has come largely from his ability to shape the political battlefield, to pick fights he can win and dodge those where he might fail. He is always tempted to oversell, but never to over reach.

Big problems, though, can't be solved without big risks. Eventually, Schwarzenegger is going to have to take some, or he will never bring about the kind of fundamental change he promised when he was elected governor a year ago.

Reach Daniel Weintraub at (916) 321-1914 or Readers can see his daily Weblog at Back columns: