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The Los Angeles Times
Jan 07, 2004 - 01:00 AM

by Joe Mathews, Peter Nicholas and Nancy Vogel

Governor's Vow: 'The State of Our State Will Soon Be Strong';

Schwarzenegger again assures that the fiscal crisis can be resolved without raising taxes. Citing March ballot, he asks for public's help.
SACRAMENTO -- Gov. Arnold Schwarzenegger laid out a grand and personal vision for California in his first State of the State speech Tuesday, arguing that his natural optimism, celebrity salesmanship and sweeping reform proposals would fix the financial crisis and "help Californians do great things."

In the most explicit statement of his intentions in his new job, Schwarzenegger said his administration would offer a blend of bipartisan legislation, populist ballot measures and personal style -- all in the service of improving California's economy.

Schwarzenegger called for spending cuts, changes in education regulations, a cap on university fee increases, reform of state purchasing, consolidation of duplicative government departments and commissions, renegotiation of state energy contracts and a solution to the state's unemployment insurance woes.

He said that he was steadfast in his opposition to taxes and that spending cuts were the key to fixing the state's budget crisis.

"The fact of the matter is that we do not have a tax crisis; we do not have a budget crisis; we have a spending crisis," he said. "We cannot tax our way out of this problem."

Throughout the speech, he struck an intensely personal tone.

"People have said to me, 'Arnold, isn't it a terrible burden being governor at a time of such crisis?' I tell them, 'No, not at all,' " said Schwarzenegger, volunteering that running California "is better than being a movie star" and declaring that the state's fiscal difficulties would soon be resolved.

"The state of our state will soon be strong, because our people and our purpose are strong," the governor said in opening his 26-minute speech. He later added: "I did not seek this job to cut, but to build. I did not seek this job to preside over the decline of a dream but to renew it."

Typically, governors offer long lists of legislative priorities in their State of the State speeches. But although Schwarzenegger discussed issues ranging from education to unemployment insurance and made appeals for bipartisanship, the balance of the address was devoted to proposals that do not necessarily require the Legislature's approval. A senior aide to the governor
said the address was designed not as an appeal to lawmakers but as a kickoff for this year's campaign for a variety of ballot measures that Schwarzenegger plans to support.

The governor argued strenuously for his balanced-budget amendment and his $15-billion deficit bond issue, which will appear on the March 2 ballot as Propositions 57 and 58.

"Now I ask you to join me in getting out the message that a 'yes' vote on these measures on the March ballot is absolutely critical to our financial future," Schwarzenegger said. "The alternative is economic chaos."

He also called again for workers' compensation reform, telling lawmakers that if they did not adopt his proposal on the issue by March 1, he would take it to the November ballot.

Schwarzenegger offered his audience -- a joint session of the Assembly and Senate -- few details of how he hoped to fix the estimated $14-billion budget deficit in the upcoming fiscal year. The proposed cuts for that purpose -- which Schwarzenegger emphasized would be temporary -- are not expected to be made public until Friday.

"These are proposals that leadership requires, economics demands and the public expects," he said. "These cuts will not be easy, but they will not be forever."

Government Review, Creation of Jobs

The speech's two major initiatives -- a review of state government that could lead to administrative consolidation and a new focus on job creation -- reinforced the governor's commitment to doing things himself.

In calling for the performance review, Schwarzenegger said he wanted to solicit ideas directly from staff in the executive branch, and he indicated that he would create a separate commission rather than work through existing legislative committees.

"Every governor proposes moving boxes around to reorganize government," he said. "I don't want to move boxes around; I want to blow them up."

He cast the effort to bring jobs to California as a personal mission that would be a natural extension of his familiar role of movie star pitchman.

"I am going to become California's job czar," he said. "I'm going to travel the nation and the world to find those jobs... I am a salesman by nature. And now most of my energies will go to selling California. If I can sell tickets to my movies like 'Red Sonja' and 'Last Action Hero,' you know I can sell just about anything."

Historians and political commentators say Schwarzenegger's address, broadcast worldwide and covered by a crowd of reporters so large that tents had to be erected on the Capitol lawn to hold them, was the most widely watched State of the State speech ever. Amid tight security, it had all the trappings of a major presidential address, from an orchestrated build-up through media briefings to post-address interviews with Cabinet secretaries and a "spin tent" for broadcasters.

The event even had its own merchandising, with attendees trading the new gubernatorial souvenir -- an Arnold bobble-head lapel pin.

Schwarzenegger was interrupted 39 times by applause. Many of the clapping hands belonged to Republicans, who were quick to stand and cheer as Democrats mostly stayed in their seats. But some prominent Democrats appear to be cooperating with Schwarzenegger, among them state Controller Steve Westly, who the governor said would "be co-chairing with me" the campaign committee for his March ballot initiatives

The governor's wife, Maria Shriver, was seated between former Republican Gov. Pete Wilson and former Democratic Assembly Speaker Bob Hertzberg.

When Schwarzenegger vowed once again that he would not raise taxes ("I will not make matters worse"), half the chamber erupted, the other half sat unmoved.

When Lt. Gov. Cruz Bustamante delivered a lengthy preamble that was itself suggestive of a State of the State address, some lawmakers in the rear of the chamber caught each other's eyes and chuckled.

Some business leaders praised Schwarzenegger's speech for its emphasis on jobs and chopping $11 billion more from workers' compensation.

"I think the threat of going to the ballot is one that he is uniquely able to carry out," said George Kieffer, chairman of the Los Angeles Area Chamber of Commerce.

Labor leaders and consumer advocates responded coolly, suggesting that Schwarzenegger's plans to curb workers' comp costs could shortchange injured employees while benefiting insurance companies, which they see as the real culprits in the rise of rates.

In contrast to sellers of other lines of insurance such as auto and homeowners policies, workers' compensation insurers in California are free to set virtually any rate they choose.

"If you want to lower rates for businesses, you have to regulate the insurers," said Doug Heller, a spokesman for the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

Labor leaders and Democrats alike argued that taxes needed to be raised to plug the budget deficit and prevent reductions in social programs.

Democratic Leader Urges Tax Increase

In the official Democratic response, state Senate President Pro Tem John Burton of San Francisco specifically advocated a tax increase on the wealthiest Californians in order to prevent cuts to social programs.

"We believe that people have to be protected, like the elderly, blind and disabled," he said. "We have to make sure that poor women and children are not thrown deeper into poverty than they are now.

"We also want to make sure that children of the working class and middle class can get into institutions of higher education," he said. "To do this, in my judgment, is going to take some added revenues."

Democrats generally praised the governor's speech for its optimism, but criticized the specifics.

Assemblyman Dario Frommer (D-Los Feliz) questioned Schwarzenegger's call for giving large companies the freedom to buy electricity outside their local utilities.

State Treasurer Phil Angelides renewed his criticism of the governor's March ballot measure on deficit borrowing and his support for college fee increases. State Sen. Don Perata (D-Oakland) said the workers' compensation issue is far too complicated to be put on the ballot.

And Assemblywoman Jackie Goldberg (D-Los Angeles), one of the more liberal members of the Legislature, called the speech overly partisan and threatening. She said she was surprised at Schwarzenegger's insistence on no new taxes.

"He's taking a very hard-line position," she said. "I had expected him to be more moderate. Leave the door open ... but not say 'over my dead body,' which is essentially what he did.

"That means he fully intends to make $15 billion in cuts this year," she said. "Do you have any concept how many jobs that is? How many services will be cut? How many highways won't be built?"

Throughout the speech, Schwarzenegger seemed to anticipate such criticism by framing proposals in the populist rhetoric -- his official website refers to him not as California's leader but as "the people's governor" -- that has become his trademark.

In discussing governmental organization, he said he wanted to empower the very staff members whose jobs might be threatened by cuts, and asked bureaucrats to bring him ideas, "the more radical the better."

He argued that even though he would increase college and university fees, he would limit such increases to 10% annually, providing "stability" that would make it easier for families to plan.

Higher education officials reacted cautiously to the proposal, saying they wanted to see his planned budget cuts before commenting extensively.

Backing More Local Education Decisions

Regarding primary and secondary education, the governor argued that his proposals would free up individual schools and districts to make decisions about how money would be spent.

Specifically, Schwarzenegger called for the repeal of SB 1419, a bill that prohibits local schools from contracting out for services like transportation, gardening and maintenance when union workers are available to do the job. The bill, which took effect last year, has come under heavy criticism from school and community college administrators, who say it is costing them as much as $300 million annually.

Officials at the Capistrano Unified School District in Orange County, for example, say their inability to hire private companies for various school services is costing the district $2.5 million per year.

Supporters of the law, including the California School Employees Assn., argue that it merely prevents schools from firing their employees to hire underpaid workers.

"We must give local schools the freedom to be cost efficient," Schwarzenegger said.

School Plan Called Doable and Sensible

Senate Republican leader Jim Brulte (R-Rancho Cucamonga) described the governor's plan as one that is "doable and makes a lot of sense."

The governor, Brulte said after the speech, "is not a politician, but he is someone who understands the heartbeat of California better than most of the politicians who occupy these chambers.

"When he delivers a line, I don't think it's crafted for political effect; I think it's what he believes and wants to have happen," Brulte said. "And so cutting the strings and putting more money into schools without Sacramento direction is a good idea."

On energy and the environment, Schwarzenegger sought to combine initiatives by creating a "Green Bank" with at least $168 million in existing bonding authority to be used for making loans for the energy-efficient retrofitting of homes and businesses.

To run the loan fund, the governor named Dan Emmett, chief executive of Douglas, Emmett and Co., a Los Angeles real estate investment and management firm known for trimming costs through energy conservation. Emmett donated $21,200 to the Schwarzenegger campaign in September.

The governor also repeated his campaign vow to renegotiate the power contracts signed by Gov. Gray Davis' administration in early 2001. Power prices fell significantly after the contracts were struck with dozens of energy companies.

Of the 56 original agreements with an estimated value of $42.5 billion, the Davis administration renegotiated 34 contracts for a savings of more than $6 billion, said Oscar Hidalgo, spokesman for the energy-buying branch of the state Department of Water Resources.

He welcomed Schwarzenegger's call for more revisions.

"If he has some interesting and creative ideas that can get us to lessen the cost of energy in our contracts, we fully embrace it," Hidalgo said. "We have been working tirelessly to get a better product."

Schwarzenegger promised to give large businesses the ability to go outside local utilities to buy electricity from private companies. Businesses lost such choice after the state's ambitious electricity deregulation plan imploded in high prices and scarce supplies in 2001 and 2002.

The Legislature has since debated, with no resolution, how to allow large businesses to make their own power-buying deals without sticking smaller consumers with the multibillion-dollar bill for the electricity crisis.

The governor also sought to emphasize long-term and developing issues.

He noted that military base closures could affect the state in 2005 and warned that without more conservation and power plant construction, California could face energy shortages as early as 2006.

He vowed to streamline and reorganize the state's energy agencies, some left over from the failed deregulation plan and some created simply to respond to the collapse of that plan.

"Something is wrong," Schwarzenegger said, "when it's easier to create energy agencies than power plants."
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Times staff writers Gregg Jones, Dan Morain, Nancy Vogel, Evan Halper, Rebecca Trounson, Stuart Silverstein and Lee Romney contributed to this report.





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