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The Los Angeles Times
Jan 28, 2004 - 01:00 AM

by Peter Nicholas & Joe Mathews

Unruffled Governor Vows to Repay Loan;

A judge ruled he had broken the law by using borrowed money to finance his campaign.
SACRAMENTO -- Gov. Arnold Schwarzenegger, unruffled by a court ruling that he illegally took out a $4.5-million bank loan to support his election campaign, said Tuesday that he would pay back the money himself, rather than seek the funds from political donors.

In a lunchtime appearance before the Sacramento Press Club, Schwarzenegger said he agreed with the ruling, calling it "great" and "fantastic." He added: "We never wanted to raise the money to pay it back. I myself [will] pay for that."

Schwarzenegger said he had been out on the campaign trail and unable to write a check himself to cover campaign expenses. Being a "hands-on guy when it comes to money," he said, it was not the sort of task he liked to delegate to others. So instead, he said, he authorized the $4.5-million bank loan that was the subject of Superior Court Judge Loren E. McMaster's ruling Monday.

McMaster ordered that Schwarzenegger stop raising money to retire the debt and to place any such contributions in an escrow account. But the governor, who is raising money in multiple campaign accounts for a variety of political causes, said it had always been his intention to repay the loan out of his own pocket.

He added: "It was a great decision by the judge. Exactly what we intended to do."

Schwarzenegger had mounted a defense in the case. He had filed a motion arguing that the case should be dismissed and accusing the plaintiff of filing the measure to chill the governor's 1st Amendment rights.

One critic, Jamie Court of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, was incredulous that the governor would welcome a ruling that said the campaign had acted illegally; Court scoffed at Schwarzenegger's interpretation of the ruling.

"This is like Howard Dean declaring victory in Iowa," Court said.

In his appearance, Schwarzenegger said he was tossing aside his prepared speech in favor of an improvised address. He seemed buoyant, self-assured. At the podium, he pulled out an envelope and gave a $1,000 personal check to the Press Club for its scholarship program.

Though the hotel ballroom was filled mostly with political reporters, the governor repeatedly thanked the press for propelling his career as an entertainer. Even bad movie reviews, he said, had proved helpful in building the name recognition that made him such a highly paid entertainer.

"It was because of that publicity that my name recognition factor got so high that when the studios decided whether to do a movie with me or not, they went in the direction of giving me a job. I remember the first big job, 'Conan the Barbarian.' " He said he remembered a studio executive saying to him he had gotten the job "because we tested your name all over the world. So that was a big factor. It was not the acting, obviously."

Schwarzenegger said that after more than two months on the job, he still relished the work. And he said that even the Legislature's ragged public image and its approval rating in the teens have been rebounding because of what he described as a more cooperative spirit in Sacramento.

"Look what happened to their approval rating," the governor said. "Interestingly enough, in the last two months since we've been working together -- Democrats and Republicans alike -- the Legislature's approval rating went up to 38%. That is remarkable. They're getting the message now. That is, what the people want them to do is to work together and solve the problems."

Schwarzenegger covered a range of issues in his 50-minute remarks, reiterating his call for passing two propositions on the March ballot -- one that would borrow $15 billion; the other aimed at curbing state spending through a balanced budget amendment. The governor also vowed to fix the state's troubled prison system, and he said he was working with state Sen. Gil Cedillo (D-Los Angeles) on a compromise bill that would enable undocumented immigrants to obtain driver's licenses while meeting Schwarzenegger's concerns about possible security breaches.

With only five weeks to persuade a skeptical electorate to pass his ballot measures, Schwarzenegger said his attention would be largely focused on that campaign.

He portrayed the stakes as enormous.

"We're running out of money in June," he said. "That is the reality of it. So if we don't pass this, we will really be in a huge financial crisis -- unlike anything else the state has ever faced. And this is why I'm so adamant to focus just on those two issues right now, those two propositions, 57 and 58."

Though progress is slow, the governor is working toward a new driver's license bill.

Cedillo said his office was talking by phone and meeting regularly with Schwarzenegger's senior aides to discuss mutually acceptable language for a new bill. The senator said he was confident an agreement would ultimately be reached, but said much work remained.

Cedillo's chief of staff, Dan Savage, said that, at best, an agreement could come in two to three weeks. But he said he expected it would take longer to work through complicated issues such as insurance coverage and security precautions.

Meantime, Cedillo was poised to introduce a bare-bones bill -- known as a "spot bill" -- which would consist of one or two sentences expressing the goal of giving driver's licenses to undocumented immigrants. He was angling to have the bill designated SB 1160, which would incorporate the number of last year's bill -- SB 60 -- which the Legislature repealed at Schwarzenegger's direction in December.

The measure would be amended to include any language that emerged from an agreement with Schwarzenegger, Cedillo said.

"They're very professional," said Cedillo, praising Schwarzenegger's chief of staff, Pat Clarey; legislative director, Richard Costigan; and others involved in the talks. "They're very diligent."

But, he added, "We've worked on this over five years. This is new" to the governor's staff.

"Stuff we take as common stuff, they have to learn," he said. "It takes time. But we're working hard .... We remain confident. We're going to do it."

Amid regular reports of turmoil within the state's sprawling prison system, the governor made it clear that he wanted to see improvement.

Noting that "we have a big, big problem we have inherited in our prisons," Schwarzenegger praised his newly appointed corrections secretary, Roderick Q. Hickman, who, he said, showed "some great leadership."

Last week, two Senate oversight committees heard testimony from whistle-blowers who charged that the Department of Corrections suffered from a "code of silence" that prevented guards from reporting wrongdoing for fear of reprisals. The legislative hearing came on the heels of a federal court investigator's report that made similar findings -- and concluded that the politically powerful prison guards union influenced management of the penal system at the highest levels.

Despite such criticism, Schwarzenegger's proposed budget would cut funding for the Office of Inspector General, the only independent watchdog for prisons, and move its investigators into the Youth and Adult Correctional Agency.

Critics say that move would strip the office of its independence. But Schwarzenegger told the Press Club on Tuesday that the inspector general had done a poor job and that he had no plans to restore funding

Schwarzenegger ended his address with a message to the assembled press corps: "Let's all work together. And please continue selling my projects and selling my philosophy and the different things we're going to get out there."
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Times staff writers Gregg Jones and Jenifer Warren contributed to this report.




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