California: Bending ‘The Oak’. Legislature gets cold feet as Gov. tests waters of compromise

Well, hellooo carrot and stick. Gov. Arnold Schwarzenegger just displayed dramatic examples of both in his dealings with the California Legislature, which is still reeling from it and is scrambling in private to figure out how to deal with it. But the real story as 2003 wraps up is the psychology of the governor himself, what we’ve learned after watching him for little more than one month in office and what it portends for California’s fiscal health.

Schwarzenegger is a neophyte to Sacramento politics, where nothing is really as it appears and most legislators are working with both a public agenda and a private agenda. With his boyish grin and beefcake image, it’s easy to forget that Schwarzenegger has mastered both strategic and tactical thinking in two other highly competitive, big-money venues: global bodybuilding and Hollywood filmmaking.

Called “The Oak” for his immense size and impenetrable concentration during the 1970s, Schwarzenegger found unique ways to psyche out his opponents, who were among the most adept competitors in the world at psyching out competition. In one of the few biographies about him, “Arnold Schwarzenegger: A Portrait,” by George Butler, one scene portrays a manager teasing Schwarzenegger that he might win his seventh Mr. Olympia title because he knew some judges. Schwarzenegger responded that he was interested only in influencing competitors like Mike Mentzer: “Already, Mike Mentzer has left the gym this morning. [Mike] said, ‘You’re driving me crazy with that smile.’ … So this afternoon he misses training to see a shrink. He should remember that another Austrian was King of the Shrinks. I could advise him for free.” Schwarzenegger abandoned much of his early bluster when he adapted to the more subtle, vicious, high-stakes game in Hollywood. He figured it out fast and rocketed to the top because of his mastery of strategy, and never abandoned his constant use of strategic thinking. When he realized that his hulky killer persona was hemming him in as a star and turning off some filmgoers, for example, he set out to make comedies that showed another side. “Twins” and “Kindergarten Cop” were huge hits.

Sacramento has a far lower profile than either global bodybuilding or the film industry. Yet far more is at stake. California’s fiscal health, for one. Moreover, Sacramento is the Petri dish for leaders who move to Congress and Sacramento’s the place where the huge unions are increasingly playing king maker as they attempt to assert domination over California politics.

When Schwarzenegger went back to the negotiating table in early December to hammer out a deal with Assembly Speaker Herb Wesson on his fiscal recovery act for the March ballot, Schwarzenegger was not merely showing Sacramento that a guy once called The Oak knew how to bend.

Schwarzenegger gave up significantly more ground than did Wesson by abandoning his and the Republicans’ key demand for a true spending cap on the Legislature.

But Schwarzenegger was not simply negotiating a deal. He was administering a crucial psychological test to the Legislature, not a usual move for somebody used to world-level competition in two other industries. He could have dug in his heels, insisted upon the spending cap and launched a petition-gathering drive to put his spending cap and bond package on the November ballot.

Given the mood of California voters toward the Legislature and its spending habits, Schwarzenegger could have won handily. Instead, he administered this test: If I give you guys a big concession — if I offer you a carrot by clearly backing off from the spending cap I want, and if I make you look good in the bargain — will you give me something big back?

Essentially, Schwarzenegger was asking, What sort of folks am I dealing with here? What sort of integrity and mettle have they got?

So Schwarzenegger compromised, upsetting several Republicans by giving back too much. Yet he continued to press for the thing he wanted even more: immediate cuts in current-year spending by the Legislature so money could be freed to repay cities and counties who lost out when Schwarzenegger reversed the tripling of the car tax.

He’d made a campaign promise to the cities and counties to make them whole again and he intended to fulfill it.

But the Legislature shined him on. Schwarzenegger proposed current-year cuts so money could be freed for cities and counties. Yet his proposals were not even allowed onto the floor of the Legislature for debate and a vote. Instead, Senate President Pro Tem John Burton and Speaker Wesson sent the Legislature home until 2004.

Mayors and sheriffs in cities and counties who needed millions of dollars restored to them for December alone were furious. They squawked angrily at Schwarzenegger and the Legislature and threatened to sue the state.

How illuminating for the new governor, whose first test of the Legislature had come to a close.

Now Schwarzenegger has a solid feel for how legislative leaders handle compromise.

They don’t. In Sacramento, compromise has come to mean squeezing as much as possible out of the other side. Period. So The Oak went and got a stick.

Now, that’s not proof of strategic brilliance, since use of the stick is a classic tactic once the carrot has failed. But it was a clear demonstration of his readiness to use power.

The stick was provided by a law signed by Gray Davis, but never used by the indecisive former governor. It allows the governor to get around the Legislature by directly appropriating money in times of emergency.

Schwarzenegger reinstituted $2.65 billion to local governments and further directed that $150 million in line-item budget cuts be made immediately to help offset the payments to cities and counties until the Legislature makes further cuts.

At Schwarzenegger’s Dec. 18 press conference, it was as riveting as things get in policy wonkish Sacramento to see mayor of Oakland Jerry Brown charge gleefully to the dais, never leave Schwarzenegger’s shoulder and then boom out, “The governor exercised executive power to the max! That’s the only way you get anything done around here!”

Mayor of Los Angeles James Hahn appeared deeply moved, saying, “Wow, what a difference a week makes,” before breaking into a standing ovation for Schwarzenegger.

Schwarzenegger, the strategic thinker, will naturally continue to deal with the legislative leaders. But he will form alliances with the people whom he has learned can be counted upon to engage in honest compromise. To strengthen the hand of the honest compromisers, such as Democratic state Controller Steve Westly, who backed his plan to return money to the cities and counties, the governor will take actions that also boost their gravitas in Sacramento.

So watch for a higher profile for the so-called “Bipartisan Group” of less than 20 legislators, long dismissed as powerless by the hardcore partisans who dominate the 120-member Legislature. This group of reasonable Democratic and Republican pragmatists has gained the ear of Schwarzenegger. They played the key role in getting the grumpy legislative leaders to resume broken negotiations on the spending cap.

“ We want things to actually work around here,” says Democratic Assemblyman Joe Canciamilla of Pittsburg, who co-leads the group with Republican Assemblyman Keith Richman of Northridge. Says Richman: “Now we’re talking with the governor about other solutions to other problems.”

The irony is that even if Schwarzenegger builds a fledgling bipartisan/moderate effort, he will increasingly be pulled toward partisan politics because of the coming presidential election. With Democrats still nursing bitter wounds over the 2000 election controversy, with Howard Dean turning up the heat on President George W. Bush and with sharp divisions over Iraq, 2004 could be the most partisan election in memory.

Schwarzenegger has already been named Honorary Chair of the Bush-Cheney ‘04 California Leadership Team and stated on Dec. 18, “President Bush has shown great leadership by acting decisively to transform tough challenges into golden opportunities.”

By mid-2004, right when Schwarzenegger must complete a crucial budget deal with the majority Democrats in the Legislature, Sacramento will be an ugly quagmire of partisan gamesmanship. The governor will have to decide exactly how much to help Bush and the Republicans. Because whenever Schwarzenegger steps to a microphone with a George W. ‘04 banner behind it, a crowd of protesters is bound to appear, demanding that the governor go the hell home and take care of California.

One of Schwarzenegger’s loudest critics will be the unions, whose leaders are fuming that he has singled them out as the worst special interest manipulators in Sacramento.

Union leaders can quickly churn out busloads of protesters, as they demonstrated throughout 2003 when they stopped the Legislature from making significant budget cuts by filling the halls with angry, T-shirt matched groups and people in wheelchairs. The union leaders are no slouches when it comes to strategic thinking and the use of raw power, either.

So the psychological game is afoot. But unlike Davis, who trembled at the sight of union buses in the capital, this governor clearly will play hard if he must.

The question is whether Schwarzenegger can use the tools he has already displayed in his repertoire — carrot vs. stick, personal charm vs. executive authority, bending vs. toughness — to crack open a system hard-wired to resist tampering. Whether he fails or succeeds, it’s all going to be fascinating to watch.

The 13% Solution
As printed in the Wall Street Journal

Have you ever had to make serious cuts – 15 percent or more – in your family budget because of an unexpected job-loss or unforeseen expense? It’s not pleasant, but it's not impossible. And it's also not permanent. As long as you’re willing to face your financial problems squarely, you can be sure that the hard times won't last forever and things will improve.

But if you're not willing to face those problems – if you paper over your debt by borrowing and continue to spend as if that debt didn’t exist -- those hard times will follow you far into the future.

State government is no different. And as the new administration decides which road it will take, it is important to understand the simple math of the state’s finances.

California’s current budget deficit is caused by two actions Davis took last year to paper over his mismanagement: he illegally tripled the car tax and he attempted to borrow $12.6 billion unconstitutionally.

Governor Schwarzenegger rescinded the illegal tax increase on his first day in office. It’s important to note the word "illegal." Not one of the conditions required to raise the car tax had been met, and it was only a matter of time before the courts ordered the money to be returned to taxpayers with interest. By acting now, he saved California from having a multi-billion dollar hole blown in a future budget by court order.

But repairing this problem requires that local governments be reimbursed for their losses. In addition, the courts have already invalidated $1.9 billion of Davis’ borrowing plan, further deepening the deficit.

According to the Legislative Analyst’s Office, these developments mean that the state will end up spending $76.9 billion this year, with only $74.2 billion in revenue.

It gets worse. The courts are also poised to strike down the additional $10.7 billion of borrowing in Davis' last budget. It is not a pleasant financial situation. But it is also not impossible.

If the current rate of state spending were reduced 13.4 percent on January 1st and frozen through Gov. Schwarzenegger's first budget, the state would be back in the black, free and clear of external debt, and able to start the Governor's second year in 2005 with a clean slate.

A 13.4 percent reduction would mean cutting $5.2 billion from this year’s budget before January 1 and setting next year's budget at $66.6 billion. That’s a big cut – and it means giving up billions of dollars of programmed spending increases next year. But it's still 15.2 percent more than California was spending when Gray Davis took office. And after 18 months of austerity, the Governor would be able to plan his second budget with $12 billion of breathing room in 2005 when revenues are projected to reach $78.6 billion.

Like a family that has faced its finances squarely and tightened its belt, California would be solidly back on its feet and looking toward a sunny future.

The alternative is to borrow the difference at heavy rates of interest over the next generation. Like a family that can’t bear to change its ways, it would end up dragging its financial difficulties into future years as it struggles to meet its current expenses and pay down a crushing credit card debt as well.

These are the two roads diverging in the budget woods and the choice that is made in coming weeks may well determine whether California has the fresh financial start it deserves, or whether the ghost of Davis' excesses stalks a generation to come.

Tom McClintock

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