California’s “Big Five” on fixing the state budget

Posted March 27, 2009

Making their pitch for the six measures on the May 19 special election ballot, Gov. Arnold Schwarzenegger and four state lawmakers visited The Times Tuesday. With the governor were Assembly Speaker Karen Bass of Los Angeles and Senate President Pro Tem Darrell Steinberg of Sacramento, both Democrats; Assembly GOP Caucus leader Mike Villines of Clovis; and immediate past Senate Republican caucus leader Dave Cogdill of Modesto. Cogdill's fellow Republican senators ousted him from his leadership post on Feb. 18 rather than back his support for the deal that created the state's current spending plan and shaped the special election.

Arnold Schwarzenegger: This is without any doubt I think the first time in history that you see the "Big Five" together and all in sync -- I don't think that you will remember any time in the past.

Jim Newton: (laughs) Certainly not here.

Schwarzenegger: So obviously this is very important to all of us, which is that to make those various different initiatives pass, the six of them that will be on the ballot May 19. And I think that we have done an extraordinary job together working over a period of several months to negotiate this budget and these various different initiatives. But that's always half of the job because the other half is obviously making it pass by the people and it's no different than our infrastructure initiatives that we did in 2006, where it was a bipartisan kind of an effort, the Democrats and the Republicans went up and down the state and they joined together in fundraising activities and joined together also in campaigning for the initiatives. And because of that the people of California felt comfortable that both parties are working together and they won with overwhelming majority.

We hope this is the same case here. I think that budget reform is extremely important for the state of California because we didn't have it in place for so long -- for decades. Every governor has gone through a huge, huge crisis, if it is from Pat Brown to Ronald Reagan to [George] Deukmejian, Pete Wilson, Gray Davis and now myself where you always run out of money because the economy is going down, because we don't have a rainy day fund, because we always spend too much money when the revenues go up. So I think here we have a chance to fix this once and for all and have a rainy day fund for the first time in 60 years. I think that it's very important that these initiatives pass and we're basically here to just talk to you about it, answer your questions and get you to endorse the initiatives, because endorsements from major papers, especially the LA Times, is extremely important in supporting it to make it pass.

With that, I'll open it up, if my collegues want to say something about any of that, feel free.

Karen Bass: Well, I would just add in that as the governor laid out we have this critical election on May 19, and in L.A. we're actually having an election right now, so it'll be interesting.

Newton: (laughs) What's a week without an election, right?

Bass: Yeah, right, exactly.

I am concerned about turnout and I think it's very important that we do whatever we can to increase turnout. Yesterday, in Sacramento I hosted 55 African American ministers that were there to hear about the economic stimulus and we talked about the May 19 elections so that they will spread the word in their congregations.

A couple of the initiatives that would be a little counter-intuitive to a lot of people are the lottery, the money from Proposition 10 and Proposition 63, and so I think it's most important that we also educate folks about that -- that we need to secure ties to the lottery, we need to take the resources from Prop. 10 and Prop. 63. The [state Legislative Analyst's Office] came out last week and talked about the potential $8 billion deficit, and so as I've been talking to people I've been encouraging them to do the math. If there is a projected 8 billion, plus the initiatives go down, we're talking about a devastating $14 to $15 billion deficit that we would have to close at the end of May.

Darrell Steinberg: I appreciate the opportunity to meet with the full Los Angeles Times editorial board and I am all-in when it comes to these initiatives, despite the fact that there are a lot of elements of the agreement that I frankly don't like, and I think we can all say the same thing.

Bass: Right.

Steinberg: But this was a negotiation about shared sacrifice. I was the author of Propostition 63, the proud author, and put my heart and soul into the passage of that initiative. And the initiative is doing great things for a lot of people living with mental illness in California. And yet when it came time to make the hard decisions about how to resolve a $41 billion deficit, the largest in state history, what I think is important to note is that despite the stereotype, and frankly a lot of truth, about the Legislature and state government being dysfunctional that the five of us were able to craft an agreement where everybody gave something, where everybody put the interest of the state ahead of their own ideology or their own programs and it was a very very difficult thing to do. But it was necessary and these elections are crucial for a couple of different perspectives, and I'll be brief but I want to go through this.

Not only do we need the money in the short term -- the lottery securitization, the Prop. 10 the Prop. 63 dollars -- but Prop. 1A, the passage of Prop. 1A, equates to about $20-plus billion of additional revenue for the state and for the investments that I know you care about and that we care about. Prop. 1A has to pass. If it doesn't pass we not only lose the $9.3 billion respiration to public education but we lose two years of additional revenue. And when you add all that up it's over $20 billion.

And finally, I would say that as a Democrat who believes that government plays an important role in improving the lives of people on their merits, I think Prop. 1A is a good idea because the state's revenue stream is volatile and we have to change it, but until we change it I would much rather, for the things that we care about, I would much rather have 10, $12 billion in a reserve fund, in a rainy-day fund, so when the inevitable bad times occur we don't have to consider cutting foster care or MediCal or mental health, or any of the other safety-net programs that really matter to the most vulnerable. And so on the merits I favor Prop. 1A as well.

Newton: We'll hear from our Republican colleagues.

Dave Cogdill: Well just let me certainly echo the thanks that has been expressed by the governor and our Democrat friends to have the opportunity today to sit here today and discuss this issue.

Obviously these are extraordinary times, and I think that everybody recognizes that certainly this negotiation that led up to the budget agreement and the propositions that have been put on the ballot in many ways has been historic. The goals, obviously, from the very beginning, well certainly going back into October and November after the economy turned down as bad as it did and continues to falter today, as we all know, the governor's very strong in coming out and talking about the four-legged stool that he wanted to construct as it related to a compromise on the budget deal, that only dealt with the short term but certainly, hopefully fixes this problem long-term so that our children and our grandchildren aren't faced with these same awful decision whenever our economy takes a downturn.

And that was certainly our goal when we went back to negotiate after the attempt was made to put out a budget with a simple-majority approval on taxes and fees that ultimately didn't happen. And when Mike [Villines] and I came back to the table our goal again was to try and find this comprehensive solution that reflected and met all of the goals that the governor set out, and I think we were able to do that. As Senator Steinberg points out there's a lot in this budget certainly not to like and it isn't the budget that any of us, I think individually, if you'd have asked us to sit down and craft our idea of the perfect budget, it doesn't represent that.

But it does represent, again, what I think is a historic compromise that used a lot of different components and potential solutions to ultimately solve both the short-term and the long-term problem. And again, that's why the initiatives are so important as Darrell pointed out – they deal with the short term issues of Prop. 10 and 63 and the lottery, the monies that that brings to this year's budget and then also provides the discipline that has been lacking as it relates to windfalls that come to the state periodically when our economy is doing well and make sure that we put that money back so that when we do go through another downturn we don't have to face the awful specter of either huge cuts in spending or tax increases or some combination of those things that nobody likes.

And I think the most important thing when you look at the 1A piece of this, and what really convinced me that it was the way to go, is if you look at the modeling and realize that if we'd had it in place over the last 10 years, having gone through both the dot-com boom and the housing boom, we'd have put enough money aside that when this economy turned down the way it did, we'd have had a much smaller problem to deal with, and one that we could have done, I think, through just some economies and spending rather than have to face the awful reality of the need to raise revenues in a struggling economy.

So, again, I don't think we could over-emphasize how important those propositions are in both the short term and the long term and hopefully get people to realize when they're criticized for not going far enough from someone on the right that, again, it's a compromise that can pass, and I think will have the support of the voters and who it needs to at the polls in order to be successful and more importantly over time will accomplish what we want to accomplish.

Mike Villines: I'm Mike Villines and I think everyone has said it really well. I would just say that, first of all, I think all the comments are important and I agree with most all of them. The key to me is that I think that California in many ways has become dysfunctional and this is an attempt to I think to really bring some sanity back to budgeting and some fiscal discipline to the state without casting blame. I just believe that these reforms, all of them, in terms of the short term -- as Dave and Darrell and Karen and the governor have said, are important. And also the long-term, I mean the idea that we can put some restraint on spending but also some reliability for programs so that both sides can, I think, find a benefit is critical I think to our long-term success.

I also think that the governor has set up a very strong process and argument for reform in this state, first with redistricting last year, that I think is important to changing in the Legislature. Now we have the chance at a spending cap that I think the Republicans have been fighting for for a long time that I think is a fair one for both sides. And again I always tell my friends on the other side of the aisle, I think

reliability, maybe not as much, but the idea that basing reliability in funding is much better to plan for now than what we're going through now or what we did five years ago and, if we don't have this, will happen again in three years or four years.

So to me it's a long-term perspective versus a short-term perspective. And I think for the state, it's good to look long- term and that these initiatives all fit into a better, longer-term view of the state, a more optimistic view. So I think California's going to look at it and say that they agree. We've all had to make some significant trade-offs and concessions but the situation demanded it and nobody could go to their corner and I think everybody had to give, and I give the governor and my colleagues a lot of credit for all of us trying to come togetherÂ….

Newton: I realize it's a compromise that brings you all together here today, but if you were to separate these out and consider them individually, are there measures within this package that you would personally oppose if they weren't part of the package?

Schwarzenegger: I cannot think of one, no. Because, I mean, I've been fighting for five years now for budget reform, to put a rainy-day fund aside and to put a certain cap on spending. I wasn't successful. I tried through the Legislature when I first came into office; I tried in 2005 to go directly to the people, but apparently it wasn't inclusive enough so that failed -- the idea was good but it failed. And so here was our chance againÂ….

I think that we need the lottery, I think that we need the money from 63 and from 10. Under the circumstances, if we didn't have a crisis of course I wouldn't have even touched that money. I would go after the lottery money because I think it's ludicrous to have a lottery system in place that the people have voted for and only have the technology go up to 1984, so I think we can do much better than that. We don't want to be outdone by Teddy's Massachusetts. I mean, you know he rubs it in every time I see him, so it doesn't bode well, but I think we can do better with that.

I think that to pay back education is an absolute must because education has been getting such a beating in this budget. The interesting thing about Prop. 98 is that Prop. 98 was written in such a way that there was a hole. They always say that it wasn't written that well, that they want us to rethink it, but that's a whole other subject. But they would not get this money back from those cuts, and so what we did was we looked at it and said, "Wait a minute, is that we stand for? Do we really feel that from now on education should have this drop of $5-some billion and have the base lowered by that much?" No, education needs the money, of course it needs to be run more efficiently in order, which is another subject, but I mean in any case we need to go back again where we were with education spending and so that money, Proposition 1B, guarantees that.

So I think all of those things are very important, and the last one was part of the overall agreement, Proposition 1F. So Â… all of those are really good initiatives, and like I said the important thing for people to understand is they all go hand in hand. It's not one of those things where you can go to the grocery store and pick and choose. You've got to understand: In order to bring our economy back we have to bring our budget back to have enough money to pay for the programs I think they all have to be voted on "yes," and they all have to pass.

Nick Goldberg, L.A. Times: Explain what the process will be. What happens if one of these goes down? The whole deal collapses? That piece of the deal collapses?

Schwarzenegger: Not, but I mean, that's not the way you move forward. You don't move forward planning on losing -- there's no one that ever won by accident. You always win because you plan on winning and every move that you make is to win. And so we are going to go out and we believe that we can win those, the poll numbers show that we can win those, but the key thing for people is that they get the education of what they're about. We also know, as Karen said, that it is already a huge challenge when there is such a low turnout, we don't know who is going to turn up so we want to make sure that no stone is unturned and we want to go and raise enough money for the campaign so we can be on T.V. and do the mailers and all those kind of things, and go out and get the different groups of endorsementsÂ….

Villines: We'll just have to cross the bridge when we get there in terms of what doesn't work, but I think the governor is right, we're working hard to educate people. I've been pleased at travelling up and down, when you explain to people everything they understand it, in all kinds of different circles so our hope is that they all will pass because they are part of a package.

Jon Healey, L.A. Times: But Mr. Villines, are they listening to you or are they listening to Jon and Ken?

Villines: Well the people I talk to are listening to me. I mean, I've talked at five town halls; I travel up and down the state talking to everybody. I mean there's a real concern, I mean there's a trade off: Is it a short-term or long-term view? I think it's a long-term view, and I think that people are looking at it an realizing that we are at a historical economic downturn, crisis, and the ticket out of it's not easy and that all these initiatives have a piece of the puzzle that fits together, and I think they understand that.

I mean, it's not easy, people are frustrated with government -- so are we, and we're in the government. So we all go home to our districts and hear what they're saying and how frustrated they are with the economy, but I think they're listening and I think they get it. Our job is to make sure that we're appealing to a better, more positive vision where California could be with these reforms, because it really could be as opposed to being in the same spot in 18 months. And why would anybody want to do that?

Schwarzenegger: The question is who are they more upset about? Is it our budget reform or is it the L.A. Times by not saying that there's a billion people listening to them rather than just 500 or 600,000?

(laughs)

So we don't know yet who they're more upset about.

Sue Horton, L.A. Times: Is there a bait-and-switch aspect though in asking voters to support a new tax for funding mental illness programs and then -- how long are Californians going to put up with, they vote for a tax for a very specific thing and then it's redirected?

Steinberg: Maybe I should take that one. First of all it's $450 million over two years that is part of a prudent reserve in the Prop. 63 fund. The money itself is going to be used for Children's mental health services within the core budget, and I think your question is a fair question. Again, for me you asked the question earlier if any measure were standing on its own that you wouldn't like or wouldn't vote for. I don't like this, but I'm for it because I couldn't be a credible negotiator without being willing to put the thing I cared most about on the table. And I think that the people of California understand that this is a crisis and that we have to do all that is reasonable to get through the crisis. And so some voters may wonder that, but Prop. 63 remains intact, the money comes out of reserve, and it's necessary to avoid cuts to core children's mental health programs. If I can stand up and say it's OK, I think other advocates who are concerned about mental health can do the same.

Villines: Can I just add that it was important to Dave and myself and others to say that in this crisis, and again the context is a crisis of $42 billion for two years, which by the way we did a two-year budget which I think would be a great reform in California but that we did it, we actually did a two-year budget. We couldn't go to tax payers and say we're going to raise revenue if we didn't exhaust every opportunity we could in this time to find ways to minimize cuts on their side and for us, taxpayer involvement, meaning less taxes.

So we had done audits of Prop. 10 and 63 and originally we had talked about much larger sums of money in those programs, but you know a little wisdom and reflection and work we realized OK, there's reserves some people have invested for the future, so we didn't take everything. We took what we thought would make sense and help the process but also let taxpayers know that you're already paying taxes there and there're some reserver dollars we're going to move into this crisis to sort of mitigate having to do more. And I think they'll understand that, from both perspectives, from a Republican and a Democrat perspective, it is minimizing cuts at the same time it's minimizing more revenue and I think that that's one thing I hope people get that it's part of the overall package and its part of the crisis that we're doing everything we can to bring everything in before we look at the final result of what we had to do.

Healey: Isn't the existence of things like Prop. 63 part of the problem here? You've got budgeting done in silos, and when you have these great dips in revenue and you have opportunities to take broad structural looks at how we raise money in the state and how we pay for things, you can't because your hands are tied right and left.

Bass: Let me just respond to that, because it think there's a lot of things that we need to do long-term, but the fact of the matter is the house is on fire and we needed to put the fire out. But at the same time, we have done things, the five of us have, as in establishing the commission on the 21st century economy that looks at the overall revenue picture of California. You know our tax system is based on an economy that doesn't even exist anymore; it was created at the beginning of the last century. And so while we're trying to address the immediate crisis at hand, the fire we have in front of us, we are attempting to make longer term changes. And I think there's a variety of things.

Now, we have some differences on this one issue, which is the two-thirds and we would see it differently, but I think that's one of the structural things that needs to change. California needs to be like 47 other states instead of like Arkansas and Rhode Island, and so we are looking at that as well and polling about that, and might put something on the ballot next year. And you know, if you look at our overall budget, we have very little control, and that's something that needs to be looked at as well. That's not something we're looking at right now, but I think it's about 10% of the budget that we can actually deal with, and the rest of it is prescribed primarily by voters.

Steinberg: You can consider this, in a way, a down-payment on reform. This isn't the end of the reform discussion, but it's a very strong beginning and a demonstration that, again, a governor and leaders who have very different views on the role of government can put California first and can come together. But it is just the beginning; you have the tax commission, you have the potential for initiative reform, which I think is very important subject matter. Why can't the Legislature, why shouldn't the Legislature be able to vet initiatives and try to solve the problem before the measure actually goes on the ballot? There's realignment between state-local government and school districts which is a very complicated, but a very, very important issue because our government is so misaligned. So this isn't the end, it's the beginning, but it's a very important beginning.

Newton: Is it safe to say that this is as far as bipartisanship gets you? That as far as reform proceeds beyond these measures, assume all six pass, that you all are likely to go in different directions on what the next steps of reform are?

Schwarzenegger: Let me just comment on that quickly, because I've been there now for five years, maybe not as long as some of the people here but I've noticed one thing: It's all about the dynamics and about the rhythm. I think that now, because new leaders came in to their positions, and we see, everyone here is kind of new in their positions Â… but I've never seen in all five years four people that were more willing to compromise. See, the thing is if you get stuck in your ideological corners you can't get anything done, and this is why we did the redistricting, because people are just, because the way the district lines were drawn, it makes people be so far apart that when they get to Sacramento they just can't meet on things. Because if they would meet they would go back to their districts and get beaten up all the time or they lose the next election, so therefore they can't really come to the center. So this is why I think that what you have seen was unbelievable courage because everyone has risked their political lives to do that and to meet in the center and get the budget done. So that is, of course, the ultimate of post-partisanship or bipartisanship, whatever you may call it.

I think because of that there is great hope that I have and I think it will happen that we will get all kinds of things now done by because spending so many months together negotiating of course you agree and also a certain trust. There's always usually the distrust about the other party and what they thinking, what they're plotting. But when you spend that much time together, you get to appreciate the other sideÂ….

Robert Greene, L.A. Times: Over time, we've been relatively comfortable with ballot measures after they've been vetted in the legislative process, there have been open hearings, the various constituent groups had a chance to express their views, the legislation has been change. And we've been pretty uncomfortable, with good reason, with legislation that ends up on the ballot when there hasn't been that kind of vetting, both statewide and locally. And this one was part of a deal that didn't have any of that kind of input. Why should we not feel that kind of discomfort with this particular package when there's so many moving pieces, it's so complex? If it was possible to make Prop. 98 any more complex, you've succeeded with 1B. Why should we not shy away from it because of those reasons?

Villines: I actually think that, well first, it's not really complex. It may appear that way, but it's really not; it's a lot of common sense. Second, a lot of these have had hearings and have been going on for a long time. In terms of a spending cap, we've had versions of a spending cap since 1990. When it went away, in the Legislature we've talked intensely about it, all of us here, over the last two years. We've had bills and legislation, and indeed we've had a spending cap moved from committee to the Assembly floor last year, which has never been done. Those are the pieces of a spending cap, and so I think that there has been a lot of daylight on that.

The lottery, we've discussed not for a year and a halfÂ…. It makes perfect sense to get government out of something it shouldn't do. It could actually make more money for the state. It's a great way to see a public-private partnership, but there's been a lot of daylight on thatÂ….

The three that might appear a little confusing if you're trying to read the language -- which I understand, but it's really very common sense – it's that in 63 and 10, we're simply trying to mitigate a taxpayer protection and moving some money that's in reserve to try and take care of the crisis, and most people understand that. We're not trying to take away from mental health or children's programs, and in fact we can get to a healthier environment, and if we have a spending cap there will be that reliability.

And then on 1B, that's simply an amount of money that is in dispute that owe or don't owe or not sure when it's going to happen. And we're just saying, as the governor pointed out very well, in an environment where education has taken a very disproportionate hit, we should do something to try to work with them so that they're not having to take such a big hit. And I think that Californians will say yeah, we don't want to see the kids and the teachers have to take that hit.

So I think if we present it the right way people will get it, because the intent is that way. It wasn't a ploy to sit down and make it confusing; it really was these are the pieces needed to help us for long-term structural change and short-term advantage, and none of them make sense. And none of them frankly are really partisan; they are actually just common sense. That's the spirit it was done in; I hope that's the spirit people receive it in and you also. I haven't seen everything in print, but I'm sure it will look confusing, but it's really not.

Steinberg: I agree with Mike. Much of -- all of it has been publicly vetted at one stage or another during the process. But the other thing, just to be completely frank about it, this was an extraordinary crisis, and it was coupled with an extraordinary process. In the best of all worlds, you would want there to be a month of analyzing all these issues that we negotiated, but frankly, it would have fallen apart because the interests – the special interests – would have picked it apart very, very quickly. And we were days away, if you remember, we settled the budget at seven o'clock in the morning on Thursday, Feb. 20 … and by noon that day, or sometime that day, the governor's department of transportation was going to issue "stop work" orders on almost 300 major infrastructure projects resulting in the unemployment of tens of thousands of people and the loss of economic productivity of billions of dollars. And when you weigh what was at stake versus the only way to get this done, it was extraordinary; maybe not something we want to repeat necessarily, but it was the only way to get it done.

Bass: Let me just add too, in terms of the transportation projects, which I'm assuming that you are aware of: Those projects were the ones that were allowed to go forward after December because they were considered to be vital to public safety. A number of projects had already been stopped. And so the idea that we were hours away from stopping those projects definitely led to the urgency of us getting it doneÂ….

Greene: There was also the implication of – if perhaps not a promise – that despite anything in this package that people are uncomfortable with, at least it would take care of the problem from a tax perspective, that yes, you're raising taxes, it had to be done, but this is it. And then we hear from the LAO as you noted that we've got a much bigger problem. And none of you have said it, but there's the possibility that there might have to be additional taxes to address that problem down the road. What about that? Is this the final take-care-of-the-problem solution, or is this just a stop-gap and we're going to be facing this again after May 19?

Cogdill: You've got to look over time. If this had been in place over the last decade, we would have been in a much different place when the crisis hit. And 10 years out, I think you can say the same thing. Again, presuming we're going to go through some up times in our economy and with the reforms in place, the discipline will be there to fill the rainy day fund. Now that's not going to happen in the next two or three, four years maybe because no one's expecting the economy to roar back or to have another opportunity at an April surprise, if you will. But it will happen eventually, and the reforms will put that discipline in place so that ultimately, that rainy day fund will grow out and we will have the money that we need to deal with it. And it should go a long way to alleviating the problem.

It's definitely a better situation than we have today, and I think that's another very important point that gets missed in this debate, is that politics is the art of the possible. And we could all argue and say, "If it was my cap, the one I would design, the one I would hope the people would vote for, this is the way it would be." I know the reality of that is the people of this state would not support it; the special interests would not support it. We'd have huge amounts of money spent against it, and the governor's already been through that attempt back in 2005, and we saw firsthand what happens when you have that kind of organized, well-funded opposition.

This is an opportunity to actually make a real improvement long-term and provide some real structural change in our budgeting and put the kind of discipline in place that we need to make it better. Does it make it perfect? No, but it makes it better, and there's again a real opportunity to get it done this time. We haven't had that in the past.

Steinberg: Rob, we can manage the 8 billion. I mean, the problem is, if it gets much worse as a result of the result of losing the election. Remember, the budget we passed does have a reserve of $2 billion; there is federal economic stimulus money that won't be counted toward so-called trigger, the education money that potentially could be used to mitigate against what we may have to do around the $8 billion (that's estimated to be around three and a half billion). So you can begin doing the numbers here, and you down to two, two and a half. And we can manage that, right?

But what we don't want is to see that go from that manageable number to something much larger, where all bets are off because you have to go back in and look at all the different options to try to resolve it. But the idea of crisis management is, we avoided an economic catastrophe, we're putting in place the protections to help ensure that it doesn't happen again. We're also focusing on trying to get through this crisis so that we can begin focusing on water, on renewable energy, on healthcare, on educationÂ….

Villines: We did not do a good job of communicating. I mean, it was not unanticipated, the LAO report. It comes out every year at that time. When we solved the budget this time, the numbers were still eroding, and they still are. So we knew the LAO was going to come out with a report something like that. We have the pre-negotiated cuts; we have the pre-negotiated 2 billion reserve....

Folks didn't realize that we had planned for that and that it is a manageable number, and it is part of a larger context. But if we don't pass these reforms -- and I think there's a benefit to California both short-term and long-term, which is the most important – then we could be in a very, very difficult position. But this is manageable, and we can do it, even in the worst economy we've had since the Depression. And I think that's the silver lining here that we had planned for it, we just didn't do a good job of letting people know about it I think.

Bass: I think we're fortunate here too to have a governor who is developing a close tie with the president and has been very supportive of the economic stimulus plan and encouraging the infrastructure dollars. And who knows, there might another economic stimulus plan. But I think all of that is very helpful because as Mike Villines said, we absolutely anticipated there was going to be another downturn.

Villines: Or a continuing one.

Bass: RightÂ….

Michael Rothfeld, L.A. Times: Isn't there a conflict between saying we need to control spending and have these systems in place that are going to control spending, but then at the same time -- because I think most or all of you have supported initiatives that have forced yourselves to spend the money – so isn't there a conflict there? And also, to say as leaders, we need to be able to work things out, yet to say at the same time, we support taking away the prerogatives from ourselves as leaders to manage the state's money in the way that we need to in any given point in time?

Schwarzenegger: Well, first let me just answer that I think there's a difference. We can manage the money; we can make Â… decisions. The only thing is the overriding decision that says don't spend more than we have. And there's also the overriding decision is that we look at the last 10 years of revenue increases, and the average annual revenue increase is 5%, approximately. It varies; sometimes 4.7, sometimes 5.3, but sometimes 5%. So common sense tells you if we spend more than 5% a year increase in spending, then we are going out of whack and somewhere we have to make more cuts.

So therefore what we are saying in our budget reform is that we should not spend more. If there is 16% coming in, if revenues rise 16% -- which will happen again in a few years from now when the economy comes back, as much as it happened during our administration, a 13% rise, or under Davis, a 23% rise. So those things happen. But then after 5%, the rest goes into a rainy day fund so that we have money stored away for the bad years, when the economy goes down.

So I think that's basically what we're saying here, is that I think it is very important that we finally looked at the history of California in the last 60 years and the kind of mess it created. We have basically put people on a roller coaster ride -- education, law enforcement, prisons, healthcare, all of those different programs -- and everyone is kind of like franticÂ…. So now [for] the first time, we let people know, you will have a steady increase in your programs, just the way the revenues increase. But what we are trying to do in the meantime is fixing this problem, this jaggedy up-and-down, these peaks and valleys, and create more rolling kind of hills -- called the Alps.

(laughs)

Rothfeld: But my question is, for instance you have supported Jessica's Law, the after-school programs that have essentially at the same time made it harder for that gradual spending to go into effect.

Schwarzenegger: Not really. I mean, the way Proposition 49 was written, I think it was written brilliantly because -- I'll tell you why. Because we did not say in the initiative that if it wins, that next year it starts kicking in. It was written in a way where we said, OK, when they did the revenues -- at that point the revenues were around $70 billion -- when it hits $80 billion, then it will kick in. So it took four years. It passed in 2002, and it finally kicked in in 2006. It took four years, so we didn't crowd out any other programs right away to go in and say, "We are more important than you." We waited until the revenues increased to a certain point. So that's the way to do it -- you've got to be sensible how you go about doing those kind of things.

And there's certain times, programs that have passed through the initiative process that have become more expensive than originally thought, like putting bracelets on and following people and all those kind of things, that became instead of a $300 million program, potentially a billion-dollar programÂ…. So that's why the last one didn't pass, by [state Sen.] George Runner, because they knew this could be another billion dollars. Where's the money?

Bass: Or you have Proposition 63 that identified a new funding source.

Steinberg: Well, that's what I was going to say, is that one potential reform going forward to the initiative process is to say that an initiative which requires the expenditure of state funds, or local funds for that matter, must have a dedicated revenue source. Because that's one way to assure that you match the resources with what the people are articulating as a priority.

The thing about the initiative process, the people love it. I mean, every public opinion shows the people like the initiative process. I think it's our job to look at it and see how we can improve it. And that would be on significant improvement because -- I do think the Runner initiative is a very good example, his latest one, where people said, "What is this going to cost?" It's a big problem with corrections and our overcrowding and all of that. We've done all this penalty enhancement, right or wrong, but there hasn't been a commensurate discussion [of] how we're going to pay for all of this....

Schwarzenegger: Like Darrell said, I think that we should look at the initiative process and update it. The spirit of the initiative process is great, but I think that now since it has been quite some time, I think that one has to look at it again.

Goldberg: Both of your Democratic colleagues here have talked about the two-thirds requirement. I was curious whether you think that the two-thirds rule has contributed to the difficult and somewhat chaotic budget process and what your position is on changing that.

Schwarzenegger: Well, I think that you can say that it has contributed, but you also can say that actually what really has contributed is the redistricting, that the colleagues are so far apart that they can't come together, that they way the district lines are drawn, if you're in the Republican Party and you just go in there and talk about a tax increase, you cannot get voted in again. So I think that's a problem, that if you want to do what is right for the state, then you can lose the election. So what kind of system is that? I think we should reward compromise. We should reward doing what is best for the state rather than what is best for your party. And I think that is where the problem lies.

As you can see in the past, Deukmejian raised taxes, and Pete Wilson raised taxes, now I raise taxes, and I'm not running for anything. So I'm more comfortable with it because I'm not running for anything, because I know that's the right thing even though I promised the people of California I'm not going to raise taxes. At the same time I said I'm not going to sign a pledge because what if there is an emergency, thinking at that time a pandemic or huge fires or an earthquake or something like that? It became a fiscal emergency; it's the same thing. If you all of a sudden have to spend $10 billion on freeways and rebuilding buildings, or if you all of a sudden lose $42 billion, I mean, there is no difference. And so it's a fiscal emergency, and that's why I never signed this pledge. The overriding thing there is what is best for the state of California.

So there are some people I know that are saying it's the two-thirds vote. I happen to think that we have to go and create a political system where people can come closer together and where they are rewarded for working together rather than getting stuck over here in their ideological cornersÂ….

And just one more thing. I just want you let you know that Dave Cogdill, I mean, think about the courage, I mean, to lose his leadership position. And he knew that this could happen in the direction that he was going, and he did what was right for the state. He saw the numbers in front of him and he saw there was no way to go and solve this problem any other way, otherwise you would have to wipe out all schools. If you wipe out all schools in California, kindergarten through 12th grade, erase them, then that's when you save $42 billion, just to give you an idea. Or if you just wipe out all healthcare, higher education and let out 170,000 prisoners and close down the state prisons and have them run around your neighborhoods, that will save you if you're lucky the $42 billion. Just to see the numbers and how ludicrous it is to even think about that, that you could do something like that, so he made the right decision. It cost him his leadership, so we all look at him as heroic because he has done that.

Bass: And as a Democrat, we want to make sure he gets reelectedÂ…. I think it's really important that we change the history, because the history as I understand it has been that Republicans that voted for taxes in the past have not been reelected. And I think this time we have to change that. We have to make sure Anthony Adams gets reelected, we have to make sure Dave Cogdill gets reelected, and I'm a Democrat saying thatÂ….

Rothfeld: Governor, you've said you're not running for anything. Does that mean no Senate run next year against Barbara Boxer?

Schwarzenegger: I'm not running. When I say I'm not running for anything, that's exactly what I mean.

Rothfeld: So you've ruled that out.

Schwarzenegger: Until we change the Constitution.

(laughs)

Bass: So he can run for president. (laughs)