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June 17, 2005



PAUL GIGOT: Welcome to THE JOURNAL EDITORIAL REPORT. Unless there's a Supreme Court nomination fight, the big political story of the next few months will play out in California -- and what starts there often comes to the rest of the country. This week, frustrated by his legislature's failure to enact three key and controversial initiatives, Governor Arnold Schwarzenegger ordered a special election in November to let the people decide.


PAUL GIGOT: That's what Arnold Schwarzenegger asked of California voters in 2003, and they did. They recalled their governor and installed the political neophyte, believing his political inexperience to be a virtue.

ARNOLD SCHWARZENEGGER: I stand for fiscally responsible government.

PAUL GIGOT: California was drowning in red ink. High taxes and tripled car fees angered voters and did little to alleviate the staggering budget deficit. Schwarzenegger promised that he was willing to make tough decisions to fix what was broken. He enjoyed a 65 percent approval rating, and he set out his agenda. And for the first year it worked. Unemployment was down, personal income up, taxable sales up, and state exports increased after falling for the previous three years. Then interest groups, teachers, school groups, nurses, public sector unions and public safety organizations began to rally against him, concerned that his budget cuts would reduce spending on health care, police and fire departments and schools.

WOMAN: Governor Schwarzenegger, you promised to be different, then you broke your word to guarantee funding for our schools...

PAUL GIGOT: Today, just six months later, his most recent approval rating has fallen from 65 percent to 40 percent, his lowest since taking office. Now Schwarzenegger wants to go around the legislature to let the people decide.

ARNOLD SCHWARZENEGGER: With the people's help there will be reform. Our broken state government will be modernized and revitalized, and you the people will ...

PAUL GIGOT: Schwarzenegger is asking voters to approve three initiatives that would impose spending restraints on the state budget and give him the power to: cut programs if the budget falls out of balance; increase the number of years before public school teachers achieve tenure; and strip the legislature of the right to redraw their own voting districts, giving the authority to a panel of judges.

Schwarzenegger's call for a special election is risky. First, because he cannot control other measures that might qualify for the same ballot. One already has, a bill to require parental notification before performing an abortion on a minor. It threatens to overshadow Schwarzenegger's priority.

SCHWARZENEGGER: What is it that you want to do?

PAUL GIGOT: And second, it's risky because a public rebuke of his initiatives could inflict a mortal wound on his re-election prospects next year and his future political ambition.

SCHWARZENEGGER: I promise the people of California that I will fix a broken system. This is what this is all about.

PAUL GIGOT: With me to discuss all this are: Dan Henninger, columnist and deputy editor of THE WALL STREET JOURNAL EDITORIAL BOARD; Jason Riley, a senior writer for the editorial page; and John Fund, who reports and writes for

John, you've covered California politics for many years. In my experience, politicians are risk-averse. They prefer compromise. Why is Arnold Schwarzenegger taking this risk to go to the people in referenda?

JOHN FUND: Well, if you see yourself as an action hero who promised change for California, you have to deliver it. Right now there is a log jam in the legislature. The legislature is dominated by a special interest called the Public Employee Unions. In the last legislative session, they are the only group that got every one of the bills they wanted through the legislature. They have decided to challenge Schwarzenegger on his fundamental reforms. He's going to go use the initiative process, the same type of direct democracy that elected him in the recall election, and ask the people: choose between the public employee unions or me.

PAUL GIGOT: And what kind of a showdown is this with the stakes for Arnold? If he loses, does this mean that essentially his momentum for re-election is over?

JOHN FUND: Well, I think he will run for re-election. I think he still would be the favorite.

PAUL GIGOT: In 2006?

JOHN FUND: Yes. He would be a favorite for re-election, but clearly his wings would be clipped and he would be a diminished figure in California. On the other hand, if he wins I think that it could be the beginning of a whole series of further reforms. And of course some of these reforms, as you mentioned in the intro, would sweep the country.

PAUL GIGOT: Well let's take some of those. Start with re-districting. There are 53 seats -- California has 53 seats in the House of Representatives, one out of every eight. And I think the breakdown is 33 Democrats and 20 Republicans, but in the last election not a single one of those changed parties. And in fact, in only two of them did the winner win prevail by less than 60 percent. Thus, the re-districting initiative, which would allow more competitive elections. How is that going to fare?

JOHN FUND?: I think Common Cause, which is a liberal advocacy group, is supporting it. It polls very well. And I think the American people are beginning to understand that there's a reason why there's more competitive Senate races than Congressional races, because you can't gerrymander a state. The gerrymander is basically choking off competitive races for Congress, and a lot of state legislatures.

JASON RILEY: Not only did none of the 53 seats change hands, but in the state legislature, another 100 seats in California, none of those changed hands either. This re-districting effectively disenfranchises millions of Californians, because the politicians get to choose their voters instead of the other way around. This is a huge reform, a huge reform.

PAUL GIGOT: So do you think -- Dan, yeah?

DAN HENNINGER: There's an additional point to make, from what Jason just said. California is thought generally to be a blue state, but in fact ...

PAUL GIGOT: Only Democratic state.

DAN HENNINGER: A Democratic state. And only 25 percent of the states self-identify as liberal. Thirty percent self-identify as conservatives, and the rest are moderates. And in terms of approval ratings, the legislature's disapproval rating is currently 60 percent, which is to say there's a huge amount of the California population that is very upset about the quality of the politics in that state right now.

PAUL GIGOT: You know, one thing puzzles me, though, John. The re-districting measure, I understand why legislators really hate that, and public sector unions really hate that. But the rest of the things he's talking about aren't really all that radical: teacher tenure from two to five years before you get essentially life-time tenure. That's not that radical. The spending limit initiative also is a pretty modest one by national standards. Why is this Armageddon for his opponents?

JOHN FUND: They worry about what phase two would be, what additional reforms might come if Schwarzenegger is emboldened. In addition, Paul, there is another initiative which he has not yet formally endorsed, but which will be on the ballot, called paycheck protection. What this would say is, if you're a member of a public employee union, you have to give specific written permission to the union for your union dues to be spent on politics. In states where that's been tried, over 80 percent of union members have chosen to keep their money and withhold it from the union's political committees. That is worthy of Armageddon.

JASON RILEY: And the unions are so afraid of that initiative that they're raising an extra 50 million dollars to fund it.

JOHN FUND: Raising dues involuntarily to do that.

JASON RILEY: Yes, raising dues involuntarily to fight this. In California, the unions, the public sector unions, are an extremely powerful special interest, and they feel especially threatened, as John said, they've been getting their stuff through. But Arnold is really doing what he said he was going to do. What he said he was going to do when he got elected, and what he said he was going to do in the state address earlier this year, which is I'm going to try and negotiate with the legislature, and if we can't get anywhere I'm going to take the issues to the people. He's tried for a year to get somewhere. He's gotten some things. He's gotten some workers' compensation reform. He's gotten a balanced budget amendment. But some of these big issues that are going to be addressed in the special election, he hasn't made any progress on. So he's making good on his word.

PAUL GIGOT: Well one thing that there has been progress on is on the budget. I mean, revenues, state revenues have been booming in California, as they have in a lot of other states around the country, up 28 percent just in the last quarter thanks in part to a taxpayer forgiveness program. But up 17 percent in the last nine months. Why, Dan, doesn't a governor get any credit for this kind of progress -- which of course is based in a strong economy?

DAN HENNINGER: Well, because by and large people don't pay that close attention to their state budgets. But it matters. And I think a point we ought to make here is, this isn't just one guy. It just isn't Arnold Schwarzenegger against all of these forces. The private sector in California has been upset for years about the burden of regulation, cost and taxes that the legislature imposes on them, which retards job formation in California. There's a lot at stake here. It's more than just one celebrity's political career that is on the table.

PAUL GIGOT: And what are the lessons nationally if we do get -- as we approach November -- what are the stakes nationally here, John?

JOHN FUND: Well, if paycheck protection passes, I think you'll see, as with [UNINTEL] in the tax revolt, a lot of other states would try that. Because every state has public employee unions that often are in conflict with the goals of a governor or a legislature.

PAUL GIGOT: And Proposition 13 was the tax revolt which started in California in 1979 ...

DAN HENNINGER: Right, and spread everywhere.

PAUL GIGOT: ... and spread everywhere.

DAN HENNINGER: And obviously the education reform, the teacher tenure, that's an issue in [UNINTEL] states. The spending cap -- one of the things that people are upset about is Washington's profligate spending and profligate spending at state capitals, putting a spending cap on the budget. Not trusting the politicians but putting it in the constitution could be a popular idea.

PAUL GIGOT: Well, but there's no guarantee that any of this is going to pass. Paycheck protection was on the ballot once before, 1998. It got 47 percent, and the unions threw in about 30 million then to ...

JOHN FUND: You have to triple that now.

PAUL GIGOT: Okay, John, what do you think? Is Arnold going to get his way as we get to November, or is he going to be beaten?

JOHN FUND: That's why we have a campaign. You're going to have a long debate. I will say this, though. Anyone who bets against Arnold Schwarzenegger is betting long odds.

PAUL GIGOT: All right, thanks, John. Thank you all. Next subject.