State of the State Overview

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, Jan. 9, 2004 Share this on FacebookTweet thisEmail this to a friend

On January 6, 2004, Governor Arnold Schwarzenegger (R) delivered his first State of the State address. He began by discussing his accomplishments since he took office on November 17, 2003 including the repeal of the vehicle license fee and SB 60, the drivers’ license bill extending privileges to illegal immigrants. He also thanked the Legislature for helping him place the bond proposal on the March ballot and indicated that State Controller Steve Westly (D) has agreed to co-chair the campaign for the initiative. The following are a few of the highlights from his speech:


* Governor Schwarzenegger discussed his remaining concerns with the State's financial situation and indicated that for the fiscal year 2004-2005 California is facing a $15 billion deficit. He said that he will not agree to tax increases and will make budgetary cuts – “but they will not be forever.” He stressed the point that the financial problem is not a taxation problem or a budgetary problem, but a spending problem. Schwarzenegger suggested that a tax increase of any nature would be the final nail in the coffin and noted that he does not want to make financial matters worse. In order to avoid tax increases and balance the budget, he 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.

* He cast the effort to bring jobs to California as a personal mission, calling himself California's “job czar,” stressing the importance of creating and retaining jobs. A means by which to begin, he noted, would be the reform of the workers’ compensation system.

* The Governor demanded that lawmakers pass his workers’ compensation proposal by March 1, or he would seek to place it on the November ballot. The Small Business Action Committee (SBAC), a business group with ties to Governor Arnold Schwarzenegger, has already proposed an initiative that would mandate many of Schwarzenegger’s proposals for cutting workers' comp costs. The Administration has stated that the Governor's priority is to work with the Legislature before supporting any sort of initiative.

* He promised a “total review of government” to consolidate some departments and boards, and eliminate others. In calling for the 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. He plans to abolish and consolidate through executive orders, legislative action and constitutional measures.

* Regarding primary and secondary education, the governor argued that his proposals would free up individual schools and districts, giving them discretion as to how their money is spent. He also noted that $2 billion in “categorical” school funding should be given to districts with no strings attached. Specifically calling 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.

* In addition to proposing that college fee increases be limited "to no more than 10 percent a year," he noted that his budget would maintain funding for the University of California, Merced. UC Merced will be the University of California's 10th campus.

* With regards to the environment, Schwarzenegger will seek 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. 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, as the administrator of the fund.

* The Governor also repeated his campaign vow to renegotiate the power contracts signed by the Davis Administration in early 2001. Power prices fell significantly after the contracts were struck with dozens of energy companies. 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. 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. He noted “something is wrong when it's easier to create energy agencies than power plants;" without more conservation and power plant construction, California could face energy shortages as early as 2006.

* Schwarzenegger announced that he has retained a negotiator who will work with the tribes to ensure that California gets “its fair share” of the gaming revenues. The model that the Administration is looking at is the arrangement the Indian gaming industry works under in Connecticut, wherein it shares 25 percent of its revenue with state government. However, it is not going to be easy to squeeze more money out of a politically powerful lobby that has long-term agreements signed by the past administration.

* Having met with both state Congressional and Legislative members last fall, he relayed the members’ willingness to work together as one unified voice in order to retain further federal tax dollars to help fund the state's programs and services.

* In addition to the importance of federal tax dollars, he stressed his commitment to ensuring California's military installations are not on the proposed chopping block for 2004. The Governor relayed his understanding of the importance to the people and economy of the state to retain and avoid any closures of such installations.

The following are a few comments from Legislative members about the Governor's address:

* Senator John Burton, the Democratic President Pro Tempore from San Francisco, noted that while cuts are necessary, the state needs added revenues in the form of tax increases – “they're necessary.”

* Assemblyman Herb Wesson, the Democratic Speaker from Culver City, confirmed Democrats' willingness to work and cooperate with the Governor, but noted their severe opposition to capitulate on core Democratic values merely to achieve the Governor's views.

* Kevin McCarthy, the newly elected Republican leader of the Assembly from Bakersfield, described the speech as a "bold vision for California's future" and said Republicans in the Legislature would work with Gov. Schwarzenegger to help bring it about.

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