Governor Discusses Budget with San Francisco Chamber of Commerce

MR. FALK:

Welcome, Governor, thank you for joining us. We have been talking for the past three and a half hours about economic resurgence, economic recovery, how do we get the economy back on track. We have listened to several great panelists and great businesses here in San Francisco talk about how they are growing jobs and growing the economy. And, of course, from a business point of view, the way to do that is not through tax increases but through economic growth.

But the one question on everyone's mind is how does the state play into this, how does the state budget either help us or hurt us? We're now 62 days late, I think, with a state budget, so maybe we could start with your views on where we are and where we're headed.

GOVERNOR SCHWARZENEGGER:

Well, first of all, I just want to say thank you very much for having me here today. I want to thank Stuart McKee and Steve Falk and Wade Rose -- both of them are asking me some interesting questions here today, they promised.

I am right now going up and down the state to talk about the budget and about why it is late, what are the philosophic differences, why we don't have a budget yet. As a matter of fact, Senator Steinberg is right now on the Floor in Sacramento and talking about the philosophic differences, because they are voting on a budget today, on our budget -- meaning mine and the Republicans' budget -- which we will not get the two-thirds vote and also on the Democratic budget, which they will not get the two-thirds vote.

So why they put it up for a vote in the first place no one knows. But Senator Steinberg insisted that he doesn't want to hear the word drill, that it is not a drill. "It's not a drill, I don't want to hear the word 'drill.'" So let's call it Kabuki, whatever you want to call it but that's what it is.

But the bottom line is and I think you should know, that I as Governor have always handed in my budget on time on January 10th every year and also on May 14th, when you have to hand in your May Revise. The legislature has a much more difficult time doing that because they always start negotiating too late. And there is no incentive really there to go and have a budget on time and there is no real effect when they don't have a budget on time. You know, they say they don't get their wages, their salaries, when they don't have a budget. But then, of course, when you have a budget they get it back, all of this money that they have lost, so it really is -- it doesn't really do much, so there's no real incentive.

And so now we are, like you said, 62 days late. Every day that we are late we are spending $52.5 million more than we are taking in, so by now they have basically spent $3 billion. That money is gone, $3 billion.

So the important thing is that when they talk about that our budget is too tough -- we make too many cuts and we are taking food out of people's mouths and the poor people are being hurt and the most vulnerable citizens are being hurt and our children don't get the money for their education -- and that's why they want to increase taxes.

I believe that it is really a misleading statement because the fact of the matter is and I think it's very important to know, that they have wasted an extraordinary amount of money on so many things where we could save that money. Like, for instance, not making the mid-year cuts that I've asked them for has wasted $2.8 billion. Or, for instance, being late with the budget has been wasting $3 billion. Public pension benefits -- if you think about they have gone from just CalPERS alone, from $150 million 10 years ago, it has gone up to $6.5 billion altogether, all the retirement benefits. I mean, we are talking here about 2,500 percent increases when our revenues only increased by 28 percent.

So it's those kind of things, where we could have saved. If they wouldn't have done the pension reform, SB 400, we could have saved $3 billion right there. If we would have created a rainy day fund we would have had $12.5 billion together. But they have fought me on every step of the way.

So there is an endless amount of things that we could have done to have that extra money so that we don't have to make those unnecessary cuts. Now we have to make those cuts because the money is not available and the state of California does not print its own money like the federal government. So we have recommended $12 billion in cuts -- the budget deficit is almost $20 billion -- and the rest of it is in fund shifts, drawing down federal money and extra revenues and so on.

So that's where we are right now. So I think after they go through this Kabuki that they're going through right now, I think that the legislators, Democrats and Republicans, will come back to the office and we will go and continue negotiating. I think the negotiations went really well.

And I made it, of course, very clear that I will not sign a budget if we don't this time reform the budget system, where we have a rainy day fund, which will go on the ballot -- I think it's too late now to go on the November ballot but it will go on the 2012 ballot. And also if we don't do pension reform so we go and, for new hires, have again the 1999, the pre-SB 400 kind of standards and benefits so that we slow down that increase in debt.

Because if we don't do pension reform, as you can see right over here, the increase -- here is our revenue increase down here, which is 28 percent. Here is the pension cost increase. So, of course, it hit the ceiling, so we have another one here that shows the continuation, (Laughter) to dramatize a little bit the situation.

But it just shows to you, you cannot sustain that. It will eventually be what is now -- the $6.5 billion will eventually be $20 billion within the next 10 years. And that is crowding out other programs, if it's education, if it's higher education. It's the first time ever that we are spending more money on pensions and on retirement benefits than on higher education. So that's what I call living in the past rather than living in the future.

So those are the kind of challenges that we have, to create those reforms and to negotiate so we have as soon as possible a budget.

MR. FALK:

Thank you. Wade?

MR. ROSE:

Governor, actually my job was to ask you about the pensions but you went right into that because it has such an impact on the economy. But stepping back, given your time as Governor and looking at what it takes to create and maintain a modern economy, what's your perspective, given the recession, on how we can work to jump start the economy in California? How we can promote the resurgence of economic vitality that's so necessary for this state, as you and I were talking about, because it is the foundation on which public services are based?

GOVERNOR SCHWARZENEGGER:

Well, I think that everyone in this room probably is in sync with that, that you can create revenues by stimulating the economy. In Sacramento and I think a lot of times when you read in the papers and you hear the news, you would think that you only can solve a budget problem two ways; one is by making cuts and the other way is by increasing taxes. But the reality is there are so many other ways and I just mentioned many of them just before, of where we can get the extra revenues.

But one area where you can get a tremendous amount of extra revenues is if you go and stimulate the economy. And that's why in my State of the State Address I made it very clear that for me this year it's all about jobs, jobs, jobs.

And this is why I consistently also over the years have vetoed all the job killing bills. And it was really interesting to see how similar the ideas were. When I looked afterwards at the chamber's job-killing bills and then I compared the notes and looked at what I had vetoed, many of them were very similar. As a matter of fact, 95 percent or so are the same and 5 percent we differ in our opinion, what is a job killer and what is not a job killer. But that's OK.

But the bottom line is we've got to create jobs and we've got to get rid of the -- there will be a whole bunch of bills, hundreds of bills coming to my desk that will be also job killers. And I will veto those bills right off the top. I will look at all the job killers and in one sitting I will be vetoing all of those bills because they're damaging to the state of California and they're damaging to our economy.

We must always think of one thing and this is how do we go and make the state of California competitive compared to other states and how do we go and create incentives for other businesses to come from other states to California and from around the world to come to California. Now, we happen to be the greatest state in the nation and the greatest place in the world because of our weather and because of our diversification and all of those things. And hardworking people, very innovative, in this state.

But we are not as competitive as I want the state to be and this is why I think tax incentives are extremely important for new hires, tax incentives that we have proposed and the legislature has not voted on that and has not taken that issue up.

I think to do tort reform is a very important factor because we have laws in place that were written to be abused, not to be used, because laws should always be used but not abused. And I think a lot of the environmental laws are being abused over and over, where businesses are held up for years and years and years until they can build or expand or do anything, or develop anything. I think we have to go and look at all of that.

Of course the most important thing is that we have the tax incentives in place for various different things and get rid of the sales tax for manufacturing. We have seen the great reaction that we've gotten when we exempted the green technology manufacturing equipment from the sales tax. Immediately we've seen companies come here, locate here to California, Chinese companies and from South Korea and from different places and also from other states. We are building now more electric cars here in this state and the development of batteries and solar and wind and all of those things is really growing.

As a matter of fact, more venture capital -- it's like 57 percent of venture capital from the United States -- is coming to California because of all of our things that we have done in as far as setting environmental goals with AB 32 and the Hydrogen Highway and the Million Solar Roof and all of those things. So it incentives businesses to come here, doing that.

So if we do that in all areas -- you know, exempt the sales tax from manufacturing equipment -- and if you look at all of the different things where we can bring incentives. It's pretty much the same thing as when you go out to a store and you see a sign that says "30 percent off." That sign is there because you want to bring people in. And that's what we in California need to do. We have to create those kind of incentives and cut through -- you know, if it's cutting through the permitting process or the tort reform, all of those kind of things so that other states look at and say, "I want to go and do business in California. They're offering such great incentives. I'd rather do business there than in our state."

That's what we want to do. And that will then expand companies that will bring more business here and it will create more jobs and therefore all of those people that get jobs will then pay their taxes and businesses will pay their taxes and that's what gets the economy going. So those are the kind of things we need to do.

But just to give you an example, that we have right now 220 companies or so that want to build solar plants or windmills and stuff like that in the state of California, in the Mojave Desert and other places. They're waiting for the permits. But they have been waiting for years and years and years for the permits.

We are working very closely with the federal government to get those permits, at least for 12 of the companies, so they can start building by the end of this year, because that means that we could get $10 billion of ARRA funding for those companies and create immediately 12,000 new jobs.

So those are the kind of things. If we could give those companies the permits, all 200 of them, or 240 of them the permits, imagine, we would create, only within years, 60,000 megawatts of green energy. Now, we only use right now -- I think yesterday we used around 32,000 to 34,000 megawatts, to show you. On the hottest day of the summer we maybe use 50,000 to 52,000 megawatts. We have a potential, if we let all of them be built, of 60,000 megawatts of renewable energy. Now, that would be staggering. We would be by far number one in the world. But to get the permits -- it is staggering. So it's like there are so many obstacles.

Now, I'm an environmentalist, I want to protect the environment. But there is a certain time where you have to go and say OK, after a year or two of studies, we have done enough studies. We don't need another five years or another six years of studies. And so those are the kind of -- because they're doing studies and they come up with things like, you know, there's a squirrel there that could live if the squirrel comes back.

So you say, "Where is the squirrel? I haven't seen one, I've been out there."

They say, "Well, they're not there yet but it could come." (Laughter)

And then they talk about the windmills. We just had this huge debate for months and months and months about, you know, getting renewable power lines from the Tehachapi, where there are all the windmills.

So they didn't want to let us build the power lines because they said, "There is a sign -- a sign that possibly some of the birds could be coming from the west to the east. The condor has shown that it wants to move slowly to the east, inland and if that happens they could be flying into the windmills."

So I said, "Well, have you seen a condor around the windmills lately?"

"No, no, no. There are no condors here." (Laughter)

So I said, "What are we talking about? Why would you make it so difficult and think about what could happen? And there is movement that, you think, for the condors and others to move east?"

So those are the kind of things that are just crazy and I think that we have to just comb through that and get through that.

So the Democrats basically have to just, you know -- I'm not going to try to change their philosophy, obviously, because I was not able to change my wife's in all the 30 years that I've known her, so I'm not going to do that. Nor are they trying to change our philosophy. That's not really the point.

But the point is I'm a person that wants to go and land in the middle, where I say OK, you guys have a point. You want to go and help the poor people. I think that's a great idea. And help the children, I think that's a great idea. Give all the money to education; I think that's a great idea. We just have a difference of they want to raise taxes and I want to go and raise those revenues through other means, like stimulating the economy.

Or, for instance, I have here -- I put a list together. If we would do tax reform alone and spread alone our taxes more evenly, rather than just relying 50 percent of our revenues, or 53 percent of our revenues come from personal income tax and capital gains tax, which is crazy because it's the most volatile source of revenues. So this is why our revenues go up and down like a roller-coaster ride. How do you do education? How do you go and plan for education, for schools and all of this when you have this roller-coaster ride? How do you plan for programs for poor people when you have a roller-coaster ride and you don't have that money all the time available?

So this is why we need tax reform, to create a more stable source of revenues, if it is to reduce the income tax, reduce the sales tax, reduce the corporate tax. And spread the taxes. Since we are in a service-oriented economy, spread it to all services. Let's look at that idea. How do we go and kind of slowly ease that idea in so that we can lower the taxes but have everyone pay for it rather than just a few people? That will create stability and the tax experts have said that that will reduce our structural deficit by at least $5 billion. So that's just one idea.

The other one, of course, is when you talk about education. I don't know if you have heard, just recently they finished a school in Los Angeles which is now considered all over the world in the news as the "Taj Mahal," the "Taj Mahal of schools." Why? Because it was less than $300 million, the estimate to build it in 2007. Since then, of course, the construction costs went down by 40 percent so you would say great, maybe it will cost $200 million. No, it ended up costing $600 million. Think about that, $600 million for a school.

And they are very proud when they walk the media around and they say, "This dining room here is much more extraordinary than it ever was when it was the Ambassador Hotel." Now it's called the Robert F. Kennedy Community School, because Robert F. Kennedy was assassinated in that hotel. But that used to be the hottest place to go in the old days, the most extraordinary dining rooms and entertainment center. But now they are proud to say that "We have even better dining rooms and better entertainment facilities here." And they have talking benches, so when you sit on the bench it gives you a little bit of the history of that area. Now, why would you need that?

Why wouldn't you go, instead of having the most fancy dining rooms and commissaries and all of those things, why wouldn't you go and put this money into the classroom? We have right now exactly a $600 million deficit in the L.A. Unified School District and they have to lay off 3,000 teachers because of that. Why would you go and waste that much money on a building? Why not build it like every office building is built, where it costs $250 a square foot, rather than $800 a square foot? It's irresponsible.

So what we are talking about as Republicans a lot of times is yes, we have an economic crisis and yes, therefore we have less revenues. But let us go and look internally and create those extra revenues, like I said with the pensions, or the legislators collecting per diem money when they're not even there, or schools that are being built that cost twice as much than what they should cost. Or books are being discovered in boxes -- $12 million worth of books were discovered in the L.A. Unified School District in boxes, never been used. That's a waste of money and that money ought to go into the classroom.

So we are all for getting money into the classroom, we are all for helping poor people and the most vulnerable citizens, yes. But let's go and create those revenues internally by running government more efficiently.

And also not having the state employees having this gold kind of a treatment when other people, all of you, have to pay for your own pensions and then you have to pay also for their pensions. It's unfair. So we are just saying those are the things that ought to change.

So while Senator Steinberg is on the floor and talking about raising taxes, I say no to raising taxes, no to spending more money and no to borrowing and yes to making government run more efficiently and yes, let's stimulate the economy and yes, let's create more jobs. (Applause)

MR. ROSE:

Yes.

MR. FALK:

Well, Governor, I guess the good news is we don't have a lot of squirrels here in San Francisco. But we do have our share of nuts. (Laughter) And we can --

GOVERNOR SCHWARZENEGGER:

Hey, nice. Nice job.

MR. FALK:

We can identify with the challenges of getting people thinking about economic development as opposed to always looking at taxes as a new revenue measure.

As we look ahead all of us, business, those of us who live and work here, the recession isn't going away anytime soon. What should we be looking for in the next leader of California, from your perspective?

GOVERNOR SCHWARZENEGGER:

Well, first of all, I'm a big believer, as you know, in infrastructure, because if you look at the long term -- you never should make decisions based on just from year to the next, even though that's kind of very American to do, to live from one quarter to the next and so on. I come from Europe and therefore I have a little bit more the mentality of not only looking at short term but looking at long term.

So this is why I was fighting for six years to get our water infrastructure in place so that we build more dams, we build the canal, we fix the Delta and all those kind of things, even though none of this will be done while I'm in office. But, you know, this is something that is important for 30, 40 years from now, so that the state of California, when we have eventually 45-50 million people in this state, so we have enough water.

The same is also with the high-speed rail. I have been campaigning for the high-speed rail because it's very important that we build a high-speed rail, because it will be wonderful to be one of those countries, like Germany and Spain and Portugal and China and Japan and so on, that have a high-speed rail where people can move around with a speed of 250, 300 miles an hour -- or 200 miles an hour in some instances -- but just to move faster so we don't have to take an airplane always from Los Angeles or from San Diego to San Francisco. I think we can go with the high-speed rail. Or to Bakersfield down the Valley and so on. So I think that's the important thing.

The other thing is, you know, we were very fortunate that since I have been in office that we have passed and the people have approved $60 billion of infrastructure bonds, if it is the prisons, building more prisons, building more schools, building more university buildings, more affordable housing, fixing our levees that were very vulnerable and so on and so forth.

And so I think it's important now that the people in 2012 pass also the water infrastructure bonds which will be on the ballot then. And that the next Governor continues building for the future and not, again, just think short term, how do we fix the thing? And it is such a wise way of using our money, because the difference between ongoing programs and infrastructure is that ongoing programs is like ongoing spending. It's called spending.

But with infrastructure, it's really, truly called investing. I mean, if you think about the kind of buildings and the kind of roads and bridges and tunnels and all of those things that we benefit from, that were built 50 years ago, 60 years ago -- I mean, those things live for a long time.

And so this is why I'm always very happy -- even though it costs a lot of money, the Bay Bridge, when you come across. And I'm going to be in China visiting all the workers that actually built the bridge over there, to thank them for the hard work they're doing by building such an extraordinary piece of work that they're doing. And so when I go on my trade mission I will be visiting them there.

But those are the kind of things that we need to continue doing in this state, because we'll have an increase in population and we don't want to have traffic jams, we don't have to have people getting caught in traffic jams all the time. We want people to move fast back and forth. We want to have goods move around very quickly, because that's economic power, is how fast we move people and goods around. So I hope that the next Governor sees that and sees the importance of building and the importance of infrastructure.

I think it is also important that when it comes to law enforcement and to public safety, to follow our vision. And of course I understand, when we talk about following the vision, that the next Governor will have also their own vision. Whoever that is will have their own vision but consistency is important and to continue on the things that we have laid ground and that we have moved on.

There is a lot of great work that was done, if it is in healthcare, if it is in Workers' Compensation. If it is in political reforms, to create open primaries and redistricting reform -- that we finally were able two years ago to win redistricting reform after five attempts and take it out of the hands of the legislators, who have rigged the system and now give it to ordinary people that will be experts in this subject and not the legislators.

So all of those kind of things we need to continue, for political reform, for government reform, for blowing up the boxes and making government shrink rather than expand. All of those things I hope that the next Governor will continue doing.

MR. ROSE:

And you mentioned one thing, Workers' Comp. It's easy to forget about the big successes because they go back a few years but this audience, all of us, owe you a great round of applause for Workers' Comp reform alone, which has been outstanding. (Applause)

MR. FALK:

Wade, we have time for one more question. Make it a good one.

GOVERNOR SCHWARZENEGGER:

I just want to add quickly, so that people know, Workers' Compensation reform has reduced Workers' Comp costs by 63 percent. I mean, think about that. It literally has saved the state of California businesses $70 billion since I have come into office. So this is an enormous amount.

There have been attempts every single year to change some of the rules and to go and increase the costs of Workers' Comp. And again, I want to just reiterate to all of you, because democracy is not a bystander sport or something like that. You've got to always participate, you've got to fight for those things. So you've got to go and be fighting for making sure and keep putting the pressure on the legislature and also the next Governor, to make sure that they fight for keeping those costs down.

As a matter of fact, I was just asked, "What about just raising them 5 percent?"

And I, without any hesitation, said, "Absolutely no. Not one single penny do I want to have the costs go up because we can do it with that reduction. We don't have to increase it again."

There is all kinds of dialogue. "Well, the healthcare costs have gone up." So what? You figure it out but you're not going to get an increase.

That is the bottom line. This is what we need to do because if that starts breaking, if that dam breaks, I just want you to know it will be beyond control and you will have the costs back again exactly where it was and much more, because there are the trial lawyers and all of those waiting over there and certain elements of the legislature that are all in cahoots. They're waiting for an opportunity to get in there and they're hoping that the next Governor, that that will be the way to get in there. And so I just wanted to make you aware that you've got to fight for those savings.

As much as I have to fight this year again for protecting AB 32; AB 32 was a law that we passed in order to reduce our greenhouse gases and to create a green economy in California. We are doing really well with that, creating a huge booming economy. As a matter of fact, it's the only area that is hiring right now, is the green economy.
…

MR. ROSE:

That's a very good point.

MR. FALK:

Last question.

MR. ROSE:

The last question. Governor, as people look back on your administration and your achievements -- of which there are many and you've just iterated a number of them -- they can really see you as a champion of the middle, the champion of the people in the form of the commitment to getting tasks accomplished, not exercising the ideologies.

But what do you see as your future? You have a big task ahead of you and that's to manage the current budget debate, to make sure that that doesn't turn into a complete fiasco, to make sure it turns out well for the people of California. But then what? I know you're asked this question all the time but we've wanted to ask it of you as well. What is the future of Arnold Schwarzenegger in relationship to the public policy of California?

GOVERNOR SCHWARZENEGGER:

Well, first of all, let me just say that I do get asked that question all the time because people want to know what I'm going to do next. I have no plan on what I'm going to do next because I don't want to think about what I'm going to do next. Because one thing you learn in sports and that is to keep the eye on the ball. This time that we are in right now is so crucial, because there has never been a time that is more perfect for those reforms that I talked about than right now, if it is pension reform, if it's budget reform, tax reform and to do those kind of things. So therefore if I can accomplish that I will be a happy camper.

But I'm not going to be a happy camper if I don't accomplish that and maybe have five movie deals lined up for next year. That doesn't mean anything to me right now, what happens next year, because whenever you do a good job you never have to worry about your next job. Never have to worry about that.

So right now I'm thinking just about now and about the next few months. I want to charge through the finish line. With me there is no such thing as a lame duck Governor. There is no such thing. We charge through the finish line. We're going to go all out and we're going to try to do everything we can to bring Democrats and Republicans together to get this budget done with the reforms that I have asked for.

And then, I just want to tell you, I will continue with public policy. Even though I will not be Governor anymore I will continue my fight for economic growth here in this state. I will continue my fight to protect education. I will continue my fight to bring tourism over to the United States and for government reform and political reform and all of those things and to protect our environment. I will be fighting for protecting our environment and protecting AB 32 and our Hydrogen Highway and the Million Solar Roof Initiative and the Low-Carbon Fuel Standards and for us to build more electric cars and more hydrogen cars and alternative fuels and all of those kind of things. I think this is extremely important.

And the reason is because I came over here to this state and to this country because I always looked at it as the land of opportunity. And this is why to me the work that I've done the last seven years, even though I didn't get paid, was to me the most -- I felt the most honored, because I was able to give something back for six and a half, almost seven years now, to the state of California.

Because everything that I have achieved in my life, when I came over here from Austria at the age of 21 with no money, was because of California. Every single penny I made -- and I have millions and millions of dollars, I became the highest-paid actor with $30 million a movie -- it was all because of California. If I would have stayed in Austria none of this, not even 10 percent, would have happened.

So this is why, when people say, "Why would you do that? Are you crazy? You're going to go and now not make any more money? You're going to work for free and all this?"

I say, "With great pleasure. It is my way of giving something back to the state that has given me everything."

And this is why I will continue working for the state of California and sell the state of California, sell its products, its knowledge and innovation and all of this, all over the world. You don't need to be Governor for any of that.

I remember my mother-in-law, Eunice Kennedy Shriver. She has never run for office, unlike her brothers, who all ran for office. But she never ran for office. But when you think about who has left the biggest legacy -- I mean, she created Special Olympics, that is now in 180 different countries. Now, you tell me which one of her brothers -- senators, attorneys general, presidents and all of those things -- left a legacy in 180 counties.

She did. She did, why? Because she had a vision and she had the will and the determination, not because she was a public official or she ran for office. She never could run for office because she was a woman. You know, if in the 1950s women would have had the rights that they have today she would have run for president and she would have won. But she didn't feel -- I mean, she felt gypped a little bit. She said, "I'm a woman," even though she had everything else like a guy, let me tell you, that woman. (Applause) That woman was tough. She was unbelievable.

But the most generous, the most generous person. And bipartisan in a way, because remember that I'm a Republican and she came out and campaigned for me. And she said to me, she said, "I'm going to send you a campaign contribution," and she sent me the $22,000, whatever the limit was. And she said, "Don't tell Teddy, because I never sent him any money." (Laughter) But that's the kind of mother-in-law she was and that's the kind of woman she was. She was extraordinary.

But the point I'm making is that you don't need to necessarily be the Governor or the president, or this and that, in order to really make a difference. There are other ways of making a difference too. And I think all of us have an obligation to go out and ask ourselves every day, what do I do to make a difference -- besides the regular work that you do -- but what else do I do to make a difference?

And I think this is something that I've learned from her and from Sargent Shriver, who created the Peace Corps and the Job Corps and Legal Aid to the Poor and so on. So I had a great influence, I was influenced by them in an unbelievable way. They couldn't influence me to become a Democrat but they influenced me in a lot of other ways.

So anyway, so I will continue doing that. That's why my mission is for the future, besides all the other stuff. (Applause)

MR. ROSE:

Appreciate it very much.

MR. FALK:

OK. I think, Governor, the only appropriate way to end is just to say thank you for your time with us this morning. And even more important, thank you for your leadership of California. We appreciate it.

GOVERNOR SCHWARZENEGGER:

Thank you. (Applause)

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