New Era Emerges as the Dust Clears From Deal-Making

SACRAMENTO--It was arguably the most important Capitol action in years.

It ranked up there with education reforms (good) and energy deregulation (disastrous).

This new policy is a mixed blessing. A balanced budget requirement is long overdue. But borrowing from the future to pay present expenses and finance a car tax cut is foolish.

Regardless, the compromise between the Republican governor and the Democratic-dominated Legislature carries significance far beyond the public policy. When they agreed late last week to place the proposals on the March ballot, it meant:

* Big victories, of course, for the dealmakers: new Gov. Arnold Schwarzenegger and outgoing Assembly Speaker Herb Wesson (D-Culver City). But bigger than for any individual, this was a crucial triumph for the institution of representative state government. And none too soon.

* A sharp shift in political dynamics at the Capitol. The power buttons now will be pushed by a Republican governor and the Legislature’s Democratic leadership -- in tandem if anything’s to be accomplished on weighty issues. When the governor is focused on a goal, loyal GOP leaders will wield less clout than they did when a Democrat was chief executive because they’ll feel compelled to toe the line.

And, yes, the action signals to bond markets that California’s new CEO is getting his arms around a failing operation and this may not be such a risky place to invest, after all.

The borrowing plan -- $15 billion for up to 13 years -- will cost about $1 billion less annually than a seven-year payback proposed previously by Democrats. That means two things: fewer draconian program cuts and less pressure for a tax increase, both plusses for Schwarzenegger.

But voters shouldn’t kid themselves: If they don’t approve the bond issue in March, quick tax hikes are virtually inevitable.

Schwarzenegger and Wesson haggled over the size of a “rainy day” reserve. It will start building in 2006 and ultimately reach 5% of the state general fund. The governor got his reserve -- and also got what he and the speaker both wanted: enough money to restore butchered programs when the good times return.

Schwarzenegger won because he became a leader and delivered on a campaign promise. Wesson won because he burnished his legacy just before being booted by term limits. Democrats won because they rid themselves of a thorny issue and showed they could cooperate with the popular governor.

Republicans won because they attained a budget-balancing mandate, although many groused it was not a real spending cap. Republicans never know when to declare victory in Sacramento, so they seldom win.

The biggest winner, however, was the Capitol institution, which had fallen into disrepute and justifiably low self-esteem.

Ideological gridlock -- and inane, petty politicking -- has dominated the Capitol in recent years, leading to public disgust and the recall of a governor.

Schwarzenegger was threatening to bypass the Legislature and take a spending cap initiative directly to voters. That hostile move would have stunted any budding relationship with Democratic leaders and further polarized the state.

Now, legislative leaders and the governor have proven -- most importantly to themselves -- that bipartisan cooperation is not a fantasy. The balanced budget-and-bonding agreement can provide a template for future deals.

One breakthrough was Schwarzenegger’s shifting from a campaigning mode of mall-stumping -- trying to pressure Democrats -- to a governing mode of focused negotiating.

After the Legislature had failed to meet an arbitrary Dec. 5 deadline and a deal seemed doomed, the governor ran into former U.S. Secretary of State George P. Shultz at a bipartisan retreat in Palm Springs. Shultz encouraged him.

“You never walk away from the table with nothing,” Shultz reportedly told Schwarzenegger. “You’ve got to do a deal.”

Meanwhile, several lawmakers -- led by Assemblymen Keith Richman (R-Northridge) and Joe Canciamilla (D-Pittsburg) -- were agitating for renewed talks.

Schwarzenegger called Wesson because he knew the speaker had not given up and wanted to bargain. “Herb and the governor hit it off,” a Schwarzenegger aide says. “Both are salesmen.”

In the dealing, Schwarzenegger agreed to send thank-you letters to Assembly Democrats who voted for the package, expressing his gratitude for their bipartisanship. Democrats in tough reelection races next fall will herald these Schwarzenegger missives.

There has been a sudden shift of political plates inside the Capitol. The power balance has returned to where it always

has been when there’s a Republican governor and Democratic Legislature. GOP lawmakers are cast in supporting roles of a Republican star -- rather than as rebels fighting a Democratic governor.

Nobody understands this better than Senate GOP Leader Jim Brulte of Rancho Cucamonga, a minority leader when Republican Pete Wilson was governor.

“The Republican leader is no longer in the Legislature,” Brulte says. “The Republican leader is in the governor’s office. At the end of the day, you negotiate with the guy who can deliver the votes.”

This could signal a shift back to politics as usual, old style. Productive politics.