Deal Breaker

Although Schwarzenegger often oversold even his modest achievements as historic reforms, in private he talked about his frustration with the slow pace of change in the state, and about how the political reality stymied major progress. He wanted to invest billions in repairing California's infrastructure, but the budget, though far healthier than when he took office, was still unbalanced. As the governor tried to make political history, his own political history boxed him in. He knew it would be a struggle to reconcile his campaign promises to reduce the state budget deficit, avoid a tax increase and protect popular public spending, particularly the school funding guarantee known as Proposition 98.

Much has been said and written about the supposed reasons for the governor's slide in the polls during his second year in office, including his fight with a nurses union and the rhetorical misstep of calling legislators "girlie men." But the real story of his political rise--and the subsequent decline from which he has only partially recovered--centers on his relationship with the 335,000-member California Teachers Assn. and a deal that he and his closest advisor, Bonnie Reiss, negotiated with the union shortly after his election in the waning days of 2003. That agreement reflected his stated desire to protect Prop. 98 and education funding. During an interview at Riverside's historic Mission Inn in the midst of the campaign to recall his predecessor, Gray Davis, I had asked Schwarzenegger if he would suspend the Prop. 98 guarantee to balance the budget. "Not over my dead body," he replied.

But a year later, as he contemplated using ballot measures and a special election to fix the state's stubbornly out-of-balance budget, the governor began to see Prop. 98 as a target. The meeting at the Sheraton in November 2004, a year and a day after his inauguration as governor, was Schwarzenegger's belated attempt to force his team to plan for such an election. More than two dozen advisors showed up, including pollster John McLaughlin, who flew out from New York to give a presentation. There were a few warning signs, particularly the governor's relatively low approval rating on education (43%). But the good news outweighed the bad. Seventy-one percent of the voters surveyed had a favorable opinion of Schwarzenegger. "Enjoy it," McLaughlin said as his client chomped on his cigar. "We have no place to go but down."