Monday, December 19, 2005, Wall Street Journal's Opinion Journal

JOHN FUND ON THE TRAIL

Conan the Appeaser
California's political establishment has domesticated Arnold Schwarzenegger.  

By John Fund

Last week Washington buzzed about a Newsweek cover story depicting President Bush trapped inside a bubble. The article describes how the president's "defensive edge, a don't-tread-on-me prickliness," inhibits his advisers from making sure he gets all the facts. Mr. Bush heatedly disputed the analogy, but aides privately admit to me there is some validity to it (think Katrina).

Some 2,400 miles away in Sacramento, Calif., the Republican Assembly caucus had much the same concern on Tuesday, when Gov. Arnold Schwarzenegger visited them for an hour-long gripe session about his sudden selection of Democrat Susan Kennedy to be his new chief of staff. Ms. Kennedy was deputy chief of staff to Gray Davis, the Democratic governor who got the boot in the 2003 recall election that catapulted Mr. Schwarzenegger into power. A former executive director of the California Democratic Party, Ms. Kennedy was the day-to-day point man for Mr. Davis as his office mishandled energy shortages and papered over budgetary black holes. "She was more powerful than her title, the person everyone went to," says Bill Leonard, a member of the State Board of Equalization who served as a GOP assemblyman at the time.

Her appointment by Mr. Schwarzenegger stunned California political observers, even though they expected some kind of course correction after voters rejected the governor's reform agenda in last month's special election. Ken Grubbs, a former editor of the Sacramento Union, says the Kennedy appointment "symbolically voids the recall itself." Even moderate Republicans are outraged. "This appointment does more to alienate the governor's solid base of Republican support than anything I could have imagined in my worst nightmare," says Mark Johnson, a co-founder of the New Majority, a moderate GOP group that contributed millions of dollars to the governor's reform initiatives this year.

Public statements after the meeting between the governor and GOP legislators and a similar one held two days later with the executive board of the California Republican Party were upbeat. Mr. Schwarzenegger left the party meeting claiming Republicans were "one big family." He said he told the GOP leaders: "Don't judge me by who I hire, but judge me by my actions." GOP chairman Duf Sundheim went so far as to claim that "we support his decision" to hire Ms. Kennedy, a conclusion that others who were present openly dispute.
The earlier powwow with the GOP legislators also left unresolved issues. Before the governor arrived, Schwarzenegger aides Richard Costigan and Rob Stutzman briefed legislators, warning them that attacks on Ms. Kennedy would only cause their boss to "dig in his heels." They were advised not to bring up Mr. Davis's 2001 Oracle scandal, in which the computer firm won a $95 million no-bid state contract that bought more software licenses than the state has employees. Every civil servant involved opposed it, but Ms. Kennedy signed off on it. Five days after the contract was signed, a Davis technology adviser accepted a $25,000 campaign check from Oracle in a Sacramento bar. He and two other Davis aides were forced to resign.

Thus when Mr. Schwarzenegger arrived to talk with GOP legislators, the discussion was understandably constrained. After someone brought up Ms. Kennedy, the governor shocked and offended his audience by telling the legislators that "The reason you don't like her is that she's a lesbian, and lives openly with another woman." He explained that he had hired Ms. Kennedy to "make the trains run on time" in his office and that she could devote "24 hours a day" to the job because she didn't have kids. Assemblyman Mike Villines of Fresno then asked if the governor really meant to imply he couldn't hire someone with a family for the top job in his office. The governor then backed down slightly.

"The meeting was incomplete," says Assemblyman Ray Haynes, one of the few legislators to comment publicly on it. "Everybody pulled back because nobody knew how Arnold would react to bad news." In other words, the governor came to the meeting in his own self-contained bubble, which remained intact when he left. Mr. Schwarzenegger's office did not return phone calls about the meeting.

Lawrence Leamer, the author of "Fantastic!," a new sympathetic biography of Mr. Schwarzenegger, says he sees evidence his subject's boundless optimism may finally be failing him. "He despises bearers of bad news and views them as wallowing in negative energy," Mr. Leamer says. "He told me, 'I need always positive reinforcement and then face reality.' " But what worked in bodybuilding and Hollywood may not always transfer over to the political arena. Mr. Leamer calls the governor's reaction to the GOP legislators "frightening" because it may show he is no longer learning from people. "Modern politicians aren't troglodytes; they've worked with gays," Mr. Leamer told me. "To imply they were homophobes misreads them and may mean he isn't facing reality."
The governor may also not be acknowledging how much his administration is already listing to the left. Only a handful of GOP legislators are prepared to back a mammoth $25 billion infrastructure bond he is negotiating with Democrats to put on the June ballot. Alan Bersin, his new education secretary, says the administration is prepared to consider tax increases to address education problems. "We have not heard anything like this from the administration before," Rick Pratt of the California School Boards Association told the Los Angeles Times. The governor's once-vaunted "performance review" of state agencies seems to have become an orphan.

The governor is also making it difficult for Republicans to combat national and state charges of corruption and ethical laxity. One GOP state senator recalls that even former Democratic state Senate president John Burton once told him that "the problem with the Gray Davis administration was that it represented corruption with a small 'c' and incompetence with a big 'I.' " Mr. Burton told me he doesn't remember making such a comment and added that he believes the Davis administration's main problem was "that it lost contact with its base on issues," a mistake many Republicans now fear Mr. Schwarzenegger is now making with his own core supporters. Indeed, supporters of Jim Gilchrist, the founder of the Minutemen border-patrol group who won 25% of the vote running as an independent in a special U.S. House election in Orange County this month, tell me he is close to deciding to run against Mr. Schwarzenegger on a "close the border" platform. Were Mr. Gilchrist to get 5% of the vote as a third-party candidate, he could swing the election to the Democratic nominee.

"Republican activists are confused by Arnold appointing the enforcer of Gray Davis's deals with campaign contributors just days after [ex-Rep.] Duke Cunningham [of San Diego] pleads guilty to massive bribery," one top GOP party official told me. "He has basically blurred one of the main reasons people threw Gray Davis out of office." Indeed, at a ceremony this month unveiling the official portrait of Gov. Davis in the state capitol, former Davis chief of staff Lynn Schenk triumphantly noted that the Republican governor had recently appointed two top Davis aides to key posts in his office. "I'm sure all of you are as pleased as I am that the Davis administration will continue on here with my former deputy chiefs of staff, Susan Kennedy and Daniel Zingale," she told a nervously laughing audience. "But I thought it was going to be in the Davis administration!"

Some Sacramento observers even worry that the Oracle scandal could return to bite the Schwarzenegger administration. Ms. Kennedy told me that the Oracle matter was merely a misunderstanding that only occupied eight minutes of her time. But Dean Florez, the Democratic legislator who chaired the committee that investigated the scandal, told me in 2002 that the probe had been shut down on orders from Democratic leaders just as it was probing Ms. Kennedy and other top Davis aides. Agents from the state Department of Justice were taken off the Oracle case and reassigned even though they were following many promising leads. One investigator told me that several people in Mr. Davis's office were "either lying about their role in the scandal or were beyond incompetent."
One Republican with detailed knowledge of the Florez probe worries that Mr. Schwarzenegger "failed to exercise due diligence" in hiring Ms. Kennedy. "She is very unpopular with many Democrats for taking a job with a top Republican," he said. "If she is too loyal to his agenda or makes an embarrassing stumble, don't be surprised if Democrats unearth stories about Oracle, Gray Davis and her role in other issues to tarnish the governor's sterling record on corruption." He noted that one of Ms. Kennedy's closest friends is superlobbyist Darius Anderson, who was a close ally of former San Francisco Mayor Willie Brown and supermarket tycoon Ron Burkle, both of whom have rich reputations as wheeler-dealers in California politics.

Two years ago, Arnold Schwarzenegger stood before 10,000 supporters outside the state capitol in Sacramento, waved a broom and told the cheering crowd, "We're going to clean house!" With his latest moves it appears he's more interested in negotiating an extension of the lease.
Mr. Schwarzenegger insists that he hasn't changed his philosophical direction and that he remains in firm control of his office's day-to-day operations. But his opponents are already seeking to undermine that claim. Mr. Burton, the former Democratic state Senate leader, told me that "Arnold is now having trouble because he no longer has me to hold his hand." Democratic state Senator Carole Migden told the San Francisco Examiner that she envisions her friend Ms. Kennedy as a kind of dual governor: "Arnold can now go out and campaign and Susan will stay at the Statehouse and get things done."

The soap opera that the Schwarzenegger administration has become promises to take even more complicated plot turns now. "He can recover, but his desire to be a transformative governor is in jeopardy," says Mr. Leamer, his biographer. "Right now he looks as if he'll be another in a long line of California governors who didn't really tackle the state's problems straight on." Indeed, California is continuing to slide. This month, Clark Foam, the Orange County firm that supplies most of the world's surfboards, suddenly closed its doors. Surfer magazine reports the closure has created a crisis for surfing enthusiasts. It said that founder Grubby Clark had "repeatedly complained" about "the deteriorating business climate in California" and harassment by state environmental officials.

The domestication of Arnold Schwarzenegger by the Sacramento status quo in two short years couldn't have come at a worse time for the state and its long-term future.