Governor Lays Out Ambitious Agenda Certain to Draw Fire

SACRAMENTO —  In a broad challenge to California’s entrenched special interests, Gov. Arnold Schwarzenegger implored the Legislature on Wednesday to restrain spending, revise “out of control” pensions, reward the best schoolteachers and “expel” the worst.

Schwarzenegger said in his annual State of the State speech in the Assembly chamber that he would devote his second year in power to ambitious changes that would reverberate in California and beyond, from classrooms to Congress; drug companies to prisons.

If Schwarzenegger prevails, the most influential members of California’s congressional delegation might find themselves running in reshaped districts with thousands of unfamiliar constituents. The poorest Californians could be paying less for prescription medication. And teachers deemed inept might be deprived of raises, no matter how long they’d been on the job.

Using the speech to roll out a 2005 agenda certain to antagonize powerful public employees unions, liberal Democrats and even Republican allies, Schwarzenegger said politicians risked a rebellion if they rejected his sweeping proposals. His theme was more combative, a departure from the inclusive approach he favored early in his term.

The governor described Sacramento as a city “in the grip” of special interests. “If we here in this chamber don’t work together to reform the government,” he said, “the people will rise up and reform it themselves. And I will join them. And I will fight with them.”

Schwarzenegger said he would call a special legislative session today that would center on four issues: spending limits, teacher merit pay, legislative and congressional redistricting, and an overhaul of the state pension system. If passed by lawmakers, some of the moves would require voter approval in a special election that Schwarzenegger would schedule this summer.

If the Legislature defies him, he might call a special election anyway, taking his proposals directly to voters in what would most likely be an expensive campaign.

While lawmakers debate his proposals in the coming weeks, Schwarzenegger said, he will launch the opening phase of his plan -- first announced in the same forum a year ago -- to “blow up the boxes” of state bureaucracy.

The governor said he would “wipe out” 88 state boards and commissions deemed unnecessary, and submit blueprints to reorganize California’s troubled prison system.

“He’s putting his political career on the line here. He’s built up a lot of political capital over the last year, and he has decided this is how he wants to spend it,” said Jack Stewart, president of the California Manufacturers and Technology Assn.

Schwarzenegger released a list of targeted boards after his speech. One is the Integrated Waste Management Board, which works to minimize -- through recycling -- trash going to dumps.

A task force created by Schwarzenegger last year also recommended abolishing the state Air Resources Board, credited by environmentalists with cutting smog. But the governor has decided to keep that board.

“I know the special interests will oppose all the reforms I have mentioned,” he said in the 28-minute address. “Any time you try to remove one dollar from the budget, there are five special interests tugging on the other end. Any time you try to make something more efficient, there are a half-dozen special interests trying to prevent it.”

Though the speech laid out new goals, it also picked up ideas that Schwarzenegger has previously embraced. The most prominent was lowering the cost of prescription drugs. Last year, the governor vetoed bills that would have cleared the way for importing prescription drugs from Canada.

But he promised at the time to work out a separate deal with drug makers and pharmacists to bring down costs. His health and welfare secretary, Kim Belshe, is expected today to announce an agreement with both groups that would slash drug costs by 40% for poor residents.

Schwarzenegger said he would create a prescription drug discount card that would be “available to nearly 5 million low-income Californians, at prices competitive with those from Canada.”

A coalition representing senior citizens, labor and consumer groups swiftly denounced the plan. Because the governor is relying on “voluntary” discounts from drug companies, his proposal contains no “hammer and no enforcement mechanisms to guarantee consumer savings” and thus “provides more hype than relief,” the coalition wrote in a statement.

Schwarzenegger said he didn’t mind a fight, and Democrats -- who hold a majority in the Legislature -- said it was a fight he’d get.

The governor’s spending restraints, in particular, threaten to curb money for health, welfare and social programs especially important to Democratic constituencies.

His plan would work this way: If lawmakers failed to pass a budget by the constitutional deadline, the governor would call a special session to close any spending gap. The budget facing the governor this year already bears an $8.1-billion shortfall.

Assuming that the Legislature did not eliminate the shortfall within 30 days, state Controller Steve Westly, a Democrat, would “implement an immediate across-the-board reduction in all state payments,” according to briefing material released by the governor’s office. The same mechanism would be triggered if the budget was passed on time but spending was projected to exceed revenues.

Sen. Kevin Murray (D-Culver City) portrayed the governor’s plan as a strict, formulaic spending cap that Democratic lawmakers would fight.

“The fact is the people of the state of California elected a majority of Democrats in both houses of the Legislature, so we’re fairly confident our ideas resonate with the populace. And so we’re happy to fight our ideas on the street, just as he is,” Murray said.

Teachers unions, a powerful lobbying force in the Capitol, are expected to mobilize against the governor’s plans to institute merit-based pay, a slap at traditional salary scales based on seniority.

Schwarzenegger cited high dropout rates and poor student performance as proof that schools were failing. He called for tying teacher pay to merit, not tenure.

Anticipating pressure from the teachers unions, the governor said: “My colleagues, this is going to be a big political fight. This is the battle of the special interests versus the children’s interests. Which will you choose?”

Variations of this idea have been offered before. Former Gov. Pete Wilson, a Republican and Schwarzenegger friend and advisor, pushed merit pay for teachers in 1991, but ran into resistance from Democrats.

Former Gov. Gray Davis -- a Democrat -- and the Legislature approved giving teachers at low-performing schools bonuses of $5,000 to $25,000 if they lifted test scores. But when the bonuses were approved, the Los Angeles teachers union refused to negotiate the individual amounts for each teacher, so the money was doled out by seniority.

Barbara Kerr, president of the California Teachers Assn., called the governor’s proposals on education “smoke and mirrors” designed to avoid what she called the real issues.

The governor, she said, “didn’t address class-size reduction.... He didn’t commit to stable or adequate funding.”

His proposal to tie teacher pay to job performance “makes absolutely no sense,” she said. “It hasn’t worked anywhere.... It’s a side issue to the real problems of under-funding in this state.”

State employees unions are girding for a clash over Schwarzenegger’s push to overhaul the pension system. He wants to switch from a system that gives new workers a fixed sum at the end of state service, to one that promises fixed contributions like those made to private-sector 401(k) plans.

Benefits are now too generous, Schwarzenegger said, resulting in “another government program out of control, threatening our state. Accordingly, we must do what business has been doing.... We need a public pension system that is fair to employees and to taxpayers.”

Carroll Wills, spokesman for the California Professional Firefighters union, said the governor’s plan amounted to “a nuclear strike against an issue that needs careful analysis.” Wills said the proposal appeared to have a parallel in the Bush administration’s effort to privatize Social Security. He defended the firefighters’ current pension system, which gives them as much as 90% of their pay once they reach age 50. “They have a smaller window when they are effective ... .and they die younger,” he said.

Few of Schwarzenegger’s ideas have gotten as much attention as his plans to streamline government.

A year ago he commissioned the California Performance Review, the most ambitious government reorganization study since Ronald Reagan was governor in the 1960s.

The review team recommended a top-to-bottom overhaul of the bureaucracy, eliminating more than 100 boards and commissions and consolidating power within the executive branch.

With the speech, Schwarzenegger opened a campaign for a couple of pieces of the overall plan. More may follow.

State corrections officials said the governor’s reorganization plan borrowed heavily from the independent review panel report issued under former Gov. George Deukmejian, a Republican.

However, Schwarzenegger’s plan does not include a controversial proposal to tap an appointed citizens commission to oversee the state’s correctional facilities.

The reorganized system would be headed by Youth and Adult Correctional Agency Secretary Roderick Q. Hickman.

“This will provide the strategic direction to configure California corrections in a manner that will allow for people to get out of prison and succeed,” Hickman said in an interview. “It will go back to a mission that says we’re going to reduce recidivism and improve public safety and establish a relationship to academics and communities that we have not had before.”

Under the plan, the Department of Corrections would be renamed the Department of Corrections and Rehabilitation and would be headed by the current director, Jeanne Woodford.

She would have expanded responsibilities over healthcare, education and other programs for youth and adult offenders, helping them prepare for life outside prison, Hickman said.

Walter Allen III, current head of the California Youth Authority, would run youth facilities.

Hickman said that although saving money was not the primary goal, the reorganization should avoid costly duplication of functions.

To critics who have said reorganizations are merely rearranging furniture, the secretary said, “If we left the organization the same, we would get the same results.”

The corrections plan will be sent to the Little Hoover Commission today for review.

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Governor’s plan

Saying he is determined to “fix things in Sacramento,” Gov. Arnold Schwarzenegger proposed the following changes in government operations:

* Pensions: New state employees would not be entitled to guaranteed annual pension payments upon retirement but, like many in private enterprise, would be given money to invest in a retirement account similar to a 401(k).

* Medications: Nearly 5 million uninsured low-income Californians would be eligible to purchase prescription drugs priced comparably to those in Canada.

* Education: Teacher pay would be tied to performance, not length of employment.

* Prisons: The Youth and Adult Correctional Agency would be reorganized to increase efficiency and reduce repeat offenses.

* Spending: If state spending were to exceed revenue, the governor would be required immediately to call the Legislature into special session. The spending gap would have to be closed within a specified time, or the controller would be empowered to implement across-the-board cuts.

* State boards: Eighty-eight boards and commissions would be abolished or folded into other agencies.

* Voting districts: The power to draw district boundaries for legislators and members of Congress would be taken away from lawmakers and given to a panel of retired judges.

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Times staff writers Evan Halper, Dan Morain, Jordan Rau, Tim Reiterman, Robert Salladay and Nancy Vogel in Sacramento, and Cara Mia DiMassa in Los Angeles, contributed to this report.