Schwarzenegger talks money, Prop. 8 and Obama

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And so because of that, I called a special session in order to deal with those things, but not only to deal with budget because that's kind of a common thing … but we also at the same time want to tackle the economic problem and stimulate the economy by recognizing that we have these billions of dollars in infrastructure bonds that have been approved by the people but have not been appropriated. So we just need to push that out as quick as possible, of course being sensitive to the fact that there's only a certain amount of projects that are ready to go….

And the, also, to change some of the labor law, some of the laws that we have, and to deal with keeping people in their homes. So that's why we have made a proposal changing and modifying the mass modification of the loans so that we have reduced the monthly payments, reducing interest rates or prolonging the payments 25 years, 40 years or whatever … and create a 30- to 90-day period where people don't have to go into foreclosure but stay in their homes so they have time to negotiate with the banks and the lenders and all that.

The fourth thing I want to mention is that the unemployment benefits are going down because previous administrations have added benefits … without really matching it up with additional funding. It's one thing to talk about benefits, it's another thing if you don't have the funding -- you eventually run out, and that time has come now….

These are all the problems that we are facing, none of which are not doable; you know, this is all manageable. The key thing is that if you make decisions, if you have to make decisions, make them now. Don't wait until the next budget time, don't wait for after my State of the State, don't wait for my next budget presentation. Do it now because the decisions and what needs to be done will be twice as difficult each time we wait.

And the legislators have responded very well….

Jon Healey, Los Angeles Times (just after Schwarzenegger had discussed his optimism in working with legislators): In that spirit of optimism, we urge you again to consider the Vehicle License Fee.

Schwarzenegger: Well, just so you know … everything is always on the table. My preference is to do the sales tax increase, but I would never go into a meeting and say, "And by the way, never bring up this tax or that tax, or this idea or that idea," because otherwise you can't really get kind of creative debate going if you start limiting what the debate is. Some people do that; I don't. I made it always very clear that if I hate something, you can bring it up and you can show me why it is a good idea…. This is a crisis situation, and one has to look at it as I ask everyone of the legislative leaders to look at it in a fresh, new way under this new world that we operate in. It's not the same world as it was two months ago.

Nick Goldberg, L.A. Times: So do you support reinstating it at its old level?

Schwarzenegger: I'm not supporting anything because I never negotiate against myself…. But we will have this debate; we just started getting into it.

Jim Newton, L.A. Times: Do you have in mind when you look at the $11 billion and change that you're trying to make up what the ideal ratio of cuts to increased revenues would be?

Schwarzenegger: In our plan, we have about 50-50.

Newton: Would you like to see it stay somewhere close to that?

Schwarzenegger: I think it makes it easier to negotiate. Democrats say, for instance, "We'll match every dollar you raise in cuts." I think under these circumstances, we have already made $9 billion in cuts between the last budget negotiation. So I think that's a fair way to go, and I encourage them not to look at the $9 billion that we have talked about, but to think even more than that … because there's no indication yet that there's a rebound or that there's something coming back. So therefore, let's always assume the worst. Not that we have any evidence of that, but let's assume for a second. And then if something gets better, great.

So I just want to make sure they don't think that with the lower amount, everyone will be happy because we did something. Let's go for the whole deal.

Healey: How do you balance the potential damage on the struggling economy of higher taxes against the potential damage on the struggling economy of lower government spending? How do you win this thing?

Schwarzenegger: I think that's why you have to find the middle ground, that you have to say to yourself that none are good, but under the circumstances it's the only solution you have. It's like when you go to the doctor and he says, "You nee heart surgery." I mean, what choices do you have? It's not like you go in there and say, "Oh, I love heart surgery"….

Right now under the circumstances, with the limited amount of money we have, I think this is the right decision to make, and I'm very very clear about that. But it also gives us, as every crisis does, it gives you a chance to revisit and say, "What has caused this problem?" What has caused the problem is not the economic slowdown. What has caused the problem is that our tax system is based on what is going on in Wall Street rather than what is going on in our economy. Our economy is … not taking a dive. We have such a diversified economy that's holding up -- biotechnology, high technology, they are all holding up … even though the housing market and all of this is dragging it down. But our volatile income tax -- we are relying so much on income tax -- has taken a dive of 10%….

So that's why have come to an agreement with the legislative leaders and our office that we are going to establish a bipartisan tax commission of very smart people that will go in and study all the taxes in the United States and see which one is the most sound and include bits and pieces from those accountings and learn from that, not to have to redesign the wheel, and use the different taxes because ours is very, very old and it's outdated.