Election Strategy Drove Budget Accord

It was early June, and Assembly Speaker Fabian Nunez was rallying his Democratic troops for a budget war with the Republican governor when he heard a rumor:

Before the battle was even fully engaged, the governor was shooting television ads depicting spending-addicted Democrats holding up things in an effort to feed their habit.

This posed a problem. The Democrats had spent months accusing Gov. Arnold Schwarzenegger of breaking a promise to give money to schools, and polls showed the attacks were working, with voters losing faith in the governor’s education plans. And with the deadline for passing a budget only days away, the Democrats were planning a fight to get back $3 billion for education with a new tax on the rich.

They knew GOP lawmakers would never go for the tax but figured that every time the Republicans blocked the proposal, a blizzard of headlines would paint them as unfriendly to education.

Now that calculation didn’t look so smart. Nunez, of Los Angeles, and his counterpart in the Senate, Don Perata of Oakland, had already been concerned that delaying the budget for a tax increase would play into Schwarzenegger’s hands. Now it certainly would.

“The governor was using us as a blocking dummy,” Perata said.

Their strategy upended, the two leaders had to scramble.

What they did next surprised everyone in the Capitol, including Schwarzenegger, who now finds himself preparing to sign the earliest budget in five years: Rather than charge into the fray that is normally the highlight of a contentious lawmaking year, Democrats surrendered.

The back-room machinations became clear in interviews with key lawmakers, administration and legislative staff, lobbyists and strategists -- most of whom would discuss the private negotiations only anonymously.

Let’s give Schwarzenegger the spending plan he wants, the Democrats decided. After all, the budget fight was not really about the budget; it was about the special election the governor had called for Nov. 8.

Senate Republican leader Dick Ackerman of Irvine had flatly stated that if the budget was delayed for taxes or any other Democratic demand, “that will clearly help us in a special election.”

The governor called the election in the hope that voters would pass one initiative to force down state spending permanently and another to wrest from lawmakers the power to draw their own election districts, among other goals. He is selling the two measures as an antidote to an incompetent Legislature.

The Democrats thought that by agreeing to pass an on-time budget nearly identical to the one Schwarzenegger asked for, they would deprive him of a key campaign tool.

“Arnold Schwarzenegger was elected by tapping into the public’s frustration toward business as usual in Sacramento,” said Republican strategist Dan Schnur. “An extended budget deadlock would have fed into that same sentiment.”

The shift also allowed Democrats to move on to their own campaign. On the November ballot will be a measure that would blunt the ability of public employee unions -- big Democratic backers -- to fund political campaigns. In the minds of many analysts, the long-term damage those measures could do to Democratic causes outweighed anything that could happen in budget negotiations.

The politically powerful California Teachers Assn. concurred. Union officials declined to talk about their discussions with the Democrats, but lawmakers and staffers say the CTA encouraged Perata and Nunez to get the budget done quickly -- and fight for the $3 billion another day.

The union’s signoff was essential. It is among the Democrats’ biggest allies, and Nunez and Perata risked revolt in their own caucuses if they defied the CTA.

When Nunez called the governor to say the Democrats were abandoning their quest for the $3 billion, the governor was baffled -- and suspicious that the turnabout might be a trick. Schwarzenegger seemed to think the move was less about getting the budget done than about finding back-door paths to a tax increase, Nunez recalled.

“There is no question in my mind that the governor and the governor’s strategists were expecting that we were going to prolong the budget fight,” Nunez said.

Only a week earlier, the speaker had stood at a Sacramento elementary school -- flanked by education leaders -- and demanded that Schwarzenegger agree to tax the wealthy. The campus was the same one where the governor had announced his own deal with education groups the year before -- the agreement those groups said he was breaking. Schwarzenegger denies that he promised the money this year.

Now Nunez was dropping the demand? That would mean the budget, for all practical purposes, was done.

“We were trying to figure out their motivation,” a senior administration official said. “We saw it as a stunning reversal.”

The call between the speaker and the governor was brief, but it took a full day, the official recalled, for the administration to accept that the Democrats had just given Schwarzenegger what he wanted. This was not what officials were used to; budget fights in Sacramento routinely dragged on well into the summer.

The confusion highlighted how negotiating in the Capitol has changed as the current leadership has established itself. With a Republican in the governor’s office, GOP lawmakers have become marginal players in the budget process. Most of the big issues are negotiated between Democratic leaders and Schwarzenegger.

Nunez’s and Perata’s styles bear little resemblance to the tactics used by Democrats just last year, when they were led by political giant John Burton, a veteran of decades of budget wars.

Crabby and irreverent, the former Senate chief nevertheless managed to forge a close bond with the governor. He did business the old-fashioned way, by building relationships -- sometimes over strudel and coffee. He was unimpressed by consultants and strategists, and negotiated by his gut.

Nunez and Perata regularly huddle with strategists, seeking ways to pierce the governor’s political armor, to get under his skin. Where Burton may have sought an early compromise on Schwarzenegger’s agenda to avoid a special election, the current leaders refused to engage. They are street fighters.

The speaker is a compact former boxer whose youth was split between the tough San Diego neighborhood of Logan Heights and Tijuana. He cut his deal-making teeth as political director for the Los Angeles County Federation of Labor. At the negotiating table, he favors the bare-knuckle tactics he honed as a union organizer.

Perata, a blunt and shrewd former English teacher from the East Bay, has a taste for double-breasted suits and pushing boundaries. Despite the pressures of an ongoing FBI investigation into his business activities, the senator can muster considerable energy for a political fight.

With off-the-cuff remarks this year that the state should change the way it pays for eduction, he made an enemy of the California Teachers Assn. The group immediately blanketed his district with fliers blaring, “Shame On You.” Now he refuses to enter the CTA’s headquarters here.

At times, Perata and Nunez have enraged a governor known to rarely lose his cool.

During budget talks in Schwarzenegger’s office late last month, as Republicans were trying to squeeze more spending out of the budget, the governor got so angry that he pounded the table, yelling about Democrats spending the state into crisis. Then he looked at Nunez, who has kept his close ties to labor unions, and said, “I know you can’t do anything without checking with your clients first.”

An administration official close to the negotiations explained: “The frustration for the governor is they can’t come to the table empowered to do anything because they have to check in” with their union contributors.

Nunez -- who says that is nonsense -- swore at the governor and rose from the table. Perata rose too, and they stalked out of the room. As they left, Schwarzenegger declared the meeting over.

Such testy exchanges notwithstanding, the Democrats’ capitulation on the budget appeared to work for a while. The Legislature voted on the spending plan hours before its June 15 constitutional deadline, but Republicans refused to cough up the 10 votes needed to pass it. And they continued to balk for three weeks as headlines recorded the successive delays.

On Thursday, a week into the new fiscal year, the Legislature passed the budget. It was two days after Nunez, Perata and Schwarzenegger announced that final details had been worked out. The governor is expected to sign it Monday.

It is unclear who will win the day, however. The special election is months away, and the governor and his allies have tens of millions of dollars at their disposal to push their agenda.

The Democrats may have deprived Schwarzenegger of an opportunity to build public anger against them. But they also have given him a nearly on-time spending plan that virtually mirrors his own draft budget. It’s an extraordinary concession, and something that could help Schwarzenegger resurrect his plunging approval ratings.

“The Democrats gave the governor something very important in return for absolutely nothing,” Schnur said.

Teachers union President Barbara Kerr, a gruff former first-grade teacher who ranks among the most powerful people in Sacramento, said educators were still counting on the Legislature to secure the disputed $3 billion for schools.

“We are just going to see how it goes,” Kerr said. “Sometimes you don’t get to know everything.”

And the television ads the governor supposedly was shooting? Administration officials say they never existed.