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Arnold Schwarzenegger Set to Terminate Gray Davis?; States in Distress

Aired July 1, 2003 - 16:00   ET



ARNOLD SCHWARZENEGGER, ACTOR: Desire is irrelevant. I am a machine.


ANNOUNCER: From the Terminator to the governator?

SCHWARZENEGGER: I don't think about that now. I only think about "Terminator 3." That's all I am promoting.

ANNOUNCER: But if Arnold runs for California's top job, his new film may offer some clues about his leadership skills.

It's the day California and other states stood still. Why are so many states in budget meltdown? And what services might you and your loved ones lose?

Democrat Howard Dean revels in being a money machine.

HOWARD DEAN (D), PRESIDENTIAL CANDIDATE: What we've done is build a base and tapped into a base of people who are incredibly unhappy about politics in the Republican Party.

ANNOUNCER: So why does the Bush camp think Dean's fund-raising hall is rich?



JUDY WOODRUFF, CNN ANCHOR: Thank you for joining us.

Across the country, a number of states are in a real financial mess. Faced with huge budget shortfalls and partisan standoffs, some states began the new fiscal quarter without a spending plan. Others have borrowed big time. They have hiked taxes or slashed services to make ends meet.

Some examples: As California struggles with its record $38 billion budget crisis, some state workers are not getting paid. New Jersey lawmakers increased taxes on Atlantic City casinos and gamblers. In parts of Oregon, schools let out early and teachers' pay was cut. And Massachusetts axed millions of dollars of aid to cities and towns -- a closer look at the crisis ahead.

With financial troubles like that, is it any wonder some voters wish a superhero would come to the rescue? Well, that may be the situation in California, where actor Arnold Schwarzenegger is considering a run for governor, even as his latest film opens nationwide.

Our Bill Schneider has been hanging out in Hollywood.


WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: It's a big day here in Hollywood. Everyone has turned out to celebrate the inauguration of a new "Terminator." Now, what do we know about the Terminator's politics? Check out his campaign ads -- I mean, his movie.

(voice-over): California faces budget destruction. The Terminator is coming to save the day.


SCHWARZENEGGER: My mission is to protect you.


SCHNEIDER: What's the Terminator got that ordinary politicians don't have? He's bloodless, cold, impersonal.


SCHWARZENEGGER: Desire is irrelevant. I am a machine.


SCHNEIDER: Hmm, not so different from California's current governor, Gray Davis, but the Terminator knows how to get things done.




SCHNEIDER: He's independent.


SCHWARZENEGGER: I'm not programmed to follow your orders.


SCHNEIDER: And he's incapable of betrayal.




SCHNEIDER: The star has this to say.

SCHWARZENEGGER: Terminator is like the perfect role for me.

SCHNEIDER: How about governor?

JAY LENO, "THE TONIGHT SHOW": Mr. Arnold Schwarzenegger. The Terminator! Yes!

SCHNEIDER: When he brought the Terminator to Camp Pendleton last week for a special showing to the troops, Arnold Schwarzenegger was greeted like a rock star. He seems to have the campaign theme down pretty well, but is he running for governor? He sure sounds like he is.

SCHWARZENEGGER: You will see some incredible special effects, incredible special effects. As a matter of fact, we haven't seen special effects like that since the last California state budget.


SCHNEIDER: Or maybe not. He's sending a copy of the movie to the president.

SCHWARZENEGGER: President Bush requires it to be seen in the White House because this is the only place where he is going to find weapons of mass destruction, is in "Terminator 3."

SCHNEIDER: Republicans aren't supposed to say that, yes, but the Terminator can say anything he wants. Does he have the financial savvy to save the state? His supporters say he does.

JAMIE LEE CURTIS, ACTRESS: This is an incredibly smart man, an incredibly savvy businessman.

SCHNEIDER: What can he do to save this state? Maybe the same thing he did to save the picture when they were about to shoot a crucial scene and the producers faced a budget crunch.

SCHWARZENEGGER: I loved that scene. I was looking forward to it. And a week before, they said, well, we are actually late with the shooting and there's not enough money available for this and all this. So, I said, well, how much does it cost? They say, $1.4 million. And I say, I'll pay for it.

SCHNEIDER (on camera): There's one question everyone here is asking: Will the Terminator come to California's rescue? They may have to wait for the sequel: "The Governator."

Bill Schneider, CNN, Los Angeles.


WOODRUFF: You heard it here first.

Well, of course, the speculation about Schwarzenegger's political future has intensified because of the campaign to recall Governor Gray Davis. Leaders of the recall effort now are threatening to sue the state's election chief unless he backs off on a decision that could delay setting a date for a recall election.

Some Californians are keeping their sense of humor about the state's budget meltdown. A local chocolate-maker is offering the California Budget Crunch Bar. The company says, under the yellow wrapper, the bar is wrapped in pink foil to symbolize the pink slips handed out to so many California workers.

Well, the National Governors Association says that states are suffering from the worst financial crisis since World War II.

Our Bruce Morton zeros in on some of the hardest-hit states.


BRUCE MORTON, CNN NATIONAL CORRESPONDENT (voice-over): In Massachusetts, the governor signs the budget and vetoes $200 million in spending. In New Jersey, a late breakthrough, a tax on Atlantic City casinos. In California, no breakthrough, a state running entirely on borrowed money, angry legislators.

BRUCE MCPHERSON (R), CALIFORNIA STATE SENATOR: I'm disappointed. This is the most frustrating year of the 10 that I've been in the legislature.

JENNY OROPEZA (D), CALIFORNIA STATE REPRESENTATIVE: It is really a failure of this legislature to do its duty.

MORTON: In Oregon, the legislature gave itself an extra 30 days to try to balance its budget. Connecticut is still wrestling. Three states have raised income taxes. Five have increased sales taxes. "USA Today" reports, 46 states are borrowing record amounts. It's a firestorm of fiscal trouble for states around the country.

What's gone wrong? Less coming in from things like sales taxes, for one thing.

E.J. DIONNE, BROOKINGS INSTITUTION: So they were rolling in dough when the market was booming and they ran into particular trouble when the market went down. Also, a lot of states, following in a sense what President Bush had been talking about, made big commitments to more funding for education. So they were stuck with these serious commitments to a good thing at a time when all the money was dropping out of the bottom of their coffers.

MORTON: States, by and large, have to balance their budgets. The federal government doesn't. It can run, is running big deficits. One way to help the states would be to revive a program President Richard Nixon started: revenue sharing, federal money going directly to the states.

DIONNE: I have been surprised that there hasn't been more talk of how the federal government could come to the aid of the states with something like temporary revenue sharing or with more help directed through homeland security or by picking up some of the cost of Medicaid, which is another big reason for these -- for the states' difficulties.

MORTON: The states are getting $20 billion to help pay for Medicaid and other costs, part of that new tax cut. But the White House says balancing budgets is a state job; the president's is improving the overall economy. So more of a helping hand from Washington? The states would love it, but there's no sign the Bush administration is inclined to do more.

Bruce Morton, CNN, Washington.


WOODRUFF: Well, while the states are suffering, President Bush's reelection campaign is rolling in dough. The Bush camp said today that it has raised at least $34.2 million just since the president announced his reelection campaign in May. And some checks still haven't been counted. That haul dwarfs the fund-raising by all the Democratic candidates put together.

But Howard Dean won the party's second-quarter money race by even more than reported yesterday. His campaign now says that Dean pulled in $7.5 million as of midnight last night.

Well, now let's bring in our senior White House correspondent and campaign money watcher John King.

John, what are they saying at the White House about what the governor did with the money?

JOHN KING, CNN SR. WHITE HOUSE CORRESPONDENT: Go, Howard, go, is the refrain of top Bush political aides, Judy. Let's be clear. They're not sure this will be all that significant three, four, five, six months from now.

But they think, right now, the success of Howard Dean will force the Democratic field a little bit to the left. Governor Dean is a liberal. He is from the Northeast. The Bush camp believes he cannot win a general election because of that. We'll see how Howard Dean does over time. But they think now you will have more fighting over fund-raising, more time spent by the other candidates raising money, more of the candidates perhaps moving a bit to the left to take on Howard Dean on the issues.

Again, they're not sure that, months from now, this will be all that significant. But, right now, they think it means a more heated, a more contested Democratic primary. And most Bush political aides think, the more the Democrats fight, the better it is for the president. WOODRUFF: Well, everybody is aware by now, John, that the Republicans, President Bush, is going to be pulling in a whole lot more money than the Democrats. But are they at all worried by the perception that they may have so much money that money defines them, in a way?

KING: They're sensitive. They say they're not worried. They are sensitive that people will questions about, why is the president raising all this money?

But Bush political aides will tell you -- and most Democrats agree -- that, unless there is some violation of the law, something egregious, fund-raising is very rarely an issue. The Bush people are saying, for example, yes, the president is going to raise a boatload of money and shatter all the records. They say, if it becomes an issue, they could say, hey, John Edwards is getting a lot of money from trial lawyers. That's a group you can make political hay with. Dick Gephardt gets a lot of money from labor.

The president may in fact get to $35 million for this quarter, Judy. One thing the White House says to deflect the criticism that it is money from big-money donors, if you will, is to say that, since he has been president, there are also 900,000 new donors the Republican National Committee, their average contribution $28.

WOODRUFF: Still, when you think they may be heading to $200 million, it's a mind-boggling number. OK, John King at the White House, thanks very much.

Still ahead: the "Inside Buzz" on Howard Dean. Our Bob Novak has been listening for another political shoe to drop.

Plus: New Jersey's big budget gamble. I'll ask the governor, Jim McGreevey, about his state's financial problems and political stakes.

And later: final tributes to Strom Thurmond. We'll hear from a pair of political opposites who eulogized the late senator today.


WOODRUFF: Checking the headlines in our "Campaign News Daily": Fresh off his big boost in the race for campaign cash, Howard Dean is cashing in on his connections to Hollywood. Dean has turned to producer and activist Rob Reiner to introduce a message to supporters to be shown at tomorrow's campaign meet-ups around the country. In an online preview, Reiner praises Dean's supporters for their choice of candidate.


ROB REINER, DIRECTOR: I want to congratulate your intelligence, because you know that Howard Dean is the only one that can beat George Bush in 2004. So I'm glad you're with us. We're going to work hard. You've been working hard. We're going to keep working hard.

(END VIDEO CLIP) WOODRUFF: Howard Dean's party rival and fellow New Englander John Kerry is on the trail in New Hampshire today. Kerry met with voters in Rollinsford around noon and then walked around Portsmouth a short time later. He has a third meet-the-candidate event scheduled for later today.

INSIDE POLITICS back in 60 seconds.


WOODRUFF: New Jersey is among those states, as we told you, facing a budget crunch. Today, lawmakers there avoided a government shutdown by approving a new $24 billion budget that includes more than $600 million in taxes and fees. The deal is designed to cover the state's $5 billion deficit.

A little while ago, I spoke with New Jersey's Democratic governor, Jim McGreevey, and started by asking him who is to blame for his state's deficit.


GOV. JAMES MCGREEVEY (D), NEW JERSEY: One thing important, Judy, it was spending patterns of the state historically during 10 years of unprecedented economic prosperity. States began simply to assume that economic growth was going to continue in perpetuity.

So part of it was realigning state spending to be much more realistic, to understand the reality of the economic cycle. But here in the state of New Jersey, we confronted the realities of the national economy. Income tax revenues are down 13 percent. Also, in the states of New York, New Jersey and Connecticut, because so many of our employees work in close proximity to the financial markets, we have been hard-hit by the downturn, both on the Nasdaq and the exchange.

Capital gains are down fully 65 percent. And then, in addition to having the downturn in the economic market, the downturn in terms of the stock market, you also have unprecedented 9/11 security costs, which are being borne by municipalities and the state. And, respectfully, I would argue that the Northeast has not received its fair share of that funding and it placed a disproportionate burden on our states.

WOODRUFF: Right. But in order to close this gap, public colleges are going to lose some funding. Art programs are going to lose funding. There's less money for schools, less money for a home buyers rebate program. You have got taxes going up on casinos, cigarettes, nursing home fees, hotel rooms. That's a lot of pain, isn't it?

MCGREEVEY: Well, it's a lot of pain. And, as I shared with you earlier, my dear friend Governor Pataki of New York said, if you wanted, he would send protesters from Albany down to Trenton. I assured him I was doing quite well by myself. I think part of it is, is to make sure that we curtail the level of government spending. Second is, there were institutional increases that were to happen. And, frankly, we said, we had to stop. We had to had government live within its means. Our priorities were as follows: to make sure, actually, we increased funding to public education. That's primary and secondary education.

We also provided for a slight increase to state aid to municipalities. There will be cuts in terms of higher education, a slight cut in the arts. But, namely, when you look to the fact that your income tax revenues are down 13 percent, aggregate in terms of revenues, in terms of income tax and capital gains down a full $1.1 billion, we had to make necessary cuts. We provided for $3 billion in cuts in state government.

I refuse to raise the sales tax. I refuse to raise the income tax. We did have to raise taxes on casinos to finance our prescription drug benefit program. But I think this was a fiscally conservative and thoughtful budget and represents an accomplishment by both the Democrats and the Republicans.


WOODRUFF: And let me ask you about the tax increase. You did get about $600 million altogether in tax increases. You were asking for more than that. Now you have got Republicans in your state, the other party, saying they saved taxpayers $200 million or more. Are they going to turn around and use this against you and Democrats and say, once again, there go the Democrats, the party of tax and spend?

MCGREEVEY: Well, I think, obviously, in our state Senate, which is split 20/20, the Republicans provided critical votes, not only procedurally, but substantively.

But I think the Republicans also recognized the reality of a downturn in the market, the fact that our income tax revenues were down so precipitously, and that we had to balance basic government services. And we had a focus in terms of providing more money for public education, a slight increase to state aid to municipalities, when other states took far more Draconian measures, in terms of reducing the school week to four days. Actually, some states talked about letting prisoners loose.

I think we set forward are a very fiscally responsible and conservative budget. But what governors want, Judy, across the nation, unfortunately, didn't materialize. And that's a federal stimulus package that would have worked with the states. The states are 50 individual economic engines. We should have provided a stimulus package, where they're focusing on school construction or transportation infrastructure development, that would have provided long term for a stimulative effect, not only for the benefit of the economy and job creation, but, obviously, in terms of income tax revenues.


WOODRUFF: New Jersey's governor, Jim McGreevey, where agreement was reached just in the last day on closing their budget gap.

Well, it is something the speaker of the House rarely does, but Dennis Hastert is about to do it. We'll explain what he's doing when INSIDE POLITICS returns.


WOODRUFF: Bob Novak joins us now from the "CROSSFIRE" set at George Washington University with some "Inside Buzz."

All right, Bob, what is this about a rare role for House Speaker Dennis Hastert in resolving the Medicare mess?

ROBERT NOVAK, CNN POLITICAL ANALYST: That is going to conference now. And there will be a member of the House Republican leadership in the conference.

What's very unusual, it can be Speaker Hastert. I never remember a speaker being a conferee before. Senator Majority Leader Bill Frist will be a conferee, not usual, but not totally uncommon. So you might have Frist and Hastert going head to head on very different bills. And one thing, Judy. The president wants that bill fast. It ain't going to be fast. It's going to be a slow process.

WOODRUFF: Democratic presidential candidate Howard Dean, Bob, getting a lot of positive reaction right now because of his fund- raising, but you are saying there is a problem he is still dealing with.

NOVAK: Yes, he got bounced around pretty good by Tim Russert on "Meet the Press." And he didn't do very well. And there's some fallout on it.

The most interesting negative fallout is that, when Tim was questioning him hard, Dean said, what are you going to do, ask me next who the ambassador of Rwanda is? And some of the African-Americans don't like that. They thought that was an insult. He's getting a little negative fallout on that.

WOODRUFF: All right, tough decision time for a congressman from Mississippi.

NOVAK: Chip Pickering, 39-year-old congressman from Mississippi, a son of Judge Pickering, has been offered a million-dollar-a-year job as an Internet lobbyist. He had just about accepted. The White House talked him out of accepting it, said he has got a great future in the House and Republican Party. Now I hear he's going the other way. He's going to announce it Wednesday.

Does he take the bucks or the power? Anyway, I think that district is going to go Republican anyway, but it is an interesting choice for Chip Pickering.

WOODRUFF: And, finally, Bob, what is this about a Mosbacher being recruited to run for the Senate in New York? NOVAK: I love this. Governor George Pataki's people are recruiting Georgette Mosbacher, the red-headed former wife of the former secretary of commerce. She's never held any office. She's never run for any office, never been in the executive branch.

But she has a $250 million fortune. And she could finance for her own campaign. I don't think they're going to beat Chuck Schumer anyway. And they might as well get a candidate who will attract some attention and won't draw any money away from George Bush's effort to carry New York. Wouldn't you like to see Georgette Mosbacher run against Chuck Schumer?

WOODRUFF: You mean to tell me that money actually is a factor when you're running for the Senate? OK.

NOVAK: I'm shocking you, Judy, huh?

WOODRUFF: I'm shocked.

Bob Novak, thanks very much. And we'll be seeing you in a few minutes on "CROSSFIRE." And in the "CROSSFIRE" this afternoon; former and possibly future Green Party presidential candidate Ralph Nader.

Coming up: A legend is laid to rest.


DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: America had 18 presidents during Strom's lifetime, including 10 who held office while he was a senator.


WOODRUFF: Washington eulogizes Strom Thurmond.

INSIDE POLITICS returns in a moment.




WOODRUFF: Thousands of people lined the streets of Columbia, South Carolina, today to say farewell to former Senator Strom Thurmond. Thurmond's funeral brought together citizens and officials of all political stripes, including Vice President Dick Cheney and Democratic Senator Joe Biden. They eulogized Thurmond as a tireless worker for his constituents who had the wisdom to turn away from his segregationist past.


CHENEY: In all, America had 18 presidents during Strom's lifetime, including 10 who held office while he was a senator. And Strom himself received 39 electoral votes in his own bid for the presidency against Harry Truman and Tom Dewey in 1948. Strom spent more than seven decades in the political arena. And his political history is filled with firsts, from being the first person ever elected to the Senate on a write-in ballot to becoming, at age 94, both the oldest and the longest-serving senator in history.

SEN. JOSEPH BIDEN (D), DELAWARE: He lived a long and good life. And I know that today, a benevolent God has lifted his arms to Strom. I just don't know what Strom is saying to that benevolent God, because you know he's saying something. So I say, farewell, Mr. Chairman. We stand in adjournment until we meet again.


WOODRUFF: Strom Thurmond will be buried later today in the South Carolina town of Edgefield, where he was born 100 years ago.

That's it for INSIDE POLITICS. I'm Judy Woodruff.


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