Can Arnie Pump Up Business?

Schwarzenegger is backing a slew of initiatives to help the state compete

It doesn't take much to get California Governor Arnold Schwarzenegger to flex his muscles. But on Sept. 20 he did it from the back of a moving van emblazoned with "Arnold's Moving Co." -- a perfect photo op as the onetime action star hauled boxes to help tiny Lynch Sign Co. move 14 employees from Las Vegas to the Los Angeles suburb of Laverne. "We love it when we take jobs from Las Vegas," Schwarzenegger crowed. "And from Arizona, and from New Mexico, and all those places."

With the zeal of a star on opening night, the 57-year-old Schwarzenegger is remaking California at a remarkable pace. His first 100 days were a blizzard of backroom deals culminating in pacts to cut the budget, refinance the state's towering $15 billion debt, and rein in the skyrocketing cost of workers' compensation insurance. Now he's embarking on the second act of an ambitious plan to make the Golden State more business-friendly.

Since the legislature adjourned in August, the governor has been busy terminating laws that counter his pro-biz agenda. He has vetoed bills to raise the state's minimum wage and make it harder for huge retailers such as Wal-Mart Stores Inc. (WMT ) to build nonunion superstores. He is also expected to reject a bill banning state agencies from sending jobs overseas and to veto another that would allow low-priced pharmaceuticals to be imported from Canada -- a big issue for the state's biotech industry. Critics deride the moves as window dressing, but the business community is applauding. "We're giving him an A-plus," says state Chamber of Commerce President Allan Zaremberg, whose organization has lent at least two of its top execs to Arnold's executive team.

And the big guy is just getting started. As voters rev up for the November election, Schwarzenegger aims to put down his veto pen and take to the stump. He wants to elect more Republicans to the Democrat-heavy Assembly. He's also getting involved in a pair of ballot initiatives that address two of business' biggest concerns: runaway lawsuits and skyrocketing medical insurance. Schwarzenegger is supporting Prop. 64, which would overturn provisions of a law that lets private attorneys sue companies for deceptive advertising or for breaking safety or consumer laws, even if the plaintiff can't prove harm. And he opposes Prop. 72, which would require companies with 50 or more employees to provide health insurance -- opponents say it would cost $7 billion by 2007. Organized labor aims to fight the governor on both issues. "He's kicking the California worker in the gut," says Art Pulaski, executive secretary-treasurer of the California Labor Federation.

Victory on these fronts would help Schwarzenegger show that California is turning the corner -- but he has a long way to go. Electricity rates and unemployment costs remain high, while roads and ports are in dire need of repair, notes Jack M. Stewart, president of the California Manufacturers & Technology Assn. Despite recent ratings hikes by three agencies, the state's bond ratings remain among the lowest in the nation. Good manufacturing jobs continue to vanish, replaced by lower-paying service jobs that are projected to grow 0.8% this year and 2% next year -- both below the national average. "At least the lights are on, and someone's home," says Stephen Levy, director of nonpartisan think tank the Center for Continuing Study of the California Economy. "But Schwarzenegger has to deal with a lot of structural issues."

And he could get distracted fighting two ballot initiatives that threaten to undermine the state's recently patched-up finances. Back in June, he struck a deal under which five Indian-owned casinos get exclusive rights to run slot machines in the state in exchange for paying $1 billion in taxes a year and more in the future -- crucial to help close the budget deficit. One initiative would raise the 15% tax rate Schwarzenegger negotiated with the tribes and could let racetracks have slots; the other would cut the tax to 8.84%. Both are backed by heavy hitters with deep pockets, forcing the Guv to raise hefty amounts of cash and test his 65% popularity rating on the stump. It ain't hauling boxes for photo ops, but it will take muscle.

By Ronald Grover in Los Angeles

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