Total Recall: My Unbelievably True Life Story

CHAPTER 25 The Governator

I WAS THE SECOND person in American history to be elected governor in a recall election, and I came into office after the shortest election campaign in the modern history of California. My transition period was three weeks shorter than a normal transfer of power between governors. I took office, with no previous experience as an elected official, at a time of crisis, with the state facing massive budget deficits and an economic slump.

I’d been a student of politics for a long time, and I’d done my homework at Schwarzenegger University, but there’s only so much you can absorb by cramming, even if it’s twelve hours a day. I wasn’t familiar with the cast of characters in Sacramento: not only the lawmakers themselves but also the thousands of lobbyists, policy experts, and influence peddlers who do much of the work—and write much of the legislation.

I didn’t even know most of my own staff. Everyone wanted to meet with me, but still, it was hard to hire people so quickly. Our scramble was especially tight: we had just five weeks after the election to fill the 180 staff positions in the governor’s office, including 40 or so high-level ones. Our pool was small because few political professionals had expected me to win, and some of the best candidates had already found new jobs after the 2002 election. I tried to hit the ground running, by looking for people with experience in California politics, Republicans or Democrats. But few of those political veterans had experience with me, and even those who had worked on my campaign had known me for only a few months.

We ended up drawing heavily on veterans of the Pete Wilson administration. For my chief of staff, I brought in Patricia Clarey, who had been Governor Wilson’s deputy chief of staff. She was an organized, hard-driving fiscal conservative who had gone to the John F. Kennedy School of Government at Harvard, and had worked in the insurance and oil industries. Rob Stutzman, my communications director, was another tough Wilson veteran who had been through a thousand fights.

I did bring with me a handful of key aides who’d known me for years: Bonnie Reiss, my right-hand person in the after-school movement; David Crane, the San Francisco financier who was my closest advisor on economics and finance; and Terry Tamminen, an environmental innovator whom I chose to head California’s Environmental Protection Agency. They were Democrats, but that didn’t matter—at least not to me. When Republican Party stalwarts objected, I explained respectfully that I wanted the best, regardless of their party affiliation, if they shared my vision in a particular area. These new appointees were all smart, thoughtful, open-minded people, but, like me, they didn’t know Sacramento or its strange ways.

The only way to understand Sacramento, we learned, was to throw away your civics books. It didn’t help to know how Washington works or how other state capitals work, because Sacramento runs by completely different principles. Common sense is not one of them. Nothing adds up.

For example, the biggest single thing Sacramento does is allocate money for K–14 education. Because of Proposition 98, passed by the voters in 1988, K–14 education claims nearly half the state budget. This doesn’t count the money for building schools or for funding the pensions of retired teachers or the billions of dollars from the state lottery dedicated to education. Prop 98, the Classroom Instructional Improvement and Accountability Act, ensures that education funding increases every year regardless of whether or not the state takes in more money. The formula that governs this is so arcane that only the guy who wrote it knows exactly how it works. His name is John Mockler. He likes to joke that he wrote it that way on purpose and put his kid through Stanford advising people about the formula. The nonpartisan Legislative Analyst’s Office had to produce a twenty-minute video explaining to state lawmakers how the law works, and even it needed to hire Mockler for advice.

Multiply the education funding formula a thousand times, and you get a picture of the absurdity of Sacramento. Its full-time legislature passes so many new laws each year—more than a thousand—that legislators don’t have time to even read the bills before they vote on most of them. Voters get so frustrated that they pass major legislation by initiative, like Prop 98, to force Sacramento to focus on real problems like education funding. Absurd.

Sacramento grew up as a boomtown: it was the main trading post in the great California Gold Rush of 1849. When Californians made it the state capital, they built a grandiose capitol building to rival the US Capitol in Washington, DC. But they didn’t get around to building a White House, so there’s no separate place where the governor can work. Instead, he and his staff share the capitol building with the legislature, and each governor makes his own living arrangements. The governors before me had all moved their families to Sacramento, but Maria and I decided we didn’t want to uproot the kids. So she stayed in Los Angeles with them while I rented the top-floor suite of a hotel near the capitol. My idea was to shuttle back and forth every week to spend time at home.

The governor’s offices are called the Horseshoe, as they occupy three sides of an open-air atrium on the ground floor of the capitol. The legislators’ offices are on the five floors above. Protocol called for the governor to stay put and for lawmakers who wanted to see him to make the trip downstairs. That wasn’t my way. I often left my office and took the elevator to the upper floors to call on the legislators myself. Being in movies actually provided a great opening: a lawmaker might not know what to make of me as governor, but his staff would want to take pictures with me and would ask for autographs to bring home to their kids. If a lawmaker felt intimidated that I really might be the Terminator—it’s funny how literally people take these movie roles—I wanted him to think of me more as the open-minded Julius in Twins.

I’d promised the voters that I would deliver results fast. Within an hour of being sworn in, I canceled the tripling of the vehicle registration fee and, soon after, with the help of the legislators upstairs, got rid of the law allowing drivers’ licenses for illegal immigrants. “Now, that’s what you call action,” I told the cameras. Within two weeks of taking office, I put before the legislature the financial-rescue package on which I’d based my campaign—including a refinancing of California’s debt, a sweeping budget reform, and a reform of the workers’ compensation system that was driving employers out of the state. We were pushing for a “hard spending cap” as the anchor of my budget reform proposal. That was where the Democrats drew the line, and soon we were headed for war. When talks with the Democrats broke off, I got lots of advice from across the political spectrum, most of it contradictory.

The Republican veterans of Pete Wilson’s administration who were on my team urged me to take a hard line: put all my reforms on the ballot for the voters to consider next year. Republican legislators were gleefully putting on war paint and suggested we let the state government run out of money and shut down until the Democrats caved. I was feeling pretty bullish myself. But at a dinner that week (ironically, in celebration of bipartisanship), I put the idea to George Shultz and to Leon Panetta, the beloved California statesman who had served Republicans and Democrats and had most recently been Bill Clinton’s White House chief of staff. They raised their eyebrows.

“Is that the way you start your term, with a showdown?” George asked. “Your guys are right that you have momentum with the voters and you’ll probably win. But it will be a long, bloody fight, and what will happen in the meantime? There will be chaos, and everyone will get depressed that nothing has changed in Sacramento. California will suffer because businesses won’t have confidence to invest or create more jobs.”

Panetta agreed, saying, “It’s more important to cut a deal. Even if you only postpone the budget problems, it’s a way to show the public that you can work with both parties and make progress. You can come back later on for a fuller reform of the budget.”

I took that advice to heart. After assuming office and winning some immediate big victories using the momentum of my election, it was important to show the people that Sacramento can work together to solve California’s fiscal problems. So I went back to the capital, called the legislative leaders from both parties, and said, “Let’s sit down and try one more time.”

My fellow Republicans acted like they’d been punched in the stomach. “You have them on the ropes, go in for the kill!” they said. This was my first real taste of the new Republican ideology that any compromise is a sign of weakness. The Democrats were relieved to avoid a huge fight, but some interpreted my willingness to negotiate as a sign that I’d rather back down from a fight than risk my popularity with voters. That made negotiations more difficult. After so many years of ugly, pointless fighting in Sacramento, both sides had lost touch with the art of negotiation. In fact, the legislative districts were drawn to elect the most partisan, uncompromising members of each party; legislators who were bred to fight, like roosters bred for cockfighting.

After many days of negotiations, we agreed on a compromise in which I got a balanced budget amendment, a ban on using bond debt to pay for operating expenses, and a weak version of my rainy-day fund. The legislators got their economic recovery money. The proposal was on the ballot in the March election and passed with two-to-one support from the voters. We completed major workers’ compensation reform just a few weeks later. That showed leadership and got us off to a great start. Refinancing the debt lifted California’s credit rating dramatically and saved the state over $20 billion in bond interest over ten years. And when the business community saw that I was able to deal with both parties, some of the gloom on the economy started to lift.

My relationship with lawmakers was now complicated, however. Part of that complication was due to the huge mismatch in popularity between me and them. As I proved that I could get things done, my public approval rating shot up into the seventies while the legislature’s was down in the twenties. I was being lionized as the “Governator,” not only in California but also in the national and international media. In a presidential election year, journalists speculated about me as a future contender, although that would require a change in the Constitution that nobody really expected. My numbers stayed high all year, right through the November 2004 election, when California’s voters backed me on every ballot initiative on which I took a position. The most dramatic of these were measures to stop “shakedown” lawsuits against businesses and the landmark stem cell initiative, in which we put up $3 billion for groundbreaking scientific research after the Bush administration restricted federal funds. We also shot down two initiatives that would have increased the already outrageous privileges of the Indian gaming tribes.

I was making such a splash that Republican leaders asked me to help in the push to get President Bush reelected. They invited me to give the prime-time keynote address at the Republican National Convention. Never mind that I was much more of a centrist on most issues than the Bush administration, which had shifted more and more to the right. They knew I could attract attention.

So on the night of August 31, I stood at the podium at Madison Square Garden—my first time in the spotlight there since my victory as Mr. Olympia thirty years before. Except that back then, it had been in front of four thousand fans in the Felt Forum. Tonight it was fifteen thousand cheering delegates in the main arena, in prime time on national TV. Maria, who in years past would have been an NBC correspondent covering the convention, sat with the kids next to the elder George Bush. Every time the cameras looked for his reaction, she was captured smiling in the shot. I was touched by what a team player she was that night.

My heart was pounding, but the cheering crowd reminded me of winning Mr. Olympia, which had a calming effect. As I began to speak and heard them respond, I felt like it was no different than posing. I had them in the palm of my hand.

I’d prepped for this appearance more intensively than any in my life. The speech had been revised and revised, and I’d practiced it dozens of times, doing my reps. It was a pinnacle of my life.

“To think that a once scrawny boy from Austria could grow up to become governor of the state of California and then stand here in Madison Square Garden and speak on behalf of the president of the United States—that is an immigrant’s dream,” I told the crowd.

My favorite part of the speech was an incantation on “how you know if you are Republican.” If you believe that government should be accountable to the people, if you believe that a person should be treated as an individual, if you believe that our educational system should be held accountable for the progress of our children—those were some of my criteria. I wrapped up with an appeal to return George W. Bush to the White House for another term and led the convention chanting, “Four more years! Four more years.” The speech brought wild applause.

Eunice and Sarge, who had watched it on TV, joined Maria and me for breakfast at the hotel the next morning. Eunice had really gotten a kick out of my inclusiveness theme. “The way you made it sound, I’m a Republican!” she wisecracked.

Back in California, my political opponents tried to portray me as a bully in part because of my popularity. But I went to great lengths to charm the legislators during that first year and encourage them to work with me. I’d call their mothers on their birthdays. I’d invite them to schmooze in my smoking tent in the atrium outside my office. The tent was the size of a cozy living room, furnished with comfortable rattan chairs, a glass-topped conference table with a beautiful humidor, lamps, and an Astroturf floor. Photographs hung along the walls, suspended by wires from the metal framework. I’d set up the tent so that I would have a place to smoke my stogies (since smoking is forbidden in California’s public buildings), but people nicknamed it my deal-making tent.

I paid special attention to leaders like John Burton, the president pro tempore of the state senate, and Herb Wesson, the assembly speaker. John was a crusty San Francisco Democrat who had actually boycotted my inauguration. He wore round wire-rim glasses and had a bushy white moustache. The first time we met, he was barely willing to shake hands. So I sent flowers. Once we got to know each other a bit, it turned out that we had things in common. He knew a little German because he’d been stationed in Europe in the army. (He was fascinated by the great nineteenth-century Austrian diplomat Metternich.) Often we disagreed, especially in the beginning. But eventually we found that our views were similar on major social issues like health insurance and foster care, and we got to a place where we could say, “Forget the big fighting in public; let’s find things we can work on.” We became effective collaborators and even friends; he’d drop by the tent sometimes just to bring me apple strudel and Schlag for my espresso.

Herb Wesson, the assembly speaker, was an easygoing five-foot-five guy from LA who would tease me about whether I was actually six foot two, like my bio says. I teased him back by calling him my Danny De-Vito and sending him a pillow so he could sit taller in a chair. I didn’t get to know him as well as I got to know John, because he was nearing his term limit. His successor, a smart ex-union leader named Fabian Núñez, also from LA, would in time become one of my closest allies among the Democrats.

I also formed a solid relationship with the new minority leader of the assembly, Kevin McCarthy. He was a high-energy thirty-nine-year-old from Bakersfield whose district included Antelope Valley, where my supersonic airport would have been. Kevin got his start as an entrepreneur who opened his first business, a sandwich shop, at age nineteen to help pay for college, and we clicked as fellow businessmen. He’s now the majority whip of the US House of Representatives.

Turning on the charm with the lawmakers helped get my reform ideas into the legislative debate and produced some agreements that were an important start. But after trying a bunch of different maneuvers, I found that what gave me by far the greatest leverage was the ballot-initiative process. Because of my big approval ratings, I could threaten to go directly to the voters and thus pressure the legislature to do things they wouldn’t do otherwise.

That was how we ended the abuse of workers’ comp. I’d made it one of the top issues in my campaign, because it was poisoning our economy and driving businesses out of state. As in every state, employers in California are required to carry insurance that pays medical expenses and lost wages for workers who are injured on the job. But in California, premiums had doubled to twice the national average. How did that happen? Mainly because the laws had been written so loosely by the Democrats that it was easy for people to abuse the system. I knew a guy who’d hurt his leg skiing one weekend. He waited to go to the doctor until after work on Monday and said, “I hurt my leg working.” When businesses challenged bogus claims like these, the worker always won. I also knew a guy at the gym who was squatting four hundred pounds. He told me, “I’m on workers’ comp leave.”

“What do you mean?” I asked. “You’re squatting more weight than me!”

“I needed to take care of my family,” he said.

Unions, lawyers, and doctors had prevailed on the legislature to relax the rules so much that an employee could play the system and get treatment for just about any ailment—not only work-related injuries—and be fully reimbursed with no cap or even a copay. This amounted to free, unlimited health care and sick leave with pay, all paid for by the private sector. It was a backdoor way for the Democrats to get what they wanted. John Burton once came straight out and told me, “Workers’ comp is our version of universal health care.” Which is another way of saying that the law was written to be abused.

I became something of an expert on the subject because Warren Buffett was in insurance, and he told me long before I ran for governor how screwed up California was. I had allies in the business community draft a ballot initiative that would put an end to this. The initiative was much tougher than parallel legislation that I supported in the legislature—it took more away from workers. But that was the strategy. If workers, attorneys, and doctors feared the initiative, they might be willing to give more ground in a legislative deal.

I sold the initiative hard. Whenever negotiations with the legislature bogged down, I’d leave Sacramento and travel the state to help gather signatures on the initiative in Costco stores.

The public found this very entertaining, and it succeeded. The Democrats and workers’ groups did get scared, and they struck a deal on legislation that would save employers big money on their premiums. The Democrats hated being threatened with an initiative, though, and they dragged out negotiations, offering a few more reforms each time I showed them a new stack of signatures we’d collected. We reached the agreement just as the number of signatures on the initiative hit the one million mark—which would have been enough to qualify it for the ballot. Applying leverage had worked. Because of our reform, within the next few years, premiums dropped by 66 percent, and a total of $70 billion went back to California businesses in the first four years.

Still, the budget itself remained badly broken. And when I sent the legislature a $103 billion proposal for the fiscal year beginning on July 1, 2004, they stalled for more than a month of pointless negotiations so that the budget was late. July 1 came and went, and then a week, and then another week. This was exactly what I’d promised the voters we’d avoid, and I suddenly remembered what those previous governors had warned me about the day I was inaugurated: you’re going to spend a lot of summers solo and sweating in Sacramento. That didn’t seem to have worked too well for them, so I took my great poll numbers and went out to the people. Speaking to hundreds of shoppers in a Southern California megamall, I made the case that our lawmakers were part of a political system that was “out of shape, that is out of date, that is out of touch, and that is definitely out of control. They cannot have the guts to come out there in front of you and say, ‘I don’t want to represent you. I want to represent those special interests: the unions, the trial lawyers.’ ”

I don’t regret having said any of that. But in the next breath, I went over the top: “I call them ‘girlie men.’ They should get back to the table, and they should finish the budget.”

Needless to say, the girlie-men line was unscripted. It was the kind of outrageous improvisation that my team always worried I was going to come up with in front of a crowd. The joke got big laughs. The crowd knew that I was alluding to the Saturday Night Live spoof of me featuring the characters Hans and Franz. I also urged the crowd to “be terminators” on Election Day and throw out the legislators who voted against my budget.

My playful joke caused an uproar, with headlines nationwide. I got blasted for being sexist, antigay, a name caller, and a bully. The most damning criticism came from Assembly Speaker Núñez, who said, “Those are the kinds of statements that ought not to come out of the mouth of a governor.” He added that his thirteen-year-old daughter, whom I’d met and who liked me, was upset by what I’d said.

On one level, he was right. The voters had elected Arnold, and talking movie talk and saying outrageous things had helped me win. But once I got to Sacramento, I was representing the people, and I couldn’t just be Arnold anymore. I was supposed to work with legislators who are constitutionally part of the system, so I shouldn’t belittle them.

Besides, it was stupid to antagonize the legislators. When you are governor, you cannot pass legislation; you can only sign or veto legislation. They have to pass it. That’s the way the political system is set up. So if you need the legislators to make your vision of the state a reality, why insult them? Yes, you can put the squeeze on them, embarrass them, let the public see that they are not doing their jobs. But there are other ways to do that than to call them girlie men.

I decided I had to acquire new diplomatic skills if I wanted to accomplish big things. I would have to be more cautious in giving speeches—not just the written ones but also the statements I would deliver without notes. Of course, then I went right out and opened my big mouth again.

One of Maria’s inspirations upon becoming First Lady was to take a California women’s conference that dated back to the 1980s and transform it into a major national event. In December 2004, ten thousand women gathered at the Long Beach Convention Center for a one-day agenda on “Women as Architects of Change.” The program featured prominent women from California’s business and social-services worlds, as well as high-profile speakers such as Queen Noor of Jordan and Oprah Winfrey.

Because it was officially the California Governor’s Conference on Women and Families, it was natural for me to kick off the event. I joked that for once I got to be Maria’s “opening act.” As I began this carefully prepared speech celebrating women’s contributions to California, a group of protestors jumped up and created a commotion on the floor. They unfurled a banner, waved signs, and started chanting, “Safe staffing saves lives!”

The protestors were from the nurses’ union, and they were angry because I’d suspended a Gray Davis mandate that would have cut the standard workload for hospital nurses from six patients per nurse to five. Most of the audience in the giant hall barely seemed to notice, but the news cameras zoomed in on the fifteen chanting women being escorted away. I found their behavior really irritating. If their beef was with me, why screw up Maria’s event? Turning to the audience, I said, “Pay no attention to those voices over there. They are the special interests. Special interests don’t like me in Sacramento because I kick their butt.” Then I added, “But I love them anyway.”

Big mistake. Ridiculing the protestors embarrassed Maria, for one thing. And the nurses’ union took my words as cause for war. For months afterward, I was greeted by nurses picketing and chanting at every public appearance.

In the top drawer of my desk, I kept a list of the ten major reforms I’d promised to bring about when I ran for governor. I knew a certain amount of confrontation was inevitable because I was challenging the powerful unions that controlled the Democrats and were exploiting the state. High on that list were abuses like tenure for mediocre teachers, gold-plated pensions for state employees, and gerrymandering of political districts to protect the elected class.

Above all was the crying need for budget reform. Even though we’d finally passed a balanced budget for 2004, and the state economy was starting to revive, the system was dysfunctional. While revenues in 2005 were projected to go up by $5 billion, expenses were set to go up by $10 billion because of those weird budget formulas that mandated increases no matter what. These included big program expansions and generous pension benefits that the Democrats had locked in for the public-employee unions at the height of the tech boom. Maddeningly, California was headed right back into the red. We were facing another multibillion-dollar deficit for 2005. Unless we made fundamental changes, this same imbalance was going to cripple us year after year.

I saw our workers’ comp victory as a model. I’d used the threat of a ballot initiative to force the other side to negotiate and make a deal. So why not apply the same strategy to achieve reform on a much larger scale? I was pumped about that success, and the one we’d had on the economic recovery money. With that sense of accomplishment, during the last months of 2004, my staff and I set out to draft a whole new arsenal of ballot initiatives.

In education policy, we wanted to make it harder for inferior teachers to get tenure. (Instead of being retrained or fired, bad teachers would often be shuffled from school to school in what was known as “the dance of the lemons.”) In budget policy, we wanted to prevent the state from spending money it didn’t have, and to get out from under the automatic increases for education. We wanted to change public-employee pensions, making them more like modern 401(k) plans in the private sector. And we wanted to weaken the unions’ grip on the legislature by requiring them to obtain permission from their members before using dues to fund political contributions. It might have been naïve to think we could do so much, but my natural instinct after that first year was to just keep punching through my to-do list.

These initiatives eventually became known as my reform agenda. When I unveiled them that January, I told the legislature, “My friends, this is a time for choosing … I get up every morning wanting to fix things here in Sacramento. I ask you today: help me fix them.” I proclaimed grandly that 2005 would be California’s year of reform. What I didn’t realize at the time was that my rhetoric came across as way over the top. In essence, I had declared war on the three most powerful public-employee unions in the state: the prison guards, the teachers, and the state employees. People who heard the speech told me afterward that it was either a crazy-brilliant strategy to empty the entire war chest of the labor unions going into the next election year, or it was just crazy—political suicide.

I didn’t grasp how big a mistake I’d made. The way I presented my plans made everybody in the labor movement say, “Uh-oh. This is a whole different Arnold. We’d better mobilize.” The public-employee unions weren’t looking to do battle until then. They could have been persuaded to come to the table and reach a reasonable agreement. Instead, I’d given them Pearl Harbor—a motivation to band together and fight.

Teachers, firefighters, and cops quickly joined the nurses protesting at my public appearances. Every time I arrived at an event, they’d be out there, waving signs, booing, chanting, and ringing cowbells. The unions formed coalitions with names like the Alliance for a Better California and started pouring millions of dollars into TV and radio ads. One commercial featured a firefighter who was convinced that my pension reforms would take away benefits to widows and orphans. Another showed teachers and PTA members saying how disappointed they were with me for trying to put California’s budget troubles on the backs of the kids.

The heat of the protests surprised me, but the reforms were too important to give up. My spokesman told the press, “Our door will be open twenty-four hours a day to any Democrat who is serious about negotiating. But they haven’t been serious before, and we can’t wait forever.” I started running counteradvertisements to dispel the worst of the unions’ distortions and to remind voters that California needed to change. A commercial showed me on a cafeteria line talking to people and asking them to “help me reform California so we can rebuild it.”

But if you’re perceived to be attacking teachers, firefighters, and cops, your popularity is going to take a beating. My approval ratings dropped like they’d been tasered, from 60 percent in December to 40 percent in the spring. The surveys showed that a lot of voters were also frustrated that I seemed to be turning into just another Sacramento politician, picking partisan fights that would just lead to more paralysis.

My Year of Reform campaign was extremely uncomfortable for Maria. The Kennedys and Shrivers had always been close to labor, and here I was making antilabor moves. She pulled back. I could feel the change: I no longer had a partner who was taking my side but all of a sudden a kind of a neutral partner. “I’m not going to talk about these issues in public,” she said.

Despite our different views, politics had never been an issue in our marriage up until then. In my mind, I wasn’t antilabor, I was just straightening out California’s mess. When Teddy had been campaigning for his seventh US Senate term in 2000, Maria and I had helped by hosting a party for five hundred people at our house. Every important union leader in America was there to support Teddy and lobby him for deals, and afterward they wrote the most gracious thank-you letters to Maria and me. I remembered walking around greeting people on the lawn and deciding, “I feel okay hosting these labor leaders at my house.” There were a lot of trade unions—plumbers, butchers, pipe benders, carpenters, bricklayers, and cement workers—and I always had a good relationship with them. It was the excesses of the public-employee unions that I found intolerable.

As summer arrived, I made good on my threat that if the Democrats and their backers wouldn’t come to the table, we would let the voters decide. Exercising my prerogative as governor, I called a special election on my reform initiatives for November. This intensified the pressure on Maria. She started getting calls and letters from labor leaders around the country saying, “You’d better talk to Arnold about this issue.” She always informed me about these contacts but never argued their case.

She also found herself having to defend me to Eunice and Sarge. They would ask questions like, “Does he really have to go after labor this way? Does he really have to be so harsh? Why doesn’t he try being harsh on businesses too?”

“Arnold is trying to deal with a fifteen-billion-dollar deficit, and labor wants more money,” Maria would explain. “And he promised reform in his campaign, and now he’s trying to deliver. Of course, that doesn’t go over very well with labor! I understand your position, but I also understand his concerns.” Being caught in the middle made her feel awkward and weird.

My phone was ringing too. Business leaders and conservatives were saying to me, “I know those Kennedys are trying to convince you to back off, but just remember, we’ve got to continue this battle.” The idea of me living and sleeping with the enemy had always driven them nuts. You could almost hear the extreme ones thinking, “Holy shit, this could very well be when Teddy takes over California.”

Behind the scenes, negotiations moved by fits and starts. I was having a hard time not only because the unions were so fierce but also because many on my own staff disagreed with me. Pat Clarey and other veteran Republicans were cynical about our chances of ever getting the unions to negotiate in good faith, and took a hard line. They seemed to want a big political fight more than I did.

Rather than argue with them, I went around them. I reached out personally on my own. I met quietly with the teachers’ union, which had been my ally during the campaign for my after-school initiative, although that now seemed like centuries ago. I sought out leaders of the police and firefighters’ unions with whom I’d worked successfully. And I enlisted my friend Bob “Huggy” Hertzberg, the Democratic former assembly speaker, to set up secret meetings with Assembly Speaker Fabian Núñez.

I made progress in these talks, particularly the talks with Núñez, which took place not in Sacramento but on my home patio. My goal was to work out compromise measures to replace the ballot initiatives. Then I would either take the initiatives off the ballot one by one and work with the legislature to make the reforms, or replace the initiatives on the ballot with compromise versions agreed to by all sides.

We were told by Secretary of State Bruce McPherson, a Republican, that the deadline for revising the ballots was mid-August. As it drew near, Fabian and I were close to a deal. But two things stood in the way. Some of the unions were reluctant, even though I was willing to meet them more than halfway. I’m sure their political advisors were pointing to the public-opinion surveys and asking, “Why compromise now when you can crush him in the special election?” They were on their way to spending $160 million in a campaign against me, and they tasted blood. All of a sudden, the lions saw they could eat the lion tamer. The crack of the whip wasn’t scary anymore.

The other problem was my staff, which still did not believe that the unions would ever agree. They also thought my agenda was so big that it couldn’t be accomplished on my timetable. That’s not how government works, I kept being told; they just don’t move that fast upstairs. Fabian and I raced against the clock to complete a deal in time to cancel the special election. After around-the-clock negotiations, we came to an agreement—only to be told by the secretary of state that it was too late to cancel; that there wasn’t enough time to draft and vote on the bills in the legislature before the overseas absentee ballots had to be mailed. The special election was on; there was no turning back.

The special election became a cause célèbre for public-employee labor unions nationwide. Before I knew it the New York Times, Washington Post, and Wall Street Journal were all writing about it, and the story was even being picked up in the international press. It was the biggest political news to come out of California since the recall of Gray Davis, only now it was my governorship that was being tested. I hadn’t bargained on this tough a fight, but in a way I was glad. We were making Americans aware how far labor will go protecting its interests even when the deal is unfair.

I saw Teddy Kennedy when I joined Maria and the kids in Hyannis in August. “If you want me to talk to the national union chiefs or get involved,” he volunteered, “let me know.”

“Tell them I know they are sending money to California to beat me and my initiatives,” I said. “Try to calm them down and explain that an adjustment is inevitable. It’s not just California, it’s every state. We can’t afford to keep paying these rich contracts when we have less money.”

I ran the best campaign I could for the initiatives. But we were overwhelmed by the ad campaign. The California Teachers Association mortgaged its headquarters in the Bay Area suburb of Burlingame to raise extra tens of millions for its attack. It blanketed the airwaves with commercials complaining that California was worse off and turning the election into a referendum on me: Arnold is not keeping his promises. Arnold is failing the children. Arnold is failing the elderly. Arnold is failing the poor. The association put up billboards around the state that read, “Arnold Schwarzenegger: Not Who We Thought.” They even enlisted Hollywood stars like Warren Beatty and his wife, Annette Bening, and director Rob Reiner to campaign against me.

We raised money aggressively too. We spent from the war chest for my possible reelection campaign in 2006, and I even donated $8 million of my own. But while we raised $80 million, we couldn’t compete with the labor money. The two sides ended up spending more than $250 million, making the election the most expensive in California history.

I’ve had good defeats, and I’ve had bad defeats. A good defeat is a loss that nevertheless brings you a step closer to your ultimate goal. Losing my first Mr. Olympia competition to Sergio Oliva in 1969 was like that, because in preparing for that contest, I could honestly say I’d left no stone unturned. I’d eaten the right foods, I’d taken the right supplements, I’d trained five hours a day, I’d practiced my posing, I’d gotten properly psyched, and I was in the best condition I’d ever been. I even had my best-ever tan. When Sergio won, I knew I’d done my utmost and that I would come back even stronger the following year.

This defeat, however, did not feel that way. It really hurt. It was like losing to Frank Zane in Miami when I first came to America, when I’d gone into a major competition overconfident and underprepared. That time when I lost, I had only myself to blame. This time I had told voters I would fix their problems, and instead I had exhausted their patience by forcing them, just twenty-four months after a trying recall election, to go back to the polls and digest all kinds of big ideas. I had put the burden of solving problems on them, when they wanted me to take care of it. Even Maria complained that she couldn’t possibly do all the reading necessary to make informed decisions on the initiatives. The voters thought they were getting a diet pill when they elected me. Instead, I had turned around and asked them to meet me at the gym at five in the morning for five hundred push-ups.

I didn’t wait until the actual election to analyze what I’d done wrong. One night in late October, I sat in the Jacuzzi on our patio, smoking a stogie, staring into the fire, and thinking. I remembered back to the transition, and meeting the father of a firefighter who had died in the line of duty. I told him, “This is a terrible tragedy. If there is anything I can do, let me know.” And his answer was, “If you want to do something for me, do it in honor of my son. Please, when you go to Sacramento, stop the fighting. Get along.” Those words came back to me now.

I forced myself to face the fact that the failure of the initiatives was not simply a matter of the unions digging in their heels. I’d taken too confrontational an approach, I’d been in too much of a hurry, and I hadn’t really listened to the people. We overreached. And it had backfired.

What’s more, I’d allowed my reform crusade to threaten the other major commitment I’d made in becoming governor: to revitalize California’s economy and rebuild our state. I’d led my staff into a losing battle, and you could see the effects on them. They were a good team, especially considering that we’d pulled them together in the mad scramble of the recall. They’d helped me rack up the important successes of our first year. But with the impending defeat of the reform agenda, there was growing dysfunction and dissent. Morale was low. People were insecure about their jobs. There were leaks to the press. They were working at cross-purposes with one another and sometimes at cross-purposes with me.

We’d been making mistakes not only behind the scenes but also in public. At a press conference called to promote redistricting reform, the staff had me stand in the wrong location. The event was supposed to be at the border of two gerrymandered districts, which we tried to dramatize by laying down bright orange tape right through the middle of a neighborhood—except that the real border turned out to be blocks away.

All this put a strain on Pat. She was tired of the fighting. “When the time comes, I’ll move on,” she said. “I want to go back to the private sector, and you should get someone else to come in.”

Now I said to her, “Whatever happens in this vote happens. We’ll wait a little while for people to catch their breath, but then it’s time. I have to bring in new people.” She agreed.

The opinion polls weren’t wrong: November 8, 2005, was a total disaster. All four of my ballot measures lost, with the voters rejecting the most important one, the budget reform, by a huge margin of 24 percentage points. At a gathering that night, Maria stood by my side as I struck a conciliatory note. I thanked the voters for coming to the polls, including those who had voted against my reforms. I promised to meet with the Democratic leaders and find common ground. Soon afterward, I told a televised news conference at the capitol that I did not want the staff to be blamed for my mistakes: “The buck stops with me. I take full responsibility for this election. I take full responsibility for its failure.”

I promised that the fighting was over. Next year would begin with a different tone.