I coulda been a reformer!

In mid-July, when the budget stalemate started to drag, the governor’s office announced a press conference. Governor Arnold Schwarzenegger appeared in the Capitol pressroom and blamed the standoff on “special interests” causing “chaos.”

Schwarzenegger singled out trial lawyers for supporting the “sue your boss” law, passed during the last days of the previous administration to give workers the right to sue employers for various transgressions. He also accused labor unions of blocking an effort to let school districts contract out school services such as busing rather than stick with union contracts.

“I’ve always said, ‘When the special interests push me around, I will push back,’” Schwarzenegger said. “And this is what we’re doing right now. And I will be here in Sacramento—it doesn’t matter how long it will take—because I’m here to protect the people of California.”

After the short press conference, however, Schwarzenegger flew home to Southern California and headed to the Beverly Hilton for a fund-raiser where he collected several hundred thousand dollars from business leaders—in spite of his campaign promise to ban fund-raising during the budget process.

Among those who ponied up that day, according to campaign-finance reports, was investor Haim Saban, a top Gray Davis contributor appointed by the former governor to the University of California Board of Regents. Saban gave Schwarzenegger a $10,000 check. The event was co-hosted by tech tycoon Beny Alagem, who bought the Beverly Hilton from Merv Griffin last year for $130 million. He wrote a $54,000 check.

Investor Elliott Broidy, a major Bush-Cheney fund-raiser, handed over $50,000, on top of the $21,200 he gave candidate Schwarzenegger last year. A&M Records co-founder Jerry Moss gave $20,000. A couple of days after the event, the governor’s California Recovery Team reported at least $219,000 in donations over $5,000. About 150 people attended the event, said Marty Wilson, Schwarzenegger’s chief fund-raiser.

But those checks are pennies on the dollar compared with the dozens of six-figure checks flowing from some of the governor’s biggest donors. Two of the most generous are developers Alex Spanos and William Lyon, whose companies arguably stand to win or lose depending on how state law and government affects their businesses. Each handed $250,000 checks to one of the governor’s committees, and together they’ve given a combined sum that tops $1 million. Other six-figure checks flowed from companies such as PG&E and ChevronTexaco, each of which spent more than $1 million lobbying state officials last year—making them special interests by any definition.

What then, exactly, is a special interest? “The way we define it is entities and their leadership who use campaign contributions and lobbyists to pursue a narrow set of goals out of the political process,” said Andy Draheim of California Common Cause, a nonpartisan political-reform advocate and campaign-finance watchdog. If a group such as a corporation or a labor union hires lobbyists and writes big checks to candidates in order to pursue policy outcomes that serve their narrow interests instead of the public interest, Draheim said, that’s a special interest. It doesn’t include all donors, such as those who just like to support candidates of their party or wealthy folks who might just write a check because they want to meet, say, a certain Teutonic superstar.

The governor’s use of the “special interests” bogeyman—blame them for the state’s problems during the day and take their checks at night—underscores the inconvenient fact that the governor, who waved a broom around at campaign rallies last year and vowed to sweep the special interests out of Sacramento, instead should have been running around with a rake, or maybe a vacuum.

According to the most recent campaign-finance data, which was filed last week, Schwarzenegger’s various committees raised $12.9 million in the first half of this year, thanks to special-interest groups that welcomed the new governor to Sacramento with five- and six-figure checks.

In all, Schwarzenegger has raised more than $29.9 million since he announced his candidacy for governor one year ago.

The governor’s total even eclipses the last one-year total for Davis, who was heavily criticized for his aggressive fund-raising by Schwarzenegger and other recall proponents who booted him from office. During the 2002 calendar year, in which Davis waged a costly battle for a second term as governor, his campaign committee reported raising $29.2 million.

Combined with the two previous calendar years, 2000 and 2001, Davis fund-raising totaled $59.7 million in the run-up to re-election. Over 36 months, that averages $1.6 million per month. In the last 12 months, Schwarzenegger has collected cash at a far faster rate than Davis, averaging $2.5 million per month.

Of all the money flowing into Schwarzenegger’s accounts, the largest portion, nearly $5 million, came from the finance, accounting and investment sectors, according to the Santa Monica-based Foundation for Taxpayer and Consumer Rights (FTCR), a left-leaning watchdog group that has been the loudest and most consistent critic of Schwarzenegger’s fund-raising practices. (The group also hammered Davis for the same transgressions.) Development and real-estate donors ranked second, topping $3 million in FTCR’s tally, and car dealers, insurance, agriculture and health care each gave around $1 million.

The biggest fund-raising total reported last week belonged to the California Recovery Team run by Schwarzenegger, which raised and spent nearly $9 million to promote the governor’s agenda in the first half of 2004.

During his press conference blaming special interests, Schwarzenegger omitted any mention of Ameriquest Capital Corp., an Orange County-based mortgage company that gave him and his committees more than $446,400 this year, including contributions from corporate executives. Ameriquest also lobbied for a repeal of the so-called sue-your-boss law.

The governor also made headlines this year by siding with his contributors in the auto industry on issues important to their bottom line. In addition to the $4 billion car-tax rollback enacted minutes after he took the oath of office in November, Schwarzenegger’s 2004-2005 budget included a provision that benefits car dealers by exempting vehicles less than four years old from the smog checks currently required for any automotive sale. Also, the Schwarzenegger administration is opposing a bill by Assemblywoman Cindy Montañez, D-San Fernando, that would give buyers a three-day cooling-off period on used-car sales and require additional up-front disclosure of car-loan rates.

In addition to collecting cash more than twice as fast as Davis did, Schwarzenegger has abandoned—so far—the central promise of his campaign: to clean up Sacramento by curtailing the influence of special interests. Schwarzenegger even plucked top aides from the ranks of the special interests, including Richard Costigan, who was chief lobbyist for the California Chamber of Commerce, a powerful pro-business lobbying group, when the governor appointed him to be the administration’s legislative secretary.

Instead of curtailing so-called special interests, Schwarzenegger has rubbed elbows with them and taken their money at fund-raisers. Instead of being a champion of political reform, Schwarzenegger has dropped his effort to ban fund-raising during the budget process. He also opposed new campaign-finance regulations that might have curtailed his fund-raising ability. And, according to critics, one of the governor’s fund-raising entities has a questionable claim to the nonprofit status that allows it to take unregulated contributions without reporting its finances—a charge the governor’s legal team denies.

After winning a landslide victory by running as a reformer who would fix Sacramento’s influence peddling, Schwarzenegger has turned out to be anything but.

Along with the entertaining spectacle of last year’s recall, Californians got a his tory lesson about former Governor Hiram Johnson and the state’s progressive reforms in the early 20th century. As he campaigned, Schwarzenegger praised Johnson, a Republican attorney who was elected in 1910 after vowing to end the railroads’ decades-long dominance of state politics.

Johnson outlined an ambitious agenda. “I shall look to the Legislature to aid me in my design to eliminate special interests from the government,” Johnson told lawmakers in his January 3, 1911, inaugural address. To help keep government clean, Johnson called in the same speech for a trio of new tools: the initiative, the referendum and—what he called a “precautionary measure by which a recalcitrant official can be removed”—the recall. Johnson prevailed, too, enacting reforms that ended the railroads’ dominance of Sacramento.

In one event larded with symbolism, Schwarzenegger even invoked Johnson by campaigning at the California State Railroad Museum in Old Sacramento. There, where giant 19th-century steam engines are displayed at the former terminus of the transcontinental railroad that made the railroad barons so wealthy and powerful, Schwarzenegger called for reforms.

Schwarzenegger even seems to have taken some cues from Johnson. “Seldom has a governor so dominated the political life of his state,” Spencer C. Olin Jr. wrote in his 1968 book California’s Prodigal Sons: Hiram Johnson and the Progressives, 1911-1917. “By means of public and private persuasion, effective utilization of the California press … and by the sheer force of his dominant personality, the vigorous and able governor pursued his goals.”

But while praising Johnson’s reform efforts as a way to build his own credentials as a populist reformer, Schwarzenegger was filling his bank accounts with money from the corporations, industry lobbying groups and chief executive officers that are the powerful 21st-century heirs to the railroad barons Johnson challenged. (Coincidentally, Johnson died 58 years to the day before Schwarzenegger’s August 6, 2003, announcement on The Tonight Show with Jay Leno.)

In the last days of the campaign, Schwarzenegger talked about political reform in a way that made him sound more like a Common Cause lackey than a well-funded candidate. “It is essential that we rebuild the people’s trust in government,” Schwarzenegger said during a campaign stop at the Sacramento Memorial Auditorium downtown. “As governor, I will ban all fund-raising by state officials during the budget process.”

After taking office, Schwarzenegger pushed a bill to do that, but then he abandoned the effort in April. By then, he’d already held fund-raisers after introducing his budget in January—engaging in the very practice he’d promised to end.

As governor, Schwarzenegger can accept up to $21,200 from a single source. But the governor’s ballot-measure committees don’t have caps on donations, and they have accepted a handful of checks as large as $250,000 from individuals and corporations. So far, Schwarzenegger hasn’t been faced with the same kind of pay-for-play allegations that Davis faced.

To insulate himself from that perception, Schwarzenegger relies on a rhetorical device that amounts to a doublespeak definition of “special interests.” It’s a term of art that appears to him to include just two categories: Public employee unions and trial lawyers. Insurance companies, for example, somehow don’t fit the definition of special interests, in spite of their lobbying efforts and contributions—some of which poured in while the governor was working out a workers’-comp deal that would affect the insurance industry.

Even tribal gaming interests, which negotiate compacts with the governor and are battling Schwarzenegger over a pair of fall ballot initiatives, don’t seem to qualify as special interests anymore in the governor’s eyes. Wilson, Schwarzenegger’s chief fund-raiser, told the Associated Press in July that the governor might back off an earlier promise and start accepting contributions from tribal gaming interests. “No monies have been offered, and none have been solicited,” Wilson told SN&R. Ultimately, he said, Schwarzenegger would have to make the call.

Taken together, the governor’s attitudes toward fund-raising seem at odds with his many promises to reform the political system in the capital.

Schwarzenegger’s huge reform proposal for state government, released last week by the California Performance Review commission, was intended only to include governmental reforms, not political reforms.

“He’s done nothing to advance the political-reform agenda in Sacramento,” said attorney Paul Ryan, political-reform project director at the nonpartisan Center for Governmental Studies in Los Angeles. “And he’s proceeded to raise money from virtually all of the same contributors who funded previous administrations.”

What happened?

Schwarzenegger, who takes his policy initiatives one at a time, just hasn’t gotten around to it yet, according to the governor’s office.

“It may take longer than his first few months in office,” warned Ashley Snee, the governor’s deputy press secretary. “But he remains committed to the principles.”

All of the money Schwarzenegger raises goes into a network of committees he controls and uses for a variety of purposes. It’s a campaign-finance operation far more complex than anything Davis ever created.

Schwarzenegger controls seven different committees set up to promote him and his political agenda. It’s believed to be an unprecedented array of campaign-finance entities, though previous governors weren’t subject to $21,200 contribution caps and didn’t rely heavily on backing statewide ballot-measure campaigns to push their agendas.

“Nobody’s ever come close to Schwarzenegger in developing a web of campaign committees like this,” said Doug Heller, executive director of FTCR.

Whether the money goes to a committee for Schwarzenegger or one of his causes, the effect is the same: Donors representing corporations and other interests seek recognition and attempt to buy access to the governor.

Schwarzenegger also has helped out with fund-raisers for other causes and races. The governor raised more than $2 million for the formerly cash-strapped California Republican Party by headlining a Century City fund-raiser this year. Schwarzenegger also helped bring in big bucks for statehouse candidates, including incumbent Senator Tom McClintock, R-Thousand Oaks, and Stockton Mayor Gary Podesto, a Republican trying to unseat Senator Mike Machado, D-Stockton.

Of Schwarzenegger’s several committees, the most noteworthy is the California Recovery Team (CRT), formed in December to finance Schwarzenegger’s extracurricular political causes, like the economic-recovery bonds on the March ballot. The CRT also spent millions to gather signatures for a workers’-comp measure the governor threatened to put on the ballot while negotiating with the Legislature on workers’-comp reform.

But the way Heller of FTCR sees it, there are actually two CRTs. One is a committee, and the other is a nonprofit corporation.

Schwarzenegger’s CRT, the committee, lists Schwarzenegger as a controlling officer. The committee doesn’t use its money to get Schwarzenegger elected, so it’s not subject to the $21,200 cap. Instead, under state law, it can take unlimited contributions. In January and February, the committee transferred $5.4 million to Californians for a Balanced Budget, a committee Schwarzenegger formed with Controller Steve Westly to support Propositions 57 and 58 on the March ballot.

In other words, the governor can use some of the committees under his control to effectively evade the $21,200 cap on donations to a gubernatorial candidate that was approved by voters.

The other half of the CRT, the corporation, was “organized and operated exclusively for social-welfare purposes,” according to incorporation papers filed with the state. For tax purposes, the corporation is classified under Internal Revenue Service (IRS) regulations as a 501(c)(4) organization, giving it nonprofit status. Groups with issue-oriented political agendas, such as a the Sierra Club and National Rifle Association, typically have 501(c)(4) status.

Board members include Schwarzenegger Deputy Chiefs of Staff Bonnie Reiss and Donna Lucas. The committee roster also lists the governor’s top political operatives: Mike Murphy, Jeff Randle, Don Sipple and George Gorton. Schwarzenegger fund-raiser Wilson functions as the CRT corporation’s executive director. Renee Croce, another fund-raiser for the governor, is the finance director. (Reached by phone, Croce said she doesn’t speak to reporters.)

In addition to Croce, who raises money in the Los Angeles area, Wilson said that the CRT committee also employs four other professional fund-raisers, who cover different regions around the state: Sacramento, San Francisco, Orange County and San Diego. They are, Wilson said, “the cream of the Republican fund-raising crop.”

Wilson said Schwarzenegger keeps some distance from the fund-raising operation. “We basically put together an idea of where we want to go and run that by him, and he gives us the final OK,” Wilson said. “He is engaged in terms of what we do on the political and finance side, but in terms of does he spend all day on the phone calling and soliciting donations, the answer is no.”

The CRT corporation is allowed to lobby for nonpartisan causes, and according to state records, it spent more than $200,000 on lobbying efforts in the fourth quarter of last year. Specifically, lobbying reports show that the money went for research, consulting and public rallies related to Propositions 57 and 58 and the car-tax rollback.

But the same records don’t say where the money came from or exactly who was paid for what.

Because it’s legally a nonprofit organization, Heller said, the CRT corporation doesn’t have to reveal its finances, and it’s not subject to contribution caps, either. In other words, it can do as much business as it wants in total secrecy—hardly the kind of openness that Schwarzenegger promoted as a candidate.

Schwarzenegger attorney Tom Hiltachk, who serves as treasurer to the committees controlled by the governor and is one of the state’s top campaign-finance attorneys, said that’s not the case at all.

“Every penny that is received is reported,” Hiltachk said, acknowledging that the corporation could choose not to disclose its finances.

Schwarzenegger fund-raiser Wilson explained that the CRT corporation only gets money from other Schwarzenegger committees that must file campaign-disclosure forms. And the only money deposited into the corporation account comes from Schwarzenegger committees, not outside donors. Although the CRT corporation could accept outside contributions without revealing the sources, Wilson said that doesn’t happen. “We could, but we don’t,” he said.

Then there’s the charge that the CRT exists for political purposes. “All evidence,” said FTCR’s Heller, “indicates that this is illegally chartered as a nonprofit corporation when in fact it’s a candidate-controlled ballot-measure committee.”

Hiltachk said the IRS signed off on the creation of the nonprofit organization and that it’s not purely political. “A ballot-measure campaign is, by its nature, political,” Hiltachk said. The CRT supports the governor’s agenda, but that doesn’t mean it exists just to promote the governor. “It’s doing exactly what it says it’s going to do, which is promote the agenda of economic recovery and reform.”

IRS requirements say a “social welfare organization may engage in some political activities, so long as that is not its primary activity.”

FTCR filed a complaint alleging that the committee is purely political and designed to evade campaign-finance reporting requirements. The nonprofit corporation, FTCR said in a May 25 letter to the IRS, “is functioning primarily as a political organization rather than a social welfare entity in violation of its tax-exempt status…the organization exists primarily to advance Governor Schwarzenegger’s political career.”

An IRS spokesman said the agency can’t comment on any complaints.

Hiltachk said there’s nothing unusual about the structure of the CRT and that the committee and the corporation are essentially the same entity. “Every ballot-measure campaign on the ballot this year, both for and against, are organized as 501(c)(4)s.” The three previous governors also had 501(c)(4) committees “for similar types of operations, although less ballot-measure focused,” he said.

Another committee controlled by the governor, Arnold Schwarzenegger’s Total Recall Committee, was set up last year to help knock Davis out of office. A companion committee, Californians for Schwarzenegger, was established to finance Schwarzenegger’s effort to be the one who replaced Davis. Both committees remain active.

The governor also has an officeholder committee, Californians for Schwarzenegger 2006. Officeholder committees, also known as re-election committees, can be used to cover various expenses. Schwarzenegger’s 2006 committee lists expenses such as speechwriting, fund-raising and the governor’s room at the Hyatt across the street from the Capitol.

Additionally, Schwarzenegger has some cash left in his very first committee, formed in 2002 to push Proposition 49, which proposed new after-school programs for kids. Voters approved the measure.

The complex nature of Schwarzenegger’s seven committees and how they interact has generated criticism by the governor’s critics, who say it goes against some of his promises. “It violates his principles of transparency,” said FTCR’s Heller. Earlier this year, FTCR filed a complaint with state campaign-finance watchdogs alleging that by transferring funds from the CRT to the committee to support Propositions 57 and 58 committee, Schwarzenegger obscured the true source of the donations. The Fair Political Practices Commission (FPPC) has not announced whether it will pursue an enforcement action on the matter.

The governor got a chance this summer to lend some credibility to his earlier calls for political reform when the FPPC was considering a new regulation that would change how candidates can use committees they control. The side committees, separate from the bank account a candidate uses to get elected, typically exist to push an agenda the candidate supports.

In June, the commission met to consider applying contribution limits to candidate-controlled ballot-measure committees, which were able to take unlimited amounts. The commission had been wrestling with how to handle candidate-controlled ballot-measure committees since the recall, when Lt. Governor Cruz Bustamante illegally shuffled millions in and out of his committee.

The proposed regulation could have curtailed Schwarzenegger’s use of the ballot-measure committees he controls.

The Democratic leaders of both houses of the Legislature, Senate President Pro Tem John Burton and Assembly Speaker Fabian Núñez, both sent letters urging commissioners to adopt the limits. So did Senator Ross Johnson, R-Irvine, one of the Legislature’s most consistent agitators for political reform. Johnson also went a step further, urging an aggregate limit per candidate, so candidates couldn’t just keep opening new committees to get around the caps and accepting the maximum amount in each committee.

But instead of making good on campaign promises to clean up Sacramento by embracing a political-reform proposal, Schwarzenegger opposed the new rules. His legal team told the commission to back off because the new rules might make it harder for him to sink gaming-related Propositions 68 and 70 in November.

Schwarzenegger attorney Hiltachk said the proposed regulation would erode the governor’s constitutional power if he couldn’t raise unlimited amounts for the committee opposing Propositions 68 and 70. Schwarzenegger would only be able to accept contributions under the cap, while tribes on the opposing side still would be able to take unlimited contributions.

“As a matter of fundamental fairness, if we’re talking about waging a battle, both sides ought to be armed in the same way,” Hiltachk said.

In a six-page letter to the commission, Hiltachk wrote that the governor “pledges to work with” the sponsor of a bill that would address the same topic. But that bill, by Assemblywoman Lois Wolk, D-Davis, is a weaker measure that doesn’t include caps on contributions to candidate-controlled ballot-measure committees.

Ryan, of the Center for Governmental Studies, wrote commissioners to support regulating unlimited contributions to controlled committees. The proposed regulation, he said, is the single most important political reform to occur in California this year—and the governor’s position is the most significant position on reform.

There’s nothing wrong with Schwarzenegger pushing ballot measures, Ryan said. Rather, “the problem only arises when large or unlimited funds from special interests in the state are flowing through the governor to these various committees.”

“Talk is cheap,” Ryan told SN&R. “When it came time to step up to the plate and support a meaningful reform proposal before the FPPC, the governor turned the other way and opposed it.”

At the June meeting, commissioners ended up approving a new regulation, capping the amount that candidates could collect in committees. But the regulation doesn’t take effect until after the November election, giving the governor a reprieve.

And while the FPPC continued its investigation of Schwarzenegger’s campaign- finance activities, his administration proposed deep budget cuts that would have forced the watchdog agency to scale back enforcement efforts. The Legislature later restored some of the FPPC’s funding.

Last week, Schwarzenegger unveiled his proposal to overhaul state government at the Department of General Services storage facility, a cavernous warehouse in North Natomas. Behind the governor’s podium, a rack full of surplus state property rose almost to the ceiling, towering over the crowd below. Like a Costco store full of bureaucratic castoffs, the shelves held forklift pallets stacked with obsolete equipment: desks, tires, computers, air conditioners—even old police-car light bars.

Flanked by leaders of the California Performance Review team, Schwarzenegger cast himself as a crusader and again invoked Hiram Johnson’s name in support of his pitch to shake up the government.

“Of course there will be the special interests … that will be complaining and squawking,” Schwarzenegger said, predicting opposition to his plan. “But this is because their agenda is not the people’s agenda. The people know that California needs many many reforms—if it’s prison reform, energy reform, government reform, education reform—we are going to meet all those challenges and much more.”

Absent from the governor’s list of needed fixes was political reform, for which he’d campaigned so consistently.

Though the performance review had been put together with input from business interests, Schwarzenegger cast the proposal as a populist plan that would do “exactly the same” as Johnson’s reforms nearly a century ago by returning control of the government to the people.

When Johnson took office, Schwarzenegger said, special interests were running over the people. “He did not call the lobbyists or the union bosses and say, ‘Hey, can you fix California?’” Schwarzenegger said.

When a Los Angeles Times reporter— following up on an earlier story outlining how companies such as Microsoft, Hewlett Packard and PricewaterhouseCoopers had been given access to the Performance Review Team—asked if that wasn’t “an example of special interests coming in,” Schwarzenegger didn’t answer. Instead, the governor underscored the importance of the review process and said that he was just seeing the recommendations for the first time because he wanted “to see the report at the same time as the people of California see the report.”

Broken campaign promises are nothing new in politics. Nor is it unheard of for an officeholder to rail against special interests—however they’re defined—while cashing their checks at the same time. But political reform was the central platform in Schwarzenegger’s campaign, and it’s hardly a stretch to say that it’s the reason he’s in office today.

“The irony to me is that the last governor was taken down for being a fund-raising whore,” complained a top Davis adviser who didn’t want to be named. “Gray Davis was a control freak, so all the money needed to come to him. But the fact is these guys are doing committees to support this or that initiative. You don’t know where the money’s going, but it’s all to benefit him. It’s basically a shell game that you can’t track as easily because it’s not all coming to ‘Schwarzenegger for Governor.’”

Although it’s easy to campaign against interest groups, said San Jose State University political-science professor Larry Gerston, they’re still important to the political process and can’t just be removed from the equation. The governor may have realized as much, he said.

“I think reality entered into this at some point,” Gerston said of all the promises that candidate Schwarzenegger made about enacting reforms. “With every day, it gets more and more difficult to tell Arnold Schwarzenegger and Gray Davis apart.”