Paul Sakuma  /  AP
Gov. Arnold Schwarzenegger smiles as he delivers his first State of the State address to lawmakers Tuesday night.
updated 1/6/2004 9:29:06 PM ET 2004-01-07T02:29:06

In a turning point marking his transition from Hollywood idol to California’s leader, Gov. Arnold Schwarzenegger focused his first major address Tuesday on a financial crisis he said would entail painful budget cuts.

The speech, delivered to a worldwide television audience as well as a joint session of the California Legislature, set an aggressive legislative agenda for the coming year.

“We have no choice but to cut spending, which is what caused the crisis in the first place,” Schwarzenegger said. “These are cuts that will challenge us all. But we cannot give what we do not have. If we continue spending and don’t make cuts, California will be bankrupt.”

Elected in California’s historic recall election in October, Schwarzenegger takes over at a critical juncture. California has a deficit of close to $15 billion. Although voters will be asked to borrow the money needed to pay off that debt, Schwarzenegger also faces a new deficit of at least $14 billion next year.

In his two months in office, Schwarzenegger has been busy cutting car taxes, forging agreements on borrowing billions of dollars and invoking emergency powers to make payments to cities and counties, but the biggest tests are still to come.

'Economic chaos'
Schwarzenegger did not detail his budget proposal, to be released Friday, but he noted that cuts would be imposed at all levels of government. And he asked voters to approve the $15 billion bond on the March ballot.

“The alternative is economic chaos,” he said.

During his campaign, Schwarzenegger promised to find billions of dollars in waste, but so far he hasn’t found any he’s acknowledged publicly. On Tuesday he announced the creation of a commission to find where state government is duplicative and wasteful.

“This good news is that the spending crisis forces us to bring badly needed reform to government,” he said.

The big target of the cuts is expected to be public health and welfare programs. The governor has already released a list of about $4 billion in spending reductions he wants, including changes to the state health insurance program that costs taxpayers about $10 billion annually.

The governor’s tone was generally upbeat, and he shied away from areas that might ignite partisan bickering while noting he wants to work with both parties.

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Schwarzenegger has proposed sweeping legislation aimed at bringing the state’s worker compensation costs down to at least the national average, and hinted that if lawmakers fail to solve the problem, he would also take the issue to voters. His proposal would limit how much doctors, pharmacies and clinics are paid and impose new restrictions on how job-injuries are evaluated and how medical disputes are resolved.

'Opening night'
The average cost to employers for worker compensation insurance has nearly tripled since 1999 to nearly $30 billion a year. Schwarzenegger’s plan is designed to cut more than $11 billion.

In a response following the speech, Assembly Speaker Herb Wesson said Democratic lawmakers would cooperate with Schwarzenegger, “but we will not capitulate to this governor on issues of core Democratic values.”

Observers said the speech marked a major turning point in Schwarzenegger’s career.

“Right now he’s no longer Arnold Schwarzenegger the international movie star, he’s Arnold Schwarzenegger the governor of California,” said Ken Khachigian, a Republican political consultant who once served as the chief speech writer for former President Ronald Reagan.

“All the rehearsals are over,” he said. “This is opening night.”

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