Hours after Gov. Arnold Schwarzenegger announced his latest budget revisions Wednesday, he sat down with Times editors and reporters to share his thoughts on taxes, the entertainment business and more. Below are excerpts of his remarks. You can find the audio gallery here.

California’s tax system ( MP3 )

Gov. Arnold Schwarzenegger: We don’t have a revenue problem in the long run, because we have a 5% increase if you average it out over 10 years, the last 10 years, we have a 5% increase in revenues. So there’s really no reason why we should be in financial trouble. It’s only because, as I said, when there’s a spike in revenues they grab off that money and spend it and commit it to ongoing programs . And then everyone expects that this will now continue, but in fact it doesn’t because, as Davis experienced, the next year it was down and the revenues were flat. Then all of a sudden, everyone was scrambling and everyone thought that we were -- and we were in a disastrous situation, obviously .

What we want to do, kind of, is eliminate that problem and say any revenues that come in that’s beyond 5% goes into a rainy-day fund, and keep it there. And when the revenues are down like right now we can use this rainy-day fund to supplement the shortfall and soften the blow, not that you can solve the problem, but soften the blow .

My approach on this is: Look, you guys have been in this mess now for at least three decades. I mean, Deukmejian went through it, Davis went through it, Pete Wilson went through it, I’m going through it. When do you ever get the point that there’s something wrong with the system? And you always scream that they’re balancing the budget on the backs of the poor and look at the cuts we have to make and this and that is a disaster, when in fact, you can fix the system and then never have that problem again .

As I said, in January I tried to make them recognize to not do what they always do, which is to look at the budget as just one year . Let’s go and really put the work in it, and let’s go and fix this once and for all so we don’t have those kind of swings.

And I have talked also to [Assembly Speaker Karen Bass] about, you know, finding a way of stabilizing the revenue itself through our tax system, because our tax system is really outdated . We have a tax system that is so much counting on the income tax and the capital gains tax, so we see these huge swings . There are so many things that we don’t tax at all, so we’re loading up the responsibility on this one sector that is kind of shrinking.... So let’s analyze that; maybe there’s a way of easing that in, maybe there’s a way we can stabilize revenues....

So me as a Republican, I recommend that, so it takes a little bit of pressure off the Democrats who feel like, “Oh, if I mention that, then it looks like special code for tax increases and all those kind of things.” So I said, “Look, you’re the luckiest people.” I said, “You have a Republican governor that can push those things that maybe just you’re always, you’re known for pushing.”

But I think, and I think everyone knows, that our tax system doesn’t work, that we should update it. Even the most conservative economists say that.

Tax incentives for studios ( MP3 )

Jim Newton, L.A. Times: One of the things that’s been a bit of a local story the last couple weeks -- it’s sort of vaguely economic -- which is these TV productions that leave for different parts of the country. Most recently, the “Ugly Betty” show is going back to New York. Is there a need for California to offer better tax incentives to keep productions here? And is there anything more that you could be doing on a personal level to try to keep them here?

Schwarzenegger: Well, first of all, you can’t go to someone -- I mean, we could in “Terminator 3" when we saw that it was $8 million more to shoot in Los Angeles than in Vancouver. I said, “Stop, guys. Don’t move to Vancouver.” I put in a million and a half dollars of my own money back into the production, and that motivated the director to put in 500,000 and the producer a million. The wardrobe department said, “Well, we buttered up the budget a little bit; here’s $300,000.” Then the stunt department said, “Hey, we also buttered it up a little; here’s 500,000.” Then all of a sudden, $8 million were put together. So that was an unusual situation because I asked, and I said, “I need to stay here” .

But you can’t go to, you know, a studio executive and say, “Look, I know you’re going to get hit at the end of the year with $24 million or $100 million or so, but just for me, can you keep production?” It doesn’t work this way. They want to see action. And for four years I’ve asked the legislators to get a tax incentive for our movie industry. I told them that the money does not go to the producers, because they make their deal -- that million or 2 million or $5 million deal -- if they go and shoot in London, in Australia, in South Africa, it makes no difference . So it’s not for, like they say, the fat cats in Hollywood or something like that; it is more the make-up artists, for the guy that pulls the cable, the guy that does the stage setting, the guy that is building the stage, the plumber, the carpenter -- those are the guys that I see everyday. I see 150 guys on the set, on a normal set, and for bigger movies, the Terminator movies, I see 600 people on the set. On a normal set, there’s 150 people; I’m worried about them .

The reality of it is, you’re helping tens of thousands of people that are out of work and that can’t afford, you know, their homes, their rent and all of those things. And, when they stay in town with their productions in this state, it creates a tremendous amount of revenues: over $200 million in Los Angeles, $280 million or something like that, we created in economic stimulation here in Los Angeles by staying here from “Terminator 3.” I think one has to look at that .

Some say this is a tax incentive, and some say this is a tax loophole. That’s why you hear so many times, you know, “Why don’t they close the tax loophole.” So I said, “We’re trying to close the tax loopholes; I’m open for it.” But I said, “Prove to me that it doesn’t have a negative economic impact.” I said, “If we find one that does not create jobs or revenues, fine, close it, get rid of it. But if it does create jobs and revenues for the state, then, we have to balance it out and see, does it make sense the amount of tax incentives we give? Or does it not make sense? Maybe we have to reduce it, but we don’t get rid of it.”

Immigration and redistricting ( MP3 )

Lisa Richardson, L.A. Times: Have any businesses or chambers of commerce come to you and asked you to take a position on immigration raids on worksites that have been going on recently?

Schwarzenegger: No.

Richardson: No?

Schwarzenegger: No.

Richardson: Just wanted to know.

Schwarzenegger: I get a lot of requests from the chamber and from businesses to push for immigration reform. And we get a lot of push about, you know, the problem that if we don’t have immigration reform, and we are very tough on the border - which we are in California, we have the National Guard there - and because of that, it reduced the crossings. But because of that, a lot of businesses are suffering now. So what everyone likes is not to have illegals working for them; but what they like is to have the chance to go and hire these people legally. But they don’t get the visas because there’s a cap on that so it’s a very frustrating system, and it’s not good for anybody. It’s not good for the Mexicans, it’s not good for us, it’s not good for our businesses, and especially with the chaos of the students’ visas.

We have students that are studying from all over the world, and then the next day they have to go home. I think it’s crazy for them not to have a visa so they can stay a few years and so we can use their brain power that they actually got in California or in the United States and use them here for a few years and then let them go home. They want to stay here and we need them. That’s one of the most common complaints in Silicon Valley.

So we really need immigration reform, and it’s really - it’s a disaster in Washington. There was such hope when [House Speaker] Nancy Pelosi went in; they thought that all those things would be changed, and there would be, finally, they would get things done. Nothing is getting done.

You know, this is why I think redistricting is so important, because I think what you see now with the budget -- it’s that there are the extremes that have to come out. One has to complain that there’s too many cuts and they have to do all this, because they’re way to the left. And the other ones have to right away say, “Oh, I think I smell something about taxes in there. Even though they’re not going to use it, but there’s some word,” they think, “the T-A-X in there. How could he. He betrayed us.” So there’s extremes.

That’s not in the middle; I’m in the middle. I can see the plusses of the Democrats, I can see the plusses of the Republicans, and I feel enriched because I can combine both their ideas and go down the middle road .

So I think that if we have the redistricting done, [and] the people approve it in November, that will over the next few years bring people more and more to the center, because they will be competitive. There will be Democrats and Republicans that will have to now compete and now campaign against each other. And then it is who has the best ideas rather than being locked in the way it is now.