State government was failing at every level. There was an electricity crisis, a water crisis, a prison crisis. Car taxes had tripled. State contracts were tainted by corruption.

Financial ruin loomed.

In the state’s historic recall election, voters turned to Arnold Schwarzenegger, a movie star whose brand was blowing stuff up, flexing muscles and delivering goofy one-liners.

Seven years later, with Schwarzenegger’s tenure in its final day, the state’s schools are in poor shape, the public university system is losing its sheen, the federal courts have taken control of part of the prison system. The deficit keeps growing.


In a recent interview in his stately Capitol conference room, his “Conan the Barbarian” sword resting in a case behind him, the governor looked back. He defended his record but admitted to errors that were key to his inability to fulfill the promise of tearing up the state’s credit card and “ending the crazy deficit spending.”

One crucial misstep came in the first few months, he said. Instead of confronting voters with the pain of dealing with the deficit he had inherited, Schwarzenegger shied away, backing a ballot initiative to borrow $15 billion to paper over the accumulated budget problem.

“It was a mistake,” Schwarzenegger said. “I should’ve gone the other direction to early on solve the budget problem and use the political muscle I had in that first year in office.”

He insists that the plan still could have worked. If the national economy had not slipped into recession in 2008, California’s finances — and, by extension, his record — would look far better today, he says.


“If I had known then what I know now, that we would have another recession, I would not have signed the budget that year,” he said.

That initial error had lasting consequences. Even the governor’s most ardent critics acknowledge there were impressive periods of productivity in his two terms. Schwarzenegger deftly navigated the complex workers’ compensation crisis, negotiating a deal to drastically cut the premiums paid by employers. The state’s rolling blackouts quickly ended after he took office. His plans to audit government and root out all the waste and fraud flopped, but he ultimately won incremental reforms that will have a lasting effect. The landmark global warming law he signed propelled him — and the state — to the forefront of the environmental movement.

Yet even his biggest defenders concede that he never got control of the budget. Having missed his initial opportunity, Schwarzenegger found himself for the next several years playing a role for which he was ill suited: an inside game of Sacramento budget politics.

Schwarzenegger won election as an anti-politician and fared poorly once the public started to see him as yet another Sacramento insider. He repeatedly was outwitted and outmaneuvered by the machine Democrats and union bosses he railed against. They painted his plans for getting the budget under control as mean-spirited and damaging to the state. The public sided with them more often than not.


Much of the Legislature, meanwhile, grew irritated by him and his Hollywood shtick.

For many legislative Democrats, the irritation hardened into dislike in 2005, when the governor kicked off the year by picking a fight in his State of the State speech, demanding a tight constitutional spending limit that would force enduring large-scale cuts in education and other programs. He insisted new state workers be given not government pensions, but 401(k)-style retirement plans. He said teachers shouldn’t get salary hikes just because they had been on the job a long time.

It was an agenda that thrilled the anti-tax activists at the Howard Jarvis Taxpayers Assn., the Club for Growth and Americans for Tax Reform, but left Democrats angry and perplexed.

“I remember sitting in the chambers during that speech and thinking, ‘He just declared nuclear war on the first day of the session. Why is he doing this?’” said Sen. Denise Ducheny, who chaired the Budget Committee.


Schwarzenegger threatened to go to the ballot if lawmakers rejected his plans. When he did so, he tried to re-create the magic of the recall. He held grand events with big props. He swatted away protesting nurses as Sacramento “special interests” who resent him “because I always kick their butt.” He declared Democratic lawmakers “girlie men,” “spending addicts” and “losers.”

The show was a flop. The opposition successfully branded him a bully, an egomaniac, a millionaire dilettante tinkering dangerously with the financial stability of the state’s schools, police forces and firehouses. The demonstrations became such a nuisance that the locations of some media events were kept from the public so the governor wouldn’t have to contend with chants.

At one event, the press was zipped in trolleys across the vast asphalt parking lots of the Sacramento Expo Center to a secret location: a dark theater where a gigantic faucet gushed gallons of red liquid. Schwarzenegger walked out, announced the state was awash in red ink and that it was time to stop the flow. He climbed a stepladder and turned off the giant spigot. Then there was a long awkward pause, as if he were waiting for the journalists to applaud.

In the end, all his ballot initiatives failed. Caught in the crossfire was Schwarzenegger’s ambitious plan to root out waste, fraud and abuse from state government. His California Performance Review had come up with 1,200 recommendations to improve state government. In the acrimony of the initiative battle, they were dumped into the legislative recycling bin.


Schwarzenegger now says he regrets the approach he took. “The tone of that State of the State speech was too aggressive… I felt deep inside it was the wrong tone, but I didn’t stop it.”

Yet much like his Hollywood career, which bounced from big hit to critical disaster and back again, Schwarzenegger’s political career proved resilient. A year later, after moving to the right with the ballot measures, Schwarzenegger tacked left, moving major bills through the Democratic-controlled Legislature but alienating many Republicans.

Schwarzenegger took advantage of a rebounding economy in 2006 to move forward on the global warming law, which sought to reduce California’s greenhouse gas emissions to 1990 levels by 2020. Passage was seen at the time as monumental, raising the bar for the rest of the world.

“It was like watching a pingpong ball,” said Sen. Mark Leno (D- San Francisco). “One year he was saying, ‘Starve the beast of government.’ The next he supported raising taxes on oil companies.”


In Schwarzenegger’s second term, huge spending on infrastructure was approved by voters. The governor played a lead role in pushing the federal government to invest in the nation’s crumbling freeways and other public works. And he fell inches short of bringing universal healthcare to California well before Washington took it on.

At those times, the governor showed a surprising aptitude for focus, despite carping from the legislative rank and file that he was not around enough — choosing to fly home to his Brentwood mansion every day — and hadn’t bothered to learn all their names.

The governor says he was heeding the advice of his wife’s uncle, the late Sen. Edward M. Kennedy (D-Mass.). “Teddy said, ‘I may be working on [ healthcare reform] for the rest of life, but I will continue working on this issue until I die,’” Schwarzenegger said. “Eventually the timing will be right. He died a few months before the whole thing was done. Some things just take a long time. Timing has to be right. The stars have to align.”

Why the alignment never happened for Schwarzenegger on the budget remains a matter of debate. To Democratic critics, the governor foolishly tied his own hands by the multibillion-dollar cut to the state’s car tax he had imposed early on — a central promise of his campaign.


John Burton, the liberal lion who led the state Senate — and became buddies with Schwarzenegger over a shared appreciation for espresso and schnitzel — called the cut Schwarzenegger’s “biggest mistake.”

“Nobody cared about the vehicle license fee. People didn’t even know what it was. It was a nonissue that he made an issue,” Burton said, arguing that without the cut, the tax might have generated “enough to close the whole deficit.”

Schwarzenegger disputes that, arguing that had he restored the car tax, the Legislature would simply have spent the extra money. In the end, however, he capitulated on different taxes, agreeing to two-year hikes on sales and income taxes as well as modest, temporary increases in vehicle fees.

Gray Davis sympathizes with the problems his successor faced, suggesting, characteristically, that governors do not shape events so much as they are shaped by them.


“You need a strong economy and rain in the north,” Davis says he told Schwarzenegger early on. “If you get both of them, people think you are a hero. If you get neither, then they think you are a bum.”

Like Schwarzenegger, Davis had an impressive list of policy achievements. But Californians remember him as the guy under whom the state started to collapse. Schwarzenegger can hope that despite his current low poll rating, Californians over time will see him in a better light as accomplishments begin to pay off.

“In those areas where he wanted to accomplish something, he took some bold steps and tried to make big changes,” said former Assembly Speaker Fabian Nuñez, a Democrat from Los Angeles. “He came into government, learned how to operate within it and did some things I think we’ll see fruits of in years to come.”

Among those longer-term measures are an overhaul of the state’s expensive home healthcare program and new accountability measures for schools. He ultimately succeeded in getting public employee unions to give back some of the generous pension benefits they had won at the bargaining table more than a decade ago, a turnabout that long seemed politically impossible.


Political reforms he championed to shake some of the partisanship out of the Capitol promise to have a lasting effect. Politicians will no longer get to draw their own political boundaries, essentially choosing their own voters. They will have to compete in primaries with members of all political parties, not just their own.

And the governor is hoping the third time will be the charm with budget reforms. He managed to persuade lawmakers to place before voters yet another measure to restrict spending. It will be on the ballot in 2012.

His chief of staff, Susan Kennedy, who also worked for Davis, seems incredulous at talk of a “failed” governorship.

“I don’t know what the governor could do differently than fight like hell for change, get it on the ballot, fail, pick himself up, do it again, and put it on the ballot again,” she said.


Brown, a Democrat, already has signaled he will push for some of the same type of budget remedies Schwarzenegger was never able to deliver. He seems to have absorbed the lesson that budget problems need to be dealt with quickly. Maybe Democratic legislators will be more willing to accept bitter medicine from a governor of their own party, Schwarzenegger said.

“I hope they’ll listen to him.”

evan.halper@latimes.com