Can The Terminator Save California?

Davis' plight is grim, but it's hardly unique. States across the nation are struggling with falling revenues and budget crises, and overall spending by the states is set to decline for the first time in 20 years. New York is hiking income and sales taxes, Alaska is charging higher fees on studded tires, and Nevada Governor Kenny Guinn is suing the state assembly for failing to pass a budget on time. In 2000, the states had rainy-day funds that totaled nearly $50 billion; last week only $6 billion of that was left. But California, with its $38 billion deficit, is in a class of its own. The intensely partisan state legislature in Sacramento last week failed for the 17th time in 25 years to pass a budget on time, with Republicans refusing to accept any tax increases and Democrats calling for a mix of increases and spending cuts. Davis is attempting to bridge the ideological divide in Sacramento, but he can't avoid sniping at some of the Republican cost-saving proposals, including raising the age for kindergarten eligibility. "I won't sign a budget that slams the door on more than 100,000 kindergarten kids," he says.

Ironically, California's political paralysis is a result of attempts to make state politics more progressive. The ballot initiative and recall processes, intended to give a voice to the ordinary voter, have often been taken over by well-funded special-interest lobbies. Term limits have sent to Sacramento inexperienced lawmakers who are not interested in political bridge-building.

"We are the state with political reform and all these innovative ideas--then we fall on our face," says Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. "That's pretty embarrassing." Nobody is more embarrassed than Davis, who has seen his state taken for billions by energy speculators and threatened with being downgraded to junk-bond status by Wall Street. He might argue that none of that was his fault. But California is also the land of no-fault divorces. --With reporting by Matthew Cooper/Washington and Sean Scully/Los Angeles