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Battle Lines Clearly Drawn in Governor Race

Last week’s primary set the stage for a stark choice in November for governor: Arnold versus the anti-Arnold.

The race pits a moderating though still business chummy Gov. Arnold Schwarzenegger against a Democratic challenger who’s championed higher taxes for the rich and closing corporate tax loopholes.

For business, the choice hasn’t been this clear since Schwarzenegger took on Cruz Bustamante in the recall race of 2003.

In the run-up to the Democratic primary last week, Phil Angelides kept a steady drumbeat of vows to close tax “loopholes” favoring corporations and to raise taxes on the “richest Californians” to fund education.

He used the kind of vague references to government regulation that raise the hackles of business advocates. In an April speech, Angelides pledged he would “take on the big polluters” and “stand up to HMO profiteering.”

In the days following Angelides’ primary victory, his backers sought to portray a different candidate. The state treasurer is a pro-business politician who understands that an economy thrives best with a well-educated work force, they said.

“For 15 years, Phil Angelides met a payroll and created jobs in the private sector,” campaign communication director Dan Newman said.


Tax Issue

Angelides previously was chief executive of River West Investments Inc., a real estate development company in Sacramento.

“He believes in a level playing field,” Newman said. “If a small business in Los Angeles is playing by the rules, it shouldn’t be forced to play on an unlevel field with corporations that exploit loopholes not available to small companies.”

Angelides’ talk of taxing the richest Californians alarms small-business owners, many of whom report revenue as personal income.

Newman sought to address those concerns, claiming Angelides’ tax proposal only would apply to the top 1%. Calls for closing tax loopholes would impact only a handful of companies, he said.

That’s likely to fall on deaf ears among business supporters.

“Schwarzenegger reformed the state’s broken workers’ compensation system and held the line against new and higher taxes on businesses as well as working families,” said Paul Folino, chief executive of Emulex Corp. and chairman of the Orange County New Majority, a moderate Republican group that’s one of the governor’s biggest sources of support.

“By contrast, Angelides’ first response to balancing the budget has always been to raise taxes,” Folino said. “He supported Gray Davis’ $4 billion tripling of the car tax and countless other increases on businesses and families.”

Business groups see nothing ambiguous in the matchup.

“The voters have a very clear choice,” said Martyn Hopper, state director for the small-business oriented National Federation of Independent Busines-ses. “Phil Angelides has it on his platform to increase taxes and make government bigger.”

The federation and other business groups are set to endorse a candidate as the election draws closer. There’s little surprise as to who they’ll end up backing.

Hopper said he is doing a fax poll of his 35,000 members. So far “the vote is overwhelmingly for the governor,” he said.


Passed on Westly

Democrats would have stood a better chance appealing to business with State Controller Steve Westly, a former eBay Inc. executive who lost to Angelides in the primary 49% to 43%.

“California Democrats went with the candidate who was a little more liberal and a little less electable,” said John Pitney Jr., professor of American politics at Claremont McKenna College. “Apparently they haven’t been in the wilderness long enough to develop a sense of pragmatism.”

As treasurer, Angelides became the nation’s foremost activist shareholder, working through state pension funds to oppose mergers, demand transparency and interfere in executive compensation matters.

Angelides may have a small chance to appeal to some business voters on the budget issue, which National Federation of Independent Businesses’ polls show is near the top of business-owners’ priority list.

A May poll by the Public Policy Institute of California found 57% of voters approve of Schwarzenegger’s latest budget.

Still, Angelides could take aim at the governor’s heavy borrowing.

“The fact is the governor came into office campaigning to cut up the state’s credit card and then borrowed billions,” Newman said. “Angelides is the fiscally responsible candidate.”


Courting the Middle

Angelides followed the conventional Democratic strategy of appealing to liberal voters during the primary. Now the challenge lies in becoming a moderate by November.

“I can’t see him doing that because he has carved out a platform that government knows best, that government should run the healthcare system and that government should tax the rich,” said Hopper of the National Federation of Independent Businesses. “I don’t know how to moderate his positions when he has carved them in stone.”

The Public Policy Institute’s poll found Angelides and Schwarzenegger tied in a hypothetical election with 38% each.

Schwarzenegger has incumbency and nearly universal name recognition on his side. But the poll found voters split 45% to 47% on the favorable/unfavorable question.

Angelides had a much lower unfavorable rating (26%). And 45% of the electorate didn’t know him.

“Independent voters,who know little about these Democratic candidates today but who will cast the swing votes in November,are getting their first exposure to them through more frequent and more negative paid advertising in the run-up to the primary,” said Mark Baldassare, director of the Public Policy Institute’s poll.

The difference in November may come down to Angelides turning too far left to win a primary, while the governor has quietly worked to claim the political middle in Sacramento.

“Schwarzenegger has an edge,” said Claremont McKenna College’s Pitney. “Westly’s ads may have had a lasting effect. Millions of Californians know Angelides as an ethically challenged tax increaser.”

Russell is a staff writer with the Los Angeles Business Journal.

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