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CNN LARRY KING LIVE

Interview With Arnold Schwarzenegger

Aired November 16, 2004 - 21:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(BEGIN VIDEOTAPE)
LARRY KING, HOST: Tonight, exclusive. California Governor Arnold Schwarzenegger, his first interview on the eve of his first anniversary holding office. What's next, the White House?

Governor Arnold Schwarzenegger exclusive for the hour. We'll take your calls, too, next on LARRY KING LIVE.

(END VIDEOTAPE)

KING: He's an old friend. We've been interviewing him all through his many different lives and now he comes to us on the eve of his first anniversary as governor of California. What surprised you the most about this job?

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: Well, I don't think that anything really surprised me that much because I expected to be able to turn the state around and to do the kind of things that I did, and nothing really disappointed me as far as that goes. I think that the whole thing was just a terrific ride this whole last year. I think that if you think of what's surprising, it's just at how much joy I had. You know, I think that when my father-in-law talked about this is the greatest thing you can do is being a public servant, it's the most honorable kind of profession you can have, I remember also when I worked for -- you know, for President Bush being the chairman of the President's Council on Fitness, he always talked about that, you know, public service, you know, reaching out and having an effect on people and working for the people...

KING: That's true.

SCHWARZENEGGER: It's the greatest thing you can do. And now I know exactly what they were talking about. It's a great, great joy to do that, to work and represent the people of California.

KING: People thought it would bore you. Film star, Sacramento, you'd get bored.

SCHWARZENEGGER: Well, I cannot imagine how you can get bored with a job like that. Every single day you're dealing with different problems. Every single day you're learning. Every single day you're meeting the most interesting people. And you're having an impact on the state if you're doing a good job. And you're learning about reaching out and bringing people together and all this. So it is the most exciting thing. Every morning I am so excited about getting up and going up to Sacramento or going to my Los Angeles office or Santa Monica office and working there for the people. It's really the most exciting thing that I've ever done.

KING: Because financially it ain't as rewarding.

SCHWARZENEGGER: Yes, but you know something, that I, you know, thought my whole life about the, you know, career and money and, you know, you come over here as a foreigner. And I grew up with no money whatsoever. We were really poor. So when I came over here, I had no money. So of course my goal was to get rich and to be successful in business and to be a bodybuilding champion and to get into movies and all this stuff. And I was thinking about myself and about my career and about the money I'm going to make. But now that period is over. So you go through that. Now it's much more important for me to do and to give something back to the country that has given me everything that I have.

KING: Let's run down some things. From the way you sound, are you definitely going to run for re-election?

SCHWARZENEGGER: I have no idea. I don't even think about that, Larry.

KING: That's when, 2006?

SCHWARZENEGGER: Yes, but I don't think about it now. Now I think all about is the budget and I think about how we can create reform, prison reform, education reform...

KING: So you're not at all giving any thought?

SCHWARZENEGGER: No, not at all. But that's not my style. You know me. I keep my eye on the ball. That's the most important thing. And that means that I'm thinking about how can I continue moving the state forward and how can I improve the economy, how can I improve education. Like today I was at a youth facility, a prison facility for young kids, you know, because we want to clean up the mess that we have here in our prison system. And that's exciting stuff for me. But that's what we have to concentrate on. Not about me, do I run for re-election and all this stuff. That's in the spring. And the spring is the time when I have to make the decision. Right now I only think about the budget. We have still a challenging period ahead of us. It is our situation. We have increase in revenues. But we still have an increase, an enormous increase in spending. We have to keep it under control. So those are the challenges that I'm thinking about right now.

KING: Let's get into a lot of them. There's a movement afoot, commercials starting already, to amend the constitution to make it possible for a foreign-born person to run for president. Do you support that movement? Forgetting you. Do you support the idea?

SCHWARZENEGGER: I think it is a good idea to open it up and to let foreign-born people also participate in that process, or to run if they're long enough here and if they really -- if the people show an interest in them. I mean, it's all up to the people in the end. And I think it's a good debate to have. I think it's good that America is talking about that, that you know, in Washington they're talking about it. But I think it's important to leave me out of that discussion because otherwise it becomes a political discussion, because I'm not thinking about running for president.

KING: You're not?

SCHWARZENEGGER: I'm not even thinking about, you know, if I should run for governor again or not. So that's not where my mind is. I think that, you know, I think it's a good discussion to have, but they should leave me out of it. Otherwise, it becomes a political discussion.

KING: And you're not involved in this campaign currently under way to...

SCHWARZENEGGER: No, I have nothing to do with it.

KING: Although you would support it?

SCHWARZENEGGER: As a matter of fact, I think that right now it is somewhat in the way of what I'm trying to do in California.

KING: How so?

SCHWARZENEGGER: Because in a way I think it makes it looks like that this is what I'm aiming for and I'm doing all this in order to reach the next step and all this, which is not the case. I'm taking one step at a time. To me the most important thing is if I can walk away from this job and keep the promises that I made, you know. I've kept a lot of the promises and it will take me another year to keep the rest of the promises. I think that is the important thing, to be able to walk away and say I turned the state around, I brought the two parties together, the Republicans and the Democrats, and that you have Democrats and Republicans looking at your performance and saying this guy really turned the state around, he brought jobs back, he brought the economy back, he brought opportunities back, he straightened out education and health care and all those things. That's really what I'm shooting for, is to really be a servant of the people and to make government a better servant of the people.

KING: Do you feel out of step with your party? You broke with them on stem cell research, embryonic, you supported it, it passed in California. You've been anti-gun. You're pro-choice. Do you feel as a Republican you're on the left side of that party?

SCHWARZENEGGER: Well, that is OK to be on the left side of that party because the party is very -- has a wide range. All the way from the right to all the way to the center, to the left. So I may be considered more in the center. This is what I am. I am socially -- always said this, socially more moderate, but I am very conservative when it comes to fiscal policies. I believe very strongly that the state shouldn't spend more money than it takes in. I don't believe in tax increases in order to punish the people for mistakes that the politicians have made. The exception is if you have an idea, infrastructure or, for instance, transportation or our ports or something like that or certain infrastructure of the hospitals, and so you can then go to the people and say do you want to have a tax increase and you let the people make the decision and we can provide this and that kind of additional thing.

But rather than, you know, like it is -- it has been in the past five years, where the politicians have spent too much money, much more money than the state takes in. It was irresponsible. And to go now to the people and say, look, these politicians, 120 people up in Sacramento made those mistakes, now you should pay for it, is not fair to the people.

KING: Why, Governor, is your party so weak in the state? Except for you the Republican party's got big problems. They won the national election but lost big in California. Why?

SCHWARZENEGGER: Well, it depends if you look at the glass half empty or half full. I always look at the glass half full. I think the Republican party is strong in California but the Democratic party is stronger. It's that simple.

KING: They're both strong?

SCHWARZENEGGER: They're both strong. But you know, I think the Republican party will gain momentum and, you know, if you think about in this last year the amount of new members that they have reached is incredible. It's one of the highest increases they've ever had in members of the Republican party.

So there's all kinds of great changes taking place. But I think that as a whole, you know, this is a very, very liberal state, and I think that's -- there's nothing wrong with that. I think the key thing is is that both of the parties work together. That is the most important thing. And that we don't look everything in the political way but that we look at things, what is best for the state. And this is what I've done this last year, is there were a lot of issues that have brought the Democrats and the Republicans together, and this is why we were possible -- we were able to be successful. If it is the budget, if it is workers compensation reform, Proposition 57 and 58, which is the $15 billion recovery bond, or the balanced budget initiative, all of those things were done because both of the parties worked together.

KING: Did you lose any of those budget initiatives, any of the initiatives on the ballot?

SCHWARZENEGGER: Yes, I endorsed, I think, 14, and we won 11. So this was a really great, great victory for me November 2. It was a huge victory.

KING: We'll take a break. We'll be right back with Governor Arnold Schwarzenegger. At the bottom of the hour we'll include your phone calls. Tomorrow night, Senator Hillary Clinton will be with us. We'll be in Little Rock, Arkansas on the eve of the opening of the Bill Clinton Museum. Don't go away.

(BEGIN VIDEO CLIP) UNIDENTIFIED MALE: I will well and faithfully discharge.

SCHWARZENEGGER: I will well and faithfully discharge.

UNIDENTIFIED MALE: The duties upon which I am about to enter.

SCHWARZENEGGER: The duties upon which I am about to enter.

UNIDENTIFIED MALE: Congratulations, Governor Schwarzenegger.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

KING: My crack staff, ever alert, informs me it's not the Bill Clinton museum. He's not a relic piece. It's the Bill Clinton presidential library in Little Rock. Are you going?

SCHWARZENEGGER: No, I'm not going, no. I have to attend to matters here.

KING: Is your wife going?

SCHWARZENEGGER: Very busy in California.

KING: Is your wife going?

SCHWARZENEGGER: Not that I think of, no.

KING: Is it hard being married to someone whose political persuasion is not yours?

SCHWARZENEGGER: No, not at all. I've never had a problem with Maria, and she has never had a problem with me. I totally understand where she's coming from. I love her way of thinking. I love her family and the way they believe. And I mean, there's nothing wrong -- I mean, as I always said, I respect Democrats the same way as I respect Republicans, because they both work for making -- improving the country or improving the state or the city or whatever office they hold. You know, everyone wants to make it a better place. It's just we have different philosophies. So I think that's why it's important to work together.

KING: You have criticized them, though. Have you ever been sorry about some of the things you've said about...

SCHWARZENEGGER: No, never. No, I...

KING: You don't take anything back?

SCHWARZENEGGER: No. Because, I mean, the thing is, you know, you make...

KING: The girlie men.

SCHWARZENEGGER: ... certain statements -- yeah, girlie men, or whatever it is. You make certain statements. But I mean, you know, I think that the legislators in Sacramento know and everyone knows that I am very bipartisan with my thinking, and I'm very inclusive. I believe very strongly that this country operates much better and the state operates much better when both parties work together.

I have in my administration a lot of Democrats. I love to have this mixture of Democrats and Republicans, to get both point of views, and it works extremely well, and we've been very successful with it, that way of doing things.

KING: Have you spoken to Senator Kennedy since the election?

SCHWARZENEGGER: No, I have not. I think that he's probably right now recuperating.

KING: Have you spoken to President Bush?

SCHWARZENEGGER: I have spoken to President Bush. As a matter of fact, the day after he was elected. And I congratulated him and told him that he's done a terrific job during this campaign and he's stayed strong, and he didn't waver, he didn't, you know, blink at all. He just moved straight ahead. And the way I like him to be. You know, it's very strong. He has strong character.

KING: Do you think you helped in Ohio?

SCHWARZENEGGER: I hope I contributed somewhat. But you know, the thing is if you look at the total map of the United States and you look at all of those red states where he won, I mean, you can see there's a huge amount of states that the man won and a huge amount of votes he got.

So I think that he did that because people trusted him, people believe in him, and they felt like that he was better for the next four years to be president than Kerry was. So that's how he won.

He won because of him. And he won because of Karl Rove being good with strategy. And he won because he has so many people that contributed money to his campaign. He had so many -- hundreds of thousands of volunteers out there around the country that believed in him, that worked very hard, that put up the yard signs, that knocked on doors, to make the phone calls, to hand out leaflets and all this. So there was a whole army of people out there working for him, because they believed in him. That's how he won.

KING: How did you like addressing the convention?

SCHWARZENEGGER: Oh, I think that was a great -- I had a great time doing that. It's terrific, you know, to -- first of all, to be there, and to present your kind of view on issues. And then also to be able to support the president that I believed in, to support the Republican Party. And you know, to...

KING: Though you're not agreeing with everything in the platform. SCHWARZENEGGER: Well, it doesn't matter. Like I said, you don't have to believe in everything. But we're Republicans. And the Republican Party, you know, has a whole variety of different opinions and philosophies there. There is not just one. I think it's a mistake to label people and to say this is what the Republicans stand for and this is what the Democrats stand for. I think it crosses over. And I think the action is in the center. No matter what anyone says, the action is in the center.

KING: You mean you can't govern from right or left?

SCHWARZENEGGER: I don't think so. Because how do you represent -- except if you maybe are, let's say, an assemblyman, assemblywoman that is, you know, representing a district that is totally to the right.

KING: I know, but I mean...

SCHWARZENEGGER: But I think that if you're a governor of a state or if you're president, I think that you're dealing here with a country or with a state that has Democrats and Republicans, and if you want to represent all of the people and be the president or the governor of all of the people, then you have to -- the center is much more the action.

KING: Why then are we so divided as a country?

SCHWARZENEGGER: I think we're divided because first of all, it was a political year. It was an election year. I think that everyone was fighting and everyone -- it was like a competition. And the way the press sets it up is like, you know, the Roman days. Let's watch the battle. Let's watch the debates. What's going on? Then there's the analogies afterwards. And we are -- everyone is spinning afterwards. This is a whole mechanism. I think...

KING: You think it creates the division?

SCHWARZENEGGER: I think that all of this thing, because it's all about how we -- can we make our man win, how can we make our man over here. So everyone is fighting and everyone -- and then the fight gets dirty sometimes. And they go overboard with the statements. But I think that now it is important to make everything heal again, and to bring the two parties together and to bring people together, because this is, after all, one America.

KING: We're all over the deck. We're all over the deck. What do you think of Colin Powell leaving and Condoleezza Rice replacing him?

SCHWARZENEGGER: I think this was a great choice for President Bush, because Condoleezza Rice is very smart and she's very talented. She knows this subject very well. And I think it's a natural thing. I mean, Henry Kissinger went from national security adviser to become secretary of state. Colin Powell was at one time the national security adviser, and became the secretary of state. So I think it's a natural thing to do. She has proven to be very strong and to be a great leader there in that area. And she also -- I think Bush trusts her, because she was there when he was campaigning for president, two years before he ever was elected to become president, she was there advising him. So he trusts her. So I think it's a great relationship the two have. And I think it will be very good for the country.

KING: How well did Tom Ridge -- reports out he's going to be leaving. How well have you worked with him? Because I know he keeps in touch with all the states, and California's one of the pivotal fearful states about terrorism.

SCHWARZENEGGER: Well, I can tell you one thing, Larry, that we get regular briefings, and Tom Ridge has been unbelievable. He has been so outstanding as the national -- in his job from a national level, staying in touch with all the states. Whenever there was any alarm or any kind of threat, he was right on top of it, explained it all. We had, you know, phone calls. He came out here several times. He was really terrific. And we've gotten the money also for supporting our homeland security in California. So I think the world of him.

KING: Was there ever a threat that had you staying up nights?

SCHWARZENEGGER: Not staying up nights, but I can tell you that there were threats that worried me, and you know, you have to take each threat seriously. And I think that's the good thing about our homeland security in California and also our homeland security on the national level, that everyone takes those threats seriously. And they immediately respond, and they put everyone into action.

You know, and the great thing about the homeland security is the way they've organized it, is it trickles down to the local law enforcement people. So everyone now is communicating. Unlike, you know, three years ago, before 9/11, where there was kind of a separation.

KING: We'll be right back with Governor Arnold Schwarzenegger. Lots more to cover. Your calls as well. Great seeing him again. And tomorrow he celebrates his first year in office. Don't go away.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SCHWARZENEGGER: To those critics who are so pessimistic about our economy, I say don't be economic girlie men.

(END VIDEO CLIP)

KING: Good line, Arnold. Governor Arnold Schwarzenegger's our guest. Let's run down some social issues.

Where do you stand on gay marriage?

SCHWARZENEGGER: Well, exactly what we have now as a law in this state.

KING: Which is?

SCHWARZENEGGER: That everyone has equal rights and the same rights as a married couple has. I believe in that very strongly.

KING: Do you favor a type of agreement that they -- I think President Bush now favors that, where a couple can be bonded if not married.

SCHWARZENEGGER: Yes. Absolutely. I mean, anything -- anything that makes the relationship, you know, strong and also gives them the same rights that a married couple has. I think that's the important thing, that we give them the possibility to do that. And I think our law in California already says we have moved really far along in that area.

KING: Stem cell research. You passed an enormous amount of money to be spent on this.

SCHWARZENEGGER: Right. Well, I think stem cell research is extremely important. I have always believed in that, and I always said that we should do much more in order to do stem cell research. And now this proposition 71 passed in California, I endorsed that. I think they did a terrific job with the campaign to educate the people and let them know what it is about. Even though we have a financial problem in this state, I think it's important to not miss this opportunity, and this is why I endorsed it.

I think, that you know, California is already the no. 1 and the front-runner in biotechnology. I think this will re-establish California to be in the forefront there. And I think that we should aggressively go forward so that maybe within the next 10 years we find cures for Alzheimer's or Parkinson's Disease or spinal injuries and stuff like that. I think that's very important.

KING: With all the pressure coming from the religious right, do you as a pro choice person fear overthrowing Roe/Wade?

SCHWARZENEGGER: I don't feel it. No. But I think that, look, everyone has different opinions. I totally respect the religious right's opinion. I think the important thing is I think the majority of Americans want to keep it the way it is right now. And I don't see a change there at all.

KING: You -- Governor Jesse Ventura, the former governor of Minnesota has -- I see him on television running commercials attacking you, saying that everyone should be treated equal and you want to tax Indians more, Native Americans more.

What is he referring to?

You want to tax Native Americans more than others?

SCHWARZENEGGER: No. Absolutely not. I think...

KING: That's what he's saying.

SCHWARZENEGGER: Well, Jesse Ventura needed some money, that's why he probably did the commercials. I mean, that's OK. I mean, he's a friend of mine. So, I'm not complaining at all. They lost. Proposition 70 lost big-time. So he was part of a loser. But the bottom line really is that the Indians ought to pay their fair share. This is what this is all about. We have made agreements now with nine gaming tribes, that are terrific agreements where California gets the fair share. We are now in the middle of negotiating with more Indian gaming tribes to get other compacts signed. And what the Indian gaming tribes have wanted, what the proposition is all about, is they wanted an unlimited amount of slot machines, which the state does not want and I don't want. They wanted to have, you know, gaming casinos everywhere and they wanted to have a 99-year monopoly. Well, you know, for paying only eight and three quarter percent or eight and half percent in corporate tax, that doesn't fly.

KING: But you didn't want to tax them more than others pay?

SCHWARZENEGGER: Well, they have to pay for -- you know, they have to pay for their fair share because we provide the roads, the electricity, the water and we do all the same...

KING: No, greater share than others pay.

SCHWARZENEGGER: It's a compact that they have to pay for and for getting those compacts. They want to have certain rights to elevate and to increase the amount of slot machines that they want right now, so they have to pay for it, because it's a special privilege to have gaming rights. So, that's what it is.

KING: If a poor -- if a poor Californian can obtain a drug from Montreal for a third less than they pay in Santa Monica, why can't they?

SCHWARZENEGGER: Well, it's against the federal law.

KING: But why -- but some states are passing laws in which they can go straight.

SCHWARZENEGGER: Larry, a state cannot pass a law that is illegal. They may pass the law, but it is illegal. It's illegal to go to Canada and to get drugs from Canada. So...

KING: Would you change that law?

SCHWARZENEGGER: I wouldn't change it because I'm not the president. The president of the United States can maybe change that law. Congress can change that law.

KING: Would you favor it?

SCHWARZENEGGER: Yes, of course I favor it.

KING: You favor changing the law? SCHWARZENEGGER: Yes. I wrote a letter to our secretary of health and human services, Tommy Thompson. And I told him that I think it would be important to change that law, because we can provide our citizens also with less expensive drugs because it's very important to make our drugs affordable. But we cannot pass a law in our state and encourage the people of California to go into -- to, you know, do something illegal. So I just vetoed that bill. I did not sign it, because it was nonsense to go and to suggest to people they should go to Canada and get their drugs. What we should do and what we're doing right now is negotiating with the drug companies and to ask the drug companies to lower their prices. To lower their prices maybe by 30, 40 or more percent, so the people can get it less expensive, the drugs, but to do it in a legal way.

KING: But if the federal government changed it, you would...

SCHWARZENEGGER: Oh, I would immediately let the people go and order their drugs from Canada, of course.

KING: Why did you veto the increase in the minimum wage?

SCHWARZENEGGER: Because right now we are at a situation where we have an economic comeback. It is -- you have to understand the state, when I took over the state, was in a rapid rate downhill. Now, you know when an avalanche goes downhill it gains momentum. So for me the challenge was how do I stop this momentum going downhill and making the state go bankrupt?

So we stopped it. We were successful in stopping it and going now the other way. Now the economy's coming back in a big way. There is companies are coming back from out of the state to California, companies are expanding again. They're creating jobs. They're creating opportunities. And California is becoming again now the powerful job-creating machine that it once was. But we cannot go now and go and create another obstacle for businesses to go and say we have to raise your minimum wage. Then there was another proposition which was creating health care for everyone, where the employers had to pay 80 percent of the health care, which would have been another 7, 8 billion dollars of extra expense. We have to leave the businesses alone now, let them come back and...

KING: But minimum wage is poverty, isn't it?

SCHWARZENEGGER: No, no, it's not poverty. What it is is the important thing is we do not chase jobs away from California. You see, it doesn't make any sense to go and increase the minimum wage and then to have the companies move out of the state because other states don't require that minimum wage, their minimum wage is less. So what we have to do is we have to be competitive compared to other states.

And this is why I'm very adamant not to let the legislators create obstacles or regulations or increase the price of doing business in California. It's already so tough to do business in California. We want to strip away. We want to make it less expensive to do business in California. So all of those things they try to do right now will be voted down. I don't not care. But anything other than we must create jobs for every Californian, that is the most important...

KING: You will veto anything that comes...

SCHWARZENEGGER: Anything that is an obstacle to business because we want to create jobs. This is about gaining jobs. We have created over 100,000 new jobs this last year since I've gotten into office, and this last month over 40,000 new jobs just in one month. This is how strong we are coming back. So we've got to be...

KING: And these are not low-paying jobs?

SCHWARZENEGGER: Well, various different jobs. Low-paying, medium-paying, high-paying jobs. But the bottom line is let's continue that momentum. That's the -- the more the economy comes back, the more revenues come back and the more we can afford then the social programs that are so important.

KING: We'll be right back and go to your phone calls for Governor Arnold Schwarzenegger on the eve of his one-year anniversary as governor of the state. Don't go away.

(COMMERCIAL BREAK)

KING: We're back with Governor Arnold Schwarzenegger, the governor of California. By the way, there is an Arnold stamp in Austria? A postage stamp?

SCHWARZENEGGER: Yes, a postage stamp that came out I think a few months ago.

KING: In America you have to be dead 10 years.

SCHWARZENEGGER: Well, they made an exception maybe for me. I don't know.

KING: There it is. Look at that.

SCHWARZENEGGER: We have also a stadium that is named after me, a soccer stadium which was the stadium where I started my weight training. Underneath the stadium we had a weight lifting club and a wrestling club and boxing and all those things. And I started my career right there underneath that stadium.

SCHWARZENEGGER: Do you read "Variety?"

SCHWARZENEGGER: Not that frequently today anymore, no. I used to read it all the time. But now maybe once a week or every second week.

KING: To...

SCHWARZENEGGER: I read a lot of politics.

KING: Do you read what movies take in over the weekend?

SCHWARZENEGGER: Yes, I do, yes. KING: Got to stay in touch with that.

SCHWARZENEGGER: Oh, yes, got to stay in touch with that.

KING: Stockton, California for Governor Schwarzenegger. Hello.

CALLER: Hello. Governor, I supported you through your recall for two reasons. Number one, I work with the developmentally disabled, and I appreciate all your work with Special Olympics. But the second reason I supported you was because during that whole campaign you promised to do top to bottom search of every department in the state for waste and wasteful spending. And I'm hoping that you've come up with some answers for that because being funded through the state I sure see an awful lot of wasteful spending.

KING: OK. Governor, waste.

SCHWARZENEGGER: Well, thank you very much. First of all, let me just tell you that this is why we started the California Performance Review last February already. In fact for many months 288 people within the government looked at waste and looked at how we can restructure government and how we can make government a better servant to the people. They finished it in the summer. We then released the findings. And then we went public and had public hearings. We had eight public hearings, and we just finished those public hearings. And now we are looking at all these 500 pages of public testimony, and then we're putting all those information together, and the beginning of next year we will be introducing the legislation to start making some of those changes.

KING: Is there still a budget crisis in California?

SCHWARZENEGGER: We have a budget crisis, and it will be probably another two years where we have to really watch out our spending.

KING: Did you know it would take this long?

SCHWARZENEGGER: Yes. I think that it was very clear, Larry, that a problem that was created over a period of five years does not go away in one year. I think that we made tremendous changes. We balanced the budget last year without raising taxes. And of course this is the big, big challenge this year again. You know, I think that we're moving the economy along. Like I said, you know, we have a tremendous amount of new revenues coming in, but our spending also is going up. So we have -- just have to watch out and we have to make just a streamlined government and, like I said, be more accountable and be a better servant to the people.

KING: Before we take our next call, what about the movement to make immigrants citizens? Illegal immigrants. It's a big problem in California.

SCHWARZENEGGER: Well, that is, you know, a national issue that I cannot control here in this state.

KING: Would you support it? SCHWARZENEGGER: Well, it depends how it is written. There are 5,000 different ways to go about that.

KING: Because I think illegal immigrants are important to California's economy, aren't they? They can come in and do jobs other people don't take.

SCHWARZENEGGER: Well, that I don't know. I mean, I just -- I can tell you that they're doing a great job. There's a lot of people that are here, you know, legally, and there's a lot of people that are here illegally and that are doing a great job with the work that they're doing. But nevertheless, they're here still illegally, and they're undocumented immigrants, and we have to solve the problem. Like I said during my last year's campaign, that we have to solve the problem and we have to find ways to get them here in a legal way, and they have to work toward some kind of a visa. And I think that Senator McCain has some great ideas, I believe, and his ideas -- Senator Kennedy talked about some ideas. President Bush talked about some. I think all of those are good ideas to move them towards, you know, being here legally.

KING: Have you met with President Fox of Mexico?

SCHWARZENEGGER: I have met him before I became governor. He was here in town, and we talked at great length about various different issues that are facing people that are from Mexico here, and he was here campaigning to straighten out some of those problems.

KING: Toronto, Ontario, for Governor Schwarzenegger.

CALLER: Hello.

KING: Hi.

CALLER: I'm wondering if Governor Schwarzenegger would please comment on what some people here view as his protectionist ideas about filmmaking in Canada.

KING: Protectionist views. You mean -- in what way, ma'am?

CALLER: In terms of trying to maintain as much of the industry in California and providing certain barriers to keep them in California.

KING: Many film crews especially go to Toronto where it costs less.

SCHWARZENEGGER: Well, obviously, I mean, I've gone through this myself. I've made a movie in Vancouver. And I also made sure that "Terminator 3," for instance, we did not go to Canada with. We wanted to keep that movie here. And we -- I even kicked in a $1.5 million dollars into the budget and asked the rest of the departments to kick in some money and to tighten their budget so we could come up with $8 million extra and lower the costs of making the movie, and therefore we could stay here in Los Angeles. Now as the governor of California it's of course very important for us to keep our productions here because I'm representing the people of California. I think there are a lot of people that are here in California that are out of jobs, makeup artists, grips, electricians, and so on that ought to have jobs, and I think if we keep our productions here then they all would have jobs.

So I'm really looking out for everyone to get a job. So I think we have to do everything we can. And this is why I created the Film Commission, to go and really help our film productions here...

KING: You're not concerned about its effect on Canada?

SCHWARZENEGGER: No. You know, I'm not representing Canada. That's maybe in another life. But right now I'm representing California. And I think that -- for instance, Danny DeVito and Clint Eastwood are part of the Film Commission and they have been doing a great job. Both of them have filmed their films here and keep the production here even though other states and other countries have offered them better deals. But just because they wanted to help the state.

So I think that's terrific. I think we all have to work together. And you know, like the state is giving free, everyone any access to state properties, prisons or wherever they want to shoot in order to make it easier...

KING: They're cooperating more.

SCHWARZENEGGER: Sure. And also the permitting process is much faster now. People can get it very quick now, the permits to shoot wherever they want to shoot. So I think that we are really doing a good job in helping the productions. So the key thing is to keep them here in our state.

KING: Las Vegas. Hello.

CALLER: Good evening, Larry. Good evening, Governor Schwarzenegger. Governor Schwarzenegger, I'm calling to ask a question. I'm a former California-based business in manufacturing. I moved my business from California to Nevada because the cost was simply prohibitive for us to do business. I had 150 employees at that time and now I'm up to 1,500 here in Nevada. And the majority of them are from Los Angeles that have moved to Nevada to work in my company.

My question to you, sir, is do you have or is your administration prepared to offer any incentives for manufacturing-based jobs to stay in California, to offer incentives to manufacturers, those companies, people like myself who at one time was small. I was able to give employee benefit programs, health insurance, even profit sharing to the few employees that I had, but the workers' compensation insurance in California, the costs, the regulations, it just ran me out of the state.

KING: All right.

CALLER: And I'm wondering if there's anything your administration is prepared to do incentive wise?

KING: Are you saying, sir, you would like to come back?

CALLER: Absolutely. I love California. It's my home. It's where my family lives. It's my beloved California. But the cost just literally run...

KING: I got you.

SCHWARZENEGGER: Well, Larry, this is what we talked about earlier. As you can see, here is a perfect example. Because we were talking about the wage increase. It's natural, we all want to have everyone make as much money as possible. But what is good for the overall for the state of California and how do we keep businesses here.

KING: How do you get his back?

SCHWARZENEGGER: This is the important thing. So what we have done is as soon as I went into office we have started working on the reform of what he just said, workers' compensation. Workers' compensation was the poison of our economy, Larry. And he knows that. And this is why businesses moved away. The costs went up, sometimes in one year they doubled, the workers' compensation costs.

And what we needed to do is create real reform, to go in there and look at this whole workers' compensation and find ways of reducing the costs. So we created great reform now. Now the costs have already gone down an average of 17 percent to 20 percent. Next year they will go down further. This is what helps businesses. We are basically open for business. We are cutting down, we are eliminating certain problems like, for instance, frivolous lawsuits, shakedown lawsuits against businesses that has cost the businesses a fortune. We are stripping away all of those things and certain regulations we are stripping away that makes it impossible for businesses to do business here in the state of California. What has happened is now since then we have seen a great response. The businesses are now moving back to California, and businesses are expanding here, and this is exactly what we want. So I hope there are certain business that have come from Nevada back.

KING: Who should he contact?

SCHWARZENEGGER: They just contact my office and we will be getting them in touch with the right people. David Crane, who is in charge of you know, of job -- jobs and economic growth and all this. He will help them. So the key thing is is we have systematically -- we have to strip away those obstacles because then we can -- they become more and more competitive and compared with other states where it's cheaper to do business.

KING: How do you work your time, Sacramento and L.A., you live in both places?

SCHWARZENEGGER: I live in both places. I go up there three, four days a week to Sacramento. Then I will be here one or two days a week, I am here in Los Angeles and work at the office in Los Angeles or Santa Monica. And then I'm one of those guys that moves around a lot. So I go to other cities because I want to let the people know that I'm not just hanging out in Sacramento, that I'm going to San Diego, Santa Barbara, Bakersfield, San Francisco...

KING: And when you're in L.A., you take the kids to school, right?

SCHWARZENEGGER: Yes. In the morning when I'm at home, this is one of my favorite things to do, is to take my kids to school and, you know, I love doing that.

KING: The biggest kick, I think.

SCHWARZENEGGER: Yes.

KING: We'll be right back with more of the governor. Don't go away.

(BEGIN VIDEO CLIP)

SCHWARZENEGGER: I just filed officially the papers to run for governor of California.

(APPLAUSE)

SCHWARZENEGGER: On the way -- on the way down here I said to my wife, I said, when I came here in 1968 from Austria as an immigrant, it's the last thing I thought of, that one day, 35 years later, I will be stand be here and filing the papers to run for governor of this great state of California.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

KING: We're back with Governor Arnold Schwarzenegger. Before we take the next call, I saw Maria last night. We honored Barbara Walters and Ray Romano at a big dinner, the radio and television -- and she was limping because she broke her leg jumping for the Red Sox?

SCHWARZENEGGER: That's right. She broke her foot.

KING: When they won the World Series?

SCHWARZENEGGER: She jumped up on the couch and then she jumped down on the -- off the couch, then she jumped up again and jumped down. And then the second time she jumped on a shoe, one of my kids' shoes, and she broke her foot. So that's what you get when you're a fan of the Red Sox.

KING: Were you there? Were you there?

SCHWARZENEGGER: I wasn't there, no. But I mean, when I came home, she had a broken foot. So, it was one of those things. But I mean... KING: You're a Dodger fan, right?

SCHWARZENEGGER: Yes, of course I am. Yes. But the thing is Maria is, you know, she continues working no matter what happens to her. She's like her mother, you know, they're like machines. I mean, it's like, Eunice, look at her, at the age of 82 now she was out there campaigning for Bobby Shriver, for her son, who ran for city council. And she was going from house to house...

KING: Did he win?

SCHWARZENEGGER: Yes, he won with a big margin. Yes, he did a terrific job.

KING: How's Sarge Shriver doing?

SCHWARZENEGGER: He's doing well under the circumstances, but you know, he has Alzheimer's. And -- so sometimes he forgets things. But I enjoy talking to him. I call him regularly. You know, he's a very smart guy. He's 88-years-old, and he's just unbelievable.

KING: To Chico, California. Hello.

CALLER: Hello. Mr. -- Governor Schwarzenegger, with the bill that we passed for the stem cell research, I want to thank you very much for endorsing that. My mother passed away from Parkinson's Disease two years ago. So I know how important that is. But my question is, is that if there was ever a federal ban put on stem cell research how would that affect the initiative that we passed in California?

SCHWARZENEGGER: Well, to be honest with you, I'm not a lawyer. So I really cannot answer that. But in California right now it is -- we are going full steam ahead with the stem cell research. That's what the $3 billion are for, that we have just voted for. And within the next 10 years you will see some incredible, you know, discoveries and progress made in this area.

KING: In fairness, President Bush has said while he was opposed to the government -- federal government spending, he's never been opposed to other areas spending.

SCHWARZENEGGER: No. Absolutely not. No.

KING: I'm sure he wouldn't oppose state spending. I don't think you'd ever see a national...

SCHWARZENEGGER: I don't think so. I don't think so. Yes, that's right. Yes.

KING: What do -- what do you think of the war in Iraq, by the way?

SCHWARZENEGGER: Well, I supported it right from the beginning. I think it is important that it is a place where terrorism starts and we see now again, you know, what kind of people are there fighting the war. And I think...

KING: Have you wavered at all based on developments there?

SCHWARZENEGGER: I didn't. Of course, it is disappointing when you hear that there is no weapons of mass destruction. But I don't think this is the only reason why we went in there. I think that, you know, whenever you have a war people always doubt and they're worried about it, which of course you do. And it is terrible and sad when you hear about the losses, you know, of so many young men and women that are over there. It's a very, very tough war.

And the key thing now is to get out of there as quickly as possible and to create the kind of democracy that we have envisioned in the beginning and really straighten out the mess. And I think it will still take a while. I think that the exit strategy didn't work. I think the war worked, but the exit strategy did not. Because I think no one expected that it would get into such a guerrilla fight as it is right now.

But I think the president is doing a good job. I think Rumsfeld is doing a good job. I think the whole Bush team is doing a good job, because they're staying very strong.

KING: We'll be back with our remaining moments with Governor Arnold Schwarzenegger. Don't go away.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SCHWARZENEGGER: Hasta la vista, baby.

(END VIDEO CLIP)

KING: The governor's second life. Bellville, Ontario. Hello.

CALLER: Hello. And thank you for taking my call.

KING: Sure.

CALLER: I think two great men there.

SCHWARZENEGGER: Thank you.

CALLER: But my question is to Arnold.

KING: OK.

CALLER: How are your -- is your family doing? Your children, your beautiful family? But I'd like to know also, if you're going to go back into the film business anytime in the distant future. Thank you.

SCHWARZENEGGER: Well, thank you very much.

KING: Would you go back? SCHWARZENEGGER: Well, I have no plans at all for the future. I mean, as I said to you earlier, that I'm only thinking about working here as governor, representing the people, and doing my job.

KING: So no desire to do a film?

SCHWARZENEGGER: I have no desire to do a film. I'll tell you one thing, that I've had the greatest time during my acting career. I have never thought -- I mean, I'm one of those guys that have big dreams but not as big -- as far as I went, because I saw myself as eventually taking bodybuilding, which I also enjoyed, and going into films and doing movies where I could use my muscles and do the "Hercules" movies and so on, but I had no idea that it would really get to be...

KING: But you don't miss it...

SCHWARZENEGGER: ... go as far as I did with the action movies or comedies and all of those things. It was terrific. But it was time to get out. You know, I wanted to do something different. And now this job is just so challenging.

KING: When do you have to decide if you're going to run again?

SCHWARZENEGGER: Next spring I will have to decide.

KING: Of '05?

SCHWARZENEGGER: Yes, exactly, of '05, yes.

KING: How was Japan?

SCHWARZENEGGER: Japan was a terrific trip. Because as I said many times, that we have the most beautiful state in the country. We have the most beautiful place in the world. It is absolutely gorgeous what we have to offer here. We have the most productive workforce here. We have the most gorgeous sceneries and everything.

We just have to sell it. We have to sell our products, go overseas and sell it, and market it, and publicize it. And this is exactly what this trip was all about. We went over there.

And the advantage I had was I did not only just reach the distributors of products, or reach just the travel agents, but reached directly to the people, because I did a lot of press interviews and shows and stuff like that, and I had events, that we reached directly out to the people, all of the people of Japan, and to let them know, come to California, enjoy yourself, come as tourists over here.

Because you see, the Japanese tourism, it went down, you know, by 50 percent since 9/11. So I want to build it back up again, and I want to make sure that they're buying all of our products. They're buying $1 billion worth of agriculture, of home grown, of California- grown products. So we're doing great. So I just want to go around the world and sell and promote and market California.

KING: Let's not wait for the two-year anniversary.

SCHWARZENEGGER: All right.

KING: Thank you, Governor.

SCHWARZENEGGER: Thank you very much.

KING: Governor Arnold Schwarzenegger, the governor of California.

Before we go, by the way, the first annual thanks and giving campaign kicked off today to benefit St. Jude's Children's Research Hospital in Memphis. The late, great Danny Thomas founded St. Jude in 1962, and it's now the center for research and care of childhood cancer and other catastrophic diseases. St. Jude's shares all its research with all other research centers in America, and it treats all its patients, whether their families can pay for it or not.

How could you not want to help? Go online to www.thanksandgiving.com. And get a terrific new book and CD Danny's daughter, Marlo Thomas, put together to benefit St. Jude's. It's called "Thanks & Giving All Year Long," featuring Tiger Woods, Jennifer Aniston, Sheryl Crow, and more.

I'll be back in a minute and tell you about tomorrow night.

(COMMERCIAL BREAK)

KING: Tomorrow night, we're in Little Rock, Arkansas, on the eve of the opening of the Bill Clinton presidential library. Hillary Clinton, the senator from New York, will be our special guest.

Thursday night, Prince Albert of Monaco. And Friday night, Patti Davis. We thank Governor Schwarzenegger, and we now turn it over to the governor of CNN, the host of -- yes, we have a governor, we elected him -- of course has to...

AARON BROWN, HOST, "NEWSNIGHT": That's a good gig.

(CROSSTALK)

KING: ... anchor from Albany. The host of "NEWSNIGHT," Aaron Brown, take it.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com


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