SAN FRANCISCO — National retailers such as Wal-Mart and Target got behind Arnold Schwarzenegger’s maiden bid for California governor two years ago and they are at his side again this year, though under far different circumstances.

The movie star-turned-Republican-politician who defeated incumbent Democrat Gray Davis in a recall election in October 2003 faces a test next month that some political experts view as a referendum on his leadership and a possible harbinger of his race for a four-year term in 2006.

Eight ballot initiatives endorsed by Schwarzenegger go before voters on Nov. 8, including measures that would force teachers to wait longer for tenure, allow retired judges to redraw congressional district lines instead of the legislature and mandate a state spending cap.

Although his popularity in this heavily Democratic state is flagging based on recent polls, many industry executives view Schwarzenegger as their best hope in a challenging business climate.

“The bottom line is retailers have a very vested interest in seeing Arnold succeed as governor,” said Bill Dombrowski, president of the California Retailers Association. “It isn’t so much that retailers are affected by redistricting or teacher tenure. The point is the governor has picked his reform agenda and the governor is the only thing between us and Armageddon.”

California has the biggest economy of any state, with a Gross State Product (all goods and services) of $1.55 trillion last year. The unemployment rate in August was unchanged at 5.2 percent, compared with 4.9 percent nationally. However, economists are warning of economic headwinds because of rising fuel and energy costs that have already dampened consumer confidence, according to a survey by the Public Policy Institute of California.

To be sure, not all retailers are actively backing the governor. Mimi Ting, owner of Mingle, a boutique on San Francisco’s Union Street, said she is neutral on Schwarzenegger because his policies don’t have much impact on her business. “What he’s doing affects the bigger retailers, national chains,” she said.

Schwarzenegger came to office by appealing to Californians weary of rising taxes and deteriorating public services that were propelled by a state budget deficit that has reached $22 billion. Davis had stirred voter resentment by moves such as tripling the state’s car tax.

This story first appeared in the October 5, 2005 issue of WWD. Subscribe Today.

The governor has delivered on some pledges, like repealing the car tax and overturning legislation granting drivers’ licenses to undocumented foreign workers. However, he has incurred the wrath of public employees, including teachers and nurses, over job security and reduced public funding of schools and health care. Public employee union members routinely demonstrate at the governor’s appearances and have been running television commercials critical of him for months. Schwarzenegger supporters have countered with ads defending the governor’s policies.

A recent Field Poll tracked the decline in Schwarzenegger’s popularity. In late August, 36 percent of voters surveyed said they were inclined to reelect the governor, down from 56 percent in February.

Schwarzenegger has had a contentious relationship with the Democratic-controlled legislature, although he did work with lawmakers to slow increases in workers’ compensation insurance premiums.

Still, he angered Democrats last year by joining companies, including many national retailers, in bypassing the state legislature in favor of a voter referendum that succeeded in repealing a mandatory employee health care bill signed by his predecessor. Federated Department Stores’ Macy’s West division spent $500,000 toward overturning this legislation; Nordstrom contributed $100,000; J.C. Penney, $200,000; Sears Roebuck & Co., $400,000, and Target, $350,000, according to state campaign finance records.

Schwarzenegger “does advocate a strong business climate in California and to make it easier for companies to enter the state, which is good for us,” said a J.C. Penney spokeswoman. The national chain has 90 locations in the state and 14,000 employees.

Schwarzenegger has been most effective for business in vetoing legislation.

“He has blocked about $3 billion in new taxes and fees,” said Julie Vandermost, co-chair of a corporate-backed political action committee, Citizens to Save California, which is pushing the Nov. 8 ballot initiatives. Target and Wal-Mart each have given $100,000 to the committee, state records show. Neither company returned requests for comment and the governor’s office directed all questions to Citizens to Save California.

Lonnie Kane, president of Karen Kane, a Los Angeles County women’s sportswear company sold in better department and specialty stores such as Bloomingdale’s and Nordstrom, applauded the governor’s veto last month of a $1 increase in the state minimum wage law to $7.75 that also would have tied further increases to inflation.

“Working with the legislature, there are only a few things the governor can do, but he can do things through the ballot-initiative process,” said Kane, who would like Schwarzenegger to mount an effort to overturn overtime rule changes made during Davis’ tenure that calculate overtime on a daily, rather than weekly, basis. Previously, overtime was calculated after working 40 hours in a week, which Kane said is less costly and more flexible for workers and companies, particularly in the deadline-driven fashion business.

Ilse Metchek, executive director of the Los Angeles-based California Fashion Association, gives the governor high marks for reducing the amount of litigation initiated by the state Department of Industrial Relations in regard to wage and overtime violations among garment contractors.

However, “What we don’t give him thumbs-up for is his lack of promotion on behalf of some of the greatest fashion brands from California,” said Metchek, who thinks the Schwarzenegger administration has wrongly viewed the sector as a bunch of moribund manufacturers whose business has largely moved offshore.

“We design for the world,” Metchek said. “We are now a service sector and as such we demand a little bit more respect.”

The association has asked the governor, during a scheduled trip to China from Nov. 14 to 19, to stress the importance of trademark protections for fashion names and logos while seeking partnerships for California brands with Chinese manufacturers that won’t produce knockoffs.

State business leaders have been actively raising money to push the ballot initiatives through political action committees such as the Citizens to Save California, with a goal of raising $50 million to pay for pro-initiative television advertising, which only recently began airing.

The California Retailers’ Association’s Issues Committee also has donated money to back the initiatives based on contributions from Doris Fisher, co-founder of San Francisco-based Gap Inc. ($250,000), and Oakland-based Safeway supermarkets ($25,000), according to state campaign records.

The association, in turn, wrote a check for $100,000 to Citizens to Save California; $100,000 to Schwarzenegger’s California Recovery Team political action committee and $50,000 to an entity focused on two initiatives, one dealing with how congressional districts are drawn and another that would require public employee unions to ask members whether to use their dues for political fund-raising. These two initiatives are popular national GOP causes as well, and are seen by critics as ways to create more Republican-dominated districts and break unions.

The fate of the ballot initiatives is unclear, as polls have showed a lack of interest in the election, but a low voter turnout is seen as benefiting the governor who has the support of party loyalists, said Barbara O’Connor, a political communications professor at California State University in Sacramento.

“This governor is unpredictable,” O’Connor said. “When he’s let out of the box by his political handlers, he’s terrific. They [unions] have him down, but I would not call him out.”

On the Ballot

  • Proposition 73: With some exceptions, requires physicians to notify parents 48 hours before performing abortions on minors.
  • Proposition 74: Increases length of time before teachers reach tenure to five years from two, and makes it easier to dismiss permanent teachers who receive two consecutive unsatisfactory performance reviews.
  • Proposition 75: Would require public unions to ask members before using dues for political campaigns.
  • Proposition 76: Sets state spending and school funding limits.
  • Proposition 77: Calls for a panel of retired judges to draw congressional districts, instead of the legislature.
  • Propositions 78, 79: Creates prescription discount programs for low-to-moderate income residents.
  • Proposition 80: Begins state regulation of electricity, following 1996 deregulation and the 2001 energy crisis.
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