ARNOLD, STATE GAIN CLOUT WALL STREET CHEERS ELECTION VICTORIES.

Byline: David M. Drucker Sacramento Bureau

SACRAMENTO - With broad voter support for his fiscal recovery plan and a thumbs up from Wall Street, Gov. Arnold Schwarzenegger seized the moment Wednesday to push his agenda for workers' compensation reform and the budget with legislative leaders.

Analysts said the overwhelming approval given Tuesday to Schwarzenegger's $15 billion fiscal recovery package and repudiation of a measure to make tax hikes easier has strengthened the governor's hand heading into tough negotiations with Democratic leaders.

``It's a big win for Gov. Schwarzenegger,'' said Joe Cerrell, a Democratic political consultant based in Los Angeles. ``He can always threaten to go back to the ballot again.''

A day after the election, Standard & Poor's Ratings Services placed California's credit rating on ``CreditWatch with positive implications,'' pending the final version of the 2004-05 state budget due June 30. Moody's Investor Services also upgraded its view of California's credit situation Wednesday, adjusting its outlook from ``negative'' to ``stable.''

After a series of downgrades that lowered the state's credit rating to near junk bond status, the shift in attitude by Wall Street represented the first sign of acceptance that California may be turning around and showing satisfaction that passage of Propositions 57 and 58 will avoid a cash-flow crisis.

``We'd like to see some sort of progress on reducing the structural deficit, by making ongoing changes in revenues, expenditures or both,'' S&P credit analyst David G. Hitchcock said.

Democratic Treasurer Phil Angelides, the harshest Democratic critic of Schwarzenegger's recovery plan, stressed the same point, saying that despite Tuesday's election outcome, the governor still must produce a balanced budget - one that ``honestly'' addresses a projected $17 billion deficit - to fix the state's finances and elevate its credit rating.

The governor's 2004-05 budget proposal in its current form fails to accomplish that, Angelides said.

``I think the fundamental challenge is still there.''

Propositions 57 and 58 - the $15 billion deficit-financing bond and constitutional spending limit - are now law thanks mainly to the lobbying efforts of Schwarzenegger, who staked his political future on their passage. Needing a majority of votes statewide to win, Proposition 57 passed with the approval of 63.3 percent of voters, and Proposition 58 passed with 71 percent approval.

Early this year, when polls showed that only one-third of voters approved of Schwarzenegger's measures, he corralled the support of most top Democrats, took to the airwaves and hit the campaign trail to score a victory that analysts say could drive up his popularity and put him in the driver's seat as he seeks to overhaul the state budget, workers' compensation system and other areas of state government.

Seizing the momentum Wednesday, Schwarzenegger called a meeting with the top Democrat and Republican from each chamber of the Legislature - a gathering known as the Big Five - to push his plan for overhauling the state's troubled workers' compensation system.

He also plans to spend the political capital he earned from Tuesday's victory to address California's sluggish economy, and implement a 2004-05 state budget that reflects his vision - in other words, one that does not include new taxes or tax increases.

``The deficit was created by overspending politicians and it's wrong to punish the taxpayers by increasing their taxes to get us out of this hole,'' Schwarzenegger's communications director, Rob Stutzman, said.

``There's no question that the success last night at the ballot box makes it much easier to go forward without tax increases.''

The governor had called on the Democrat-controlled Legislature by March 1 to deliver $11 billion in rate relief to the troubled insurance system - funded by employers - that compensates workers who cannot work due to injuries incurred on the job. But resistant Democrats have thus far refused to deliver the reform Schwarzenegger wants.

No concrete progress on workers' compensation reform resulted from Wednesday's Big Five meeting. But at least one Democratic leader appeared open to reaching a deal by March 31, the last day to do so for employers to see substantial savings this year.

Assembly Speaker Fabian Nuez, D-Los Angeles, said the issue was complicated, and declined to comment on the possibility of when - or whether - a deal could be reached that would prevent Schwarzenegger from going ahead with his threat of a ballot initiative, for which the signature-collecting process is scheduled to begin Friday.

But state Senate President Pro Tem John Burton, D-San Francisco, sounded more flexible. ``I'm very hopeful that we'll have a workers' comp package (by March 31),'' he said.

Though open to compromise, Burton disputed the notion that voters would support the governor at the polls on an issue as multifaceted as workers' compensation insurance, noting there are more employees in California than employers.

But with the approval of Propositions 57 and 58, the governor's call for immediate legislative action and his threat to take workers' compensation reform to the November ballot are enormously strengthened, political analysts and aides to the governor say.

``These two measures started way low in the polls and passed because Gov. Schwarzenegger put everything on the line for them,'' said Tim Hodson, executive director of the Center for California Studies at California State University, Sacramento. ``That will enhance the credibility of any threat or promise he makes to take things like workers' comp to the ballot.''

David M. Drucker, [phone]

David.Drucker(at)dailybulletin.com