Governor picks up old playbook.

Gov. Arnold Schwarzenegger's decision to throw down the gauntlet on workers' compensation reform shows that he's ready to play hardball if Democrats in the Legislature don't cooperate.

His threat to take a reform package directly to voters through an initiative next November has upended the usual political process in Sacramento. While risky, the strategy has precedent--one that his predecessor, Hiram Johnson, successfully employed nearly 100 years ago.

"If this is successful, it trumps the legislative branch of government," said Kevin Starr, California state librarian and professor of history at the University of Southern California.

Schwarzenegger is asking the Legislature to pass a workers' compensation reform package resembling the proposals he has put forward calling for $11 billion in cuts to the system.

Among them are controversial measures that would tighten standards for determining permanent disability, place controls on treatment procedures and broaden the use of alternative dispute resolution for claims.

With his mandate from the recall election, Schwarzenegger is using the threat of an initiative in an effort to bypass Democrats and their special-interest allies that have blocked cost-saving reforms in recent years. It may prove a harbinger of the way he intends to govern over the next three years.

"As we saw during the recall campaign, workers' compensation is now a galvanizing issue," said Sen. Charles Poochigian, R-Fresno, who is carrying Schwarzenegger's proposals in the Senate. "That combined with the way Gov. Schwarzenegger ascended to office and his celebrity make this a very viable option if the Legislature doesn't do its job."

However, Poochigian added, "The preferred alternative is to roll up our sleeves and finish the job the Legislature failed to do last September."

Century-old playbook

Schwarzenegger's strategy harkens back nearly 100 years. Johnson was another Republican governor who, with his progressive allies in the Legislature, placed a series of initiatives on the ballot designed to break the hold on Sacramento of railroad interests. Ironically, one of those initiatives set up the recall process through which Schwarzenegger ascended to power.

Few governors since then have resorted to initiatives to get around the Legislature, Starr said. Most have instead preferred to reach compromises with legislative leaders. Meanwhile, the initiative process has come to be dominated by special interest groups eager to carve out their piece of the fiscal pie or pass regulations favorable to their members.

But workers' compensation has tied the Legislature in knots for years as costs have ballooned to $29 billion this year from $9 billion in 1995. A constant tug-of-war between trial attorneys, labor unions and doctors on one side and employers and insurers on the other has stalled attempts to make deep cuts in the system. Democrats have sided with the trial attorneys and labor unions, while Republicans are aligned with insurers and employers.

Threatening to take the issue to voters, reform advocates say, would break this stalemate, just as Gov. Johnson was able to do 90 years ago. If the Democrats and their allies weren't willing to negotiate steeper cuts in the system, the thinking goes, voters would do it for them.

Risky path

The major difference this time around is that Schwarzenegger faces a potentially hostile Legislature. In Johnson's day, Republicans controlled both houses; today, it's the Democrats.

As they showed last week on the budget and on the proposal to repeal the law granting drivers' licenses to illegal immigrants, legislative Democrats are not likely to roll over for the former action hero. What's more, their allies--trial attorneys, labor unions and doctors specializing in treating injured workers--have already let it be known they will fight any attempts to limit access to benefits.

"We would fight against any measure that denies injured workers the right to get the care they need," said Nathan Ballard, spokesman for the California Labor Federation. "That goes for both in the Legislature itself and at the ballot box."

An aide to one senior Democrat said last week that if Schwarzenegger wants to put a workers' comp reform initiative on the ballot, labor unions and others might counter with their own initiative. That would touch off a costly initiative war with unpredictable results.

Also, while Schwarzenegger's popularity with voters is riding high in the afterglow of the recall election, there's no guarantee that it will remain that way into next November.

"He has the bully pulpit now as no other public official has in California since Ronald Reagan was governor," said Bob Stern, president of the Center for Governmental Studies in Los Angeles. "Given this, the Democrats' strategy will be to delay this as long as possible, in the hopes that his popularity will erode over time."

That's what Democrats began to do last week. Instead of rubber-stamping the repeal of the drivers' license bill, legislative leaders sent it to a transportation committee for further study. They did promise to bring it up for consideration again this week, but Republicans said they regarded this as merely a delaying tactic.

Also, by next spring, the crafting of the budget takes center stage. Democrat legislators could threaten to derail Schwarzenegger's budget proposals unless he gives in on the workers' compensation issue.

"You can't put an entire budget on an initiative," Stern said. "Schwarzenegger will have to deal with the Democrats on the budget, and this is the leverage that Democratic lawmakers have."

If the workers' compensation issue ultimately goes to the ballot and Schwarzenegger prevails, the governor may decide to tackle some other high-profile issues in the same way. For example, in the recall campaign, he said he wanted to reduce litigation, including reforming the "unfair business practices" clause that has allowed for scores of expensive lawsuits aimed at employers.

But Stern said he did not expect every proposal blocked by the Legislature to go onto the ballot. "You can only do this a few times before people grow tired of it," he said. "Also, other players might wise up and start putting counter-initiatives on the ballot, which would really complicate matters."

Last week, attention was mostly focused on the nuts and bolts of further workers' compensation reform. Hearings on the issue were scheduled for late last week and early this week, mostly focusing on how much insurers plan to reduce rates in the wake of the reforms passed in September.

"There is now an interest on both sides to get something done soon to avoid this going to the ballot," said Lori Kammerer, a Sacramento lobbyist representing employers on workers' compensation issues. "Every side is looking at the prospect of an expensive campaign where the outcome is not entirely certain. And that's what is motivating them right now."

Ironically, it was the threat of an initiative 18 months ago that pushed the already teetering workers' compensation system over the edge. At that time, labor unions threatened to put a measure to increase benefits for injured workers on the November 2002 ballot unless the Legislature passed it and then-Gov. Gray Davis signed it. Within six weeks, a benefits-increase measure made it to Davis' desk, which he promptly signed.

That increase resulted in employers being hit with premium hikes averaging 40 percent to 50 percent. Premiums had already been rising sharply during the previous two years. This latest round of hikes turned workers' compensation reform into a front-burner issue in the recall election.