The State of Davis: California's governor is less golden, but still rich.

Once upon a time -- and not so long ago -- Gray Davis was the golden boy of the Golden State. California's Democratic governor enjoyed big budget surpluses and the goodwill of the vast majority of his 34 million constituents. At the start of last year, he sat atop a stellar 60 percent approval rating and was well on his way to amassing the $35 million that now sits in his campaign treasury. He seemed politically invincible, an unflashy but driven operator destined for reelection. There was even speculation of a presidential run in 2004.

Nothing was inevitable about Davis's remarkable rise. In 1998, he was California's lieutenant governor, a job with few responsibilities other than managing a small staff and scanning the newspaper obituaries each morning to see if the governor has died. Many in his own party didn't like him, going back to a nasty ad he had run years earlier in a Democratic primary comparing Dianne Feinstein to Leona Helmsley.

During the 1998 gubernatorial primary, however, his two opponents -- a respected member of Congress and a self-financed millionaire -- spent tens of millions of dollars attacking each other, making possible a come-from-behind victory for Davis. That fall, he cruised to victory over Republican Dan Lungren and became California's first Democratic governor since Jerry Brown in the 1970s. The future looked bright for Gray.

Then the lights started to flicker: An electricity crisis brought on rolling blackouts, and ended up saddling California with billions of dollars in expenses. Many still blame Davis for what happened. His political predicament is made worse by the widespread perception that he'll do anything to raise a buck for his campaign -- including activity that runs perilously close to the limits of the law. Worse, he faces a looming budget gap that may represent the most severe fiscal problem any state has ever faced. Only 42 percent of Californians now approve of his job performance, and half the public thinks the state is on the "wrong track" -- a deadly mix for an officeholder seeking reelection, as Davis is doing this year against Republican nominee Bill Simon. The conventional wisdom now sees Davis as the failed governor of a big western state, a man who had everything going his way but let it all fall apart.

The 59-year-old Davis did not stumble blindly into the governor's mansion. The great mistake of liberals seeking statewide office in California, he observed, was appearing soft on crime. Davis became a hard-on-crime Democrat, endorsing the death penalty -- never an easy thing for a liberal pol -- and promising to uphold the state's three- strikes law. He once even said that his model for law enforcement was Singapore, where the police cane people for vandalism. (Crime actually has worsened under Davis, but mostly for demographic reasons -- such as an increasing population of young men -- that lie outside hihis control.)

Davis, in fact, governs to the right of his own party, especially as it's represented in the California assembly. The state's GOP may be in awful shape, but Davis has been smart enough not to tangle with two of the most important conservative policy achievements of the last six years: the passage of Proposition 209, which banned racial preferences, and Proposition 227, which eliminated bilingual education. He avoided the temptation to undermine them, to the enormous irritation of some in his political base. Davis remains a pro-choice extremist on abortion, but skirts many of the cultural land mines that often blow up in the face of liberals. He did not, for example, wage war against a recent ballot initiative banning gay marriage. (Despite this, the governor is currently trying to shore up his base by suggesting he's open to reparations for slavery and "civil unions" for gays.)

For all the little things Davis has done well, however, he's handled a few big things poorly. Take the post-September 11 terrorist scare. On November 1, Davis received a terrorist-threat advisory from the FBI warning that "unspecified groups are targeting suspension bridges on the West Coast." This information was "uncorroborated," said the communique, and it was not to "be furnished to the media. . . . Unauthorized disclosure of FBI communications could jeopardize ongoing FBI investigations." Within hours, Davis was ignoring this request and speaking publicly of a "credible threat" against four specific California bridges, including the Coronado Bridge in San Diego, which is not even a suspension bridge. On November 6, the FBI announced that its information was "not deemed credible." Davis had created an unnecessary panic. Californians needed executive leadership, but got executive confusion instead.

The electricity crisis remains the touchiest subject for Davis; he's downright persnickety about it. "I kept the lights on. And this sounds a little presumptuous, but I think I should at least get a round of applause. I don't get squat," he complained to the San Diego Union- Tribune earlier this year.

Throughout California's energy crunch, Davis tried to lay the blame for the problem anywhere but at his own doorstep. In the search for scapegoats, he pointed his finger at companies he accused of price gouging, at California's out-of-power GOP, and even at President Bush. Davis's desire to shift responsibility away from himself is understandable: The electricity crisis occurred on his watch, but it was not of his making. Davis inherited a flawed deregulation scheme from Pete Wilson's administration, which made it impossible for power utilities to cope with soaring costs because state-imposed price caps prevented them from passing their real expenses on to consumers. (The enemies of deregulation have said California's error was to deregulate too much, but in truth California didn't deregulate enough.)

Davis may not have caused the electricity problem, but he did fail in his response to it. Two years ago -- long before any of this was making headlines -- wholesale energy prices started moving above what utilities were allowed to charge consumers. In the summer of 2000, California's struggling power companies petitioned the state's Public Utilities Commission to let them enter into long-term contracts that would guard against price spikes. The commission approved the idea, but the Davis administration refused to implement it -- because Davis didn't want to confront voters who were upset by rising electricity bills.

But there was no good alternative to letting consumers pick up the fair-market tab for rising energy costs. That didn't stop Davis from trying, however, and he spent the fall of 2000 calling for federal price controls and demanding congressional investigations. Davis didn't begin to grapple seriously with the problem until the following January, when he finally authorized the long-term contracts the utilities had requested half a year earlier.

By then, he had no choice: California was losing power. A series of rolling blackouts hit the state, and most people assumed the problem would get much worse. In March 2001, a desperate Davis agreed to pay $43 billion to supply the state with electricity. In securing these long-term contracts, Davis took a short-term view: He was more interested in solving a personal political problem than in getting a good deal for the state. He wanted the mounting crisis to go away at all costs, and was willing to spend whatever was necessary to make it vanish. He wound up purchasing a huge amount of power when prices were hitting record highs. As a result, Californians are now paying more than they should for electricity -- two or three times the going rate.

When the Union-Tribune asked Davis if he had panicked when he agreed to those expensive contracts, the governor exploded: "If I didn't panic, you wouldn't be able to put out your paper. I saved this friggin' paper. I kept the lights on in this state! Do you understand that? I kept the lights on!"

Say this much for Davis: The friggin' lights stayed on, and the worst- case scenarios of massive blackouts did not come to pass. Davis can thank the weather for that: California had an unusually mild summer, which kept electricity use down. The public managed to conserve more energy, the recession caused a drop in demand, and federal price caps also lent a hand. Today, however, nobody thinks Davis got a good deal on electricity in 2001 -- and that includes Davis himself, who has spent much of 2002 trying to undo last year's agreements. Davis may yet find a bogeyman -- in Enron. Recent reports suggest that the defunct energy company manipulated prices during the crisis.

Davis wasn't a penny-pincher during the energy emergency, but he counts every dollar coming into his reelection fund. Most politicians regard fundraising as an onerous necessity; Davis appears to revel in it. Garry South -- who is to Davis what Karl Rove is to George W. Bush -- has said that Davis's campaign work "could amount to 12-hour dadays in the office on the phone" raising money. Davis does so much of it, in fact, that his office refuses to release a schedule of his activities.

The governor thinks nothing of asking for seven-figure contributions. In February, he met with California Teachers Association president Wayne Johnson. "We were just sitting there talking and he just out of the blue said, 'You know, I really need a million dollars from you guys,'" recalled Johnson, in a Contra Costa Times story. Two weeks later, at a "Read Across America" event, Davis pulled Johnson aside and made his pitch again. The request was not completely unreasonable -- in 1998, the union had given Davis $1.3 million. In return, Davis hehelped make California teachers among the highest paid in the country, even though the state's student achievement continues to rank near the bottom. This year, however, Davis had not gotten behind a bill that would have let the teachers union choose textbooks and shape curricula as a part of its labor negotiations -- a pernicious idea, but a top goal for the union. As the weeks went by, Davis and the teachers union played a game of chicken: Davis wouldn't back the union proposal, and the union wouldn't cut a check.

In April, Davis actually came out against the union -- a good result from a conservative standpoint. Some union officials insist that it had nothing to do with conviction; it was merely retribution for their decision not to succumb to a Davis shakedown. Their claim is not implausible. There is no shortage of cases in which Davis at least appears to have played quid pro quo with his financial backers. In May, a Davis-appointed commission said that homeowners must continue using copper pipes for carrying water into homes, rather than plastic pipes that are less expensive and easier to install; within days, Davis received a $260,000 gift from the pipefitters union. Prior to that, Davis took $75,000 from the ski industry -- and then granted it an exemption from state law by saying resorts didn't have to pay overtime to their seasonal workers. As part of a road-construction plan meant to ease traffic congestion, Davis proposed building a $30 million interchange to a desert casino whose tribal owners had spent $275,000 to elect him in 1998.

One of the most egregious examples so far involves the state's prison guards. They spent $2.3 million on Davis in 1998 and Davis gave them a 34 percent pay raise last December. The new contract may cost the state $1 billion annually when it's fully implemented. Davis also proposed closing the state's five privately run prisons, whose employees aren't members of the prison-guard union and therefore don't send big donations to Davis. In March, the union sent another $251,000 to the governor.

The latest fundraising controversy, however, may turn out to be the biggest. Last year, the Davis administration signed a $95 million contract with Oracle to supply the state government with computer software. The deal now appears to have been a boondoggle: A state auditor says the software wasn't necessary and the whole package, which was supposed to save money, may wind up costing taxpayers an extra $41 million. This is more than a simple tale of bureaucratic incompetence. No other companies were allowed to bid for the work, and the contract didn't go through the normal financial and legal vetting channels. This spring, it was revealed that just a few days after the unusual deal was struck, an Oracle lobbyist gave $25,000 to the Davis campaign -- handing the check directly to Arun Baheti, the state's director of "e- government," at a Sacramento bar. (In early May, Davis sent the money back to Oracle -- and also sent Baheti packing.)

California can't afford such budget-busters. Under Davis, state spending has soared, going from $75 billion a year to $103 billion -- an increase of 37 percent. "There's a simple lesson that Gray Davis refuses to learn: When you spend every penny in sight during the good times, you won't have any around during the bad times," says Tom McClintock, a Republican state senator who is running for controller this year.

Davis should have known better. California was able to go on a spending spree because so much of its revenue relied on capital gains fueled by the amazing but ephemeral performance of technology stocks in Silicon Valley. Like a delirious day trader, Davis seemed to assume this boom would be permanent -- and so he essentially wrote it into the structure of the state budget. Sacramento shoveled huge amounts of money at education, health, welfare, and the environment. The state also created 44,000 new government jobs; California's population has increased 5 percent under Davis, but its government workforce has increased by 15 percent.

Estimates of the budget gap have grown steadily larger over the last several months. Back in January, when analysts projected a $12.5 billion deficit, Davis responded with some spending cuts, plus lots of accounting gimmicks that included borrowing, fund transfers, and the baseless assumption that Congress would soon stuff piles of cash into a fleet of eighteen-wheelers and send it westward. These initial measures didn't go nearly far enough. On May 14, Davis announced a $23.6 billion shortfall. He could take all of his proposed "savings" from earlier this year and it still wouldn't come close to filling the hole. To do so, he would have to shut down the entire state prison system -- twice.

Davis has said he doesn't "intend" to consider a tax hike, but on May 14 he did propose a 50-cents-per-pack increase in the cigarette tax. Democrats in the legislature would like to go further -- the senate president, for example, wants to create two new income-tax brackets, with a top rate of 11 percent. Davis surely understands the risks involved, and is pressing for a massive borrowing scheme that pushes reckoning day beyond Election Day.

If California's spending had increased at only half the rate it did under Davis -- still a rapid clip -- there would be no budget problem. Sacramento would have balanced books and Davis would be coasting toward reelection and possibly thinking about 2004. Though his White House ambitions now appear dashed, success in November remains a strong possibility: California tends to let its governors have second terms, Davis still has a ton of unspent cash in his campaign account, and the latest polls show him running far ahead of Bill Simon. He may very well be reelected, with California ending up paying the price.