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The poker player; as a governor, Bruce Babbitt was not only smart, he was effective.

The Poker Player

As a governor, Bruce Babbit was not only smart, he was effective By David Osborne

Bruce Babbit has made his name nationally with a series of unique and politically risky stands on issues. But in Arizona where he was governor for nine years, he is known for making such ideas reality. Because he has trouble communicating on television, however, Babbit has been unable to project his greatest asset: his capacity to lead in office.

In Arizona, the name Bruce Babbit is virtually synonymous with the word leadership. A look at Babbit's years as governor tells a remarkable -- and remarkably unknown -- story. In the most conservative state in the union, in the fact of a Republican legislature and a fiercely antigovernment business community, Bruce Babbit transformed the very nature of the governorship. In the process, he forced Arizona to come to grips with the most basic issues clouding its future; its fragile environment, its substandard education system, and its inadequate social services.

To understand the Babbitt story, one must understand the context. When Babbitt assumed office in 1978, Arizona still embraced the frontier ethos in which the old Arizona had taken such pride. Arizona was the last of the contiguous 48 states to join the union, in 1912. By 1940 it had only 500,000 people, spread out in small, desert towns and over vast Indian reservations. But World War II brought military bases and defense plants, and the postwar boom brought air conditioning and air travel. Defense contractors and aerospace and electronics companies poured in, bringing an army of young engineers and technicians with their wives and their children. With their crew cuts and their conservatism, they transformed Arizona into a bastion of Sunbelt Republicanism.

But even as the Republicans cemented their control in the 1960s, rural legislators held onto the reins of seniority -- and thus power. In the 1950s Arizona declined to participate in the federal Interstate Highway System; in the 1960s it turned down Medicaid. State government was tiny, the governor a figurehead. And Arizonans had little truck with Washington.

The task of dragging Arizona into the modern era fell to Babbitt. He is a lanky scholarly type whose habitual slouch, thoughtful manner, and awkward style of speech hide an enormous drive. He has sandy hair, a lined face that has begun to sag, and large pale eyes. On a dais, when he tries to sound like a politician, his body stiffens and his eyes bulge. In a small group, when he is in his natural, analytic mode, Babbitt can be brilliant.

Despite his weakness as a public speaker, Babbitt captivated the Arizona electorate. (He was elected governor in 1978 with 52 percent of the vote and reelected four years later, during a recession, with 62 percent.) Summing up the Babbitt yeas, the Arizona Republic -- a conservative newspaper -- called him the "take-charge governor." In a comment echoed by many others, an environmental activist told me, "He is without a doubt the smartest, quickest elected official I have ever met." "Babbitt played it on the precipice," added a state senator. "He is constantly pushing this state forward, and he has an uncanny ability to pull it off."

"This guy called us dailyc

In addition to his brains and his daring, Babbitt was not hurt by his name. In Arizona, a Babbitt carries the status of a Kennedy in Massachusetts,a Rockefeller in New York, a Du Pont in Delaware. "The Babbitts came here in the 1800s," said Alfredo Gutierrez, until 1987 the minority leader in the state senate. "They built an immense empire in the state senate. "They built an immense empire in northern Arizona. There are Babbitt car dealerships, Babbitt department stores, Babbitt trading posts, Babbitt property managers, Babbitt everything. And they own an enormous amount of land."

A large Roman Catholic family, the Babbits were known for their commitment to the Flagstaff community. As a boy, Bruce was the "in-house genius" according toa childhood friend. In 1956, he was valedictorian of his class at Flagstaff High. He attended Notre Dame, where he served as student body president and studied geology -- his link to the grandeur of northern Arizona. From there he went to the University of Newcastle in England on a Marshall scholarship to study geophysics. But a summer project in Bolivia changed his life.

Babbitt went to Bolivia in 1961 on a research project with Gulf Oil. Ferried to and from a lavish base camp by company helicopter, he was struck by the contrast between the opulence of Gulf Oil and the poverty all around him. He decided he was more interested in people than rocks, more concerned with where the continent was going then where it had been.

He returned to the United States and enrolled in Harvard Law School, returning to South America during his summer vacations to work on a variety of social action projects. In 1965 he headed south for the civil rights march on Selma, then joined the War on Poverty as a field agent for the Office of Economic Opportunity in Texas.

Living out of a suitcase, the 27-year-old Harvard Law graduate traveled from one south Texas town to another to help set up community action agencies, through which federal resources were channeled to the poor. In 1967 Babbitt followed his boss, who had been named director of VISTA, to Washington. "There are believers who perhaps may be naive and others who are realistic," said one former VISTA official. Babbitt "was a believer who was realistic."

The realist in Babbitt could see that the War on Poverty was to be short-lived. Spending on the Vietnam war was already forcing cutbacks at OEO, and Congress was under intense pressure from local politicians to rein in the young idealists who were giving them so much trouble. More importantly, the program was not working. "The War on Poverty bore some good fruit, but what I learned was you can't force thoroughgoing social change from the top down," Babbitt later told the National Journal. "The whole War on Poverty had a certain kind of arrogance....It could not be a lasting process of change when it depended upon GS-7s hired in Washington dispensing federal money with terms and conditions that they prescribed in local communities."

After a decade of adventure, which has taken him from South Bend to South America to south Texas, Babbitt dusted off his law degree and returned to Phoenix. He joined a firm, served on the local legal services board, and did legal work for the Navajo trible. He was one of a handful of liberal activists in Pheonix, a hardy band who stuck together because they were so outnumbered. In 1974 they drafted Babbitt to run for attorney general. He had the name, he had the money, and he had the right politics.

Babbitt understood the potential of the attorney general's office in an era of corruption and consumerism. While Wategate dominated the national news, land fraud and price-fixing were hot at home. The laissez-faire, frontier mentality was so strong in Arizona that organized crime had moved in to take advantage of it -- just as it had to the north in Nevada. By the early seventies, Arizona was becoming known as the land fraud capital of the world.

Babbitt convinced the legislature to allow him to appoint a statewide grand jury, then set it to work on land fraud. It prosecuted more than 100 cases and effectively ended the practice. He also attacked price-fixing in the milk, bread, funeral home, and liquor industries. His name did not really hit the headlines, however, until he prosecuted the murderers of Arizona Republic reporter Don Bolles in 1976. Like Babbitt, Bolles was investigating the role of organized crime in land fraud. On June 2, 1976, his car blew up. When Babbitt's name turned up on the accused murderers' hit list -- for his role in prosecuting organized crime -- he became something of a hero.

One March morning in 1978, Babbitt awoke to discover that he was governor. Raul Castro, the governor, had resigned to become ambassador to Argentina, Lt. Gov. Wesley Bolin, who succeeded Castro, had died. The secretary of state was appointed, not elected, hence she could not assume the post. Babbitt was next in line.

Raising Arizona

To appreciate Babbitt's capacity for leadership it is important to understand the weakness of the governor's office he inherited. Arizona was perhaps the only state in the union in which a governor would consider the ambassadorship to Argentina a step up. State government was run by a small group of senior legislators and their staffs. The governor, who had virtually no staff, was brought out largely for ceremonial occasions. The notion that a governor might try to set an agenda for the state, or dare to veto a bill, never crossed most politicians' minds.

Babbitt immediately set out to change that. Six weeks into his term he vetoed two bills on the same day -- then timed his veto message for the evening news, knocking the wind out of a planned override. The legislature reacted with shock. "Our idea of an activist governor was one who met with us once a month to seek our advice," said Gutierrez, the former senate minority leader. "This guy called us daily to tell us what he wanted to do."

Babbitt vetoed 21 bills in 1979, 30 more over the next two years. "My business friends used to complain that we had a weak governor," says Jack Pfister, general manager of the state's biggest utility, the Salt River Project. "After Babbitt was in two or three years, you never heard anybody complain about that again."

In his second year as governor, Babbitt tackled the issue that dwarfs all others in Arizona: water. In the desert, water is life. Boston gets 44 inches of rain a year; Phoenix gets seven. By 1980 Arizonans were pumping almost five million acre-feet of water out of the ground a year -- nearly twice the amount nature was putting back in. (An acre-foot is enough to cover one acre to a depth of one foot.) In central Arizona, where most of the people live, groundwater levels were dropping ten feet a year. Huge fissures -- up to nine miles long and 400 feet wide -- had begun to open up in the parched ground.

Incredibly, farmers were consuming 89 percent of the water. This was a desert state, in a nation whose farmers produced far more than they could sell. Since the 1930s, the state's political leaders had understood the severity of the problem, but repeated attempts to solve it had come to naught before the power of the farmers and their allies, the copper kings, whose mines consumed another 3 percent of the water.

In 1976, the Arizona Supreme Court forced the politicians to act. The court ruled that a landowner could not transport water from one area to another if by doing so he injured another party -- by lowering the water table, for instance. Had the decision been enforced, it would have shut down the copper mines and threatened the survival of the cities. The effect would have been so devastating that the agribusiness that had sued -- and won -- chose not to seek an injunction to enforce the decision.

In the wake of the ruling, the legislature established a Ground water Management Study Commission, whose members were divided meticulously between the cities, the mines, and the farmers. It gave the commission unusual powers: if the legislature failed to pass a groundwater depletion bill by September 7, 1981, the commission's proposal would automatically become law.

The obvious rational solution was to cut back agricultural irrigation. The Arizona Water Commission (AWC), a public planning body with little power, recommended that the state buy agricultural land and take it out of production. While this may have been the simplest solution, it failed the basic test of politics. Representatives of the cities and mines had no interest in taxing the public to pay off the group they believed was responsible for the problem. "We're not going to buy farms so that farmers can move to La Jolla and raise martinis," the two mine representatives announced.

Another simple solution would have been to allow all groundwater rights to be bought and sold, to let supply and demand drive up the price, and to let the market ration water. This approach also flunked the test of politics: it would have quickly bled dry the rural areas to benefit the more prosperous cities. After two years, the commission remained deadlocked. Finally, in November 1979, it asked the governor to mediate.

Babbitt agreed. Fox six months they met in a Phoenix conference room, working six and seven days a week, often into the night. They agreed that whatever compromise they reached would be final; no amendments would be allowed by the legislature. "Everybody realized that this was last-ditch effort," says Kathleen Ferris, a young lawyer who directed the commission staff and later ran Babbitt's Department of Water Resources.

Babbitt took the easy issues first. He allowed every issue to be discussed an interminable length until a consensus emerged. If none did, he deferred the issu eor assigned it to a subcommittee. He took no votes. He made sure each of the three interests -- the cites, farmers and mines -- won their share of concessions. And he waited. "I don't think I've ever seen a politician so patient," says Ferris. "He was absolutely willing to outwait everyone."

Much of Babbitt's leverage resided in his mastery of the enormously complex issues at stake. According to participants, he new more about the intricate details of the plan that anyone else in the room. "The first thing you learn when you're negotiating is if you don't keep on top of the details, you lose your leverage to really make

"Babbitt played it on the precipice," said a state senator. "He was constantly pushing this state forward, and he has an uncanny ability to pull it off." things happen," says Babbitt. "All I ever learned in a big law firm was, the power is in the hands of the draftsmen....As the architects say, God resides in the details."

As time wore on and the three power blocs each extracted significant victories, they slowly developed in investment in the project's success. When the toughest issues finally came to a head Babbitt drew on this investment to impose what he thought were the fairest solutions.

In March, the group came to agreement on general principles. They chose a system with strong state regulation, combined with a limited marketplace in which groundwater rights could be bought and sold. The central feature was a requirement that each of three urban "Active Management Areas's -- the water basins in which most of the state's groundwater was consumed -- adopt a series of increasingly stringent ten-year plans, so that by the year 2025 the state's residents would pump no more water out of the ground than was returned.

One issue threatened to derail the consensus. The group had earlier voted to ban new development in an Active Management Area unless it could demonstrate a 100-year "assured water supply." Now the cities insisted that they should be exempt. If this were done, developable land inside city limits would be far more valuable than land outside city limits. The farmers, who owned most of the developable land outside the cities, naturally objected. The commission was deadlocked.

Babbitt had called a special legislative session to pass the law. When the deadline for printing the bill approached, he announced a week's postponement. Seven days later the deadline loomed again. Babbitt refused to postpone the session a second time. At 2 a.m. on June 2, 1980, with no resolution in sight, Babbitt brought the negotiations to a close. He announcedd to the press that he would not allow one issue to jeopardize the entired bill. He then huddled with representatives of the cities, who insisted that their bottom line was a 50-50 compromise in which the rule would not apply within the city limits until 2005. Babbitt accepted the compromise, forced the other participants to agree, and pushed the bill through the legislature without amendment.

It was an enormous political coup for the young governor. The participants agreed that without Babbitt, they would never have succeeded. Where others had tried and failed for 40 years, Bruce Babbitt had cut the Gordian knot.

More bang for the buck

If it seems surprising that the nation's most conservative state has some of its toughest environmental laws (including one of the strictest water quality laws in the country, pushed through by Babbitt in 1986), it is doubly surprising that Arizona boasts some of the nation's most experimental social service delivery systems. In both cases, necessity was the mother of invention. While a shortage of water forced stringent controls in a laissez-faire state, a shortage of money forced creativity in the social arena. When Arizonans elected a former War on Poverty activist as governor on the same day that they passed a state constitutional amendment limiting state expenditures to 7 percent of personal income, creativity kicked into high gear.

During the early seventies, the state hardly delivered any services beyond those required by the federal government, such as Aid to Families with Dependent Children (AFDC), unemployment compensation, and food stamps. As Babbitt increased social spending, the state faced a choice: it could expand the state bureacracy or it could push more and more service delivery into the nonprofit sector. Babbitt and the legislature chose the latter path. Rather than relying on a state bureaucracy to deliver meals on wheels or to prevent child abuse or to provide drug and alcohol abuse programs, the state signs roughly $280 million a year in contracts with organizations such as Chicanos por la Causa, the Urban League, Catholic Social Services, and scores of smaller groups.

"Privatization" of government services -- turning them over to for-profit corporations -- has been widespread during the 1980s. Arizona's strategy, in the social services arena, is fundamentally different: it relies on nonprofit, community-based organizations. The idea is to get not only more bang for th buck but more compassion and more commitment for those delivering the services. It also seeks to promote competition. In a rapidly changing society, the diversity and flexibility of community organizations provides a tremendous advantage over large government bureaucracies.

One example of the new trend is Chicanos por la Causa (CPLC), a community development coporation set up by the Ford Foundation in 1969 to empower the huge Hispanic population of South Phoenix. In its early days, CPLC was more a militant advocacy group than anything else. It still plays that role, but now it has 127 employees, a $4.2 million annual budget, a for-profit real estate subsidiary, a revolving loan fund, nonprofit housing development projects, and a key role in developing a $15 million "mercado" -- a traditional Mexican marketplace -- in downtown Phoenix.

What is most unusual about CPLC is that half of its budget comes from social service contracts with the city and state. CPLC provides job training, counseling services, daycare centers, meals in schools, training programs for unwed mothers, services for the elderly, a shelter for victims of domestic violence, and alcohol, mental health, and drug abuse programs. "The advantages are that you bring services down to the local level, you get the community involved in the project," says Pete Garcia, CPLC director. "Rather than the bureaucracy, it's the community saying we're going to do what we think our community needs."

Arizona has contracted with community groups not only to run social programs but also to act as administrators -- to award contracts and supervise programs. According to Garcia and others, the new "administrative entities" are far more responsive to the needs of local community organizations than were the old state administrators. "We don't look at them as community groups that want to help."

Babbitt not only pushed social service delivery into the community, he brought new social issues to the fore. He shocked his aides, for instance, by devoting his entire 1985 State of the State address to children's issues. He also took the press and the public by surprise. In an editorial headlined: "Babbitt's Dish of Quiche," the Arizona Republic complained that Babbitt was ignoring the "meat and potatoes" of state government -- roads, prisons, and water -- to talk about quiche. But the speech generated to tremendous amount of attention, and Babbitt eventually got the majority of what he wanted from the legislature. The new items included health coverage for all poor children under six, a new Governor's Office of Children, more money to enforce child support payments, and $7 million to expand the Child Protective Services Program, which contracts with nonprofit organizations to help families in which child abuse is suspected.

Babbitt's top priority, however, was expanding daycare. The state already had a modest subsidy program for poor families, but statistics showed huge gaps in the availability of day care. When Babbitt sought a tax credit of about $200 per family for day care, the legislature refused to pass it. Without public money to spend, Babbitt concentrated on getting the private and nonprofit sectors to respond. He gave speeches about child care, sponsored a conference for corporate CEOs on daycare, appointed to task force and held a conference on latch-key children, and urged local YMCAs, churches, school districts and the like to open after-school facilities. Babbitt claims that over the next year more than 100 programs were launched, and most observers support his contention.

Essentially, Arizona is doing in social services what several other states have done in economic development: using the public sector to define the problems, but relying on nongovernmental institutions to tackle them. This means relying not on the private sector, as Ronald Reagan would, but on a "third sector" of nonprofit and community organizations. The third sector is more effective than the private sector precisely because its goal is to solve social problems, rather than to make money.

Because he understood the difference between a third sector strategy and privatization, Babbitt was careful to stay clear of rhetoric about privatization. "I've had some bloody fights over the limits of privatization," he explained. "We have a legislature here that would contract out the governor's office if it could. And what we've learned is this: the contracting out of definable tasks is easy and important and we've been relentless about it, we've gone much further than many states. But the notion that social services can be bid out to the profit-making sector needs a lot of care. I successfully resisted for nine years the notion that you can bid out the most difficult and dangerous social service job of all, which is running the prisons. (Babbitt twice vetoed bills allowing private companies to build and operate prisons.) I just don't believe in it."

A political fat baby

The real lesson came in health care with the development of the Arizona Health Care Cost Containment System. AHCCCS was the most redical experiment in Medicaid history, and despite a disastrous beginning and continuing problems it has proven a success. It has pioneered a model of providing health care for the poor that offers hope of taming the rampant inflation that has plagued Medicaid and Medicare.

When the federal government created Medicaid in 1965, promising to underwrite at least half the cost of health care for the eligible poor, 49 of 50 states quickly signed up. The 50th was Arizona. As in the most other states in the pre-Medicaid era, Arizona's county hospitals provided health care to the poor. By the 1970s the task consumed 25 percdent of county revenues; several counties faced bankruptcy by 1981. Reluctantly, the legislature bailed them oput and began serious consideration of a Medicaid program.

Medicaid has traditionally reimbursed private physicians for the care they provide the poor on a fee-for-service basis -- meaning that the doctor charges a fee for each separate service, whether a flu shot or an appendectomy. The more the doctor does, the more he or she is paid. But by 1980 the fee-for-service system was under serious challenge from a wave of health maintenance organizations (HMOs). HMOs receive set monthly fees from their clients; in return, they provide all health care, no matter how sick the client gets. Thus an HMO maximizes profits by cutting out unnecessary procedures, while a fee-for-service physician of hospital maximizes profits by expanding services. Where enough HMOs have entered the medical marketplace they have introduced fierce price competition.

In 1979 and 1980, Babbitt proposed that Arizona contract with existing HMOs to provide medical care for AFDC recipients in the Phoenix and Tuscon areas. The legislature ignored his proposal both times, but when the crunch came in 1981, they decided to explore the concept.

Republican legislature leaders designed AHCCCS, with some input from their Democratic counterparts. Babbitt's only role was to veto their first bill because it had not been approved by Washington and would therefore receive no federal funds. As ultimately passed, the system was to be run by a private firm on a contract with the state.

The legislature's first mistake was rushing AHCCCS into operation less than 11 months after the act was signed. The second mistake was choosing a firm that had no experience with HMO-based health care systems: McAuto Systems Group, Inc. (MSGI), a subsidiary of McDonnell-Douglas. To take but one example, MSGI's computer system was 15 years old. McAuto had to fly the tape back to St. Louis once a week to be read by its computer. Half the names would be rejected because the computer programs didn't quite match up, leaving thousands of people without health care.

Of 16 original health care providers under AHCCCS, three went bankrupt and two others were sold tod their creditors for one dollar. Part of the problem was corruption; part of it was poor design and execution on the state's part; and part of it was a decision by the state administrator (under pressure from the legislature) to force bids down as low as possible.

"(MSGI) succeeded in discrediting and destroying the program within 12 months," says Babbitt. "It was an unbelievable mess, the reverberations of which are still going through the courts in this community. It was a very sobering lesson."

By 1984, AHCCCS was a serious black eye for Babbitt and Republican legislative leaders, who of course blamed each other. All along, the Republican leadership had been making the political decisions that guided AHCCCS. Finally, in the spring of 1984, Babbitt offered to take over if they gave him the money and the legislative changes he needed. They readily agreed. According to knowledgeable observers, the Republicans believed the program was such a mess that Babbitt could never set it right. They saw it as a political tar baby.

Soon thereafter the state refuse to pay McAuto's latest overcharge and McAuto walked away -- both parties charging breach of contract and filing suit. Babbitt fired the director of his Health Department and demoted his AHCCCS director. He hired Donald Schaller, a respected physician who had founded Arizona's first HMO, to run AHCCCS as a department of state government. Schaller started virtually from scratch, installing new financial and data systems. AHCCCS had run up a $65 million deficit, and Babbitt spent close to double that to save it.

There are still major problems stem from the fact that so many of the poor are not eligible for AHCCCS -- which in turn reflects the legislature's habit of pinching pennies. Babbitt's preferred solution was to make everyone up to poverty line eligible for AHCCCS.)

It is impossible to tell whether the program is saving money, because there was no previous program with which to compare it. But based on several studies, the experts generally believe that the HMO system has kept costs lower than they would be under conventional Medicaid.

What can one conclude form Arizon's travails with AHCCCS? Surprisingly, a clear consensus exists: Arizona has shown that HMO systems for Medicaid make sense. Roughly 30 states are trying some kind of HMO program. Experts believe that Arizona has pioneered a model that will succeed in controlling Medicaid costs.

Holding highways hostage

Arizons's phenomenal growth created little pressure on Babbitt to focus on economic development. The only pressing economic problem he addressed in any comprehensive way, aside from water, was the state's higher education system.

The most pressing problems involved Arizona State University's engineering school. The major college in the Phoenix area, ASU was known for big-time sports and big-time parties. Playboy once named it the nation's number one party school. As the Phoenix area's high-tech industries boomed, they began having trouble recruiting engineers -- many of whom wanted to update their education every three to five years to remain on top of their fields -- because of the engineering shool's poor reputation.

In 1978 industry leaders created an advisory committee to work with the school and took their case to the governor. Babbitt stole their thunder. "I'm not interested in being behind short-term or small-time budget increases," he said. "Come back to me with a sweeping multi-year program, and I'll support you."

The advisory committee drew up a five-year plan calling for new investments in the engineering school - from industry, from the federal government, and from the state. (Industry raised $18.5 million, the feds contributed about $8 million, and the state provided about $28 million.) With both the governor and the business community pushing the package, the legislature embraced it. Between 1979 and 1984, ASU's engineering school built a 120,000-square-foot research center, installed $15 million worth of new equipment, hired 65 new faculty, moved from $1 million a year in research to $9.4 million, and set up a continuing education program that included televised classes beamed right into local plants and offices. In 1984, the National Academy of Sciences ranked ASU's Mechanical Engineering and Electrical Engineering departments second and third in the nation in improvement over the previous five years.

Throughout this period, Babbitt worked hard to convince the public that investment in its universities was critical. "In earlier, less complex times, universities were nice to have but not essential to economic growth," he said in a 1983 speech. "Universities and colleges are now an economic asset as important to out economic future as copper ore, farms, banks, factories, and airlines."

Babbitt also tackled the state's weak primary and secondary education system. With Babbitt doing much of the pushing, Arizona has raised its high school curriculum and its university admission standards, reformed its teachers colleges, and required new teachers to pass a competency test. It has also partially equalized funding for poor and rich school districts, put extra money into early education enrichment programs, provided free high school textbooks for the first time, and created a loan forgiveness program for college students who become math or science teachers.

Babbitt was an early advocate of merit pay for teachers. The teachers' union opposed Babbitt's proposal, and the legislature ignored it. Instead, it funded pilot "career ladder" programs, which have been far more palatable to teachers, in a number of school districts. These involve a series of three or four steps, beginning with some kind of apprenticeship and ending with "master

Babbitt took on the big issues in Arizona: water, education, and social services. To address those issues, he had to transform Arizona politics. To solve them he had to exert leadership of the most effective kind. teacher" status, in which outstanding teachers spend part of their time helping other teachers improve their performance. With each step up the ladder, a teacher is paid more -- thus introducing some notion of merit into the salary structure.

Career ladders did not solve the basic problem of inadequate pay for teachers in Arizona, however. Raising teachers' salaries was Babbitt's top priority, and in 1985 he saw his chance. The Republicans and the business community had united behind a 20-year, multi-billion dollar highway building program. Because Arizona had stayed out of the federal Interstate Highway program its needs were acute. With 1.5 million people, the Phoenix area had only 17 miles of freeway. Republican leaders were determined to address the problem.

Six weeks before the end of the legislative session, Babbitt began hinting that unless the legislature increased teacher's salaries,he might veto its highway bill. In a special address to the legislature, he laid out his plan for a 10 percent increase in spending on teacher pay and a ballot initiative allowing a 5 percent increase in the constitutional spending cap for education.

The Republicans, who controlled the legislature, scoffed at Babbit's suggestions. But six weeks later, as the session reached a climax, Babbitt got their attention. He announced that he would veto the highway bill they so badly wanted unless they passed his education package, as well as a welfare benefit increase and an assortment of other items. The Republicans screamed that the governor was holding highways hostage -- which was precisely what he was doing. Babbitt held firm: no kids, no concrete

The confrontation played as high drama on the evening news. "He got the public excited," said Gutierrez. "He's a poker player, that fella. Watching him has become a kind spectator sport in this state." When the dust settled, Babbitt had pulled it off. He had to do a little negotiating but he got what he wanted. He also extracted a promise from business leaders to support the ballot initiative, which passed in 1986.

The showdown symbolized Babbitt's entire governorship. "If you look at what I've done over the last ten years," he says, "you will find that in any given year I have selected one or two or three issues and used everything at my disposal -- initiative, referendum, the bully pulpit, the press, brow-beating, trade-offs, threats, rewards -- to get what I needed. My agenda is concentrated and aimed at overwhelming the opposition."

"Veto power like a scalpel"

A great governor of Arizona gets less recognition than a good governor of Massachusetts or New York. But if the question is the significance of the problems tackled and the depth of the solutions provided, Babbitt's record is impressive. Despite his shortcomings in a few areas, such as economic development, he did take on the big issues in Arizona: water, education, and social services. To address those issues, he had to transform Arizona politics. To solve them, he had to exert leadership of the most effective kind.

Even the Republicans acknowledge that Babbitt changed the nature of government in Arizona. "I have to admit he forced us to take on some issues we probably would have preferred to ignore," says Rep. Jane Hull, a Republican who has no love for Babbitt. "I guess in some ways he did drag us kicking and screaming into the 20th century."

Babbitt's decisiveness is associated in the public mind with his independence of political constituencies. The best example was a 1983 copper strike at Phelps Dodge Corporation. When the company hired strikebreakers to keep its mines and smelters running, frustrated strikers gathered at mine gates -- throwing rocks, smashing windows, and threatening those who were taking their jobs. The state police told the govenor they could not handle the situation. Babbitt negotiated a ten-day cooling-off period in which the mine was closed. Negotiations continued, but with no resolution. When the mine reopened, Babbitt ordered 350 Arizona National Guardsmen onto the property to back up the state police.

The National Guard has been used throughout American history to break strikes. To labor, it was a red flag. The copper workers have never forgiven Governor "Scabbitt," as he became known in copper country. Even many of Babbitt's strongest supporters felt that he should have put the Guard at a neutral site, rather than on Phelps Dodge property. But the governor believed lives were at stake, and if the workers stormed the gates, National Guardsmen stationed elsewhere would have been useless. In the public mind, Babbitt had taken decisive action -- and demonstrated his independence from an important liberal constituency.

Leadership is the core of Babbitt's image with the Arizona public. Pat Cantelme, then head of the Central Arizona Labor Council, offered a typical observation after Babbitt's legislative victory in 1985. "He uses his veto power like a scalpel," Cantelme said. "The legislature lines up to beat him, he stays aloof, and then in a week's time at the end of the session, he gets everything he wants. He's made the governor's office today is one of leadership."

Babbitt is a classic example of the new breed of Demmocrat elected in the post-Watergate era. He fits neatly into neither the liberal nor the conservative camp when measured on a traditional political spectrum.

Consider Babbitt's fiscal record. In 1978 he supported a constitutional amendment limiting state spending to 7 percent of personal income; during the 1982-83 recession he pushed through successive across-the-board cuts of 5 to 10 percent in all the state budgets. Both of these actions would qualify him as a conservative Republican, on the traditional New Deal spectrum. On the other hand, he pushed through large increases in spending on social services, health care for the poor, education, and environmental regulation. This part of his record would qualify him as a liberal Democrat.

The same absence of a traditional liberal or conservative pattern emerges on national issues. Babbitt has long called for a balanced federal budget; during his presidential campaign he has spelled out precisely how it should be done. But he has also been the nation's most outspoken advocate of cutting federal subsidies for the affluent, the middle class, and the wealthiest corporations. He first made a national name by campaigning for means-testing of entitlement programs -- specifically, full taxation of social security benefits and imposition of partial Medicare payments for those who can afford them. He as the first Democratic governor to endorse the Treasury Department's original tax reform bill, the most radical of all the proposals to withdraw tax subsidies from the wealthy and big business. Babbitt talks about all this in very populist terms: he wants to take from the rich to to preserve programs for the poor.

"It's a very differnt thing," says Babbitt, referring to his politics and those of like-minded governors. "We are, in a philosopical sense, conservative in two areas. One, we really do worry about what percentage of the GNP you can fairly devote to government. And some of us, perhaps myself more than others, are conservative in the sense of caring very deeply about what level of government does what. A few of us really believe that these accountability issues are tremendously important."

Babbitt believes he and other Democratic governors have been successful during the Reagan era for two reasons. "First, we have manifested our concern for economic growth -- we are absolutely perceived as being growth-oriented. Second, on the fiscal side, we are seen as people who are really willing to wrestle with this issue of governmental limits, to try to lay out priorities and order our requests so that things balance out. In every other respect, we share the agenda.

"The voters know I'm a fanatical environmentalist, but it's okay, because they don't perceive me as antigrowth. They perceive me as a liberal on all the traditional social issues, but again, it's not important, even if they don't agree, because they are reassured by the sense of some fiscal limits. We have gone beyond a lot of the issues that used to give rise to these left/right characterizations."

Babbitt once described his politics as "radical centrism." The thesis is that voters no longer want traditional liberal or conservative ideology, but they do want radical action that will cut to the heart of the nation's problems. In a sense they want a leader like Franklin Roosevelt -- nonideological, thoroughly experimental and pragmatic, but in the end radical because of the fundamental nature of his reforms. Though he lacks Roosevelt's communication skills, Babbitt has demonstrated that -- at least at the state level -- he can be that kind of leader. through loud and clear: raise teachers salaries, yes, but first get rid of incompetent teachers,

It is difficult for an outsider to understand what a serious problem teacher incompetence was in Arkansas. Clinton's Education Reform Commission was deluged with horror stories about poor teachers, complete with letters teachers had sent home full of spelling and grammatical errors. Failure rates of National Teacher Exams, taken by teaching applicants, were over 50 percent at some teaching colleges.

To deal with the problem, Clinton required all teachers to pass the eighth-grade-level competency test in reading, writing, math, and the subject matter they taught. Many teachers felt the governor was using them as scapegoats. By forcing them to take a test, they felt he was accusing every one of them of being ignorant and incompetent.

His teacher competency test overshadowed all of Clinton's other reforms. The struggle over these tests became a battle between the governor and the state's largest union, the Arkansas Education Association -- a battle that symbolized the growing conflict between the public interest and the most powerful Democratic interest groups.

In 1983 the National Education Association publicly condemned Clinton and called on a wide array of Democratic Party, labor, and civil rights leaders to lean on the governor. Two years later, in an effort to repeal the testing bill, the union brought thousands of teachers to the Statehouse lobbying day the Little Rock schools had to shut down.

The AEA twisted enough arms to push repeal through the House, but Clinton went over the politicians' heads. He put an ad on radio asking people to call their legislators. "It was a madhouse," said one state legislator. "The telephone switchboard was on from dawn to midnight." The repeal died in the Senate.

Once he had won the competency test battle, Clinton implemented the rest of his reform program, lengthening school days and forcing schools to improve their curriculum. His real achievement was less the specific reforms, however, than the fact that for four years running he made education the foremost issue in Arkansas politics. To a remarkable degree, he succeeded in changing the way Arkansans thought about education.

A classic new paradigm liberal, Clinton has clearly struck a chord within an electorate that believes traditional approaches have failed. "We must understand that the established dogmas of both national political parties are inadequate to the needs of the present," Clinton said in his 1985 inaugural address. Summing up the political synthesis which he represents, Clinton said, "We may want the government off our backs, but we need it by our sides."

This year may be too soon for the politics of governors such as Babbitt, Clinton, Kean, and Thornburgh to go national, but 1992 may be just right.

The same dynamic occured during the last great economic upheaval. As Franklin Roosevelt once said of the New Deal, "Practically all the things we've done in the federal government are like things Al Smith did as governor in New York." Just as the state and local progressivism of this century's first two decades foreshadowed the New Deal, the state and local experimentation of the 1980s may foreshadow a new national agenda. Already the themes that have dominated state politics in the 1980s -- economic competitiveness and excellence in education -- are emerging as major themes in the 1988 presidential election.

The new politics is not confined to the Democratic party. Republican governors such as Pennsylvania's Richard. Thornburgh and New Jersey's Thomas Kean have been saying remarkably similar things. Kean identified the priorities of his second term as jobs, environmental protection, and education reform. When I asked Thornburgh what the next president's priorities should be, he talked about education reform, job training, and new partnerships between the federal government and business.

Another governor who seems to break the traditional political mold is Chuck Robb, the former governor of Virginia. In 1987, Robb called for Americans "to negotiate a new social contract." He said, "(This) means the end of an aristocracy of management and the beginning of a democratic capitalism characterized by a new egalitarian ethic in the American work place."

These are not the words of a moderate, which is how the media has labeled Robb. These are radical words that do not fit the old categories. One can only make sense of them, in ideological terms, by placing them within the new paradigm.

Governors such as Robb, Babbitt, Kean, and Thornburgh have had the political courage to put the public's general interest above the specific interests of their own constituencies. When necessary to reform basic systems in education, transportation, welfare, and the like, they have been willing to take on their own supporters. Perhaps the best example is Bill Clinton of Arkansas. In 1983, Clinton launched a full-scale effort to improve the Arkansas educatin system. To do so, he had to take on one of his most loyal. allies -- the teachers union.

When Clinton came into office, Arkansas was last in the nation in education spending per child, in teacher salaries, and in percentage of college graduates. During his first term, in addition to raising spending on elementary and secondary education by 40 percent, hiking teacher salaries, and requiring new teachers to pass the National Teacher Exam, Clinton introduced standardized tests to measure the performance of public school students.

The standardized tests showed just how bad the school were. On the first test, fourth graders scored in the 44th percentile. Eighth graders scored in 38th percentile. The longer they had been in school, the worse Arkansas students did. As Clinton pursued his reforms, one issue came

...And in Little Rock, Trenton, and Richmond

Bruce Babbitt has not been alone in proposin innovative solutions to a state's problems. The 1980s have been a decade of enormous innovation at the state level. In the past 10 years, state governments have created well over 100 public capital funds to make loans to and investments in business. At least 40 states have created programs to stimulate technological innovation, which now number at least 200. Dozens of states have overhauled their public education systems, Several have reformed their welfare systems as well, an effort that is spreading rapidly.

Why this sudden burst on innovation? Just 25 years ago, state governments were widely regarded as the enemies of change, their resistance symbolized by George Wallace standing in the schoolhouse door. The answer has to do with the profound and wrenching economic transition the United States has experienced over the past two decades. The U.S. economy has evolved from one built upon assembly-line manufacturing in large, stable firms to one that is rapidly changing and knowledge-intensive.

When an economy goes through such a transition, it throws up a series of new problems. So far, the federal government has failed to respond. Jimmy Carter was elected just as the public began to sense that something had gone wrong with the American economy. Like other national politicians of his day, he perceived only dimly the realities of the new economy. Ronald Reagan owed his election to the deepening economic crisis, but his solution was to reach back to the free-market myths of the pre-industrial era.

Most governors have not had that luxury. When unemployment approached 13 percent in Massachusetts, or 15 percent in Pennsylvania, or 18 percent in Michigan, the governors could not afford to wait for the next recovery or evoke the nostrums of free-market theory.

Instead, governors have offered solutions that are not only creative but are also difficult to place on the traditional political spectrum. In essence the governors are creating a new political paradigm, a post-New Deal, post-Reagan politics, appropriate to the new challenges of the post-industrial era.

If the new paradigm can be described in a nutshell, it focuses on economic development. Given the tight fiscal climate of the 1980s, the new breed of governors is loath to create programs that spend money in the traditional ways. But they are willing to invest in education reform, economic development, and welfare reform. Their method is to create new public bureaucracies to solve problems, as traditional liberals would, nor to destroy them as conservatives would. They attempt to use government's leverage to change private sector behavior in ways that solve problems.

PHOTO: David Osborne writes about political and economic affairs. This article is adapted from his book, Laboratories of Democracy, which will be published in May by Harvard Business School Press. (c) 1988 by David Osborne.
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Title Annotation:includes related article on other state governments
Author:Osborne, David
Publication:Washington Monthly
Date:Feb 1, 1988
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