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An Interview With

H. D. Palmer
June 21, 2007




Arnold Schwarzenegger has more name recognition than any other current Governor. More important, he is now considered to be one of the most effective leaders any state has seen in recent history. This month he can be found on the cover of Time magazine with New York City Mayor Bloomberg, and for good reason. To learn more about what he is doing, I approached one of his closest advisors.

In 2003, then Governor-elect Schwarzenegger appointed H.D. Palmer to be his deputy director of the Department of Finance. Mr. Palmer is a graduate of the University of Maryland and previously worked in the offices of U.S. Senators S.I. Hayakawa, John Seymour, and Jim McClure. He was also the former policy director for Idaho Governor Kempthorne.

"We need to be able to reach beyond what our traditional political ideologies have been and stay true to them, but still be able to try to work across party lines for the greater good."- H.D. Palmer, speaking of Governor Schwarzenegger's philosophy



Earlier this week the Governor said, “We need to find new ways of doing the people’s business.” You work closely with the Governor. What do you think he means?

Mr. Palmer:

I think what the Governor means is that what he calls a post partisanship in that we need to be able to reach beyond what our traditional political ideologies have been and stay true to them, but still be able to try to work across the party lines for the greater good.

I’ll give you a couple of cases in point. Last year was an election year and Governor was up for re-election coming off a very unpopular 2005. Yet for the first time in six years the Governor was able to sign the state budget, arguably the most important thing that people in this building do, on time by the June 30 th fiscal deadline; first time it had happened in six years with Republicans and Democrats cooperating to do things.

There were also major proposals that the Governor could put forward on investment and infrastructure and multi-billion dollar bond packages to build and refurbish schools, to improve the state’s transportation system, to improve the availability and affordability of housing, to improve our levy system in the state.

Again, problems that had been intractable for a number of years. The Governor was able to say, “Look, we can be true to our ideologies, but we can also work together and if we compromise and really have a spirit of cooperation we can get stuff done.”

Republicans and Democrats worked together, got these measures passed, put them on the November ballot and they were overwhelmingly approved by the people.

What you saw there was that not only did the Governor’s approval ratings go up, but the Legislature’s approval ratings go up because I think that people saw that when Republicans and Democrats in Sacramento weren’t fighting and weren’t acting like we’ve seen happen in Washington, D.C., they’re going to give the people in charge their support.

So I think that’s what the Governor was talking about saying we can still be true to our parties, whether we’re Republican or whether we’re Democrat, but we can still be able to work across the party lines to be able to try to get things that are accomplished for the good of the people in this state no matter what their political affiliation is.

As the Governor said there is not a Republican school or a Democrat school; there’s not a Republican road or a Democratic road; there’s not a Republican levy or a Democratic levy.

These are things where we ought to be able to work across the aisle and get the people’s business done. That’s what I think the Governor was talking about.


California is showing its muscles by investing three billion dollars in medical research. This week in Time Magazine the Governor was quoted as saying, “We’re showing how powerful a state can be.” Can you tell me where the money will go and describe the stem-cell research partnership.

Mr. Palmer:

Well, what the Governor is talking about is a bond measure that was passed in 2004 that provides up to three billion dollars in bonds that are going to be approved by the state for embryonic stem cell research. The Governor believes very strongly that California should be at the forefront of this medical technology and this medical research that holds, in the Governor’s view, a great potential to be able to solve a good number of illnesses.

He also from his personal life has seen with his in-laws, Sargent Shriver, the former head of the Peace Corps, former vice presidential candidate, who was suffering from Alzheimer’s. Embryonic stem cell research, according to many of the researchers, holds out a possibility for being able to address that crippling disease.

So, the Governor for a variety of reasons believes that we should move forward and be a leader not only in the nation, but in the world in terms of developing basically a core of research capability in this state for embryonic stem cell research, which is why he came out and supported the bond measure.

Now there is an institute called the California Institute for Regenerative Medicine, or CIRM, that is going to be basically the clearinghouse that is handling the distribution of those bond funds and the application by different research individuals and organizations. So there is a system that is set in place that is going to be handling those.

The Governor believes right now that one of the things that happened is that because we have such a strong university system and strong entrepreneurial system is the reason why Silicon Valley became the computer and software oven in the nation and world. It’s not accident that Google came out of Mountain View and not Manhattan, Kansas.

The Governor believes that with our strong research capabilities, with our strong university capabilities and with our entrepreneurial spirit in this state and with this capital being put forward, we can again as he says, lead not only the nation, but the world in this very promising medical technology.


Do you think California could be the next Silicon Valley for medical research?

Mr. Palmer:

It may very well be we will see that happen. Another area where the Governor thinks we could be the next Silicon Valley is in environmental technology, in so-called Green technology. In California last year the Governor worked very hard with Republicans and Democrats to pass a bill called AB32, which is designed to limit greenhouse gas emissions.

The Governor talks about this a lot. In fact he’s flying this weekend to go to London to meet with outgoing Prime Minister Tony Blair to talk about this issue, where he has a partnership with Prime Minister Blair.

Everyone is taking a look at the kind of technology firms that are trying to help reduce the carbon footprints of businesses and organizations. They refer to it and as the Governor refers to it like this could be the next gold rush in terms of this technology, which is why as the Governor said, “We’re not going to wait for Washington to deal with a lot of these pressing problems. We as states are going to move forward. We’re going to be leaders.”

Not only is that something where we believe we’re going to lead in terms of being good stewards of the environment, it benefits the state’s bottom line because we could be the, again, the birthplace of a lot of these firms that are going to be developing these technologies that are going to reduce greenhouse gases.

If you look at Hewlett-Packard, for example, the computer firm, it was first started out at William Hewlett’s garage down in the south Bay Area and now it’s this worldwide, gigantic computing firm.

No reason why one of the great environmental technology firms of the 21 st Century could be starting in somebody’s garage here in California and that’s because we as a state, with the Governor working with the Legislature, have decided to be leaders and not followers in this type of technology.


When the Governor took office the deficit was over 16 billion. In less than four years the deficit has been cut to 1.4 billion. At the same time, you are addressing an aging infrastructure with your strategic growth plan. How are you doing this?

Mr. Palmer:

Well, you’re absolutely right. Right before the Governor took office when I was his transition spokesman, we had an outside independent audit of state government finances. They had projected that if there was no change in the state spending practices, if there was no changes in the state’s revenue projections or our economic projections that the gap between spending and revenues in the current fiscal year that we’re in right now would be 16 and a half billion dollars. So, what did we do.

We went to work and started to control the rate of growth in spending, the Governor took some steps on the economic side to try to improve the state’s business c limate by overhauling and reforming the state’s Worker’s Compensation system and trying to help spur more economic growth in the state.

As he has said, it’s kind of like triage in terms of what he inherited; in terms of the state’s fiscal situation. You had to stanch the bleeding, you had to stabilize the patient and then you had to get it on the road to recovery. We think that’s what we’ve done. We still have a number of challenges to do, but we’ve taken the deficit and cut it by nearly three-quarters in the last four years.

As for how we’re going to do that and still move forward on the infrastructure package, what we have proposed and what the voters have passed the first wave of in the strategic growth plan are bonds; those are bonds that are paid over a 30-year period; much like a home mortgage is.

So, what we have to do is continue to be vigilant from a fiscal standpoint in terms of not growing the state at a rate that’s not sustainable; to try to keep spending fairly in line with the amount of revenues that we take in and not repeat the same mistakes that got us into this problem in the first place.

Because what happened was, if you go back to the year 2000, when the dot com boom was in full flower, revenues were pouring into California because stock options and capital gains were taxed as personal income tax. A lot of the wealth that was coming in from the dot com boom was in capital gains and stock options. So, Sacramento was rolling in dough. The Governor at the time, Mr. Davis, and the Legislature said we’re on Easy Street.

They started a lot of new programs and expanded existing ones. Things were fine for a couple of years. But in 2001, when the dot com boom started going spectacularly bust and those one- time revenues started to evaporate, you still had that ongoing base of growing state government spending. That’s really what created the structural deficit that we’re still trying to close today. So, we don’t want to go back to those days.

I think it’s fair to say that the Democrats in the Legislature don’t want to do that either because they realize that if we don’t control the rate of growth and spending and if we went back to doing that, then we’d have to make some very deep and severe reductions in programs that are very near and dear to their heart in the health and human services area and that the Governor cares about as well. So we don’t want to make that same mistake twice.

So, we’ve been able to make that steady progress in reducing our operating deficit. We still have work to do, maintaining our control over the growth and spending. We must make some smart choices and make sure that we don’t do things to damage the economy and damage the revenue that comes from that. We think we’re on the right path.


You have used a quote from former President Reagan, “Trust but verify. Still play but cut the cards.” What’s the message and how can we apply this on a national level?

Mr. Palmer:

I’d say that in terms of a national level, measure your representatives by their performance. As I said earlier, one of the reasons that in the public opinions survey that you see that the Governor’s approval ratings and the Legislature’s approval ratings have gone up is that he and they have demonstrated that they’ve got a record of accomplishment, that they can still be true to their political affiliations, but they can still work together for the common good, whether it was the budget, whether it was the strategic growth plan, whether it was landmark legislation or global warming, whether earlier this year it was passing a measure to deal with our prison crisis in California.

We’ve shown that we can work together and cross party lines to do something that is supported by people in this state regardless of their political affiliation.

The same should hold true in Washington the Governor believes. That we should expect and demand that they do the people’s business, that we start working across party lines for the common good.

Too often we’ve seen gridlock; we’ve seen partisanship of the worst kind in Washington, in the Governor’s view. That has stymied progress on a lot of different fronts.

One of the things that’s currently at the risk of falling by the wayside is probably one of the most important domestic public policy issues in the country and probably second only to the war in Iraq in people’s mind and that is what are we going to do about immigration in this country.

Up until a week or so ago it looked liked partisan politics was going to derail any effort to be able to get to some type of a compromise. Now it looks like it may come back, but people should hold their representative’s accountable for what they do and what they don’t do. Press them to do the right thing, but make sure that they follow through.

If you take a ball player and if they’re a pitcher, measure them by their ERA and their win-loss record. Take a good hitter and measure them by their batting average and their on base percentage.

The same thing ought to hold true for elected representatives. They can be good people and that’s great, but what’s your record of accomplishment, what have you done to move the ball forward, what have you done to make a difference in people’s lives.


With 6.5 million uninsured, roughly 20 percent of the non-elderly, health care reform is at the top of the Governor’s agenda. Can you explain the steps you are taking to make insurance accessible and affordable to everyone and then eliminate the 14 billion hidden tax paid by the private sector?

Mr. Palmer:

A little bit out of my field, but I’ll try to give you a general response. This is another area where the Governor says we shouldn’t be waiting for Washington to solve this problem. We ought to be a leader on it.

The Governor believes that we’re already paying a hidden tax in terms of what our health insurance premiums are costing for things like care that’s being provided to individuals in emergency rooms, which is far, far more expensive than being able to have clinic based care. So, the Governor believes that we need insurance everyone, for the people who are on the margins economically, whether or not they can afford it.

The Governor believes we need to get beyond some of the old debates on this and say how do we work about getting a plan together that deals with getting insurance for everyone. So there’s a lot of discussion, a lot of ideas that are being debated. The Governor, as soon as he’s done with the budget, really wants to focus more heavily on health care and try to be able to get the kind of consensus that we saw happen on the budget, on the bond measures and things of that sort.

So the chess pieces I guess are on the table is one way to put it. The Governor’s a big fan of playing chess a lot so that might be a good metaphor here.

So he wants to try to see if we can work with the legislature and with the interest groups to say how do we put together a compromised plan that nobody is going to love in its entirety, but gets us to where we want to be to get coverage for Californians.

So, while I’m not an expert on the health care debate itself, that’s just from kind of a 50,000 foot level. I think that’s where he wants to go.


You mentioned the California prison crisis, but it is estimated that over 60,000 prisoners will be out in the next three years. What can be done to help them and stop the revolving door?

Mr. Palmer:

Before the Governor took office it was known as the California Department of Corrections. The Governor renamed the department and put an R at the end of it – the California Department of Corrections and Rehabilitation.

It wasn’t just a semantic or a PR move on his part. He very strongly believes in the concept of rehabilitation because as you said, a number of these people once their sentences are done, are going to be back out.

What do we do while they’re in the facilities to try to get them some of the skills and the treatments so that they don’t re-offend, they’re not recidivist. They don’t come back for a second or a third or a fourth trip in government sponsored housing.

One of the things that has been an impediment in our ability to do that is space. We haven’t built prisons in this state in more than 20 years.

So what’s happened is that almost every square foot of space within our prison system is used to house inmates. They’re double bunked; they’re triple bunked; they’re in gymnasiums; they’re in day rooms. They’re almost stacked like cord wood. It’s a huge public safety problem there just to have that many individuals in that small a space. It’s a miracle that we haven’t had major prison riots of the kind like Attica in the 1970’s.

So in order to be able to provide those types of rehabilitation services, you’ve got to actually have the square footage to do it. So one of the reasons that the Governor wants to build more prison facilities isn’t just because we like building prisons. We want to do it for a couple reasons. One, we don’t want to have a federal judge come in and say you’re out of compliance. We’re going to have a court ordered cap on how many prisoners you can have in the system, which means bad guys either get let out early or bad guys aren’t let in and they’re out on the street. There’s a very big public safety issue.

The other reason, very important in the Governor’s mind is we actually need more space within our prison system to be able to provide these types of services, whether it’s job training, whether it’s substance abuse treatment, whether it’s different social skills that people need to be able to cope and survive and hopefully be productive members of society once they’ve served their time and once they get out.

So part of the, what was called 8900 that was passed earlier this spring has not only the new construction component to it, but a significant amount of money, several tens of millions of dollars, that’s going to be earmarked specifically for rehabilitation programs. So, it’s not an issue of we want to coddle inmates or something like that. It’s not a question of just we want to build places to house more prisoners.

We physically need both the space and the dollars to provide those kinds of rehabilitation services so that when these guys get out, hopefully they won’t return to their old ways, that they won’t go back to the gangs, that they’re going to want to go back and be good members of the community.


And not having the revolving door affect.

Mr. Palmer:



Could you briefly review the Governor’s reform package for education and specifically address the EnCorps program?

Mr. Palmer:

EnCorps is something that the Governor is very much interested in pursuing because we have a number of individuals who are in the private sector who have years of skills in their particular field. What the Governor would like to do is to say let’s use, particularly if they’re getting ready to or if they want a career change or if they’re thinking of retiring, let’s not lose that brain power. Let’s not lose that expertise. Let’s take that and use it to help teach some of our young kids some of these skills.

So, in partnership with Sherry Lansing, one of the former heads of one of the major Hollywood studios who has her own foundation, the Governor put money in his budget – about $12 million – a fairly small amount of money to be matched by private donations for this Encore program that basically will help transition these individuals who want to do it into the classroom.

So the state would help try to marry up businesses and individuals who want to go into teaching and marry them up with the schools that want to have those types of individuals come in and teach.

The Governor wants to focus it on several areas: math, science and also career technical education, which has been a very important part of the Governor’s education agenda.

A lot of people think that career technical education, which used to be called vocational education, was something like woodshop or metal shop. That’s not the case. There are individuals who are not going to go on to a four-year university or college track, but still have the opportunity if they choose to do so to get into some very well paying, challenging jobs.

For instance one of the things that is involved in career technical education is a thing like culinary arts. Another thing is digital animation – Pixar – the guys that did Toy Story. Those are all part of what are called CTE, career technical education.

So the Governor has made significant investments in trying to build up these programs in the community college area and trying to make sure that there’s what’s called articulation with courses. So that if somebody wants to go like on a digital arts path that some of the courses they may be taking in high school are in line with what they may be taking in community college that will help them move along that career tech track.

So, CTE as it’s called is something that’s very important. For too long its been ignored as an important component of our education system because everybody says like you’re going to graduate from high school and then you’re going to go to a college or university or you’re going to drop off. We think can there is another path.


The Governor has said children should have the first run of the treasury. Can you tell me about Proposition 49 and the after school program?

Mr. Palmer:

Yes. Again, this flows from the Governor’s personal involvement in physical fitness and in after school programs. He started something called Arnold’s Allstars. It evolved into a nationwide effort to be able to just get more states, more communities to establish after school programs because if you look at some of the data, you can see that some of the prime times when kids will get involved in either gang activity or drugs and alcohol or the possibility of teen pregnancy happens after school in their teen years.

So what the Governor believes is important to do is to be able to help provide, to the extent that we can, funds for school districts to provide after school programs that allow for a safe environment.

The Governor, working with a lot of folks, crafted a ballot proposition called Proposition 49, which the voters approved very smartly in 2002, which basically said that once economic conditions are right and certain triggers are met that the state would provide a certain amount of money to be distributed to school districts through a distribution program that’s run by the State Department of Education to fund after school programs. This year I think it’s to the tune of about $500 million is going to be going out through Proposition 49 for these programs.

The Governor thinks it’s money well spent in terms of not only being able to provide this kind of safe learning environment, but if you want to look at the other side of the ledger, what are the costs not only to the state, but to county governments if kids are involved in crime that costs public safety costs in terms of costs to society, the cost to the judicial system, the cost to the correctional system in counties. So we believe there are costs that are foregone by the fact that we are making an investment in after school programs.


I will be talking in a few weeks with Senator Harkin partly to discuss bio-fuels. Is the California agriculture community positioned to benefit from the increase demand for ethanol and other bio-technology?

Mr. Palmer:

The Governor is part of what he’s done in alternative fuel – he’s been very involved in alternative fuels. In fact he’s known as – he has several Hummers – as he’s known and said well, how can you be for the environment and drive these giant Hummers? He’s got several of them, but he has retooled the way several of them run. One of his Hummers now runs on hydrogen. The other runs on bio-fuels. He says the only thing about it, it still runs like any other Hummer, except that when you start it up it kind of smells like French fries.

But, yeah, he is very much a proponent of bio-fuels and it’s part of the work that we’re trying to do to encourage a diverse energy system in this state. So we think that – more so probably in the Midwest, but the Governor still believes that bio-fuels is a good part of an overall energy mix that will help us try to wean our dependence upon foreign oil.

The Governor is also a very big proponent of hydrogen fuels and has had money in each of his budgets to create what he calls the hydrogen highway, which is a series of hydrogen fueling stations up and down the state of California. Once again, looking beyond the horizon to say where do we want to be, where do we want the nation to be and let’s be the leader in trying to develop some of these alternative fuels.



What about Hydrogen?

Mr. Palmer:

We’re working to produce a system where we’ve got fueling stations for hydrogen vehicles. Again it’s something that is not a turnkey operation right now, but the Governor wants to try to get ahead of the curve. That’s why he’s been pushing this hydrogen concept ever since he ran for Governor in 2003.


What’s the year that he wants to have this highway set up?

Mr. Palmer:

Oh gosh, off the top of my head I don’t recall on that specific one.


Do you know if it’s in the next like ten years we’re looking at?

Mr. Palmer:

I think he wants to make significant progress over the next ten years absolutely.


Many believe Governor Schwarzenegger is one of the strongest leaders this state has ever seen. What key factors have contributed to his success?

Mr. Palmer:

A couple things. One of them in just my personal observations with him over the last few years, he’s one of the most relentlessly optimistic guys I have ever met in my life. No is not a big part of his vocabulary.

And that’s something that – I mean he has always been somebody who has wanted to achieve, wanted to succeed in any of his events, whether it was in body building, whether it was in his career in motion pictures, or with his involvement in things like Special Olympics or the President’s Council on Physical Fitness.

The Governor really believes in the concept of public service, very much instilled upon him by his in-laws, Sargent and Eu nice Shriver. That’s where he really got a lot of his inspiration to be able to give back to the people because he has been so fortunate and so blessed in his life and his career.

So he really believes in the concept of public service and giving back. As we talked about before, he also believes that he is the people’s servant and that he is here to try to get things done on behalf of the people of this state, whether they be Republican or Democrat. There are things that we can do in terms of improving our schools, improving our infrastructure, improving their economic quality of life, improving our health care system. All of which he wants to do in moving forward in a bipartisan way.

As he has said on a number of occasions, he tried to make that change in 2005 by going forward and said if the legislature doesn’t go along with me I’m going to take it directly to the people. He said pretty much we had a bad year in 2005 because the voters didn’t want to go that way. He said I learned my lesson. We need to cooperate, try to work together and get people to sit down in good faith and get things accomplished for the good of the people.

I think with the results that you saw, not only in the election, but what we did last year, people are saying that you can get people together who, from a political standpoint would be throwing bricks at each other’s heads, to sit down and try to do things. As I said earlier, there’s not a Republican school or a Democratic school, there’s not a Republican road or a Democratic road.

Get things done, get accomplished the things that matter most to the people whether it’s reducing congestion, improving their air quality, improving their schools, improving health care. The Governor is not afraid to be able to say I’m going to go out and do this and I know people are going to complain from the left, people are going to complain from the right, but let’s keep our eye on the ball here and say what we are here to accomplish for the people.


Together; not just the left or the right.

Mr. Palmer:

Exactly. So I think that when you look at the national political debate and you see how poisonous and polarized its been in Washington between Republicans and Democrats and between the Congress and the White House, people are looking at people like Governor Schwarzenegger, Mayor Bloomberg of New York and saying, wow, these guys are getting stuff done and they’re not trying to jump down each other’s throats. What a refreshing concept.

So I think part of the reason that people are doing that is because they’re seeing that you can make a difference. You can move the ball forward. You don’t have to be stuck in the old Democrat versus Republican paradigm that everybody sees, at least at the national level, that kind of death spiral. People actually can get stuff done by working together.


For the good of the people.

Mr. Palmer:

I think that’s probably why, particularly for a lot of the political reporters in Washington and staff who are so used to day after day seeing the Democrats fight the Republicans, the Congress fight the White House and say – it’s almost you get beaten down by having to cover that same old debate. Then all of a sudden you look out here and say, wow, how’d you do that? How’d you get everybody to sit down and do this? Said well, part of it is leadership and that’s the kind of leadership that this Governor brings. I think that’s why he’s being recognized for being a catalyst for change.