California Republican Governor’s Chief of Staff — and Cigar-Smoking Partner — Is a Key Player in Budget Negotiations 

By STU WOO, Wall Street Journal

SACRAMENTO, Calif. — Republican Gov. Arnold Schwarzenegger, in his effort to end the partisan bickering that is pushing California to the brink of insolvency, is deploying Susan Kennedy, his cigar-smoking, paintball-playing Democratic chief of staff, to get the job done.

The 48-year-old Ms. Kennedy has built a reputation as a pragmatic leader equally inclined to work with — and lambaste — lawmakers from both parties. Such a regard would have been unthinkable five years ago, when Republicans viewed her as a stereotypical Democrat — a former director of the state party and top aide to Gov. Gray Davis who lives in famously liberal Marin County with her partner.

She is now Mr. Schwarzenegger’s closest adviser and “partner,” as the governor called her in an interview in his smoking tent in the Capitol courtyard, where the two often enjoy stogies in the afternoon. As an example of their affinity, Ms. Kennedy displays in her office a picture of her sitting in Mr. Schwarzenegger’s lap after lawmakers passed the February budget.

The governor is counting on her to help him close a new $24 billion shortfall in a $92 billion general-fund budget. Every day is crucial, as the state controller is set on Thursday to begin issuing IOUs to local governments, private contractors and others to keep California from running out of cash later this month. Mr. Schwarzenegger hopes Ms. Kennedy will use the same resourcefulness she showed in February, when the state faced a $42 billion deficit and delayed billions of dollars of payments because the governor and Democratic and Republican legislators were at a three-way impasse.

Ms. Kennedy orchestrated a strategy that helped expedite negotiations, those involved in the talks said. To get GOP legislators on the same page with the governor, a moderate often at odds with conservatives in his party, she persuaded the Assembly and Senate Republican leaders to discuss their concerns with Mr. Schwarzenegger prior to official budget negotiations. When the two Democratic legislative leaders entered the talks, the three Republicans presented a united front, making it a debate with two sides instead of three.

She didn’t always have a cordial relationship with Republicans, the governor included. When Mr. Schwarzenegger won the 2003 recall election — ousting Gov. Davis, her former boss — Ms. Kennedy said, she “was as angry and as much of an anti-Arnold person as any Democrat was.” Mr. Schwarzenegger said he regarded her as part of a gubernatorial administration in which “everything that they did was wrong.”

Their opinions of each other changed during her tenure on California’s Public Utilities Commission from 2003 to 2005, when she built a pro-business reputation. She said she realized she shared with the governor a philosophical bond on the role of regulation.

The governor said he seriously considered only her to become his new chief of staff in late 2005, an appointment that created an uproar in Sacramento. “It was war,” Mr. Schwarzenegger said. “Imagine if you’re a conservative Republican…and here is a gay or lesbian San Francisco Bay area liberal, bra burning.”

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Write to Stu Woo at [email protected]