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CNN LIVE EVENT/SPECIAL

California Gubernatorial Debate

Aired September 24, 2003 - 21:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LARRY KING, CNN ANCHOR: I'm Larry King. In just a few moments, the live coverage of a crucial debate in California's gubernatorial recall election. This is the only debate GOP candidate Arnold Schwarzenegger has agreed to take part in. Also participating, Republican State Senator Tom McClintock, Green Party candidate Peter Camejo, independent Arianna Huffington, and Democratic Lieutenant Governor Cruz Bustamante.
Tonight's format has taken some criticism. The candidates have gotten the questions in advance. The debate comes one day after the 9th Circuit Court of Appeals ruled that the California recall vote will take place as originally scheduled, on October 7.

Following this 90-minute debate, CNN will be back. We will have a roundtable discussion, anchored by "NEWSNIGHT'S" own Aaron Brown. This debate is entitled "Critical Choices." It's sponsored by the California broadcasters. It's held in California State University, in Sacramento. There you see the university. Let's go to the debate.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: ... critical issues for people throughout California. Candidates taking part in the debate forum are California lieutenant governor, Democrat Cruz Bustamante, Green Party candidate Peter Camejo, independent Arianna Huffington, Republican State Senator Tom McClintock, and Republican Arnold Schwarzenegger.

The moderator of the debate forum is president of the California Broadcasters Association, Stan Statham.

(END VIDEOTAPE)

STAN STATHAM, MODERATOR: Good evening, everyone. First of all, let me give some very special thanks to California State University Sacramento for its extraordinary effort in helping to bring you this debate. And special thanks to its president, Dr. Alexander Gonzalez (ph).

The debate you're going to see tonight is designed so that you can witness these candidates in verbal combat. One of our goals with this very unusual debate format was to create a debate on debates, and on that, we have been very successful.

Now, if you tuned in to watching your candidates hiding behind podiums or giving timed responses or reading scripted notes, you're watching the wrong program. You're going to be very disappointed. A few weeks ago, actually a few days ago, I'm sorry, we gave to the voters of California several questions. The reason we gave those questions in advance to the voters of California so that they would examine those questions very closely, so that their expectations to the answers to those questions from these candidates would be, shall we say, more severe and at a much higher level.

Well, for the next 90 minutes, candidates will answer questions posed by real California voters. And I want to tell you and the audience out there and here that each one of these candidates have been advised that they should engage and challenge each of the other candidates. And please, let us know at the California Broadcasters Association what you think of this format and this program.

You know, we don't do debates for candidates. We do debates for you.

Now, before we get to the first voter question, I thought of something, and I would like each one of these candidates to do hopefully a quick response to what I think is a really interesting question. And the question is this: What do you think of this recall? Mr. Schwarzenegger.

ARNOLD SCHWARZENEGGER (R), CALIFORNIA GUBERNATORIAL CANDIDATE: I think that it is a great idea and I thank God every day that we have Hiram Johnson, that's created this, you know, more than 90 years ago. His intention was to create this recall, because of special interests controlling politicians and this is exactly what is the case today. And 1.6 million people have signed the recall petition. They basically have said we're mad as hell and we're not going to take it anymore. And the 60 percent of the people have said in the polls that they want to have a recall. So it is terrific. The people's will is being acted out.

STATHAM: Thank you. Let's take this question just down the line, but from this point forward, jump in after the question is first answered. Senator McClintock.

STATE SEN. TOM MCCLINTOCK (R), CALIFORNIA GUBERNATORIAL CANDIDATE: Well, the recall is there so that the people can correct a mistake that was made at the ballot box. Our entire form of government is based on the assumption that more than half the people are right more than half the time. That doesn't mean that every now and then they're not entitled to make a mistake. And the reelection of Gray Davis and the course that he has taken this state down was a mistake and it must be corrected. We cannot afford to go down this road another three years that has led our state to the brink of bankruptcy, and despite the highest percentage of personal income being spent in the history of California, less to show than any administration in the history of California.

STATHAM: Mr. Camejo.

PETER CAMEJO (G), CALIFORNIA GUBERNATORIAL CANDIDATE: This recall exists because we have a crisis in California. There's no question that in the last five years, we had the highest income the state has ever had. And instead of ending up with a surplus, we ended up with this disastrous deficit.

The polls have taken the governor, Governor Davis down to 22 percent. And that can't be done by the Republicans alone. They were only 35 percent of the registered voters. So we do have a crisis here. And this election is the worst election we've ever had and the best election we've ever had. Why the best? Because the public has really gotten a chance to hear and see more than two points of view, to all of a sudden have two candidates here who are not Democrats or Republicans, and it is the worst because we don't have a runoff system. We have no way for the will of the electorate to be correctly registered.

STATHAM: Thank you. If we can make this as quickly as possible. Arianna Huffington, what do you think of the recall?

ARIANNA HUFFINGTON (I), CALIFORNIA GUBERNATORIAL CANDIDATE: I'm troubled by the fact that Darrell Issa could spend close to $2 million to collect signatures, paid signature gatherers. There are a lot of elements which are troubling. But nevertheless, it is an unprecedented, historic opportunity here to elect an independent, progressive governor on a simple plurality. And the state desperately needs that, because the two-party political system is broken and that opportunity will not come again in a hurry.

STATHAM: All right. The lieutenant governor, Cruz Bustamante.

LT. GOV. CRUZ BUSTAMANTE (D), CALIFORNIA GUBERNATORIAL CANDIDATE: I think the recall is a terrible idea. I think it's bad for democracy. I think it's bad for our state. I know people right now who are organizing to recall the next governor if it's a Republican. I think that's a bad way of doing politics. I think it is a perpetual type of politics. You know, I agree with my colleagues that there's some good that could come from this as a result, but I think that to do it in this way, even Hiram Johnson, as Arnold talked about, in terms of him creating the recall process, even in his inaugural address, he said that it wasn't the panacea. The recalls are not the panacea for government. I really think that we have a situation here that we have to deal with in terms of the budget crisis. That's true. And we have to deal with that. But this recall could end up being an era of perpetual politics I think could be bad for California.

STATHAM: Thank you. Two citizen questions on videotape. The first question is about a top priority for California.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: My name is Dan Jett (ph). I live in Los Angeles County. My question is, what should be California's top priority right now?

(END VIDEO CLIP)

STATHAM: And the answer is coming from Arnold Schwarzenegger.

SCHWARZENEGGER: I think that our top priority right now should be to turn the economy around. We have the worst economic atmosphere, the worst business atmosphere in California. And what we see is because of the businesses are leaving the state and jobs are leaving the state, and we're having the highest workers' compensation costs. We have the highest energy costs here. We have the worst business money management. We have the worst credit rating. We have all of those things that drive businesses away. And we are overregulated, overtaxed and overburdening our businesses. And so no matter where I go in the state, it is the same thing, that workers' compensation is killing businesses. And we have to stop and reverse that.

HUFFINGTON: Actually, you know, I agree with one thing you said, that the workers comp system is broken, but everything else you said is simply untrue. In the last year, there was an increase in business in the state of 3.7 percent. This state right now is taxed that is lower rate than when your chairman, the chairman of your election committee, Pete Wilson, was governor. So, you know, this gloom and doom statistics about businesses leaving are simply a perpetuation of the Republican idea that if you simply do everything businesses want, if you simply let them have all the loopholes they want, then all will be well.

And we saw in the '90's that was not the case. We ended up with Enron, Global Crossing and billions of dollars lost in shareholder wealth and in pensions. And I would really like you to tell the people the truth, because these illusions are simply hurting us.

MCCLINTOCK: Arianna, if I may, the statistics that we're seeing are reported across California directly contradict what you've said. We've had a net loss of nearly a third of a million job in the last two and a half years.

HUFFINGTON: That's because of the economic policies of the Bush administration.

MCCLINTOCK: We've had the first net-out migration of domestic population in our state's history. And a lot of that is going to Arizona and Nevada. Now, that's a pretty profound development in the history of the state, when families looking for a better future, a better place to raise their kids look at our beautiful state with all of the blessings that God could bestow upon a land, and find a better future out in the middle of a Nevada and Arizona deserts than they found here in California.

When Fidelity National announced they were leaving for Jacksonville, Florida, their CEO had taken 400 jobs with him. Their CEO was quoted on local TV, he said, this wasn't a complicated decision. In Florida, there is no income tax. The sales tax is 6 percent. It costs $40 to register your car. Why is anybody surprised we're leaving?

STATHAM: Thank you. Which side are you taking, Mr. Camejo?

CAMEJO: Well, I think both Tom and Arnold are just factually wrong here. First of all, corporations are now being charged the lowest tax rate that they have been for decades and decades. They've gone, their tax rate has gone in the last 16 years from 9.6 to 5.3 percent. In fact, Utah, Wyoming, and Arizona, three states where the Republicans dominate, have higher taxes than California.

So I want to ask Tom and Arnold to visit the states and have a talk with them before they tell us to lower taxes when the Republican party has higher taxes. People are not leaving California. They're pouring into California. This is a place people want to come to. We're right now hitting a record GDP but we have too much unemployment, because we're having a jobless recovery.

That is, the corporations are making more money than ever before but not the people. And we need to look at the fact that people paying much higher taxes than the wealthiest people in our state or what the corporations are paying. I won't to cut taxes on the majority of the people, but I want the richest people that 1 percent that have more income than 70 percent of the people to pay the same taxes you're paying, the average person. So we can balance our budget and start moving in the right direction.

STATHAM: Thank you. Thank you.

BUSTAMANTE: There are a couple of things. First, during the dot-com boom, we were doing about 7,100 new business start-ups in California. Today averaging 7,700 new business start-ups in California. The work productivity of the workers of California are more productive than Texas and Florida combined. There are problems, however. We do have a great economy. We are a $1.5 trillion economy but we have to fix the worker's comp issue. And what I would propose is that we do it much like we do safe driver proposal. There is no incentive for a good workplace and a bad workplace because they get paid or get a premium that is exactly the same amount. So if we were to provide a worker, a safe workplace discount and be able to have an incentive for those people not doing a good job to do a better job, we can lower premiums on those that are good work sites and increase the premiums on those with bad work sites.

MCCLINTOCK: Cruz, let me do you one better. Let me do you one better. Let just replace our workers compensation law with Arizona's.

BUSTAMANTE: Well, we could do that, Tom, but...

MCCLINTOCK: Arizona's cost one third of what ours does. Injured workers are being fully compensated.

BUSTAMANTE: No, they're not. Not they are not, Tom.

MCCLINTOCK: And just replacing the system. That' a two thirds reduction workers comp costs. Not only lift a burden from business. But also...

BUSTAMANTE: But we have to agree to fix the workers comp.

(CROSSTALK)

MCCLINTOCK: But also reduces direct state and local costs by $2.5 billion. That's all tough do.

SCHWARZENEGGER: But Cruz, you're painting a wrong picture. (CROSSTALK)

HUFFINGTON: Your two parties. Your two parties that gave us...

STATHAM: Excuse me, Arianna. Can you go now and then we'll hear from Arnold Schwarzenegger.

(CROSSTALK)

SCHWARZENEGGER: Everything is not fine and dandy here in California. You know that....

(CROSSTALK)

STATHAM: Excuse me, excuse me. Thank you. Lady. Gentlemen. Lady. Gentlemen. You know, I am a traffic cop, but not a very good one. So let me say this, because there's some keen information we need. One, two, three -- Arianna.

HUFFINGTON: First of all, you know, this is the two parties that brought us the broken working comp system. In 1993, you voted for the deregulation of workers comp. And Pete Wilson was over there, your chairman. So, you can't just suddenly say we did that and now we are thinking something different. Because that really has been the pattern. Workers comp deregulation, energy deregulation and all the problems of this past are now coming to haunt us. And there has to be some accountability -- Cruz.

BUSTAMANTE: I think you're right in the first situation. We really did try -- you're absolutely right. What we tried to is that we tried to fix the worker's comp issue by squeezing down on the insurance companies. They were clearly price gouging, they were clearly doing things that were effecting the premiums. And we tried to squeeze down on that. Unfortunately, they went into some predatory pricing. They drove the small guys out and then rates started going back up again. Here we have an opportunity to change fundamentally the system providing work safety. Places where they have good, solid work safety places that will give them a lower...

STATHAM: All right Cruz, we have your point.

SCHWARZENEGGER: (UNINTELLIGIBLE) reform that you guys just did was total preelection bogus, and you know that. Because this all trickery just like the budget was, it was trickery. This is a trick again before -- you wanted to put wool over the people eyes.

(CROSSTALK)

STATHAM: Just a moment, please. Mr. Schwarzenegger has the table. What would be the...

(CROSSTALK)

SCHWARZENEGGER: Let me just tell you, that the next year you say this reform, but the worker's compensation costs are going to go up. This is not what's going to help our businesses in California. Our businesses are moving away because we're not competitive in worker's compensation. There is tremendous fraud here and all those kind of things. What we have to do is create -- when I go to office, I'll create real worker's compensation. Cut the costs in half. That's what we need to do. I visited companies here in California. I visited the farmers and the small companies, big companies, vendors and all this stuff. Every one is saying the same thing. That are worker's compensation is way too high. We're paying three times the amount of the national average.

And as Tom was saying, that are neighboring states are much more competitive. And this is the problem we have and that what businesses are moving out of the state.

STATHAM: Mr. Schwarzenegger, thank you very much. Pretty convinced at this point we've done this subject.

(CROSSTALK)

MCCLINTOCK: Just another thing I'd like to point out. The (UNINTELLIGIBLE) statistics, we have friends, family, neighbors who are leaving California and finding a better place out in the Nevada and Arizona desert. That what's happening in California.

BUSTAMANTE: Because housing is to high. Working people leaving California.

(CROSSTALK)

STATHAM: Excuse me, excuse me, excuse me. We're going to wrap this subject up in one minute. Go ahead, Mr. Schwarzenegger.

SCHWARZENEGGER: I think it's ridiculous for Cruz and Arianna to say everything is fine and dandy. And everything is prefect.

(CROSSTALK)

SCHWARZENEGGER: Let me tell you something. We have never seen a situation like this. $38.2 billion budget deficit. We just found out that the operating deficit, this is the operating deficit went up to $10 billion. There's so much...

BUSTAMANTE: Well, I know you may not know this, Arnold, the (UNINTELLIGIBLE) is no longer $38 billion.

STATHAM: One minute.

SCHWARZENEGGER: You have to be honest with the people. Remember one thing, in California, we have a three strike system. You guys pull the wool over the people's eyes, twice, the third time you are out you are out. On October 7 you guys are out.

STATHAM: All right. Ladies and gentlemen, ladies and gentlemen, if you'll hold on the applause, we appreciate it. I believe the next citizen question does relate to the topic we're actually talking about now. And if it doesn't, I fear it is going to get in anyway. The subject of the next question is balancing the state of California.

UNIDENTIFIED FEMALE: Hi. I'm Donna Fetchie Covia (ph). I live in Felton. My question is, how would you propose enhancing revenue and or what special cuts would you make to spending to achieve a balanced budget?

STATHAM: Senator McClintock this question is yours.

MCCLINTOCK: A great question. I have to correct Arnold. It's not the three strikes law, that's the lemon law when you have a car that doesn't work, you get to take it back. That's a very, very important question. First of all, bear this in mind...

BUSTAMANTE: Democratic proposal.

MCCLINTOCK: ... this state spending a larger portion of people's earnings than at any time in its history. We are not suffering a revenue problem. In the last four years of this administration, our inflation and population combined grown 21 percent. Our revenues up 25 percent. That's after the dot-com collapse, after the car tax was trimmed, after the state's revenues was plunged. We're still taking in significantly more revenue than inflation and population. The problem is we have a 38 percent increase in state spending in that same period of time, and we have not gotten a 38 percent increase in highway construction or school construction or anything. We're paying through the nose for this government to provide. And not hard to find waste in a system that produces as little as California and costs as much. Let me just give you some examples. If we restored to California government the same freedom that every family and business has to shop around for the best service at the lowest price, there's about $9 billion in savings across all departments from that one reform alone. Streamlining...

STATHAM: Just a second. I am going let you continue. You have got a minute and a half. We are try to get as many questions as possible. Wrap it up if you could.

MCCLINTOCK: Let me cover another $8 billion of specific cuts and then move on. $6 billion can be saved simply reorganizing the state's bureaucracies. That means, abolishing agencies that duplicate local or federal functions or that overlap each other's jurisdictions. As I said worker's compensation reform, simply swapping our plan for Arizona, that's about $2.5 billion of direct savings to local governments and state government alone. There's about $18.5 billion without even breaking a sweat.

Mr. Camejo.

CAMEJO: Look, we pay -- the average person in California is paying about 9.2 percent of the income in taxes. The wealthiest 1 percent pay 7.2. If we just had the wealthiest 5 percent that receive all of the advantages of the great rise in the economy over the last 10 years, their income rose 113 percent. Your income rose 8 percent. Latinos actually declined 3 percent. If they were taxed at the same rate that you pay, we would now have a surplus in the budget. We're 27th in education and we're number one in the nation in economy. And Tom wants to cut, cut, cut. I want to put more money into education. I want to fair tax on my Web site votecamejo.org we show how it can be done. How we could have a $19 billion surplus. And that means to start developing affordable housing. We can make California the leader in renewable energy. These are the things California could be doing.

But all they want to do is cut and cut and rip, rip over here to my right. And the others I don't know what they do. They get the money in the world and they spend it all. We don't know where it went. I'm calling for a five-year audit. I want a five audit to find out how we had a 30 billion surplus turn into a $38 billion deficit. I think we don't know for sure. Some good things were done and let's say. More money put in to give teachers a higher pay. Some steps were made in taking care of our infrastructure. We don't want to go back on that. But it was done irresponsibly. They didn't worry about the income. They were cutting the taxes on the wealthiest people, while they raised your taxes.

STATHAM: Thank you. We're going to have Arianna Huffington -- it's getting a little dizzy up here.

How are you going to balance the budget, Miss Huffington?

HUFFINGTON: Well, the first thing I will do is close corporate tax loopholes, because right now, just in terms of how we're assessing commercial properties, we are losing about $2 billion in revenue. And if we just change that, if we just assess commercial properties fairly, that would $2 billion. If we just close the loopholes when it comes to tax shelters, both domestic and offshore tax shelters, that would be another $2 billion.

And what I find amazing is that Republicans really do not believe that morality applies to businesses. You know, morality for them is just sexual morality. And I think it's time -- you know, I would mention the three strikes and you're out law. I'd like a three strikes and you're out when it comes to corporate felons. And right now we have something like that in front of the legislature and it should pass. Because it should be absolutely unacceptable that companies defraud the California public and then the state continues to do business with them. Is that the kind of business climate you'd like to bring to the state, the same kind of business climate as brought us Enron and Global Crossing and Adelphia and has cost millions of jobs and we're still paying that price?

And one more thing, Arnold. You know, you talk about this...

SCHWARZENEGGER: Arnold?

HUFFINGTON: Yes. You talk...

STATHAM: Thirty seconds.

SCHWARZENEGGER: I like that. Arianna, let me say one thing. You personally -- your personal income tax have the biggest loophole. I can drive my Hummer through it, that's how big loophole is. Let me tell you something, I don't know what you're talking about. I cannot believe you.

HUFFINGTON: Yes. We got that but we got advanced notice in "The New York Times" that you're going to say that. And you know that perfectly well that I paid $150,000 in property taxes and payroll taxes and you know what? I'm a writer. And this two years...

SCHWARZENEGGER: Yes, right.

HUFFINGTON: ...I was writing and researching a book and I wasn't making $20 billion violent movies. I'm sorry.

STATHAM: We need to move. We need to move.

HUFFINGTON: Let me just finish, because he attacked me on something very, very distorted.

STATHAM: Can you do in 30 seconds?

HUFFINGTON: Yes, I can do it in 15. Because the truth is that small businesses sometimes make losses and sometimes make profits. When my book, "Pigs at the Trough," was published in 2003 and became a bestseller, that was a great year. I'm going to be paying a lot of taxes. There was no loophole. And instead of focusing on the distorted information, you should focus on the huge loopholes that the Bush administration and other Republicans around the country have allowed that have defraud us of billion of dollars in taxes.

STATHAM: Thank you. Before we go to lieutenant governor, I'd like to admonish -- I'd like to admonish the candidates very politely, because we're supposed to stay on topic. I don't know how Miss Huffington got around to Republican sexual morality on balancing budget, but she managed to do so.

SCHWARZENEGGER: That's Arianna.

STATHAM: There's the lieutenant governor. He's been in office for sometime and he just came from speaker of the assembly speaker before that. Mr. Bustamante, how are you going to balance the budget?

BUSTAMANTE: Well, clearly we spent too much.

STATHAM: Why did you?

BUSTAMANTE: We spent more -- as a government -- as a government it, spent more than it was coming in. There's nothing -- it's no rocket science to this. We clearly knew that there were certain incomes that were coming in and we spent more than we had.

But what I've decided to do is I've decided to face this realistically, to deal with it practically, to understand it and not to have -- tell half truths about what we're likely be able to do. We've done all the easy things and now it's time to do the tough things. That's why I submitted a plan, a plan that I called "Tough Love for California." In that plan, I raised tobacco taxes, I raise alcohol taxes, I raise the upper income tax bract on the largest and the highest 4 percent of all Californians. I do that, but in return, we close the budget gap. We fully fund education. We put 123,000 community college students back into our colleges. And we relieve the car tax issue for all those vehicles that are under $20,000. We do something in terms of raising taxes. She called it raising revenues. We know what it really is.

STATHAM: Thank you.

BUSTAMANTE: But at the same time, we get something good for California.

HUFFINGTON: Yes, there is tough love for everybody except for Indian gaming tribes...

BUSTAMANTE: Well, that's not true....

HUFFINGTON: ...and for prison guard unions. And that's really -- that's really the problem with our system. Tough love for everybody except your big campaign contributors.

MCCLINTOCK: Yes, it's certainly tough on taxpayers. That's true. And here's the question that I would pose. What makes you think that your $8 billion of tax increases is going to do anything differently than when Pete Wilson raised taxes $7 billion in 1991? Those taxes broke the back of the economy. They turned a recession into a near depression and we actually ended up collecting a billion dollars less total revenue after those tax increases went into effect than we had collecting before they had gone into effect.

BUSTAMANTE: Because I really believe, Tom, that the future of California is really in investing in our education.

You know, we're closing down community colleges -- 123,000 students are not going to be going to community college this year. Everything we have done in California has been based on research. You know that.

MCCLINTOCK: That's because...

(CROSSTALK)

BUSTAMANTE: Unfortunately, those of us who have been working diligently to try to make sure that we keep tuition low and allow access to every single student, we know that our future really is -- it's not just a slogan. It's not just something to put on a campaign brochure. It really is our future.

STATHAM: All right. You've all made your points on this except for Mr. Schwarzenegger, needs another shot at this.

SCHWARZENEGGER: Yes. I don't understand the whole thing. So what you're saying is that...

BUSTAMANTE: There's probably a lot of things.

SCHWARZENEGGER: The politicians -- the politicians make a mistake. They keep spending and spending and spending.

BUSTAMANTE: That's right.

SCHWARZENEGGER: Then when they realize they made a mistake and they spend the money they don't even have, then go out and go and tax, tax, tax. That's the answer to the problem?

BUSTAMANTE: No, Arnold.

(CROSSTALK)

SCHWARZENEGGER: What you have to do is you put the spending cap on it.

BUSTAMANTE: We also provided tax cuts.

SCHWARZENEGGER: You guys have an addiction problem. You should go to an addiction place because you cannot -- you cannot stop spending. So what happens then is if you spend...

BUSTAMANTE: Well, that's what happens when you simplify things.

SCHWARZENEGGER: Then you have tax, tax, tax. I mean, all of a sudden you say, Where are the jobs? Gone, gone, gone. That's the problem that we're facing here.

STATHAM: All right. Thank you.

(CROSSTALK)

STATHAM: Hang on. Right here. What do you got, Arianna? Short.

HUFFINGTON: Because this -- Arnold's analysis fits perfectly the Bush administration in Washington. They keep spending, spending, spending.

(CROSSTALK)

SCHWARZENEGGER: You keep talking about Bush. If you want to campaign against Bush, go to New Hampshire.

(CROSSTALK)

SCHWARZENEGGER: You're in the wrong state right now.

HUFFINGTON: You know what? Because otherwise, it's so hypocritical for you to...

SCHWARZENEGGER: And maybe a little but more decaf.

HUFFINGTON: You know what?

CAMEJO: It is amazing that you will not say -- you will never say that the wealthiest people should at least pay the same tax rate as the average person. You will never say those words. And in fact, you've been raising the taxes in California on the poorest people who pay the highest tax rate and I'm the only candidate saying, "Cut taxes!" -- on 60 percent of the people who are overpaying. I'm the only one who says it. But I want the rich to pay their fair share. And neither Tom or Arnold will say it.

All you got to say is, Yes, Peter, you're right. The rich should have to pay the same amount -- the same amount as the average person.

STATHAM: All right.

CAMEJO: Go ahead and say it. It's just four words.

SCHWARZENEGGER: (UNINTELLIGIBLE) you talk about Bush and all this stuff. Let's talk about California.

(CROSSTALK)

STATHAM: If I could have your attention? Candidates, if I could have your attention. I think I actually have a budget related question that might be on point and you could all get specific, because somewhere in all of this, somebody mentioned a vehicle licensing fee. So let's all jump in and see what you're going to do to the vehicle licensing fees in California. What wants to go first?

CAMEJO: Better start with Tom because that's his ad.

MCCLINTOCK: Well, thank you.

(CROSSTALK)

MCCLINTOCK: Well, that's actually the campaign I started five years ago to abolish California's car tax. It is a tax on a necessity of life. Not a penny of it goes near our roads. I have said from the beginning of this campaign that the very first act that I will take within moments of taking the oath of office will be to sign an executive order to rescind the governor's tripling of this tax. If he can claim that he has the authority to raise it fiat, then, by God, I can claim the same authority to lower it right back again.

STATHAM: Thank you.

MCCLINTOCK: But I want to see it abolished. That's why we're circulating an initiative right now to abolish that entire abusive tax and to guarantee local governments full reimbursement.

(CROSSTALK)

CAMEJO: I agree with you.

SCHWARZENEGGER: I agree also with Tom on this because I think it's a difficult situation....

STATHAM: Three aye votes.

(CROSSTALK) HUFFINGTON: But I want to return to something very important because the people of California need somebody who is going to fight the Bush administration for them. Because you know what? Let me just tell you the facts. Let me tell you the facts. The repeal of the estate tax alone is costing us over $3 billion.

STATHAM: We're starting the clock. We have two minutes left on this. Starting the clock. Two minutes left on the budget.

HUFFINGTON: Great. There's a huge connection between our budgetary problems here and the decisions made in Washington. And you need somebody going to fight for properly funded mandates, whether it's in education or in health care -- and who is going to fight the administration when they're basically costing us jobs. And it's completely hypocritical of Arnold...

SCHWARZENEGGER: Arianna.

HUFFINGTON: Let me finish. Let me finish. Let me finish.

(CROSSTALK)

HUFFINGTON: This is the way you treat women. We know that. But not now.

STATHAM: On that point, excuse me. Let me...

SCHWARZENEGGER: Arianna...

HUFFINGTON: Yes?

STATHAM: Excuse me. Excuse me. Candidates, candidates, please let me take control of this for a moment. I'm going to -- I'm going to decide, as the privilege of a moderator, that that was a direct and personal attack on Mr. Schwarzenegger. So would you respond?

SCHWARZENEGGER: I would just like to say that I just realized that I have a perfect part for you in "Terminator 4."

STATHAM: All right. I think at this point, I think at this point -- this is not -- ladies and gentlemen, this is not Comedy Central. I swear. At this point, we are going to change subjects. We are going to change subjects. And we're going to have another real question from a real voter that relates to health care. Let's hear it.

QUESTION: Good evening. My name is Karen Vicary (ph) from Sacramento. I'm with the Northeastern California Northern Nevada Chapter of the Arthritis Foundation. My question tonight is, how are you going to ensure that all Californians have adequate health care?

STATHAM: All right. Green Party candidate, Peter Camejo is going to take this question.

CAMEJO: Well, all advanced industrial countries have established universal health care. We're the only nation that hasn't. And we really have to realize that having the insurance business running our health care is not working. We have to turn to a single pair system. I support Sheila Kuehl's proposals. I think SB-2 that John Burton has raised is a step in the right direction but not the real answer.

Actually, if we did, a study done showing saving $7.3 billion in California. About $4 billion actually out of the budget and we'd have everybody covered. We have got to learn from Canada and from Europe. There are things that other people can teach us. America is not always right at all. And in fact, this is one of those issues where we have to move towards universal health care for everybody, single pair system. That's what we advocate and that's the whole world watching. Why America doesn't come to its senses on this.

STATHAM: Go ahead, Mr. Bustamante.

BUSTAMANTE: Well, I absolutely agree with Peter about universal health care. But we're in a budget situation that I don't believe we can get there at this time. I believe do that also that SB-2 is probably the most important piece of legislation that has not yet been signed by the governor. I think it is a very important, because it will provide 1 million working people health care in California. Probably the most significant piece of legislation I believe that's going to come out this year in California.

HUFFINGTON: Well, actually, SB-2, the John Burton bill, doesn't include cost controls. And that's the problem with a lot half baked measures out of the legislature. That is the problem with worker's comp. The problem again now. I don't believe we should implement another bill which does not include cost controls and which also leaves over 3 million Californians uninsured.

BUSTAMANTE: That's true.

HUFFINGTON: Another half baked measure.

BUSTAMANTE: Well, not half-baked. It's a good step.

HUFFINGTON: But ultimately, we need universal health care. The only reason we don't have it is because of the millions of dollars being paid by insurance companies and the medical industry to politicians and that's ultimately the only reason.

If that were not the case, we would have universal health care by now. You know what the only state that has universal health care, Maine. You know why? Because it has introduced a public financing of campaign legislation and that's why it has made it and that's why that's why tomorrow morning I'm introducing an initiative in Sacramento for publicly funded campaigns. There's no other solution if we are going to break the hold of special interests in Sacramento.

STATHAM: What's your solution to California's health care problem, Mr. Schwarzenegger?

SCHWARZENEGGER: Well, first of all, it is very important to have it available. That we have as many companies bidding so that the prices coming down and make it available. What Cruz is suggesting, that again, health care and have the companies pay for it, they cannot do it right now. We have a really a crisis here with our companies with our, you know, businesses because they're overburdened as it is right now with worker's compensation and with Med-Cal and with all those kinds of things -- high electricity costs. They are much, much higher than anywhere in the nation.

They cannot afford it. What you will have then is, you will have no jobs, no businesses, and no health care. What we have to do right now is protect the businesses and protect the people so that they have jobs. That's what we need to do.

BUSTAMANTE: I understand that, Arnold.

SCHWARZENEGGER: But let me just say something, Cruz. It doesn't surprise me that it comes from you. You have never run a business. I'm the only one here that run businesses. Developed businesses.

CAMEJO: Not true, Arnold, not true.

SCHWARZENEGGER: And met the payroll and has paid for worker's compensation and has taken care of the health care for the employees and stuff like that. You have never done that so it's easy for you to sit there, because you're only used to signing the check on the back. But not the front. You have never signed a check on the front. So, this is what you have to do. Realize that.

BUSTAMANTE: I understand. I would just a real brief response. You know, when you have megacorporations, the biggest in the history of the world, like Wal-mart, who are underpaying the people and then as a result give them official documents to go and apply for food stamps and for public health care. That's a burden that taxpayers can't afford any longer, either.

STATHAM: Senator Tom McClintock on this one?

MCCLINTOCK: I think there's a much better way to do it and it's not SB-2 which requires businesses to provide health care plans for their employees. The businesses own, the business control and paid for through the lower wages of the employees. The very first impact of that bill, Cruz, is an awful lot of people thrown out of work as businesses pair back their payrolls to avoid the threshold that triggers that obligation.

I do believe that we ought to have a society where everyone has access to health care. Unfortunately, I believe we can do that in a much more rational way through a simple tax credit on a sliding income scale that will bring within the reach of every California family, a health plan of their own choosing and selection that they will control.

They don't have to worry about losing a job or staying in a dead end job because they have to keep their health care. If you're employer chose the grocery store for you, I guarantee you two things. It's going to be cheap for the employer and it's going to be very inconvenient for you. And health plans are no different. We've got to bring within the reach of families, again, control over their own health plans. When I proposed that, as an alternative to the Healthy Families Plans, a legislative analyst office reviewed it and said that we could provide much, much broader coverage at much lower than the bureaucratized system that was ultimately adopted.

STATHAM: Thanks, senator. Now, I thought of something to make this a whole lot more controversial in the area of health care. So, why don't each one tell us how much money you think the state of California should spend on health care for the kids of illegal immigrants. Who wants to go?

BUSTAMANTE: I'll go.

STATHAM: Go ahead Mr. Bustamante.

BUSTAMANTE: I'll be more than happy to deal with that particular issue because I think that, you know, the one thing you shouldn't, Stan just sort of in life is take it out on the kids. You know? I mean, it's not their fault their parents are here. Put it to the side for a minute.

The people who are here, you know, I know that sometimes people think that their food comes from, you know, Safeway or Ralph's or but it really doesn't. It comes from 70 percent of the people that pick our fruit and our food and put it on the table are these immigrants. They're also the same people who work hard every single day. They pay their taxes. They stay out of trouble with the law. 30 percent of the construction, 40 percent of the hotels.

All these folks here, working, they're taking care of the families, paying taxes. You know, for them not to have a driver's license or to be able to put their kids into school I think is just wrong.

CAMEJO: May I jump in here?

STATHAM: I don't appreciate the demonstration but it's heart felt. Peter Camejo?

CAMEJO: Well, I just want to say that the people we're talking about are the lowest paid workers in California who work the hardest. Who pay taxes and receive almost no benefits. They're essential to our economy. We loosely use this word, I think totally inappropriate, illegal. No one's going to arrest them. If somebody is illegal, you arrest them. But no one is going to arrest them because they're essential for California and everybody knows they're to stay. They're part of our family. We have to end this apartheid system we have towards them. They're part of our community essential to our economy. I really object to this term illegal.

In the first debate, I referred to who came over here totally illegally and it was European-Americans who came over here. And you know, they're here so give them a driver's license, give them a right, I'm not going to object to that. But these are the children of the indigenous people of this continent. Let's Understand that if your economic situation was the same as there, you'd do exactly the same thing. People are moving through borders to try to feed their families. Let's look at this as a human problem we face. Not a thing of criminality. These are part of our family. We need to help them and work with them and give them medical insurance and the costs that it will come about, they are paying for it because right now they're contributing to our tax base.

STATHAM: Thank you. Thank you. And I know -- ladies and gentlemen, ladies and gentlemen, this is a political debate and I have good news for you. If you would like to demonstrate $20 and a California highway patrol license fee and they'll give you a location outside the capital building and you can enjoy yourself. Try to restrain your applause, please. I know that Arnold Schwarzenegger has a strong opinion on this issue. So, what is it?

SCHWARZENEGGER: Well, first of all, I think it's important that we take care of our children. We have to make sure that every child in California is insured. That is the most important thing. I'm very passionate about children's issues. I think that we have to take care of our children and our seniors. That is very important. Because they cannot fend for themselves.

The children, we have a Healthy Family Program here in California. It's a very, very good program. It's supposed to insure people to get health care, for children and also for their parents if they're low income people. The only problem with the program right now is only two thirds of the people that are eligible are not having that health care. And because the government has not done a good job of reaching out and finding the people and letting them know to sign up and to find easy ways for them to sign up. Two-thirds of the people that are eligible do not have the health care. And so that is really terrible.

If I become governor here, I will immediately go out there and promote that. Promote it, and market it and (UNINTELLIGIBLE) get it out there, so everyone knows about it and everyone signs up, because we must insure our families, the low-income families, especially the children.

CAMEJO: Well, on that, we do agree.

STATHAM: Arianna, go ahead.

HUFFINGTON: I'm very glad that Arnold is in favor of providing health care for the children of illegal immigrants. That's really good news, because, after all, you did vote for 187. And also, I am really glad that you say that, because you have also come out against licenses for undocumented immigrants. So there is a bit of a contradiction here. In fact, I was really saddened that you as an immigrant would come out against giving that basic right to immigrants here who are trying to drive to go to work, to take their kids to school.

You know, it's all very well to say you're for children, you want them to be insured, but if their parents cannot legally drive them to work, you know, whether they're insured and they're safe, isn't that a bit of a contradiction?

SCHWARZENEGGER: Arianna, again, as usual, you are off here. We're talking about health care, and you're talking about driver's licenses.

HUFFINGTON: But they are connected. You know, they are connected, because parents drive their children.

SCHWARZENEGGER: But let me answer this. Let me answer that quickly. Let me just say, I am against the driver's license because it is without any background check and without any fingerprints or anything. Therefore, it is dangerous for the security of California. Governor Davis came out a year ago and has made it clear and has said, you know, we cannot do that because it is endangering us, it is a security problem. Now, because of this election coming up on October 7, now all of a sudden it is a great idea, let's get some more votes. That is the idea of those things. It is wrong to do that. You know that we have a security problem because of that.

(CROSSTALK)

SCHWARZENEGGER: The governor is supposed to represent the people of California, not special interests. That is the problem here.

MCCLINTOCK: I think you're all losing sight of a very important fact, and that is we're talking about families that are in this country in violation of our nation's immigration laws. Now, this nation has the most generous immigration policies of any nation in the world.

STATHAM: One minute.

MCCLINTOCK: Illegal immigration undermines that process of legal immigration that's the strength of our nation. There are millions of people who are willing to abide by our immigration laws to come to this nation, become Americans and see their children grow up and prosper as Americans. Illegal immigration is the process of cutting in line in front of them. And I don't believe that we should be rewarding such behavior.

Illegal immigration is costing this state $4 billion in direct costs out of our state treasury by the most conservative estimates available.

STATHAM: Thirty seconds.

MCCLINTOCK: We have got to assure that our immigration laws are enforced. I led the opposition to the measure on giving driver's licenses to illegal immigrants, because it undermines the enforcement of our immigration laws.

STATHAM: All right, do you want a quick 15-second close on this, Arianna? HUFFINGTON: Yes, absolutely. Because you know what, at least the good news about Tom McClintock is you know where he stands. There's no fudging. And that's what I like about you.

With Arnold, you know, it's all over the map. You know, we are for taking care of kids but not for driving them safely to school or to the emergency room or wherever the health care is to be provided. And ultimately, that's the kind of pandering to the Pete Wilson team that you are surrounding yourself with, because ultimately they are not going to change. You know, they don't really fundamentally care for those immigrants in this country.

SCHWARZENEGGER: Arianna, there is no identification, there is no background check. It is dangerous for our security here.

HUFFINGTON: It is offensive. It is offensive for you to imply that...

(CROSSTALK)

STATHAM: Two points. We have those two points.

SCHWARZENEGGER: ... but let's do it the right way. Let's get them visas. Let's get them temporary working permits.

HUFFINGTON: It is really offensive to think that they are terrorists just because they are here as illegal immigrations.

SCHWARZENEGGER: Let's get them permanent working permits. Let's...

(CROSSTALK)

STATHAM: Ladies and gentlemen, this is not productive. We have the points that you've made. We're going to move to another question from a California voter and a different subject. And this question has to do about a colorblind society. Let's hear it.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: My name is Shelly Bradford Bell (ph) from San Francisco. And my question is, everyone talks about wanting a colorblind society, but what does that actually mean to you? In other words, how do we know when we have succeeded?

(END VIDEO CLIP)

STATHAM: And the question goes to businesswoman commentator Arianna Huffington.

HUFFINGTON: First of all, we will never know if we have achieved a colorblind society if we pass Proposition 54, because it would make it impossible to collect the kind of data we need to know whether we're making progress.

STATHAM: Will you please explain what 54 is? HUFFINGTON: Oh, yes.

STATHAM: Thank you.

HUFFINGTON: Prop 54 is basically racial discrimination without leaving a paper trail. And it would make it impossible -- I will be more explicit. It will make it impossible for government institutions to collect the kind of data that we need to establish where we are.

But also, let me just say how we are going to know when we have a colorblind society. We don't have a colorblind society while people can get into Yale with a C average just because their daddy went there, like our president did. We don't have a colorblind society when you have minorities, especially African-Americans in this state, who have a much bigger chance of getting into jail than getting into college. We don't have a colorblind society when there is one-third more uninsured Latinos than whites. We don't have a colorblind society when minorities are much more likely to be in these factional (ph) schools, with teachers who lack certification and with no textbooks.

STATHAM: Thank you. Thank you. For clarification on 54, and she did a rather good version of what 54 is, Prop 54 does prohibit the state of California from collecting most race-related data. End of quote.

HUFFINGTON: Isn't that what I said?

STATHAM: Let's go to Arnold Schwarzenegger -- am I debating?

SCHWARZENEGGER: I think.

STATHAM: Can we hear from Arnold Schwarzenegger on this? Let's get in on this one, gang.

SCHWARZENEGGER: I think it is very important that we preach and we practice tolerance, equality for everyone. It starts with education. This is why I got involved with after-school programs in the inner cities. I started the inner city games after-school programs that are now nationwide and we are reaching out to 200,000 children.

Because I feel very strongly that the kids in the inner cities get disadvantaged with education, especially just recently when our governor and Cruz Bustamante has cut $120 million in textbooks which is supposed to be for those inner city schools, which is unfair.

(CROSSTALK)

SCHWARZENEGGER: It is the same administration. It is the same mold. I mean, don't tell me otherwise here.

Let me just tell you, we need to make sure that our kids get great education, (UNINTELLIGIBLE) education everywhere, and this is what I'm fighting for. It is the same thing on the job market. We have to have -- the people have to have the same right for work and the same kind of opportunities. Right now, for instance, we have a 6.6 percent unemployment rate here in California, and we have an increase in unemployment amongst women, 25 percent, amongst Hispanics, 20 percent, and amongst African-Americans, 45 percent. Where is the equality here? We need to fight for equality. I will fight for that. When I am governor, I will fight for that. And I think the governor sets the tone on that. We need equality in this thing.

STATHAM: Thank you, Mr. Schwarzenegger. I know that Cruz Bustamante wants a piece of this. Go ahead.

BUSTAMANTE: Arnold, I know that you probably don't know, but I'm the author of the textbook bill. I've been, during the entire time that I was in the legislature, I fought for textbooks for schools. In the last year I was in the legislature, we've got $1 billion for textbooks in the schools, because everybody, everybody had their great ideas about reforming schools. And I went to schools, and I didn't see textbooks. And so my great reform was to try to make sure that every kid in California had updated textbooks. I know you wouldn't probably know that.

SCHWARZENEGGER: Well, just so you know, just so you know...

BUSTAMANTE: I know you probably wouldn't know that, but that's...

SCHWARZENEGGER: ... you guys cut out $122 million (UNINTELLIGIBLE).

(CROSSTALK)

BUSTAMANTE: I didn't interrupt you.

SCHWARZENEGGER: ... no toilets there that are flushing...

BUSTAMANTE: I didn't interrupt you, Arnold.

SCHWARZENEGGER: ... the paint is peeling off. If you call this equality in education, I think it's outrageous. You know what you guys do, you politicians...

BUSTAMANTE: Yes, Arnold, go ahead, go ahead.

SCHWARZENEGGER: You go into the classroom, you do the photo op, you do the photo op, and then you leave and then we never see you again.

BUSTAMANTE: Right. You're the one to talk about photo ops, Arnold.

SCHWARZENEGGER: I am there all the time, because I am providing the after school programs, Cruz, and you know that.

(CROSSTALK)

BUSTAMANTE: OK. If you want to talk over me, that's one thing. HUFFINGTON: One second, because you said you are providing after school care. You know, your crowning achievement, the passage of Prop 49, has not provided after school care for a single child in the state of California, because there was no funding stream. It was nothing but a photo opportunity initiative. It was nothing but a springboard for your run for governor. And it is really irresponsible for you to stand or sit here and tell us that you are providing after school care. Isn't it true that not a single child has gotten after school care because of Prop 49?

SCHWARZENEGGER: First of all, our after school programs...

HUFFINGTON: Yes or no?

SCHWARZENEGGER: ... like I told you already...

HUFFINGTON: Yes or no?

SCHWARZENEGGER: ... are providing after school programs for 200,000 kids. Proposition 49 was the responsible way of going about it to get after school programs. Because what the initiative says is, there's a trigger mechanism, only when the state makes an additional $1.5 billion in revenue, then the program can get funded. Right now we have a financial crisis, that's why it's not getting funded. If the Cruz Bustamante-Davis administration would have done that since the year 2000, with all of the programs, we wouldn't have a budget deficit right now.

(CROSSTALK)

SCHWARZENEGGER: Because I don't want to use money from other program. Thank you.

STATHAM: Thank you, Mr. Schwarzenegger. We have gotten off point, and I would like Cruz Bustamante to finish his comments on this issue of color blindness.

BUSTAMANTE: Thank you. Just to complete the thought, however, in the call that Arnold had presented, if you go to any school in California, and you ask them the name of the author of the textbook bill, they will tell you, Arnold. All you have to do is ask.

But in terms equality -- the issue of the issue of equality, I think, Arianna, in this particular case, is absolutely right. We cannot get there if we're going to pass Proposition 54. It's bad. It is a bad proposal. In fact, we believe it will jeopardize the health care. And all you have to do is ask all the doctors and all the nurses, ask any health organization in the state. They are opposed to Proposition 54. I hope people make sure they do not vote for Proposition 54.

SCHWARZENEGGER: I totally agree with you, Cruz.

BUSTAMANTE: And the last thing is that equal opportunity doesn't come from tolerance. I'm going to tolerate somebody? No, it comes from acceptance. STATHAM: All right. We need..

BUSTAMANTE: And we need to make sure that everybody is accepted and that we embrace our diversity. We don't attack immigrants. We don't attack Native Americans. We don't attack people. What we do is that we accept people and try to have everybody have an equal opportunity.

STATHAM: Thank you. Thank you, Cruz. We need two more comments on this issue and those comments will come from Senator McClintock and then Mr. Camejo. Senator?

MCCLINTOCK: Well, thank you. With respect to Prop 49, I don't think it's fiscally responsible to obligate to spend money when we don't have it.

But getting to the main point -- and this is something I think everyone has lost sight of. Disadvantaged children come in all colors. It is their condition of disadvantage that we seek to compensate. It is not a question of race. Proposition 54 -- I believe I'm the only candidate on this platform who supports Proposition 54 -- simply says that our government has got to stop classifying us by race. It doesn't matter what race you are. The government should treat everyone exactly the same.

And again, when you talk about disadvantage, it's the disadvantage itself that we should be correcting and compensating. I think that this nation's best is when we are all one race, an American race. And this business of government classifying us according to different ethnic groups, different racial categories, that is abhorrent to the whole concept of one great American people.

STATHAM: Mr. Camejo, go ahead.

CAMEJO: Well, you know, the issue here is this is a proposition that promotes ignorance. It says we will not know.

Look, if you made a poll right now and asked people what your income level is between right and left handed, we all know it would be about the same. Or education level. But it isn't on race. If you ask the Latinos, do they have the same education? They have less. They have less income. And they pay a higher tax rate. Do you know that? Latinos in California pay a higher tax rate than the European Americans.

But Prop 54 doesn't allow us to know that. We're not allowed to ask the question. So how can we correct problems that exist in our society, which are complex. And I welcome what Tom says and Arnold says that they are for equality. But if you're for equality you have to be willing to have the information so we can take the necessary action to change this.

And Prop 54 is a very dangerous bill because what it does is leads the people to begin to think that these problems are behind us. They're far from behind us. We still have enormous problems to solve in our society. STATHAM: All right. We're going to move on to another citizen question. This question has to do with our business climate in California. Let's hear the question.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Hi, my name is Mike Moody (ph). I'm a small business owner in Sacramento. And my question is, Business leaders in the community are convinced that we are losing jobs and unable to bring new business to the state. If you agree, what are two things that you would change to make this a more business-friendly state. And if you disagree, what are the misconceptions that you would like to correct? Thanks.

(END VIDEO CLIP)

STATHAM: Candidates, if you would be so kind to keep your answers short on this, because we rather hit this subject earlier in this one-hour debate, so far in this 90-minute program.

This question does go to the lieutenant governor first, Cruz Bustamante.

BUSTAMANTE: Absolutely. I think the very first thing that we need to do is continue to invest in higher education. It is essential. If we're going to stay on the cutting edge of a global economy, we have to be able to invest in our children. We must have access of every qualified student to our universities and our colleges. The kind of creativity and the talent that comes from those universities is what created our boom in our economy.

In fact, the boom in California's economy led the way for the nation's boom in their economy. We can do this again, but only if we invest in our higher education system, and not allow 123,000 community college students to be left out of the system this year.

The second thing is we need to absolutely fix this worker's comp issue. There's absolutely no doubt about it. I've already talked about how we need to find an incentive for good workplaces and have a disincentive for bad ones. I think that that's how we should go with worker's comp fixes.

STATHAM: Next.

HUFFINGTON: Absolutely. I agree about fixing the worker's comp system and going beyond the bill that already passed the legislature which was insufficient.

But also, you know, Cruz, when you talk about the fact that we have increased tuition fees and the fact that there are many college kids...

BUSTAMANTE: Opposed them.

HUFFINGTON: ... who can't go to college...

BUSTAMANTE: I opposed them.

HUFFINGTON: I know you opposed them.

BUSTAMANTE: I opposed them all.

HUFFINGTON: But your party...

BUSTAMANTE: My party....

HUFFINGTON: Governor Davis, you know, supported them. And the bottom line is...

BUSTAMANTE: Well talk to -- then talk to him.

HUFFINGTON: Yes. I will.

But the bottom line is that it should never have been on the table.

BUSTAMANTE: I agree.

HUFFINGTON: The bottom line is that this is a great demonstration of how broken the system is. And I have a very specific proposal.

BUSTAMANTE: On that we would agree.

HUFFINGTON: But I would like you to join me with (ph).

For example (ph), would you stop or help me stop the construction of the Delano II Prison (ph) project? That is $600 million -- $600 million -- would completely make it possible for us to roll back all the tuition fee hikes and have $150 million to spend. So would you be in favor of that?

BUSTAMANTE: Let me tell you, Arianna, you may not understand how the process works...

HUFFINGTON: Oh, please, you keep saying that....

(CROSSTALK)

BUSTAMANTE: But just let me say this so that you can understand it for the final time.

HUFFINGTON: You know what? I have been writing about these things. You can go to votearianna.com and see a complete proposal.

(CROSSTALK)

HUFFINGTON: Before you say anything you're going to say....

(CROSSTALK)

BUSTAMANTE: There are specific bonds that are left for specific construction projects. If that facility was not built, the taxpayers of the state of California would not save one dime.

The bigger issue -- and I agree with you -- the bigger issue is fully funding education. I absolutely agree with that. And my "Tough Love" plan, in fact, does do that. It provides a full funding for Prop 98 and all of our schools, and it closes that hole...

STATHAM: We're off topic. We're off topic. You said schools. We're off subject. The subject at hand was a two-part question. Do you think California has a bad business climate, and if you do what are you going to do about it, Senator McClintock?

MCCLINTOCK: Well, of course it does and we've talked about that already. There are basically four horsemen of this recession -- workers compensation, taxation, litigation and regulation, and all four of those have got to be addressed fundamentally.

We've talked about worker's compensation. We sit right next door to Arizona. The worker's comp costs are one-third of what they are there. Let's just swap the systems.

Taxation -- we've got to lower the overall rate of taxation as we saw from the story of Fidelity National leaving California, taking 400 jobs with them. You start that with the abolition of the car tax.

The -- in terms of regulation, that's why I've introduced a Bureaucracy Reduction and Closure Commission, so that we can begin weeding out these duplicative bureaucracies that -- and provide that businesses don't have to needlessly respond to multiple agencies every time they want to do something.

STATHAM: Thank you.

MCCLINTOCK: And if I could just say -- and litigation, we have got to overhaul the tort reform system in this -- or, the tort system in this state, one of the major initiatives that I will be introducing will be a general measure to restore our civil courts to the simple process of compensating victims of torts and move all of the punitive damages into the criminal courts where they belong, or at least apply a criminal justice standard order to them, as well as the English...

STATHAM: Thank you, Senator. We have two more opinions on this question. Peter Camejo from the Green Party.

CAMEJO: Well, First of all, Mike, I want to thank you for the question, but tell you that I think there is a myth here.

The biggest problem we're facing in regards to corporation is the outbreak of a crime wave. You have the Enrons and WorldComs. And why is it that the managers are all stealing all over the country? In fact, there was a study done for two years -- and this was a ways back, but it was very interesting. It showed that of the largest 538 corporations, in two years 67 percent of them violated the law. There's no other neighborhood with that type of criminal record.

So the corporations -- what we need to do is get the rule of law established. We have companies with felony convictions every single year. Nobody goes to jail. Part of the problem is that the owners of these corporations, the largest ones, are the pension funds. And working people actually own these companies and don't even know it. What we need to do is democratize, change our 1937 act, democratize our pension funds so they can exercise control.

You know what we should have done during the energy crisis with these corporations? Voted out all their boards and put law abiding citizens in there and stop them in our tracks. That's...

STATHAM: Thank you. Nobody....

CAMEJO: That's what the answer to this problem is. They're welcome. Business is welcome in California and has been super welcome. Their taxes are as low as they can possibly go.

STATHAM: We're going to end this particular subject with an answer from Arnold Schwarzenegger.

SCHWARZENEGGER: I think that I agree with Tom that we have the worst business climate right now anywhere in the nation. And I think that this is what drives businesses and jobs out of the state and I think we have to reverse that. Because the only way that we can pay off our inherited debt, which experts are now saying is between $12 billion and $20 billion, and deal with the current operating deficit is by bringing businesses back because if we bring businesses back, then we bring jobs back. When we bring jobs back and the economy is booming, then we create more revenue and then we can afford some of the programs and pay off the debt, which is very important, because we're not going to get any more credit now the way things are going right now.

STATHAM: As you know, ladies and gentlemen, these people are running for the governor for the state of California. Which also has a lot to do with local governments. So our next question has to do with state money for local government.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Hi, I'm Helen Thompson and my question is this, what services will your administration expect local governments to provide and what source of stable funding will you give them to do it?

(END VIDEO CLIP)

STATHAM: All right. You're still on deck for this one, Arnold Schwarzenegger.

SCHWARZENEGGER: I think it's very important that we have a good relationship between the local and the state government. Right now, it doesn't really make much sense. I think that, first of all, that the local government should continue with the services they're providing right now, but it is wrong for the states to go there and take half of the property tax away and then to have the cities and the local government go up and lobby in Sacramento continuously to get the money back. I think that they know best how to spend the money. The local people down at the ground know which programs they need, how to improve education. Each one of the communities have different needs. I think they should continue with the services. If it's job training or if it is drug rehabilitation programs or the services that provide with police and fire department, all of those kinds of things. But they should have their own way of funding those programs.

CAMEJO: But, Arnold, it was Pete Wilson, your campaign director, who took the money from the counties.

SCHWARZENEGGER: Let me make one thing clear, Peter. On October 8, it's not going to be Governor Wilson or Governor Bush or any of those kinds of things. It's going to be Governor Arnold okay? So let's make that clear. Thank you.

CAMEJO: Can I jump in here?

HUFFINGTON: Let us just pray it's not, because the last thing the state needs is Governor Arnold Schwarzenegger. In fact, it's very important that the people of California know who you really are, because, you know, you've been saying so many things and then contradicting them a few weeks later. First of all, the day you decided to run, you told us you're not going to take any special interest money...

STATHAM: We're talking about local government, I believe. Excuse me, I believe you're off subject. We're talking about local government.

SCHWARZENEGGER: When you were waiting an hour and a half to do a photo op with me, was that the day?

HUFFINGTON: You're asking us -- no, no, it was actually the day you were on the "Jay Leno Show." But it's very important if we want to know who we are and if the public is to find our out who we truly are to actually expose the inconsistencies.

STATHAM: Let's fine out who you are -- Governor Schwarzenegger -- pardon me. I'm getting mixed up here. I'm going to have to lower my meds.

HUFFINGTON: Stan, what are you drinking? See, what I...

STATHAM: Governor Huffington would do what for local government?

HUFFINGTON: What I would do is I would actually approach it from the most fundamental problem we're having, which is the fact that Prop 13 is responsible for the fact that local governments are left at the moment with so little money that, as Arnold said, they have to go begging to the state government to get their money back.

And what we need to do, as I said is to mend Prop 13, not end it but mend it. And that means protect its original intent, which is protect middle class homeowners, protect people on fixed income and seniors. But when it comes to multi-millionaires living in multi- million dollar homes, why shouldn't she pay their fair share?

Even Warren Buffett, that Arnold Schwarzenegger brought to California, said that and then Arnold told him he should do 500 sit- ups. I say keep talking Warren and I'm going to make you a big Greek fat dinner.

The bottom line is that unless we fix Prop 13...

BUSTAMANTE: Arianna.

HUFFINGTON: we are not going to be able to handle -- hold on a second. You're getting in a really bad habit but I'm not easily intimidated. I'm going to finish and then you're going to speak and we can see who speaks louder in a foreign accent right?

SCHWARZENEGGER: You can increase all you want but you will be having empty buildings out there. There will be no companies left. They will be moving to the next state. So, you will have nothing. You will not have accomplished the goals.

STATHAM: I appreciate it. I'm so grateful -- I am so grateful that these candidates had the courage to engage one another. But we have irreconcilable differences here, so we're going to go to the Green Party candidates.

CAMEJO: Yes, I'm trying to be respectful to everybody here. I want to thank Helen for her question because this is a mystery in California. There is a problem here that most people are not aware of. Our county governments are starved for money right now. Most of the money they received is already allocated. The county supervisors have almost no power at all. The fact is about half of their discretionary money was taken away and then when we had surpluses in the budget of the state, instead of giving it back to the counties, they refused to.

This is creating a crisis and I'll tell you where it starts hurting. Counties start looking at their pension fund as a big pile of money that maybe they can somehow lower -- solve their budget problems by not making the payments that they should be making.

So what we need to do is give that money back. We have to empower the local governments. We have to give them more freedom. We have to look at these issues more carefully. And I think as a supervisor, Helen is raising the stress that she's feeling and that all supervisors are feeling for lack of funding to be able to carry out the important tasks they do, including preventive medical, the health care, the issues of -- that if we cut those, we'll end up paying more because that simply becomes a problem in the emergency room.

STATHAM: Thank you, Peter. We've already gone an enjoyable hour and five minutes and we want to move as rapidly as possible so we'll go to Senator McClintock.

MCCLINTOCK: Senator Wilson raided the local property tax funds, I was one of the very few members of the state legislature who stood up and tried to stop him. This is a cause near and dear to my heart. It seems to me that the biggest problem that we've had with local government is this blurring of revenues and authority.

Sacramento has not only raided their money. It's also usurped their authority. We have got to restore the distinction between local government -- the state worked a lot better when local governments could use local revenues and apply those for local purposes. They've got to have a dedicated stream of revenues restored to them, and then they've got to have the full authority restored to them to use those revenues as they best see fit.

Mandated state costs on local governments have got to stop. If the state government wants to mandate programs for local governments, the state government can bloody well pay for them. That is one of the most important governmental reforms that we have got to embark upon, because right now, we end up with the state budget being a political grab bag literally robbing Piedmont to pay Pasadena.

STATHAM: All right. Time -- time constrictions. Give us one more comment from the lieutenant governor for about a minute and a half.

BUSTAMANTE: Actually, we agree on this particular issue. But I think it's more than just not providing state mandates without funding. I think you're right about that. But we should create better partnerships. For example, right now there is an over dependence by local governments on sales taxes. And as a result, there is no emphasis on building homes in our communities.

They're building strip malls and auto malls. But they're not building homes. If we would be able to swap out some of the sales tax with some of the property taxes that we have as a state, there would be more of an emphasis by local governments on building the kinds of homes in the communities that we want. We all know that we have a tremendous amount of need out there in the communities. We have 500,000 homes that we need to build in California. That's why homes are so high in terms of their price.

STATHAM: 30 seconds, please, 30 seconds.

BUSTAMANTE: Creating that special relationship to fix problems between the state and the county I think, is the best way to go.

STATHAM: Our next question involves another ballot issue that you must vote upon. And so let's listen to the question about Prop 53.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: My name is Sonya from Anaheim Hills, California. Under governors Pat Brown and Ronald Reagan, California spent up to 20 percent of its general fund on infrastructure such as roads, bridges, colleges, hospitals and water systems. Now we spend closer to 1 percent. Proposition 53 on the ballot raises that figure to 3 percent. What are your positions on Prop 53 and what will you do to invest more in California's aging infrastructure? (END VIDEO CLIP)

STATHAM: And the first answer comes from gubernatorial candidate Senator Tom McClintock.

MCCLINTOCK: Well, the -- it seems to me that the importance of our infrastructure has been completely overlooked since 1974. If you go back to the last year of the Pat Brown administration, a period when we were building highways faster than Detroit was building cars. We were bringing down the state water project to provide for that generation's water needs. We had the finest university system in the country. We were providing a free university education to every Californian who wanted one. We had one of the finest public school systems in the country. Our hydroelectric dams were producing power...

STATHAM: Senator, can I interrupt? I'm not going to stop you, but may I interrupt? We have slightly less than three minutes to wrap this entire subject up, so please.

MCCLINTOCK: Well, Proposition 53 is a very important start, but we have got to go a lot further. My vision involves a new era of highway construction, dedicating our highway taxes once again for our highways, water construction, electrical plants, hydroelectric dams that were being produced during the Pat Brown administration are producing electricity to half a cent a kilowatt hour. That's $30 a year for an average family. We've got to restore that dedication to our public works.

STATHAM: Thank you. We need 45-second answers on this question. The lieutenant governor.

BUSTAMANTE: Let's not romanticize about those days of Pat Brown and even Ronald Reagan. I mean, that cost money. We haven't built a new university in California in 35 years. That's not keeping up with growth in terms of our higher education. We're not keeping pace with our transportation, we're not keeping pace with so many other things that we need in California. But all that costs money, Tom. And back then, let's not romanticize it, because back then they raised taxes to get those things. They knew that they had to make an investment in our future. The Californians of yesteryear...

(CROSSTALK)

BUSTAMANTE: I didn't interrupt you.

MCCLINTOCK: ... inflation adjusted dollars.

BUSTAMANTE: OK. Well, we agree that we need to build more infrastructure. At least we agree with that, but we need to also make sure that we build it and we don't it in a way that says we're going to think about something else.

STATHAM: Arianna, on Prop 53.

HUFFINGTON: I oppose Prop 53, because unless there is a dedicated funding stream, that money will have to be taken from somewhere. And it will be taken out of schools, or health care provision. We can't afford to do that. Absolutely, we need to improve our infrastructure, but I want to be the kind of governor who would also bring a larger vision to this issue. It's not enough to just talk about fixing what we have. We need to look at the fact that if we actually become the leader in renewable energy and we become the leader in having high speed ray and we are looking ahead at the future, then we'll be able to create hundreds of thousands of jobs and be able to fix our infrastructure.

STATHAM: Excellent! Green Party candidate Peter Camejo.

CAMEJO: I'm opposed to Prop 53. It's micromanaging. We do have a crisis of infrastructure, it's super important, but the way you finance infrastructure is very different from the year-to-year budget. It's really a capital expenditure, and it should be able to self- finance. But we are creating a disaster in the future for the next generation if we don't start straightening out and have a 20-year plan. I really think one of the things we're doing wrong in California is we're not getting together and coming out with a long- term plan of how to keep our infrastructure and make it possible for our economy, and we need to have funding that's not connected directly with the budget, but have like when you build a bridge, you pay a fee to go across the bridge. That's what pays for it, and you borrow money to build the bridge. So we can build the infrastructure even without hurting our budget.

STATHAM: Thank you. Thank you. The final 45-second comment on this will be made by Arnold Schwarzenegger, please.

SCHWARZENEGGER: I am for Proposition 53. I think it's a good beginning. But the fact of the matter is that we need a lot of infrastructure here in California. Infrastructure with the highways and with the transportation, the railroads, infrastructure with our water supply, infrastructure with our ports. We need that. We should model ourselves after Texas. In Texas, they've committed $140 billion for infrastructure. They are going to start now with building 4,000 miles of transportation, railway, freeways, highways and all those kinds of things.

They have already taken the position we were first in export, now it's Texas is first in export, because they are really aggressive, it seems. That's what California ought to do.

STATHAM: Thank you. Ladies and gentlemen, you've just heard five excellent candidates for governor directly address voters' questions from citizens of California and directly confront one another. We have a special announcement that you need to watch if you're interested in this election. Then we will be back for a final two-minute closing statement from each of these gubernatorial candidates. But now we want to introduce to you the secretary of state, the honorable Kevin Shelley.

(BEGIN VIDEO CLIP)

KEVIN SHELLEY, CALIFORNIA SECRETARY OF STATE: The October 7 special election is an extraordinary moment in our state's history. That's why we all need to go to extraordinary lengths to make sure as many people as possible participate. It's important to educate yourself about the election and the issues at stake. Tonight's forum is an important opportunity to study candidates and the issues that are important to California.

Also, review your state voter information guide. The guide explains the recall question, lists the replacement candidates and their positions, describes the two propositions on the ballot, 53 and 54. Registered voters can also vote by mail. Absentee ballot applications are on your sample ballot. Or you can apply in writing to your county elections officials. The absentee ballot application deadline is September 30.

The sample ballot will help you find your candidate. Bring it with you on election day to the polls. In some counties, you may be able to vote early at special locations. Call your local registrar of voters or county election officials to find out how. Look on the back of the sample ballot to find out where to go to vote. It may be different than the last time. The county may use punch cards, touch screens or optical scan voting systems. Reviewing your sample ballot and knowing the voting systems used in your county will speed things along on election day.

Go to go myvotecounts.org to find out more about your county's voting system, how to volunteer as a poll worker, and to answer any other questions you might have about voting and the issues on the ballot. California special election is October 7. Make your vote count.

(END VIDEO CLIP)

STATHAM: And now the timing on our 90-minute debate has gone from important to absolutely critical. And our first closing statement will come from Arnold Schwarzenegger.

SCHWARZENEGGER: Thank you very much.

A lot of friends of mine have asked me if I'm crazy to run for governor. They said to me that I have the best life in the world, that I have a great career ahead of me. I have a lot of money, a wonderful family, and I know that when I get into politics, they will try to tear me down.

But my answer to them is very simple. I wouldn't have all of those things if it wouldn't be for California. California has given me endless opportunities to create this great career, the money, the wonderful family, and the businesses that I have.

Now I want to give something back.

When I came over here to California, I had absolutely nothing. I had just one thing, which was a dream. A big dream. To come to the greatest state of the greatest country in the world, to the Golden State, to California. But now our politicians have let us down. Our budget is in a crisis. And we have to do something about it. The politicians are now punishing the people for the mistakes that they have made in Sacramento. They are asking to increase the taxes. They are driving businesses out of the state and jobs out of the state.

We have to change that. We need new leadership. This is what this is all about. And I want to go to Sacramento and I want to work for you, because I am not beholden to anyone. I don't owe anyone anything.

I set always big goals for myself. And most of them are accomplished, but this one is a little bit bigger than I am. And that's why I need your help. I need a lot of help. I want you to vote for me on October 7. I know that together, we can do a lot of great things. Thank you very much.

STATHAM: Thank you, Mr. Schwarzenegger. And now your two-minute closing statement, Senator McClintock.

MCCLINTOCK: Thank you, Stan.

The election in 13 days can be the historic turning point when California rolled back the taxes and the regulations that are choking our economy, when we reigned in our out-of-control bureaucracies, when we restore our crumbling public works.

To do so, we have got to have a governor that knows every inch of this government and is able to confront and challenge and defeat the spending lobby that now controls it.

I am the only candidate at this table who has signed a no-tax pledge. I am the only candidate at this table who supports Proposition 54, to stop the government from racially classifying every one of us. I am the only candidate at this table that supports the California Republican Assembly's referendum to stop the bill that gives driver's licenses to illegal immigrants. I am the only candidate at this table who is pro-life. I am the only candidate who supports the entire Bill of Rights, including our Second Amendment. And I am the only candidate who for 20 years in the public arena has proposed and fought for precisely those fiscal reforms that are desperately needed to straighten out this state's finances.

Now, we over the years have always been disappointed by politicians who make a promise and then don't carry through on it. We've seen a lot of campaign promises made and broken just in the span of this very brief campaign.

There's one thing that everyone, friend and foe alike agrees about Tom McClintock. And that is, that when I make a promise, I keep it. I steer a straight course, and I stay that course no matter what the pressure.

And here is my commitment to the people of California. I will cut spending and balance this budget without a tax increase, and that is a promise. You can help, and I would sure appreciate your help, and make a difference at helptom.com. Thank you.

STATHAM: Thank you, senator. We are precisely on time. A two- minute closing statement from Green Party candidate Peter Camejo.

CAMEJO: We have a fiscal crisis in California. And we're not going to solve it unless we establish a fair tax system.

The wealthiest 1 percent pay a 30 percent lower tax rate than the average person is paying. And they talk about not raising taxes, but they have already raised it on you. But they're not -- the wealthy people are not paying their fair tax, nor the corporations. And we are not going to solve the crisis of education or other crises unless we establish a fair tax.

The amazing thing is that we would have a fairly substantial surplus and we could actually attack these issues. Now, is there waste in our budget? Of course there is. And we should try to find it and stop it and curtail it. That I agree with some of the comments Tom has made. But we are 27th in education. I want to improve that. I want to start affordable housing programs. I want to make renewable energy. I want to make California the leader in renewable energy.

We also have to raise our minimum wage. I want a living wage. Do you know that our minimum wage is 24 percent lower today when adjusted for inflation than it was in 1968 and our economy has improved so much.

We need universal health care. One of the problems that's deeply bothering me and we need a governor that will speak out on this is the issue of civil liberties and our people in California. I'm very concerned about what is happening internationally, because California is a key to this world. We're the fifth largest economy and we must speak out.

Here we were for ten years supporting Saddam Hussein and arming him and now we're illegally occupying that country and destroying the federal budget. No, we need someone who will speak out in sport of the Kyoto Agreement and the U.N, charter and the rule of law in the world -- and the world port (ph).

What I want to do is fight for the change of our electoral system so that you don't just hear two people in the debates. And it's sad to say that in the next two debates they're trying to exclude me. The League of Women Voters now doesn't want the person heard from the Green person heard anymore whose calling for a fair tax. If you believe in Democracy and sustainable economics and if you believe in peace and free elections, vote Green, vote Camejo governor. Thank you.

STATHAM: Thank you Mr. Camejo. Our next closing statement comes from Arianna Huffington.

HUFFINGTON: In this election, we're seeing the rise of the fund- raising machines. We have Arnold Schwarzenegger raising over $8 million from big business and we have Cruz Bustamante raising almost $4 million from the Indian gaming tribes. If you want this to continue, please do not vote for me. Vote for either Cruz or Arnold.

If you want to end business as usual, if you want a truly independent leader in Sacramento then vote for me. And go to votearianna.com and get involved, because we have 13 days left. And only a truly independent leader can change our broken system.

Does anyone here believe that the reason we have 2 million children in substandard schools, 4 million people below the poverty line and 6 million people without health insurance is because we don't have enough money? Of course not. It's because we have the wrong leaders driven by the wrong values and the wrong priorities in Sacramento.

And this priority are set by big contributors who are treating Sacramento like an ATM machine. They put in their contribution, and they pull out one favor after another. And I'm the only one who can change this because I'm not beholden to anyone, because I have the most individual, small contributors of any other campaign. And because I'm running a truly grassroots campaign.

So I want to bring to Sacramento the priorities of a mother, a good school, health care, a clean and safe world to live in. And I want to bring passion and commitment back to Sacramento so that we no longer continue to ignore the pain in our communities. So vote for me. And together we can make history on October 7.

STATHAM: Thank you. Thank you, Ms. Camejo (sic). Lieutenant Governor Cruz Bustamante, a closing statement.

BUSTAMANTE: I grew up in a very big family in a very small town in the central valley of California. We picked, packed and shipped just about everything there was in the valley to pick. I remember growing up with six kids in the family, growing up in government housing. And my dad was able to create a barber shop and be able to take care of his family. But he also had to have three jobs during school clothes time. We learned the value of hard work. And this recall is a serious business.

And I believe that the voters believe it's a very serious thing. Regardless of what other people say on national TV shows. I think it's so serious that they're going to analyze everything we've got to say. They're not going to give anybody a pass. You're going to be looking at us and trying to figure out what our ideas are, complete ideas, how to really fix things in California.

Well, I'm running in order to be able to maintain the kinds of values that's always going to think about those families who are struggling and trying to make sure that every time you sign a bill, every time you veto a bill, it's going to be about making sure that those values for those working families are being covered.

We have to make sure that we also defend the woman's right to choose. Make sure that our environment doesn't fall into some abyss. We need to make sure that we protect the working families and make sure that everyone has equal opportunity in this state. That's the kind of California that our parents gave us and that's the kind of California that our children deserve. I'd appreciate your consideration when you vote for governor.

STATHAM: Ladies and gentlemen, I don't know if you really realize the kind of courage it takes for these individuals even in a compressed 60-day recall election, what they have to do and how they have to change their lives and place themselves before you and, of course, before millions tonight and go through this interchange. They are five fine human beings here. Will you please give them a great round of applause?

If you'll stay where you are -- if you'll stay where you are. All right, just go on.

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