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STATE OF THE UNION WITH JOHN KING

Interview With David Axelrod; Interview With Lindsey Graham; Interview With Governor Schwarzenegger, Mayor Bloomberg

Aired December 20, 2009 - 09:00   ET

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


JOHN KING, HOST: I am John King, in beautiful snowy Washington, D.C., and this is STATE OF THE UNION.

(BEGIN VIDEOTAPE)

KING (voice-over): Senate Democrats make a deal on health care.

PRESIDENT BARACK OBAMA: We are on the cusp of making health care reform a reality.

KING: And the president brokers a global compromise.

OBAMA: For the first time in history, all major economies have come together to accept their responsibility to take action, to confront the threat of climate change.

KING: Do these agreements meet the president's test, or is he giving up too much in his deal making? I will ask his senior adviser, David Axelrod.

Then reaction from a Republican who shares the president's goal of major climate legislation, but is a fierce critic of his health care approach, Senator Lindsey Graham of South Carolina.

And two of America's best-known leaders discuss their role in the climate talks, and their worries about paying for health care changes, California Governor Arnold Schwarzenegger, and New York City Mayor Michael Bloomberg.

And our "American Dispatch" from scenic Hawaii, skyrocketing electricity costs driving a dramatic energy evolution.

This is the STATE OF THE UNION report for Sunday, December 20th.

(END VIDEOTAPE)

KING: The White House this Sunday is celebrating what it considers to be two significant deals to advance the president's ambitious agenda. One is a deal among Senate Democrats on major health care changes. The other is a compromise President Obama brokered himself, a global agreement on the goal of reducing greenhouse gas emissions. The administration's critics say there's nothing to celebrate. They assert the Senate health care bill gives the government too much power and will not lower health care costs for most working families. And they say the climate deal could put the United States at an economic disadvantage because the agreement contains no mandatory reductions and no enforcement mechanisms.

Here to help us dig deeper on both issues and more is President Obama's friend and senior adviser, David Axelrod.

Welcome.

AXELROD: Thanks, John. Good to be here.

KING: Let's start on a Sunday morning with a football metaphor. If the health care reform debate, like a football field, is 100 yards, how far are we now that the Senate has this agreement?

AXELROD: Well, we're way deep in the red zone. And we're right on the -- we're right on the one-yard line. And we're -- now, you know, that does not mean that we're in, and once the Senate passes this bill, obviously there's work to be done. The House has its version, the Senate has its version. They have to agree, and we're going to have to go through one more round.

I have no doubt that the Republican leadership will try and throw procedural barriers in the way, as they have for the last several months. But I think there is a will to get this done. People understand we're on the doorstep of doing something really historic that will help the American people and strengthen our country for the long run.

KING: I want to get to some of the specifics in the president's challenge in negotiating between the House and the Senate in a minute, but first, on the timeline issue. The president had hoped to sign this bill this week, or before the end of the year, anyway, and it's clear that won't happen now. The House and the Senate won't have their conference committee and the negotiations until after the holiday season. If not a year-end deadline, when now?

AXELROD: Look, I don't think the important -- we -- I believe this is going to happen soon. I think there is a will to get it done. We've had an eight-month -- essentially an eight-month debate. It has been discussed for the better part of the year, and I think the people are ready to go. This is a very, very strong bill.

KING: You've seen how fragile this is, and how difficult this is, in both the House and the Senate, just among Democrats. So I want to show our viewers some of the differences and ask you how the president will get involved in brokering the compromise.

The Senate plan pays for the health care reform this way -- a 40 percent tax on those so-called Cadillac plans, worth more than $8,500; $483 billion in Medicare cuts, and an increase in the Medicare payroll tax for those making over $200,000 a year. There's also an innovative 10 percent tax on indoor tanning. The House is very different. Not only does the House bill still include the public option, which will be a huge source of controversy in the negotiations -- the House pays for its plan this way: a 5.4 percent surtax on income for those making over $500,000 a year; there is $404 billion in Medicare cuts, and a 2.5 percent tax on medical devices sold here in the United States.

If the president had his druthers, if he could pick, which of the financing plans is best in his view?

AXELROD: Look, I am not going to negotiate here with you, John, and I don't think that that would advance the process. The president has -- the president believes that there's merit to what the House has done and what the Senate has done. He spoke in his address to the joint session on the -- the effect of the Cadillac plan tax in terms of lowering the growth of health care costs. He thinks that has some merit.

He does believe that upper-income Americans should be the ones who bear the brunt of this. So we'll see what -- how this gets blended when the time comes, but I think that it will be blended.

KING: Is it what the president promised during the campaign? The central Obama promise was to change this town, to change the influence of lobbyists, to change the backdoor deal making, to make it more open and transparent to the American people.

Harry Reid, the Senate leader, yesterday was pretty open in saying, you know, to get Ben Nelson's support and to get others' support along the way he has had to essentially give them things, to get their votes. A lot of money for Nebraska in this agreement. A lot of money before that to Louisiana, Senator Mary Landrieu.

Senator Reid said a number of Senate Democrats asked for things, and he had to give them to them to get compromise. Republican critics say that's not the way to do major legislation. Listen to Senator Richard Burr of North Carolina.

(BEGIN VIDEO CLIP)

SEN. RICHARD M. BURR, R-N.C.: But you've got to compliment Ben Nelson for playing "The Price is Right." He negotiated a Medicaid agreement for Nebraska that puts the federal government on the hook forever. Not for six years, not for 10 years. This isn't the Louisiana purchase; this is the Nebraska windfall.

(END VIDEO CLIP)

KING: Colorful rhetoric there, but many people do say -- even a lot of Democrats were complaining after the deal with Senator Nelson, saying this is no different, that Washington is the same old deal- making.

AXELROD: Trust me, John, I think every senator uses whatever leverage they have to help their states. That's the way it has been. That's the way it will always be. Senator Burr and others are actively trying to advocate for their states.

Senator McConnell made much the same comment on the floor yesterday, after having included $75 million of earmarks in the omnibus bill that he just voted against. So -- for Kentucky. So, you know, that is part of the system. And people want their legislators to advocate for their states.

But you say, does it represent change? The change is that we are fighting an insurance industry that has killed health reform for generations. They're spending tens of millions of dollars right now to defeat this bill, and we're on the doorstep of winning a great victory for the American people.

KING: We just listened to a Republican critic there, but as you know, some of the criticism is coming from your friends, especially your friends on the left, who say the president seems to them to -- every time there is a deal to be made, sides with the Liebermans and the Nelsons, the more centrist and conservative Democrats, and not progressives on the left.

Andy Stern, who is the president of the Service Employees International Union, and he wrote a letter this past week criticizing a lot of this dealing, and accusing the president -- he came just short of using the term "selling out." What Andy Stern says is that while it's not entirely clear exactly what the final bill will look like, he says: "For many people, care will still be too expensive to afford. Some of you would face an additional burden because your health insurance benefits would be taxed. And the best way we sought to hold insurance companies accountable was no longer an option," that being the public option.

But the central complaint of the labor movement is that that Cadillac plan, which you just said has some merit to it, they view that as a violation of the president's promise during the campaign not to raise taxes on working families.

AXELROD: Well, look, that -- what's being contemplated by the Senate would affect about 3 percent of premiums, policies, I believe, that $23,000 is where they set it, which is -- is much higher than most family policies.

And the estimation is that it will help reduce kind of feather- bedding by the insurance companies. It would force them to become more efficient. The tax is on the insurance companies, by the way, and that's our -- and that's our goal.

It also, by the way, is expected to result in wage increases for 90 percent of the people who -- who are affected by this, because that money will be shifted from health care...

KING: But if they can come...

AXELROD: ... to wages. So, you know, I -- there is some merit to that.

KING: I want you to listen to something your candidate, Barack Obama, said a little more than a year ago, in the final weeks of the campaign. He was talking about health care, and he made this emphatic promise.

(BEGIN VIDEO CLIP)

OBAMA: We'll let Medicare negotiate for lower prices. We'll stop drug companies from blocking generic drugs that are just as effective and far less expensive. We'll allow the safe re-importation of low-cost drugs from countries like Canada.

(END VIDEO CLIP) KING: "We'll allow the safe re-importation of low-cost drugs from countries like Canada." The president promised that in the campaign. We've talked to several Democratic senators this week who say, when they tried to put that language into health care reform, it is the Obama White House lobbying against it, against what the president promised, saying we can't do that, because we've made a deal with the pharmaceutical industry. They're going to support the big bill if we don't put that in there.

AXELROD: Let me be clear: The president supports re- importation, as he said, safe re-importation of drugs into this country. There's no reason why Americans should pay a premium for the pharmaceuticals that other -- people in other countries pay less for. And we will move forward on it.

KING: Just not in this health care reform bill?

AXELROD: Yes.

KING: That's a promise you'll make to the American people?

AXELROD: The president is committed to moving forward once we resolve the issues that the FDA has. That's his responsibility, to protect the American people.

KING: Let's talk quickly about the president's trip to Copenhagen to try to get a dramatic agreement on global climate change. He did get an agreement in the end, but when he arrived, when he stepped off Air Force One, the proposal on the table at that moment had no binding emission cuts, no verification procedures -- the Chinese were objecting to that -- and no enforcement mechanism at the United Nations. There was no way for the United Nations would say, "Your country didn't keep it. Here's the penalty involved." So the president said, "Not good enough."

(BEGIN VIDEO CLIP)

OBAMA: I don't know how you have an international agreement where we all are not sharing information and ensuring that we are meeting our commitments. That doesn't make sense. It would be a hollow victory.

(END VIDEO CLIP)

KING: When he arrived, he'd say, "It doesn't make sense. It would be a hollow victory," if it doesn't have clear enforcement and verification procedures. Then that night, he negotiated an agreement that has no enforcement and verification mechanisms. How does it go from a hollow victory to being meaningful and historic?

AXELROD: Well, John, first of all, let's understand, when the president arrived, the -- the talks were collapsing, and there was a very real prospect of no progress out of -- out of Copenhagen. We've been trying to get some sort of accord for 10 years. The United States has been sort of on the sidelines here. Now the president of the United States arrives, and he pulls the -- the leaders of the major economies together, and they arrive at an accord that says we're going to set domestic standards.

We have a goal for 2050 that comports with science, in terms of lowering climate change, and we're going to pursue domestic goals, and they have to be verifiable, and the international community is going to analyze those results. And there's going to be aid to developing -- we're going to raise money for developing nations to do that...

KING: But there's no penalty -- no penalties built in if China or India say no way.

AXELROD: Because -- because this was noted and accepted by the entire conference, the U.N. now has the ability to move forward on these things and to -- and to implement them. Nobody says that this is the end of the road. The end of the road would have been the complete collapse of those talks. This is a great step forward.

Now, China, India have set goals. We're going to be able to review what they're doing. We're going to be able to challenge them if they don't meet those goals. We're going to pursue this anyway, because the president understands that our future lies with a clean energy economy. We've doubled renewables this year. There are millions of jobs to be had there, more energy security, so we're going to pursue this.

But we don't want to put our country at a competitive disadvantage in other ways. Now the Chinese, the Indians, and the other major economies are coming along, and this has to -- this is the result of his strong leadership.

KING: First time we've had you in the studio. You've been on several times before. Let's take a trip over to the magic wall. I want David Axelrod, political consultant, not David Axelrod, senior White House adviser, to help me with a couple of questions.

AXELROD: Yes.

KING: As we end the year, I want to first go through...

AXELROD: This is cool, actually. I like this.

KING: ... this is the state of Illinois. Come on up. Come closer. You can reach out and touch it, if you want.

AXELROD: OK. OK. KING: This is the state of Illinois, the president's home state. I want you to watch this play out of his approval rating and disapproval rating over the course of the first year. Green is approval; red is disapproval. You're ending the year at least with a month to go with slightly more Americans disapproving than approving. How did we get from near 80 percent to below 50 percent?

AXELROD: Well, John, we -- we took over in January in the midst of an unprecedented economic crisis, fiscal crisis, financial crisis, two wars. The president has had to make a lot of tough decisions to try and rescue our economy from collapse, to move this country forward, and -- and we are going to reap the benefits of that.

But people have a right to be grouchy. There's 10 percent unemployment. These are tough times. And one thing I can assure you, though: The numbers the president is looking at aren't these numbers.

KING: Let me ask you one more question, because there is an election next year, and I want to circle some states. This is how you've won in 2008, a very impressive Obama victory. And I want to focus on these states that I'm circling right here because -- and I'll show you why in a second, but as I circle these states and come out, these are states, all blue states last year. But if we go back in time, let's take that off and click over -- the reason I circled them, all red states when Bush won reelection in 2004. People would say you won those states and others because Democratic intensity was so dramatically improved over Republican intensity in 2008. Many now say, David Axelrod, as they look ahead to the 2010 elections, not only are they worried about these states, but they believe Republicans have the intensity gap, as you call it in the consulting business right now. Forget you work at the White House -- as a guy who's ran so many campaigns for Congress, is that your biggest worry looking at 2010 right now, that the intensity gap has gone to the opponents?

AXELROD: Look, John, I think that we're almost a year from the election. A year before the presidential election, I was standing with people like you -- not in front of this spiffy map, but in other settings -- and I was being asked about polls that showed Obama 30 points behind running for the nomination and do we even have a chance, and why are we continuing, and so on.

And we take the long view. The fact is if we do our job right, if we keep worrying not about polls but about the jobs of the American people, about their health care, about their ability to educate their kids, stay in their homes and own their homes, send their kids to college, the basic pillars of a middle-class life, if we keep worrying about the future and building a stronger future for this country, these things will take care of themselves.

And, you know, talk to me next October about -- we can come back to your board -- on whatever show you're on, and we can talk about this next October. But right now, we're not worried about polls. You guys can worry about polls. I believe we're going to do well next November because the president is making good, hard, and important decisions to move this country forward.

KING: We will extend that invitation. And we also appreciate your coming in here on what is a Chicago morning...

AXELROD: Yes, I feel right at home.

KING: ... in Washington, D.C. A lot of snow, it's good, I love it too as a Boston boy. David Axelrod, thank you.

And up next, the Republican perspective from a GOP senator who, like the president, wants significant action on climate change, but thinks Mr. Obama's health care prescription is dangerous. Senator Lindsey Graham of South Carolina, next.

(COMMERCIAL BREAK)

KING: You just heard from the White House. Now let's get the view from one of the Senate's leading Republicans, Lindsey Graham of South Carolina. Welcome.

GRAHAM: Good morning.

KING: You just heard David Axelrod. He says they are deep in the red zone at the one-yard line in the fight for health care reform. Can the Republicans mount a goal line stand or is the president going to get his bill?

GRAHAM: Well, our best player is the American people, so we're in the fourth quarter. This is far from over. The House and Senate bills are in many ways irreconcilable. But you know, I like David. He ran a brilliant campaign, but they're doing a lousy job governing the country, in my view. You know, change you can believe in, after this health care bill debacle is now becoming an empty slogan.

GRAHAM: And it's really been replaced by seedy Chicago politics, when you think about it, backroom deals that amount to bribes.

KING: Bribes -- that's a strong word.

GRAHAM: Well, it is, oh, absolutely, it's a strong word. It was meant to be strong; principled compromised -- I mean, a compromise sold as a principled solution to an emotional problem like abortion that's fallen flat; Enron accounting techniques -- everything that people were upset with about Washington has gotten worse. And this bill personifies the worst of Washington.

You know, I thought we were going to negotiate health care on C- SPAN. Well, somewhere between doing that and a closed room in Washington where no Republican was invited and most Democrats didn't know what was going on, Senator Nelson's -- he's a good friend, but he's lost a lot of...

KING: He's going -- he's going to be here later in the program.

GRAHAM: Well, quite frankly, you know, he took up the challenge of the pro-life community. He became their standard-bearer. And he said, "I will not let this bill leave the Senate." And he negotiated a compromise that no pro-life group believes works. He didn't talk to any pro-life group... KING: Because you don't believe you should leave it up to the states?

The compromise allows the states to opt out and then has some firewalls that, at least, he says -- Senator Nelson says -- satisfies his concern that federal dollars will not go to funding an abortion.

GRAHAM: He's what you need to understand. There's a tale of two Democrats here, one in the House -- Bart Stupak, from a blue state, got the support of every pro-life group in the country and brought the House to its knees and didn't get a thing for it.

Then you've got Senator Nelson, who's had a good pro-life record, championed this issue, said "I will not let the Senate bill become a federally funded abortion bill."

He gets a compromise; he never runs it by anybody; he gives a press conference saying he solved the problem. And when everyone who cares about it, including Bart Stupak, look at it, they say it's unacceptable. So that's really disappointing. I think Senator Nelson's lost a lot of trust of the pro-life community for pushing a compromise that no one on our side believes works.

KING: Well, you used the word "bribery," "Enron-style accounting."

GRAHAM: Yes.

KING: Those are pretty -- pretty strong words in condemning the process, here.

David Axelrod was right here. He says this bends the cost curve, that you want to do in health care. He says -- and he's using Congressional Budget Office numbers -- that it will reduce the deficit by somewhere in the ball park -- the Senate version -- of about $130 billion over 10 years.

GRAHAM: What David didn't tell you is that the doctor fix -- the 1997 balanced budget agreement reduced Medicare payments to doctors. Every year since then, we have been forgiving those cuts that are double digits.

There is nothing in the bill that will take care of the doctor fixes, $247 billion over the next 10 years.

You and I know -- you've been around this town a long time -- that the Senate and the House is not going to impose those cuts. So when you put that into the health care mix, this thing doesn't save money; it costs money. And that's phony.

And you know just as well as I do -- you've been around a long time -- no Congress is going to allow Medicare to be cut $470 billion. We will start forgiving those cuts to doctors and hospitals. And that's how you pay for the bill.

So it is Enron-accounting. It is a sham. You collect taxes for 10 years and you pay out benefits for six years, and the Class Act, which no one's talking about, is a completely new government entitlement.

KING: This is the long-term care proposal that is the legacy of the late Senator Edward Kennedy?

GRAHAM: Here's what Senator Conrad said. The Class Act, that allows long-term health care insurance to be subsidized by the government and offered by the government, is a Ponzi scheme of the first order that Bernie Madoff would have been proud of. It is still in the bill. So any Democratic senator who votes for this bill is a co-conspirator to one of the biggest Ponzi schemes in the history of Washington.

KING: Are you confident the Republicans can say no, make all those points you just made, and benefit politically next year, or do the Republicans need to do more? GRAHAM: We need to offer solutions. But the Medicaid deal, for Senator Nelson -- there's one state in the union where new enrollees for Medicaid will be signed up, and it won't cost anybody in that state money. It's not my state. I've got 30 percent African-American population, a lot of low-income African-Americans on Medicaid. I don't know what the numbers are in Nebraska, but I want my attorney general -- there are a lot of people, Republicans and Democrats, are upset by this.

Is it constitutional? I want the attorney general of South Carolina to look at this.

They allowed Senator Nelson a Nebraska a deal that none of us get, just to get a vote. Now is that change?

KING: Let me shift subjects because you need to go soon -- in the sense of, you have been one of the Republicans taking a lot of heat from your conservative friends for being out there pushing for some action on climate change.

GRAHAM: Yes.

KING: The president went to Copenhagen. He did get a global deal. It does not have mandatory cuts. This does not have verification. It does not have punishment, sanctions if you don't meet the goal.

Is it, as David Axelrod and the White House say, a good first step or is it a hollow deal?

GRAHAM: Well, I think, in many ways, it's going to be seen as ineffective, but it is some transparency that we don't have today.

The issue of energy independence drives my train. I would like to have the cleanest air and the purest water in America of any place on the planet. That's a noble goal.

But, more than anything else, I want to break our addiction to foreign oil. We sent $400 billion overseas to buy oil and gas from people who don't like us very much. When Hugo Chavez got a standing ovation in Copenhagen, it made me sick to my stomach. But the only way he's relevant is because of the oil revenues. We're sending money overseas. We need to stop that. Let's find fossil fuels here.

KING: But can you get a bill through Congress if the global agreement as it now stands does not have any mechanism to make China, to make India cut their emissions?

GRAHAM: The bill would have to have provisions to protect American workers from the consequences of any failure in Copenhagen. That's become essential.

The bill I'm looking for is to find gas and oil here in America. Every barrel we find at home we don't have to buy overseas, to create a renaissance in nuclear power and clean coal and control carbon emissions, put a price on carbon so the green economy will come. To me, it's about jobs, not about polar bears. It's about national security. But at the end of the day, I want to work with this administration.

But this health care proposal has made it very hard for Republicans to sit down at the table with these guys because of the way they've run over us.

But at the end of the day, we've got more problems than just health care. I want to help solve hard problems. This health care bill has made a hard problem worse.

KING: Senator Lindsey Graham of South Carolina, we appreciate your time today. We will have you back. Whenever you want to come in, please do.

Next, the latest on that massive snowstorm that blanketed our nation's capital and much of the East Coast. Then, California governor Arnold Schwarzenegger, New York City Michael Bloomberg share their thoughts on what the United States needs to do about climate change and the health care debate.

And don't forget. Stay with CNN, live coverage tonight of the Senate health care debate. It begins at midnight.

(COMMERCIAL BREAK)

KING: We here in the nation's capital and much of the East Coast are digging out of a major snowstorm this morning that has left thousands of travelers stranded, that snow falling over the past two days. CNN's Elaine Quijano is outside at Reagan National Airport, where, Elaine, I'm guessing the frustration is maybe beginning to ease?

ELAINE QUIJANO, CNN CORRESPONDENT: Beginning to ease, just a bit. They've been digging out of a record-setting 13-plus inches of snow that fell in a 24-hour period here at Reagan National Airport. And what they're hoping to do, airport officials tell us, is to get at least one runway up and running within the next 30 minutes or so. Now, that would certainly be welcome news for the people who have been stranded here, some of them for the last 24 hours or so. Take a look at some of this video. The line basically stretches as far as the eye can see. This is at the American Airlines ticket counter. And an American Airlines spokesperson tells us that they do have a couple of big planes here at Reagan National right now, a couple of 757s, and they're hoping that they can get things back on track or at least start to get things back to normal by this afternoon.

Obviously, the people who are showing up here are going to need a lot of patience to get through this day. But, John, that is basically the snapshot here at Reagan National. You can imagine, if that's the scene here, that's a scene that's being played out at airports all up and down the East Coast as they deal with the effects of this winter storm.

John?

KING: Elaine Quijano for us at National Airport. And we will continue to track this storm here in Washington and up the coast as we go on. CNN is your severe weather center. Elaine, thank you very much.

And when we come back here, two of the country's best-known chief executives weigh in on the global warming debate, the economy, and President Obama's first-year job performance, the California governor, Arnold Schwarzenegger, and the New York mayor, Michael Bloomberg, right here, next.

(COMMERCIAL BREAK) KING: Before our next guests, let's use the magic wall for some quick perspective on the global climate change debate. As you can see, the United States is number two in the world in greenhouse gas emissions, 5.7693 million tons of greenhouse gases emitted. As we watch the world turn here, you will see on the other side China is number one. Russia is number three. India, number four. And Japan, number five. A global challenge.

And among the politicians who made the trip to Copenhagen for those talks, the California governor, Arnold Schwarzenegger, New York Mayor Michael Bloomberg. Both long have argued that state and local governments need to act now, not wait for any direction from Washington or any global agreements.

Still, both do want an international commitment, one that is much stronger than the president was able to negotiate. And while both question whether China will keep its commitment to reduce greenhouse gases, they insist even in Beijing, the global debate about climate change is moving in the right direction.

(BEGIN VIDEOTAPE)

SCHWARZENEGGER: Well, first of all, I think this is not the only answer to the problem, to have verification. I mean, I think it is always important, trust, but verify, as Ronald Reagan always said.

But I think, at the same time, one should acknowledge that China is already doing great things. I mean, they're building the biggest solar plants over there. They're working on the battery for electric cars. They're building more electric cars. I mean, they're doing all kinds of things, and they have great partnerships with California. We are over there doing a lot of work. So I think there's -- great things are happening.

BLOOMBERG: In the end, verification is nice, but China will improve the environment for their people when their people say, "I don't want to breathe that dirty air," when their people say, "I don't want to have the droughts or the floods," when their people say, "I want to be able to leave something better for my children."

And America has to do the same thing. We want to work together, but this argument that we shouldn't try to improve our environment because somebody on the other side of the world may or may not be improving theirs is ridiculous.

And, remember, America has a special burden to go first here. That's what America is all about. I think we're losing something here, this business we've got to wait for somebody else to do something? Whatever happened to the spirit that built America, the reason America was created, the reason people came from all over the world to be here? It's because we lead. We do what's right, and then we get people to come along because we've given them an example.

KING: Many argue you can't do this in a recession because you hurt businesses that are already struggling. And -- and both of you have argued, no, the recession is the perfect time to do it because you're in the middle of a transformation, make the most of it.

Governor, to you, first. What is the single biggest obstruction you face when you make that case that, sure, things are tough, but this is a way to get around the corner?

SCHWARZENEGGER: We have made commitments to roll back our greenhouse gases for 25 percent by the year 2020. We have the green building initiative to make our government buildings more energy efficient. We have the million solar roof initiative. We built the hydrogen highway. We have the low-carbon fuel standard, the tailpipe emissions standards. We have passed one law after the other.

And because we haven't seen leadership in Washington for so long, we went out and formed partnerships with other states. And we have formed partnerships with states in the United States and also with Mexican states and with Canadian provinces and the province of China already and the -- and also with European nations. So we're moving forward no matter what.

KING: And, Mr. Mayor, jump in there. And you heard the governor list what he has done and what he hopes to do. How much different is it -- difficult, in many ways, I would assume, when you're in a densely populated urban environment like New York City?

BLOOMBERG: Well, the problems are slightly different. In Arnold's case, he deals with more pollutants put out by transportation and fewer by buildings. In New York City, only 20 percent of our pollutants come from the transportation, and 80 percent come from buildings, because of the density and the use of mass transit and people walking here. So it's exactly reversed.

But what you -- the question you asked Arnold, you said, you know, people say you can't do it in this kind of an environment because the -- the economy is suffering. I would argue that's exactly the time when you have to go do it.

And New York is a classic example. Back in the '70s, we had a tough economy. We walked away from investing in infrastructure. It took us decades from recovering, to recover.

Today, if you want to build something, you can buy steel and labor and cement a lot cheaper than ever before. People that want to work, they want -- they're willing to make those -- the -- to put their -- get the elbow grease, to go and to plant the trees and to clean up the environment.

And if we don't do it now, we're never going to do it. This is exactly the time. If you go back and take a look in American history, when the great things were done, they were done during the bad times. Look at the WPA after the Great Depression.

KING: There are some here in our political debate at home who don't believe it is as severe as a crisis as you both say, and there are some who even question the science and question whether this is because of manmade behavior. Address the politics here at home -- Mr. Mayor, to you first on this one -- to those who say the science isn't settled and...

BLOOMBERG: Look...

KING: ... and that government regulation is not the answer.

BLOOMBERG: OK. I mean, number one, the science is clear. But let's just make a simple argument that will convince you to go ahead and do something about the environment.

There's four possibilities, the combinations of we're damaging the planet or we're not damaging the planet and we do something or we don't do something about it.

One of those four combinations is deadly. And if we run the risk that, in fact, there is -- we say there's nothing wrong and it turns out that there was something wrong but we didn't do anything about it, it may very well be so irreversible and have such terrible consequences for people all over this globe, it's not an intelligent risk to run.

And I've gotten in trouble again and again saying cap and trade is very nice, but cap and trade, fundamentally, you don't stop polluting, you just shift where it's done from. We need a carbon tax, plain and simple. Nobody wants to hear it, but if you had a carbon tax, you would reduce the total amount of carbon put in the air. And if you don't have that, I'm skeptical that we will do anything other than have a very elaborate system, which will make a lot of money for a lot of lawyers and bankers and everybody else, but isn't going to solve the problem. KING: So, Governor, come in on the politics. And in the context of it, you've had a pretty good back-and-forth in recent days with Sarah Palin, the former governor of Alaska, who says, why is Governor Schwarzenegger pushing for the same sorts of policies in Copenhagen that have helped drive his state into record deficits and unemployment?

She went on to say that she does agree there is a problem, but she said what I didn't do was hamstring Alaska's job-creators with burdensome regulations so that I could act, quote, "greener than thou" when talking to reporters.

Now, an Arnold Schwarzenegger-Sarah Palin back-and-forth, it's good political theater and it's good debate, but isn't it also proof that she is a significant figure in the Republican Party and there are some who believe you're wrong?

SCHWARZENEGGER: Well, I think that we fundamentally disagree on this issue, and that's OK. The bottom line is, we in California will continue on with our renewable energy, and we will continue on reducing our greenhouse gases and continue on building the hydrogen highway and doing all of those things. And I think I will continue on to do everything I can in order to bring people into this whole thing, because I think, if the ordinary folks don't participate in all of this, all of the regulations don't mean anything.

So this is why I said earlier, we've got to approach it from every angle possible here.

KING: Let me ask you a couple of quick questions on other issues in closing. You are both from critically important places in our nation's economy, the largest state out in California, the capital of our economy, and many would say the financial center on Wall Street.

Governor, to you first. Both of the unemployment rate in the state of California and in New York City dropped a little bit last month. Is the worst over? Is the economy now growing? Or do you still see a very tough 2010 ahead?

SCHWARZENEGGER: I think that we see a lot of signs that the economy is coming back, that the drops in revenues kind of have flattened out, and that there is a comeback. But it's also very clear that it's going to take time.

We, for instance, in California have a major problem still this year. We have another $20 billion deficit. And that's, of course, huge, because we already, you know, last year had a $60 billion deficit or I should say -- I should say this year, actually, and next year we have a $20 billion deficit.

So I think we have still a major problem and still have to deal with those things. And I think that we have to tighten our belts. We have to also ask the federal government to pay up, you know, what they owe us, because the federal government, let's not forget, we don't need a bailout from them, but we need for them to pay, because it's inexcusable, for instance, in California, where we have -- we pay approximately $1 billion for the incarceration of undocumented immigrants and we get $100 million from the federal government. And now they even voted not to get us any money.

So, I mean, I think that's inexcusable. The same is with health care. And this is why I made it very clear that I now caution about this whole health care reform. I endorsed it, and I was all for it. But now, all of a sudden, we find out that it's going to cost California $3 billion.

So I think that we have to improve this partnership between the federal government and the states. And so we have to be very careful. So we are not out of the woods yet, but we see signs of comeback.

KING: Would you prefer that the president and the Democratic Congress just stop health care this year, come back to the drawing board next year, and get it done in a way that is better for your state?

SCHWARZENEGGER: Well, the states are struggling right now, so it will be terrible. And I know they're saying, well, this is not going to kick in until a few years from now, but I think it's terrible. We cannot handle an additional $3 billion. We cannot even handle the situation that we are in right now because of a shortfall of revenues. I mean, we have a shortfall of $20 billion. Now we add another $3 billion problem. I think we cannot do it.

So it's not that we want -- don't want to do it. We can't do it. That is really the problem.

BLOOMBERG: Well, number one, the economy has stopped getting worse, not for everyone. There are still people getting hurt, and we have to make sure we don't walk away from them. But in a macro sense, the economy in New York City has stopped getting worse, and there are some signs that it's getting better.

In terms of the health care bill, what worries me about the health care bill is that we are not addressing the fundamental issue that, in America, we spend about $7,000 per person per year for medical care and have a life expectancy of about 82 years old. In the -- in Western Europe, they spend less than half of that, a little over $3,000 per capita, and have a life expectancy of 3 or 4 years greater than we have here.

So we've got to really step back and say, what are we spending our money on and why are we not getting much more value for the dollar?

The other thing that leaves me worried is, when I talk to congressmen and senators and say, "What's in the bill?" none of them really know. It has gotten so big and taken so long and has so many different versions out there that I don't know how you can intelligently decide whether to vote for it or not if you don't know what it's going to do.

I, for one, am basically in favor of it. But I think it's -- it is worrisome that people say I'm going to vote for it without being able to explain to me what it does.

KING: Let me ask you, lastly, gentlemen, two of the country's better known chief executives, we're nearing the end of the first Obama term. Mr. Mayor, to you first. You were on the program earlier in the year and you said, you know, political capital disappears fast. The president needs to act quickly, get things done before he loses that capital. Give him a grade as we wrap up the end of his first year.

BLOOMBERG: Well, I think he's -- for a new president, he's -- in a very tough time. Congress is much more divided and much more partisan than any other president has had to deal with, and that really is a very difficult situation.

He's got a war he's got to deal with. He's got an economy he's got to deal with, both of the things that really started before he came in. And I'd give him a pretty high grade. I hate to use letters, but this guy is working very hard and trying, and he's got enthusiasm and drive.

And I would just urge him to don't -- if he doesn't get everything he wants, don't get beaten down, don't go back into your shell.

KING: Governor?

SCHWARZENEGGER: I agree, I think, with Mike, that when it comes to effort, he should get a straight A. I think that he's out with tremendous energy, and he's selling his ideas, and he has great enthusiasm there. He's a great speaker, a great communicator and all of this.

And I think that it is very tough, the first year when you get in there, and you have a very partisan kind of a, you know, Congress, and it's very difficult to get things done there.

But I say the same thing as the mayor said. He has to hang in there, be tough, just continue on, never give up. And, you know, that -- you know, eventually he's going to get all those things done.

KING: Governor Schwarzenegger in California, Mayor Bloomberg in New York City, gentlemen, thank you both for your time today.

BLOOMBERG: You're welcome.

SCHWARZENEGGER: Thank you.

(END VIDEOTAPE)

KING: Next the climate debate, up close. We take you to beautiful Hawaii for a bird's-eye view of one state's dramatic energy evolution.

(COMMERCIAL BREAK)

KING: We wanted to look up close at the energy and climate change debate this week, and we chose Hawaii, and let me show you why. Look at these costs right here. Average electricity costs in Hawaii, way up, twice the national average. Also, petroleum generates 87 percent of Hawaii's electricity. That is way, way, way above the national average, at just 2 percent to 3 percent.

So in our "American Dispatch" this week, we visited two of the Hawaiian islands, beautiful, for a close look at how a mix of high electricity prices and environmental concerns is sparking an energy evolution.

(BEGIN VIDEOTAPE)

KING (voice-over): A light breakfast has long been part of Susan Chandler's morning routine, but the trip to the shed began just two months ago and still makes her a tad giddy.

SUSAN CHANDLER, SOLAR PANEL USER: But then this is the one I like.

KING (on-screen): CO-2 saved, 891.7 pounds.

CHANDLER: Pounds, right.

KING: The box is linked to these rooftop solar panels. The hilltop location overlooking downtown Honolulu provides ample access to one of Hawaii's richest sources of alternative energy, the sun.

CHANDLER: First thing I did was change all my own light bulbs, and then I started tracking my energy bill. So I put up the panels. We've got terrific tax credits in the state, as well as the federal government, so it's not that expensive. And I'm into just saving energy.

KING: And into saving money.

(on-screen): Roughly the same period last year, you were at $104.

(voice-over): Hawaii's electricity rates are the highest in the nation. To compare Chandler's costs from a year ago to now is to see a dramatic cut.

KING (on-screen): It's down to $45.

(voice-over): A big financial plus on top of the satisfaction she gets from learning daily the environmental benefits of generating clean power.

CHANDLER: They have these cute little things about how I have saved as if I was planting four trees or not driving 415 miles. And -- and so you get to see each day what your energy production is. Why everybody doesn't do this I don't quite understand.

KING: As the climate change debate ripples in Washington and around the world, Hawaii is in the early stages of a dramatic energy evolution. At the moment, imported oil accounts for 90 percent of the state's energy needs, one reason power costs are so high. The state's ambitious goal is to generate 70 percent of its power from clean sources within 20 years, and it is looking everywhere, including at the breathtaking ocean that brings so many tourists to Hawaii's beaches.

TOM WILKOLAK, COO, HONOLULU SEAWATER AIR CONDITIONING: We take cold seawater from about -- we go out about 20,000 feet, about four miles. And that allows us to get to a depth of 1,750 feet.

KING: Tom Wilkolak is chief operating officer of Honolulu Seawater Air Conditioning, a $200 million project slated to be online in two years and to use a loop of cold seawater to cool roughly 40 of the downtown's largest buildings.

(on-screen): Any idea how many barrels of oil that ought to save?

WILKOLAK: About 178,000 barrels a year.

KING (voice-over): Wind is another ample resource, though many islanders bristled at the thought of blocking their majestic views. But objections to this 20-turbine wind farm in Maui diminished when oil was in the $150-a-barrel range a few years back.

NOE KALIPI, FIRST WIND: That was very helpful to everyone's understanding of how important clean energy is.

KING: These turbines use sensors to turn automatically into the shifting winds. And First Wind's Noe Kalipi says the 20 on this site power about 11,000 homes on Maui, roughly 10 percent of the island's needs.

KALIPI: I think they're a very important piece of the future. They're valid, tangible proof that we can harness robust renewable resources to be able to generate electricity for our use.

KING: A new energy source, but only a modest economic boost. About 200 jobs were created for construction, but this site has only seven full-time workers.

(UNKNOWN): We can stop it and start it. KING: A computer system in the base keeps track of the energy output, and a ladder takes you nearly 200 feet up to the turbine itself.

(on-screen): How much electricity can this generate?

(UNKNOWN): It's 1.5 megawatts.

KING (voice-over): Just a few more steps, and it is out the hatch...

(on-screen): Kind of pretty actually. If you look around, you get the water over here.

(voice-over): ... for a bird's-eye view of the wind at work, of Hawaii's energy evolution, and of its breathtaking landscape. (END VIDEOTAPE)

KING: If I had a lounge chair, I might still be up there.

As you know, one of our goals is to get out of Washington as often as we can. We've made it our pledge here on "STATE OF THE UNION" to travel to all 50 states in our first year. So far, 48, including Hawaii, North Dakota, and Rhode Island. That leaves just two, Utah and Wyoming. Check out cnn.com/stateoftheunion, where you can see what we've learned when we've traveled to your state.

I want to say goodbye now to our international audience. Up next for our viewers here in the United States, Howie Kurtz is standing by with his "Reliable Sources."

(COMMERCIAL BREAK)

KING: I'm John King, and this is "State Of The Union."

(BEGIN VIDEO CLIP)

KING (voice-over): The Senate health care debate exposes a divide between some Senate Democrats and their party's major interest groups. But are journalists focusing on the personalities and politics at the expense of the policy?

Plus, a big week of change at ABC, as George Stephanopoulos makes the move to mornings and Charles Gibson ends his run in the nightly anchor chair. In this hour of "State Of The Union," Howard Kurtz, as always, breaks it down with his "Reliable Sources."

(END VIDEOTAPE)