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Steve Westly — State controller tries to deflect rival's attacks

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SACRAMENTO -- Steve Westly, the Democratic state controller who collaborated with Gov. Arnold Schwarzenegger before seeking to replace him, said it was a "tragedy for California" that the governor did not stay on his original bipartisan course.

Now that Schwarzenegger is again courting Democrats, "no one quite knows what he stands for," Westly said during a recent hour-long interview with The Associated Press.

Westly, 49, has an urgent need to deflect attacks by his rival for the Democratic nomination for governor, state Treasurer Phil Angelides, that he was a toady to Schwarzenegger at the height of the governor's popularity.

In 2004, Westly helped Schwarzenegger pass a $15 billion deficit-financing bond, appearing at campaign events where they hugged. Schwarzenegger joked that they were doing a political sequel to the movie "Twins," the comedy in which Schwarzenegger and Danny DeVito starred as twin brothers.

Now that the governor's popularity has plummeted following last year's divisive special election, Westly's willingness to cross party lines could be a liability among Democratic primary voters, who tend to be more ideologically motivated.

"It's not surprising during a contentious Democratic primary that Steve Westly would attempt to pander to a left-wing base by distancing himself from the governor," said Matt David, a spokesman for the governor's campaign.

Westly has tried to parry the attacks by presenting himself as the more reasonable of the two candidates. He said Angelides' reflexive opposition to the bond, at a time when many other Democrats deemed it necessary to keep the state solvent, was irresponsible.

"No one should want the state of California to run out of money," he said.

Still, Westly refused to say how he would address California's current fiscal problems, although he promised he would outline his approach to the budget.

To date, Westly has given only piecemeal recommendations that critics say are not enough to bridge the $5 billion gap between spending and revenue the state is expected to face next fiscal year.

In the interview, Westly insisted the state could find more money by clamping down on tax cheats and uncovering fraud or abuse in state government.

Better tax collection could bring in new money, Westly said, asserting that there are $6.5 billion in uncollected taxes, half of which he said could be found with stronger enforcement.

He took credit for forcing the Internal Revenue Service to give California the names of wealthy taxpayers who were investing in illegal tax shelters, so the state could collect taxes under the voluntary compliance initiative in 2004.

"We got this problem fixed," Westly said. "We got the data files. We went after these people."

He said a tax amnesty last year also brought in far more than expected, $4.3 billion as of last month. But budget experts say most of it either will be refunded or would have been collected anyway in future years.

Westly also defended his plan to raise more money for schools through the lottery by lowering the amounts paid out in prizes. His critics have called the plan laughable, because the lottery accounts for only a small fraction of the money that pays for public education.

A slight lowering of the payout to lottery winners could return several hundred million dollars more to public schools, he said.

Just days away from the June 6 primary, Westly is still trying to capture the attention of Democratic voters, most of whom do not know who he or Angelides is.

Westly has the advantage of his personal fortune, earned as an early employee of the online auction site eBay, which allows him to bankroll his own campaign.

To raise his profile, Westly is running biographical television commercials statewide, while Angelides, who is endorsed by most of the state's leading Democrats but has less to spend, stays off the air to conserve money for later in the race.

In early television ads, Westly appeared at the head of a classroom, while a narrator described him as a "former teacher committed to education."

In fact, Westly's teaching experience was at Stanford Business School, where he taught a class for would-be CEOs. He said he didn't intend for the ad to be misleading.

"I certainly don't want to confuse myself with people who are teaching grade school," he said. "I have been a classroom educator. I have experience in the classroom that is important, and I am proud to have taught at Stanford for five years."

Westly said he is spending about $2 million a week on the ads and pledged to remain on the air through the election. He said he would spend more if Angelides runs television ads attacking him.

Westly's personal fortune also has proved something of a campaign liability. He has been criticized for engaging in a practice known as "spinning," in which investment banks gave high-tech executives special access to initial public offerings to get their banking business later.

At the time Westly received the IPO shares, the practice was legal and widespread. But in 2003, 10 investment banks reached a $1.4 billion settlement with regulators and agreed to stop doing it. In 2005 three eBay executives paid $3 million to settle a shareholder lawsuit over their IPO trades.

Westly was not among them. He said he did not do anything unethical because, unlike the executives who were sued, he was never in a position to influence eBay's investment banking business. He declined to pay back the money he earned from the IPOs.

"There's no reason to do that," he said, "because I was not involved in the issues at hand there."

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