The following is a transcribed excerpt from "Fox News Sunday," Aug. 10, 2003.

TONY SNOW, FOX NEWS: Now joining us to discuss his campaign for California governor is Republican Bill Simon. He lost a close race last year to Governor Gray Davis, and he joins us from Los Angeles.

Mr. Simon, welcome.

BILL SIMON, REPUBLICAN CANDIDATE FOR CALIF. GOVERNOR: Thank you, Tony.

SNOW: Let's take a look at some snap polls. I know that they don't mean much at this early juncture, but there's a Time-CNN poll out today that indicates that Arnold Schwarzenegger, if Gray Davis were recalled, would get 25 percent; Cruz Bustamante, 15; Tom McClintock, a Republican member of the state senate, 9 percent; you'd get 7 percent.

The question first for you is, what do you think of Arnold Schwarzenegger?

SIMON: Well, we'll have to see, Tony. Honestly, I know Arnold, he's a good friend of mine actually, and we don't know where he stands on the issues, though, quite honestly. And we'll have to wait to see.

SNOW: That poll seems to indicate that there are a lot of Republican who support replacing Gray Davis, but it's divided. There is one Democrat in the race now; maybe as many as four Republicans if you count Peter Uberov (ph).

What do you say to those who argue that Republicans, by putting out so many candidates, are almost handing a recall election, should Gray Davis be recalled, to Democrats?

SIMON: Well, once again, Tony, it's early days. I think it's important that the people of California have options, have choices. For (ph) people of California to (ph) know where their candidates stand is so very important. You know, they've risen now and they've shown that they're fed up. They're fed up with government as usual in Sacramento. We need to have a series of debates. Let's let the candidates, in effect, emerge.

The leading candidates, over the course of the next couple of weeks, no doubt will emerge, but only if we have public debates. And so, yesterday I issued a challenge to all the candidates for a series of debates statewide, so that people can know where they stand.

SNOW: Isn't that also an acknowledgement that at this point the one guy who's sure to get lots of publicity is Arnold Schwarzenegger, and the rest of you guys are trailing in his wake?

SIMON: Well, no. You know, obviously, Arnold Schwarzenegger has tremendous name ID. In fact, I think his entry in the race is a good thing, because it calls attention to the recall. It calls attention to the fact that California has very serious issues.

You know, Tony, we literally are on the verge of a fiscal meltdown. It reminds me of the New York City financial crisis in 1975, '76. We need to take drastic action on the financial front, otherwise California — well, I don't want to speculate on what could happen, but it's very serious.

SNOW: Well, let's talk about what you would you do, then. You got a $38 billion deficit. It's probably going to be growing, although Gray Davis says that he's mastered some of that.

You're governor. What do you do about it?

SIMON: Well, Tony, during my campaign I put forward a specific plan, and actually if we'd followed that plan, we'd have a $1 billion deficit today.

That plan really involves cutting the size of the government. Gray Davis allowed government to grow by over 40 percent during the same time that underlying rate of growth was about 20 percent. What we need to do is cut the size of government.

Day one, the day that I took office, I would order an audit. I would instruct each head of each agency to come up with at least 5 percent in cuts. I have no doubt whatsoever we could come up with at least $5 billion in cuts in the state government, just right across the board.

SNOW: All right. What would do you about businesses? Businesses are leaving, Arnold Schwarznegger says, and I think you'd probably agree, that the first job is to get them back. People are actually leaving California right now.

Would you cut taxes?

SIMON: You know, over the course of time you'll have to cut taxes, Tony. Publicly, I proposed last year a cut in capital gains from 9.3 percent to 5 percent.

But also, we can do other things to stimulate job growth. In the beginning of my administration, I would start by trying to reform the workers' compensation system. I would roll back the job-killer bills that Gray Davis signed. I would make sure that we stimulate job growth.

This month, this last month, we lost 21,000 jobs, more than half the states combined. In the month of May, we lost 22,000 jobs, more than all the states combined.

We in California are the least-friendly state to do business. We've got to change that, and the only way to do it is to stimulate job growth.

SNOW: Now, Mr. Simon, you've acknowledged that Arnold Schwarzenegger is a well-known and likable guy. How do you combat that?

After all, a lot of what's going on here is visceral. You've pointed out the state's broken, people are angry. They want somebody who's going express their rage. You don't look like a guy who's going to be able to carry that as an angry — to be the spokesman for an angry public.

SIMON: Well, Tony, last time, I got 3.1 million votes, and people from all over the state have been clamoring over the course of the last couple of months for me to run again, for my wife Cindy and I to once again hit the campaign trail. Our ideas did resonate with our people. We came within 300,000 votes in a state where there's a million more Democrats than Republicans.

The fact is this: I would reform workers' compensation, I would roll back the job-killer bills, I would cut the size of government. We've got to make tough choices. This is time, Tony, you're right, for a very tough leader. This is not time for soundbites, Hollywood scripts or short prescriptions. This is time for tough choices.

SNOW: Let me ask you a couple more questions about Arnold Schwarzenegger. A lot of conservatives think that he is simply too liberal, especially on social issues, to be an effective and representative Republican governor. Do you agree?

SIMON: Well, once again, we're going have to hear from him. He apparently has said, Tony, that he is liberal on the social issues. I am not.

But he didn't specify what he meant by that. People know where I stand on the social issues. I've been very specific. I am a conservative in these areas.

The bottom line is this, Tony. We need to have a specific plan, economically, for our schools and for our quality of life. This is time for a strong leader with specific ideas, and I am that kind of leader.

SNOW: All right. The president said he thinks Arnold Schwarzenegger would make a good governor. Do you interpret that as an endorsement from the president? How do you read it?

SIMON: Oh, no, I don't think so at all. Last year President Bush was kind enough to campaign with me, and he told me and he told the public that I would make a good governor.

SNOW: All right. Let's go back to what would happen if you were governor. You've talked about 5-percent across-the-board cuts. Of course, you have to get a legislature to go along. It's overwhelmingly Democratic. The split is 48-32 in the Senate. It is 25 — I'm sorry, 25-15 in the Senate, 48-32 in the House.

How are you going to persuade Democrats to go along with you, a conservative Republican, in a state where you've acknowledged that there at least a more million registered Democrats than Republicans?

SIMON: Well, Tony, there are a number of things we can do. You know, there's some things — for example, I've mentioned reforming the workers' compensation system, which is the most expensive in our nation, modeling it on perhaps Nevada or Arizona. If the legislature won't go along, we could threaten to put it on the ballot.

The fact is that Wall Street is telling us now, much as they told New York City in 1975-76, that if we are not fiscally prudent, meaning if we don't eliminate our structural deficit, we won't be able to borrow.

Right now, Gray Davis and the legislature have left us with an $11 billion structural deficit, annually, going forward as far as the eye can see.

You know, they say that necessity is the mother of invention. The bottom line is, we don't have any choice, we must cut government. We must be fiscally prudent. We must stimulate job growth. And at some point the legislature will know that they have no other choice.

SNOW: When George Deukmejian (ph) was Republican governor, he got 65 percent of the Hispanic vote. When you ran, and in recent elections, it's barely been in double digits.

What do you propose to strengthen Republican appeal to Hispanic voters, especially now that Cruz Bustamante's in the game?

SIMON: Well, Tony, the two most important issues in the Latino community are jobs and schools, both of which California is near last in the nation on.

My program stimulates job growth, as I mentioned. My program — we haven't talked this morning about schools, but I have focused on schools. I've focused on the fact that we need more accountability in our school system.

My wife Cindy and I have been very active, over many years now, in the school system, through scholarships for kids, through physical fitness programs, through a variety of initiatives that help kids get an education. I think I understand well the problems with our educational system, and one of the problems is, there is no accountability.

I believe that these issues resonate in the Latino community, and I believe that I'll do well in the Latino community because I focus on opportunity for everyone...

SNOW: A final question...

SIMON: ... and for education.

SNOW: OK. A final question, do you think Gray Davis actually is going to get recalled? Right now those favoring recall barely over 50 percent.

SIMON: I do, Tony. You know, I've travelled now, basically for the last two and a half years, up and down our state, talking to hundreds of thousands of people. They are fed up. They feel like they were lied to in connection with the budget.

For example, four days before the election, Gray Davis said the budget deficit would be $12 billion. I said, wrong, Governor Davis, it would be well over $20 billion. He accused me of playing politics. A week after the election, he said the budget deficit would be $35 billion. No one believes that Gray Davis didn't know before the election that that budget deficit was historic.

People feel that they've been lied to. They know that Davis lied about me personally during the campaign. They're fed up, Tony. They're ready for a change. I'm quite confident that he's going to be recalled.

SNOW: All right. Bill Simon, thanks so much for joining us today.

SIMON: Thank you, Tony.