This is a partial transcript from The Beltway Boys, October 11, 2003, that has been edited for clarity.

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(BEGIN VIDEO CLIP)

LT. GOVERNOR CRUZ BUSTAMANTE (D), CALIFORNIA: Arnold, you're very famous for making movies all over the world. I want you to feel free to continue doing that. Go where you like, feel free to stay as long as you like. I'll be here keeping an eye on things.

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FRED BARNES, CO-HOST: Now there's a man with great pipes.

Arnold Schwarzenegger (search) faces a daunting task when he takes over as California governor. He's facing a huge deficit in the state legislature that's dominated by Democrats.

Joining me with advice on how Governor Arnold should proceed is one of his transition team members, the state legislature's top Republican, State Senator Jim Brulte.

Thanks for being here Senator.

STATE SENATOR JIM BRULTE, CALIF. REPUBLICAN LEADER: Glad to be here.

BARNES: Now, can Arnold Schwarzenegger balance the budget in California without a tax increase and if so how?

BRULTE: Well you just have to hold spending steady. The fact of the matter is during the first two years of the Davis administration, spending grew 37 percent. And that was just too much and revenues haven't caught up yet. You just have to free spending and let revenues catch up.

BARNES: Can he still balance the budget if the budget soars to, say, $20 million when…if the borrowing billion…if the borrowing that was done by Gray Davis is rejected by a fourth?

BRULTE: That becomes very, very problematic but the $12 billion, which was financed over five years, has a dedicated revenue stream. The attorney general of California and most legal scholars that I've talked to assert that that borrowing is legal and it should not be a problem.

MORT KONDRACKE, CO-HOST : So you're saying that he doesn't really have to cut. All he has to do is hold spending constant and then let revenues catch up.

BRULTE: There are clearly some areas of government you'd want to cut. We all know we have fraud in Medical, everybody in your profession or the newspaper industry can find fraud.

Our fraud investigators have a hard time doing that. But by and large, revenue is growing; it's just not growing as fast and programs increases and spending, so if you just free spending for 18 months or two years revenue will catch up.

KONDRACKE: O.k. but you said it Republicans did come up with a budget and that involved no cuts it just involved...

BRULTE: Well what we did was we accepted the reductions that Governor Davis (search) proposed, proposed an additional across the board reduction and then froze spending for eighteen months.

If that had been done in February when we proposed it, we would have a balanced budget today and no out year deficit.

The current California budget is balanced, but when you program in spending increases that should automatically trigger next year, we have a deficit of about $8 billion. If you eliminate some of those automatic spending increases which you can, you don't have to raise taxes.

BARNES: Governor Arnold is going to meet with President Bush next week in California. Does he really expect Bush to say gee I'm going to help bail you out, I'll send you some money?

BRULTE: Well, you know, California is a donor state. For every dollar we send to the federal government we only get about 77 cents back. We have the largest congressional delegation and once the Congress decides to act collectively we think we should get a bigger part of our fair share.

BARNES: Well that's not going to happen immediately. Let me ask you one other question about Arnold specifically and that is what will be his role in the National Republican Party (search). Will he help change the image of the party to make it seem a broader based party?

BRULTE: Well sure. I mean, first of all, in California he's bigger than a rock star. I was in the Century Plaza Tuesday night…that was the same ballroom I was in in 1980 when Ronald Reagan (search) was elected president and there weren't anywhere near as many television cameras or print photographers. The California Republican Party has been re-branded with Arnold Schwarzenegger.

KONDRACKE: Well now Fred thinks that California is now competitive in 2004 where the president lost in 2000 by 12 points. How is…how can that be especially when Arnold is a compassionate conservative and Bush is no longer one?

BRULTE: No, no, not at all. First of all, I mean, Al Gore (search) carried California in 2000 primarily because Bill Clinton was a very, very popular president and we were at peace and the economy was growing right up until the end of his administration. The same thing happened in 1988. George Bush carried it because Ronald Reagan was very, very popular.

This election in 2004 will be a referendum on President Bush's record and California will be either a state that joins a national trend and is the icing on the cake of a huge national victory, or we're going to be the state that makes the Democrats pay through the nose for the electoral votes here because there are any number of ways this president can be reelected without carrying California but there is no way a Democrat can be elected without carrying this state.

KONDRACKE: Now have you noticed an increase in Republican registration during this time? This is basically a Democratic state, is it not?

BRULTE: Well this is a state that all things being equal wants to vote Democrat. But we did see an increase in registration last year going into the election. We saw a huge increase in registration this year going into the election. Most of them were Republican.

KONDRACKE: Fred thinks that Barbara Boxer (search) is now vulnerable. Who is going to run against her?

BRULTE: Oh I think there will be a number of very, very good candidates. The former treasurer of the U.S., Tony Strickland, an assemblyman from California. There's a big movement to draft Congressman Darrell Issa who is really the father of the recall.

KONDRACKE: OK, thanks Jim.

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