This is a partial transcript from "Hannity & Colmes," October 10, 2005, that has been edited for clarity.

SEAN HANNITY, CO-HOST:Our top story tonight, last Friday, I had the chance to sit down for an exclusive interview with the governor of California, Arnold Schwarzenegger.

(BEGIN VIDEOTAPE)

HANNITY: Four hundred thousand new jobs, $6 billion in new revenues brought in. Are you getting the credit for it? Because you're immersed in major political battles going on now.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: Right.

HANNITY: Is it frustrating to you when some of the poll numbers you see, negative ones?

SCHWARZENEGGER: Well, first of all, when it comes to credit, it's something that I learned a long time ago from my father-in-law, from Sergeant Shriver. He always said, "Look, you can accomplish much more if you're not interested in the credit."

I'm not interested in the credit. I want to give credit to everyone, because the fact is that it is the hard-working people in California that did that, you know, that really went out and worked very hard, that believed that they can turn the economy around. It was the legislators. It was everyone working together.

This is really the bottom line, the business leaders here in the state, and so on. So I think what is important is that we turned this state around, and we improved our credit rating, and that we were able to fund education, and to fund all those things, and protect environment. Those were the things that were important.

But now what we have to do is, is to really look at the November election and say, "This is our chance to reform the system that is broken," because the people of California have sent me to Sacramento to fix a broken system. And so now is our chance.

Two years ago, we recalled the governor. Let us now recall a broken system on November 8th.

HANNITY: Let's go through it, because you have, for example, budget reforms, that the budget gets out of control, you, as the governor, will be able to step in and bring some fiscal discipline. If you look at the polls, you're not winning yet. Is the battle just being waged? Do you feel...

SCHWARZENEGGER: No, that's OK. That's OK, because, remember, people started paying attention to it after they came back, after their vacation time, and so now they start focusing on it, and our numbers are increasing, and really the momentum is on our way.

And what is important for people to know is, when it comes to budget reform, it says — the initiative says, "Live within your means." I mean, we have to live within our means. It's like something you have to do, that businesses have to do. Local government has to live within their means.

We are teaching this to the children, and we should demand this also from our state, that if it don't continues to spend more money than we take in, it will bankrupt the state eventually again. But you're spending so much more money.

Next year's structural deficit is $7.5 billion already. We can't continue on like that, every year we're adding to the deficit. Let us spend the money we have, and then we can go and build California after that.

So what Proposition 76 says is control spending, pay down the debt, and balance the budget, without raising taxes.

HANNITY: Let's go to — and you're confident that's going to pass?

SCHWARZENEGGER: Oh, absolutely. I think that the people know that we have two choices. One is to be fiscally responsible, or eventually they're going to come after them for more taxes. I don't think people want more taxes. I think that people want to demand that the state spend only the money that we have.

HANNITY: Who's the greatest opposition to this? Because a lot of money — I've just been in time a short time. I see a lot of ads out there against you and the initiatives you're supporting.

SCHWARZENEGGER: The only one...

HANNITY: Where's the fiercest opposition coming from?

SCHWARZENEGGER: The only ones that are against my reforms is the status quo, the people that want to hold on to that status quo, and the public employee union bosses. They want to hold onto that. And they're spending millions and millions of dollars.

Look at the teachers union. They just ran out of money. They spent $60, $70 million already now, and now they ran out of money. Now they have to go and borrow some more money, because they're throwing all this money on television trying to discredit me and saying that I'm taking money from education, when, in fact, we've added $3 billion to education.

And they'll also go out and tell the people that, you know, if they pass this initiative, that we would live within our means, initiative Proposition 76, that this means that we take $4 billion from education. In fact, we're adding $4 billion to education, because we're going to pay back the maintenance fee. It all goes back to education.

It actually — Proposition 76 will stabilize education funding. It will be the best thing for education, because, right now, we are taking education on a rollercoaster ride. And I think our children deserve much better than that.

HANNITY: You think that will pass? Because you're a little behind on...

(CROSSTALK)

SCHWARZENEGGER: Absolutely. No, because remember one thing: When you're behind, it doesn't mean you're not going to pass. Because remember, on Proposition 66 just last November, which was attempting to soften the three-strike law...

HANNITY: Right.

SCHWARZENEGGER: ... they were ahead by two-thirds. And then two weeks before the campaign, we started campaigning, put the TV ads on, and then they lost by two-thirds of the vote. So it doesn't mean anything right now.

It's like in sports, Sean. It's like in sports. It doesn't mean anything if you peak two months or a month before competition. In sports, you want to peak exactly at the day of competition. And the same is also with elections.

We are arcing right now. We have tremendous momentum going behind us. And we're getting more, one endorsement after the other. All these different organizations are endorsing us. So I think things are going really well.

HANNITY: All right, if we look at all of them, the budget reform that will give you some accountability on spending, education, tenure, you're fighting the teachers union, redistricting, and obviously this issue about the unions, which is important to you. Of the four that you are out there in front on, if you want to predict right now, do you think you get all four? Do you think you win on all four?

SCHWARZENEGGER: Absolutely. I think we will win all four, because people see that as one reform package. And the people are getting it, that they sent me to Sacramento to fix a broken system.

(COMMERCIAL BREAK)

HANNITY: You really ran on a populist platform, and the need for institutional reform, and budgetary restraint. In that sense, these reforms clearly are about changing fundamentally how government works in the state of California.

Can you be successful without these reforms? How pivotal are these reforms to your ultimate success?

SCHWARZENEGGER: Well, they're very important. We need the reforms. I've always said, the first is recover, then it is reform, and then it is to rebuild. Those are the three r's: Recover, reform, rebuild.

It is very important that we reform now the system, because it is that very same system that is right now still in place that has almost taken us into bankruptcy. I mean, Sean, we were the fifth-largest economy. We have the greatest place on Earth. We have the most diversified economy. We have the hardest working people.

But government, our state government, has screwed up. They have taken the state almost into bankruptcy. So now the same people are still there, the same powerful labor unions are there, the same legislators, the same special interests, they're all there.

So this is why I say: Let us recall the broken system on November 8th. It is absolutely essential, so we can then expand and build California, create this infrastructure, create better education, build more schools and more highways, and really make our state bloom again, and explode, and be the Golden State that it once was.

HANNITY: In that sense, you're in full campaign mode, as I listen to you, and you still have your perpetual optimism, which I guess is really your trademark. But it's interesting, because I pretty much get to see you in six-month increments here, and you are under more fire now than I think at any other point that I've seen you.

You're under fire over the initiatives. You're under fire over gay marriage. You're under fire over immigration. You have Bob Reiner and Warren Beatty after you. You're even under fire for comments you made about, as a father, about not wanting to be notified if your daughter wanted an abortion.

And then your poll numbers have suffered. Has that impacted you at all? Has that been hard at all? Or is this what you full expect?

SCHWARZENEGGER: First of all, let me say that it is always difficult, when you turn on the television, and you see those lies on television. Of course it is difficult when they beat up on you. Of course it is more difficult when your poll numbers go down than when your poll numbers are high. Yes, of course.

But you know something? I don't care. That's the difference. Because what I'm fighting for is not me. It's not about myself. It's something much bigger. And that is what is so inspiring. This is what is so great and this is what motivates me, that I am fighting for something that is much bigger than me.

And this is California, the future of California, for all the people of the world, to put everyone and have everyone have a job and a career, to have our kids get great education, to have people move quicker on the freeways so they get to work quicker so they can be home with their families so they can make more money, this is what this is all about.

We need to reform our system. And I love doing that, because I have a vision of where California can be. And I'm very, very lucky that my dreams usually turn into reality. So now I just need the people of California to help me turn that dream into reality and to create a great California.

HANNITY: You're describing public service for what it is, but in today's environment of public service, those that want to serve come under tremendous heat and tremendous fire. And your attitude is: If you can't take the heat, get out of the kitchen.

SCHWARZENEGGER: Well, exactly. You know, I am not ever complaining about this, because I knew that this is what this job means. The job is a very difficult job. Every one of the governors during my swearing-in ceremony come up to me afterwards and says, "This is your happiest day. Remember that."

(LAUGHTER)

"Because from now on, it's going to get tough." And let me tell you something: It is a tough job.

Just alone, let me just tell you, I was just the other day at a funeral where one of our peace officers got killed on a motorcycle, a CHP officer. And this man was a very dedicated man, working very hard. It was unbelievable. And to see that this man has died on the job, and to see kind of like — it was just so unbelievable. I mean, it's stayed with me ever since.

So this is part of this job, to go and to see the families that are grieving and all those things. And then you go out again the next day, and you're with children, and you see them and how well after-school programs work and so on.

So, I mean, it is an interesting job, but you do get a lot of beating. And you can never please everybody. But we must reform California, nevertheless.

HANNITY: So it doesn't matter what Warren Beatty says?

SCHWARZENEGGER: Look, this is all part of it. I mean, let him talk, and have his fun, and his heyday, you know, in front of the television and all this stuff. Warren has been a friend for many, many years, and I'm not going to let that interfere with our friendship.

I'm sure there's a reason why he's doing it, and I would just say, "Go ahead. Be my guest."

(COMMERICAL BREAK)

HANNITY: I just spent three days on the border by San Diego. I spent a lot of time with the Border Patrol guys. I was out on horseback, up in helicopters, on ATVs with them, out on the boats with them.

SCHWARZENEGGER: How are you on horseback?

HANNITY: Not bad.

(LAUGHTER)

I'm not bad on horseback.

(CROSSTALK)

SCHWARZENEGGER: Remember from the "Conan" days with the sword?

HANNITY: I remember.

SCHWARZENEGGER: Exactly.

HANNITY: I love those animals. They're terrific.

One of the things that they were able to prove to me on the ground with them is that, when they want to secure an area, they can do it. The problem is, is they don't have enough money, infrastructure, resources...

SCHWARZENEGGER: Right.

HANNITY: ... to secure the entire area. It's the same problem in Arizona, and in New Mexico, and in Texas. Two states declared state of emergency. You have contemplated and said at some point you might consider one here. What would it take for that to happen? And what is the impact and the cost on the criminal justice system, the educational system, and the health care system?

SCHWARZENEGGER: Well, first of all, I don't have the statute to really declare a state of emergency. I need the powers to do that. So that's number one.

HANNITY: Would you, if you could?

SCHWARZENEGGER: I think — well, it's something to think about. But you know something? I have not really thought about, because there's nothing unusual going on right now that didn't go on already a half a year ago, a year ago.

We still have the same problem, which has always been that the federal government is not doing its job. I mean, I don't blame the people from Mexico trying to come across here, because the fact is, is this is the golden place. Everyone from the whole world wants to come here.

Some people are coming here legally. And then, if they can't do that, because of the kind of economic conditions they have here, they'd rather jump the fence and come here illegally.

But the problem we have is, is that the federal government is not doing anything about it. They're looking the other way, and they're living in denial. This has been the real problem we have in our state.

We have requested over and over for more Border Patrol. We have requested over and over to finish the fence that was started to be built, the three miles. Now, finally, Secretary Chertoff has called us and has told us that it will be finished and that he's committing to that, that they're going to go ahead and finish it, and that he will send more Border Patrol and more people to help us with the resources.

HANNITY: Let me ask you this.

SCHWARZENEGGER: And he's a good man to work with. So I'm looking forward to it. But the federal government has to take on the responsibility, because it is a federal issue.

HANNITY: You're saying the federal government's not doing its job. You have a personal relationship with President Bush. You spoke prominently at the GOP Convention. The Republicans are running both houses of Congress over there.

Have you spoken to the president? Have you spoken to leaders in Congress? I know, at one point, you got in a little trouble when you said the Minutemen are doing a terrific job. It's really not their job.

Have you spoken to the president and these leaders in Congress, Republicans, and said, "Hey, we really need to fix this here"? It's a susceptibility to terrorism issue, not an economic issue, not an opportunity issue.

SCHWARZENEGGER: This conversation comes up very frequently, let me tell you something. The last time I was back in Washington, I talked with the president about it. The one time before that when we met we talked about it. I talked to Secretary Chertoff about it, who's in charge of homeland security, because it's also a homeland security issue.

You know, there's the threat always there that someone comes through those borders and is not, you know, someone from Mexico but a terrorist.

HANNITY: Right.

SCHWARZENEGGER: And that really creates, you know, a great threat for our state. And this is why we have to do something about that as soon as possible.

And, yes, we have put the pressure on it. I've talked to Senator Feinstein, Senator Boxer. We all have talked about it. And this is why I think everybody is pushing now to come up with some kind of a solution that is an immigration solution, that they deal with this, that deal with reality.

And I think the Bush administration has been working on that and pushing Congress now with the guest-worker program. I think the Kennedy and McCain bill, they have been pushing, but I just hope that they really sit down and say, "OK, let us make the deadline next spring."

Let's have a debate over the next few months on this issue and then vote on something, on one of those guest-worker programs, so that we can make it legal for people to come in here, and work here, and then go back to Mexico, and figure all this out, and kind of solve the problem once and for all.

HANNITY: And you decided to veto the driver's license bill.

SCHWARZENEGGER: It's unsafe. It's unsafe for the state of California. We wait until they pass the national, the federal I.D. act, and let's just see what that is, so that we have a standard.

And then, for all governors, what should the driver's license really look like? What is it? Because, remember, on day one, when I was campaigning two years ago, I said, "I don't mind the driver's license for people, but let's find out who they are."

We don't know. I don't know, do we need a birth certificate? We need a certificate from the local police or wherever they are from, if it's from Guatemala, from Mexico, from Venezuela, wherever that they are, that there's no criminal record there.

We need the documents. A matricular card is not enough. The new matricular cards are very good, but the other ones — I mean, a lot of them are falsified. We don't know who the people are. So that creates a threat to security, and I cannot take on that responsibility.

So I wish that we can resolve this problem. But I think first we need a comprehensive plan to resolve all the immigration problems, and the federal government should get their act together, rather than to live in denial.

HANNITY: Governor, good to see you again.

SCHWARZENEGGER: Thank you very much.

HANNITY: Thanks very much. Appreciate it.

SCHWARZENEGGER: Thank you. Thank you.

(END VIDEOTAPE)

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