Schwarzenegger's Former Budget Director Takes on Big Money in Calif. Governor's Race

Is it possible to embrace a temporary tax increase and survive a Republican primary for governor of California?

Tom Campbell, a former congressman and state senator who served as Gov. Arnold Schwarzenegger's budget director, intends to find out.

"My hope is that we can return to pragmatic, effective, good governance," Campbell told ABC News as part of the "Candidate Corner" series. "Trust us to make the state run well and in that process recognize that compromise is needed as part of the democratic process, a small-'d' democratic process."

The temporary tax hike embraced by underdog candidate Campbell is contained in Proposition 1A, a measure on the state's May 19 ballot that would bolster the state's "rainy-day fund" and limit spending in good fiscal years while temporarily raising taxes.

Prop. 1A is being championed by the term-limited Schwarzenegger and the state's Assembly Republican leader but it has been opposed by Campbell's two Republican rivals for governor: former eBay chief Meg Whitman and state Insurance Commissioner Steve Poizner.

Poizner and Campbell appeared recently before the California Republican Party's executive committee to debate the ballot measure. The state GOP leaders sided with Poizner and voted to oppose all six measures on next month's special election ballot.

Proposition 1A is anathema to a sizable chunk of the Republican Party.

"Campbell came out for this tax increase, that's goofy," Grover Norquist, the president of Americans for Tax Reform, told ABC News.

While Campbell is not surprised that Proposition 1A has been opposed by many anti-tax activists, he believes the measure is misunderstood and that it represents a worthwhile "trade-off."

'The Trigger of Taxes'

"It's a very conservative proposition," Campbell said. "Traditional Democratic power bases in California are very much troubled by 1A because it establishes a rule that if you get more revenue than the previous 10-year average, it goes into a reserve fund. It can't be spent. Once you fill up the reserve fund, if that still comes in above the average, you've got to spend it for one time things as opposed to entitlements.

"The only reason it ran into problems with the Republican Party -- at least some members of the Republican Party -- is because of the trigger of taxes," he added. "But there, I see a real clear trade-off: it's an extension of the sales tax for one year, an extension of the income tax for two years, after which they do go back to the previous rates, automatically, no further law needed, and, in return, for which we get permanent budget reform.

"That's traditionally a Republican thing, not a Democratic thing," he continued. "The tradition on the Democratic side has been to expand the entitlement programs and, in California, that would be welfare, Medicaid and the Prop. 98 guarantee to K-14."

While Campbell is at odds with his GOP rivals on Proposition 1A, he is with them in opposing Proposition 1B, a measure that ultimately would tap into the new rainy-day fund to restore billions of dollars in school cuts.

Prop. 1A must pass in order for 1B to take effect.

"When you're in a crisis and have to cut spending, everything should be on the table," including K-12 schools, he recently told the Los Angeles Times. "All components of state government are in need: welfare recipients, folks on Medi-Cal."

Campbell, a law professor who has taught at Stanford, U.C.-Berkley and Chapman University, says his views on education have been informed by his experience in the classroom.

More Authority for Principals

"When the economy revives, I would like very much to see the additional money going to K-12 in the form of lower class size," Campbell said. "I've been a classroom teacher for 26 years. I'm a much better teacher, the smaller the class."

In addition to smaller classes, Campbell supports giving principals more authority to monitor teacher performance, offer incentive pay and layoff teachers, if necessary.

"The devolution of authority to the principal level is the most predictive improvement element in schools, next is the class size," said Campbell, who has been influenced by the work of UCLA Prof. Bill Ouchi, author of "Making Schools Work."

Campbell, who was brought into Schwarzenegger's camp by former Reagan administration Secretary of State George Shultz, said his year as finance director taught him the ins and outs of the state budget.

"Even as a state senator, I never fully understood how cyclical our revenue was," Campbell said.

To cope with the state's volatile revenue base, Campbell is proposing that the state should put itself on a 10-year path toward raising revenue one year, letting it earn interest and spending it the next year.

"There would never again be any doubt about how much money we would have to spend," Campbell said.

Going forward, Campbell sees prisons as an area where the state can save money.

"Prisons should be for violent criminals and for the non-violent who break the conditions of their parole," he said. "The means of electronic monitoring are now so advanced in our state that we ought to be relying on them a lot more."

Money Is Biggest Obstacle

When it comes to social issues, Campbell describes himself as having "strong Libertarian tendencies."

He thinks "gay people should have the same rights as straight people, including the right to marry" and that "a woman should make the choice on abortion up until the time of viability."

While Campbell is the lone Schwarzenegger ally on Proposition 1A among the 2010 Republican candidates for governor, the former Ph.D. student of Milton Friedman at the University of Chicago is not shy about disagreeing with his former boss on economic regulation.

"Gov. Schwarzenegger has less suspicion of large government than I do; I think that's a fair comment," Campbell said. "Whereas I agree with him on the need for infrastructure, he has been very willing to regulate industry, including in a particular area, regarding global warming.

"We have now created a state system whereby local zoning decisions must have a component of what it does to global warming," said Campbell, referring to last year's global warming zoning bill. "We are desperately in need of manufacturing jobs in California. We appear to have regulated them so heavily that they go to other states."

Campbell's biggest obstacle in the 2010 race, according to GOP strategists, is money: Whitman and Poizner are both multi-millionaires who can self-finance their own campaigns.

To overcome his better-funded rivals, Campbell is counting on the power of the Web as a fund-raising tool as well as the dynamics of a three-person race.

"A three-way race is exceptionally more achievable," Campbell said.

Campbell 'Doesn't Have a Great Shot'

"I have precedent for that. It is somewhat ironic. It is Gray Davis beating Al Checchi and Jane Harman in 1998," Campbell said, referring to the former governor's Democratic primary win against a wealthy businessman and member of Congress who had injected millions into their own races.

A California Republican strategist not working for any of the 2010 candidates summed up Campbell's chances, saying, "He doesn't have a great shot because he doesn't have the money, but he doesn't have no shot.

"The conventional wisdom is that the California Republican primary electorate is dominated by right-wing activists but it's not," said the GOP strategist who asked that his name not be used. "No one likes the tax increases but the price for it is you finally get a spending cap.

"Poizner is already on the attack against Whitman. It's going to be very negative," the strategist added. "Campbell can potentially get up the middle."

ABC News' Ferdous Al-Faruque contributed to this report.