Minimum wage will test political wills again.

The bell for Round 3 sounds in 2006.

Two challengers for the undisputed title of California's public-policy champion will square off much more equal after each punished the other with body blows and cuts in the previous rounds.

In 2004, Governor Arnold Schwarzenegger scored

big in the early minutes with successful passages of Propositions 57 and 58 and the " defeat of Proposition 56, all of which helped temporarily arrest California's budgetary free fall. He then pinned his legislative opponents in a corner and forced passage of Senate Bill 899, reforming California's costly and job-killing workers' compensation system. Then he closed in November of that year with successful passage of Proposition 64, ending shake-down lawsuits, and defeat of Proposition 72, a referendum putting the clamps on a legislatively passed universal health-care system.

But in Round 2 in 2005, his opponents loaded up, dropping those horseshoes of public employee unions' millions in their gloves and sending the governor's reform initiatives to the canvas.

So will 2006 begin with a handshake between these two combatants and put an end to the boxing metaphor, which aptly describes the battle fought so far between a pro-business governor and a pro-union legislature? The state's minimum-wage rate will answer the question.

Governor Schwarzenegger wisely vetoed the last minimum-wage bill sent to him by the legislature, because it not only boosted rates over the next two years, but also because it sought to link all future increases to rises in the federal Consumer Price Index. That proved to be a disastrous tactic in Washington when the voters passed similar legislation, only to see the state's poverty rates increase.

But 2006 is an election year and the governor is anxious to recapture his centrist appeal, which you don't do by seeming callous over minimum wages. The governor has also grown as a politician and realizes you don't reach out by abandoning the supporters who helped you in the past, so a compromise is in the works.

The governor is ready to acquiesce to an increase in the minimum wage in exchange for a return to the 40-hour work week sought by his long-time supporters. California is one of only three states that calculate overtime on a daily basis, an antique approach out of sync with the needs of America's modern work force. By returning to a 40-hour-a-week overtime calculation, a working mother, say, can negotiate with her employer to work four days at 10 hours a day and take a third day off to meet her specific family needs. Hypocritically irritating to many is that some public-employee unions for the state are allowed to negotiate for this same benefit.

Were this a time not so long ago, this type of compromise would have something for everyone and sail through the legislature and earn a gubernatorial signature. But we live in an age of the twin legislature, one full of elected officials and the other stocked with ballot initiatives. Already, unions are circulating petitions for a minimum-wage increase for the November ballot, and one that does not hand out anything to opponents. Should it qualify, the governor will be in the unenviable position of having to campaign against it.

California small-business owners have a lot of other issues on their minds as the legislature sits down for business. Protecting their property from unfair seizure by local governments--now greatly expanded after the U.S. Supreme Court's Kelo decision--meaningful tort reform and relief from spiraling health-care costs are just some of the other important decisions to be made. Perennials such as tax increases and additional regulations will also be of concern.

But it is the actions, or inactions, taken over the minimum-wage rate that will set the tone and color the climate for almost every other issue. Nothing will pass if it gets nasty and, come November, it's anyone's guess what voters will do.

Martyn B. Hopper is California State Director for the National Federation of Independent Business.