When: Tuesday, March 1, 2011 at 7:10PM ET

Where: CNBC’s “The Kudlow Report”

Following is the unofficial transcript of a FIRST ON CNBC interview with Ohio Governor John Kasich tonight on CNBC’s “The Kudlow Report.”

All references must be sourced to CNBC.

LARRY KUDLOW, host: Now, from Wisconsin to another battleground state in this rather uncivil war, that being Ohio. Thousands of protesters descended on Ohio state capital today as our next guest, Governor John Kasich of Ohio, takes on a government workers' union revolt of his own. This, of course, an attempt to balance the $8 billion budget shortfall in the state of Ohio. Old friend Republican Governor John Kasich joins me live for a first-on-CNBC interview from the Capitol in Columbus. Mr. Kasich is our new budget chairman in the House. John Kasich, now Governor John Kasich.

Congratulations, John. I guess it's great fun, but from President Obama through all the government unions, they're bashing you and they're accusing you of union busting. What is your response?

Governor JOHN KASICH: Well, Larry, the only thing I'm at war with is poverty and unemployment. You know, Ohio has been just getting crushed here over the last 10 years. We've lost more jobs than every other state outside of Michigan and California. So I--look, I ran for governor because I said we needed to restore the growth, the entrepreneurial attitude, the idea that you come to Ohio, you create a job, you'll have less friction, lower costs.

Larry, what we need to do is to lift our people.

You know, give you just a couple examples. We lost a--600,000 jobs in the last 10 years, 400,000 in the last four years. One-third of our college graduates leave after three years. City of Cincinnati has lost 40 percent of its population since 1950. Cleveland and Youngstown have lost half. Our entrepreneurs leave, Larry. So what do I need to do? I need to fix it. I need to restore an atmosphere of risk taking and investment and job creation.


Gov. KASICH: And so what I'm doing with this reform bill that we see now is only one piece of an overall reform agenda that I will--I will present to the state on the 15th of March.

KUDLOW: Well, but let--so let me ask you, look, Governor, the big question people are saying is, OK, they understand Ohio's economic problems--and I doubt if anyone would disagree with your description and your analysis. But what folks don't seem totally convinced yet--not me, but folks out there—is that restricting collective bargaining by the government unions will achieve your pro-growth, pro-business, pro-investment, pro-jobs agenda. Tell us how, in your mind...

Gov. KASICH: Well--yeah.

KUDLOW: ...restricting the collective bargaining gets you to where you want to be in the Ohio economy.

Gov. KASICH: Well, Larry, first of all, local governments are going to get less money. And you'd like to give people the tools so they can represent taxpayers in any of the governmental units. We also have estimated that this bill last year raised our costs in Ohio by over, you know, conservatively a billion dollars. So we would not only be able to save money at the state level, but local governments would be able to save money and manage their costs. But this is only one piece. Look, I'm going to be reforming Medicaid, reforming the prisons, reforming K through 12, reforming higher education. And the media has fixed just on this one issue, but this is part of a program that is a comprehensive approach to being able to keep our tax cut. We fight--we had an income tax cut that came in January. We are going to preserve that. Larry, we need to be able to have a differential out here when you--whenever you sell a stake in a company that you've built. Right now we don't have that, so people leave. They go to Florida. So you can't look at these things as individual pieces. They are part of an overall puzzle so that our people can be prosperous and jobs will be created here.

KUDLOW: John, just looking at the--some of the notes, you got 300,000 unions, including police, fire, public schools. Is your collective bargaining, Governor, is your rollback just for pensions and health benefits? Will you permit collective bargaining on the wage front?

Gov. KASICH: Yeah, I said all along, Larry, I have no problem with people being able to collectively bargain and talk on wages and maybe even--not maybe even, but some workplace rules and some working conditions. And, look, we have a--we have a law here called binding arbitration where an outsider comes in and tells the city exactly what the settlement ought to be in a dispute. And even if the city can't afford it, they impose it anyway. So a lot of these cities who--and the managers who represent taxpayers, they settle for a bad deal because better to take the bad one than one that would be worse. We would--we don't want to have binding arbitration anymore. We want fact finding, and then we want the, you know, the workers be able to present their case, and the taxpayers, represented by the managers, to present their case, and then, you know, they figure it out. That...

KUDLOW: Governor, just in the last minute--OK, hear you on all this, and I appreciate it--is there any talk in Ohio to make Ohio a right-to-work state? Because, you know, you look at the literature out there, FDR came out many, many, many, many decades ago against public unions. George Meany, the head of the AF of L-CIO, came out against public--there's a whole discussion, a serious discussion about getting rid of the public unions altogether and, in effect, making it a right-to-work state. Was there any talk about that in Ohio in your administration?

Gov. KASICH: Well, there's a--yeah, well, there's always a lot of talk out here, Larry, from people who analyze things and say that's what we need to do. My comment has been, I'm willing to work with the unions that represent people who make things. And that doesn't mean I'm not willing to work with the ones that don't make things, but, you know, in terms of going to right to work, you know, this is--this is--I'm not moving in that direction right now...


Gov. KASICH: ...because I want to give those unions a chance to work with management, reduce their work rules. We have success in Lordstown with the UAW. We have some success in Toledo with the UAW. We'll see where that all goes. But I have to do everything I can to make sure that I do everything I promised, which is to create a job-creating atmosphere in our state. So right now right to work is not on the table here, Larry.

KUDLOW: All right, Governor John Kasich, we're going to leave it there. You've got some tough weeks ahead of you. I wish you all the best in the world. Thanks for coming back on.

Gov. KASICH: Always good to talk to you, Larry. Thank you.

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