Been hearing rumblings all night about a controversial shake-up in Calif. Gov. Arnold Schwarzenegger’s office. Here’s what Capitol Weekly is reporting:

Republican Gov. Arnold Schwarzenegger has hired Susan Kennedy, a top aide to former Gov. Gray Davis, as his new chief of staff, Capitol sources in both major parties said. The chief of staff’s position is considered the most powerful administrative position in state government, with broad authority over policy-making and the sprawling bureaucracy.

The decision was made following two days of intense, closed-door meetings that included negotiating sessions across the street from the Capitol in the Hyatt Regency Hotel, where Schwarzenegger stays while in Sacramento. Kennedy’s hiring was the culmination of a five-hour meeting, sources said, at which Kennedy demanded–and got–sole authority over hiring and firing the executive staff. That provision spread anger among Republican insiders, who said they feared a major purge of GOP staffers among the governor’s inner circle.

Republicans said Kennedy’s hiring had been pushed by Democrats close to the governor–including his wife, Maria Shriver, and advisers Bonnie Reiss and Daniel Zingale. Democrats, meanwhile, said Schwarzenegger’s decision was based more on his personal nonpartisan nature, rather than from succumbing to persuasive Democrats.

Whatever the reason, the governor’s choice is the most dramatic in the Capitol since former Gov. Jerry Brown, a Democrat, chose the late B.T. Collins, a maimed Republican Vietnam war veteran, as his chief of staff.

Kennedy’s hiring signals a dramatic shakeup in the inner circle around Gov. Schwarzenegger, who suffered a major political defeat on Nov. 8, when his attempts to overhaul government–including spending limits and the creation of a retired judges’ panel to supervise reapportionment–were rejected by voters.

Kennedy decided to accept the chief of staff’s position following lengthy meetings at the Hyatt, but she had been approached earlier by the governor recently in Los Angeles to take the job–but turned it down.

She changed her mind after Schwarzenegger, who approached her anew to accept the post, agreed to give her broad authority over the staff…

One unhappy GOP source in California e-mails: “What is the point of a recall if youre going to turn around and re-hire the key architect of so many Davis failures?!?!?!?!”

Good question.

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From Susan Kennedy’s bio:

Prior to joining the Davis Administration, Kennedy served as Communications Director for U.S. Senator Dianne Feinstein. As a senior member of the Senator’s Washington, D.C. staff, Kennedy assisted the Senator with the development of legislation and policy initiatives, media relations, and community outreach.

Kennedy previously served as Executive Director of the California Democratic Party and as Executive Director of the California Abortion Rights Action League. She managed two of the most successful Get-Out-The-Vote campaigns in recent California history, including the 1992 Coordinated Campaign for Clinton/Gore and the 1998 Coordinated Campaign that elected Governor Gray Davis.

In addition to her service on the CPUC, Kennedy was confirmed by the California Senate on August 25, 2003 to serve on the California Bay-Delta Authority, the statewide body responsible for overseeing one of the largest water projects in the world – the $8 billion, 10-year restoration of the San Francisco Bay Delta ecosystem to increase storage, promote efficiency and protect California’s extensive levee system.

A resident of Marin County, California, Kennedy attended San Francisco State University.

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More California blogger reax at The California Observer, FlashReport