FRESNO - Under attack for using a campaign finance loophole to collect nearly $4 million from Indian tribes and unions, Lt. Gov. Cruz Bustamante announced Sunday he will spend the money fighting a ballot measure that would bar public agencies from collecting racial data.

Bustamante, the only major Democrat running to replace Gov. Gray Davis if he is recalled Oct. 7, told a campaign rally he will use the money to defeat the "regressive and dangerous initiative'' pushed by conservative activist Ward Connerly.

"No matter how you vote on the recall, please join me and California's nurses and doctors in voting 'no' on Proposition 54,'' Bustamante said.

Bustamante's announcement to a heavily Latino crowd of farmworkers came on a day when ethnic politics took center stage in California's hectic recall race.

Davis was flanked by Latino lawmakers as he rode in an East Los Angeles Mexican Independence Day parade that Arnold Schwarzenegger had planned to attend before organizers booted him out, a development the actor blamed on politics.

And the Democratic governor, who gained points in the Latino community Friday by signing a bill that will let illegal immigrants get driver's licenses, found himself explaining a comment he made at a campaign rally Saturday that "you shouldn't be governor unless you can pronounce the name of the state.''

The remark, reported by the Sacramento Bee, was apparently a reference to Schwarzenegger's thick Austrian accent.

"I was just joking around with someone in the crowd,'' Davis said after the parade, quickly adding that some of Schwarzenegger's stances, including his opposition to the driver's license bill, were "not a joke.''

Schwarzenegger's campaign demanded an apology, but the actor himself shrugged off Davis' remark after campaigning at a youth softball awards ceremony in Santa Fe Springs, a heavily Latino Los Angeles suburb.

"He doesn't like the way I say the word California because I say Cal-ee-fornia rather than Cal-a-fornia,'' Schwarzenegger said. "But there's many other words that he doesn't like. Lost jobs - he doesn't like that word. He doesn't like blackout. He doesn't like energy crisis. And he definitely doesn't like recall. So those are words that he just doesn't like, you know. So I mean, that's just the way it is.''

Schwarzenegger also joined Davis and Bustamante - the men he calls "the twin terminators of Sacramento'' - in opposing Proposition 54, the so-called "racial privacy'' initiative, which would prohibit the state from collecting or using most racial data.

"I think it's not fair,'' Schwarzenegger said Sunday, adding his work with education has convinced him it's important to track minority students' progress.

Connerly, meanwhile, dismissed Bustamante's plan to spend tribal and union donations to defeat the proposition as a "shell game,'' noting the lieutenant governor stands to benefit anyway since he plans to appear in television commercials denouncing Proposition 54.

"He's not doing this because he is so altruistically inclined to oppose the initiative, he wants to promote himself for governor,'' Connerly said. He said that supporters of Proposition 54, which will appear on the ballot along with the recall, will be outspent but he hopes the measure will pass anyway.

The controversy over Bustamante's campaign contributions involves limits set by a campaign finance ballot initiative approved by voters in 2000. That law says a candidate can accept no more than $21,200 from an individual donor.

In recent days, tribes and unions have contributed millions of dollars to Bustamante's 2002 campaign committee for lieutenant governor, which was created before the law took effect and is not affected by its limits. The Viejas Tribe of Kumeyaay Indians put $1.5 million into the old account. Bustamante's aides believed they could transfer money from that old account to his new campaign account, which operates under the $21,200 limits.

Republicans attacked Bustamante over the fund-raising and even state Democratic Party Chairman Art Torres was critical, saying it was legal but didn't pass the "smell test.'' On Sunday, Torres said the shift of money is "going to be very helpful for the 'No on Proposition 54' campaign. It's difficult for Republicans to argue now that he's not doing the right thing.''

Richie Ross, Bustamante's campaign consultant, said the lieutenant governor was following his conscience and wanted to avoid a political fight on issues unrelated to the recall.

"If you're going to have a fight, let's have a fight that actually matters in people's lives,'' Ross said.

In his speech, Bustamante said Proposition 54 was more important to the state than the recall election.

Bustamante was set to accept the endorsement of the Tribal Council of the Santa Rosa Rancheria - another tribe with gaming interests - at a Lemoore casino later in the day.

At the Mexican Independence Day parade, Davis was cheered on by supporters carrying "no recall'' signs. He rode in a bus with state Sen. Gil Cedillo, D-Los Angeles, who last year refused to endorse the governor after Davis vetoed a driver's license bill similar to the one he signed Friday.

"I like him. Gov. Davis is a good governor,'' said 34-year old David Cruz of Pomona as he watched the parade waving an American flag. As Davis passed, Cruz shouted "Si se puede'' - yes, it can be done - the political rallying cry made famous by United Farm Workers organizer Cesar Chavez.

But Olga Pizano, a 42-year old San Juan Capistrano resident, said it was wrong for Davis to criticize Schwarzenegger's pronunciation of California - noting that all non-Spanish speakers say it wrong, not just Schwarzenegger.

"Only Hispanics can say it right - California'' she said, rolling her R. "This was Mexico. You have to pronounce the R.''