By Racquel Palmese
During his 25 years as a financial advisor in private industry, 6 years in state government and raising a family in northern California, David Crane has developed a deep affinity for the quality of life here and a keen sense of what it will take to maintain the “California dream.” As special advisor to the Governor for Jobs and Economic Growth, he is focused on ensuring that California’s economy thrives. Central to that is guaranteeing the viability of the state’s system of higher education, with a special emphasis on community colleges.
Along with Jerome Ringo, president of the Apollo Alliance, you’ll be a keynote speaker at the Green California Community Colleges Summit. Give us an overview of the scope of your work and some of the more pressing things you're working on right now, especially as they relate to jobs and the economy.
Pretty much everything relates to jobs and economic growth. One of the principle areas I’m focused on right now is tax reform. We have a super volatile-revenue system in California, which is largely the cause of these boom and bust budgets that have gotten worse because of our reliance on capital gains and stock option revenues. The Governor has tried for tax reform pretty much since he took office, and we have a Tax Reform Commission that will be presenting to the legislature soon.
Pension reform with respect to new employees is another main focus. We can't change the pension plan that we have for existing state employees, but for new employees the goal is to take the size of the pension promises back to where they were in 1999, before the bill passed that raised them. More importantly, to properly plan we want to fund them as they're made.
The pension problem directly and significantly impacts community colleges and the state universities, UC and CSU, because the pension promises weren't properly funded when made. The net result is if we don't address this problem, there's going to be increasing pressure on the University of California, CSU and the community colleges for decades to come.
The third thing that I focus on is when it comes to economic growth in California, is preserving funding for community colleges, CSU and UC. There are some things that really matter, and this is probably what matters more than anything else
How does the pension system affect funding for higher education?
The way California's budget works is pretty simple. A lot of the budget is off limits, it's nondiscretionary. Proposition 98 protects K-12, and debt service is protected by contract and constitutional provisions. Pension promises are protected by contract; they are owed, no matter what. So all that is off limits. When you have unfunded pension promises or unfunded debt obligations of any sort - they're all the same, just like general obligation bonds - then the money has to come from somewhere to meet the promises when they come due. The only place it can come from is from squeezing all the other discretionary programs in the budget, and that means UC, CSU, community colleges, Health and Human Services and Parks and Recreation. There’s about $30 billion a year that's left in that, and that's all going to get eaten up by pension promises that have already been made.
Pension reform is designed to take pressure off those programs going forward so we can keep funding them. If we can't properly fund UC, CSU and the community colleges, we have a very serious, not just economic problem, but quality of life problem in California.
How many government employees are we talking about when it comes to pensions?
At the state level, 335,000. There are about 235,000 non-educational employees , including DMV, CHP and other government agencies. We would certainly like to increase educational hiring, since the key to good education is good teachers.
The Governor has had a very ambitious green agenda during his entire time in office, and he's always said that the environment and the economy go hand in hand. What are some of the ways that this agenda can continue to move forward, even though we're in this challenging economy?
I think the challenging economy actually provides an opportunity to make things move forward even faster. President Obama pointed out one of the reasons we're challenged in our economy: for more than 35 years American leaders have known that we have a deep and dangerous energy security situation [our dependence on oil]. It's no way to run a business, or an economy, when you're dependent on one commodity which is provided by a cartel and you have absolutely no control over the price or the supply.
The only thing you can control is your own demand for oil, and yet American leaders have not done anything to make changes in that demand for 35 or 40 years. That's what's led to the current situation. President Obama, during his transition, made a speech about energy policy, describing what he called "shock and trance." I'm 55, so I lived through the 1973 oil embargo and the 1979 oil embargo, and I know exactly what he was referring to. When you get an escalation in price like we got two years ago in oil, everybody gets shocked, and every leader says we're going to get off oil, we're going to do this and do that. Then the prices decline and everybody goes into a trance.
The current economic situation is an inducement to finally solve this problem. It doesn't require government spending. That's one of the things Governor Schwarzenegger has made abundantly clear. You can change the nature of energy, its supply, its characterization, its material, by changing the nature of the demand for that product. For example, in a state like California, which is the largest market in the United States and the eighth largest market in the world, where we consume something like 16 billion gallons of gasoline a year, if you change the nature of the demand for that product, you will change the nature of the suppliers and the supply to that market.
How would you do that?
Two things in particular have enormous impact. One is the vehicular efficiency regulations known as the Pavley Regulations that the federal government has now embraced. The other is the Low Carbon Fuel Standard, which was the Governor's a creation. It will change the nature of transportation fuels, which in California account for 40 percent of our greenhouse gas emissions.
Changing the nature of the demand is something California did in the 1970s when we said to appliance makers, look we love all your refrigerators and your toasters and your dryers and washing machines, and you can keep selling to our market, which of course they have to sell to because it's the biggest in the country. But if you want to sell to our market you'll have to get over a new hurdle. That hurdle is known as energy efficiency. You'll have to make your products more efficient over time. They all said they couldn’t do it, that it was going to make it difficult for consumers and prices were going to go up and all the rest.
All it takes is one manufacturer who does it and every manufacturer after that will do it. That's why when everybody goes to the store to buy a refrigerator in California today, they don't even have to address the issue of which one is more energy efficient. It's all very clear to them and all the products compete on quality and price. So the same thing's going to happen with fuels in California, because of the Governor's Low Carbon Fuel Standard and Vehicular Efficiency Standards. And that's the sort of thing that government can do without spending a dime.
A new solar plant opened in the Antelope Valley, and you said “Today we take an important step to a new dawn of power generation.” The Environmental Defense Fund has released a map with 2,200 green businesses in California. How important is green business and innovation to California's future?
Full disclosure - I'm an advisory trustee of the Environmental Defense Fund. Frankly I don't think any government official can tell you how important any segment of the economy will be to the future. It's just impossible to predict with very creative, innovative economies like California's. If you go back fifty years and you look at the nature of California's economy then compared to its economy today, it was incredibly different. Today agriculture is only two percent of our gross domestic product. Back then, aerospace was a huge industry. If you would ask government officials then what the future of California will be, they would all probably extrapolate from what we already had.
I don't know how important green technology industries and companies will be to California's economy, but I will hazard a guess that they will be very meaningful. We have a $1.7 trillion gross domestic product, so it's a huge economy. Green technology companies like Echelon are already making money and hiring lots of people. A lot of California companies are active in green building design and hiring a lot of people. Power plants in California that are producing energy from green sources are hiring a lot of people. In a world where $6 trillion a year is spent on energy consumption, transportation, stationary energy and all the rest, and in a world that is switching from a dependence on fossil fuel for all kinds of reasons, if you have a transition in a market as big as California’s, it would be hard to assume that the state and its very dynamic population would not play a major role.
How can we attract and keep these companies here?
The most important thing to attracting companies to California, whether they're green or otherwise, is maintaining an incredibly fine quality of life. Those companies are knowledge-based, and for them to flourish, you need the right human talent. It's different than the industrialization era when human talent was surplus and what you needed was capital to build machines. Here, you need the right brains.
Companies like Google arise out of people's brains. So you want those people to want to live in this state. It is incredibly important, not just for our own quality of life, but for economic development, to maintain the world's finest environment. That's a serious economic imperative. Clean air, clean water, lots of recreation. You also need very fine public schools, because it's not just so much that you want to educate the talent that will work for you, but people who live in the state want their kids to go to good schools. Otherwise they won't want to live here.
We're big supporters of President Obama's Race to the Top. The Governor is very actively engaged and has been since before he took office in trying to transform California's public schools into the finest in the world, which they used to be.
How does higher education play into this?
Our community colleges and the CSU and UC systems are central to California’s economic growth. If you look at the different clusters in California that have created these new areas, whether it's biotech or information technology or internet, they have grown up around universities, and they have been populated eventually by people who have graduated from community colleges. Genentech, for example, is dependent upon Solano Community College for a lot of its employees.
For economic growth you need very strong higher education. And then you need a very attractive tax system. We have a system right now in California that penalizes companies from hiring Californians, and penalizes entrepreneurs from living in California. You have to have a tax system that doesn’t penalize brilliant labor from wanting to be here and companies from hiring Californians. That's my perspective.
Can we accomplish a tax structure change and still be fiscally sound?
Yes, I think you can not only do a tax system like that, but that it can even be more fiscally sound. The sort of tax system that gives rise to that is one that is closer to the one in Washington state, where you there is no personal income tax, some corporate tax. Their taxes are spread more on sales and services, and it looks more like their economy, whereas California’s tax system is dependent upon Wall Street. If we have a tax system that looks more like California's economy, it will be fiscally more robust, and definitely affordable.
You're supporting high speed rail in California and obtaining ARRA funding for that. Is this a green solution? Why should it be a priority?
It's definitely part of a green solution, but you don't want to overstate that. There are greenhouse gas savings from having trains rather than automobiles and planes, but there are also a lot of greenhouse gases expended when you build trains. There's definitely a benefit, but the real benefit from high speed rail goes to that quality of life issue that I mentioned before.
I'm a train commuter. I live in San Francisco and my office is in Sacramento. I take the train up here. It's the greatest way in the world to travel, especially if you have a wireless connection. When you're on the train you're more productive than you are when you're in your office. High speed rail, which I've traveled in a lot in Europe and Asia, is a terrific way for people to live in a state of 38 million people, growing to 50 million, or whatever we'll grow to. If we want to preserve that wonderful quality of life, we need people to be able to travel in a way that is green and uncongested and where they can work and enjoy life as they're traveling.
You're going to be a keynote speaker at the Green California Community Colleges Summit. With all your speaking opportunities, why did you choose to speak to this audience?
The community colleges in California are central to California's well being and quality of life. There's another reason as well. Before I took this job I was in business for 25 years. I've been in government now for almost six years. I knew nothing about community colleges other than the fact that I live in San Francisco and was very familiar with the college of Marin and its beautiful campus. Then my own kids had friends who started to attend community college, and I got a sense of how powerful these schools were and what a great and, to someone like me, unknown resource it was. Then Genentech introduced me to the Solano Community College and I got an understanding of how dependent that company was on that college for its employees.
You learn that these community colleges are central to California's well-being. It's an honor for me to speak to them.
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