California’s Model “Newocrat”: David Crane’s Crusade for Pension Reform and High-Speed Rail

The Huffington Post, 4/15/10.

By Nathan Gardels
Recently, New York Times columnist Tom Friedman wrote an interesting article in which he argued that the “just-say-no-to-everything-except-lower-taxes-and-more-drilling” Republican dogma no longer fits the challenges of the 21st century. Nor does the New Deal project of continuing to expand entitlements, which has now moved toward completion with the passage of Obama’s health care bill.

More suitable for today’s world, where the US must compete with others — including China, which is building the world’s fastest trains and taking over the global solar industry — would be a new paradigm of fiscal responsibility combined with investment in infrastructure and education — “building bridges to the future.”

Those who inhabit this 21st century paradigm Friedman calls “newocrats.” California has such a model “newocrat” in the person of David Crane.

Crane is a Democrat who is special adviser to Republican Governor Arnold Schwarzenegger for jobs and economic growth and a board member of the California High Speed Rail Authority.

Though willing to accept the designation of “newocrat,” Crane says he is really an “oldocrat” in the mold of JFK, who both cut taxes to spur business investment and heavily funded NASA.

For Crane, “California is a giant Petri dish” where the role of the state is to supply the requisite nutrients through excellence in education, fiscal responsibility, the right tax structure for business to invest, and by building the smart infrastructure of the future. The entrepreneurial energies of Californians will take off from there.

Crane has staked out two issues that embody this new approach — pension reform and building a California bullet train.

“Fiscal responsibility,” says Crane, “begins with getting at the truth of the real public debt” so that we don’t repeat the implosion in the public sector that occurred on Wall Street.

According to Crane, California has a “$500 billion pension time bomb” of unfunded liabilities and health care promises that are not properly accounted for as part of the state’s debt, yet drain resources from elsewhere in the budget. This year, he argues, $5.5 billion was diverted from higher education, transit, parks and other programs to meet liabilities.

Since 1999, Crane argues, pension costs have risen 2,000 per cent while higher education allocations have fallen. A single department — corrections (prison guards and employees) — received more in compensation than higher education, which services ten times as many students.

Critics charge that Crane overstates the case by using 1999 — the year when the state paid the lowest amount to pension funds — as the base year of his calculations and using the low US Treasury rate as the discount rate for valuing the liabilities.

Whether Crane or his critics are right or wrong at the margins, the central fact remains that pension liabilities are burgeoning beyond what the public can afford. Nothing of course can be done with current obligations in the state’s defined benefit programs. But one can be pro-union — as I certainly am — and still see that a sense of fiscal reality suggests that new hires must agree to less generous benefits and the extension of the retirement age to lessen the burden on the rest of the budget, which is what Crane prescribes.

The other side of the “newocrat” coin is building a smart infrastructure for the future. Here, Crane is the leading champion of high-speed rail for California, guiding the cooperative agreements that the State of California and General Electric have signed with China not only to build, but help finance, the project.

Californians passed a ballot initiative last year for $9 billion in bonds for high-speed rail provided that full financing of about $43 can be raised before the project proceeds.

In a match made in the Heavenly Kingdom, China these days has the capital and the expertise to help create jobs and high-productivity growth for California through the very energy-efficient infrastructure that is key to the state’s future.

Other nations with high-speed rail technology could be involved, such as Germany or Spain, but the China angle is by the far the most intriguing because of the historical irony of the Chinese once again building America’s rail lines — this time as the bankers and technologists.

As Crane enthuses, California would be drawing $43 billion worth of investment into the state from $9 billion of its own money because China and others are so eager to get into the high-speed rail market in the US.

A final question is how the next governor of California will fit in with such a “newocrat” approach. I suspect that both Meg Whitman and Jerry Brown are in general agreement with David Crane, just as Governor Schwarzenegger is.

But, to continue the China metaphor, Jerry Brown might be better able to effectuate a “Nixon to China” shift with the public employee unions. Brown is a strong supporter of unions, who he regards as one of the few bulwarks in society against private greed. And he sponsored collective bargaining for public employees when he was last governor.

Yet anyone who knows Brown knows he is fiscally conservative in his bones. For those who don’t know him, remember the mattress where he slept on the floor of his apartment and the state-issue blue Buick he used as the people’s limousine. That was no act.

Someone with fiscally responsible instincts who also has the best interests of working people at heart is likely to make more progress than someone regarded as an political enemy.

While Whitman comes from the dot.com world of eBay, in the last years of his second term as governor, Brown made building up Silicon Valley, putting computers in schools, freeing up venture capital and technological innovation his priorities. He was also the first major political figure to promote renewable energy and appropriate technology back in the 1970s. Already then, his era of limits perspective had evolved into a vision of smart growth.

In either case, the non-partisan, think long approach being blazed by David Crane ought to be followed by whoever wins the statehouse. If so, all Californians will benefit.

Link to full article: http://www.huffingtonpost.com/nathan-gardels/californias-model-newocra_b_539812.html