The governor’s guide to the private sector

Los Angeles Times, 7/8/07.

David Crane is smart, rich and unshakably sure that private money will flood California to help build roads, railways and other badly needed public works. Politicians just need to get out of the way.

His boss, politician Arnold Schwarzenegger, agrees. “We’ll miss out if we don’t take private money and build public projects,” the governor said at a recent town hall meeting in Monterey. “We have to be creative.”

Crane, Schwarzenegger’s special advisor on jobs and the economy, is looking for investors to buy or lease big-ticket items — wind-power farms, ports, freeways — and split future profits with the state. He’s point man on one of the administration’s first proposed partnerships: leasing the $1.1-billion-a-year lottery and using the revenue to pour concrete and pay down debt.

It’s a radical idea for California, which made selling bonds to build ambitious public projects a keystone of progress for more than a century. It’s likely to be a tough sell to Democrats, who control both houses of the Legislature, and their allies in the public employees unions.

Senate President Pro Tem Don Perata concedes that the state might need private money to supplement limited tax dollars to rebuild crumbling public works. But he objects to suggestions that privatizing the lottery or other assets could solve the state’s chronic budget deficit.

“It looks like a bake sale,” the Oakland Democrat says, “and we’re out selling cakes to finance what should be part of state government.”

Crane counters that he’s simply applying the lessons he learned as a merchant banker to give lawmakers another “arrow in the quiver” of public finance.

A self-made multimillionaire and a conservative Democrat, Crane, 53, took advantage of Schwarzenegger’s election to make a radical career change. He gave up his partnership at investment bank Babcock & Brown and took a $94,500-a-year state job in late 2003.

Now, he commutes between Sacramento and his home in San Francisco’s Pacific Heights district and flies around the state preaching the gospel of California’s economic vitality. He says he spends his free time thinking about policy and reading the Economist magazine and political biographies.

Even Crane’s critics call him smart. Other words they occasionally use: opinionated, aloof and stubborn.

“He’s at 35,000 feet, and we’re here at sea level,” says Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. “We don’t see that much engagement.”

Crane’s long-standing friendship with the governor makes him the administration’s go-to guy on economic development issues. Their intellectual convergence, both Crane and Schwarzenegger say, boils down to the conviction that government should pursue policies that create a healthy business climate, then let the market operate.

“David understands the importance of fostering an economic environment that enables job creation and business growth,” the Republican governor says.

Crane wants to nurture that culture by building on California’s best attributes: an attractive environment, a highly educated workforce trained at world-class universities and an international celebrity governor who can pitch robust Zinfandel wines, Internet search engines and breakthrough biotech drugs.

When it comes to economic development, Crane likes to think big. This year, he took the lead in putting together Schwarzenegger’s initiative to combat global warming by requiring oil and alternative energy producers to meet a low-carbon standard for vehicle fuels.

Governments are not suited to “pick and choose” a particular industry to invest in, he says. “Markets are better at doing that, when you have consumers making choices.”

Though he opposes giving incentives to specific companies, Crane says he backs broader pro-business policies: corporate tax rate cuts, tax credits for buying equipment and incentives for using California locations and labor for movie, TV and commercial shoots.

What’s more, he says, he’s not averse to fighting to help an individual company come to or stay in California, if the deal provides value to taxpayers.

His economic development efforts haven’t impressed Wayne Schell, president of the California Assn. for Local Economic Development, which represents 750 city and county officials.

“My members don’t particularly want to work with David because he’s gone into their communities and said things they didn’t particularly like,” Schell says. “He likes to tell companies that if they are sitting at the table asking for incentives, then something is wrong with their business plans.”

Crane did help the governor and local officials persuade British billionaire Richard Branson to locate the headquarters of a new low-cost airline, Virgin America, at San Francisco International Airport.

But Crane and the governor didn’t do so well in 2004, when they tried to persuade Amy’s Kitchen, a maker of frozen pizzas and other organic foods, to build a plant in its Santa Rosa hometown and not Medford, Ore.

Schwarzenegger made Amy’s his poster child in a high-profile business-attraction campaign that featured the governor driving an “Arnold’s Moving Co.” van down the Las Vegas Strip.

The hoopla couldn’t keep Amy’s owners from succumbing to the rich relocation incentive package brought to them by Oregon Gov. Ted Kulongoski.California should avoid bidding wars with other, less naturally advantaged states, Crane says, because “you don’t use cash if you don’t need to use cash.”

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