California, Who’s Really Running the Government? | David Crane

Alan Olsen: Can you share a little about your background?

David Crane: I was born and raised in Denver and graduated from public high school out there. I graduated from the University of Michigan and came out to California in 1977 to go into law school. I loved law school and started in business in my third year of law school and took the bar exam just- in case my business didn’t work out so I could always practice law in case things changed. I then spent the next 25 years in business. I built a financial services company that did leasing of like power plants and ships and aircraft around the world and then in 2003 I retired. I had long wanted to do public policy from a young age. I wanted to run for office and when I went into business I thought I would spend maybe ten years in business, make enough money so that my family was secure and then go into public policy. I ended up spending 25 years instead and the year I turned 50- which was 2003- I said to my wife and to my business partners ‘this is it for me, at the end of this year I’m leaving no matter what. I’m gonna burn these ships and I’m gonna go on to public policy one way or another. And it was completely serendipitous that that’s the year the recall election came along in California. In 2003, Arnold Schwarzenegger threw his hat in the ring and asked me if I would help. I had met Arnold in the late 1970’s. Obviously we didn’t bond over bodybuilding. We met at a very fertile time for political discussion in this country and he and I- even though I’m a lifelong Democrat- found that we agreed on virtually everything. Fast forward 25 years, he asked me if I’d help him when he rans for governor. I said, yes. I ran his economic recovery council during the campaign which was co-chaired by George Shultz and Warren Buffett and then after he became governor. He named me special advisor, I went up to Sacramento thinking I knew everything about politics and I learned I knew nothing.

Alan Olsen: Where does Arnold sit politically. Is he a Democrat, a Republican or a moderate?

David Crane: You have to go back to understand to what era those labels apply. When Arnold and I met in the late 1970s, we had stagflation- his generation has never had. High interest rates and next to no growth. We had massive deficits, we had the Cold War, we had the Soviet invasion of Afghanistan with the Iran hostage crisis, we had the energy crisis, all kinds of things. I found that Arnold and myself agreed upon most everything. We had a mutual interest in opportunity. He had come from a socialist country that was sandwiched between the Iron Curtain and the Democratic countries of Western Europe, he was from a little country where opportunity was very limited. He wanted a place where people, if they wanted to do something, they could try for it. I favor that approach as well. We both found, even though I’m a lifelong Democrat that we had a mutual admiration for Milton Friedman. So I would say that Arnold, from an economic standpoint, falls on the sort of Milton Friedman/George Schultz side of the line. He thinks that the things that give rise to economic growth are environments that allow people to take opportunities and capitalize on them. I fall into that category as well. Whether you call me a Democrat or Republican or anything like that, I favor opportunity and in fact when Arnold and I met in the late 1970’s, one of the reasons we found that we bonded over some of these issues is that we were discussing the issues of the day. Someone at the table said, well David you don’t sound much like a Democrat. I said to them, go back and read the 1960 Democratic party platform that John F. Kennedy had written. I was nine years old and I didn’t read it at the time it was published, but that is the kind of Democrat I am. Many people forget the number two policy on the Democratic party platform in 1960 was anemic economic growth. John F Kennedy in 1962 was the author of the largest tax cut in US history up to that point in time. So what does that tell you? That’s the kind of Democrat I am, that’s the kind of opportunity person Governor Schwarzenegger is and labels aside that’s what we are.

Alan Olsen: Are the state finances & pensions a partisan issue?

David Crane: Most Americans don’t realize that state governments are responsible for 90% of domestic services in our country. You know we have a federalist system, everybody knows what Donald Trump tweets every day, but hardly anybody knows the name of their state assembly person or their state senator. When it comes to the daily lives of 40 million Californians- especially Californians that have six million kids in public schools or thirteen plus million Californians on Medicaid or the 20 million Californians that are private sector employees or all 40 million of us whose lives were affected by public safety, State Assembly members and state senators have more impact on our lives than the President, than Speaker Pelosi you name it. Hardly anybody knows that, so you would think it wouldn’t be very partisan because who doesn’t want good public schools, who doesn’t want MediCal (which is the health provider for a third of Californians) to work well, yet it turns out to be quite partisan. In public schools for example, there are raging debates all the time over whether or not teachers should have tenure, whether you should be able to dismiss a poorly performing teacher, those sorts of things tend to fall into partisan camps, but really they’re always about effectiveness. It’s troublesome that they end up being partisan and most citizens think of them as partisan, but the issues are really about the quality of services.

Alan Olsen: Why do we spend more on the prisons than our education system.

David Crane: You can think about it this way, we have a hundred and twenty seven thousand prisoners in California, which is way down from what it was before this year, the state will spend 12 billion dollars on the prison system for those hundred and twenty seven thousand prisoners, plus another three billion dollars in benefits for the employees. The single biggest expense is salaries and benefits and for only fifty seven thousand employees. So if you have a business-oriented, audience just think about that. We have a hundred and twenty seven thousand inmates, we have fifty seven thousand employees serving those inmates in 36 prisons, just the compensation and benefits this year for those 57,000 employees is eight billion dollars. That eight billion dollars is about twice as much as the state will spend on the University of California, it’s twice as much as the state will spend on California State University, it’s about four times the revenues of the largest private prison corporation in the United States, so it’s a really big business but the money goes to public employees. Your question was why do we spend so much on that, it’s because of power. I said earlier that most people don’t know the names of their state assembly members or their state senators, well the leaders of the prison guards union will know the names of all those people and you would too if eight billion dollars a year were on the line. So you can’t blame them. Pharmaceutical companies, hospitals, doctors associations, they all know the names of legislators because those legislators play a big role in their lives, but the rest of the 40 million Californians do not and that is the reason we spend so much money on prisons. If Californians were more involved in their state politics they would be paying more attention to what their state assembly members and state senators are actually doing and not just what they’re saying.

Alan Olsen: Why don’t legislators necessarily act in the best interest of the citizens of the state?

David Crane: Your audience may not like my answer, but the reason is, it’s our fault. A massive vacuum is created in Sacramento. We’re going to talk about the state legislature in California, in particular in Sacramento. We have 120 legislatures, (80 in the assembly and 40 in the Senate). No matter who the governor is he couldn’t get anything done without 41 votes in the assembly and 21 votes in the Senate. Hardly any citizen pays attention to what their state legislators really do. The only people that are really paying attention are the special interest groups- and they’re donating to these people. Money is critical to legislators, both to win elections and to assure themselves of re-election, but also the more money they collect, the more power they have inside the legislature. If you’re one of 80 Assembly members you’re nobody until you become chairman of a committee or speaker or something like that and that’s very much about the money raising capability. So it turns out if you go to Cal Access, which anybody can do, which is run by the Secretary of State and you look at your own state assembly member and your state senator, compare the words that they say when they’re visiting their districts with the money they collect and from whom and how they vote and you will see a sharp difference. Take the most liberal legislators in California- let’s say from the East Bay of California. They are regularly talking about justice and the little guy and all the rest and yet every one of them voted for salary increases for state prison guards over the last eight years making those prison guards, who are already the highest-paid prison guards in the country, even richer. Now you can’t blame the prison guards you have to blame the legislators, but you can’t even blame them, you have to blame the citizens for not knowing that their legislators are doing things different than they’re saying. So legislators will constantly do something that doesn’t reflect the general interest until the general public gets more involved. I like to remind people our country was founded on very active participation in our democracy. Everybody should go back and read Alexis de Tocqueville who wrote, Democracy in America, and the importance of state and local matters in our country and vigilance on the part of citizens in the governance of their state. Everybody takes our democracy for granted. You know Mark Twain said that line or I think he took it from somebody else about, ‘how everybody talks about the weather, but nobody does anything about it.’ That’s very true of politics, everybody talks about it and hardly anybody does anything about it in a serious way. The way they run their businesses, the way they raise their kids, the way they pursue their professions, the way they pursue their hobbies, people don’t pursue their democracies the same way. If they don’t, you’re gonna get legislators who don’t represent the general interest.

Alan Olsen: How should we turn it around?

David Crane: Active participation. Thomas Jefferson said, ‘we don’t have majority rule, we have rule by the majority who participate.’ I like to remind people of something else back in the 1930’s, in Germany. Johannes Fest, who was an anti-Nazi activist who was able to survive, never forgave Thomas Mann, the great writer, for writing a book that was entitled, Reflections of a nonpolitical man, where told the people of Germany, ‘don’t get in the gutter in politics, stick to arts and culture. When that happens, that vacuum is always filled by bad people, so we turn it around by people actively getting involved in their democracy. It goes well beyond the President, where everybody’s paying attention to what the president does, we have a federalist system, states provide the vast majority of domestic services, states have five times as many employees as the federal government does, if you’ve got a lousy public education system and a lousy public health system, you need to be involved in making sure your legislators, who run those systems, run them properly. I can’t find another solution, honestly.

Alan Olsen: How do we as citizens become more involved when we don’t know as much as we need to know?

David Crane: I have two answers, one is everybody, I’ve already said that, everybody should know more, so there’s no excuse for not knowing more. Okay democracies are taken for granted and if you can’t care about six million kids in public schools that are getting lousy education despite an increase in spending of sixty five percent over the last eight years, or teachers going out on strike despite a massive increase in spending on their districts, most of the money didn’t go to their salary increases because of pensions and retiree health care, if you can’t care about things like that, I don’t know what you can’t care about. So first people have got to care about their fellow citizens, secondly learn only enough to know that you can pay attention to your own legislator and you can compare what they say with how they vote, it’s all very public. They consider up to 5,000 bills a year. You can find all that and you can see who they’re collecting money from and it’s a fun hobby for people. The third thing people can do is form their own voter donation networks, because if you don’t donate money, and the dollar amounts can be very small, ten people contributing $100 each to a state legislator, will impact that state legislature. They will pay attention. They don’t raise that much money, so if you’re an informed person who pays attention to what’s really going on in your daily lives and affecting the most vulnerable people of our state and you become an active person who assembles a bit of money and visits with their state legislator, that’s a great start.

Alan Olsen: What projects are you working on now?

David Crane: I spend part of my time teaching California policy in politics and health policy and reform at Stanford, then I run a political organization called Govern for California, which is a network of donors to members of the state legislature. We have more than 500 donors and growing and we also have local chapters involved with that and then I write all the time on various state policies. I actually read the budget, study the issues and so of late one of the issues I’ve been focused on is the fiscal issues in California. For more than a decade, when I worked for Governor Schwarzenegger, he appointed me to the board of the State Teachers Retirement System in 2005. I got removed from that board a year later by the state Senate for pointing out that math that they were presenting wasn’t truthful, that the liabilities were much bigger than they were reporting and more importantly that there would be very large deficits in the school systems unless they started contributing more money and assumed a more reasonable investment return and had they done that, by the way in 2005 if they had just changed their investment return assumption to 6.2 percent from 8% and fully funded at that rate, there would not be a pension problem in California schools today, but instead they kicked me off the board. People of certain special interest don’t want people to know the math and so one of my things that I focus on is the math of the state budget. It’s a pretty surprising thing, it’s the biggest entity in California, we will spend more than 300 billion dollars this year in California, a hundred billion alone on k-12, which is the largest enterprise in California, and hardly anybody knows anything about the real math. That’s my most special project, making sure I understand the math associated with the state budget.

-Edited for concision and clarity

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This transcript was generated by software and may not accurately reflect exactly what was said.

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio