High Speed Rail: Is the Problem Investment Bankers?

by Robert in Monterey [courtesy of Calitics - Front Page]

In the long history of a California high speed rail plan there have been few more consistent and more effective supporters of the project than the BayRail Alliance. Their executive director, Margaret Okuzumi, has been active in the current fight to save high speed rail, and today offers a very insightful piece at the California Progress Report suggesting that underlying Arnold's lack of support is a flawed perspective on the project - that he, influenced by his HSR advisor David Crane, is fundamentally misunderstanding the project. Instead of seeing it as a development, he's seeing it as an investment banker would. Okuzumi explains:

The investment banker's approach to making money is to first assemble the money, then figure out what investments to make.

The developer's approach to making money is to design a building and determine if it will make a good return on the investment, then go out and assemble the financing to pull it off.

More on the other side...
Okuzumi goes into detail about how developers approach project financing:

Developers build "things"- buildings, subdivisions, theme parks and even highways and railways. They are used to having some unknowns initially about where the money is going to come from. If the project is economically sound, then they don't worry about whether they have all the money in hand from the start; they know the investors will materialize as the project begins to become "real", as the risks are reduced by that initial investment-- the land acquired, the zoning and permitting attained, the environmental risk factors analyzed.

In other words, for a developer, getting the ball rolling is they key to project success. Someone has to take the first step, has to seed the project with startup funds - and once that is accomplished then the rest of the funding will typically materialize.

To hear Arnold tell it, we have no assurances that this other funding will appear. But this is not entirely true. As I noted on Wednesday, 2/3 of CA's Congressional delegation signed a letter written by Jim Costa - including virtually all of the San Joaquin Valley Republicans - expressing strong support for HSR and a commitment to provide federal dollars. Okuzumi reports in her article this morning that every time she's visited members of Congress to lobby on rail issues more broadly they tend to volunteer their support for HSR without prompting.

Yet Arnold still claims this is not enough. Why is he seeing this from and investment and not a development perspective?

Because, as Okuzumi notes, his liaison to the HSR project, the aforementioned David Crane, is himself an investment banker.

Who is David Crane, exactly?

He is a "San Francisco Democrat" who, like Susan Kennedy and Angela Bradstreet, has forsaken their nominal party affiliation to join Team Schwarzenegger. Since 1979 he worked for investment banking house Babcock & Brown, and today he is Arnold's Special Advisor for Jobs and Economic Growth. Sunne Wright McPeak, Secretary of Transportation, Business, and Housing, is quoted in a January Capitol Weekly profile as saying that Crane "is involved in all of the key deliberations that I have been a part of."

Crane is not only reputed to be a longtime and close friend and advisor to Arnold and Maria - but his philosophies are not particularly Democratic. According to the Capitol Weekly profile:

Crane's economic philosophy sounds distinctly libertarian. He advocates against government intervention in private business and touts his admiration for conservative economist Milton Friedman.

"Governments don't create jobs, and if they are not careful they can kill jobs," Crane told an audience of business leaders at a San Francisco
luncheon last summer.

The profile goes on to detail Crane's right-wing economic views, which hold that public pensions are "special privileges" and that the minimum wage hurts jobs. The Capitol Weekly claims his "abrasive" personality has alienated him from many Sacramento lobbyists and interest groups, which along with his right-wing economic views cost him a spot as a CalSTRS trustee earlier this year.

In spite of this, Crane has been delegated by Arnold to work on environmentally friendly business and development projects, including HSR. Last month he attended a symposium on Low Carbon Fuels Standards at Lawrence Berkeley Lab, where he spoke on a panel on international approaches to low carbon fuels standards. Surely he understands, then, that there are few better low carbon fuels than an electric, high speed train.

The combination of a right-wing approach to government's role in jobs and infrastructure with an investment banking background makes it unlikely that Arnold will be getting the best advice on HSR from Crane. Of course, it's still an open question whether Arnold actually supports the plan or whether he wishes to help out his Big Oil contributors by killing a rival plan.

HSR has widespread support among Californians of all kinds, especially those living on the route, their representatives, and in the Congress. They all understand that for job creation, a sustainable and environmentally friendly method of transportation is essential to California's future. Arnold should show some leadership by supporting HSR instead of killing what is the most important project this state has debated in the last 45 years.