HSRA board member Crane may cash in on P3 deals he pushes
- Published Friday, January 2, 2009, by the Los Angeles Times
Schwarzenegger aide has ties to former employer that could benefit
from state construction projects
David Crane <http://www.cahighspeedrail.ca.gov/about/david-crane.htm>,
who supports public-private partnerships, draws income from
investments he made while at a financial services company that could
receive business from state projects.
By Michael Rothfeld and Jordan Rau
As Gov. Arnold Schwarzenegger demands that lawmakers allow private
interests into California's huge market for public works projects,
a company with close personal and financial ties to the governor's
economic advisor is positioned to benefit.
The advisor, David Crane , has spent years promoting private-sector
involvement in public construction projects -- one of a few issues
holding up a deal between Schwarzenegger and legislative Democrats
to ease the state's worsening fiscal crisis.
Babcock & Brown, the financial services firm where Crane worked for
a quarter of a century, hired a Sacramento lobbyist last year to
influence the governor's office on so-called public-private
partnerships, records show. Since joining the governor's team in 2004,
Crane has received hundreds of thousands of dollars of income from
deals he made while at Babcock, a firm founded in San Francisco and
based in Australia, according to financial disclosure reports.
Those deals included projects in areas such as telecommunications, in
which he served as a financial advisor; personal investments in real
estate from Babcock's public-private partnership projects in England;
and partnerships he formed with other Babcock executives to invest in
oil wells and an Italian restaurant chain.
In an interview, Crane said the income he earns from deals completed
years ago has nothing to do with Babcock today or the firm's potential
to generate business from his support of public-private partnerships.
He said he sold his ownership stake, which was less than 10%, when he
left in 2003.
"There is nothing that Babcock & Brown could do, or any company in
public-private partnerships, that could benefit me," Crane said.
State ethics law prohibits a public official from taking actions that
would benefit himself or his family.
Jessica Levinson, the director of political reform at the nonprofit
Center for Governmental Reform in Los Angeles, said Crane appears to
be operating within the letter, though perhaps not the spirit, of the
"It starts to have the appearance of doing political favors for old
friends, and that is not something that I think is illegal, but it
still may not be fully ethical," Levinson said. "I think it all comes
down to, is he making this decision for public good or is he making
it to help his old business friends?"
Babcock is one of a number of firms that compete for public-private
partnerships with governments worldwide.
Another major company, Macquarie Infrastructure Group, has lobbied
the governor's office in the past.
With 30 offices worldwide, Babcock engages in business related
to finance, real estate, infrastructure and equipment. Through a
subsidiary, Trans Bay Cable LLC, the company is constructing a
55-mile electrical line for the city of Pittsburg under San
Francisco Bay, and it has invested in California wind farms.
As Babcock has seen its stock, listed on the Australian exchange,
plummet in the economic downturn, executives have said they plan to
sharpen their focus on infrastructure, a core company business. Since
January, Babcock & Brown Infrastructure Group LLC has paid $18,000 to
Lang, Hansen, O'Malley & Miller, a firm with offices across the street
from the Capitol, to lobby the governor's office on public-private
partnerships, according to filings with the secretary of state.
Babcock executives in San Francisco did not respond to several
interview requests. Matt Dallas, a company spokesman in New York,
denied that Babcock was trying to influence the governor's office on
public-private partnerships, but he was unable to explain the records
of its lobbying activity filed with the state.
The governor, citing the need for new construction, has long sought
to persuade legislators and unions to accept private capital and
expertise, but they have repeatedly rebuffed him. Now Schwarzenegger
has injected what some see as a peripheral issue into talks on how
to fund schools, healthcare and other services.
"There's no credible evidence to suggest that public-private
partnerships help to balance the budget," said Jean Ross, executive
director of the nonprofit California Budget Project, which focuses
on the economic plight of low- and middle-income residents.
Schwarzenegger says that giving private companies a greater role in
construction and relaxing some of the environmental permitting rules
will bolster the economy by speeding up these efforts.
Crane <http://www.cahighspeedrail.ca.gov/about/david-crane.htm>, 55,
of San Francisco, is described by associates as an idea man, bright
and zealous -- "a philosopher," he says -- preaching the virtue of
free market competition.
He is one of Schwarzenegger's most trusted confidants and a longtime
friend. In the 1990s, they did business together when Schwarzenegger
bought a Boeing 747 from Singapore Airlines and leased it back to
the airline, which had hired Babcock to help it replace its fleet.
Crane, a Democrat, had been at Babcock since 1979, when it was a
tiny firm. By the time Schwarzenegger, a Republican, won the recall
election in 2003, it had arranged more than $250 billion in
financings. Crane did what he said most private-sector businessmen
would not have: He went to work for the government. The $94,500 a year
he receives as Schwarzenegger's special advisor for jobs and economic
growth is less than he has continued to make from his former career.
Between 2004 and 2007, Crane reported more than $700,000 in income
related to Babock, including deferred compensation that he described
as fees he was still owed from former clients, and proceeds from real
estate investments in public-private partnership projects, such as
courthouses managed by Babcock in the United Kingdom.
Crane has earned tens of thousands of dollars in income since 2005
from Pangloss Oil Partners, a company formed in Texas to invest in
oil wells that was based out of Babcock's San Francisco office.
Crane is listed on Pangloss corporate filings as a manager along with
his friend James V. Babcock, a company founder who remained a major
shareholder after resigning from the Babcock board in November, and
Robert Tomczak, a Babcock executive.
Crane reported holding a stake in 2007 of between $10,001 and $1
million in another Babcock-related business, Harrison Street Partners
LP, whose investments have included Pomodoro, a restaurant chain, and
Green Mountain Energy, a clean power company.
He has a diverse government portfolio as well. Schwarzenegger
appointed Crane to the Commission for Economic Development, a state
advisory board, and to the High-Speed Rail Authority, where he has
pushed plans for private investment along with the $10 billion in
bonds voters approved in November.
"I am a big fan of having that option available," Crane said of
public-private partnerships. "I think it would produce great service
But Bruce Blanning, executive director of the Professional Engineers
in California Government union, contends that private-sector
partnerships often cost more. In 1989, the Legislature permitted
the state to allow private companies to create four transportation
projects. Two were never built.
"They don't work in theory, and they don't work in practice, Blanning
Though infrastructure financing is not directly connected to the
state's budget gap, estimated to reach $42 billion by mid-2010,
Schwarzenegger's administration has demanded that Democrats allow an
unlimited number of public-private partnerships before he will sign
their budget bills.
The projects the administration wants built privately include a
$6-billion truck tollway between Los Angeles and Long Beach and the
$1-billion replacement of the Schuyler Heim Bridge in the Port of
Los Angeles, according to administration documents.
Schwarzenegger argues that those projects are needed as urgent
economic stimuli. His spokesman, Matt David, pointed out that
Democrats such as House Speaker Nancy Pelosi (D-San Francisco) have
expressed support for using private-sector funding.
The Democratic budget proposal the Legislature passed Dec. 18 would
have allowed up to 10 public-private projects if they were to reduce
traffic congestion and air pollution and improve safety.
Schwarzenegger called that too restrictive.
"The governor," said Will Kempton, director of the California
Department of Transportation, "has been very clear he wants the
broadest possible authority."
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