California Governor's Race

The nation's most populous state with an estimated 39 million residents has a well-deserved reputation as one of the best places to live, with a lot of things going for it, including unmatched climate, many excellent universities, and an incredible variety of superb recreational opportunities. Ironically, however, California these days is also a state known for its poor K-12 public school system, a generally unfavorable business climate, a very serious unemployment rate exceeding 12%, and a dysfunctional government with a lousy record in financial management.

The governor and his staff are expected to be leading the way to fix the problems in effective collaboration with the 120 members of the State Legislators, 80 in the State Assembly and 40 in the State Senate, currently controlled by a Democratic majority. For a number of reasons, the individual and collective efforts of the governor and state legislators have not been very successful in at least recent years, and many voters would probably say that their performance has been unacceptable or worse.

One of the reasons for this very unsatisfactory situation is that the politicians have been too ideological, have lacked pragmatic problem solving skills, and have not focused properly on meeting the needs of the state and its residents and taxpayers. It would also seem the majority of them were not independent enough to do what was right on too many issues, because of undue pressure from important campaign contributors, especially businesses in case of Republicans and public employee and labor unions in the case of Democrats.

The current governor, famous body-builder, actor, businessman and philanthropist, Arnold Schwarzenegger, a Republican, assumed office in November 2003 as result of a recall election removing Gray Davis, a Democrat. Schwarzenegger finished Davis' term and then was reelected in 2006 to serve through 2010. The upcoming election on November 2nd to determine the new governor is primarily a race between experienced business executive Meg Whitman, a Republican, 54 years old, trying to become the first female California governor, and veteran politician Jerry Brown, a Democrat, a still vigorous 72, whose father, Pat Brown, served as governor from 1959 until 1967.

As most California voters know by now, Whitman, one of the wealthiest women in the state, was CEO and President of eBay Inc., the large and successful internet auction and shopping firm, from 1998 until 2008. Before that she was an executive with The Walt Disney Company, DreamWorks, Procter & Gamble, and Hasbro. She was educated at Princeton and the Harvard Business School. Brown is the state's current Attorney General, assuming this position in 2007. Before that he was Mayor of Oakland, Chairman of the California Democratic Party, Secretary of State, and Governor from 1975 until 1983. He was educated primarily at U. C. Berkeley and the Yale Law School.

It looks like it will be a close race. According to polling by Rasmussen Reports as of October 4th, Brown had the support of 49% of likely voters and Whitman 44%, with 4% undecided and the remaining 4% for other relatively unknown candidates. On Tuesday Brown and Whitman had the third of their three debates over the past few weeks at Dominican University in San Rafael just north of San Francisco. The moderator was the well regarded retired NBC anchor and journalist Tom Brokaw. There were no special surprises and no outstanding performances, though I thought Brokaw did quite well. Democrats will probably feel that Brown won, and Republicans that Whitman did. Having watched all three debates, I thought they were about even in the first, Brown won the second, and Whitman had a slight edge in this last one.

As often happens in political debates, there was too much time devoted to relatively minor and insignificant issues and too little to the major substantive issues, such as specifically how the candidates will create the millions of new jobs they promise, keeping in mind that the governor has limited ability and authority to deliver, especially for private sector positions. Whitman clearly was more articulate with well rehearsed remarks, but I wish she didn't smile continuously throughout the debates. It seemed contrived. Brown, very passionate as usual, seemed to speak on-the-cuff most of the time, seemed overly serious and didn't smile hardly at all. Like most politicians, both Whitman and Brown have unfairly exaggerated the positions of their opponent on several issues.

Whitman's business experience is a big plus, but her complete lack of government experience and fact that she apparently didn't vote in political elections for the past 28 years are noteworthy negatives. I don't like the fact that she has spent more than $120 million of her own money financing her campaign, although it's not her fault that it's perfectly legal to do that. Furthermore, she makes a sound argument in saying that financing the bulk of her campaign herself makes her more independent from special interests compared to Brown, who has been much more needy of contributions from unions and others. Her changing and current position on reforming illegal immigration with no path to citizenship for any of them will most likely hurt her prospects with the Hispanic voters she has been courting in recent months. It may also hurt her with some non-Hispanic Democratic and Independent voters, although it will solidify her existing support from many Republicans.

However, I like Whitman's position that California needs to implement a comprehensive, innovative and effective program to retain and recruit new businesses to the state by making the business climate much more attractive by such as lowering corporate income taxes and streamlining state regulations to make us more competitive with other states such as Arizona, Nevada, Utah and Texas. While most owners and senior executives of these businesses might prefer to live in California, the overall economics too often makes it attractive to move their factories and distribution centers, as well as most of their non-executive jobs to these other states. I witnessed this trend in my career as a corporate and investment banker in southern California.

Whitman is right to think that the new governor needs to find ways to reduce state expenditures to help balance our recurring budget deficits and laying off people whose jobs are not really needed is certainly one way to do that. But laying off as many as 40,000 of the current total of 239,000 employees seems drastic. I think voters should have an idea of where those 40,000 workers are employed and what would be the financial and service consequences of laying them off when all the relative costs like pension obligations and potential termination litigation expenses are tabulated.

Brown's long experience in government in California and intimate knowledge of leaders in the Legislature and how issues are solved or not solved are significant positives for him, although it's also true that a "fresh approach" by a business experienced outsider such as Whitman might work well. Brown will most likely get more support from the increasingly important Hispanic block of voters, given the incident with Whitman's maid and the fact that he supports a path for citizenship for the illegals under prospective immigration reform legislation. I also suspect he will have most of the support from California's environmentalists, given his track record and Whitman's positions on the Global Warming Solutions Act of 2006 (AB32) and Proposition 23, which seeks to suspend implementation of AB32 relating to air pollution controls.

The business community, most Republicans and many Independents are likely to support Whitman because of her perceived strengths in dealing pragmatically with improving the economy, contributing to job growth, being effective in cutting expenditures and moving the state toward a balanced budget. These perceptions are reasonably justified and will have an adverse impact on Brown's prospects. However, she may well have a difficult time getting needed legislation through the Democratically controlled Legislature, depending on the composition of this body after the upcoming elections.

There are not likely to be any new campaign surprises to impact the election between now and November 2nd. As is often the case, the outcome will largely depend on the components of the voter turnout, only 61.2% in 2008, and how Independents and political moderates decide to vote. Both candidates have the ability and potential to be effective governors, but whoever wins needs to prioritize improving the state's economy with a much more acceptable unemployment rate, restoring prudent financial management, and fixing our K-12 public education system. The winner also badly needs a State Legislature whose leaders will pragmatically collaborate with the governor in solving these issues. It will largely be up to Independents and moderates to decide which candidate can best deal with California's priority needs.