S&P Calif. Downgrade Is 'Wakeup Call': Governor's Advisor

The S&P's downgrade of California's debt rating is a wakeup call to the state legislature, David Crane, special adviser for jobs and economic growth to Governor Arnold Schwarzenegger told CNBC on Thursday.

“Yesterday’s announcement from S&P is just a wakeup call that the Governor wants the legislature to act now on the budget which is why he called them into this special session,” he said. “Really what we need in California are just a few good legislators to follow the Governor’s lead and address these problems.”

Schwarzenegger's budget plan seeks to curb spending by $8.5 billion in addition to the $30 billion that was cut last year.

While state revenues are down to levels they were six years ago, said Crane, California pension costs have surged 2000 percent over the last ten years.

“We’ve got these escalating costs in the form of pension obligations that were really issued back in 1999 when the state legislature made a bet effectively that the Dow Jones would reach 28 million by the end of this century,” he said. “Because of that they issued debt obligations to government employees in the form of massive pension and retirement benefits that we’re now paying for.

Although California’s economy experienced negative growth of 2.8 percent last year, he said, it ranked as the twenty-second best performing state in the country, according to the Federal Reserve Bank of Philadelphia.

“First you have to distinguish between California’s economy and California’s budget. They’re two very different animals," he said.

California currently allocates 11 percent of the budget on prisons compared to 3 percent 30 years ago, and spends 6.5 percent on higher education compared to 10 percent 30 years ago.

“The University of California, the California State University, which are the crown jewels of our economic development efforts, if we don’t keep those humming, we will have lower economic growth in the future,” he said.