Tycoon offers help to debt-laden California

When he was sworn in to replace Arnold Schwarzenegger as governor of California this week, Jerry Brown lamented the state’s failure to address its perennial fiscal crisis.

California has a budget deficit that has ballooned beyond $20bn and the worst credit rating of any state in America, and yet “our two political parties can’t come close to agreeing on the right path forward”, Mr Brown told his audience in Sacramento.

The state is in for a rough ride, with spending cuts and tax increases expected over Mr Brown’s term. But help may be at hand from the most unlikely of corners: Nicolas Berggruen, the so-called “homeless billionaire”, who has assembled a small group of business and political heavyweights – including Condoleezza Rice, former California governor Gray Davis and Google’s Eric Schmidt – to formulate proposals to reform the state’s tax and revenue base.

Mr Berggruen earned his nickname after selling his house and most of his own possessions – apart from his art collection and private jet – and controls a vast business empire that includes Karstadt, the German department store chain, and Prisa, the Spanish media group that publishes El País.

The German-US national has few business interests in California, although is often photographed mingling with film stars and hosts a lavish pre-Oscar party each year at the Chateau Marmont in West Hollywood. As he sips an espresso in his regular suite at The Peninsula hotel in Beverly Hills, he says he has an enduring love for the state and a fascination with political and fiscal reform. “California is a bellwether state. What happens there has an impact on the rest of the US and even the rest of the world.”

He created the Think Long Committee for California with the aim of eventually putting its policy suggestions to voters in state elections. Qualifying for the California ballot is an expensive business, with around 450,000 signatures required for a proposal to be included, so Mr Berggruen has pledged $20m to fund the effort.

The committee includes members from both sides of the political aisle. George Schulz, secretary of state under Ronald Reagan, has joined, as has Maria Elena Durazo, a union official with the American Federation of Labor, and Laura Tyson, economist and former chair of the Council of Economic Advisors during Bill Clinton’s presidency. Mr Schmidt will host the latest meeting at Google headquarters on Thursday.

None of the committee members is being paid to participate, says Mr Berggruen. “It’s a bipartisan group of thoughtful people from both sides coming around the table to talk about reform.” The US is at “the angry stage,” he adds, pointing to the rise of the Tea Party anti-tax movement during the recent midterm elections. “California has already gone through the angry stage and is now ready to make changes.”

He points to the recent abolition of the two-thirds majority rule, which was required in the state’s divided government to pass budgets, and the move instead to a simple majority vote system. He says a rainy-day fund is now on the ballot for 2012 and “. . . [electoral] redistricting is also happening”.

If, as expected, Mr Brown calls a special election within the next 12 months to ask voters to approve new tax increases, there will soon be an opportunity for Mr Berggruen’s group to put its own proposals to voters. The question is whether the committee will be able to formulate workable solutions.

The mission statement on the Think Long website says California is “a louder echo of the country at large” because it is “mired in deficits and political gridlock”. Observers are optimistic about the committee’s chances. “Most people who spend a lot of time in California politics are highly partisan and they would come at an opportunity like this to further their own party’s interest,” says Dan Schnur, chairman of the California Fair Political Practices Commission and director of the Jesse M. Unruh Institute of Politics at the University of Southern California.

“What’s impressive about the group that he’s put together is that it has a great deal of experience with the state’s political and policy matters – but without an obvious partisan axe to grind.”

Mark Baldassare, chief executive of the Public Policy Institute of California, agrees that Mr Berggruen stands a better chance than most at presenting meaningful reforms to voters. “He has reached out to all constituencies,” he says, pointing to the inclusion of union leaders on the committee alongside corporate executives. “But the big test will be whether the group can break the deadlock in California between business and labour and Republicans and Democrats.”