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David Crane, special adviser to Gov. Schwarzenegger on jobs and the economy, was particularly blunt last October when he spoke to the annual San Rafael Chamber of Commerce Forecasting the Future conference.

The highly successful financial services entrepreneur said he went to the capitol full of idealism about how to build a 21st Century California economy, only to discover it was the public sector unions that really run Sacramento, not free-market economic ideas.

He called pension and benefit promises made with unions during the high-tech boom of the late 1990s and early 2000s a historic theft – his word – committed against the taxpayer.

A few months later sitting around a table of education and business leaders, a highly respected and typically optimistic North Bay community college leader was unusually downbeat.

In the wake of draconian cuts to higher education to close last year's $26 billion state budget deficit, hundreds of local classes were canceled and staff laid off. This came at a time of 10-percent-plus unemployment when the jobless return to school in the hope of upgrading their skills and improve their prospects. In 2009, the door was being slammed shut for many.

The college president said he worried about a "lost generation" of young people abandoned by a fiscally irresponsible state.

He is not the only one.

"We will need 1 million additional college graduates between now and 2025," the Campaign for College Opportunity said in a statement last week. "Yet we are moving in exactly the wrong direction, turning away thousands of eligible students from our community colleges and universities at a time when we are a woeful 40th in the nation in the number of students who go directly from high school into college."

California, if it continues on its current budgetary path, will commit the equivalent of burning the fine furniture to heat the house.

So it was welcome that in his State of the State address last Wednesday, Gov. Schwarzenegger was as blunt as his special adviser Crane.

"The priorities have become out of whack over the years," he said. "I mean, think about it, 30 years ago, 10 percent of the general fund went to higher education, and 3 percent went to prisons. Today, almost 11 percent goes to prisons, and only 7.5 percent goes to higher education."

Mr. Schwarzenegger proposed a constitutional amendment prohibiting the state from spending more on prisons than its once-prized university system.

He proposed no less than 10 percent of the state's general fund be allotted for higher education and no more than 7 percent for prisons.

Achieving that goal would mean privatizing some prisons, which predictably raised the immediate objections of the powerful prison guard union.

Slicing up the state budget by percentages is surely not the ideal way to set priorities. But in the Alice in Wonderland world that Sacramento has become, it may be the only way to return some common sense to public policy

And it may be the only way to save a higher education system that was once the envy of the world and the very foundation of the California dream.

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Brad Bollinger is Business Journal editor in chief and associate publisher. He can be reached at 707-521-4251 or bbollinger@busjrnl.com.