Contrary to popular belief, established universities do a very effective job of preparing tech talent for government jobs. The issues, which Schmidt seems to miss, are twofold:
(1) the government, with few exceptions, is a TERRIBLE place to build effective tech skills. Slow, heavily outsourced, bureaucratic beyond belief, and low paid, there is very little creativity and variety in which to build unique technology, and no reward for the BS.
(2) Current universities already prepare tech workers well. In some cases, there are even joint CS-Public Policy degrees (e.g., MSCAPP at UofC).
Those engineers with policy expertise just don't want to work for the government. I know; I was one of them, and I could not for the life of me find a policy tech job that paid even HALF what tech companies would pay me.
Schmidt should focus on building "the department of innovative technology" and pay engineers appropriately.