BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                               AB 250 
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       Date of Hearing:   April 9, 2013

          ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
                                 Jose Medina, Chair
                     AB 250 (Holden) - As Amended: March 4, 2013
        
       SUBJECT  :   California Innovation Hub Program

        SUMMARY  :  Codifies and expands the California Innovation Hub (iHub)  
       Program at the Governor's Office of Business and Economic Development  
       (GO-Biz) for the purpose of stimulating economic development and job  
       creation through the coordination of federal, state and local  
       innovation-supporting resources.  Specifically,  this bill  :   

       1)Expresses legislative intent stating, among other things, that:


          a)   Innovation- and tech-driven business start-ups, supported by  
            venture investments, create new employment opportunities and are  
            important to California's economic competitiveness and should be  
            supported.


          b)   IHubs are operated through a cooperative agreement between the  
            Governor's Office of Business and Economic Development (GO-Biz)  
            and 12 geographically distinct regions for the purpose of the  
            success of entrepreneurial and small technology start-ups that  
            can grow California's economy. 


       2)Establishes the California Innovation Hub Program within GO-Biz for  
         the purpose of stimulating economic development and job creation by  
         providing an innovation platform for startup businesses, economic  
         development organizations, business groups, and venture capitalists.  
          GO-Biz will oversee, coordinate, and provide assistance to each  
         iHub in the program. 


       3)Defines "Applicant" as meaning a fully accredited institution of  
         higher education, a private nonprofit corporation engaged in  
         economic activities, a county or municipality in this state that has  
         a preexisting economic development program, or an economic  
         development institution. 










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       4)Defines "iHub" as meaning a network of interrelated firms and  
         industries that collectively drive economic growth within a defined  
         geographic area. 


       5)Establishes proposal criteria for applicants to the California  
         Innovation Hub Program. This criteria includes:


          a)   A statement of purpose, business plan, and list of goals and  
            expectations for job development and business creation.


          b)   A statement of cooperation listing each entity involved with  
            the partnership and a description of their role.


          c)   Designation of an iHub coordinator.


          d)   An explanation of the geographic boundaries of the proposed  
            iHub.


       6)Requires designated iHubs to include:


          a)   At least one major university or research center or institute.


          b)   At least one economic development organization.


          c)   At least four of the following:


            i)     A business support organization, including workforce  
              development or training organizations, incubators or business  
              accelerators, a chamber of commerce, and networking  
              organizations that supports innovation;


            ii)    An educational consortium that includes technology  
              transfer representatives;









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            iii)   A venture capital network including angel investors;


            iv)    A business foundation, science foundation, laboratory  
              research institution, federal laboratory, or research and  
              development facility;


            v)     A municipal economic division or department; and/or


            vi)    A federal government partner such as a national  
              laboratory.


       7)Prior to designation as an official iHub, the iHub is required to  
         certify that it will comply with state nondiscrimination laws, and  
         requires the iHub and its principals to be current in payment of all  
         state and local taxes owed, barring an agreement, and full  
         compliance with the agreement, with the respective taxing agency. 


       8)Specifies that iHubs may, among other things:


          a)   Provide counseling and technical assistance in business  
            planning, management, financing, and marketing;


          b)   Provide advice on starting a business and accessing financing  
            opportunities;


          c)   Conduct business workshops, seminars, and conferences with  
            local partners; and


          d)   Facilitate partnerships between start-ups and research  
            institutions with venture capitalists and financial institutions.


       9)Requires the iHubs, to the extent feasible, to:










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          a)   Work in close collaboration with the activities of GO-Biz as  
            its primary statewide partner; and


          b)   Coordinate activities with the Employment Training Panel, the  
            California Workforce Investment Board, the Office of the  
            Chancellor of California Community Colleges, the University of  
            California, the California State University, and other state  
            economic and workforce development programs.


       10)Authorizes GO-Biz, with the approval of the Department of General  
         Services, to use unused or underused state owned or leased property  
         for the purpose of, and not limited to, assisting iHubs, nonprofits,  
         and businesses establish proof of concept centers, incubators, and  
         demonstration sites.  Further, the bill:


          a)   Requires a formal agreement be entered into between GO-Biz and  
            the nonprofit organization or business prior to the commencement  
            of the demonstration program; and


          b)   Specifies the content of the demonstration agreement,  
            including, but not limited to, indemnification of the state  
            against any liability or damages arising from the demonstration;  
            cancelation of the project for falsified or the withholding  
            material information; insurance to cover possible damage or cost  
            to the state; certification that the demonstration project meets  
            applicable regulations and that it can be safely demonstrated.


          c)   Authorizes state property to be used as matching funds to meet  
            federal funding requirements, as specified.


       11)Establishes the iHub Accelerator Fund for all moneys collected from  
         gifts, bequests, and donations to the California iHub Program.   
         These moneys are to be continuously appropriated.


        EXISTING LAW  establishes GO-Biz within the Governor's Office for the  
       purpose of serving as the lead state entity for economic strategy and  
       marketing of California on issues relating to business development,  
       private sector investment and economic growth.  GO-Biz also serves as  








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       the administrative oversight for the California Business Investment  
       Service and the Office of the Small Business Advocate.

        FISCAL EFFECT  :   Unknown 

        COMMENTS  :   

        1)Author's Purpose  :  According to the author, "Job creation through  
         rapid technology commercialization is a vital part of the state's  
         economic well-being, as identified in a January 2012 symposium held  
         by the Brookings Institute. AB 250 will serve as a catalyst to  
         creating a network of intellectual and business development assets  
         that can facilitate technology commercialization by establishing the  
         Innovation Hub program into law and authorizing access to private  
         sector capital for its operations. iHubs are built around the triple  
         helix model of economic development: each iHub is operated by local  
         consortiums comprised of government entities, community colleges and  
         universities, and industry. With the addition of venture capital  
         networks, the inputs necessary for the development of an innovation  
         ecosystem are present. 

         Orange County's iHub, known as OCtane, has stimulated regional  
         business through programs such as LaunchPad which accelerates  
         entrepreneurs and start-ups through a comprehensive program that  
         quickly identifies and connects innovators and capital. LaunchPad  
         provides critical, individualized, and value-added support to early  
         stage biomedical, technology and cleantech companies. Its business  
         support prepares young companies for capital introductions, and has  
         relationships with local, regional, and national venture capitalists  
         and investors. As a result 23 companies have received more than $70  
         million in capital. Over 500 companies have inquired into LaunchPad.  
         These start-up companies have created more than 400 jobs in Orange  
         County."

        2)Office of Business and Economic Development  :  In April 2010, the  
         Governor's Office of Economic Development was established to provide  
         a One-Stop-Shop for serving the needs of businesses and economic  
         developers.  While initially established through Executive Order  
         S-01-10, the office was later codified and renamed as the Governor's  
         Office of Business and Economic Development (GO-Biz), in AB 29,  
         Chapter 475, Statues of 2010.  In 2012, GO-Biz directly assisted  
         5,308 companies, resulting in the creation and/or retention of 9,050  
         jobs and $1.45 billion in investments.   

         Among other programs, GO-Biz provides permit assistance for new and  








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         expanding businesses, as well as administering the iHUB program in  
         partnership with the statewide network of economic development  
         partners including the Small Business Development Centers.  There  
         are currently 12 regional iHUBs located throughout the state.  The  
         iHub Program is designed to improve the state's national and global  
         competitiveness by stimulating partnerships, economic development,  
         and job creation around specific research clusters.  Key assets and  
         partners of the initiative include technology incubators, research  
         parks, universities, federal laboratories, economic development  
         organizations, business groups, and venture capitalists.

         GO-Biz is also sponsoring a permit streamlining pilot project, which  
         will offer a One-Stop-Shop for state and local permits.  The pilot,  
         launched in partnership with the City and County of San Francisco,  
         will allow a business owner to login to a single Web site (24x7) and  
         apply for and pay all necessary city, county and state permits. 

         In 2012, the Governor initiated, and the Legislature allowed to move  
         forward, a comprehensive reorganization of the state's  
         administrative structure.  Key changes included the dismantling of  
         the Business, Transportation and Housing Agency (BTH) and further  
         consolidating GO-Biz' position as the state's lead in economic  
         development.  Effective July 1, 2013, GO-Biz will have  
         administrative authority for more economic development related  
         programs and services including the Small Business Loan Guarantee  
         Program and the Infrastructure and Economic Development Bank.

         AB 250 codifies an existing program at GO-Biz and expands the  
         authority for GO-Biz to implement a process for the private sector  
         to apply for and gain access to state owned property and facilities  
         as part of a proof of concept center or project demonstration site.   
         The committee may want to consider whether the importance of  
         innovation within the California economy warrants the establishment  
         of an Office of Innovation at GO-Biz, which would house these two  
         new programs.  Similar offices have been statutorily created for the  
         small businesses and international trade.

        3)Drivers in California's Future Economy  :  For decades, California has  
         been known as a place where innovation and creativity flourishes.  A  
         2007 study on California's global competitiveness identified eight  
         key dominant and emerging industry clusters including high-tech  
         manufacturing, biotech and clean technologies.  While the report  
         found that the state was uniquely positioned to be a preferred  
         global partner in the areas of innovation, science, and technology,  
         the study also stated that California was facing significant  








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         challenges from a growing talent pool in other countries and the  
         global redistribution of manufacturing abroad.   

         While the global recession may have slowed down growth, the newly  
         emerging economies of China, India, and Singapore have already made  
         significant investments in research and development.  Emerging  
         economies around the world have strived to become leaders in  
         innovation and not merely "copycat" economies of the United States.   
         As one Massachusetts Institute of Technology report states, "It is  
         not out of the question that they may soon be able to 'leapfrog'  
         developed centers of innovation with new innovations of their own."

         While these dynamics pose challenges to current leading technology  
         centers, they also offer California new opportunities for  
         collaboration and cooperation.  The state is already engaged in  
         academic and research partnerships with Canada and Iceland on  
         renewable energy and other technologies.  The University of  
         California at San Diego has a multi-year manufacturing initiative  
         with Mexico, supporting economic growth on both sides of the border.  
          AB 250 proposes to take the state's commitment to another level by  
         formally codifying the state's iHub Program and directly engaging  
         with the business and nonprofit community in the testing and  
         demonstration of new products, services and processes. 

        4)Case Study of Government as a Partner in Demonstrating New  
         Technologies  :  In June 2008, the City of San Jose (City) adopted a  
         framework for engaging in and evaluating public/private technology  
         partnerships for the purpose of testing and demonstrating innovative  
         products, services and processes.  According to the City's website,  
         these demonstration partnerships advance the community's goals  
         related to obtaining a more robust and green economy, as well as  
         making its ongoing operations more cost effective:  "Through these  
         partnerships, we hope to create new markets and new jobs or/and  
         support existing local innovators; advance the City's Green Vision  
         and Economic Development Strategy; and educate the public about  
         innovative solutions."

         Under the demonstration partnership agreements, the City allows  
         businesses to temporarily utilize City owned land, facilities,  
         equipment, rights-of-way and data in order to test innovative  
         solutions at-scale.  In some instances, the City provides financial  
         assistance and/or absorbs some costs for project implementation.   
         Another key program element is the ability for the business to  
         request exemption from City policies.  









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         Examples of the types of projects which the City has approved  
         include street lighting, electrical charging stations and a range of  
         energy efficiency pilots and demonstration projects.  According to  
         the City's demonstration program manager, the program has resulted  
         in mutual benefits to both the companies who are able to demonstrate  
         the efficacy of their technologies and the City.  During the past  
         few years, the manager reported that the City gained a better  
         understanding of how technologies can be used to manage its  
         operational costs, lower carbon emissions through its everyday  
         activities, and more accurately gauge return on public investment.  

         One of the City's first demonstration projects provided for the  
         installation of a Colomb electrical charging station across from  
         City Hall.  From this first station, installed in 2009, the company  
         currently has stations in over 14 countries.  This demonstration  
         project also helped facilitate other key demonstration funding from  
         the federal Department of Energy (approximately $34 million) and the  
         California Energy Commission ($4 million) to help with the final  
         installation of the equipment.

         Other local governments in the Bay Area have adopted demonstration  
         ordinances including the Town of Los Gatos, the County of Santa  
         Clara and the City of Livermore.  AB 250 would authorize a similar  
         state program for helping businesses and nonprofit organizations  
         test and otherwise demonstrate innovative products, solutions and  
         processes at scale.   

        5)Technology Commercialization Programs  :  California faces competition  
         from other countries and states.  While previously the state was the  
         clear leader in global innovation and technology, the past decade  
         has seen other regions make significant strides that can now support  
         technology based industries.  As an example, China and Germany have  
         both surpassed California as the leaders in equity capital for  
         solar.  Below are two examples of programs from other states  
         designed to support a vibrant and continually innovating business  
         sector: 

           a)   The Utah Technology Commercialization & Innovation Program  :   
            The purpose of the Technology Commercialization & Innovation  
            Program (TCIP) is to accelerate the commercialization of  
            promising technologies that have strategic value for Utah.  The  
            end goal of the TCIP Program is to help drive economic  
            development and job creation.  The program is a state funded  
            grant program initially adopted by the Utah Legislature in 1986  
            and focuses on accelerating the process of taking  








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            university-developed cutting-edge technologies to market.

           b)   The Massachusetts START Program  :  In March 2012, the  
            Massachusetts Technology- Development Corporation announced the  
            launch of a $6 million initiative to help startups commercialize  
            technologies developed under federal Small Business Innovation  
            Research grants.  As designed, the START program will provide  
            financial support, as well as coaching, business planning, and  
            introductions to potential investors.
        
       6)Programmatic Issues  :  AB 250 proposes the establishment of the iHub  
         Program in order to facilitate an "innovation platform for startup  
         businesses, economic development organizations, business groups, and  
         venture capitalists. The author may wish consider the following  
         amendments in order to further this purpose.

           a)   Joint applications  :  The program is designed to encourage  
            collaborative efforts among regions and the application requires  
            a listing of all partners.  The current definition of applicant,  
            however, allows only a single entity to apply.  Perhaps the  
            eligible applicant definition should be expanded to allow for  
            joint applications.

           b)   Definition of iHubs  :  The current definition of an iHub only  
            includes private sector firms and industries.  Other areas of the  
            bill include academic institutions, economic development  
            organizations, and local governments.  Perhaps the definition  
            should be expanded to include these other partners.

           c)   Term of the designation  :  The bill has not set a term for the  
            designation of an iHub.  With the nature of innovation being  
            change, it may be appropriate to set a set term and also provide  
            for a mechanism for the de-designation of an iHub.

           d)   Overlapping iHubs  :  With the ability of iHubs to focus on one  
            or more particular industries or technologies, it may be  
            appropriate to have a mechanism for recognizing more than one  
            iHub in a region to the extent that their industry focus is  
            different.

           e)   Measuring success  :  The bill clearly requires the setting of  
            measureable goals, however, there is no mention on the reporting  
            of those goals and outcomes to GO-Biz.  Since GO-Biz will, in  
            part, be evaluated on the iHubs individual progress, having clear  
            statutory direction may help them access that information.








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           f)   Small Business Technical Assistance  :  As designed, GO-Biz's  
            role is to facilitate regional collaboration around specific  
            tech-based activities.  The measure includes several key  
            stakeholder, but not two of the most significant technical  
            assistance providers for small businesses, the Small Business  
            Development Centers and the microenterprise development  
            organizations.   

        7)Related legislation  :  This bill is substantially similar to the  
         provisions in AB 653 (V. Manuel Pérez) California Innovation and  
         Jobs Act.  According to the authors' staff, the two offices are  
         working collaboratively to codify the program.  AB 653, which is  
         sponsored by the California Hispanic Chambers of Commerce, provides  
         additional provisions (described below) that are designed to promote  
         California's innovation-based economy. The following is a list of  
         bills related to this measure from the prior sessions.
        
          a)   AB 29 (John A. Pérez) Codification of GO-Biz:  This bill  
            established GO-Biz within the Governor's Office for the purpose  
            of serving as the lead entity for economic strategy and marketing  
            of California on issues relating to business development, private  
            sector investment and economic growth.  Status:  Signed by the  
            Governor, Chapter 475, Statutes of 2011.

           b)   AB 653 (V. Manuel Pérez) California Innovation and Jobs Act  :   
            This bill requires significant regulation to be reviewed the  
            Joint Rules Committee of the Legislature, codifies the iHub  
            program, increases the state research and development tax credit,  
            and establishes a new tax credit for businesses that contribute  
            to a postsecondary educational institution for curriculum or  
            research leading to job opportunities.  Status:  Pending in  
            Assembly Rules Committee.

           c)   AB 1646 (Campos) California Demonstration Program  : This bill  
            would have established the California Demonstration of Emerging  
            Market Opportunities Program for the purpose of supporting the  
            testing of innovative products, services and processes that have  
            been developed by private for-profit and non-profit entities.   
            Status:  Held in the Senate Committee on Appropriations in 2012.
              
           d)   AB 2506 (V. Manuel Pérez) Innovation and Job Creation Act  :   
            This bill would have authorized a comprehensive set of  
            enhancements to tax incentive programs and administrative  
            procedures including a manufacturing sales tax exemption,  








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            increased R&D credits and secondary education donation credits  
            for the purpose of creating jobs and supporting innovation-based  
            businesses.  Status:  Held in Assembly Committee on Business,  
            Professions and Consumer Protection in 2012.

           e)   AB 2711 (Portantino, Arambula, Price and Salas)  State  
            Technology and Innovation Strategy  : This bill would have required  
            the Secretary of the Business, Transportation and Housing Agency  
                                                                                to develop a comprehensive state technology and innovation  
            strategy to guide future state expenditures and activities.   
            Status:  Held in Assembly Committee on Appropriations in 2008.

        REGISTERED SUPPORT / OPPOSITION  :   

        Support 
        
       California Healthcare Institute 
       San Gabriel Valley Economic Partnership 
       San Diego iHub
       BIOCOM
       CleanTECH San Diego 
       CONNECT 
       San Diego Regional Economic Corporation

        Opposition 
        
       None Received 
        

       Analysis Prepared by  :  Toni Symonds / J., E.D. & E. / (916) 319-2090