BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 431 HEARING: 5/1/13
AUTHOR: Price FISCAL: Yes
VERSION: 4/2/13 TAX LEVY: No
CONSULTANT: Grinnell
CALIFORNIA SOCIOECONOMIC DEVELOPMENT PODS PROGRAM
Creates the Socioeconomic Development Pod Program within
GO-Biz.
Background and Existing Law
California provides various tax credits designed to provide
incentives for taxpayers that incur certain expenses, such
as child adoption, or to influence behavior, including
business practices and decisions, such as research and
development credits and motion picture production credits.
The Legislature typically enacts such tax incentives to
encourage taxpayers to do something, but for the tax
credit, they would not otherwise do. Among these are
California's Geographically Targeted Economic Development
Areas, including enterprise zones.
California's 40 enterprise zones are located in areas as
diverse as the state itself. From Siskiyou County to
Compton, and from San Francisco to Calexico, this program
provides generous tax incentives for firms that do business
in these zones. Cities and Counties apply to the
Department of Housing and Community Development (HCD) to
designate geographic areas in their jurisdictions as
enterprise zones. HCD reviews applications, and may
designate up to 42 zones statewide for 15 year periods.
Geographic areas are eligible based on its unemployment
rates, free lunch program participation, median income,
plant closures, or history of gang-related activity.
Taxpayers located in enterprise zones may claim income and
corporation tax credits for hiring qualified individuals,
sales tax paid on equipment purchases, and can qualify
banks for a net interest deduction for loans made to a zone
business.
Citing a significant State General Fund deficit, Governor
SB 431- 4/2/13 -- Page 2
Brown's 2011-12 budget proposed eliminating RDAs and
returning billions of dollars of property tax revenues to
schools, cities, and counties to fund core services. Among
the statutory changes that the Legislature adopted to
implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011)
dissolved all RDAs. The California Supreme Court's 2011
ruling in California Redevelopment Association v.
Matosantos upheld AB X1 26, but invalidated AB X1 27
(Blumenfield, 2011), which would have allowed most RDAs to
avoid dissolution. RDAs' dissolution deprived many local
governments of the primary tool they used to increase the
supply of affordable housing.
Last year, the Legislature created the Governor's Office of
Business and Economic Development (GO-Biz), established
specific tasks and duties for the office, including
reorganizing such entities as the Small Business Advocate
and CalBIS into this new office (AB 29, Perez, 2012). AB
29 also specified that GO-Biz will establish long-term
economic goals and strategies as well as specific and
effective services.
The Innovation Hub (iHub) program is an un-codified
initiative that originated under the Business,
Transportation and Housing Agency, and is now overseen by
GO-Biz. While GO-Biz provides oversight functions for the
iHub program, the state has not provided any funds to
support the program, and non-state organizations (e.g.,
local governments, non-profit organizations, and economic
development entities) coordinate the day-to-day operations
of each iHub region. The purpose of the iHub program is to
generate successful new businesses and spur innovation in
specialized fields by connecting startup and young
businesses to strategic partners, stakeholders, knowledge
centers, incubators and financiers. In 2010, California
introduced the largest single state network of regional
innovation clusters, which currently consists of the
following 12 self-funded iHubs that span from Redding to
San Diego:
North State - Renewable energy, bio-fuels, advanced
material manufacturing, and other convergent
technologies.
North Bay - Sustainable resources and socially
relevant technology.
East Bay - Clean technology.
Sacramento - Clean and medical technology.
SB 431- 4/2/13 -- Page 3
Merced/Fresno - Water, energy, and agriculture.
Orange County - Biomedical, information and clean
technology.
Livermore - Clean technology, green energy and
transportation.
San Francisco - Biotechnology, high and clean
technology and art and fashion.
Silicon Valley/San Jose - Clean and emerging
technology.
Coachella Valley - Entrepreneurship and clean
technology.
Los Angeles - Clean technology.
San Diego/Imperial/Riverside - Convergence
technology, including mobile health, bio-fuels, solar,
energy, and sports.
These iHubs form a robust innovation-based economic
development support network to stimulate entrepreneurship,
workforce development and job creation throughout the
state. Each iHub consists of broad partnerships with
various organizations, including:
Local government organizations.
Economic development organizations.
Professional organizations.
Public and private universities and community
colleges.
Small business development centers.
GO-Biz is the primary partner for each iHub and provides
support by:
Acting as a convener to bring key stakeholders to
the table in order to establish partnerships that
facilitate building an ecosystem needed to scale
business and promote California's innovation economy.
Amplifying and bringing awareness to successes
within the iHub regions in order to promote business,
workforce and economic development within the state.
Facilitating access to state programs/entities and
providing additional support for iHub partners vying
for federal funding opportunities.
In October 2012, GO-Biz announced the opening of the
application process to designate three new iHubs in
California, which will bring the total to 15 statewide.
Social innovative financing is a trend gathering more
SB 431- 4/2/13 -- Page 4
attention in the country. Essentially, governments pay
private organizations or nonprofits to provide services,
but payments are contingent on the provider meeting
targeted goals, known as "pay for success contracts."
While in its infancy, the State of Massachusetts recently
enacted Legislation allowing for such contracts. However,
this form of finance is not without controversy, as critics
argue that these programs should be provided by government,
and can be done so at less cost.
Proposed Law
Senate Bill 431 creates the Socioeconomic Development Pod
Program within GO-Biz. The bill directs GO-Biz to
designate blighted areas, as defined, suited for the
program to leverage assets to provide stimulation and
incentives for industry, economic development
organizations, business groups, and social innovation
funders. GO-Biz shall oversee, coordinate, and assist each
pod.
When designating an area as a pod for the Program, GO-Biz
shall include:
A statement of purpose,
A signed statement of cooperation, and a
description of the roles and relationship of each
entity in the program,
A designated coordinator,
A clear explanation and map of the pod's
boundaries,
A clearly identified designee to coordinate pod
activity, central location, benchmarks and milestones
with approximate dates of achievement,
A list of the pod's assets and resources,
A clearly articulated focus area of the pod,
including industry sectors or other targeted areas for
development and growth,
A list of specific resources available to support
and guide training,
Expectations for job development and business
creation,
Defined performance standards agreed upon by the
partners involved in the development of the pod,
Evaluation procedures that will be used to measure
the level of achievement for each stated goal,
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A plan for sustainability
Designated pods must include at least one major university
or research center or institute, one economic development
organization, and at least two of the following:
A business support organization including a
workforce development or training organization,
incubator or business accelerator, chamber of
commerce, and networking organization that supports
innovation,
An educational consortium including technology
training representatives,
A social innovative financing network including
traditional investors,
A community-based organization specializing in
retraining, reducing recidivism, or homelessness,
A municipal economic development division or
department,
A federal government partner.
Pods may provide counseling and technical assistance for
retraining or recidivism reduction; conduct workshops,
seminars, or conferences with local partners, and
facilitate partnerships between innovative startup
businesses, research institutions, venture capitalists, or
financial institutions. To the extent feasible, pods shall
perform activities in close collaboration with GO-Biz, and
coordinate with the Employment Training Panel, the
California Workforce Investment Board, the Office of the
Chancellor of the California Community Colleges, the
University of California, the California State University,
and other state economic and workforce development
programs.
GO-Biz may use vacant or underused state-owned or leased
property to assist Pods to establish incubators and
demonstration sites with the consent of the Director of the
Department of General Services. GO-Biz may do the same for
businesses and non-profits.
SB 431 also creates the Pod Accelerator Fund within the
State Treasury. All moneys received by GO-Biz from gifts,
bequests, and donations shall be deposited in the fund with
the consent of the Department of Finance. The Fund is
continuously appropriated to the Pod program pursuant to
the terms of the gift, bequest, or donation.
SB 431- 4/2/13 -- Page 6
The measure also makes legislative findings and
declarations to support its provisions. Additionally, the
bill defines many of its terms.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the Author, "there
is no existing law that allows GO-Biz or any other agency
to utilize social innovative financing as a tool for
economic development. The Author states that this bill
will allow the State of California to develop and implement
the Pod program for use in blighted communities, allowing
government agencies to access social innovative financing
as a tool for social redevelopment. According to the
Author, "California is currently facing numerous
intractable public policy problems that affect the quality
of life of its residents and will have a devastating impact
on the future of the Golden State. We have been dormant in
generating solutions that would reduce homelessness,
improve delivery of critical health care and reform our
criminal justice system, and inaction has only exacerbated
these problems. It's essential that we create private-
public partnerships to leverage our limited resources."
2. Sure, but will it work ? Economic development in
California is a conundrum. While one of the world's
largest and most diverse economies, employment lags behind
desirable levels, especially in low-income, urban
neighborhoods. Over the years, the Legislature has
deployed several tools to try to increase employment in
these areas, including now-defunct redevelopment agencies
and enterprise zones, plus federal efforts like empowerment
zones, New Markets Tax Credits, and other forms of grants
and economic assistance. Why SB 431 succeed in boosting
employment in these areas where these other tools haven't?
While SB 431 doesn't authorize new spending or tax
benefits, the Committee may wish to consider how pods and
social innovative financing fit in with previously tried
SB 431- 4/2/13 -- Page 7
programs, and whether it will be successful in achieving
its goals.
3. Form and substance . SB 431 doesn't propose anything
GO-Biz can't already do within its existing authority, and
is already doing with its iHub program. The measure
requires GO-Biz to include specified items should they
choose to designate a pod, what entities should be part of
a pod, and what a pod should do. Instead of focusing on
GO-Biz's current program, SB 431 sets forth a different one
that could reflect the Legislature's priorities.
SB 431- 4/2/13 -- Page 8
4. Technical amendments . Committee staff recommends the
following amendments:
Page 4, Line 30, "partnership" to "pod."
Page 4, strike Line 35 as duplicative of Line 33.
Move Paragraph (12) on Page 5, Line 6 into
Paragraph (7) on Page 4, Line 36 to ensure that job
development and business creation are among the
identified benchmarks and milestones.
Move Paragraphs (13) and (14) starting on Page 5,
Line 7 into paragraph (7) on Page 4, Line 36 to ensure
that performance standards, benchmarks, milestones,
and evaluation procedures are appropriately assigned
to the correct indicator.
Delete Lines 15 through 17 on Page 6. The bill
does not set forth how property will be sold for cash
to provide matching funds to meet federal funding
requirements, and could be construed as allowing pods
to buy and sell state property or pledge it as
collateral for a loan.
On Page 6, line 24, insert "Director of"
Support and Opposition (4/25/13)
Support : None received.
Opposition : None received.