BILL ANALYSIS Ó
AB 2664
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Date of Hearing: April 19, 2016
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 2664
(Irwin) - As Amended March 17, 2016
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Higher |12-1 |Medina, Baker, Bloom, |Linder |
|Education | |Chávez, Irwin, | |
| | |Jones-Sawyer, Levine, | |
| | |Low, Olsen, Santiago, | |
| | |Weber, Williams | |
| | | | |
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SUBJECT: University of California: innovation and entrepreneurship
expansion
SUMMARY: Provides funding to the University of California (UC) to
establish and expand programs and services to support innovation and
entrepreneurship activities near its campuses and throughout the
state. Specifically, this bill:
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1)Finds and declares the following of the Legislature, with respect to
innovation and entrepreneurship expansion at the UC:
a) California is well-positioned to harness the power and
expertise of the UC to spur economic development;
b) The UC contributed to the foundational research breakthroughs
that launched some of California's strongest industries,
including aerospace, agriculture, biotechnology, computers and
semiconductors, telecommunications, and digital media;
c) Research at the UC continues to create new inventions that
will be the genesis of tomorrow's industries, companies, and
commercial successes;
d) Innovation and entrepreneurship at the UC create equitable
economic development throughout California; and,
e) It is therefore the intent of the Legislature to provide funds
to establish or expand the infrastructure at each campus and the
Lawrence Berkeley National Laboratory (LBNL) to build a network
of innovators, entrepreneurs, startups, investors, and industry
and community partners to spur innovation and economic
development in communities surrounding UC campuses, the LBNL, and
across California.
2)Establishes a new Chapter within the Education Code on "Innovation
and Entrepreneurship." Moneys appropriated pursuant to the new
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chapter are required to be used by the UC to:
a) Expand the infrastructure necessary to increase innovation and
entrepreneurship for the purpose of creating economic
development; and
b) Fund innovation and entrepreneurship programs at each campus
of the UC and the LBNL.
3)Provides that the specific manner in which the funds are used shall
be determined by the UC. These uses may include, but are not
necessarily limited to, the establishment of programs or projects to
facilitate economic development in communities surrounding the 10
campuses of the UC, the LBNL, and other locations across California
for any of the following purposes:
a) Providing business training and resources to reduce common
barriers to success for entrepreneurs and startup companies;
b) Offering subsidized work and laboratory space to startups for
prototype development, proof-of-concept research, or both;
c) Providing proof-of-concept funding to increase the likelihood
that entrepreneurs and startup companies will attract venture or
corporate capital backing;
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d) Providing mentorship to the underrepresented interested in
entrepreneurial pursuits; and,
e) Coordinating and aligning innovation functions at a campus of
the university or at the LBNL, and building relationships between
the university environment and successful, independent
enterprises to facilitate the rollout of products to the market
and the public.
4)Requires the UC to report to the Department of Finance and the
Legislature annually on the use of the funding, as specified.
5)Appropriates $66 million from the General Fund to the UC Regents for
allocation, as specified, in accordance with the following schedule:
a) $22 million for expenditure for the 2017-18 fiscal year (FY);
b) $22 million for expenditure for the 2018-19 FY; and,
c) $22 million for expenditure for the 2019-20 FY.
FISCAL EFFECT: The bill appropriates $66 million over three fiscal
years to the UC. A more specific fiscal analysis will be provided by
the Assembly Appropriations Committee, should the measure pass and be
referred.
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POLICY ISSUE FRAME
The UC system has historically played a significant and foundational
role within California's innovation-based industries. In 2000,
California began a process for establishing three new centers of
innovation, which would bring together the research capacity of the UC
system, with business and industry. In announcing the California
Institutes for Science and Innovation initiative, Governor Gray Davis
said, "Fifty years ago, there was no Silicon Valley. Thirty years ago
there was no biotech industry. Ten years ago, there was no Internet.
Who knows what enterprises will be created or what medical
breakthroughs will result of our institutions? But this we know:
Breakthroughs occur. And I want to make sure they occur right here in
California."
Since their inception, these institutes have played key roles in the
development and commercialization of new technologies and processes
that benefit the California economy. This measure expands and funds
the UC's ability to take lessons learned from these institutes and
other UC innovation-related activities to support local economic
development activities. The focus of this new work is to establish
stronger ties with the innovation-based business community and to
allow start-ups and other entrepreneurs to leverage UC resources to
launch their businesses.
The analysis includes background on the California economy, California
Institutes for Science and Innovation initiative, and other start-up
and small business development resources available in California.
Amendments are discussed in Comment #4, including the need to clarify
the relationship and the difference between the proposed expansion of
UC infrastructure and existing business accelerators and services.
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COMMENTS:
1)Technical Assistance to Start-ups and Small Businesses:
California's dominance in many economic areas is based, in part, on
the significant role small businesses, including start-ups, play in
the state's $2.3 trillion economy. Research shows that net new job
growth is strongest among businesses with less than 20 employees,
and that small businesses have historically led the state's local
and regional economies out of recessions. Among other advantages,
these smaller size firms are crucial to the state's international
competitiveness and are an important means for dispersing the
positive economic impacts of trade within the California economy.
Nonemployer firms make up the single largest component of businesses
in California, 2.9 million out of an estimated 3.6 million firms in
2012, representing over $149 billion in revenues with the highest
number of businesses in the professional, scientific, and technical
services industry sector.
As these nonemployer businesses grow, they continue to serve as an
important component of California's dynamic economy. Excluding
nonemployer firms, businesses with less than 20 employees comprise
nearly 90% of all businesses and employ 19% of all workers. These
non-employer and small employer firms create jobs, generate taxes,
and revitalize communities.
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Their small size, however, results in certain challenges in raising
capital, meeting regulatory requirements, obtaining information on
intellectual property rights, establishing key mentor relationships,
gaining access to expensive high tech equipment, and marketing their
goods and services. California has an established network of
programs and services to assist business, including start-ups,
address these challenges including access to quality training,
one-on-one counseling, mentoring, marketing data, and other business
development resources.
Innovation-based businesses have their own specialized services, in
recognition to the unique challenges of new technology firms. The
Governor's Office of Business and Economic Development (GO-Biz), as
an example, has a specific unit dedicated to supporting tech-based
entrepreneurs. Under the auspices of the Innovation and
Entrepreneurship unit, GO-Biz also sponsors a statewide network of
15 Innovation Hubs, generally structured around industry clusters.
These Innovation Hubs are required to include key academic partners,
including public and private universities, economic development
organizations, government entities, businesses, and investment
networks that can help to accelerate investment and economic
development.
The federal government also provides a range of business assistance
through its small business technical assistance centers, some of
which specialize in assisting businesses in accessing venture
capital, preparing and implementing federal Small Business
Innovation Research Grants, and designing business development
strategies. As one example, the Tech Futures Group offers a
business development advisory service to technology companies within
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the Northern California/Bay Area region. Their free-of-charge
assistance is provided by a group of experienced advisors who help
start-ups and small, established technology companies "grow, thrive
and reach the next level." The success of this federal program is
measured by client outcomes relative to capital infusion, jobs
created, and revenue. Since its inception through the end of 2014,
The Tech Futures Group has helped companies raise $49 million in
capital and create over 270 jobs.
AB 2664 could be a valuable addition to the state's existing network
of innovation-focused business development programs. It is
important, however, that the $66 million be used to develop local
business accelerators that complement, enhance, and provide unique
features to the state's current programs. Given the quality of UC
research and education, as well as its experience with the
Institutes for Science and Innovation, the UC is fully capable of
becoming a powerful new community-based business development partner
that, working in collaboration with existing partners, can help
California start-ups and small businesses reach new levels of
success.
2)California Institutes for Science and Innovation: The UC system is
designated by the 1960 Master Plan for Higher Education as the
primary state-supported academic agency for research. In 2000,
Governor Gray Davis and the Legislature committed to the development
to three new world class research institutions to support
California's growing economic position in the 21st Century. The
institutions would be collectively referred to as the California
Institutes for Science and Innovation, with each one combining
technological and scientific research with the training and
education of future scientists and technology leaders.
The institutions were to be chosen on a competitive basis. Each
institute was envisioned to develop programs in cooperation with the
private sector and in collaboration with the California's other
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public and private colleges and universities. The Legislature
passed and the Governor signed legislation to provide a framework
for the development of the institutions and included $75 million in
the 2000-2001 Budget Bill, AB 2883 (Villaraigosa) Chapter 79,
Statutes of 2000, and AB 1740 (Assembly Budget Committee) Chapter
52, Statutes of 2000.
One of the statutory requirements for the development of the
institutes was that state funding for the construction of the
facilities would be matched on a two-to-one basis with federal and
private funds. A commitment was also made to provide up to $300
million over four years to complete the project. Operating costs
for the institutes was to be annually appropriated through the
regular budget review and adoption process.
Six applications were submitted, from which four centers were
selected including:
California Institute for Bioengineering, Biotechnology, and
Quantitative Biosciences: This institute, also referred to as a
QB3, applies quantitative sciences, including mathematics,
physics, chemistry and engineering, to biomedical research that
promises to improve human health and create dynamic new
technologies. Among its many advantages, the institute maintains
state of the art research equipment, such as genome sequencers
and super computers, that would be too expensive for a single lab
to acquire and maintain. The QB3 is jointly hosted by UC San
Francisco, Berkeley, and Santa Cruz.
California Institute for Telecommunications and Information
Technology: This institute, also referred to as Calit2, links UC
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faculty, researchers, and students with California companies to
develop scientific and technological components to create a "new
Internet" that can support innovations in transportation, health
care, e-commerce, and education. Calit2 is jointly hosted by UC
San Diego and Irvine.
California NanoSystems Institute: This institute, also
referred to as CNSI, serves as a catalyst for the development of
techniques to manipulate structures atom-by-atom for the purpose
of engineering new materials, devices, and systems that can
revolutionize the delivery of health care and information
technology. CNSI is jointly hosted by UCLA and UC Santa Barbara.
Center for Information Technology Research in the Interest of
Society: This institute, also referred to as CITRIS, examines
new ways to use information technology to solve complex issues,
including transportation, education, emergency preparedness, and
the environment. This fourth institute was not initially funded
and Governor Davis had to identify supplemental funding for it to
be established. CITRIS is jointly hosted by UC Berkeley, Santa
Cruz, Davis, and Merced.
Today, each of these institutes facilitate and encourage the
development of new products and processes, as well as providing a
focus for deeper primary and applied research. Their initial
development, however, was not without its challenges. The
Legislative Analyst, in particular, expressed concerns over the cost
of the institutes and in 2007 opposed a $20 million appropriation to
expand the California Institutes for Science and Innovation and
build a petascale supercomputer.
1)Profile of California's Innovation Dominated Economy: California is
home to over 39 million people, providing the state with one of the
most diverse populations in the world, often comprising the single
largest concentration of nationals outside their native country. In
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2014, this diverse group of business owners and workers produced
$2.3 trillion in goods and services; $174.1 billion of which were
exported to over 220 countries around the world.
If California were a country, its 2014 GDP would place it 8th among
nations, ranking as follows: United States ($17.41 trillion), China
($10.38 trillion), Japan ($4.61 trillion), Germany ($3.86 trillion),
France ($2.84 trillion), Brazil ($2.35 trillion), California ($2.31
trillion); Italy ($2.14 trillion), India ($2.05 trillion), and
Russia ($1.85 trillion). The Department of Finance will not release
the 2015 GDP for California until June 2016, so for comparisons 2014
data is primarily being used in this analysis.
Historically, a number of factors have contributed to California's
significant positon within the global marketplace, including its
strategic west coast location, the size of its consumer base, the
strength of its dominant and emerging industry sectors, its
economically diverse regional economies, its skilled workforce, and
its culture of innovation and entrepreneurship, particularly in the
area of technology. California's 29 million working age individuals
comprise the single largest workforce in the nation, are
comparatively younger, and have an educational achievement level
above the national average.
Many policy makers and economists describe California as having not
a single economy, but having a highly integrated network of a dozen
or so regional economies. While biotech has a comparative advantage
in some regions, information technology drives growth in others.
This economic diversity contributed to California's ability to
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aggressively move out of the recession, ranking number two in the
nation by Business Insider for fastest growing economy in the nation
in August 2014 and being named as having the fourth best overall
economy in March 2015.
Research and development, and the drive to constantly push for new
and more innovative methods and technologies play a key role to
maintaining California's competitiveness between other areas of the
state and around the world. Chart 1 displays information from the
U.S. Census Bureau on California's private industry sectors based on
its contribution to the state's GDP. In 2014, the finance and
insurance sector provided the largest economic contribution to the
state's overall GDP, $484 billion of the $2.3 trillion. Firms in
this industry sector include entities that raise funds, pool risk,
and facilitate financial transactions including real estate. The
strength of this sector forms a foundation for the continued growth
of other industry sectors.
Chart 2, developed using data provided by the California Employment
Development Department, shows California's largest industry sectors
based on employment. In 2014, the trade, transportation, and
utilities sector was largest, employing 2.8 million (18.4% of
California jobs). Jobs in this sector also support employment in
other industry sectors including Manufacturing (8.1%), Professional
Services (15.6%), and Financial Activities (5.0%).
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Many of the jobs associated with these major industry sectors are
also associated with high wages. Manufacturing is considered the
"gold standard" for jobs because of its high wages, inclusion of
small businesses within its global supply chains, and having a high
multiplier effect on related jobs. The Milken Institute estimates
that for every job created in manufacturing, 2.5 jobs are created in
other sectors. In some industry sectors, such as electronic
computer manufacturing, the multiplier effect is 16:1.
Advances in transportation and communication technologies are
encouraging the development of previously undeveloped markets and
expanding multinational business opportunities for California firms.
Today, four of California's top five exports include component
parts, which leave the state to be assembled and/or partially
assembled before returning. Supporting a pipeline of business
start-ups and evolving collaborative relationships is key to
California's economic growth.
These trade related industry sectors comprise a majority of what EDD
has designated as the state's "economic base" sectors, which include
professional services, manufacturing, and transportation, among
others. Employment in these economic base industries represents
37.3% of the state's total employment, and employment growth within
these sectors grew at twice the pace of the overall state economy.
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2)Suggested Amendments: The bill could offer an enhancement to the
state's local and regional technical assistance and business
accelerator network. In moving forward with the bill, the Committee
may wish to:
a) Clarify the UC's collaboration with existing public and
private entities that have similar missions, including GO-Biz,
local and regional economic development organizations, and other
public and private technology innovation centers;
b) Clarify the differences between the programs and services
provided through the new UC funding and those currently available
through technology-focused small business development centers;
and
c) Clarify that the reporting be consistent with other business
assistance programs, including business, size, industry sectors,
and impact.
In addition, the author has requested that the Committee amend the
bill to specify that implementation of the measure is contingent
upon appropriation in the budget act.
3)Related Legislation: Below is a list of the related bills.
a) AB 250 (Holden and V. Manuel Pérez) Codification of California
Innovation Hubs: This bill codifies and expands the California
Innovation Hub Program at GO-Biz for the purpose of stimulating
economic development and job creation through the regional
coordination of federal, state, and local innovation-supporting
resources. Status: Signed by the Governor, Chapter 530,
Statutes of 2013.
b) AB 285 (Brown) Scope of Practice for the California Workforce
Investment Board: This bill would have required the California
Workforce Investment Board to make recommendations and provide
technical assistance on entrepreneurial training opportunities
that could be made available through local workforce investment
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boards. The bill would have also deleted certain required duties
of the California Workforce Investment Board and made changes to
the definition of microenterprise. Status: Vetoed by the
Governor, 2013. "This bill, like SB 118, deals with the
California Workforce Investment Board and various aspects of job
training. Unlike SB 118, it is overly prescriptive in the way it
directs the Board to provide technical assistance for
entrepreneurial training and to make recommendations. I believe
this unduly infringes on the Board's authority and discretion."
c) AB 1740 (Assembly Budget) 2000-2001 Budget Bill: Authorized
$75 million for the UC to implement AB 2883 (see below). The UC
stated at the time that the UC System would require $75 million
for each of four years in order to establish the institutes.
Status: Signed by the Governor, Chapter 52, Statutes of 2000.
d) AB 2883 (Villaraigosa) UC Research Facilities: This bill
authorized the University of California and established three,
competitively bid, California Institutes for Science and
Innovation, which would be devoted to basic and applied
cross-disciplinary research, focusing on problems of significant
scale and on scientific advances that may provide the
underpinnings of future economic activity in California. Status:
Signed by the Governor, Chapter 79, Statutes of 2000.
4)Double Referral: This measure has been double referred to the
Assembly Committee on Higher Education and Assembly Committee on
Jobs, Economic Development, and the Economy. The vote in the Higher
Education Committee was 12 to 1.
REGISTERED SUPPORT / OPPOSITION:
Support
University of California (sponsor)
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Aptitude Medical
Arduro Biotech
Bay Area Science and Innovation Consortium
Bayer
Calaveras Creek Capital
Center of Seed Excellence and Innovation
City of Goleta
City of Santa Cruz
The InterPacific Group
Gavin Newsom, Lieutenant Governor
Gerson Bakar Foundation
Goleta Entrepreneurial Magnet
Los Angeles Business Council
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Manitou Ventures
Monterey County Business Council
Next Energy Technologies
Nixon Peabody LLP
Pfizer Inc
Professor Alan Heeger, UCSB
Professor Shuji Nakamura, UCSB
Ryan Coonerty, Santa Cruz County Board of Supervisors, District 3
Solano Economic Development Corporation
Stanford Bio-X program
Synergenics
*The Committee also received 14 letters from individuals
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Opposition
None Received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090