BILL ANALYSIS Ó AB 2664 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2664 (Irwin) As Amended June 22, 2016 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | 80-0 |(May 31, 2016) |SENATE: |38-0 |(August 18, | | | | | | |2016) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: HIGHER ED. SUMMARY: Requires the University of California (UC) to make one-time expenditures on activities, using the $22 million General Fund provided in the Budget Act of 2016, to expand or accelerate economic development in the state in ways that support innovation and entrepreneurship. The Senate amendments do all of the following: 1)Identify a specific funding source in the Budget Act of 2016 and allocates $2 million from that source to each of the 10 campuses of the UC. 2)Require the UC Regents to designate an external advisory body, whose members have demonstrated expertise innovation and entrepreneurship, to encourage the effective use of specified AB 2664 Page 2 funds through planning and oversight; and specify that the external advisory body must notify the Director of Finance and the Legislature of its intent to certify, no fewer than 10 days before providing certification. 3)Prohibit a campus from expending funds until the external advisory body has certified that the chancellor of the campus has demonstrated all of the following: a) That the funds will be used only for the costs of activities that support the expansion or acceleration of economic development in the state benefitting entrepreneurs, such as any of the following: i) Business training; ii) Mentorship; iii) Proof-of-concept grants; iv) Work space; v) Laboratory space; and, vi) Equipment b) That funds will be spent only after the uses and beneficiaries have been determined through a transparent, inclusive and fair process; c) That private funds will also be used for the specified activities, with the intent that the amount of private funds will be at least equal to the amount of state funds; AB 2664 Page 3 d) That any financial benefit that results from the use of these funds be accounted for and also used on the specified activities, as described; and, e) That a credible plan has been developed to support any ongoing activities beyond the one-time expenditures of these funds. 4)Require the UC to report to the Department of Finance and the Legislature on or before November 30, 2017, on the specific activities at each campus, as specified. EXISTING LAW: 1)Establishes the Donahoe Higher Education, setting forth the mission of the UC (Education Code (EC) Section 66010, et seq.). 2)Grants the UC Regents regulatory authority over the UC (EC Section 92440, et seq.). FISCAL EFFECT: According to the Senate Appropriations Committee: 1)The Budget Act of 2016 provides $22 million one-time General Fund for innovation and entrepreneurship programs. This bill provides implementation language for those funds. 2)Potential campus-level cost pressure to the extent the advisory body overseeing the use of funds is unable to certify that a chancellor of a campus has demonstrated that private funds will be used for these activities, with the intent that the amount of private funds will be at least $2.2 million. It AB 2664 Page 4 is unclear whether expenditure of the campus' state allocation is permissible without certification of this level of private funds. COMMENTS: Background. As the research arm of the state, the UC has driven innovation and economic growth. According to the UC, it is now the world's academic leader in the number or research inventions, with 1,700 reported in 2014. The UC continues to be the launching platform for a numerous startup companies that stimulate the economic and job growth in California. The state, in 2000, created the California Institutes for Science and Innovation (Cal-ISIs) through the budget and legislation (AB 2883, (Villaraigosa), Chapter 79, Statutes of 2000) to speed up business growth in the state, develop research and innovations to meet California's needs, and train future scientists. The state provided start-up funds of $400 million for the Cal-ISIs and the UC provide a 2-to-1 match from a combination of business and federal sources. The state continues to reap the benefits of its original investment. What is needed for continued growth? According to the UC, specific investments are needed so that the pace can be maintained to keep up with the demand for innovation and entrepreneurial infrastructure, resources, and support programs. The UC contends that the investments will leverage UC research in two ways: 1) provide researchers with the necessary tools to turn their ideas into job-providing companies; and, 2) organize research systemwide in order to address the various challenges facing California. Expanding the infrastructure for UC innovation and entrepreneurship to create innovation and economic development in the surrounding communities of UC campuses and across California will not happen overnight. The UC has a three-year AB 2664 Page 5 investment of $2 million per year for each of the 10 UC campuses and the Lawrence Berkeley National Laboratory. This measure calls for the appropriation of $22 million for fiscal years 2017-18, 2018-19 and 2019-20 inclusive, to be used by the UC in order for the UC to expand the infrastructure necessary to increase innovation and entrepreneurship for the purpose of creating economic development for California. Purpose of this measure. According to the author, in 2014, active UC startups based in California employed over 19,000 Californians and brought in more than $14 billion in revenue. The author contends that in order to maximize the transformative power of UC's research engine, the UC innovation ecosystem needs to expand throughout the State. The author states, "The UC's ability to provide entrepreneurial services is at capacity. The demand for startup seed funding is rising, and workspace demand consistently exceeds capacity. While UC-fostered entrepreneurship is increasing, entrepreneurship in the state of California is declining. The number of new adults becoming entrepreneurs per month slipped from a high of 440 out of every 100,000 Californian adults in 2012, to 390 in 2015; a troubling trend as young companies are the primary source for all net new jobs created annually." This measure seeks to build upon the successful model that the state created in 2000. Analysis Prepared by: Jeanice Warden / HIGHER ED. / (916) 319-3960 FN: 0004238 AB 2664 Page 6