BILL ANALYSIS
AB 699
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 699 (Portantino and V. Manuel Perez) - As Introduced:
February 26, 2009
SUBJECT : California Economic Recovery Strategy
SUMMARY : Updates the requirements for the development of a
State Economic Development Strategy (ED Strategy) and requires
it be submitted to the Legislature by May 1, 2010.
Specifically, this bill :
1)Enacts the Economic Recovery Through Sustainable Development
and Innovation Act.
2)Provides legislative intent regarding the state's historic
position in the global economy and the importance of the state
in using the current economic downturn to reinvent itself and
support the emergence of core industries that will define the
state's economy of the next 50 years.
3)Modifies the content of the ED Strategy to reflect current
economic best practices and key issues, including the role of
innovation in the California economy and the need to attract
more private capital to the state's border regions and other
emerging domestic markets.
4)Expands the membership of the California Economic Strategy
Panel (ESP) from 15 to 19 members by including the Small
Business Advocate and the Secretaries for the Business,
Transportation and Housing (BTH) Agency and the Department of
Food and Agriculture (CDFA). The bill also requires that at
least one member of the ESP be a representative of economic
developers.
5)Extends the term of the ED Strategy from every two-years to
every five-years. In order to provide adequate oversight, the
ESP is required to submit a summary of activities to the
Legislature every two-years.
6)Deletes the requirement that the ESP convene a meeting in
every community in the state with a population over 500,000,
and instead, call on the ESP to meet with key stakeholder
groups in preparation of the ED Strategy, as specified.
AB 699
Page 2
7)Requires that the cost of updating the ED Strategy come from
private donations, as specified.
8)Includes an urgency clause.
EXISTING LAW :
1)Establishes ESP, chaired by the Secretary of Labor and
Workforce Development (L&WD) for the purpose of developing an
overall state economic vision and strategy that can guide
public policy, including, examination of the state's economic
regions, industry clusters, and cross-regional economic
issues.
2)Requires the Secretary of L&WD, to lead the preparation of the
State ED Plan for the purpose of making recommendations on a
two-year economic development strategic plan. The development
of the State ED Plan is primarily done through the work of the
ESP.
3)Requires BTH, in consultation with ESP, to develop an
international trade and foreign investment strategy by
February 2008, for the purpose of establishing goals,
objectives, and recommendations necessary to implement a
comprehensive international trade and investment program.
4)Requires the Governor to prepare the EGPR every four years for
the purpose of defining the state's 20 year growth and
economic development strategy with particular attention to
statewide land use policy.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the bill : According to the authors, California
stands at a cross roads without a comprehensive plan to guide
our recovery efforts. California workers and businesses are
currently facing some of the harshest economic conditions
since the Great Depression. Unemployment in California has
reached 11% and is projected to rise to over 12% before the
current recession is over. Some areas of the state, however,
are already experiencing unemployment rates of nearly 27%.
Almost every industry sector is experiencing a loss of jobs
and will likely continue to experience losses as the global
AB 699
Page 3
economy progressively deteriorates. In summary, credit
markets are frozen, unemployment is rising, and production is
stalled.
As Californians move forward from these difficult economic
times, the authors state, it is more important than ever to
have a unified vision that can support the state's long-term
growth. Beyond theory, this vision must be sufficiently
grounded in reality as to break through old and ill-fitting
models for business development, finance, along with education
and workforce development.
In March 2009, the Assembly Committee on Jobs, Economic
Development and the Economy (JEDE) released an initial draft
of a California Economic Development Recovery Strategy
(Recovery Strategy), which sets forth a 24-month blueprint of
economic and workforce development actions to be undertaken by
the state. In AB 699 the Chairman of JEDE joins with the
Chairman of the Committee on Higher Education to outline and
operationalize a renewed vision for California's economy.
2)ESP fails to produce ED Strategy : Existing law requires the
ESP to prepare an ED Strategy every two years to help guide
the state's financial investments and activities related to
economic and workforce development. The last ED Strategy was
completed in 2002. Although the ESP has continued to meet
during the last seven years, no ED Strategy has been prepared.
Implementation of AB 699, sponsored by JEDE, updates the
requirements of the ED Strategy to better reflect our current
economic crisis and sets a specific date for its next update.
Without a current assessment of our economic conditions; a
prioritization of issues; and a coordination of federal,
state, and local efforts; the impact of federal stimulus
dollars and the creative efforts of our public and private
sectors to retain jobs and improve local economies could be
limited.
3)A look at California's historical economy : California is the
one of the largest and most diversified economies in the world
with a state gross domestic product (GDP) of over $1.8
trillion in 2007. If California were an independent nation it
would rank as the eighth largest economy in the world.
The state's significance in the global marketplace results
AB 699
Page 4
from a variety of historical factors, including: its
strategic west coast location that provides direct access to
the growing markets in Asia, Mexico and South America; its
economically diverse regional economies; its large, ethnically
diverse population, representing both a ready workforce and
significant consumer base; its access to a wide variety of
venture and other private capital; its broad base of small-
and medium-sized businesses; and its culture of innovation and
entrepreneurship, particularly in the area of high technology.
As the largest state in the U.S., California is home to 12.1%
of the nation's population and 11.6% of all jobs. Overall job
growth in the state from 2001 to 2006 was 6.1%. Growth in
California GDP outpaced the growth rate of the nation as a
whole, 33.9% for California as compared to the US at 30.4%.
Among other economic distinctions, the state leads the nation
in export-related jobs, small business development, and
business start-ups, in general. The chart below provides
additional details on California's industrial base by listing
the largest, fastest, most competitive, and highest-paid wages
by industry type.
------------------------------------------------------------
| Chart 1 - California Industry Comparisons |
------------------------------------------------------------
|--+-------------+-------------+-------------+-------------|
| | Largest | Fastest | Industries | Industries |
| | Industries | Growing | with Higher |with Highest |
| | in | Industries |Concentration|Average Wage |
| | California | (2001-06) | of Jobs | (2006) |
| | Based on | | Relative to | |
| | Revenues | | the Nation | |
| | (2006) | | (2006) | |
|--+-------------+-------------+-------------+-------------|
|1 | Food | Wholesale | Support | Securities, |
| | Services & | Electronic | Activities | Commodity |
| | Drinking | Markets, | for |Contracts, & |
| | Places | Agents, & | Agriculture | other |
| | | Brokers | & Forestry |Investments |
|--+-------------+-------------+-------------+-------------|
|2 |Professional,| Private | Private | Oil & Gas |
| | Scientific | Households | Households | Extraction |
| | & Technical | (includes | (includes | |
| | Services | households | households | |
| | | that employ | that employ | |
AB 699
Page 5
| | |people, such |people, such | |
| | | as cooks, | as cooks, | |
| | | maids, | maids, | |
| | | gardeners, | gardeners, | |
| | | caretakers) | caretakers) | |
|--+-------------+-------------+-------------+-------------|
|3 |Administrativ| Other | Motion | Lessors of |
| | e Support | Information | Picture & |Nonfinancial |
| | Services | Services | Sound | Intangible |
| | | | Recording | Assets |
| | | | Industries | |
|--+-------------+-------------+-------------+-------------|
|4 | Specialty | Funds, | Apparel | Internet |
| | Trade | Trusts, & |Manufacturing| Service |
| | Contractors | Other | | Providers, |
| | | Financial | | Web Search |
| | | Vehicles | | Portals, & |
| | | | | Data |
| | | | | Processing |
| | | | | Services |
|--+-------------+-------------+-------------+-------------|
|5 | Ambulatory |Construction | Crop | Petroleum & |
| | Health Care |of Buildings | Production | Coal |
| | Services | | | Products |
|--+-------------+-------------+-------------+-------------|
|6 | Hospitals | Credit | Computer & | Performing |
| | |Intermediatio| Electronic | Arts, |
| | | n & Related | Product | Spectator |
| | | Activities |Manufacturing| Sports |
| | | | | |
|--+-------------+-------------+-------------+-------------|
|7 | Merchant | General | Beverage & | Computer & |
| |Wholesalers, | Merchandise | Tobacco | Electronic |
| | Durable | Stores | Product | Product |
| | Goods | |Manufacturing|Manufacturing|
| | | | | |
|--+-------------+-------------+-------------+-------------|
|8 | Food & | Beverage & | Internet | Funds, |
| | Beverage | Tobacco |Publishing & | Trusts, & |
| | Stores | Product |Broadcasting | Other |
| | |Manufacturing| | Financial |
| | | | | Vehicles |
|--+-------------+-------------+-------------+-------------|
|9 | Credit | Specialty | Performing | Utilities |
| |Intermediatio| Trade | Arts, | |
| | n and | Contractors | Spectator | |
AB 699
Page 6
| | Related | | Sports | |
| | Activities | | | |
|--+-------------+-------------+-------------+-------------|
|10| Computer & | Motion | Electronics | Pipeline |
| | Electronic | Picture & | & Appliance |Transportatio|
| | Product | Sound | Stores | n |
| |Manufacturing| Recording | | |
| | | Industries | | |
----------------------------------------------------------
------------------------------------------------------------
| Source: California Economic Profile, Economic Strategy |
|Panel, August 2008 |
------------------------------------------------------------
4)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 the eight key industry clusters,
which are listed below, and recommended that the state focus
future investments toward these industries in order to
maximize the use of state resources.
Dominant industry clusters include :
a) Professional business and information services
b) Diversified manufacturing
c) Wholesale trade and transportation
d) High-tech manufacturing
Emerging industry clusters include :
a) Life science and services
b) Value-added supply chain manufacturing and logistics
c) Cleantech and renewable energy
d) Nanotechnology
The study also found that, based on the state's historic
strengths identified above, that the state was also uniquely
positioned to be a preferred global partner of certain regions
of the world, particularly those interested in innovation,
science, and technology. The study, however, also stated that
California was facing significant challenges from the global
redistribution of manufacturing and services and the growing
talent pools in other countries.
While the global recession may have slowed down growth, the
AB 699
Page 7
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.
These types of partnership efforts, however, have not yet been
brought forward into a broader economic development framework
and are too often treated as one-off initiatives. AB 699 will
direct the ESP to examine the nature of innovation and how it
affects location decisions and the competitiveness of
California, other states, and foreign countries. Enormous
potential exists in research, development, and product
manufacturing by capitalizing on cross-border initiatives if
California can successfully transition to the new and more
highly connected economic world of the 21st Century.
5)Other drivers of the California economy : As California
identifies priorities and develops strategies for economic
recovery, the state must also account for the dramatic
demographic shifts which are impacting and will continue to
impact the state's economy. Currently, unprecedented numbers
of baby boomers are preparing to retire from the market place.
Concurrently, a second and significantly smaller wave of new
workers and entrepreneurs are emerging to take their places
within the American economy.
This demographic trend is particularly important for policy
makers as it not only reflects a generational shift in the
U.S., but it also reflects a shift in the race and ethnicity
of the working age population. The California Budget Project
estimates that by 2020, nearly 60% of the working age
population in California will be comprised of Latinos,
African-Americans, and Asian-Americans.
AB 699
Page 8
These emerging domestic markets include people, places, or
businesses with growth potential, which have historically
faced systemic capital constraints. These constraints are
often due to a lack of performance information which limits
the ability of financial institutions and traditional
investors to model and/or assess the economic viability of
these business opportunities.
The demographics of emerging domestic markets include ethnic-
and women-owned firms, urban and rural communities, companies
which serve low- to moderate-income populations, and other
small- and medium-sized businesses. In the U.S., minority
purchasing power is expected to triple from $1.3 trillion in
2000 to over $4 trillion by 2045. This represents over 70% of
the growth of total U.S. purchasing power during the same time
period. Latino and African American purchasing power is
already so significant in the U.S. that if it were compared to
national GDPs it would be greater than all but nine economies
in the world.
As the purchasing power of minority communities has expanded,
new product markets have opened up. Traditional product lines
have also, and will continue to be, modified in order to
connect with this new and growing minority market. This
growing minority and ethnic-based market is being served by an
increase in the number of minority-owned and women-owned
businesses. Research shows that the growth of minority owned
firms in the beginning of the decade surpassed the growth of
all U.S. businesses, growing at a rate of 17% per year, which
is six times the growth rate of all other firms. Sales from
minority owned firms also outpaced revenues in general -
growing 34% per year - more than twice the rate of all other
firms.
However, even with these impressive growth numbers, minority
and women- owned businesses face systemic capital constraints.
African Americans and Latinos are turned down for loans at
three times the rate of similarly situated white applicants.
Their participation rates in private equity and venture
capital, in particular, are also low.
With the current demographic shifts, minority workers will
become, for the first time, the core of the working age
population. As emerging central players in the state and
national economy, issues relating to the potential success of
AB 699
Page 9
minority-owned businesses must move from being a social equity
consideration to a key economic consideration for the long-term
success of the state. The California economy and in the coming
years, the U.S. economy, cannot be maintained or grow unless
these emerging domestic markets can become mainstream.
6)California competitiveness : Innovation has long been the
cornerstone of California's competitive edge. Innovation, by
its very nature, requires constant reassessment and, very
often, reinvestment of public resources to maintain and enhance
a creative environment where businesses and financial
partnerships can constantly evolve. Even before the current
economic downturn, California faced many challenges due to the
state's long-term neglect to adequately invest in
infrastructure, K-12 education and workforce development.
In March 2008, JEDE undertook a survey of California's business
climate. Overall, JEDE found that the state's businesses
experience higher costs and greater regulatory burdens than
other businesses, in many other areas of the nation.
California consistently ranked in the top 10 of highest cost
states in the nation. These findings were reinforced in the
April 2009 ALEC-Laffer State Economic Competitiveness Index,
which ranked California in the bottom 10 of states based on 15
policy factors including:
Highest Marginal Personal Income Tax Rate
Highest Marginal Corporate Income Tax Rate
Personal Income Tax Progressivity
Property Tax Burden
Sales Tax Burden
Tax Burden From All Remaining Taxes
Estate Tax/Inheritance Tax (Yes or No)
Recently Legislated Tax Policy Changes
Debt Service as a Share of Tax Revenue
Public Employees Per 1,000 Residents
Quality of State Legal System
State Minimum Wage
Workers' Compensation Costs
Right-to-Work State (Yes or No)
Tax or Expenditure Limits
AB 699
Page 10
The JEDE survey, however, also found that even with those costs
certain regions of the state remain highly competitive within the
national and global marketplace. As an example, a 2007 index
developed by the Milken Institute and Greenstreet Partners found
California metro areas hold four of the top 25 slots for areas
that are best to create and sustain innovation-based jobs. Top
California locations include Riverside-San Bernardino (3rd),
Bakersfield (17th), Vallejo-Fairfield (22nd), and
Sacramento-Arden-Arcade-Roseville (25th). California has also
consistently been a leader in attracting venture capital, although
research shows that other states and regions in the world are
beginning to close the gap.
1)California Economic Development Incentives : One of the primary
ways in which states compete for businesses and industry is
through their fiscal policies including income tax- and sales and
use tax-based incentives. California's economic development
related incentives include tax benefit programs that address the
purchase and depreciation of equipment, the undertaking of
research and development of new products and technologies,
targeting of private investments, and special treatment for small
businesses under the state's tax laws.
In addition to tax incentives, the state funds and or administers
a limited number of programs and services to assist business and
workforce development, including, but not limited to the Office of
the Small Business Advocate; the California Small Business Loan
Guarantee Program; international trade and foreign investment
activities; the federal Small Cities Community Development Block
Grant Program; the Enterprise Zone; the Employment Training Panel;
the California Workforce Investment Board; the ESP; and the small
business procurement preference programs.
There is, however, no single location where these programs,
services, and activities come together into a single comprehensive
strategy. Further, recent budget actions have deduced tax
incentives and eliminated key programs and services. California's
budget problems cannot be sufficiently addressed until the state,
first, addresses the needs of workers, businesses, and investors.
A current economic development strategy will allow the state best
analyze how existing programs and services work together. Without
such actions it will be difficult to maximize public investments
with ongoing private sector activities, including the $787 billion
federal stimulus package. Expanded descriptions of these
AB 699
Page 11
programs can be found in the JEDE white paper, California's
Economic Development Programs: Meeting the Challenges of Today's
Economy.
2)Related legislation : Below is a list of related legislation.
a) AB 1606 (Arambula and Lieu ): This bill required the
development of a strategy to increase private investment in
California's historically underserved communities, also known
as emerging domestic markets. The bill also centralizes the
state's existing economic development programs with the
Economic Strategy Panel, in order to improve their
coordination and impact on California communities. Status:
Vetoed by the Governor in 2007.
b) AB 1721 (Arambula ): This bill designates the Business,
Transportation, and Housing Agency as the state's primary
agency responsible for the facilitation of economic
development activities. The bill also establishes a fund for
receiving federal, state, local, and private economic
development moneys that can be used to further state economic
development activities. No moneys may be used from this fund
without a specific appropriation by the Legislature. The bill
also adds economic development-related definitions and
authorizes the Business, Transportation, and Housing Agency to
administer specified federal Economic Development
Administration disaster recovery moneys. Status: Signed by
the Governor, Chapter 631, Statutes of 2007.
c) AB 1916 (Portantino, Arambula, Price, Salas, and
Caballero): This bill updated the membership and requirements
of the California Economic Strategy Panel and requires that
the next State Economic Development Strategy be submitted to
the Legislature by January 1, 2010. Status: Vetoed by the
Governor in 2008.
d) AB 2595 (Arambula) : This bill required the Secretary of
Labor and Workforce Development and the California Workforce
Investment Board to establish a Logistics Worker Training
Initiative for the purpose of increasing California workers'
competitiveness within the global manufacturing value chain.
The outcome of this initiative is a state strategy to support
regionally based workforce intermediaries that provide
training in advanced logistical systems, especially in the
transportation and goods movement sectors. Status: Vetoed by
AB 699
Page 12
the Governor in 2007.
e) AB 2711 (Portantino, Arambula, Price and Salas): This bill
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 under submission in the Assembly
Committee on Appropriations.
f) AB 2860 (Lieu) : This bill renamed the California
Commission on Industrial Innovation (Commission) the
California Commission on Manufacturing Competitiveness and
Innovation, specifies the Commission should avoid
recommendations that could diminish certain worker
protections, and makes conforming changes to the enabling
statute. Status: Held in the Senate Appropriations Committee
in 2007.
REGISTERED SUPPORT / OPPOSITION :
Support
Assembly Committee on Jobs, Economic Development, and the Economy
(sponsor)
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090