BILL ANALYSIS
AB 2437
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Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 2437 (V Manuel Perez) - As Amended: April 5, 2010
SUBJECT : California Manufacturing Competitiveness Act of 2010
SUMMARY : Authorizes the establishment of the California
Manufacturing Competitiveness Act of 2010 for the purpose of
supporting the retooling and expansion of California's
manufacturing facilities, enhancing the state's logistics
network, and retaining and creating jobs. Specifically, this
bill :
1)Requires the California Industrial Development Financing
Advisory Commission (CIDFAC) to establish the California
Manufacturing Competitiveness Loan and Loan Guarantee Program
for purpose of attracting, retaining and expanding
manufacturing facilities with more than 200 employees.
2)Provides that the objective of the program shall be to:
a) Encourage the development of the state's long-term
manufacturing capacity.
b) Create jobs through the support of retooling and
expansion of manufacturing facilities.
c) Allow manufacturers to access funds under terms and
conditions which would not otherwise be available in the
private market.
d) Assist manufacturers to cost effectively respond to
energy efficiency regulations and new technologies.
e) Prioritize assistance to manufacturers who consistently
pay the highest wages, based on the average weekly wage
rate for their industry sub-sector, and pay health
benefits.
f) Prioritize assistance to applications that are jointly
submitted by management and the union at the facility or
the union pending representation of workers at the
facility.
3)Requires CIDFAC to develop and administer the application,
review and evaluation process including the eligibility
standards, rating and ranking criteria and other appropriate
policies and procedures, subject to the following:
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a) The facility or facilities where the moneys will be
expended are located in the state.
b) The moneys being awarded will be used to create or
retain jobs in the State of California.
c) The maximum loan and loan guarantee limits are
$5,000,000 and $10,000, respectively.
d) Applicants are required to demonstrate that they will
have the ability to repay the loans.
e) Loans may be provided at terms and conditions below
market rate to the extent that the overall program remains
financially viable.
f) Applicants must demonstrate they are in compliance with
applicable federal, state, and local laws and regulations,
or that the project for which they are requesting funding
will bring them into compliance.
g) All applicants must agree to annually report to the
CIDFAC on total capital investments made by the company and
total employment, as specified.
h) Wages for employees in California are, on average, equal
to or more than the average weekly wage rate for similar
workers in the same industry sub-sector.
i) Applicants provide health insurance benefits for all
full-time employees.
j) The applicant's turnover rate has not exceeded 20%
annually at any facility where moneys obtained through the
program will be used.
aa) Loans must be paid in full six months prior to
relocation of a facility outside of California. If the loan
or loan guarantee included a subsidized amount, that amount
must also be repaid subject to a sliding scale, as
specified.
4)Establishes the Manufacturing Program Account, within the
existing Industrial Development Fund at the Treasurer's
Office, for the purpose of receiving and holding moneys to
implement the program. Program moneys may also, with the
approval of the Department of Finance, be held in an account
in a private financial institution.
5)Requires CIDFAC, beginning October 1, 2012, to annually
provide specified information on the program's activities and
impact on the manufacturing industry and on the state's
economy, including, at a minimum, the:
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a) Total beginning and ending balances in the Manufacturing
Program Account.
b) Number of projects funded and the number of
manufacturers assisted.
c) Number of jobs created and the number of jobs retained
through program assistance in each of the fiscal years.
d) Amount of investments made by the manufacturer in the
year prior to assistance and the next two years.
e) Amount of federal, state, and local taxes paid by the
businesses in aggregate. Information on publicly held
companies shall also be reported separately.
6)Sunsets the provisions of the bill on January 1, 2016.
EXISTING LAW:
1)Contains legislative findings that it is necessary and
essential that the state, in cooperation with the federal
government, use all practical means to promote and enhance
economic development and increase opportunities for
employment, especially in areas where workers have been
displaced due to industrial failures.
2)Establishes the CIDFAC with a number of duties, including, but
not limited to:
a) Assisting industrial development authorities and state
agencies in the preparation, marketing, and sale of bonds;
b) Collecting and providing impact data of specified
industrial development activities, including financial,
economic, governmental, and social data, as specified;
c) Maintaining contact with municipal bond underwriters,
credit rating agencies, investors, and others to improve
the market for local government debt issues; and
d) Undertaking or commission studies on methods to reduce
the costs of state and local issues.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author purpose : The choices that Californians make in the
next year will set the foundation for the state's economy for
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decades to come. Historically, the state's growth strategy
has been to aggressively seize new ideas, operationalize the
idea and birth a new industry or transform an old industry.
Today, we can decide whether to shy away from manufacturing
after the loss of so many jobs, or to transform the state's
old manufacturing strengths into new products, markets, and
opportunities. We can decide to opt out of the national shift
to a lower-carbon economy, or to be at the forefront of
developing clean and renewable energy industries and quality
jobs. This bill provides a new financial component - "a
dealer closer" - in California's ability to attract, retain
and grow the state's manufacturing sector.
2)The California economy and manufacturing : California is one
of the largest and most diversified economies in the world
with a state gross domestic product (GDP) of over $1.8
trillion in 2008. For comparison, global GDP was $53.3
trillion, with the U.S. ($13.8 trillion) having the highest
GDP of any individual nation, followed by Japan ($4.3
trillion), Germany ($3.3 trillion), China ($3.2 trillion), the
United Kingdom ($2.7 trillion), France ($2.5 trillion), Italy
($2.1 trillion), Spain ($1.4 trillion), Canada ($1.3
trillion), and Brazil ($1.3 trillion). Based on these figures
from the International Monetary Fund, if California were an
independent nation it would rank as the eighth largest economy
in the world.
Historically, the state's significance in the global
marketplace resulted from a variety of factors, including:
its strategic west coast location that provides direct access
to the growing markets in Asia; 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.
Economic growth in California has also historically outpaced
the growth rate of the nation as a whole. In 2007, as an
example, California's GDP growth rate was 33.9% as compared to
the U.S. at 30.4%. Among other economic distinctions, the
state has historically led the nation in export-related jobs,
small business development, and business start-ups.
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The chart above [graphic removed], prepared by the California
Employment Development Department, provides detail on
California's largest industry sectors in 2008 including the
total number of jobs and percentage to state employment.
Manufacturing is one of the top five private industry sectors,
responsible for employing 1.4 million workers (9.3%) and
contributing $179 billion to the state's $1.8 trillion GDP.
A robust manufacturing sector has many benefits, including
high wage jobs and a multiplier effect on other industries and
businesses. As an example, the Milken Institute estimates
that every job created in manufacturing supports 2.5 jobs in
other sectors. In some industry sectors, such as the
electronic computer manufacturing, the multiplier effect is 16
to one.
Manufacturing is California's most export-intensive activity.
Overall, manufacturing exports represent 9.4% ($120 billion in
goods) of California's GDP, and computers and electronic
products constitute 29.3% of the state's total manufacturing
exports. More than one-fifth (21.9%) of all manufacturing
workers in California directly depend on exports for their
jobs.
Manufacturing in California, however, even prior to the
current economic recession, faced many challenges maintaining
global and domestic competitiveness, including providing a
skilled workforce to support the changing needs of
manufacturing and goods movement and maintaining
cost-effective productivity in the face of lower safety and
wage standards in emerging foreign markets.
The chart below [graphic removed] provides an illustration of
the change in job growth between certain industry sectors and
the relevance of those shifts to worker wage rates.
Using slightly more current data that includes 2009, the
California Manufacturers and Technology Association estimates
that California lost 596,000 manufacturing jobs from its peak
in January 2001 to December 2009. While part of this
reduction reflects the loss of high-tech jobs in 2001 and 2002
and the current recession, the industry as a whole is
suffering.
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Significant drops in consumer spending have led to workforce
reductions and business bankruptcies across the state. For
much of 2009, the number of unemployed workers rose 40 to
60,000 per month, and the year ended with a seasonally
adjusted unemployment rate of 12.4%, representing 2.25 million
people officially identified as unemployed (excludes those
that have stopped looking for work, among others). The number
of persons unemployed 27 weeks or more increased by 443,000
(156.2%) since December of 2008.
While some economists believe California may have emerged from
the recession, there is little disagreement among forecasters
that unemployment is expected to remain above double digits
throughout 2010 and 2011. Jobs will recover to their
pre-recession peak in the first half of 2013, however,
unemployment rates are likely to remain above 8% through much
of 2014.
Manufacturing, construction, and retail experienced the
greatest decline over the past year, with each of these
sectors shedding over 100,000 jobs across the state.
Forecasters at the University of the Pacific Business
Forecasting Center state that job growth during the initial
part of 2010 will be concentrated in health care, temporary
agencies, and professional services. An additional 11,000
manufacturing jobs are expected to be lost in 2010. Hiring in
retail and manufacturing should increase in late 2010 and
2011.
3)The next economy : In defining the post-recession economy,
think tanks, such as the Brookings Metropolitan Policy
Program, suggest policy makers look to four key trends.
First, the next economy is expected to be more export
oriented. Second, it will be driven by new, lower-carbon
energy sources. Third, the next economy will be based on a
high level of global innovation, which will require "a
relentless pace of innovation, adaptation, and embracement of
new markets and processes-by no means a return to the past."
The fourth key trend is that the next economy will be led by
metropolitan areas - not nations and not states. Metropolitan
areas will have to have the ability to compete with a network
of more sophisticated, hyperlinked, and globally-connected
metropolitan economies.
The federal government has recognized its own role in
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intentionally setting the US on the fast track to the next
economy. Federal funds, such as those from the Economic
Development Administration, have become available for states
and metropolitan areas to help make the transition to a more
export-oriented, lower-carbon, innovation-fueled economy.
4)Manufacturing incentives in other states: California
communities are is competition in attracting and retaining
manufactures. Below are three nationally recognized state and
regional initiatives that target manufacturing and business
development.
a) Chickasaw Trail Economic Development Compact (MS/TN) :
The purpose of this compact is to promote the development
of an undeveloped rural area of Marshall County, Miss., and
Fayette County, Tenn. It creates a development authority
which incorporates public and private partnerships to
facilitate the economic growth of such areas by providing
developed sites for the location and construction of
manufacturing plants, distribution facilities, research
facilities, regional and national offices with supportive
services and facilities, and to establish a joint
interstate authority to assist in these efforts.
b) Michigan SmartZones : The program consists of
collaborations among universities, industry, research
organizations, government and other local institutions and
has resulted in regionally based high-tech zones which
target growth in a specific economic sector that fits the
geographic region's strengths and needs, creating clusters
of high-skilled, high-paying jobs.
c) Ohio Business Gateway : This program is a web-based
filing and payment system that allows business taxpayers to
file and pay various state level taxes to different state
agencies electronically at one web site for free. The
program is designed to provide a "one-stop shop" for
businesses to comply with a variety of state agency tax and
reporting requirements, including sales tax, employer
withholding, worker's compensation, unemployment
compensation and unclaimed funds.
d) Arizona Clean Technology Credit : The goal of the new
program (enacted in 2009) is to encourage business
investment that will produce high quality employment
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opportunities and enhance Arizona's position as a center
for production and use of renewable energy products. The
program offers two benefits: up to a 10% refundable income
tax credit and up to a 75% reduction on real and personal
property taxes, for companies that are primarily engaged in
the manufacturing of or headquarters for producing systems
and components that are used or useful in manufacturing
renewable energy equipment. The company must also be
expanding or locating in Arizona; create fulltime
employment positions of which at least 51% are paid at
least 125% of the state's annual median wage (currently
$30,940); offer to pay at least 80% of the health insurance
costs for all net new fulltime employment positions; and
spend at least $250,000 in qualifying investments during
each twelve-month period.
e) Missouri Life Science Trust Fund : In 2007, Missouri's
General Assembly approved the $13.4 million funding of the
Missouri Life Sciences Research Trust Fund to enhance
research capacity and transform research into commercial
life science technology. In conjunction with Missouri's
universities and industry, $10.5 million was awarded for
research grants and $2.6 million for commercialization
grants. This Trust Fund is in addition to $15 million the
state earmarked to the Missouri Technology Corporation
(MTC) for various programs designed to improve
commercialization of Missouri technologies.
5)Defining a revolving loan fund : AB 2437 proposes to establish
a revolving loan fund (RLF) for larger size tangible and
intangible manufacturing businesses, administered by the State
Treasurer's Office through its financing authority dedicated
to the promotion of industrial development.
The RLF is a gap financing model that is designed as a
self-replenishing pool of money, utilizing interest and
principal payments on old loans to issue new ones.
Historically used for the development and expansion of small
businesses, some states are now looking to use the RLF model
to support larger size businesses that are looking for
alternative ways to access capital in these difficult
financial times.
The state has been administering a RLF through the Department
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of Housing and Community Development for more than a decade,
dedicated to providing loans to small size businesses in small
and rural communities.
Access to a RLF can be an important step toward obtaining
conventional private financial sources. Often the RLF is a
bridge between the amount the borrower can obtain on the
private market and the amount needed to start or sustain a
business. For example, a borrower may obtain 60 to 80% of
project financing from other sources.
Typical uses for RLF loans include operating capital,
acquisition of land and buildings, new construction, facade
and building renovation, landscape and property improvements,
and machinery and equipment.
According to the Council of Development Financial
Institutions, capitalization for a RLF program usually comes
from a combination of public sources, such as the local,
state, and federal governments, and private ones like
financial institutions and philanthropic organizations.
Funding acquired for capitalization is usually the equivalent
of a grant, i.e. it does not need to be paid back. State and
local governments often use one or a combination of funding
sources to capitalize an RLF including, but not limited to,
tax set-asides, general obligation bonds, and direct
appropriations from the state legislature. The federal
government is another common source of capitalization
including the Economic Development Administration.
6)Federal funding for manufacturing : In 2009, Senator Sherrod
Brown (D-OH) introduced the IMPACT Act, which was incorporated
into the House approved energy bill. The IMPACT Act
provisions help to create clean energy jobs by supporting
manufacturers' transition to the clean energy economy. A
total of $30 billion could be distributed to states to
establish revolving loan funds to assist small and
medium-sized firms in retooling, expanding or establishing
domestic clean energy manufacturing operations, and in
becoming more energy efficient.
The Hollings Manufacturing Extension Partnership (MEP), a
division of the Department of Commerce's National Institute of
Standards and Technology, would also receive $1.5 billion in
federal funds over five years, under the IMPACT Act
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provisions, which would be used to help manufacturers access
clean energy markets and adopt innovative, energy-efficient
manufacturing technologies.
In addition, US Representative Daniel Lipinski (D-IL)
introduced HR 4692, the National Manufacturing Strategy Act of
2010, which requires the President to prepare a quadrennial
National Manufacturing Strategy, and for other purposes. The
measure, introduced February 2010, already has 36 co-authors
including California Congress members Brad Sherman and Linda
Sanchez.
The Administration has also been moving forward on new
manufacturing initiatives with the December 2009 release from
the Office of the US President, "A Framework for Revitalizing
American Manufacturing." In February, the Obama
Administration launched a $130 million initiative - the Energy
Innovation Hub - to spur regional growth through making
buildings more efficient. Seven federal agencies issued a
combined funding announcement to create a single regional
research center to develop and commercialize new building
efficiency technologies. Similar Innovation Hub announcements
are expected for other innovative technologies.
Greater targeting of federal funding is expected following a
March 17, 2010 hearing by the House Subcommittee on Science
and Technology, where much of the discussion centered on the
funding priorities for the agencies overseen by the committee,
including the National Science Foundation, the National
Institute of Standards and Technology, the Manufacturing
Engineering Laboratory, the Manufacturing Extension
Partnership and Technology Innovation Program.
AB 2437 would establish a manufacturing loan and loan
guarantee program to help ensure California remains
competitive as the federal government rolled out new and
expanded funding programs.
7)Manufacturing Report : According to a June 2010 report by the
Milken Institute, "Manufacturing 2.0: A more Prosperous
California," the challenges in the manufacturing industry
serve as an early warning of the challenges facing the state's
economy as a whole. The report finds that while manufacturing
still drives the state's economy, California's competitive
position is losing ground to other states and nations based on
its regulatory climate, tax burden and reputation as a
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difficult and costly place to do business. One of the
report's key findings was that California is losing a larger
share of manufacturing employment and at a faster rate than
other states.
The chart to the left [graphic removed] illustrates the point
made in the report, that California is losing its competitive
position relative to other states.
In addressing these challenges, the report recommends the
state develop a new cooperative relationship that undertakes
the following:
o Streamlining the regulatory procedures for manufacturers
and increase transparency and accountability in the
regulatory process;
o Enhancing public incentives through better planning,
coordination across government agencies and partnering with
the public sector;
o Launching an industry-led campaign to encourage
Californians to pursue careers in manufacturing;
o Creating a network of training, research and business
incubation centers around state and to assist in business
start-ups.
o Creating a public-private initiative to conduct
research, develop new technologies and commercialize more
efficient and environmentally sustainable manufacturing
practices .
1)Author's amendments : Staff understands that the author will
offer the following amendments:
a) Specify that full funding, including administrative must
be available prior to the activation of the program.
b) Make related amendments to the general authority of the
CIDFAC.
c) Correct a technical error by replacing $10,000 with $10
million as the maximum loan guarantee amount.
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2)Related Legislation : Below is a list of related bills from
the current and previous session.
a) AB 1009 (VM Perez) - Industrial Development Financing:
This bill modifies statute related to the California Debt
Limit Allocation Committee (CDLAC) and CIDFAC to allow
these entities to allocate, issue, and collect data on the
new types of bonds authorized under the American Recovery
and Reinvestment Act of 2009. Status: Signed by the
Governor, Chapter 648, Statutes of 2009.
b) AB 1107 (Arambula) - Goods Movement and Small Business
Development : As passed by JEDE, this bill requires the
California Small Business Board within the Business,
Transportation and Housing Agency and in collaboration with
the Labor and Workforce Development Agency and the
California Department of Food and Agriculture to assess the
goods movement needs of small business and microenterprise
in California, and to make recommendations thereupon, for
incorporation in the California Economic Development
Strategic Plan and in the State Transportation Plan.
Status: JEDE-related content removed. Bill was vetoed by
the Governor.
c) AB 1420 (V. Manuel P?rez, Portantino and Block) -
Inventory of Innovation Infrastructure : This bill requests
the California Council on Science and Technology and the
California Space Authority to seek funding to expand their
inventory of the state's innovation infrastructure
including university research facilities, private research
parks, manufacturers and incubators. The current inventory
covers innovation resources in 13 of California's 58
counties, providing an on-line interactive database that
links researchers and businesses to global innovation
networks. Status: The bill is pending in Senate Rules
Committee awaiting assignment to a policy committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation (sponsor)
California State Pipe Trades Council
State Association of Electrical Workers
Western State Council of Sheet Metal Workers
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Opposition
None known
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090