BILL ANALYSIS
AB 2734
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Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 2734 (John A. Perez) - As Amended: April 8, 2010
SUBJECT : Governor's Office of Economic Development
SUMMARY : Establishes the Office of Economic Development (ED
Office) within the Governor's Office for the purpose of serving
as the lead entity for economic strategy and marketing of
California on issues relating to business development, private
sector investment and economic growth. Specifically, this bill :
1)Establishes the ED Office within the Governor's Office. The
Office includes a number of new and existing economic
development programs and services including a newly
established 11-member Economic Development Council (Council),
the existing California Business Investment Services Program,
and the existing Office of the Small Business Advocate (OSBA).
The Office is under the control of a Secretary, who is
required to be confirmed by the Senate. Among the Office's
required duties are:
a) Preparing, in conjunction with the Council, a five-year
strategic plan to guide the state's activities and
investments relative to economic and workforce development,
maintain an Internet website for public dissemination of
the plan and other specified information.
b) Making, in conjunction with the Council, recommendations
to the Governor and Legislature on new state policies,
programs and actions, as well as amendments to existing
programs for the purpose of advancing statewide economic
goals, respond to emerging issues, and ensure that all
state policies and programs conform to the adopted state
economic and business development goals.
c) Assist the Department of Finance in preparing, as part
of the annual state budget, an integrated program of
priority actions to achieve statewide economic goals and
objectives.
d) Coordinate the development of policies and criterion to
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ensure that federal grants administered or directly
expended by the state advance statewide economic goals and
objectives.
e) Market the business and investment opportunities
available in California by working in partnership with
local, regional, federal and other state public and private
institutions to encourage business development and
investment in the state.
2)Specifies that the purpose of the Council is to develop a
vision for economic growth and a strategic plan that leverages
the state's economic development programs with local,
regional, federal public and private efforts. In undertaking
this work, the Council is authorized to make policy and fiscal
recommendations to the Governor and Legislature on issues
related to economic and workforce development.
3)Specifies that the Council will meet upon the call of the
Secretary and requires that the Council meet at least twice a
year. The membership of the Council is as follows:
a) The Secretary, who also serves as the chairperson.
b) The Secretary of Labor and Workforce Development.
c) The Secretary of Business, Transportation and Housing.
d) The Secretary of Food and Agriculture.
e) Four persons appointed by the Governor.
f) One person appointed by the Speaker of the Assembly.
g) One person appointed by the Senate Rules Committee.
h) The Director of the Office of Small Business Advocate.
4)Requires that the Governor's appointees generally reflect the
state's population as to gender, ethnicity and geographic
residence, and that each of the appointees also represent at
least one of the following categories: local government,
small business, manufacturing, economic development, labor and
finance.
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5)At least six of the Members of the council are required to be
from the private sector and at least one from a rural area.
Appointees serve without compensation, but they may be
reimbursed for travel expenses.
6)Requires the five-year plan to include, among other things,
times, goals, objectives and recommendations for implementing
a comprehensive economic and workforce development strategic
plan; measurable outcomes and timelines; and funding options.
Key elements in the plan include the assessment of current and
emerging trends in the state's nine economic regions and
challenges in attracting private capital to communities along
the border areas and in emerging domestic markets.
7)Establishes the California Business Investment Services
Program (CalBIS) under the direct authority of the Secretary,
for the purpose of serving employers, corporate executives,
business owners, and site location consultants who are
considering California for business investment and expansion.
CalBIS is required to have a well-advertised telephone number,
an interactive website, and have the ability to convene strike
teams on key business development situations. Among other
things, the CalBIS is required to provide:
a) Economic and demographic data.
b) Financial information, and helping linking businesses
with state and local public and private programs.
c) Workforce information, including labor availability, as
well as training and education programs.
d) Transportation and Infrastructure information.
e) Assistance in obtaining state and local permits.
f) Information on tax credits and other incentives.
g) Permitting, siting and other regulatory information
pertinent to business operations in California.
8)Requires the Secretary to work collaboratively with local,
regional, federal, and other state public and private
marketing institutions and trade organizations in attracting,
retaining, and helping businesses grow and be successful in
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California.
9)Eliminates the Economic Strategy Panel (ESP) with all of its
duties being transferred to the Council.
EXISTING LAW
1)Requires the Governor to prepare the Environmental Goals and
Policy Report 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.
2)Establishes the ESP, chaired by the Secretary of Labor and
Workforce Development (LWD), for the purpose of developing an
overall state economic vision and strategy that can guide
public policy, including an examination of the state's
economic regions, industry clusters, and cross-regional
economic issues.
3)Establishes the Office of the Small Business Advocate within
the Governor's Office of Planning and Research for the purpose
of supporting small business development in the state.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's purpose : In February 2010, the Little Hoover
Commission released a report entitled Making up for Lost
Ground: Creating a Governor's Office of Economic Development .
The report analyzed the status and effectiveness of the
various pieces of the defunct Technology, Trade and Commerce
Agency that had been reorganized into other state entities.
The report recommended the creation of a new governmental
entity to fill the void left by the dismantled agency. It
called for a single agency that would promote greater economic
development, foster job creation, and deliver specific
services (i.e. permitting, tax, regulatory, and other
information) directly to the California business community.
AB 2734 creates the Office of Economic Development within the
Governor's Office, and establishes specific tasks and duties
for the office, including developing a statewide strategic
economic plan and reorganizing such entities as the Small
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Business Advocate and CalBIS into this new office.
Ultimately, this new office will establish long-term economic
goals and strategies as well as specific and effective
services to California's businesses both large and small.
2)California's mish-mash of economic development programs : One
of the primary ways by 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 OSBA; 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 Program; the
Employment Training Panel; the California Workforce Investment
Board; the ESP; and the small business and disabled
veteran-owned business enterprise 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
reduced tax incentives and eliminated key programs and
services. California's budget problems cannot be sufficiently
addressed until the state, addresses the needs of workers,
businesses, and investors. A current economic development
strategy, as proposed in this bill, will allow the state to
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
current and future federal stimulus moneys.
Expanded descriptions of the above referenced programs can be
found in the Assembly Committee on Jobs, Economic Development
and the Economy (JEDE) white paper, California's Economic
Development Programs: Meeting the Challenges of Today's
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Economy.
3)Bringing direction and accountability into the state's
economic development activities : The challenges of bringing
together a coherent, outcome oriented economic and workforce
development program have been discussed by Assembly and Senate
policy committees since the demise of the Technology, Trade
and Commerce Agency (TTCA) in 2003.
With the elimination of the TTCA, many have opinioned that the
state lost focus and, potentially, its ability to adequately
support business development and job creation. Further
compounding the state's ability to decisively act on economic
development recommendations is the ESP's failure to meet its
statutory obligation to update the state Economic Development
Strategic Plan every two years. No economic development plan
has been prepared since 2002.
Beginning in 2005, JEDE held hearings and sponsored
legislation to, at a minimum, bring greater coordination of
existing state programs and services and call for an updated
economic development strategy.
JEDE sponsored legislation in 2007 (AB 1721 [Arambula],
Chapter 631), designating the Business, Transportation and
Housing Agency as having primary responsibility for the
facilitation of economic development activities. The
following year, the Budget Act deleted this designation, once
again leaving the state with no lead agency for state economic
development activities.
Also in 2007, JEDE sponsored legislation (AB 1606 [Arambula
and Lieu]), to require the state to centralize its existing
economic development programs within the ESP, however, that
bill was vetoed by the Governor. The Governor's veto message
stated that he would be coming forward with his own
restructuring program in the following year. In 2008 and
2009, JEDE sponsored three additional bills to try to improve
coordination of programs and to better leverage private sector
dollars. Each of these bills were either vetoed or held in
the Assembly or Senate Appropriations Committee. Full
descriptions are described in the final comment on this bill.
In August of 2009, JEDE sponsored a seventh bill relating to
realigning the state's economic and workforce development
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resources, AB 1558 (VM Perez), pending in Senate Business
Professions and Economic Development Committee.
4)The Little Hoover Commission and Legislative Responses : In
February 2010, the Little Hoover Commission (LHC) completed an
extended review of the state's economic and workforce
development programs and services and released its report,
Making up for Lost Ground: Creating a Governor's Office of
Economic Development .
While the LHC heard substantial criticism about the state's
business climate during its review, this report focused on how
the state could better organize and utilize its existing
business focused and broader economic and workforce
development programs and services. The report noted that the
state's current economic development activities are spread-out
over numerous agencies, boards, commissions and financing
authorities. "More than 10 advisory panels, boards and
commissions, with more than 150 combined members from the
public and private sectors, provide guidance on how the state
should spend millions of dollars on economic and workforce
development programs. This fragmentation helps explain why
state government lacks a vision or voice for California
economic development," states the report.
Further, the LHC report states that this lack of a cohesive
vision has resulted in a leadership void that has diminished
the state's ability to coordinate state resources and evaluate
the overall effectiveness of the state's economic development
efforts. Based on its hearings and research, the LHC report
made four core recommendations:
a) The state must create a high-profile office for economic
development within the Governor's Office, to bring together
critical functions of existing state economic development
entities. The office should serve as the visible point of
contact for existing and prospective businesses and
economic development leaders at the local, state and
federal levels. Key information should be compiled and
made available through a well-publicized web site.
b) A series of Action Teams must be created within the
Governor's ED Office. CalBIS should be moved from the LWD
to the Governor's ED Office and serve as the foundation for
this more robust outreach unit.
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c) A policy unit must be created within the Governor's ED
Office to develop a statewide vision for economic growth.
Guided through bottom-up input from public and private
entities, the ED Office should take over the statutory
responsibilities ESP and develop the state economic
development strategy.
d) The Governor's ED Office must serve as an advocate for
big-picture prosperity and economic growth including
serving as a representative on the California Strategic
Growth Council and TeamCalifornia and partnering with
public and private entities, such as legislative policy
committees.
The Speaker of the Assembly, who also serves as a Member of
the LHC, introduced AB 2734 in anticipation of the release of
the economic development report. A companion bill, AB 2287
(Bass) was also introduced in the Assembly and will be heard
in JEDE on the same day. A Senate measure was also
introduced, SB 1259 (DeSaulnier), for the purpose of moving
the LHC recommendations forward. SB 1259 proposes a slightly
different structure, however, by establishing a new state
agency rather than an office within the Governor's Office.
Governor Schwarzenegger has also begun to implement the
recommendations in the LHC report and on April 8 issued
Executive Order S-05-10, which created the Governor's Office
of Economic Development. In general, policy makers can
consider the Governor's actions, as well as all of the
legislation discussed in this and the former comment, as
having similar essential concepts and clearly underlining the
importance and timeliness of moving forward on the state's
economic and workforce development activities in a more
connected and strategic fashion.
5)The California economy : California is the one of the largest
and has one of the most diversified economies in the world
with a state gross domestic product (GDP) of over $1.8
trillion in 2008. 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
from a variety of historical factors, including its:
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Strategic west coast location that provides direct
access to the growing markets in Asia, Mexico and South
America;
Economically diverse regional economies;
Large, ethnically diverse population, representing both
a ready workforce and significant consumer base;
Access to a wide variety of venture and other private
capital;
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. The chart below
illustrates the industry make-up of California's economy based
on employment. Among other economic distinctions, the state
has historically led the nation in export-related jobs, small
business development, and business start-ups.
California's economy and business profile, however, have been
shifting. As the chart below illustrates, between 2001 and
2009, there has been a significant shift from high wage jobs
with benefits to lower wage jobs, which often pay no benefits.
This shift is particularly acute in the manufacturing sector,
where it is estimated that over 473,000 jobs were lost during
that time period.
In this recession, 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 who are 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
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pre-recession peak in the first half of 2013, however,
unemployment rates are likely to remain above 8% through much
of 2014.
1)Forecast of 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.
To the extent these trends come to fruition, California should
be competitive among other states and nations to move forward
aggressively. AB 2734 provides a new framework and greater
intention toward a more strategic approach for the state's
economic development activities.
2)California's challenge and opportunity as a global competitor :
For decades, California has been known as a place where
innovation and creativity flourishes. As one of the largest
export states, exporting $120 billion in 2009, the state has
strong global connections. These advantages, however, are
eroding.
Findings in a 2007 study prepared for the Business,
Transportation and Housing Agency stated that while California
was uniquely positioned to be a preferred global partner of
certain regions of the world, particularly those interested in
innovation, science, and technology, the state also faced
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
worldwide, the newly emerging economies of China, India, and
Singapore have already made significant investments in
research and development. Emerging economies around the world
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are striving 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 2734
will direct the Office and the Council 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.
3)Possible refinements : AB 2734 consolidates a numbers of
existing programs and services. The following are a number of
issues that the author may wish to consider for the further
development of the bill.
a) Existing law requires the Governor to send the
Legislature an annual Economic Report at the same time that
the proposed budget is submitted. The Economic Report
reviews the state's current economic development
conditions, forecasts trends, and identifies policies and
actions that promote growth in employment, productivity,
income, and purchasing power of Californians. In
conjunction with the Economic Report, the Governor is also
required to outline issues and make recommendations to
increase employment and investment in the state.
Technical amendments may be useful in more closely aligning
these existing requirements with the proposed ED Office.
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b) The structure and membership of the Council is modeled
after the ESP, however, the Membership of the Council has
fewer public members, which could provide important "real
world" input into Council discussions and ensure a stronger
link between the state and private sector. Further, the
ESP also includes Members of the Legislature usually
including the chair of the economic development committee,
which can improve coordination between the Administration
and Legislature. Finally, the ESP panel has appointments
made by the Republican legislative leaders, which can help
to bring forward more bipartisan and nonpartisan
recommendations.
c) While much of the work of CalBIS relates to helping to
attract global companies and international private
investment to California, the bill does not shift the core
international trade functions to the new Office.
4)Related legislation : Below is a list of related legislation.
a) AB 699 (Portantino and V Manuel Perez) - Demand and
Update State Economic Strategy 3 : Updates the requirements
for the development of a State Economic Development
Strategy, especially in the areas of technology and
innovation, and requires it be submitted to the Legislature
by May 1, 2010. Status: Held in Assembly Appropriations
Committee in May 2009.
b) AB 1558 (V Manuel Perez) - EDD Reorganization Model :
This bill realigns the state's economic and workforce
development programs within the Employment Development
Department, to be renamed the Economic and Employment
Development Department. Status: Pending in the Senate
Business, Professions and Economic Development Committee.
c) AB 1606 (Arambula and Lieu) - ESP Reorganization Model :
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.
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d) AB 1721 (Arambula) - Designates BTH as Lead on Economic
Development : 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.
e) AB 1916 (Portantino, Arambula, Price, Salas, and
Caballero) - Demand and Update Economic Strategy 2: This
bill updated the membership and requirements of the ESP,
especially in the areas of technology and innovation, and
required that the next State Economic Development Strategy
be submitted to the Legislature by January 1, 2010.
Status: Vetoed by the Governor in 2008.
f) AB 2287 (Bass) - Office of Economic Development and
CalBIS : This bill establishes the Office of Economic
Development, which includes the California Business
Investment Services Program, within the Governor's ED
Office. Status: Pending in JEDE.
g) AB 2595 (Arambula) - State Manufacturing and Logistics
Strategy : 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 the Governor in 2007.
h) AB 2711 (Portantino, Arambula, Price and Salas) - State
Technology and Innovation Strategy: This bill required the
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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 in May of 2008.
i) SB 1259 (DeSaulnier) - Economic Development and Job
Creation Agency: This bill creates the Economic
Development and Job Creation Agency and requires the new
agency to perform duties relating to economic development
and job creation. It requires the secretary to develop a
reorganization plan and propose a structure for the agency.
Status: Pending in Senate Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090