BILL ANALYSIS �
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|Hearing Date:July 2, 2012 |Bill No:AB |
| |1646 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 1646Author:Campos
As Amended: June 25, 2012Fiscal: Yes
SUBJECT: California Demonstration of Emerging Market Opportunities
Act.
SUMMARY: Establishes the California Demonstration of Emerging Market
Opportunities Program (CalDEMO Program), within the Governor's Office
of Business and Economic Development (GO-Biz), for the purpose of
facilitating agreements with for-profit and non-profit organizations
to use state facilities and other resources to test and deploy at
scale innovative products, services and processes.
Existing law:
1)Creates within the Governor's Office, the Governor's Office of
Business and Economic Development, also known as "GO-Biz," which
shall be administered by a Director appointed by the Governor.
(Government Code (GC) � 12096.2)
2)Requires that the office serve the Governor as the lead entity for
economic strategy and the marketing of California on issues relating
to business development, private sector investment, and economic
growth, and would authorize the office to exercise various powers,
including, among others, making recommendations to the Governor and
Legislature regarding policies, programs, and actions to advance
statewide economic goals. (GC � 12096.3)
3)Creates the California Business Investment Services Program, as
specified, within the office, under the authority of the director,
for the purposes of serving employers, corporate executives,
business owners, and site location consultants who are considering
California for business investment and expansion. (GC � 12096.5)
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4)Creates within GO-Biz the Office of Small Business Advocate (Office)
and provides that the Governor shall appoint the Director and
employees needed to accomplish the purposes of the Office. (GC �
12098)
5)Specifies the duties and functions of the Advocate including, among
other things, to serve as the principal advocate in the state on
behalf of small business, represent the views and interests of small
businesses before state agencies, enlist the cooperation and
assistance of public and private agencies, businesses, and other
organizations in disseminating information about programs and
services that can benefit small businesses and perform other
activities and outreach to small businesses, as specified. (GC �
12098.3)
This bill:
1)Expresses the following legislative findings and declarations:
a) California is home to many of the world's leading technology
companies and the state seeks to spur economic growth, including
job growth, by supporting innovation by these companies.
However, despite California leading the nation in innovation and
the number of patents filed annually, emerging small technology
businesses face myriad challenges throughout their development
process.
b) In order to achieve the desired growth, innovative businesses
require support that reaches beyond traditional business
incubators and that streamlines the commercialization of
innovative products, services, and processes.
c) The state can provide this support by partnering to provide
companies with an opportunity to demonstrate their innovative
products, services, and processes while also increasing public
awareness of these innovative solutions. This may be
accomplished by using underutilized state resources.
d) GO-Biz has launched a new, forward-thinking Innovation Hub
(iHub) initiative in an effort to harness and enhance
California's innovative spirit. The iHub initiative improves the
state's national and global competitiveness by stimulating
partnerships, economic development, and job creation around
specific research clusters through state-designated iHubs.
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e) The iHubs will leverage assets, such as research parks,
technology incubators, universities, and federal laboratories, to
provide an innovation platform for startup companies, economic
development organizations, business groups, and venture
capitalists.
2)Provides that GO-Biz shall implement and administer the CalDEMO
Program beginning January 1, 2014, and that the CalDEMO Program
shall be designed to provide businesses and non-profit organizations
with the opportunity to do all of the following:
a) Experience engaging with the state in the process of planning,
deploying, demonstrating, and maintaining their innovation.
b) Obtain high-profile public exposure for the business or
nonprofit organization demonstrating an innovative solution or
pilot project.
c) Obtain data collection on a project's real-time performance in
a public setting.
d) Demonstrate that their innovation can be deployed, operated,
and maintained in a real-world setting.
e) Demonstrate that their business or non-profit organization has
the capacity to sufficiently plan, deploy, operate, and maintain
their innovation in a real-world setting.
f) Access new markets for innovative products.
3)Defines the following terms:
a) "Demonstration project" means a project involving a request
from a business or non-profit organization to make state
resources available as a forum for testing, evaluating, or
demonstrating an innovative solution before being deployed in the
marketplace.
b) "Innovative solution" means a product, process, service, or
information technology that is new or improves upon an existing
product, process, service, or information technology. An
innovative solution shall be expected to deliver identifiable and
measurable environmental, economic, or social benefits, enhanced
performance, or increases to the overall process reliability or
control. An innovative solution shall also consist of a specific
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and identifiable research component.
c) "Demonstration agreement" means an agreement between a state
agency and a business or nonprofit organization to test,
evaluate, or demonstrate an innovative solution pursuant to a
demonstration project or pilot project.
d) "Pilot project" means a project involving a request from a
business or non-profit organization to make state resources
available as a forum for testing, evaluating, or demonstrating an
innovative solution that is currently available in the
marketplace.
4)Specifies the duties and responsibilities of an innovation
partnership coordinator with primary responsibility to review and
assist in the development of proposed demonstration agreements and
track and report about all approved demonstration agreements.
5)Provides that GO-Biz shall issue a request for proposals from
businesses and nonprofit organizations and that a business or
nonprofit organization may, at any time, submit a proposal for a
demonstration project or pilot project to the GO-Biz.
6)Specifies what the business's or nonprofit organization's proposal
shall include.
7)Specifies other responsibilities and duties of the innovation
partnership coordinator to ensure the efficient implementation and
administration of the CalDEMO Program.
8)Requires the business or nonprofit organization participating in the
CalDEMO Program, pursuant to guidance provided by the innovation
partnership coordinator and appropriate state agencies, to develop a
scope of work that sets forth details on how the demonstration
project or pilot project is to be implemented.
9)Specifies what the demonstration agreement shall include.
10)Specifies what a state agency may do to assist in the development
and implementation of a proposed demonstration agreement.
11)Requires that demonstration agreements be approved by all
participating state agencies and that GO-Biz shall provide the final
approval.
12)Provides that GO-Biz may enter into a partnership with foundations
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or private sector sponsors to solicit funding for the implementation
of the Cal DEMO Program and that it is the intent of the Legislature
that GO-Biz seek private sector sponsors and partners and
foundations to solicit funding for the implementation of CalDEMO
Program.
13)Provides that GO-Biz may enter into a memorandum of understanding
(MOU) or interagency agreement to obtain technical, scientific, or
administrative services or expertise as necessary to support the
CalDEMO Program, and may enter into an MOU with another state agency
or organization for the purpose of implementing the CalDEMO Program
and specifies reasons to enter into an MOU.
14)Provides that if at any time a representative of a business or
non-profit organization is found by clear and convincing evidence to
have falsified or withheld information that should have been
disclosed, the state agency may discontinue the project and asses a
fine of up to ten thousand dollars ($10,000) against the business or
non-profit organization for a failure to comply with these
provisions.
15)Sunsets the CalDEMO Program on January 1, 2019.
FISCAL EFFECT: According to the analysis of the Assembly Committee on
Appropriations date May 16, 2012, initial costs for developing the
program of approximately $250,000. Subsequent state costs will depend
on the number of businesses that apply. Given California has 3.5
million businesses, it is reasonable that hundreds could apply,
driving administrative costs into the low millions of dollars.
Specific costs for successful applicants could be completely defrayed
by the fee that can be charged applicants.
COMMENTS:
1.Purpose. The Author is the sponsor of this measure. According to
the Author, when a company begins operations, it uses a great deal
of its equity capital to set up its offices, hire personnel, and do
research and development. It may be several months or even years
before the company has products or services to sell, creating a
stream of revenues. This period between initial capitalization and
commercialization is known as the "valley of death," where good lab
discoveries go to die because they lack the funding necessary to
become a commercial product. Innovative businesses require support
that reaches beyond traditional business incubators and that
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streamline the commercialization of innovative products, services,
and processes.
The Author points out that according to a study conducted by the
Milken Institute entitled "California's Position in Technology and
Science 2010," California lags in critical areas essential to the
sustainability and growth of the high-technology sector. California
currently has no strategy or plan for development of its emerging
technology sector, a sector that has experienced continued growth
and supplies high-paying jobs. "Why would a young technology
company want to demonstrate their technology with the state? Early
product validation through demonstration to support
commercialization of clean technologies is crucial to moving an idea
into the marketplace," according to David Rummler, the National
Strategic Partnerships Chair of the Cleantech Open.
The Author states that there is no framework that establishes a
clear pathway for state agencies to form partnerships to evaluate
and demonstrate emerging technologies. Small business development
is central to every state agency's mission, given that state
agencies are required to have small business liaisons. Serving
small technology businesses requires a different set of tools that
this bill will make available. Innovative demonstration policies
offer an excellent framework for forming strategic partnerships
between public entities and startups and, at the same time, provide
an education for better and more effective public-private
collaborations.
2.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 eight
key dominant and emerging industry clusters including high-tech
manufacturing, biotech and clean technologies. While the report
found that the state was uniquely positioned to be a preferred
global partner in the areas of innovation, science, and technology,
the study also stated that California was facing significant
challenges from a growing talent pool in other countries and the
global redistribution of manufacturing abroad.
A number of emerging economies, including China, India, and
Singapore, have already made significant investments in research and
development, which resulted in attracting 54% of all foreign direct
investment (FDI) in Asia. Emerging economies around the world have
strived to become leaders in innovation and not merely "copycat"
economies of the United States. With software and information
technology services receiving the most FDI among all industry
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sectors, it is clear innovation-based companies will continue to
drive local, state and global economies. As one Massachusetts
Institute of Technology report states, "It is not out of the
question that they �emerging economies] 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 a
number of academic and research partnerships including agreements
with Canada and Iceland on renewable energy and other clean
technologies. This measure proposes to take the state's commitment
to its innovation based economy to another level by directly
engaging with the business and nonprofit community in the testing
and demonstration of new products, services and processes.
3.Case Study of Government as a Partner in Demonstrating New
Technologies.
In June 2008, the City of San Jose (City) adopted a framework for
engaging in and evaluating public/private technology partnerships
for the purpose of testing and demonstrating innovative products,
services and processes. According to the City's website, these
demonstration partnerships advance the community's goals related to
obtaining a more robust and green economy, as well as making its
ongoing operations more cost effective: "Through these
partnerships, we hope to create new markets and new jobs or/and
support existing local innovators; advance the City's Green Vision
and Economic Development Strategy; and educate the public about
innovative solutions."
Under the demonstration partnership agreements, the City allows
businesses to temporarily utilize City owned land, facilities,
equipment, rights-of-way and data in order to test innovative
solutions at-scale. In some instances, the City provides financial
assistance and/or absorbs some costs for project implementation.
Another key program element is the ability for the business to
request exemption from City policies.
Examples of the types of projects which the City has approved
include street lighting, electrical charging stations and a range of
energy efficiency pilots and demonstration projects. According to
the City's demonstration program manager, the program has resulted
in mutual benefits to both the companies who are able to demonstrate
the efficacy of their technologies and the City. During the past
few years, the manager reported that the City gained a better
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understanding of how technologies can be used to manage its
operational costs, lower carbon emissions through its everyday
activities and more accurately gauge return on public investment.
One of the City's first demonstration projects provided for the
installation of a Colomb electrical charging station across from
City Hall. From this first station, installed in 2009, the company
currently has stations in over 14 countries. This demonstration
project also helped facilitate other key demonstration funding from
the federal Department of Energy (approximately $34 million) and the
California Energy Commission ($4 million) to help with the final
installation of the equipment.
Other local governments in the Bay Area have adopted demonstration
ordinances including the Town of Los Gatos, the County of Santa
Clara and the City of Livermore. AB 1646 would create a similar
state program for helping businesses and nonprofit organizations
test and otherwise demonstrate innovative products, solutions and
processes at scale. Members may want to consider how a similar
state demonstration program could be integrated into this growing
network of local demonstration programs.
4.Technology Commercialization Programs. California faces competition
from other countries and states. While previously the state was the
clear leader in global innovation and technology, the past decade
has seen other regions make significant strides that can now support
technology based industries. As an example, China and Germany have
both surpassed California as the leaders in equity capital for
solar. Below are two examples of programs from other states
designed to support a vibrant and continually innovating business
sector:
a) The Utah Technology Commercialization & Innovation Program :
The purpose of the Technology Commercialization & Innovation
Program (TCIP) is to accelerate the commercialization of
promising technologies that have strategic value for Utah. The
end goal of the TCIP Program is to help drive economic
development and job creation. The program is a state funded
grant program initially adopted by the Utah Legislature in 1986
and focuses on accelerating the process of taking
university-developed cutting-edge technologies to market.
b) The Massachusetts START Program : In March 2012, the
Massachusetts Technology Development Corporation announced the
launch of a $6 million initiative to help startups commercialize
technologies developed under federal Small Business Innovation
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Research grants. As designed, the START program will provide
financial support, as well as coaching, business planning and
introductions to potential investors.
5.Expansion of GO-Biz and Reorganization. The Governor submitted to
the Little Hoover Commission (Commission) on March 30, 2012,
Government Reorganization Plan No. 2 (Plan) and presented the plan
to the Legislature on May 3, 2012. The Plan proposes to dismantle
BTH and move programs to other existing and new government entities.
There are several agencies that are proposed to be relocated to the
Governor's Office of Business and Economic Development (GO-Biz),
they include the California Infrastructure and Economic Development
Bank along with the Small Business Loan Guarantee Program, the
California Travel and Tourism Commission, the California Film
Commission and the Film California First Program.
The Little Hoover Commission had 30 days to analyze the Plan and
submit its recommendations to the Governor and Legislature. The
Legislature has until July 3, 2012 (60 days) to consider the Plan.
The Plan will go into effect on July 3rd unless the Legislature
takes an action pursuant to a resolution to disapprove the Plan with
a majority of the Members in each house voting.
On April 23 to April 25, 2012, the Commission held a series of
public hearings and received written testimony, interviewed experts
and reviewed analyses of the departments involved, including its own
previous work when relevant. On April 25, May 11 and May 22, 2012,
the Commission also held three public hearings to develop and
discuss its report and recommendation to the Legislature. In
regards to changes to GO-Biz, the Commission stated, "These moves
are consistent with the Commission's previous recommendations, and
the Commission endorses them as they should bolster the state's
economic development efforts."
6.Related Legislation. AB 29 (J. P�rez, Chapter 475, Statutes of 2011)
establishes the GO-Biz 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.
AB 2506 (V. Manuel P�rez) authorizes a comprehensive set of
enhancements to tax incentive programs and administrative procedures
including a manufacturing sales tax exemption, increased R&D credits
and secondary education donation credits for the purpose of creating
jobs and supporting innovation-based businesses. The bill was
referred to Assembly Committee on Business, Professions and Consumer
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Protection but was not set for hearing by the Author.
AB 2711 (Portantino, Arambula, Price and Salas) of 2008, would have
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. The
bill was held under submission in the Assembly Committee on
Appropriations.
7.Arguments in Support. Technology Association of America
(TechAmerica) believes this measure will allow emerging technology
first the opportunity to enter into demonstration agreements with
the state to demonstrate innovative solutions for pressing state
issues, and in doing so, help spur further growth in California's
technology sector. TechAmerica further believes this bill would
facilitate the continued development of California's emerging
technology sector by establishing a framework for technology firs to
enter into demonstration agreements with the state. "These
demonstration agreements will offer technology firms high profile
experience developing a scope-of-work, deploying, operating, and
maintaining their innovative products."
The Silicon Valley Leadership Group (SVL Group) is in support of this
measure for similar reasons as stated by TechAmerica but also
believes that firms that enter into these demonstration agreements
will gain high profile validation that there innovative products can
be successfully deployed in the market, that there can be validation
of new markets for the demonstrated innovation and a measure of
validation that innovation is effective and capable of achieving the
desired outcome. "This will assist innovative firms in unlocking
access to new sources of financing that may lead to
commercialization of the innovation and job creation. "The
opportunity to promote California as the premier hub of innovation;
the opportunity to improve promotion of California-based, high-tech
firms for minimal costs to taxpayers; and discovery and application
of an innovation that leads to greater efficiencies in the delivery
of state services.
SUPPORT AND OPPOSITION:
Support:
Silicon Valley Leadership Group
Switch Lighting
Technology Association of America
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Opposition:
None on file as of June 27, 2012
Consultant:Bill Gage