Amidst Predictions for Slow Economic Recovery, California Takes Measures to Spur Economic Development
California is confronting its economic challenges head on as it continues to be a state of superlatives in terms of its potential for growth. The big gold rush ahead may just lay in green tech.
Mali R. Schantz-Feld (Apr/May 10)
In spite of high unemployment and a $20 billion budget deficit, California’s officials are positive that an economic rebound is not far away. After all, historically, California is the place where stars are born, where research and development in futuristic technology becomes reality, and now, where “green” possibilities are promising to color the Golden State with a brighter economic outlook.
At a recent solar cell plant opening, Governor Schwarzenegger ruminated on the evolution of the state’s industries: “Three decades ago, it was the aerospace industry that propelled and powered our economy. Then it was the computer industry that did exactly that and really pushed our economy forward and created great revenues for the state. And now it's clean technology; that's the next wave. And that's why The Wall Street Journal has already said that this is California's new Gold Rush — green technology.”
The Economic Forecast
Economists predict slow, but eventually meaningful improvements in several industry sectors. UCLA Anderson Forecast Senior Economist Jerry Nickelsburg has noted that the economic outlook for the balance of 2010 is for little or no growth in the state, with the economy picking up speed slightly by the beginning of next year, and more normal growth rates for California expected by the middle of 2011. He added that “the keys to California’s recovery are a growing demand for manufactured and agricultural goods from outside the state; the recovery of U.S. consumption, which increased the demand for Asian imports and for products from California’s factories; increased public works construction; and increased investment in business equipment and software.”
Six industry clusters currently impacting the state’s economy are biosciences (pharmaceutical firms, medical laboratory research, and biomedical instrument manufacturing), computers and semiconductors, information technology, telecommunications (communication services and equipment manufacturing), aerospace, and agriculture.
In its first quarterly report for 2010, the UCLA Anderson Forecast called for employment in 2010 to climb but not to exceed last year’s levels. Once employment growth returns in 2011, employment will begin to grow faster than the labor force at a 2.3 percent rate and the unemployment rate will begin to fall. Real personal income growth is forecast to be 1.3 percent in 2010 and 3.7 percent in 2011, and 4.5 percent in 2012. The unemployment rate — currently at 12.5 percent — will fall slowly through the balance of this year and should average 11.8 percent for 2010. Though the state’s economy will be growing, it won’t be generating enough jobs to push the unemployment rate below double-digits until 2012.
California Take Away's
• Is one of the 10 largest economies in the world with a gross state product of over $1.8 trillion
• Was ranked as the eighth-largest economy in the world In 2008 by the International Monetary Fund
• Represents 13 percent of U.S. GDP
• Is home to 51 Fortune 500 companies, more than all but two states
• More than 15,000 miles of highways and freeways
• 12 cargo airports and 11 cargo seaports
• 18 foreign-trade zones and 42 enterprise zones
• Location on the Pacific Rim that gives businesses access to the global economy and one of the largest trade networks of any state:
• 51 percent of green businesses plan to grow in 2010, compared to 39 percent of traditional businesses
• 77 percent of green businesses and 65 percent of traditional ones plan to expand their green business practices
GoED: A One-Stop Shop
This April heralded the debut of California’s new Office of Economic Development (Go-ED), dedicated to cutting through the red tape and streamlining bureaucracy. At its opening, Governor Schwarzenegger recognized the financial clout behind the Golden State — citing it as “one of the largest economies in the world with a gross state product of over $1.8 trillion.”
While costs may not always be the lowest compared to other states, the Governor noted that California’s other attributes compensate for the financial drawbacks. At the GoED opening, he explained, “I think that the good news also is that California is the best place to do business. It's not always the cheapest place to do business, but do you make your decisions just based on what is the cheapest place, or what is the best place?…And we all know that property is more expensive in California, we all know that energy is more expensive than in other states. But you can do more business, you can do more growth, there are more revenues coming in and so on.”
The new GoED office coordinates “more than 100 programs across 28 state departments …creating basically one office, a one-stop shop, a concierge service, so to speak, in order to make it easy,” Joel Ayala, GoED’s new director said. “By creating the California Governor’s Office of Economic Development, Governor Arnold Schwarzenegger has made it very clear that he wants California to make it easier to do business and help with the state’s economic recovery. GoED represents a critical step in engineering an economic turnaround for California and reestablishing the state’s position as an economic powerhouse. GoED will work tirelessly to make it easier to do business in California; we will leverage all resources to benefit those interested in running, expanding, or keeping businesses here. California is, after all, a place where economic resilience and entrepreneurial spirit thrive, and where innovation, inspiration, and opportunity can be accessed.”
Incentives For New and Existing Business
Several incentives should pique the interest of potential project developers and retain interest of existing firms.
The California Jobs Initiative includes a $500 million employer hiring incentive that will retain Californians’ jobs and give employers increased flexibility to adapt to the changed economy. The incentive is equivalent to the state paying half the payroll tax for each new employee for a year. This is expected to result in up to 100,000 new or retained jobs and provide training to 140,000 individuals to qualify them for better jobs.
Another incentive, the Innovation Hub (iHub) initiative is expected to enhance the state's national and global competitiveness by stimulating partnerships, economic development, and job creation around specific research clusters in locations including Livermore, Orange County; San Francisco; Sacramento; Sonoma County; and Coachella Valley. The iHub designees will provide a foundation for research clusters, startup companies, government entities, business groups, and venture capitalists by leveraging assets such as research parks, technology incubators, universities, and federal laboratories to foster innovation and job creation statewide.
The national focus on cleaner industry has been a long-term consideration for Californians, and the solar industry recently has provided some rays of hope. A report funded by the U.S. Commerce Department’s Economic Development Administration (EDA) in collaboration with the University of California Berkeley’s Center for Community Innovation, noted that businesses in renewable energy and alternative fuels, green building and energy-efficiency technology, energy-efficient infrastructure and transportation, and recycling are growing faster than the rest of the economy.
While California’s green economy accounts for just 1 percent of jobs in the state, it is growing about 50 percent faster than the rest of the economy overall. The report goes on to say that green and cleantech innovation is highly concentrated in several California regions, including the Silicon Valley, San Diego, the East Bay, and Los Angeles, and that green job growth is fastest in the more distressed inland regions.
In contrast to traditional firms that often seek larger subsidies, green industries rely more heavily on local markets and networks, grow in response to regulation, and expand with the support of state and city programs; therefore, “they need to build their own green markets with the support of state and city programs, rather than trying to attract big firms through large subsidies,” says the report.
Legislation has recently been enacted for a green-tech manufacturing equipment sales tax exemption. SB 71, part of the Governor's California Jobs Initiative, is a legislative package that hopes to create or retain 100,000 jobs statewide. Solar cell-supplier Calisolar has benefited from this legislation for its new manufacturing facility in Sunnyvale. The firm plans to expand its work force from 150 to 250 employees. The project has also been awarded a 48C Clean Energy Manufacturing Tax Credit of $51.6 million as part of the American Recovery and Reinvestment Act and $4 million in National Renewable Energy Laboratory (NREL) support through the Photovoltaic Technology (PV) Incubator program.
“Green Corridor” Investment
The focus on solar energy is not just a recent development. Kyocera Solar U.S.A. was on the forefront of the trend as the first Japan-based corporation with manufacturing operations in California as far back as 1971. Now, the Kyocera Group of companies currently employs approximately 4,000 people in the United States, with three out of seven of its North American companies headquartered in California. Cecilia Aguillon, director of market development and government relations for the firm, recently explained why the company decided to embark on its new photovoltaic module assembly project in San Diego: “California has the largest solar electric market in North America. Naturally, it is ideal to manufacture in or as close as possible to our major markets…Since Kyocera has a manufacturing facility in San Diego, it made sense for us to expand our solar manufacturing operation in a place where we have a building and logistical operations in place.”
The facility is expected to begin manufacturing modules in June. Aguillon noted that the state’s incentives demonstrate support for this industry: “The Governor has recently signed a bill to expand the photovoltaic market through feed-in tariffs (SB 32). This convinced us that the state is thinking and moving towards accelerating our market.”
Aguillon explained that the feed-in tariff program is set by the state/county or utility company and allows building owners to install photovoltaic systems and sell the energy to the utilities at a set price for a set number of years. Aguillon reflects her company’s confidence in this sector’s expansion: “The North American markets are growing fast and it was time to expand manufacturing to keep up with demand.”
Another solar firm, N Solar Inc., a Seoul, Korea-based IT equipment and solar cell manufacturer and business services provider, is locating its North American headquarters and first solar module manufacturing plant in Sacramento County. Manufacturing is scheduled to begin in the fourth quarter of 2010; the plant will initially employ 100 workers and build its work force to 150 over 18 to 24 months.
Also in the state’s “green corridor,” Bayer HealthCare is investing upward of $100 million at its Berkeley biotech manufacturing center to develop a new manufacturing process for the creation of future versions of Bayer’s hemophilia drug, Kogenate® FS. The investment, the largest by Bayer HealthCare in Berkeley to date, will be made over the course of the next four years on facility upgrades, new equipment, and state-of-the-art technologies. The Berkeley site has been ISO 14001 compliant since 2001 (Bayer’s first North American site to earn this environmental rating), has a model auto-use reduction program and a recycling program, and contributes to local education, environmental, and patient-advocacy charities.
Even manufacturers are getting in step with environmentally conscious options. Shoe company Skechers broke ground on its 1.8 million-square-foot North American Operations headquarters in Rancho Belago, in Riverside County. Upon completion next year, the facility will be the largest Leadership in Energy and Environmental Design (LEED) certified building of its kind in the nation; it will create 1,100 construction jobs and 3,000 permanent jobs in the local area. Additional phases are already planned that will ultimately expand the headquarters to 2.6 million square feet.
State of Superlatives
To serve its industries, California’s infrastructure projects seek to improve current distribution channels and speed up travel options. Plans are on-track for a high-speed train system that will be funded by a grant of $2.25 billion in federal stimulus funds and a $9.95 billion state bond commitment. The project, which will be the largest public works project in the nation when it breaks ground in 2012, is estimated to create 450,000 permanent jobs statewide when completed.
In addition, the Governor recently announced that California was the first state in the nation to obligate $1 billion of Recovery Act funding to transportation infrastructure projects. Getting these plans on the road has already begun with groundbreaking on the construction of one of the largest highway projects in the nation along I-405 that is anticipated to create an estimated 18,000 jobs.