Author: Gino DiCaro

The 2008-09 budget cycle will long be remembered as a tipping point in California’s economy.  But will we learn from it, or will the state repeat mistakes (or make new ones as the case may be) that will continue our long-standing hold on the precipice of economic collapse?

As California stumbled into 2009 having "solved" a budget crisis just three months earlier that proved to be no real solution, the Governor, teaming with the Democratic leadership, formed California’s Commission on the 21st Century Economy, a commission who’s purpose was to evaluate the state’s outdated and volatile tax system in hopes of bringing some measure of reforms, and with it stability to the state’s revenue stream.  After 9 months, the final product provides no more answers to the state’s ills than the current system, in fact, creates even more uncertainty and unpredictability.  What it does do however, is provide an opportunity for a classic battle between academic economic theory versus boardroom/dining room economic realities.

We applaud the commission for their efforts and contributions to this seemingly herculean task of reforming the state’s tax system. I believe that most everyone understands and agrees with the fundamental need for reform.  Unfortunately, that appears to be where the similarities of thought end.

Last week, we blogged about a report released by Governor Arnold Schwarzenegger and conducted by Sanjay Varshney that quantified the regulatory costs on California’s small businesses.  The study is now being scrutinized by the press and others to determine its validity and credibility. No matter the outcome of the debate, there is no question that California is an uncompetitive place to do business in large part because of the regulatory impediments and costs.  We know the regulatory environment is killing middle class jobs. It’s too bad we don’t have regular, consistent, and independent analysis of each state regulation so we know exactly what we are up against. Let’s face it though, even if California’s regulatory costs are half what the study finds, the Governor and legislature should take immediate action to reduce the cost of regulatory impediments.

California’s manufacturing jobs declined again in August.  This month there are 2,800 less high wage middle class jobs in California that could have played a role in our  economic recovery.  The total loss since January 2001 now totals 583,000 — 31 percent of the state’s original manufacturing base at the start of this century.

While we lose these jobs, California also suffers from too many missed opportunities for new growth.  An exponential amount of companies surveying the country for competitive places to manufacture have given up on California because of costs and unpredictability.  This must be turned around with laser focused policies for competitiveness and an articulated commitment to growing middle class jobs and the economy.

One week after the close of the state’s legislative session, we can start with some important vetoes and signatures for Gov. Arnold Schwarzenegger to help keep the state’s manufacturing base afloat.  Below are some of those important bills with CMTA’s veto and signature request letters.

The President of the Association of Washington Business, Don Brunell, wrote a piece this week asking Washington state policymakers to "polish up their investment strategies for Washington’s manufacturing base" or risk California’s fate.

Brunell uses recent reports and the Milken findings to explain how California has killed and continues to kill the proverbial golden egg that it needs for its recovery and new revenues.

Even the well-read British magazine, the Economist, supported Brunell’s findings.  "Indeed, high taxes, coupled with intrusive regulations on business and greenery taken to silly extremes, have gradually strangled what was once America’s most dynamic state economy," Brunell noted from the magazine.

A great read for any policymaker: Golden State’s manufacturing image tarnished

Governor Arnold Schwarzenegger could get a Renewable Portfolio Standard (RPS) bill on his desk after the state’s legislative session ends this week.  SB 14 by Sen. Joe Simitian would deny California utilities access to the most cost-effective energy and, according to the Public Utilities Commission, raise the state’s industrial electricity costs at least 7 percent.  The Energy Information Administration states that existing rates are already 45 percent more expensive than the nation and 80 percent higher than the western region.

California industry can barely compete with its neighboring states and energy costs play a major role in that imbalance.  The AB 32 greenhouse gas law that passed in 2006 already allows the California Air Resources Board to implement RPS in a cost-effective manner.   Gov. Schwarzenegger should veto this bill because it will impose huge new costs and threaten high wage manufacturing jobs in California.

Read Letter to Gov. Schwarzenegger

Unfortunately, the Toyota portion of NUMMI (New United Motor Manufacturing Inc.) will follow GM’s path and vacate their Fremont, California manufacturing facility, despite broad support from the Assembly Jobs Committee at a Tuesday hearing.

NUMMI’s decision shows what is certain to materialize for other companies and their suppliers if state policymakers don’t produce a competitive manufacturing environment:  California facilities will be the first to go when tough economic decisions are made.  Uncertainty, regulatory costs and taxes are simply too high in California.

Dan Walters opined today that vocational skills could get a big and needed boost from SB 381, a bill that will be heard in the Assembly Appropriations committee tomorrow.   The bill simply asks that any high school requiring those courses approved by the UC and required for admissions to both UC and CSU campuses for graduation also provides career tech options for its students.

SB 381 protects curricular pathways for all students by saying ‘no’ to districts who wish to force a one-track "A-G" system on all students without providing career-preparatory coursework, too.

Take a look at this video of soundbytes from technical education students (and a teacher or two) who were recognized yesterday in the legislature.  These students show the passion and success these courses produce, as well as the impediments to real-world technical education opportunities.  Every Legislator should watch this.

Joel Makower, founder of cleantech research and publishing firm Clean Edge, recently remarked that other states are starting to "eat California’s lunch" when it comes to attracting and retaining clean technology companies. This point was called out on page 25 of the CALSTART Industry report on the state’s barriers and opportunities for economic and environmental leadership.

In the same report, venture investor, Vinod Khosla warned that high costs and slow permitting processes were threatening to drive many advanced biofuels companies out of California.

In another study recently released, the Milken institute took a look at high tech manufacturing growth. Of course many of the cleantech industries come out of this particular sector. The results were stunning when it came to California’s major competitor, Texas. Their high tech manufacturing as a percentage of GSP grew by 86 percent in 7 years. California’s grew by only 7 percent.

Recently, Stephen Colbert opined humorously that "Corn plus magic equals gasoline!"   The Contra Costa County Superior Court and environmental plaintiff’s quipped similarly last week on a Chevron upgrade and expansion, only it went something like this: "Shut down facility, retain workers, make magic."

A Chevron project that had hired approximately 1,000 temporary Contra Costa Building and Construction Trade workers was ordered to stop construction.  The facility was being upgraded for efficiency — to make 7 percent more gasoline from the same amount of light to medium crude it was already taking in.  The shut down was absurd on its own, after a 3-year long permit approval process, but it got even more nonsensical when the environmental plaintiff’s claimed that Chevron should keep the workers on payroll because the closure was not their fault.  What?  See paragraphs 11 and 13.