California Policy Summit 2020 Takeaways

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NEWSLETTER

California Policy Summit 2020 Takeaways

Quick Links 

California Trading Up: New Strategies for Trade Promotion»

Entrepreneur Support and Small Business Creation »

Resilient California Communities I: Accelerating Adaptive Buildings and Infrastructure »

Resilient California Communities II: Building Investable Cities»
 

California continues to outperform much of the nation in income and job growth due to its strength in areas such as trade, technology, and tourism. However, the post-recession recovery has not lifted all boats across the Golden State’s economic landscape.

In September 2019, the US Census Bureau reported that the state’s supplemental poverty rate was the nation’s second-highest at 18.1 percent. Massive wildfires have shown the threat of extreme climate change, and rapid increases in homelessness and housing prices represent twin sides of the state’s rising costs of living.

Nonetheless, as a laboratory for ideas and a proving ground for innovative solutions, California has many of the capabilities required to overcome these challenges through statewide regional collaboration. How do we create an economy that supports broader opportunities throughout the state? And how can leaders work together to improve housing, infrastructure, jobs, and education for all residents?

On January 23, the Milken Institute Center for Regional Economics convened more than 200 stakeholders—including local, state, and federal government officials, as well as capital allocators, entrepreneurs, and scholars—at the annual California Policy Summit in Sacramento to propose solutions to the state’s regional challenges.

The Summit consisted of a luncheon with California state officials and four invitation-only sessions that were designed to match ideas and resources in new ways that will help strengthen the state’s global leadership position.

The luncheon included two moderated discussions with prominent California policymakers and change agents, designed to provoke a broader dialogue about critical issues facing the state.

  • The first session was a discussion with Lt. Gov. Eleni Kounalakis and Controller Betty Yee, moderated by Los Angeles Times Executive Editor Norman Pearlstine. Both Kounalakis and Yee discussed the particular challenges facing California against the backdrop of rising political polarization and economic uncertainty, and how the state’s assets can help ensure continued prosperity. They also shared personal stories and their perspectives on public service as first-generation Americans and as the first and second woman, respectively, elected to each of their offices.

    CA Policy Summit Panel A
    Lunch Part A | A Conversation with California Leaders, moderated by Los Angeles Times Executive Editor Norman Pearlstine with Lieutenant Governor of California Eleni Kounalakis and California State Controller Betty Yee.
  • The second session was a discussion moderated by CalMatters Senior Editor Dan Morain among Henry Cisneros, chairman of CityView and former US secretary of Housing and Urban Development; Maria Contreras-Sweet, director and managing partner of Contreras-Sweet Enterprises and Rockway Equity Partners and former administrator of the US Small Business Administration; Kathleen Kelly Janus, senior advisor on social innovation in the Office of Governor Newsom; and Kat Taylor, co-founder and co-CEO of Beneficial State Bank. The group discussed how California is pursuing—and employing—innovative solutions to the policy challenges presented by the housing crisis, climate change, and rising levels of economic inequality.

    CA Policy Summit Panel B - group
    Lunch Part B | Featured in photo Kevin Klowden, Executive Director, Center for Regional Economics and California Center, Rebuilding the California Dream: Inclusive Economic Development for the 21st Century, moderated by CalMatters Senior Editor Dan Morain with Maria Contreras-Sweet, director and managing partner of Contreras-Sweet Enterprises and Rockway Equity Partners and former administrator of the US Small Business Administration; Henry Cisneros, chairman of CityView and former US secretary of Housing and Urban Development; Kathleen Kelly Janus, senior advisor on social innovation in the Office of Governor Newsom; and Kat Taylor, co-founder and co-CEO of Beneficial State Bank.

The invitation-only sessions focused on four crucially important issues: trade and export promotion, entrepreneurship and small business creation, climate change adaptation and mitigation, and housing and urban development.

  • “California Trading Up: New Strategies for Trade Promotion” brought together trade policy experts to discuss how to help firms take advantage of export opportunities.

  • “Entrepreneur Support and Small Business Creation” promoted a direct exchange among representatives from the financial sector, startups, incubators, and state and federal agencies regarding the need for policies to assist small business owners.

  • “Resilient California Communities I: Accelerating Adaptive Buildings and Infrastructure” provided a forum for engagement among community leaders, state policymakers, planners, and public finance experts to identify solutions to accelerate low-carbon place-making.

  • “Resilient California Communities II: Building Investable Cities” encouraged legislators and investors and representatives of the energy sector to discuss potential solutions to the state’s housing and infrastructure challenges.

As a next step, the Center for Regional Economics has put together key insights from each of the invitation-only sessions at the Summit. This summary serves as a brief guide to the main issues covered in each discussion, as well as a set of specific policy recommendations to promote further engagement in statewide regional coordination.

 California Trading Up: New Strategies for Trade Promotion

The past few years have been a tumultuous, competitive time for businesses engaging in international trade and foreign direct investment. Globalization’s allure has waned, protectionism is on the rise, and new “Industry 4.0” technologies threaten the global status quo. In response, under Gov. Gavin Newsom’s leadership, California is now planning to launch a new trade and investment program that will allow state innovators, small businesses, and entrepreneurs to continue to find ways to flourish and export their ideas and products across the world.

Discussion

  • Gov. Newsom has empowered Lt. Gov. Kounalakis as the state’s representative for international trade, and the Governor’s Office of Business and Economic Development (GO-Biz) has increased the staff and resources available to support exports.

  • No single institution can meet every need, so there’s a need for improved coordination among statewide agencies and with government officials at the local and federal levels.

  • This is an inflection point for California’s commitment to supporting exports, but without a regional trade strategy, many exporters will face increased competition, including from other US states.

  • California needs to commit to investing in infrastructure at the ports of Long Beach, Los Angeles, and Oakland, particularly given the increase in maritime traffic that has shifted to ports on the US Gulf Coast and East Coast.

  • The state government can also collect data on specific opportunities in foreign markets to help exporters with existing comparative advantages (e.g., agriculture and technology) and to help less visible parts of the state find their competitive edge.

Recommendations

  • Advocate for a strategic approach to trade at the federal level by coordinating with California’s congressional delegation in Washington as well as using the high profile available to the governor’s office.

  • Increase awareness of the value of trade at the local level, with a strong focus on increasing state legislators’ awareness of trade and export opportunities available to firms in their districts.

  • Leverage existing trade development services (including those available through the higher education system) to improve regional coordination and assist small- and medium-sized businesses (SMEs).

  • Expand the collection of additional trade data through GO-Biz surveys, including on the utilization of trade credit insurance and the growth of trade in services.
     

 Entrepreneur Support and Small Business Creation

Entrepreneurs and small businesses have been and continue to be the leading job creators in the state since the last recession. According to the United Nations, the world will need 15 million new jobs each year for the next 15 years to meet the demand of a growing working-age population. California will have to sustain an ecosystem to develop, grow, and expand small businesses to keep up with global workforce demands.

Discussion

  • Small business undergirds the strength of the California economy, but SMEs face high costs, high taxes, and high barriers to capital. It is particularly difficult for many minorities- and women-owned small businesses to access government procurement opportunities.

  • The racial wealth gap is particularly challenging given California’s identity as a majority-minority state. Many philanthropic organizations address this gap through targeted programs and funding, but they are not a substitute for policy.

  • Potential policies to improve access to capital include educating owners on financial wellness, increasing one-stop-shopping lending options, and simplifying licensing and certification processes. These should include cooperation with the US Small Business Administration.

  • Modifications to the Opportunity Zones program—such as support for place-based financing and links with affordable housing construction—can also support SME growth in under-served communities.

  • California’s film industry generates SME growth opportunities. But to remain competitive, the state needs to help build capacity to meet increased demand.

Recommendations

  • Create a state-led California SME Advisory Team to promote access to capital and investment and coordinate provider services statewide.

  • Respond to SME needs by recommending specific policy actions, mentoring service providers, and showcasing best practices through public- and private-sector engagement.

  • Propose new legislation that will identify and remove the most significant barriers to increased SME participation in state procurement opportunities, particularly for minority- and women-owned firms.
     

 Resilient California Communities I: Accelerating Adaptive Buildings and Infrastructure

For California to sustain economic growth and enhance the quality of life, stakeholders at all levels of business and policy need to reimagine investment in infrastructure with a focus on resiliency. A future-focused built environment can respond to new challenges of climate change and old challenges such as earthquakes. But communities facing different challenges also require flexible approaches to catalyze investment in resilience that will support broad-based economic growth.

Discussion

  • Climate mitigation and adaptation are two sides of the same coin, so getting resilience and adaptation right will leave more money to fund mitigation. Overall, increasing outlays on improving resilience today will save multiples of those costs—both financial and human—tomorrow.

  • Financing climate-resilient infrastructure cannot be done only through government grants—it requires both public and private tools.

  • New forms of technical assistance are essential to strengthening local capacity and coordinate funding for efficient land use and infrastructure investment. The new California budget contains several specific proposals, including the creation of four regional economic development offices to help coordinate funding.

  • California’s current affordable housing crisis has many causes, including single-family zoning, lack of access to capital, and racial discrimination. Building resilience into public housing policy not only expands access to shelter and lowers costs of living, but it also creates resilient microgrids.

Recommendations

  • Use public “green bonds” to help fund climate-resilient development projects, and make permitting timelines more transparent to assist public-private partnerships by increasing the visibility of returns on investment.

  • Expand pre-development funding to help prioritize investment in climate-resilient projects, facilitate access to capital for developers, and support local capacity to leverage state funding opportunities.

  • Consider pre-development support of 10-15 percent of project costs alongside existing low-cost financing proposals.
     

 Resilient California Communities II: Building Investable Cities

A robust housing supply and quality infrastructure are vital components of any regional strategy that aims to improve human capital and provide social mobility. Despite recent actions to address deficiencies in the housing supply, California has struggled to establish a framework for broader access, affordability, and development. The state’s complex tax scheme further exacerbates the challenge of finding sustainable solutions. Can widening the capital pool and creating a model of place-based finance help align incentives and actions to help local communities?

Discussion

  • When the state decided it was important to catalyze the construction of accessory dwelling units, state leaders passed three separate bills to facilitate the process. Creating opportunities for investment in affordable housing requires similar prioritization, giving local stakeholders a mandate to address the issue.

  • California’s current tax structure serves as a barrier to investment in affordable and middle-income housing. Residential policy locks in property tax revenue for local jurisdictions, while the development of commercial property results in higher revenues from sales taxes for cities.

  • The prolonged zoning and entitlement process at the local level is not aligned with private capital risk assessments and construction timelines.

  • Although affordable housing is a fairly safe investment due to low levels of turnover, current investment and yields remain low. Enticing the private sector to build affordable housing will require reducing risks throughout the development process.

Recommendations

  • Propose new legislation that will provide local authorities with a clear mandate to address the largest inhibitors to investment in new housing, particularly those associated with costs and prolonged timelines.

  • Increase affordable housing by lowering developer expenses. This can be done by building on public land or incentivizing remediation of contaminated lands, reducing development timelines, and building modular housing. Revisions to the California Environmental Quality Act that focus on streamlining the process for qualifying projects may also shorten affordable housing development timelines.

  • Allow regional economic development agencies to form land banks that can capture value and issue bonds to support resiliency, as is possible with Enhanced Infrastructure Finance Districts. This will help provide needed local funding for housing, microgrid, and transit construction.

  • Cultivate a pipeline of projects by creating a regional exchange to attract institutional investment. This exchange will help ensure that additional capital available from private-sector funds are aligned with state funds (e.g., new market, RD, and Opportunity Zones tax incentives) and divided among projects in the region

Published February 21, 2020