Monday, May 3, 2010

Manufacturing can propel state forward -- if politicians act

By Michael Ammann
Posted: 05/02/2010 01:02:53 AM PDT

As Sacramento politicians grapple with a $20-plus billion deficit, there is a growing disconnect between a thriving private-sector economy and the dysfunctional financing of government services.

The latest example of this disconnect is the automotive industry's departure as a California economic force. The last vehicle production facility (NUMMI-Toyota) closed in March, resulting in the closure by all California auto suppliers with an estimated loss of 20,000 production jobs.

The continued debate of whether to make drastic cuts to state government versus painful tax increases has set in at the Capitol with the same old rhetoric that has gotten us nowhere.

Those running for office, especially the gubernatorial candidates, need to focus on ways to get our economy growing with a strong competitive state economic development program that partners with local economic development organizations. This is in the interest of all Californians, particularly Solano County, where unemployment has reached more than 13 percent and may go higher.

Even with Solano's strategic location, skilled and trained work force, which makes the county's communities an ideal location for expanding high-wage manufacturing firms, cannot overcome California's negative business investment climate.

There is a continued inaction by the Legislature, producing unresolved growing structural budget deficits. The outcome is few and unclear business investment incentives, resulting in a "wait-and-see" attitude about expanding -- or, even worse, decisions to relocate out of state.

If you question this, just try to convince an out-of-state friend or business associate to make a business investment or consider moving into California. You'll quickly learn how difficult it is to attract investment and talent to California.

Jobs and the economy have topped every opinion poll for the past 18 months. It is only logical that the Legislature and candidates for state offices address the issues that are most important to residents: Jobs. Jobs. Jobs.

There are opportunities: the biotech industry, for example. Biotech has skilled labor. It's labor- intensive and provides high wages. Biotech is crucial to California's and Solano County's economic future. A recent survey by the California Healthcare Institute and PricewaterhouseCoopers LLP forecasts good and bad news.

Good news: Biotechnology companies expect to maintain or add jobs over the next two years. Of the 200 biomedical employers surveyed for the report, 92 percent of companies see revenue growth and plan on expanding their research and development investment.

Bad news: Two-thirds of the survey's respondents expect to increase out-of-state manufacturing as opposed to growth within California. To further exacerbate our concerns, nearly 6 of 10 indicated they will grow their research and development departments outside of California.

With Genentech/Roche, Bio-Rad, ALZA and Novartis among the leading employers in Solano County, I am increasingly concerned that our state leaders are not doing enough to promote growth within our state. While policymakers have long seemed content to watch California's manufacturing base whittled away, they have also assured Californians that, as long as we remain the leader in venture capital and research, our state will continue to prosper. However, this report should undermine this sense of complacency.

This report, coupled with our state's terrible economic situation, should be a serious wake-up call.

Our state cries out for a comprehensive, consistent economic development policy, plan and staffing. While our Legislature has seen the importance in providing incentives in situations, their success has been limited to clean energy. Creating forward-looking plans to promote economic growth and jobs is something this state has been waiting on for several administrations.

The launching of the centralized Governor's Office of Economic Development (GoED) office this month is too little, too late, and most likely will not survive or thrive in the next administration. Meanwhile, the Legislature is developing bills that sunset for all investment incentives, including tax credits, deductions and exemptions, and caps how much can be claimed each year, thereby creating substantial uncertainty for employers and discouraging future investment in the state.

The final key to revitalizing California's economy is to streamline regulations so that the entitlement process actually "entitles" investment that expands businesses that hire unemployed people.

Regulatory reform will bring investment and payrolls to provide new tax and fee revenues to Solano communities.

The author is the president of the Solano Economic Development Corporation.