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To Sustain California’s Comeback, Look to Regional Strategies

Doug Henton / Jan 31 2013

For Release Thursday, January 31, 2013
Citiwire.net

Doug HentonEmerging from deep recession, California last year added more jobs than any state, and its economy grew faster than the nation. The legislature cut spending, and the voters decided to raise their taxes so now the state budget for next year looks to be roughly in balance.

After a period of $20 billion deficits and 12 percent unemployment, and years of education cuts, Gov. Jerry Brown has proposed increased spending for schools and universities.

How, and why did this happen?

As the national economy has recovered, so has California’s. The state government made tough choices that improved the budget situation. Credit also goes to Brown’s championing of the tax increase on the November ballot. It’s the first time since Proposition 13 – which in 1978 reduced property taxes by 60 percent – that the voters have decided to raise taxes.

Brown had promised to take revenue decisions directly to the voters. Last year, he promoted realigning some government functions to local communities and is now proposing decentralizing educational programs in this year’s budget.

But something more fundamental is happening. California is an economy of regions, and some are growing much faster than others. Silicon Valley and the Bay Area are booming. Other coastal regions, including San Diego and Southern California, are also growing rapidly, with technology, professional services, trade and tourism sectors powering this growth.

While this is good news, growth has not been consistent across the state. Job growth in inland regions is much slower. The agricultural Central Valley and the Inland Empire of Riverside and San Bernardino counties are still recovering from the housing and construction collapse and have significantly higher unemployment than coastal regions. While the San Jose metro area of Silicon Valley had the nation’s fastest job growth last year, the Modesto metro area in the Central Valley had the nation’s slowest. In December, the San Francisco region’s unemployment was 6.5 percent; unemployment in Imperial County near Mexico was 25 percent.

These divisions represent a major challenge for the state. While coastal and inland regions have complementary assets that could play critical roles in a healthy statewide economy, the recovery’s unevenness suggests economic growth is not leveraging the strengths of all of California’s regions.

This is where the California Economic Summit can play a role. The summit, organized by the California Stewardship Network and California Forward, brings together regional leaders to set state priorities.

The California Stewardship Network, an alliance of regional partnerships sponsored by the Morgan Family Foundation, builds on over a decade of regional collaboration led by groups from San Diego, Los Angeles, Fresno, Sierra Nevada, Sacramento and Silicon Valley to the Redwood Coast. California Forward is a nonpartisan, statewide organization funded by major California foundations, which has been promoting major governance reforms.

Addressing long-term structural issues as well as the immediate business cycle, the 2012 summit last May engaged more than 1,500 Californians in 14 regional forums, leading to a statewide gathering that focused on investing in people, infrastructure and innovation and on streamlining complex regulatory processes.

Seven signature initiatives were developed, targeting public and private action on workforce, innovation, infrastructure, capital and regulations. Those initiatives were identified as priorities throughout California’s regions, aimed at restoring economic vitality.

As a result:

  • Legislation was passed to promote regional industry partnerships linking community colleges with the specific skills need of clusters.
  • A federal patent office has come to California.
  • iHubs, linking industry and university resources, are expanding across the state’s regions.
  • Private financing options for infrastructure are being pursued.
  • The legislature is considering modernizing California’s environmental rules.

The 2013 summit process is under way, with 16 regional forums leading to a December meeting that is likely to focus on bridging the coastal-inland divide, which is replacing the traditional north-south divisions as California’s major economic as well as political concern.

Across California, you can find examples of innovations that are creating inter-regional connections. San Diego County is working with Imperial County and Baja Mexico as a Mega-Region, connecting knowledge-intensive industries with manufacturing opportunities in Imperial County, in sectors such as solar and biofuels. The Los Angeles region is working with the Inland Empire to promote logistics and manufacturing linked to its ports. Those kinds of regional innovations are described in a new report from the Stewardship Network.

As UC Berkeley economist Enrico Moretti has pointed out in his book, The New Geography of Jobs, a fundamental cause of what he calls the “great dispersion” is the disparity in education among regions. Among those who graduate with bachelor’s degrees, unemployment is about half the rate of those with only a high school degree. Hence, California’s return to investing in education in all of its regions holds a key to the state’s long-term recovery.

California is coming back but will not reach its full potential until every region of the state is thriving. The California Economic Summit can provide a vehicle for that important inter-regional conversation and building statewide support for action.


Doug Henton is chairman and CEO of Collaborative Economics, based in San Mateo, Calif. He is on the management team for the California Economic Summit.

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2 Comments

  1. Pamela Collett
    Posted February 1, 2013 at 12:57 am | Permalink

    What does “modernizing California’s environmental rules” mean? Does it mean more emphasis on renewal resources, such as solar and wind? Or does it mean cutting environmental regulations on polluters?
    What about the overall cuts to higher education and community college and tuition hikes?
    What about the unbalanced spending on athletics, coaches, stadiums despite overall cutbacks?

  2. Posted February 4, 2013 at 12:51 am | Permalink

    In response to Pamela Collett’s comment on my article, California has the nation’ s most progressive policies on renewable energy including a 33 percent portfolio standard, incentives for solar and wind as well as only state carbon trading system (AB 32). One of the clean energy and environmental challenges facing the state and its regions is how to gain approval for investments in energy infrastructure. One of the areas identified by the California Economic Summit was modernizing the 40 year old California Environmental Quality Act (CEQA) to preserve its original intent of protecting the environment while eliminating abuses that delay the approval of critical projects such as these. (see caeconomy.org for more information on this discusion)

    Over the past several years, California has cut funding for public schools, higher educationa dn community colleges while increasing tuition. After the passage of Proposition 30 that raised taxes by $6 bilion annually, the Governor’s budget proposes increased spending for schools, community colleges and universities. Support for community colleges has been a major priority of the regions involved in the California Economic Summit and legislation was signed by the Governor that was the result of the Summit.