05 May

Capital Area Seen as Rich with Prospects

By Christopher Thornberg and Robert Swayze – Special to The Sacramento Bee

April 28, 2013

Next Economy, a nonprofit endeavor that promotes economic development and growth across the six-county Sacramento region, recently released the “Capital Region Prosperity Plan.” We should applaud their effort; the Sacramento area has been through a rough few years, and focusing on ways to help the region grow again is important. To its credit, the plan does a solid job of highlighting some of the region’s strengths. Unfortunately, it also lays out the same old pie-in-the-sky goals that will go absolutely nowhere.

Sacramento needs a development plan – but it needs one with realistic expectations and one that creates specific goals and benchmarks.The prosperity plan begins on the wrong foot when it focuses on high-growth industry clusters – such as advanced manufacturing, clean energy technology, information and communication technology, and life sciences – as part of a desire to attract young, educated entrepreneurs to the region.

If that sounds familiar it’s because every region in the nation has a plan to do the exact same thing. It reminds us of the old Nike commercial where everyone wanted to be “just like Mike” – except in this case everyone wants to be just like Silicon Valley.

Unfortunately there is only one Michael Jordan and only one Silicon Valley. Once a region establishes critical mass and sector dominance, it is hard to topple. Young entrepreneurs go to Silicon Valley because that is where the jobs and money are. Tech firms go there because that is where the financing and the best workers are. Facebook may have started at Harvard University, but its home is in Menlo Park for a very good reason.

Such feedback effects are known as external economies of scale. Unfortunately, in terms of the tech world, the Sacramento region is really in no position to try to take this crown from its neighbor. Don’t feel bad – almost nowhere is.

That doesn’t mean the capital region shouldn’t develop itself economically. It should and can by being realistic about where it currently stands, what its competitive advantages are, what it can be, and how it can get there.

Regions that succeed economically do so by leveraging their core assets – even if they don’t seem as sexy as biotech or clean energy – and by defining specific steps. Any growth effort is daunting: Unifying the efforts of the private and public sector is tough work, particularly when the public side includes six counties, 23 cities covering 6,300 square miles, and 2.3 million residents.

What are the Sacramento region’s competitive advantages? Here are just a few we think could be successfully leveraged.

Agriculture. The region has some of the nation’s – and world’s – best agricultural land. Agriculture is an export product – meaning it brings enormous outside revenue into an area. It’s not new, it’s not sexy, but agriculture really works for the capital region.

Location. The capital region will not become a hub of the tech world – but it can certainly take advantage of being next door to a tech hub. The region can work to attract overflow – tech firms that find Silicon Valley and San Francisco too expensive for their business model. This means not trying to replicate Silicon Valley but rather attracting midsize firms that want to find a place to expand at a lower cost and where they can provide better livability for employees.

Housing. The housing boom and bust caused plenty of pain throughout the state, but this is a sector where the capital region enjoys a substantial advantage. Zillow’s single-family housing price estimate for the region’s six counties ranges from $124,700 to $315,500. Compare that with San Francisco’s $762,200 or Santa Clara County’s (Silicon Valley) $656,700. Housing is in short supply throughout the state. Affordable housing is attractive to businesses because it draws families and contributes to a stable workforce.
Livability. The capital region already has assets that appeal to a wide range of the population spectrum, from millennials to retirees: affordable housing, urban amenities, spectacular recreational assets and cultural attractions. San Francisco is but a couple of hours to the west and Lake Tahoe is two hours to the east.

State capital. Having the state capital at the center of your region is a major plus. It generates lots of jobs and attracts firms and organizations that want to be near California’s political epicenter. There’s a reason why Northern Virginia has been a booming economy for 30 years. Sacramento may not be Washington, D.C. – but being the state capital is an asset that should be leveraged. If the region is seeking additional investment capital, what closer source than the state’s $250 billion pension fund, CalPERS?
The capital region clearly has assets. But what can it do to leverage them?

Focus on retention. Development efforts work best when the focus is on companies that already call the capital region home. Helping these firms expand and working with them to stay put will yield a greater return on investment than chasing after lofty and perhaps unattainable dreams. Part of this also means working to keep government agencies in the region, as they will be an important driver of both public and private sector jobs in the future.

Concentrate on education. In any city, county or region in the nation, there is a direct link between education and prosperity. In the six counties of the capital region, the percentage of residents 25 or older with a college degree ranges from 12.4 percent to 34.6 percent (Sacramento County, the largest, comes in at 27.7 percent). In comparison, 45.5 percent of residents in Santa Clara County have college degrees, as do 51.4 percent in San Francisco, and a whopping 55.8 percent in Seattle. Driving educational attainment levels up will return short-, medium- and long-term benefits. There is no firm that doesn’t want an educated workforce.

Invest in infrastructure. The Capital Region Prosperity Plan highlights some significant infrastructure advantages, such as the Sacramento International Airport and three local utilities. Continuing infrastructure improvements – roads, bridges, water, sewer, port – is absolutely necessary for economic growth. Creating a better linkage between the capital region and the Bay Area might help. A high-speed rail line connecting San Francisco and Sacramento might actually be feasible – and make sense.

Stop trying to pick winners. General efforts to promote job growth work best. If a region wants to encourage business and job creation, it should create zones with reduced fees and fast permitting for startups. Let the entrepreneurs decide where they want to locate and what sort of firms they want to build.

Don’t get lost in governance. Trying to manage and coordinate the economic development efforts of 29 jurisdictions plus the private sector could absorb all the positive energy that Next Economy is attempting to generate. A regional entity that focuses on marketing and information sharing would be helpful – including information on technology solutions that would help jurisdictions become more business-friendly, such as permit streamlining.
Continue to rebuild city cores. Cities large and small need solid cores. Cities in the capital region need to keep investing in their core but avoid flimsy public funding mechanisms. Cities should focus on building public-private partnerships to fund efforts based on models that have been successfully implemented elsewhere.

Invest in livability. Everyone wants to live and work in safe, secure and enjoyable communities. A key factor for businesses is public safety – will their assets and employees be safe? A second component is ensuring a healthy, sustainable environment – that is, after all, a principal reason people live in the capital region. Continuing to invest and ensure in livability is a winning strategy.

The capital region is not going to be the information capital or the life science capital or the clean energy capital of California or the world. But it can be what every city, county and region in the nation wants to be: a great place to live, work and be prosperous. 

Christopher Thornberg is an economist and founding partner of Beacon Economics (www.BeaconEcon.com). He is a former chief economic adviser to the State Controller’s Office. Robert Swayze is a partner with Economic Development Results. He served as senior vice president for economic development for the Los Angeles County Economic Development Corporation.