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.

05 May

Just How Big Is California?

The political center of the nation is Washington D.C. The opinion center of the nation hovers between New York and Washington. But there’s no question but the cultural, economic and innovation center is California.

The national media overlooks just how much California dominates the nation. Politically, because California is now reliably Democratic, national politicians ignore the Golden State except for fundraising. The pundit class, if they reference California at all, typically do so only to proclaim that California is in decline. The “End of the California Dream” is a recurring theme with the national media. Let’s chalk it up to time and weather. How painful it must be, year after year, to watch Hollywood stars arrive in glorious sunshine for awards programs as the pundit class shivers while another gloomy, cold evening settles on the Midwest and East Coast.

So perhaps a reminder or two might be worthwhile. Just how big and important is California? The answer is really big and really important. California just dwarfs the other states.

Consider this nugget just for starters: California’s population is larger than all of the New England states (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut) plus New York. And then you can throw in Iowa, just to make it close.

California’s population is greater than the combined total population of the 22 smallest states – by over 2.4 million! Really, why does it ever matter what a politician from South Dakota or Kansas thinks?

Each one of these California cities – Los Angeles, San Diego, San Jose and San Francisco – is larger than the population of each of the following states: Wyoming, Vermont, North Dakota and Alaska. You have to ask yourself: How did those places become states anyway?

The City of Los Angeles by itself is larger than any of the 23 smallest states. Why should anyone think being governor of an itty-bitty state qualifies you for much more than being a city councilmember for a large California city?

And there’s more.

Los Angeles County is the biggest county in the nation. In fact, it’s larger than 43 of the 50 states. The state closest in size to LA County? That would be Michigan – which has 150,000 fewer people. This is one probably worth repeating: a single California county is larger than 43 of the 50 states.

Folks think Texas is big. Really? California’s population is 48% larger than that of Texas. Not 5% or 10% bigger; 48%! Even if you threw in Ohio (and Ohio is the 7th largest state in the nation), their combined population is still 571,000 less than California’s.

And it’s not just population.

Driving from the southern to the northern border of California is over 850 miles. That’s about the distance from Portland, Maine to Raleigh, North Carolina. And you’d be traveling through ten states to make that road trip.

Okay, enough with population and geography. Let’s talk about what really matters: money.

California’s Gross Domestic Product (GDP) is greater than the combined GDP of 24 states. California’s economy is not only the most diverse and the most innovative – it’s also the biggest, and by a lot. California is the single most important economic engine of the nation.

Just think of us as a county, and it all becomes so much clearer. California’s economy is the 8th-largest in the world. We’re larger than Italy, India and the Russian Federation (sorry, Vlad) and are closing in on Brazil and the United Kingdom.

California’s GDP is almost as large (97% as large) as the combined GDP of the Great Lake States – the “industrial heartland” states of Wisconsin, Indiana, Michigan, Ohio and Illinois. Those states have a combined population of 46,421,564, which is 25% larger than California’s, so California’s per capita GDP ($56,726) is 21% greater than the per capita GDP of those “big shoulder” states ($46,832). Conclusion: wine sipping, surf board riding, new age California has a far more productive economy (and workforce).

Think California is just movies and high tech? Bet you didn’t know that California is Numero One in milk! We produce 20% of the nation’s milk supply. We produce over 52% of the nation’s fruit and nuts. Really, what are those slacker states doing?

And we’re energy efficient! Only New York and Rhode Island use less energy per capita than California. Let’s pick on Wyoming again. It consumes 949 million BTUs per capita versus 201 million BTUs per capita for California – that’s 372% more per capita. Not only is Wyoming really, really small; it’s also an energy hog. And continuing our Wyoming bashing: which state is really “The Cowboy State”? California has almost 4 times as many cattle – 5,300,000 to 1,290,000 head– as Wyoming. Altogether now: Yippie-yi-yo-kayay.

And if all that isn’t enough, California tops every state in the federal governments measurement of the “best and worst counties to live in the United States from the standpoint of scenery and climate.” The U.S. Department of Agriculture’s “natural amenities index measures climate, topography and water area that reflect qualities most people prefer.” How badly do we trounce the other states? Every single one of the ten highest-ranked counties is located in California. Every single one!

Despite its size and cultural and economic impact, California is always politically shortchanged.

California has two United States senators. There are 44 senators from the states whose combined population is less than California’s. Those states have 2,100% greater representation in the U.S. Senate than California. Talk about creating a system of fair representation; boy, those Founders nailed it.

Let’s hop into the Wayback Machine, when the Founders accepted the Great Compromise – the House to be apportioned by population but each state to have two senators regardless of size – to accommodate the smaller states. The nonslave population of the largest state (Virginia) was 455,000, compared to 57,100 for the smallest (Delaware). Virginia’s population was eight times larger than Delaware’s. This is ignoring the dreadful, awful, unforgivable 3/5ths provision.) But today, California’s population is 66 times greater than Wyoming’s (the smallest state). The discrepancy between the largest and the smallest state has increased 725% since 1887. And California still gets only gets two senators? Please. You would think this would give even diehard originalists pause.

A United States Senator from North Dakota represents 672, 591 people. A California senator represents 37,253,956 people. A California senator represents 55 times as many people. What do senators from the little states do with their time? Write hand written notes congratulating every T-ball player in their state? Are they really paid the same salary as California senators? Do they cash their paycheck and think: someday I will grow up and become a Senator from California!

Oh, let’s go back to population, just to drive the point home.

You could fit Vermont’s population into California 60 times. Repeat: it would take sixty Vermonts to equal California’s population. SIXTY! Granted, Vermont may lead us in wooden covered bridges. We’ll give them that.

Billings, with a population of 108,869, is the largest city in Montana. There are TWELVE cities in Los Angeles County ALONE that are larger than Billings. The city of El Monte is larger than Billings, Montana. Here’s to you, El Monte; if you were in Montana, you’d be the big cheese.

Fargo, with a population of 115,863, is the largest city in North Dakota (and the title of a great movie). There are 52 cities in California larger than Fargo. FIFTY-TWO! Come on, North Dakota! That’s all you’ve got? I mean, really.

And in closing . . .

We have more people, more brains, more technology and more economic impact – by far – than the other states. So here’s a suggestion for the producers of those television Sunday morning gab fests: If you want to talk to someone who comes from a place that actually matters, don’t call on a Governor or Senator from Nebraska or Utah or Mississippi. Talk to someone from California. Anyone.

And then let’s amend the Constitution to recognize that we live in the 21st Century. Either give California its fair share of representation – or make those itty-bitty states what they really are: counties.

Robert Swayze is a principal with Economic Development Results, LLC. He served as Manager of Economic Development and Cultural Affairs for Long Beach and Senior Vice President for the Los Angeles County Economic Development Corporation.

03 Nov

Technical Assistance for EDA Grants

eda-logoEDR’s experience with EDA and its award process, rules and regulations, can provide cities and counties a leg up in capturing EDA grants for economic development projects.

03 Nov

Strategic Alliance with Maps.com

MDC-logo-drkgrey-40EDR has initiated a strategic alliance with Maps.com. Maps.com is a premier online source of GIS solutions and mapping products. Since 1991 Maps.com has provided custom mapping services to firms, jurisdictions and public agencies. EDR and Maps.com are developing customized GIS economic development applications, including an application to assist Successor Agencies meet Department of Finance requirements and market surplus property.