Establishing A Vision For CaliforniaOur vision at Innovation State is to see California ranked number one for its business-friendly environment and entrepreneurial capacity. Although California is ranked highly for its innovation capacity, it ranks nationally at the bottom for business environment and high cost of doing business. The Public Policy Institute for California ranks California fourth in entrepreneurial capacity, yet 47th in cost-of-doing business index; 45th in state business tax climate, 46th in small business survival index and 47th in economic freedom index. These poor rankings have a profound effect on California’s long-run economic outlook. We strive to make California the preferred place to do business, once again.
The Path ForwardOne of California’s greatest strengths is its historic position as a “first mover” among states and nations because of our world renowned academic institutions, industry clusters, and diverse population that attracts worldwide talent. The best way to grow a business environment conducive to innovation is to think differently about the future. Innovation State’s path involves advancing an affirmative agenda to attract and grow innovation-based businesses.
California is at a crossroads, where we need to collaboratively work together to increase opportunities and create jobs. The way to break through the status quo is to have a plan for California’s long term economic strategy. Our efforts will concentrate on identifying, building and bringing together communities of interest throughout the state and giving them a platform to work with like-minded policy leaders at both the state and local levels of government. We strongly believe that California’s future lies in building a road map for expanding its innovation economy.
Innovation State is strategically positioned to provide leadership based on a sound economic plan supported by evidence-based research. Our web-based platform will serve as the clearinghouse and provide a framework for state and local officials, business leaders, and the public to find reliable data and information; keep abreast of innovation issues, and connect and facilitate a high-level statewide dialogue on California’s innovation future. This in turn will inform policy decisions that will allow an innovation economy to grow and flourish with state government supporting that framework versus stifling its growth.
Four Initial Steps
To Support California's Innovation Economy Innovation State started in 2013 with a proposal that began to address the needs of an innovation economy. The needs of the plan were expressed when Assembly Member Manuel Pérez agreed to introduce the California Innovation and Jobs Act, AB 653 at the request of the California Hispanic Chambers of Commerce. The proposal addresses several fundamental issues to spur growth in the innovation economy. First the nature of innovation requires countless hours in research and development. There are billions of dollars of resources in the United States and around the globe that can be spent anywhere. The question is how we encourage business to risk their capital in a state that generally has a hostile business climate.
One way is that the state shows business that it is serious about a package of proposals to stimulate growth which includes R&D investment in this state. California’s current R&D tax credit allocates 15 percent tax credit for qualified research and 24 percent tax credit for basic research. Our first step was increasing this tax credit for both categories 15 percent, three percent increments over five years. Second, out of R&D the natural progression is to manufacture a product. California is one of the few states that penalized manufacturers from investing in manufacturing equipment by charging sales tax on these investments. In order to promote more manufacturing in California, AB 653 removed the sales tax from manufacturing equipment. Fortunately, in 2013 Governor Brown adopted our suggestion in SB 90 which reduced the sales tax from manufacturing equipment from 6.5% to 3.3 percent.
Third, our education system is mission critical if California is to compete in the future. The ideas introduced in AB 653 employed a concept of a greater nexus between the educational system and the students it graduates with real jobs that are available to those students when they graduate from a post-secondary institution. The bill would have provided up to a 25% tax credit to businesses that monetarily assisted post-secondary institutions in developing curriculum that are likely to lead to a job upon graduation. California has some of the best schools in the world; however, California is falling behind due to budget cuts which in turn create fewer educational opportunities for our children. This provision does not address some of California’s more vexing educational problems, but it is a step in the right direction to have a greater connection between the needs of businesses and our schools.
Fourth, there is a broad consensus of research that deepest California’s leadership in many cutting-edge industries, our business climate is of serious cause for concern. With some of the highest taxes and costs in the nation, California continues to lose opportunities to other states and nations. A recent survey of manufacturers found that the reasons commonly cited for not expanding in California were the costly regulatory environment, high taxes, high labor costs and insufficient incentives and credits. Policies need to change to stop high taxes and regulatory stranglehold that government has on future business growth, especially in the innovation economy. This forth step will concentrate on legislative and regulatory advocacy to address these barriers, drawing from good but failed proposals and buttressed by a growing community of motivated stakeholders.