Growing California’sRegional EconomiesAn Economic Growth Strategy for the

State of California

Peter E. WeberDecember, 2008

1 ...................Letter from the Author

3 ...................I. Executive Summary

5 ...................II. Regional Economies and the “3 Es” –

Prosperous Economy, Quality Environment and Social Equity

7 ...................III. Development of Regional Economies is Not a New Idea

11 ...................IV. Regional Economies as the Key to California’s Global Competitiveness

13 ...................V. Defining “Regions”

15 ...................VI. Networked Government and Inclusive Stewardship

17 ...................VII. A Petri Dish: The California Partnership for the San Joaquin Valley

21 ...................VIII. Making it Work: A Sustainable Model of Regional Governance

25 ...................IX. Policy Prescriptions

32 ...................X. Concluding Comments

33 ...................XI. Appendices

A. Community Values of the Fresno Region

B. Draft Joint Resolution

Table of Contents

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Leadership CouncilCalifornia Forward1510 J Street, Suite 135Sacramento, CA 95814

I was surprised when California Forward’s Executive Director, Jim Mayer, called to ask if I would be interested in writing this policy paper. Much has been written on the subject of growing regional economies and I was certain there were others who would be able to write a more erudite paper. Jim won me over, however, when he said he wanted the paper written from the perspective of a practitioner. I do meet that qualification.

I am a retired business executive, having served as CEO of two mid-sized publicly traded companies and vice-president of a Fortune 500 corporation. I retired in 2001, at age 58, to honor a commitment I had made to my wife that I would retire early so we could spend the rest of our lives in the San Joaquin Valley, where her family roots go back more than 100 years and where our children and grandchildren live now.

Shortly after I retired, I was asked by the then recently elected Mayor of Fresno, Alan Autry, to join his Council of Economic Advisors. One thing led to another and I soon found myself deeply immersed in civic activities. Among them, I co-founded and remain the co-chair of the Fresno Regional Jobs Initiative (The “RJI”), a coalition involving more than 600 companies and 24 public sector agencies. I also helped plan the California Partnership for the San Joaquin Valley (“The Partnership”) and have been a board member since its beginning.

My engagement in these regional development activities has been extraordinarily educational, productive and personally rewarding. It has been gratifying to see the emergence of a large number of civic revolutionaries in the San Joaquin Valley, innovative people of unquestionable integrity, unwilling to accept the status quo, and relentless in their commitment to make the Valley a better place.

I count among them Mayor Autry, who understands as well as any mayor in America the benefits of networked government; assembly member Juan Arambula and Clovis councilwoman, Lynne Ashbeck, who along with Mayor Autry served as the founding public sector co-chairs of the RJI; Ken Newby, the recently retired managing partner of the Fresno office of Deloitte and Touche, a co-founder of the RJI who still serves with me as one of two private sector co-chairs and should be California’s poster child for corporate responsibility; Deb Nankivell, the executive director of the Fresno Business Council, a disciple of John Gardner who has helped shape an enlightened Fresno business community; Fresno State President John Welty, whose unflagging support for the RJI and the Partnership made them both possible; and Ashley Swearengin, the

Let ter f rom the Author

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mayor-elect of Fresno, a co-founder of the RJI, still its COO, and the lead executive for the Partnership.

I also count among them former Secretary of Business, Housing and Transportation, Sunne Wright McPeak. We give thanks every day that Sunne is a Valley girl and that Governor Schwarzenegger appointed her to be the first Chair of the California Partnership for the San Joaquin Valley. She has been hugely instrumental in its success. And, of course, we thank Governor Schwarzenegger. No Governor in California’s history has better understood the issues of the Valley or done more to help address them.

A special word of thanks to Tim Lynch, a brilliant policy analyst whom I have relied on for advice and research since Mayor Autry first asked me to put together a strategic plan for the City of Fresno in 2002, and who has made big contributions to this policy paper.

I extend my apologies to those who might see too much emphasis in this paper on the experiences of the Valley. While I have book and web knowledge of how other regions across the country are addressing regional economic growth, most of my experience as a practitioner lies in the Valley. I hope that our learning lessons in the Valley will have benefit to all Californians, but each region must map out its own trajectory. Indeed, you will find me urging in this paper for a bottoms-up approach to regional planning and implementation. No plan succeeds without local ownership.

At the risk of repeating what you will read again in this paper, there has never been more urgency to the notion of growing our regional economies. While it’s vitally important that we reform the way in which we currently allocate California’s limited assets, it’s equally important – perhaps never more important – that we invest in growing our assets. If California is to regain its once golden luster, it will be because thriving regional economies are increasing our tax base and providing the capital we need to re-invest in our future.

I very much appreciate the opportunity to offer my thoughts in support of the ambitious reform agenda being advanced by California Forward.

Sincerely,

Peter E. Weber

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been slow. This policy paper proposes strategies to materially accelerate progress.

The California Economic Development Partnership, created by Governor Schwarzenegger, points out that with an economy larger than that of all but seven nations, California is not really one economy but a composite of several very different economies, each with its own set of competitive advantages. But we have no governance to address regional economies. Local governments operate within political rather than economic boundaries; and state government operates through functional organizational units. While efforts have been made to create inter-agency units, funding streams create a powerful gravitational pull towards silo-based government.

What’s lacking are adequately funded, effective regional leadership structures that align with regional economies to achieve advancement towards a prosperous economy, a quality environment and social equity, often referred to as the “3 Es.”

Regions, as conceived in this white paper, are intended to be voluntarily self-defined contiguous geographic areas that are economically interrelated and can tackle key issues, such as air quality, transportation and workforce development, on a geographic scale that matches the geographic magnitude of the challenge.

There is ample evidence in our society that sustained economic development cannot be made in the absence of a quality environment and social equity, but it is the economic leg that fuels progress on the other two. Most economic decisions that in turn result in economic growth and the opportunity for new revenues for government programs are not made at the state level, or even at the city or county level. They are made by the private sector based on their own economic self-interest. The most successful economic regions are ones that have a critical mass of

California Forward is pursuing a number of complementary reforms for better governance that include budget and fiscal management reforms, improvement of public services, development of a more informed electorate, and more publicly responsive and accountable elected officials. These vital reforms could be enhanced if they were refined to include an explicit focus on governance changes aimed at asset growth. As described in this policy paper, asset growth is needed to provide the investment capital California needs to reclaim its role as “the Golden State.”

Specifically, the proposition of this policy paper is that California must have governance that helps grow its regional economies. If such governance can generate even a modest increase in California’s GDP, and this policy paper will support the case that it can, there will be a two-fold benefit for the state. The first will be to generate higher tax revenues that the state can re-invest to create a virtuous economic cycle, particularly if the increase in GDP growth is accompanied by the other reforms being advanced by California Forward. And, as employment and per capita income increases, the second benefit will be to reduce the tax dollars that need to go to income supports and social services.

The notion of promoting regional competitiveness is not new. There is ample literature, dating back to Michael Porter’s The Competitiveness of Nations (1990), which speaks to the importance of regional industry clusters. Indeed, this policy paper cites many instances of successful regional economic development in the U.S. In its 2002 report, the California Speakers Commission on Regionalism advocated for the importance of moving towards regionalism; and the Schwarzenegger administration has taken steps to move California in this direction. But, progress has

I . Execut ive Summary

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coordinate comprehensive 3 E strategies that have broad regional ownership. Three principal policy prescriptions are proposed:

New programs and investment strategies are difficult to begin in times of economic downturns. However, if those investments can reasonably be expected to result in a high return, including a return to taxpayers in the form of new revenues, they should not be delayed. We are at that place now with this proposal.

1. Regional competitiveness should be formallyidentified by the governor and the legislature as the overarching strategic economic development goal for the State of California;

2. All cabinet officers and their respectiveagencies and departments should be directed by the governor to help advance regional competitiveness, with the California Economic Development Partnership serving as the principal state body responsible for implementation of this strategy; and

3. An incentive-based scheme should be put in

place to catalyze the creation and support the ongoing development of a state-wide network of California Regional Partnerships that include local and state government, the private sector, academia, non-profits, NGO’s and foundations.

like industries engaging in similar work. Sometimes these “industry clusters” develop on their own, sometimes with government intervention. But even where they have developed on their own, government and quasi-government institutions such as research universities have played a pivotal role. Government actions can encourage and assist these essentially non-governmental success stories, or they can impede them.

Actions by the State of California have beneficially influenced regional economic clusters such as high-technology in the Silicon Valley, agriculture in the San Joaquin Valley, multi-media production in Los Angeles and biotechnology in San Diego, but these actions have generally been random and sporadic. In our rapidly changing world, with international trade and competition now the norm, we cannot assume the necessary developments for continued economic growth will occur naturally and to our benefit. If California is to retain its leading position in these and other areas of concentrated economic activity, or develop new ones (e.g. clean energy), it must take a more analytical, systematic and integrated approach based on the assets offered by each region. This paper explains how one region, the San Joaquin Valley, is benefiting from such a systematic approach.

It’s important to note that this policy paper does not propose adding another tier of government in between cities and counties and the state (although it certainly does not preclude consolidation of services where that makes sense), nor does it suggest encroachment on the jurisdiction of local governments. What is envisioned is that the State of California play a strong role in catalyzing and supporting the development of voluntary, self-defined, multi-sectoral, multi-government regional partnerships aimed at fostering strong regional economies. These partnerships are to serve as the mechanism to develop, mediate and

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California Forward is dedicated to the reform of outmoded governance systems that are failing to prepare our communities to flourish and excel in a rapidly changing and globalizing economy. Its initial reform priorities are aimed at making elected state officials more responsive and accountable and developing a budget and fiscal process that is outcomes-based and has a longer-term focus on key state priorities.

California Forward’s framework also calls for improving the coordination and integration of state and local agencies to capture efficiencies and improve the outcomes that are essential for improving health, safety and prosperity. This policy paper proposes that governance reforms – including fiscal and organizational reforms – explicitly seek to achieve asset growth. Asset growth is needed to provide the investment capital California needs to restore its once unparalleled leadership role in the world.

Specifically, the proposition of this policy paper is that California must have governance that helps grow its regional economies. If such governance can generate even a modest increase in California’s GDP, and this policy paper will support the case that it can, there will be a two-fold benefit for the state. The first will be to generate higher tax revenues that the state can re-invest to create a virtuous economic cycle, particularly if the increase in GDP growth is incorporated into the other reforms being advanced by California Forward. And, as per capita income

increases, the second benefit will be to reduce the tax dollars that need to go to income supports and social services.

An asset growth policy for the State of California must begin with the understanding that California is not one economy but a combination of several regional and distinctly different economies, each of which is larger

than the economies of many nations.

While these regional economies share some assets and liabilities that apply to the state as a whole, they all have their own unique assets and liabilities. Each has distinctly different economic, social and environmental challenges. Each requires a distinctly different strategy and tactics to achieve the common objectives of any region: a Prosperous Economy, Quality Environment, and Social Equity – often called the “3 Es” of sustainable growth and quality communities.

Yet there is little in California governance to help advance

comprehensive strategies for economic regions. Local government is focused on issues within historical political boundaries that have little relationship to the way regional economies work, and state government is dominated by silos of single purpose agencies within fragmented and isolated governmental units and agencies.

There are, to be sure, instances of regional cooperation. Private sector organizations like the Silicon Valley Leadership Group (“SVLG”), founded by David Packard in 1978, have made notable contributions to regional economic development and they have done so through a strategy of consensus and collaboration. In the transportation field, where lead time in planning and building infrastructure

“California has long been a land of opportunity. But our state is stressed by tremendous pressures associated with a growing population, evolving social issues and an increasingly global marketplace…To achieve progress, Californians must improve the state’s systems of governance.” — California Forward website1

I I . Regional Economies and the 3 Es

The 3 Es – Prosperous Economy, Quality Environment and Social Equity.

1 www.caforward.org

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takes years and must by its nature cross into other political subdivisions, the necessity to have regional approaches has been generally accepted and practiced. The creation of the Southern California Association of Governments (SCAG), the Association of Bay Area Governments (ABAG), The Sacramento Councils of Government (SACOG) and the San Diego Association of Governments (SANDAG) have all shown the wisdom of regional collaboration and cooperation.

Single purpose agencies, such as transportation planning agencies, tend to measure success by their own narrow perspective, generally from an engineering point of view, which often results in resistance by those concerned about environmental and quality of life issues and whether the beneficiaries of economic development projects include all sectors of the population, but there are notable exceptions. SACOG led the way in creation of the first comprehensive regional Blueprint plan in the state and helped catalyze the formation of Partnership for Prosperity, a diverse coalition of 34 public, private and nonprofit organizations focused on economic strategies for the Sacramento region. SANDAG catalyzed the development of the San Diego Regional Comprehensive Plan.

What is lacking in most regions is a comprehensive approach to concurrently make progress on all legs of the 3 Es in each of California’s regions; one that recognizes the critical interdependence and inter-relationships in the quest for economic prosperity, environmental quality and social development that benefits all income and ethnic demographic groups; one that has more bottom-up input from people who have a close understanding of how to best address the challenges and opportunities of their own economic geography; one that also increases citizenship, broader local understanding of issues and opportunities, and

related social stability.

As will be discussed more fully later in this paper, concurrent advancement of the 3 Es is best achieved by regions with shared economic interests. The most successful economic regions are ones that have a critical mass of like industries engaging in similar work. And it must be pursued by private-public collaborations. It is the private sector that drives the creation of economic prosperity, but government at all levels influences the success and efficiency of the many economic engines within the state and can either help or hinder the process. Regional economies rarely fully blossom and succeed without strategies by government to bring new infrastructure and educational resources to the table. The support may be indirect, as with the educational resources of the Bay area that enabled the creation of the “Silicon Valley,” or direct as with the development of irrigation systems for the agriculture of the San Joaquin Valley. In our changed and rapidly changing world, with international trade and competition now the norm, we cannot assume the necessary developments for continued economic growth will occur naturally and to our benefit.

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The development of regional economies as an economic development strategy in the global economy traces its roots to economist Michael Porter, the renowned chair of Harvard’s Institute for Strategy and Competitiveness, who first postulated the notion in his 1990 book, The Competitive Advantage of Nations.2 Porter argued that national competitiveness comes from a “clustering” of industries, in which groups of firms and industries, capitalizing on innovation and productivity and drawing on the unique assets, history and character of their country, emerge to gain leading positions in world market. Examples abound: Japan in consumer electronics; Switzerland in pharmaceuticals; Germany in printing presses; the U.S. in software.

Porter debunked the notion that global competitiveness comes primarily from bountiful resources, or cheap and available labor, or national macroeconomic variables such as exchange rates, interest rates and national deficits. While these are not insignificant factors, he argued that the principal variables are the geographic clustering of innovation, technology, entrepreneurship, workforce skills and industry-specific productivity. Of these factors, a skilled workforce is most strongly correlated with growth in per capita income, productivity and output.

The extension from national competitiveness to regional competitiveness followed shortly. In his 1998 article published in the Harvard Business Review, Clusters and the New Economics of Competition,3 Porter explained the positive impact of regional clusters on productivity, innovation and new business formation. If nations as small as Switzerland could claim leadership in some global markets, didn’t it make sense that regions much larger than Switzerland could do the same? Indeed, was it not possible for regions to inventory the strengths that made them unique and carve out world market leadership

niches for themselves? The answer is an emphatic yes. According to the Council on Competitiveness, “Even as technology, capital and knowledge diffuse internationally, the levers of national prosperity are in fact, becoming more localized. As talented people and new ideas become the most critical drivers of economic growth, regional economic conditions have assumed greater importance.”4

Akron, Ohio is a case in point.5 From the mid-seventies through most of the eighties, Akron was in deep economic trouble. While they had once been the world’s leading producers of rubber tires, the manufacture of tires had largely moved overseas. So they re-invented themselves. Rubber is a naturally occurring polymer. Was it not possible to capitalize on the region’s understanding of this one polymer to pursue a broader agenda of modern polymer-based synthetic materials? Private sector leaders, with support from local government and the University of Akron, committed themselves to a polymer future. The University built a Department of Polymer Engineering, dedicated to providing global technology leadership for a broad base of commercially viable polymer-related materials, processes and products. In 1985, the Polymer Processing Society was established at the University to attract polymer research to the region. By the end of the eighties, more than 300 polymer companies were operating in Akron. Today, there are more than 2,600 polymer-related companies operating in Ohio, and the Greater Akron region employs more than 31,000 people in the polymer industry. The Akron metro area, which had experienced compound annual GDP growth of 2.2% from 1980 to 1990, saw its GDP growth triple to 6.7% from 1990 to 2007.

Akron is a story of the private sector, the public sector and academic and other institutions working together to capitalize on a region’s unique strengths to

I I I . Development of Regional Economies is Not a New Idea

2 Michael Porter, The Competitive Advantage of Nations, 19903 Michael Porter, Clusters and the New Economics of Competition, 19984 Regional Approaches to Economic Development, Citizens Research Council on Michigan, February 20075 Akron, Ohio, Larry Ledebur and Jill Taylor, Metropolitan Policy Program at Brookings

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build a new and much improved economic future.

Stories like this are not unfamiliar to Californians. After all, there is probably no industry cluster more famous in the world than California’s Silicon Valley, created by the confluence of state and private sector investment in an extraordinary university infrastructure, the visionary leadership of business/civic entrepreneurs like Bill Hewlett and David Packard, and the largest assemblage of venture capitalists in the world. Almost as famous is the San Joaquin Valley — recognized as having the most productive agriculture in the world — created by the confluence of beneficial soils and climate and innovative farmers supported by public sector investment in water projects and farm-related university infrastructure.

But the origin of these stories dates back decades. The fact is that neither California nor the nation as a whole are devoting adequate attention to systematic, purposeful development of regional competitiveness as a core strategy for global economic competitiveness. In 2005, the Bush administration belatedly took on this task by creating the Strengthening America’s Communities Advisory Committee (the “Committee”), led by Dr, Mark Drabenstot, Director of the Center for the Study of Rural America and Vice President of the Federal Reserve Bank of Kansas City.

The Committee’s excellent report,6 issued in July 2005, was a clarion call for regional competitiveness. It made the case that “the nation’s economic health is inextricably linked to the competitiveness of its regions” and that “a national dividend will accrue from federal investments that strengthen regions and the communities that exist within.” It argued that regional

competitiveness should be the overriding goal for federal economic and community development policy.

Among the report’s excellent recommendations, there were two that caused it to go nowhere. The Committee recommended the establishment of a

cabinet-level inter-agency council to coordinate federal community and economic development activities; and it recommended consolidation of federal community and economic development programs to eliminate overlap and duplication of multiple agencies and programs providing similar types of assistance. There was no appetite in congress for consolidation of programs and

elimination of duplication, each of which had its constituents; and agencies showed little interest in giving up any control over their silos. The many other excellent recommendations in the report now sit gathering dust somewhere in the bowels of the U.S. Department of Commerce.

While many states have engaged in the creation of specific state-supported industry clusters (e.g., at least 40 states have created biotechnology initiatives7), few states have developed comprehensive regional leadership structures. North Carolina is one notable exception.8 They have implemented a comprehensive economic development plan based on the organization of every county into one of seven regional partnerships. The successful diversification of North Carolina’s economy stands in marked contrast to the inability of Michigan to reduce its reliance on the automobile industry.

Nowhere does regional economic competitiveness make better sense than in California, which is not —

“Globalization has fundamentally transformed the American economy. Regions — defined by economic rather than political boundaries — are the new building blocks of prosperity.”

— Report of the Strengthening America’s Communities Advisory Committee. July 2005

6 Report of the Strengthening America’s Communities, Advisory Committee, July 20057 Public-Private Partnerships for Inner City Redevelopment Roger Hamlin, 20028 Measuring Regional Innovation, Council on Competitiveness, 2005

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never has been since the gold rush days of 1849 — a single economy. Bigger than the economies of all but seven nations, California is really a tapestry of regional economies, each with its own assets, history and character. The high-tech economy of the Silicon Valley, the agribusiness economy of the San Joaquin Valley, the multi-media economy of Los Angeles and the biotech industry of San Diego could not be more different from each other.

The need to address these diverse economic regions within California was addressed in the January 2002 report from The Speaker’s Commission on Regionalism.9 Convened by then Speaker of the California Assembly Bob Hertzberg and chaired by CCRL President Nick Bollman, the report examined some of California’s most serious immediate and long-term issues and proposed a policy framework and specific recommendations for more effective solutions at a regional scale, tailored to the unique needs of the state’s diverse regions.

A few of the recommendations of this Commission have been implemented. In November 2005, Governor Schwarzenegger established the California Economic Development Partnership (the “CEDP”), an interagency Cabinet team, to coordinate all of the state government economic development activities. The Partnership brings together State Administration resources in collaboration with regional and local economic development organizations and other public and private expert resources to retain, expand and attract jobs in California. This interagency Cabinet team includes the Business, Transportation and Housing Agency, California Department of Food and Agriculture, and the California Labor and Workforce Development Agency.

The CEDP has helped re-direct the work of the bi-partisan California Economic Strategy Panel. First

established in 1993 to develop an overall economic vision and strategy to guide public policy, the Panel engages in a biennial planning process that examines the state’s economic strategy. The California Regional Economies Project was established in 2005 as the lead mechanism for analyzing economic regions, industry clusters, and cross-regional economic issues. This research project provides state and local economic and workforce development organizations with information about each regional economy and labor market in California.

Efforts have also been made by the private sector, non-profits and foundations to advance the notion of regional competitiveness. Notably, the California Center for Regional Leadership (CCRL) was created as a statewide nonprofit organization specifically to support, facilitate, and promote innovative regional solutions for California’s major economic, environmental and societal challenges. With funding from the Irvine Foundation, the Morgan Foundation and the California Endowment, and with thought leadership from founder Nick Bollman, former Secretary of Business, Transportation and Housing Sunne Wright McPeak, founding President of the Great Valley Center Carol Whiteside, Collaborative Economics CEO Doug Henton and others, CCRL helped establish a network of collaborative regional organizations throughout California.

Some of these collaborative regional initiatives (CRIs) have helped advance regional prosperity. The California Partnership for the San Joaquin Valley, discussed later in this paper, owes its roots, in part, to the Fresno CRI.

Despite the commendable steps described in the preceding paragraphs, progress towards development of thriving regional economies in California has been slow; and California is losing ground. In 2002,

9 The Speaker’s Commission on Regionalism, January 2002

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California could boast of being the fifth largest economy in the world. Two years later the state’s ranking had dropped to eighth,10 where it has stayed for the past four years. Neglect of California’s infrastructure, once touted as the best in the world, has not helped. Neither has the fact that poorly performing K-12 public schools, high taxation, high energy prices, high cost of living, and regulation have caused our index of competitiveness to be 24th in the nation11 (49th in the “Government and Fiscal Policy” sub-index). All these issues need to be addressed, and California Forward is attempting to do so through fiscal and budget reform. But growing our asset base, and correspondingly our tax base, must be part of the solution, and the path to that goal is through stronger, more globally competitive regional economies.

As is so often the case, understanding why something is not working as well as it should involves following the money. The way funding is appropriated at the state level continues to cause an irresistible gravitational pull towards silo-based government, and local governments are still driven by political jurisdictional considerations rather than regional economic prosperity. Elected leaders at each level of local government are understandably focused on raising local revenues and addressing the needs of the voters who elected them. Few and far between are the instances in recent history when California has used funding incentives to cause behavior that supports the development of strong regional economies. With the exception of the California Partnership for the San Joaquin Valley and the Blueprint Planning process supported by California’s Business, Housing and Transportation agency, we know of no instances of similar state-supported, comprehensive, regional public-private planning and implementation initiatives aimed at concurrent advancement of the 3 Es.

As will be discussed in more detail later in this paper, none of the preceding is intended to suggest that California needs another layer of government or that the state government should engage in picking industry or regional winners and losers. Rather, what is suggested is that the state needs properly funded, effective regional leadership structures that align with regional economies; that the private sector must play the leading role in determining which industry clusters can best be developed in each region; that the primary role of the public sector is to remove obstacles in the way and provide the necessary hard and soft infrastructure for success; and that the state as a whole will benefit immensely if mechanisms can be put in place that incent the public and private sectors to come together to advance regional stewardship.

10 California Department of Finance, Economic Research Unit11 Beacon Hill Institute Competitiveness Index 2008

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IV. Regional Economies as the Key to Ca l i forn ia ’s Global Compet i t iveness

Can we purposefully and systematically strengthen each of California’s economic regions? Can the Akron, Ohio story be repeated multiple times in California’s economic regions? Tripling the growth of California’s GDP may be too much to expect, but what if we were able to generate an increase in GDP growth of one or two percentage points? What impact would this have on California’s economy?

No comprehensive analysis exists of the potential impact of strong regional economies on the California economy, but one study gives us hints of the potential. The UC report, California’s Future: It Starts Here (Spring 2003)12 analyzes UC’s contributions to California’s economic growth. It analyzes the potential of fostering economic clusters that will be at the cutting edge of new jobs and economic growth, and the multiplier effects of investment in these technologies. One conclusion from the report’s economic modeling is that on a statewide basis, assuming 50% of non-wage expenditures for the UC system were expended in California, the $10.25 billion expenditures in 2002 would in turn generate $16.65 billion in Real Gross Regional Product, and generate $4.86 billion in state and local tax revenues, approximately 29.2% of the GDP induced by UC investments.

Since the UC study modeled the economic impacts of what the university is doing in cutting edge economic clusters and high income professions, it is no surprise that the taxes generated in this analysis are roughly double that which would be imputed from a simpler analysis using the gross statewide numbers for tax revenues as a percent of GDP. In 2006, the Gross Domestic Product in California was approximately $1.727 trillion.13 All state and local taxes totaled $237 billion, which is roughly 13.7% of California GDP.14

This gives us a range. Taking California’s 2006 GDP of $1.7 trillion as a baseline, a one percent

increase in GDP would generate $17 billion more GDP and, at 13.7% to 29.2%, would generate between $2.33 billion and $4.96 billion in additional state and local taxes.

It’s important to highlight the multiplier effect of industry clusters. Economic development models generally use the multiplier effect of new jobs to model the benefits of investment in creating particular types of jobs on local economies. The Military Base Realignment and Closing Commission used the same type of model to measure the negative impacts of base closures. The U.S. Department of Commerce Bureau of Economic Analysis has developed complex economic input-output models for use in measuring regional economic growth and has published detailed charts listing the economic multiplier impact of various types of industry and job type. What has driven many “buy local” strategies is the awareness that dollars spent in a particular geographic area re-circulate in that geographic area, adding a multiplier to the economic benefits of the first dollar generated. It’s important to keep these concepts in mind when one looks for ways to measure the economic benefits of regional industry clusters.

It’s also important to point out that under the current state and federal tax system, increases in tax revenues do not necessarily accrue to the benefit of the regions responsible for generating the growth. Clearly taxes do rise with economic growth, but given the current state of the tax system, the revenues may go to a level of government other than where the economic growth occurs, such as the federal government which is the major tax beneficiary of international trade. While this issue is beyond the scope of this paper, it is one that will hopefully be addressed by California Forward’s proposed fiscal and budget reforms.

It stands to reason that if a substantial percentage

12 “California’s Future, it Starts Here,” University of California, Spring 200313 Bureau of Economic Analysis, U.S. Department of Commerce14 U.S. Census Bureau, State and Local Government Finances by Level of Government and State: 2005-06

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of the additional tax revenues generated by GDP growth in a region are reinvested in that region, a virtual cycle of investment will be created. Investments in regional infrastructure, environmental quality and social equity will all strengthen the foundation of the region’s industry clusters, resulting in improved global competitiveness, higher GDP, higher tax revenues, and more regional reinvestment.

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The State of California Economic Strategy Panel has divided the state into nine regions: Northern California Region, Northern Sacramento Valley Region, Greater Sacramento Region, Bay Area Region Economic, Central Coast Region, San Joaquin Valley Region, Central Sierra Region, Southern California Region, and Southern Border Region. Economic profiles of these regions, covering the period 2001-2006, can be found at http://www.labor.ca.gov/panel/espcrep.htm.

These regions may or may not be the regions that ultimately emerge in California. A report to the CEDP prepared by CCRL,15 recommends that regions should be “self-organizing to define boundaries, partners, strategies, and implementation initiatives, including for industry clusters.” Regions, as conceived in this white paper, are intended to be voluntarily self-defined contiguous geographic areas that fit these broad criteria:• Share economic concentration of activity;• Share physical realities, such as air basins or water basins;• Share historical political alignments, such as transportation planning or land use authorities; • Can tackle key issues, such as air quality, transportation and workforce development, on a geographic scale that matches the geographic magnitude of the challenge; and • Public and private sector civic leaders coalesce to take responsibility for stewardship of the region.

Using this definition, San Bernardino and Riverside Counties, for example, may conclude that their

economic and other interrelationships are sufficiently distinct from the other three counties that are included in the CESP-defined Southern California Region (Los Angeles, Orange and Ventura counties) to merit creation of their own region. These decisions should be made locally and they should be pragmatically based

on what will enable each region to achieve the most rapid concurrent advancement of the 3 Es, with the caveat that a region must include more than one county. There are adequate existing leadership structures to address issues at a county and sub-county level.

While there are other valid criteria for defining the geography that constitutes a region, the principal, criteria should be economic inter-relatedness, as defined by the existence or potential of industry clusters. Michael Porter defines

clusters as “…geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field that are present in a nation or region. Clusters arise because they increase the productivity with which companies can compete.” Porter uses a simple analytic tool, called Location Quotients (LQs) that describes the concentration of industry activity in a geographical area, how that concentration has changed over time, and the percent of the area’s employment in that industry.

For a review of other more complex and more nuanced analytical methods, see “Targeting Regional Economic Development.”16 Most observers are cautious of consultant-produced analyses and believe that for “regional development initiatives to be sustainable

V. Def in ing “Regions”

California’s nine economic regions:

Northern California Northern Sacramento Valley Greater Sacramento Bay AreaCentral Coast San Joaquin Valley Central Sierra Southern CaliforniaSouthern Border

15 California Economic Development Network, Trish Kelly and Todd Schafer, CCRL 16 Targeting Economic Regional Development: An Outline of a National Extension Education Program, by Stephan Goetz, Steven Deller and Tom Harris, July 2007

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they must occur from the grass roots where the process as well as the analysis is a product of active local involvement. There must be local ownership in the process and analysis for change to be sustainable.”17 The Michael Porter methodology, for example, might not have identified water technology as an industry cluster in the San Joaquin Valley because when it was first identified by Collaborative Economics in its report on “The Economic Future of the San Joaquin Valley,” and subsequently embraced by local industry leaders in 2001, it’s LQ was too small, but seven years later the San Joaquin Valley has become of the three leading water technology centers in the world (along with Israel and Australia).

Local engagement is critical because the locals are best equipped to see the relationships between the physical and human assets in each region. While some successful economic regions are the beneficiaries of physical geographic assets, many are creations of human ingenuity. Japan’s excellence in consumer electronics and the U.S. dominance in software development are examples at a national level. Akron’s leadership in polymers is a regional example. Even where physical assets play an important role, such as in the San Joaquin Valley — blessed with one of only five Mediterranean climates in the world that are ideal for growing a wide variety of crops — it took federal water projects and the California Water Project to enable the development of that physical asset. The San Joaquin Valley is equally rich in renewable energy resources, particularly sun and biomass, but the human assets to tap those resources are just beginning to be developed.

Local engagement is also important because industry clusters are not static. San Diego, once a military-dominated community is now one of the world’s top clusters of biotechnology. A large section

17 Shaffer, Deller and Marcuiller, 2004

of North Carolina, once a low-wage tobacco-based economy, is now a high-wage research triangle.

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In the 2004 book, Government by Network,18 William Eggers of Deloitte Research and Stephen Goldsmith of the Ash Institute for Democratic Governance and Innovation, argue that “The era of hierarchical government bureaucracy, the predominant organizational model used to deliver public services and fulfill public policy goals for a century now, is coming to an end… and being replaced by ‘governing by network’, in which government executives redefine their core responsibilities from managing people and programs to coordinating resources for producing public value.”

This new model, the authors say, is characterized by the web of multi-organizational, multi-governmental, and multi-sectoral relationships that increasingly constitute modern governance.

Pushed by the growing complexity of problems and the even more complex nature of the interrelationships between problems, and pulled by new technology that enables management of complex networks, delivery of public services is no longer the only measure applied to good government. Delivery of public value has taken increasing importance, and effective government is increasingly being measured on delivery of public value. While public safety, local parks and well maintained streets and gutters remain important to residents, they also want better jobs, cleaner air, a reliable supply of water and better access to health care, to name just a few issues that require multi-governmental and multi-sectoral networks that are

organized around specific goals or challenges.

In November 2003, just a few months before Eggers and Goldsmith published their book, a monograph was published by the Alliance for Regional Stewardship, entitled Inclusive Stewardship: Emerging collaborations Between Neighborhoods and Regions.19 They describe “Inclusive Stewardship” as a process of regional and community leaders taking shared responsibility for a long-term commitment to place. They explain that meeting complex regional and community challenges requires both decentralization and integration. “Decisions must be made in a more decentralized way while at the same time trying to integrate dispersed elements. For example, relating housing, transportation and land-use decisions within a regional economy is an example of a decentralized, complex challenge that requires collaboration among dispersed local systems within a shared vision.”

Inclusive stewardship involves bringing all parties to the table that are in a position to contribute to the solution of a problem or the development of an opportunity. “The process of inclusive stewardship is one of struggle and building trust. In every case, significant time is required to build trust incrementally and rebound from inevitable setbacks. Through struggle, what develops is a cycle of trust that allows the breakthrough effort to move ahead and build momentum.” The cycle of trust, the authors say, has four stages: (a) Discover compatible interests; (b) define common purpose; (c) decide on complementary roles in implementing a strategy; and (d) take collaborative action, working through inevitable setbacks.

Both publications emphasize that leaders of these networks can come from many places, and that leaders of effective networks are generally not there because of their hierarchical power but rather because they

VI . Networked Government and Inc lus ive Stewardship

“If we do it ourselves we have failed. Why? Because we have failed to engage the talents, the passion and the wisdom of the broader community.”

— Brian O’Neill National Park Service Superintendent

18 Government by Network, The New Public Management Imperative, 200419 Inclusive Stewardship, Emerging Collaboration between Neighborhoods and regions, Doug Henton, John Melville, Joe Brooks and John Parr, November 2003

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are “natural connectors” between network members; because they are competent, trusted and passionate about the issue being addressed; and because they are able to effectively connect their network to the larger network (there is always a larger network). Some progress will likely occur if regional networks turn out to be joint powers authorities comprised of existing multi-county public sector agencies, but such networks are likely to fall short of maximizing the potential of the region.

Leadership and trust are the critical ingredients for success. Carl Guardino, executive director of the Silicon Valley Leadership Group refers to these networks as “coalitions of trust.” They require passionate, principled leadership, trusted to advance the interests of everyone in the region. When the California Partnership for the San Joaquin Valley meets, people from all walks of life and a multitude of world views come together, but personal agendas are left outside the door because people are there to advance only one agenda, to make the Valley a better place. Some communities are investing in training of steward leaders. It’s an investment that is commended to all who are aspiring to build effective regional partnerships.

These comments on networked government and inclusive stewardship are important because they will help the reader understand what is envisioned by “regional leadership structures.” There is no intention of trespassing on local jurisdiction. Rather, the intent is to create effective public-private, multi-government networks driven by stewardship of place.

“Successful regional economies benefit from the contributions of a wide array of organizations. Organizing for action entails arriving at consensus and creating the capacity for regions to implement development strategies.”

— Clusters of Innovation Council on Competitiveness, 2001

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The California Partnership for the San Joaquin Valley (the “Partnership”) was formed by Executive Order S-05-05 signed by Governor Schwarzenegger on June 24, 2005. Its initial charge was to develop, by October 2006, a set of recommendations to improve the economic well being and quality of life for the residents of the eight-county San Joaquin Valley. While the Governor made available eight members of his cabinet to serve on the board of the Partnership, no funding was provided to develop the plan. The plan was developed by members of local government, private sector volunteers from the eight counties, members of the Governor’s cabinet, the Office of Community and Economic Development at Fresno State University and the Great Valley Center. Multiple public forums were conducted during the plan development, involving hundreds of people throughout the eight-county region.

The ten-year “Strategic Action Proposal” developed by the Partnership20 divided the work of the Partnership into ten work groups defined by topic area, listed here to illustrate the breadth and ambition of the Partnership:

• Economic Development• Higher Education and Workforce Development• PreK-12 Education• Transportation• Land Use, Agriculture and Housing• Air Quality• Water Quality, Supply and Reliability• Energy• Health and Human Services• Advanced Communication Services and Information Technology These ten working groups are facilitated by business leaders, government officials and universities,

with the vitally important interconnections between the work groups managed by a secretariat function. Each work group has a set of goals, strategies and measurable indicators of progress.

Following submittal of the plan to the Governor and the legislature, the Governor renewed the Partnership with a second Executive Order, S-22-06, and directed the hard work of implementation to begin in January of 2007. Along with the new order came a $5 million allocation to help the Partnership carry out its work over the first 30 months of its ten-year plan (regional cash and in-kind match to date totals more than $5 million).

Executive Order S-22-06 restructured and expanded the board to include:• Eight state government members;• Eight elected local government officials, one from each county;• Eight civic leaders, one from each county;• One representative each from the Federal Interagency; Task Force for the San Joaquin Valley, the Economic Strategy Panel, the California Transportation Commission, the California Air Resources Board and the California Workforce Investment Board;• Up to twelve representatives of regional consortia of existing organizations recognized by the partnership; and• Up to three individuals with specialized expertise and knowledge.

VII . A Petr i D ish: The Cal i forn ia Par tnership for The San Joaquin Val ley

“WHEREAS, the strength of California is tied to the economic success of the San Joaquin Valley. Improving the economy and the well-being of the people in the San Joaquin Valley requires a concerted, coordinated and creative response from leaders at all level of the government and from community members.” — Governor Arnold Schwarzenegger Excerpt, Executive Order S-5-05 June 24, 2005

20 See www.sjvpartnership.org

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All San Joaquin Valley members of the legislature are ex-officio, non-voting members of the Partnership board and are frequent participants at board meetings.

Before discussing the outcomes that have been generated by the Partnership, it is instructive to trace its genesis. The Partnership was formed from the confluence of three tributaries.

In 2000, the California Center for Regional Leadership helped give birth to the Fresno Collaborative Regional Initiative (the Fresno CRI), a joint venture between the Fresno Business Council and Fresno State University. Informed by a report commissioned by the Great Valley Center, entitled The Economic Future of the San Joaquin Valley,21 the Fresno CRI defined a set of five community improvement goals, one of which was to increase the per capita income of Fresno area residents. Perhaps more importantly, they developed a set of community values, attached as Appendix “A,” which defined a code of behavior based on stewardship of place that has been widely adopted by Fresno area organizations.

While the Fresno CRI was doing its work, Fresno Mayor Alan Autry had tasked his Council of Economic Advisors with developing a strategic plan for moving the City forward. The plan, called Meeting the Challenge,22 included a recommendation to break the back of the 2-1/2 decade history of double-digit unemployment in Fresno by “marshaling all stakeholders behind a single plan…to create 25,000 to 30,000 net new jobs in the greater Fresno Area in five years.”

In 2003, the Fresno CRI and the Mayor’s Council of Economic Advisors joined forces to create the Fresno Regional Jobs Initiative (“the RJI”). In short order, there were over 600 companies and 24 local agencies working together to fundamentally change Fresno’s approach to economic development.23

It didn’t take long for the RJI to recognize that, while it would have to do the heavy lifting locally, success of its mission required Valley-wide initiatives that were in part dependent on engagement of the state and federal government. The federal government was already somewhat involved as a result of the creation of the Federal Inter-agency Task Force for the San Joaquin Valley, established in the final months of the Clinton administration and implemented in the early months of the Bush administration.

Meanwhile, from December 2003 through April 2005, the Governor’s cabinet, led by then-Secretary of Business, Transportation and Housing Sunne Wright McPeak, Agriculture Secretary A. G. Kawamura and then Secretary of Labor and Workforce Development Vickie Bradshaw (now Cabinet Secretary), was conducting a series of “Economic Vitality Conversations” to discuss strategies and policy recommendations to facilitate state and regional economic growth opportunities.

These tributaries all came together at a meeting in Governor Schwarzenegger’s office in March 2005. The first executive order followed soon thereafter and the Partnership was born.

Almost two years into implementation, the Partnership held its second annual meeting and released its second annual report24 on December 11, 2008. Readers are encouraged to access the report to fully understand the scope of what has been accomplished. The short version is that, while we are only two rounds into a ten-round fight, the accomplishment to date is extraordinary. A few highlights follow:

• The entire eight-county region is now focused on five target industry clusters: (1) Agribusiness, including Food Processing, Agricultural Technology and Biotechnology; (2) Manufacturing, including Water Technology; (3) Supply Chain Management

21 The Economic Future of the San Joaquin Valley, Collaborative Economics, 200022 Meeting the Challenge Report, City of Fresno, 200223 www.fresnorji.org24 www.sjvpartnership.org

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and Logistics; (4) Health and Medical Care; and (5) Renewable Energy. Workforce development across the spectrum of education and training institutions is focused on career paths in these target industries.

• Launched Careersinthevalley.com, a one-stop web site designed to link employers, job-seekers and vocational training programs throughout the Valley.

• Launched the San Joaquin Valley Clean Energy Organization (the “SJVCEO”) as a 501c3 to bring together the Valley’s efforts to conserve energy and advance the development of fuels and energy from renewable sources. The SJVCEO has signed an MOU with the 25x25 Initiative (25% of the nation’s energy from renewable resources by 2025) to become the first national demonstration project for the accomplishment of this goal.

• Launched the San Joaquin Valley Housing Trust to help jurisdictions achieve their housing goals.

• County organizations which did not talk much across political jurisdictions, except perhaps to argue with each other, are now all working together. In particular, the region’s Councils of Governments, Workforce Investment Boards, Economic Development Corporations and K-12 County superintendents are now all rowing in the same direction.

• A regional blueprint for the eight-county region that coordinates land-use and transportation plans is nearing completion. And the blueprint is fully coordinated with the air quality, carbon footprint and water use goals of the region.

• Business, agricultural and environmental groups, which three years ago did not agree on much as related to air quality now are in total agreement on the sources of the problem, and mostly in agreement on the strategy and tactics to solve the problem (granted that the remaining areas of disagreement still consume

more time than they merit).

• The Valley has always been a microcosm for the water wars that have pervaded California for decades, with distinctly different world views between those in Kern County and those in San Joaquin County. Those views have now largely been reconciled and there is optimism that a comprehensive plan can be put forward that will be acceptable to all in the Valley and beneficial to all Californians.

• Consensus was developed in the region on high speed rail routes, and the Partnership played a major role in the revision of the High-Speed Rail bond. Provisions for greater accountability as well as a much larger community of riders in Phase One helped ensure voter approval of the bond measure.

• Working closely with the California Emerging Technology Fund (“CETF”), the Partnership is implementing ways to aggregate uses of bandwidth for the greatest number of users, especially in remote and rural communities. A pilot was implemented in the rural Tulare County community of Pixley. CETF has matched seed capital from AT&T and the Partnership to support UC Merced in the development of a telemedicine network throughout the region. CETF also has partnered with the City of Firebaugh to embrace broadband as a strategy for community economic transformation.

• Supported planning efforts to build a UC Merced medical school to help train physicians, badly needed to address the most underserved region in California.

• A region that previously spoke to Sacramento and Washington with multiple voices (more than those of the eight counties because every city and municipality had its own agenda) now speaks with one voice. Valley legislators welcome and have been very supportive of this shared agenda. The same is true of the Governor.

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The Partnership estimates that in the past two years, the benefit of this “one-voice” approach has been to realize at least one billion dollars more in state funding than would have been the case under its prior more fragmented approach.

As shown in the Partnership annual report, progress towards the major goals of the Partnership is being done by tracking a series of macro (statistical) and micro (community-based, human scale) measurements. Only two years into implementation, and in the midst of a major recession, it is too early to speak of meaningful, sustained progress. However, there are positive signs. The Valley is weathering this recession better than past recessions and the unemployment rate spread between the Valley and the state has narrowed. Student achievement in our K-12 schools is improving. The Valley’s air quality has seen significant improvements. Renewable energy is on the rise, with the Valley now boasting of the country’s largest solar installations for any municipal airport (Fresno Yosemite International), university (Fresno State University), and military installation (the 144th Air National Guard).

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What do we do about the fact that there is so much discrepancy between the borders determined by the political jurisdictions we have inherited from history and the borders that define regional economies? Some areas of the country, such as Louisville, have tried to better align those two boundaries, but that is not what is being advocated in this paper. For one thing, it took Louisville more than 15 years to accomplish that mission, and we frankly don’t have time for that. And there is no assurance that such consolidation will have the effect that is needed to create thriving regional economies. That effect will come when all the key parties decide that they want to play together for the benefit of all.

Who are those parties, and what are their roles?

The Private Sector

It is the private sector that creates most of the jobs in America, in particular the small to medium, entrepreneurial, innovation-driven businesses.25 Regional economic development plans are bound to fail if business is not in the lead. If we want to grow an industry cluster, we better have the members of that cluster telling us what they need. We may find that they need workforce training, university research in industry-related fields, more streamlined business permitting by local government, or perhaps shovel-ready industrial park capacity for their expansion. Whatever it is, what we don’t want to do is guess at it.

Additionally, the private sector tends to bring a more entrepreneurial role and a higher sense of urgency to economic development and to be less constrained by political factors including political boundaries.

The caveat is that business must lead as stewards. The notion is to make the region attractive for all current and potential players in the industry. In Fresno, when the companies that now comprise the RJI Water Technology cluster were first asked to meet to describe their shared needs, the response from the CEO of the largest of those companies was that he had never met with his competitors without a lawyer in the room. But he came to the meeting, and today the International Center for Water Technology at Fresno State, one of

the “projects” identified at that first meeting, bears his name.

And the notion, also, is that improvement of the economic prospects for industry clusters must be consistent with the environmental quality and social equity goals of the region.

Community-based Organizations

Broadly defined, “economic development is a process that influences growth and restructuring to enhance the economic wellbeing of a community,” while “community development is aimed at increasing the possible outcomes within a community by linking individuals and organizations working towards common ends.”26

The overlap is obvious. Increasing the economic strength of a community creates new resources to improve community conditions. Conversely, activities that improve the community make it easier to attract and retain thriving companies.

When they are able to work effectively across organizational boundaries and commit to outcomes-

VIII . Making i t Work: A Susta inable Model of Regional Governance

“Leaders of businesses, government, and institutions all have a stake — and a role to play — in the new economics of competition. Each party is dependent on and responsible for creating the conditions for productive competition.”

— Clusters and the New Economics of Competition Michael Porter, 1998

25 http://www.sba.gov/advo/stats/sbfaq.pdf26 Report of the Strengthening America’s Communities, Advisory Committee, July 2005

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based strategies, community-based organizations play a critical role in effective regional partnerships. As is the case for business organizations, CBOs must also lead as stewards of the whole.

The Education Community

In our knowledge economy, innovation and entrepreneurship are the main drivers to growth and prosperity. More than any other community attribute, employers today are looking for superior workforce skills. The education community, from K-12 through the community college and university system, plays a huge role in the development of industry clusters.

Alignment of the education community, from ROP and career technical education in the K-12 systems to targeted curriculum in the community colleges and universities, is vital to the success of clusters and to the social benefits of a quality job. When the RJI was launched in 2004, the unemployment rate in Fresno was in double-digits, yet there were over 3,000 jobs going wanting because of a mismatch of employer needs and workforce skills.

Universities play a crucial role in providing the intellectual capital to drive industry clusters. The most renowned industry clusters in the world have one or more universities inside their geography. And, as has been the case with Fresno State University for the RJI and the California Partnership for the San Joaquin Valley, they can play a vital stewardship role for the region.

Workforce investment Boards (WIBs) also play an important role. They are most effective for the communities they serve and the taxpayers who support them when they align their programs with regional industry clusters.

Local Governments

First, note that the heading is plural. It’s important to get as many local governments engaged in regional economic development as possible. Underperformance is the norm when the county and the cities in the county are not singing from the same score sheet. It’s equally inefficient when the counties in the region are not aligned behind shared goals and strategy.

Government plays a key role in making communities attractive to employers. Where financial incentives were the way cities attracted business in the smokestack era, attraction and retention of knowledge workers is now the key competitive differentiator. Industry clusters can be established in a wide array of geographies, and quality of life issues are often the deciding factor.

Beyond that, the principal role of local governments in economic development is to remove obstacles in the way of business innovation and entrepreneurship. When the RJI was getting started, assembly member Juan Arambula, then the chair of the Fresno County board of Supervisors, defined the roles this way: “Business must drive the train, and government must remove the obstacles on the tracks.”

State Government

The role of state government will be defined more fully in the next section. For now, suffice it to say that state government can help, hinder or be indifferent to the development of thriving regional economies. The report card for California is mixed, but it’s safe to say that the state is not doing nearly enough to tap the potential benefits that would accrue to the state if it chose to adopt more proactive policies that would place it squarely in the “help” mode. This is not to suggest that the state should be picking industry winners or

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losers, nor should it be picking regional winners or losers. What it can do, as will be suggested in the next section, is to create conditions that help regions and industries prosper.

The Federal Government

The role of the federal government is similar to that of the state government. Its report card is equally mixed, but for different reasons. Certainly, lots of money is spent on federal community and economic development programs, and there is no absence of tax credits, price supports and other benefits for specific industries. What is totally lacking is a coherent 21st century regional economic development strategy and a consolidation of the myriad community and economic development programs run by all the Washington agency silos. A 1995 study27 found that there were 180 federal programs across 19 government budget functions, totaling $188 billion a year, focused on economic infrastructure, workforce training, technical assistance, technology transfer and business development. The recommendations in the “Strengthening America’s Communities Advisory Report” are as valid today as when they were issued in July 2005. Perhaps the current economic crisis and the change in administration will create an opportunity to have these recommendations reconsidered.

Foundations

Foundations can play a critical role in these regional vitality initiatives. While many are focused on specific aspects of community and/or economic development, some have adopted more comprehensive place-based approaches. Either way, they need a seat at the table. In the former case because their activities can leverage, and be leveraged by, what others are doing in the region; in the latter case because they can help play

a major stewardship role for the entire region.

Regional initiatives, as envisioned here, involve everyone from the grass roots to the board rooms. This approach may be the best way to remove the frustration that foundations have often found with approaches that are either too top-down or too bottom-up, or too isolated from the market forces that influence the geographies they wish to benefit through their programs.

With their significant access to capital (foundations give more than $30 billion annually) foundations can function as catalysts, brokers, capacity builders and connectors, and they can bring pressure for change in dysfunctional regions.

Regional Partnerships

Optimizing the role of all these parties is no easy task, particularly when there is misalignment between political and economic boundaries. It requires more than one-time or occasional dialogue. And keeping such a vast network aligned, nimble and agile, a necessity in today’s global economy, adds to the governance challenge. But, across the country, indeed across the world, nations, regions and communities are finding that there is no better choice. Regions must have architectures to build and maintain consensus for action.

“No neighborhood exists in a vacuum. All communities are part of larger economic markets, and while they are influenced by the economic activity and decision-making that happened in those markets, neighborhoods have little influence over them.”

— Making Connections: an initiative of The Annie E. Casey Foundation28

27 Center for the Study of Rural America, Federal Reserve Bank Kansas City, 200528 Connecting People to Jobs, Annie Casey Foundation

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As will be discussed more fully in the next section, one of the principal policy recommendations in this paper is that state government create incentives for the development of voluntarily self-defined regional partnerships, comprised of two or more contiguous counties with economically interrelated activities, that are willing to work collaboratively to tackle key issues on a geographic scale that matches the geographic magnitude of the challenge (“California Regional Partnerships”).

Policy mechanisms and funding must be put in place to ensure that these regional partnerships are sustained over time. The good work done by CCRL towards establishing regional collaboratives in the early part of this decade showed a very high casualty rate for partnerships that are driven primarily by volunteer efforts.

The San Joaquin Valley has adopted this regional partnership model, and the early results are most encouraging. The specific organizational approach, governance model and tactics adopted by the Valley may not fit well in other regions. Anticipating a question that may be raised by readers, the answer to “who is in charge of such a partnership” is that each region should make that decision. In the California Partnership for the San Joaquin Valley, we have a large and diverse board; we have a chair and two deputy chairs, one each from local government, state government and the private sector; and we have a secretariat function that administers the implementation of the plan, reporting to the board.

Each region should be encouraged to innovate and experiment with what will work best for them. But there are some principles that should apply to all regions. They should:

• Involve multiple counties (and their cities and unincorporated communities);

• Include counties that have productive economic interconnections and share common challenges;

• Include counties that encompass natural features and environmental assets (such as watersheds, rivers and air basins);

• Be voluntarily established by local elected, civic and business leaders;

• Be private-public partnerships in the broadest sense, involving all the parties outlined above; • Operate based on explicit or tacit shared values built around stewardship of place; and

• Be outcomes oriented and accountable, with clearly defined measures of success.

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IX. Pol icy Prescr ipt ions

With the exception of the California Partnership for the San Joaquin Valley, the State of California does not have a history of purposeful, systematic engagement in the development of strong economic regions. While some would argue that the development of economic regions is best left to mechanisms of the market place and that government should not be involved, that’s really a false choice. The public sector always plays a role in setting the stage for employment-generating investment by the private sector, and it is most certainly deeply involved in all aspects of environmental quality and social equity. The critical question is not whether government should be involved, but how. Should that involvement be random and sporadic, or purposeful and systematic?

The state could conceivably take a top-down approach and organize itself into several regions defined by the Governor and the legislature, much as North Carolina has done, but Californians and their local elected leaders don’t respond well to state mandates. Instead, this paper proposes an evolutionary and incremental approach, with the State of California playing a strong role in catalyzing and supporting the development of voluntary, self-defined, multi-sectoral, multi-government regional partnerships aimed at fostering strong regional economies. The proposed strategy for implementation is comprised of three main elements:

• Regional competitiveness should be formally identified by the Governor and the legislature as the overarching strategic economic development goal for the State of California;

• All cabinet officers and their respective agencies and departments should be charged by the Governor with responsibility for helping advance regional competitiveness, with the California Economic Development Partnership serving as the principal state

body responsible for implementation of this strategy; and • An incentive-based scheme should be put in place to catalyze the creation and support the ongoing development of a state-wide network of regional partnerships (“California Regional Partnerships”).

Regional Competitiveness as Formal State Policy

The legislature should pass and the Governor should sign a resolution supporting the development of regional competitiveness as the overarching economic development strategy for the State of California.

Regions are defined earlier in this paper. Regional competitiveness is defined here both in the context of the global economy and in its broadest sense to include the 3 Es. It is proposed that such competitiveness be achieved through comprehensive outcomes-based strategic plans developed and implemented by regional partnerships that include local and state government, the private sector, academia, non-profits, NGOs and foundations.

As a starting point for discussion, a draft of such a resolution is attached as Appendix “B.”

Engagement of Cabinet Officials and the California Economic Development Partnership

While it is not practical to have eight cabinet officers engaged in every regional partnership, such as is currently the case with the California Partnership for the San Joaquin Valley, it is not unreasonable to expect, and it is certainly highly desirable, that there be some representation by cabinet officers and senior department officials in each of some 9 to 12 regional partnerships that might develop in California. Plainly put, the San Joaquin Valley Partnership would not be anywhere near where it is without the involvement of Governor Schwarzenegger’s cabinet officials. They

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have been invaluable in helping attract and keep others at the table; equally invaluable in providing thought leadership; and, as they have become better informed on the unique issues, opportunities and challenges of the Valley, they have been effective voices in Sacramento for advancement of the Valley’s regional competitiveness.

Additionally, it is important that the responsibility for implementation of a state-wide network of regional partnerships be assigned to an inter-agency organization represented at the cabinet level. Such an inter-agency organization already exists. What is envisioned is that the California Economic Development Partnership (CEDP), created by Governor Schwarzenegger in November 2005, be given significant additional responsibility as well as the funding necessary to help establish such a of network of regional partnerships. The role of the CEDP would include the following existing and new responsibilities:

Existing

• Conduct research and analysis of California’s key industry sectors.

• Conduct studies related to the development of workforce skills needed by California’s key industry sectors.

• Assist the Governor in setting and guiding policy in the arenas of international trade and investment as well as workforce development.

• Operate and maintain the California Business Portal,29 which provides access to information and resources for starting, growing, financing, expanding or relocating a business in the state.

• Operate and maintain California Facts,30 which provides economic information for each of California’s 58 counties.

• Manage California’s Action Teams (A-Teams), a pro-active tactic to mobilize appropriate state, regional and local resources to respond quickly to extraordinary economic development and assist employers and investors in retaining, growing or locating businesses in California.

• Manage CalBIS, a service that provides consultation and referral services for employers considering business investment and expansion.

• Organize conferences and workshops.

New

• Administer and fund a program of challenge grants, described below under “California Regional Economies Incentive Programs,” to catalyze the formation and support the development of a state-wide network of California Regional Partnerships. (Note: The CEDP currently administers one such Partnership, the California Partnership for the San Joaquin Valley.)

• Establish, administer and help fund a private-public umbrella organization, referred to here for descriptive purposes as The California Partnership for Regional Economies, tasked with catalyzing the establishment of new regional partnerships, support of partnerships already in place; and regular convening of representatives of the regional partnerships for the purpose of imparting education, sharing of best practices, and development of proposed state policies that will help advance the continuous growth of regional economies.

• Serve as the lead advisor to the Governor on the establishment of a system that offers preferences in the allocation of formula funds and state RFPs to established regional partnerships with cross-jurisdictional programs or projects.

• Serve as the lead advisor to the Governor on

29 www.calbusiness.ca.gov30 www.labor.ca.gov/cedp/default.htm

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consolidation of state economic development and community development programs to help advance the goal of regional competitiveness;

• Play a lead role in advocacy for federal policies that are consistent with nation-wide development of strong regional economies.

• Monitor the performance of the proposed regional partnerships against regionally established metrics that measure progress on the 3 Es.

It is envisioned that the California Partnership for Regional Economies described above will operate on a budget of approximately $2 million/year, with half of that amount to come from the State General Fund and the other half from foundations and other non-state sources.

California Regional Economies Incentive Program

What is envisioned here is a program to incent coordinated, collaborative regional action; a program of incentives that will encourage local civic and elected leaders to form multi-county, multi-sector regional partnerships to build consensus and collaboration behind shared, comprehensive regional competitiveness initiatives. The intent is that the state should (a) provide “seed capital” to help establish and develop these regional leadership structures until they become self-sustaining; (b) offer preferences to regional partnerships in the allocation of program and project funds; and (c) allow for long-term sustainability of the partnerships based on allocation of a portion of the tax increment generated through regional economic growth.

The following three vehicles are proposed as a means of achieving these goals.

1. California Regional Partnership Challenge Grants

These grants are intended to support regional partnerships from start-up through year four of implementation. As noted below, the partnerships will be required to put up an ascending level of match funds between year one and year four. After the fourth year, the partnerships will be expected to sustain themselves from the proceeds indicated in section (3) below.

Shown below are some “straw man” suggestions for such a challenge grant program for consideration by the Governor and the legislature:

a. Challenge Grant Administrator: The California Economic Development Partnership (CEDP). b. Process: The CEDP will issue an RFP once each year during a three year period, requesting proposals from regional applicants meeting the definition of “regions” used earlier in this paper. c. Eligibility: all regions may apply, provided that they (i) have a critical mass of multi-county, public-private sector partners that have voluntarily signed on to participate in the regional partnership; and (ii) have developed a Regional Economic Strategic Plan adopted by the partners. d. The grants will be issued for a two-year period, renewable for two years subject to achievement of performance metrics in the first two-year grant period. e. Grant amounts will range from $0.5 million to $2.5 million per year, depending on (i) the population of the region and the number of counties involved; (ii) the scope of the proposed regional undertaking; (c) the depth and breadth of the partnership; (d) the intended uses of the grant funding; and (e) the quality of the grant application. f. All grant applications will require a cash or in-

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kind match, as follows: i. 25% in year one; ii. 50% in year two: iii. 75% in year three; and iv. 100% in year four g. All grant applications will require identification of the indicators of the 3 Es progress to be made by the region and a method for monitoring achievement. Award of a challenge grant will serve as formal indication that the grant recipient is formally recognized by the State of California as a “California Regional Partnership.” Such recognition may be obtained without the need to participate in this challenge grant program through consultation with the CEDP.

The provision for three RFPs, one each to be issued over a three year period, anticipates that (i) it is unlikely that all regions will be in a position to respond immediately to these challenge grant opportunities; (ii) grant applications that are unsuccessful in one year may be improved and re-submitted in a following year;

and (iii) there will be more applications than available funding in any given year.

It is proposed that the total amount allocated and committed for this challenge grant program be limited to a maximum of $72 million over a five year period. As indicated above, grant “commitments” are envisioned to be made for a two-year period, with the opportunity for renewal for two years. At a total funding level of $72 million and an average annual grant of $1.5 million/year/region (average total of $6 million/region over 4 years), the proposed funding is sufficient to make grant awards to up to twelve regions, which should be more than adequate. Grants will be available to all regions that submit proposals consistent with best practices that advance the 3 Es.

On the assumption that the available grant funding is front-loaded to get as many regional partnerships underway as early as possible, so that the first RFP allows for commitments of up to $30 million, the second RFP for up to $24 million and the third RFP for up to up $18 million, the maximum schedule of commitments would look as follows:

Table 1

Grant Funds Committed ($millions)

Grant Award Year Year 1 Year 2 Year 3 Year 4 Year 5

1 $15.0 $15.0*

2 $12.0 $12.0*

3 $9.0 $9.0*

Total $15.0 $12.0 $24.0 $12.0 $9.0 $72.0

*Assumes renewal for second two-year term

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The actual maximum draw on state funds would be as shown below:

It is proposed that this challenge grant program expire after seven years unless re-authorized by the legislature and the Governor.

It’s important to note that these RFP processes are not intended to create a competition between regions, but rather to ensure that respondents have core leadership structures in place that meet the criteria for definition of “regions” and that the plans they submit are thoughtful and outcomes-based and have buy-in from a broad range of community stakeholders. If there is to be competition, it should only be for which regions are first in line, based on the quality of their proposals, and for which regions show the best performance over time against their regionally established metrics.

Funding for new programs is always difficult to come by during an economic downturn such as we are experiencing now, but when the proposal is for an economic stimulus program with the potential for a very high return on investment in the form of new

revenues and accompanying taxes, it merits serious consideration. The proposed outflow of $7.5 million for challenge grants in the first year of the program plus $1.0 million to launch the California Partnership for Regional Economies represent, in total, about one tenth of one percent of the program cuts that are under consideration by the governor and the legislature at the time of this writing. Stated another way, this economic stimulus program could be launched immediately if the program cuts currently under consideration were increased by one tenth of one percent and the proceeds applied to growing California’s regional economies. And the funds allocated to this program would be spent in California to benefit Californians.

Table 2

Grant Funds Drawn ($millions)

Grant Award Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

1 $7.5 $7.5 $7.5* $7.5*

2 $6.0 $6.0 $6.0* $6.0*

3 $4.5 $4.5 $4.5* $4.5*

Total $7.5 $13.5 $18.0 $18.0 $10.5 $4.5 $72.0

*Assumes renewal for second two-year term

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2. Regional Preferences in Allocations of State Funding

The idea here is to create a “preference” in grant formulas, state RFPs and other means of funds allocation for cross-jurisdictional programs or projects proposed by regions that have established regional partnerships. For example, the CTC might give a 5% preference in scoring projects that are multi-jurisdictional and supported by multi-county partnerships. Similar thinking could be used for WIB formulas, etc. The purpose is to incent the establishment and effective maintenance of these regional partnerships.

The specifics of this program of preferences should be assigned to the California Economic Development Partnership.

3. Sustainable Funding

The intent here is to establish a funding mechanism for long-term sustainability of the partnerships based on the tax increment generated through regional economic growth.

As noted previously, it is anticipated that after the initial four years of challenge grant funding, the regional partnerships would sustain themselves from a small portion of the additional tax revenue generated through regional top-line revenue growth. This is funding aimed only at supporting the regional leadership structure and perhaps a regionally administered program of small seed grants to incent innovation in economic, environmental and social development. It is not envisioned that this would amount to more than a few million dollars per year for a region. This funding allocation would be reinvested in the region to help create a virtual cycle for the regions.

Some of this incremental tax revenue would show

up directly in the form of sales taxes, while some of it would show up indirectly in the form of income taxes and property taxes. It will require analysis from tax experts to determine which of these tax sources should be used for this purpose.

Since, under the Bradley Burns provisions, the State of California already sets aside a portion of the sales taxes it collects for distribution back to local governments, this may be the simplest vehicle to use for this proposed allocation back to regional partnerships. The caution is that any sales to buyers outside the state are not taxed. The greatest economic value of economic growth comes from exports, the very thing that cannot have a sales tax applied.

Growth in state income tax collections, or a sub-set of income taxes, could also used as a proxy for calculation of the amount going back to the regional partnerships. For example, growth in corporate taxes could be considered because they would be beneficiaries of a successful economic growth strategy around economic clusters. The caution here is that many of the beneficiaries would be filing under an S corporation, Partnerships and Personal income taxes.

To avoid the problem of economic cycles, one possible implementation might be to establish a tax baseline based on a three-year rolling average. The baseline might be established at the time that a regional partnership is first established (the first year it is awarded a challenge grant); then look at a rolling three-year change in the baseline number and allocate a percentage of this tax increment to the regional partnerships.

These are thought-starters. Because the first use of this tax increment approach to sustain the regional partnerships is not proposed to be utilized until four years after the launch of each regional partnership, there is time to flush out the details. What is important

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in order to encourage the establishment of the proposed regional partnerships is that the state makes clear its intent to implement some mechanism that will provide for sustainability of the partnerships, even if the details are to be worked out later

The aggregate state investment proposed in this paper is $77 million over the next five years, including the California regional Challenge Grants program ($72 M) and the California Partnership for Regional Economies ($1 M/year). If, as a result, California’s GDP can be increased by one or two percent, or even by half of one percent, the return on investment will be extraordinary, with each percentage point representing approximately $17 billion in top-line revenues and $2.5 to $5 billion in new tax revenues.

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X. Concluding Comments

As this paper is being written, the nation finds itself in a serious recession and the State of California is in a deep financial crisis. There is much discussion of economic stimulus programs. Infrastructure investment, particularly if it is fast-tracked, is one such stimulus to create employment and rebuild foundation for a better tomorrow, but it is only part of the answer. In the end, we will return to prosperity only if our nation and our state are able to compete in the global economy. The sooner we are able to get our regional economies to contribute to this goal, the faster we will ascend from the economic malaise that now affects us.

New programs and investment strategies are difficult to begin in times of economic downturns. However, if those investments can reasonably be expected to result in a high return on investment, including a return to taxpayers in the form of new revenues, they should not be delayed. We are at that place now with this proposal.

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XI . Appendix A

1

2

3

4

5

6

7

8

9

10

COMMUNITY VALUES OF THE FRESNO REGION:

Guiding Principles for Civic Transformation

StewardshipWe will lead and follow as stewards of our region, caring responsibly for our community assets. We will work together toachieve the greatest, long-term benefit for the community as a whole.

Boundary Crossing and Collaboration We are willing to cross political, social ethnic and economic boundaries and partner with others to achieve communityoutcomes. We will lead beyond the walls to create an inclusive, cohesive community through partnership andcollaboration.

Commitment to Outcomes We are willing to take responsibility for tasks and achieving specified outcomes. We are committed to staying involveduntil the tasks are completed.

“Art of the Possible” Thinking We believe that anything is possible in the Fresno Region. We will envision success without limitations and thenbackward map a specific, attainable strategy for achieving that vision.

Fact-Based Decision Making To the greatest extent possible, we will base decisions and action plans on objective data, thereby avoiding distortion ofissues by personal feelings or agendas. At the same time, we seek to get to the heart of the matter and recognize that factswithout context can be misleading.

Truth Telling We value the empowerment of everyone involved, along with all community stakeholders, to honestly and forthrightlyshare all knowledge, experiences and insights relative to the work at hand. We take responsibility for ensuring our truthis current, not historical. We all share the responsibility for maintaining the truth telling standard.

Power Parity We respect all persons and recognize that there are diverse viewpoints. Positional power will not determine a strategy orpreferred outcome, merit will. Viewpoints from diverse constituencies will be proactively sought to ensure the best possibleoutcomes for the community.

Commitment to Resolving ConflictConflict is inevitable and is sometimes required in order to achieve the best outcomes possible. Healthy conflict involvesvaluing every individual regardless of his or her stance on a specific issue and an unwavering commitment to workingthrough the conflict in a positive manner despite its severity.

Asset-Based Approach We are focused on using a strengths-based, asset-oriented approach to people and issues. We believe that positive changeoccurs when we appreciate, value and invest in what is best in our people and community.

Conflict of InterestWe agree to disclose any personal or professional conflict of interest that may affect our objectivity before engaging inwork that will impact the community. We seek to avoid even the appearance of impropriety.

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XI . Appendix B

DRAFT

JOINT RESOLUTION BY THE GOVERNOR AND THE LEGISLATURE OF THE STATE OF CALIFORNIA

WHEREAS, the State of California has an economy larger than that of all but seven nations; and

WHEREAS, the State’s economy is really a tapestry of regional economies, each with its own, unique character, history, culture, natural assets and environmental features (such as watersheds, rivers and air basins), economic interconnections, challenges and competitive advantages; and

WHEREAS, the strength of California is tied to the achievement in all its regions of economic prosperity, a quality environment and social equity (often referred to as the 3 Es); and

WHEREAS, there is ample evidence in our society that sustained economic development cannot be made in the absence of a quality environment and social equity, but it is the economic leg that fuels progress on the other two; and

WHEREAS, the existence of a critical mass of innovation-based industries engaging in similar work (“industry clusters”) has been closely correlated with successful regional economies; and

WHEREAS, such industry clusters have been recognized by experts as being vital to competitive success in the global economy; and

WHEREAS, successful regional economies can reasonably be expected to increase California’s GDP and generate higher tax revenues, which, if re-invested in the region can generate a virtual cycle of prosperity; and

WHEREAS, most economic decisions that result in economic growth are made by the private sector, but government policies and actions can benefit or hinder the development of strong regional economies; and

WHEREAS, local governments in California operate within political rather than economic boundaries and state government operates through functional rather than regional organizational units; and

WHEREAS, it is desirable for the State of California to foster and incent the creation of multi-government, private-public partnerships aimed at fostering strong regional economies;

NOW, THEREFORE, the Governor of the State of California and the leaders of the California legislature do hereby adopt this resolution, to become effective immediately:

1. The development of strong regional economies is hereby established as the overarching economic development policy framework for the State of California.

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2. The State will implement this policy by catalyzing and supporting the development of voluntary, self- defined, multi-sectoral, multi-government regional partnerships aimed at fostering strong regional economies (“California Regional Partnerships”). 3. All cabinet officers and their respective agencies and departments will be directed by the governor to help advance regional competitiveness. 4. The principal state body responsible for implementation of this policy will be the California Economic

Development Partnership (“CEDP”). The scope of responsibilities of the CEDP will be increased to include (a) administration of a program of state incentives to catalyze the creation and support the development of a state-wide network of California Regional Partnerships, such incentive programs to be funded based on criteria to be agreed upon by the legislature and the governor; (b) participation in the establishment of the California Partnership for Regional Economies, a private-public umbrella organization tasked with catalyzing the establishment of new regional partnerships, support of partnerships already in place, and regular convening of representatives of the regional partnerships for the purpose of imparting education, sharing of best practices, and development of proposed state policies that will help advance the continuous growth of regional economies; (c) Serve as the lead advisor to the Governor on the establishment of a system that offers preferences in the allocation of formula funds and state RFPs to established California Regional Partnerships with cross-jurisdictional programs or projects; (d) Serve as the lead advisor to the Governor on consolidation of state economic development and community development programs to help advance the goal of regional competitiveness; (e) Play a lead role in advocacy for federal policies that are consistent with nation-wide development of strong regional economies; and (d) Monitor the performance of the proposed regional partnerships against regionally established metrics that measure progress on the 3 Es.

5. Nothing in this Resolution shall supersede any requirement made by or under law.

IN WITNESS WHEREOF we have hereunto set our hand and caused the Great Seal of the State of California to be affixed this ____ day of _____________2009.

___________________________________Arnold SchwarzeneggerGovernor of California

___________________________________ ________________________________Darrell Steinberg David CogdillSenate President pro Tempore Senate Republican Leader

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_________________________________ _______________________________Karen Bass Michael VillinesSpeaker of the Assembly Assembly Republican Leader

ATTEST: __________________________________Debra BowenSecretary of State