Latino Caucus Testimony

Wayne Schell recently testified at the Economic Development Summit held by the Latino Legislative Caucus on the  Economic Stimulus. Below is the testimony that Wayne Presented.

Members of the Latino legislative Caucus my name is Wayne Schell, and I am the President & CEO of the California Association for Local Economic Development.

We are a professional association made up of over 1,000 local economic developers in cities, counties and economic development corporations across California who are the stewards of their local economy. The theme of my presentation today is that government can only be as healthy as the economy. So what is economic development and what is the role of the government?

The word economic means household and development means better, therefore economic plus development equals better households! Economic development is purely and simply the creation of wealth.

Business and government both have roles to play in economic development. Businesses role is to marshal and mobilize human, financial, physical and natural resources to create marketable goods and services. Business motive is profit.

Government's role is to influence business investment and location decisions with infrastructure, incentives, services, investment, regulation and marketing. Governments motive is revenue and jobs.

Therefore local and state economic development is an investment program designed to leverage private sector capital to induce actions that.

1) Improve business activity
2) Increase employment
3) Increase wages and
4) Pay for community services

Economic development should be viewed as a revenue solution not just another government program. Economic development is not an expense to government it is an investment by government.

There are 3 fundamental forms of economic development.

1) Retention & expansion of existing business
2) Creation of new business
3) Attraction of new business

Unfortunately in California the economic developers mantra is that we are faced with great opportunities brilliantly disguised as impossible situations.

A recent survey by Pollina Corporate Real Estate inc. Demonstrated that the southern states are considered the most pro-business and California did not even make the top 25. All of our major competitors did...Texas, Nevada, Arizona, Florida, Michigan, Oregon and even my old home state of north Dakota.

In fact California was referenced under a section titled "many states shortsighted." here is what they said; "California certainly has the largest business base and the highest deficits among western states. The state ranked low in virtually all pro-business factors examined, which reflects the general perception by businesses that California has an anti-business environment."

The point of this brief reflection on business climate research is that there are a lot of these studies. And that no matter how great our assets or if the research is true or not, or even fair or not...perception is reality! And by the way, for those who think the answer is to simply get government out of the way have their heads in the sand...it won't happen in my lifetime or theirs!

In California when dealing with government it is sometimes easier to get forgiveness than to get permission.

So if we accept the reality that California is what it is then maybe the better solution for California is to make government work better...which is a lot of what local and state economic development is about.

If the word is out...anywhere but California, how do we change that? By doing nothing? Not likely! That's as un-Californian as you get.

As a for instance manufacturing has been heading west. Do we care? The public does! So let's do something about it! Lets not loose all our manufacturing! Lets not let government actions or inactions be the reason why we loose even more manufacturing in California!

So what do the California economic developers think we can do?

#1 - what's the strategy? If you don't know where you are going you are sure to end up somewhere else! A strategy means the art of the general. The strategy must be top down to be effective. The governor is the general and California needs to have a "jobs strategy." Economic development in bits and pieces does not work.

#2 - if the state has a role to play in economic development then who is responsible for the states role? Not only do we not have a strategy we are the only state in the union that does not have a state policy that designates who is responsible! Ask yourself does this make us smarter than 49 other states?

#3 - business retention should be the number one strategic objective. Anticipate tomorrows technology and lets focus on key clusters. We must keep the businesses we have. Let's develop initiatives based on key clusters. Let's keep high value, high bulk manufacturing alive. Why not offer enterprise zone incentives to all manufacturers?

#4 - find ways to support and invest in the existing network of local economic developers. Give them the resources and tools to do their jobs better and more efficiently. As a for instance, create an incentive for the private sector to invest in state and local economic development organizations. In rural areas it won't cost the state anything if you use federal CDBG dollars to bolster local capacity to identify and manage local economic development projects & programs. Require the public utilities commission to approve utilities requests for ratepayer funding of economic development activities. Economic development is in the best interest of the ratepayer!

#5 - leverage, leverage, leverage... enhance the role of the state economic development infrastructure bank. We have a number of ideas like creating a "one stop capital shop" for public sector business loan & grant programs. Implement a bond for jobs to give the bank resources to help California compete. Lets be more creative in leveraging existing state funds to enhance business opportunity... invest in the bank.

#6 - ready to go land is essential to compete. Develop a statewide shovel ready sites program. Site readiness is an imperative (90 days to start work...to turn dirt)...provides incentive to communities who develop sites.

#7 - red carpet not red tape! Let's make a big statement about keeping our existing business. Let's become the #1 customer service state in the union or the world for that matter. Re-establish the state one stop permit system.

#8 - expand all state workforce programs especially at community colleges. Build skills tied to needs. Be demand driven... grow the community colleges centers of excellence in customer service to train state and local employees

#9 - most Latino businesses are small businesses - most of them are not candidates for equity or even mezzanine. Most of them will not get an RLF or a state loan guarantee. But, quite a few can get an SBA loan. This is the single largest access to capital program for Latino businesses and California gets a disproportionate share of the national SBA loans.

Support federal legislation that reduces the cost of SBA loans and makes the community express loan a permanent program this program is targeted to low-income areas and minority owned small businesses and comes with technical assistance.

Help free up the secondary markets for SBA loans ensuring a continuous flow of capital that can be used for SBA 7a and 504 loans. Have state of CA, CalPERS, CalSTRS, etc purchase these relatively risk free loans to help create liquidity for lenders doing job creating SBA 504 loans.

Allow non-traditional lenders such as CDCS, CDFI's and other non-profit financial intermediaries to offer SBA 7a loans. These lenders know how to lend to Latino small businesses much more than your traditional banks. This can be done by having state department of financial institutions oversee them.

#10 - redevelopment is a tool for economic development. So for goodness sake stop taking local governments investment money for the states general fund!

As policy makers your job should be to:
1) Articulate vision
2) Explain the importance of economic development
3) Understand the obstacles and needs of business
4) Identify and leverage existing programs and resources to address the obstacles and needs of business... be creative
5) Invest long-term in economic development
6) Insure a "customer service" government

I urge the Latino caucus to become a "bully pulpit" for economic development in California and to remember that the word to permit should not mean to prohibit! Lets put out the red carpet not the red tape!
I did not want to leave today without offering some ideas, for the record, regarding a state economic stimulus vs. a state role in longer term economic development.

An effective stimulus package should raise demand in the "short run" while improving the capacity of the economy to supply goods and services in the long run. We need to focus on those hardest hit by the down turn while at the same time tackling long-standing infrastructure need. This tactic will have a larger impact on the economy, on a dollar for dollar basis. We should put a high priority on pushing out and leveraging programs and resources already in place i.e. money that people can soon pump back into the economy by a quick increase in government spending.

The best ways for the state to intervene in the economy "quickly" is to accelerate existing funding projects to fruition and by using tactics to leverage existing funding resources. So why out of 27.4 billion dollars of approved proposition 84, 1b, and 1c funding has only about 4 billion been allocated?