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Importance of Manufacturing within California Economy

Manufacturing plays an important role within the California economy, supporting high wage jobs and small businesses within the expanded global supply chain.  The Milken Institute estimates that for every job created in manufacturing, 2.5 jobs are created in other sectors.  In some industry sectors, such as the electronic computer manufacturing, the multiplier effect is 16 to one.  

One of California's comparative advantages to other regions of the world is the strength and depth of our innovation-based industry clusters.  Annually, California's regions rank high within one or more industry clusters, including biotech, advanced manufacturing, food processing, and information technology.

Manufacturing is California’s most export-intensive activity contributing significantly to California's $159 billion in exports in 2011.  Overall, manufacturing exports represent 9.4% ($120 billion in goods) of California’s GDP, and computers and electronic products constitute 29.3% of the state’s total manufacturing exports.  More than one-fifth (21.9%) of all manufacturing workers in California directly depend on exports for their jobs. 

Manufacturing in California, however, even prior to the current economic recession, faced many challenges maintaining global and domestic competitiveness, including securing a skilled workforce to support the changing needs of manufacturing and goods movement and maintaining cost-effective productivity in the face of lower safety and wage standards in emerging foreign markets.  Between 2001 and 2011, California lost 33% of its manufacturing base, losing 613,000 jobs.

Research on California's Manufacturing Challenge

According to a June 2010 report by the Milken Institute, "Manufacturing 2.0:  A More Prosperous California," the challenges in the manufacturing industry serve as an early warning of the challenges facing the state's economy as a whole.  The report found that while manufacturing still drives the state's economy, California's competitive position is losing ground to other states and nations based on its regulatory climate, tax burden and reputation as a difficult and costly place to do business.  The Assembly Committee on Jobs, Economic Development and the Economy held a hearing to review the report and hear from manufacturers and labor representatives on possible follow-up actions.  Several bills were introduced and summaries are available under the legislative page. 

One of the report's key findings is that California is losing a larger share of manufacturing employment at a faster rate than other states.  In addressing these challenges, the report recommends the state develop a new cooperative relationship with manufacturing.  Among other issues, the report recommends that the state streamline regulatory procedures for manufacturers and increase transparency and accountability in the regulatory process and increase coordination across state agencies for permit and licensing approvals.  Recently enacted legislation, AB 617 (Calderon), Chapter 93, Statutes of 2011, requires the adoption of a standardized process for conducting the regulatory impact analysis. 

Site Selection Magazine, a trade paper for the business development community, reports that from 2007 to 2009, California had the slowest growth in manufacturing capacity among the nation's 25 most populous states.  While the national average of new manufacturing sites was 28.7 new facilities during this time period, California gained only 3.7.  

Manufacturing Incentives in other States

California communities are in competition to attract and retain manufacturers.  Many states have developed economic development programs that target manufacturing generally, while others focus on sub-industry and sub-subindustry sections such as energy generation, information technology, biotechnology and food processing.  As an example, the U.S. Department of Energy has taken a closer look at state incentives related to attracting renewable energy production and manufacturing and reports that 24 states have tax credits, 28 states authorize property assessed clean energy (PACE) programs, and 38 states offer property tax-based incentives. 

The programs listed below include four nationally recognized state initiatives.

Michigan SmartZones:  Michigan’s 15 SmartZones include technology business accelerators and incubators that provide the critical entrepreneurial and commercialization support services essential to growing start-up ventures.  The program consists of collaborations among universities, industry, research organizations, government and other local institutions, resulting in regionally based high-tech zones which target growth in a specific economic sector that fits the geographic region’s strengths and needs, creating clusters of high-skilled, high-paying jobs.  According to the Michigan Economic Development Corporation's website, the Michigan SmartZone network is the framework around which the state’s entrepreneurial and innovation ecosystem has blossomed.

Ohio Business Gateway:  This program is a web-based filing and payment system that allows business taxpayers to file and pay various state level taxes to different state agencies electronically at one web site for free.  The program is designed to provide a "One-Stop Shop" for businesses to comply with a variety of state agency tax and reporting requirements, including sales tax, employer withholding, worker's compensation, unemployment compensation and unclaimed funds.

Arizona Clean Technology Property Tax Reduction and Tax Credit:  The goal of the program (enacted in 2009) is to encourage business investment that will produce high quality employment opportunities and enhance Arizona’s position as a center for production and use of renewable energy products. The program offers two benefits: up to a 10% refundable income tax credit and up to a 75% reduction on property taxes for 10 years for companies that are primarily engaged in manufacturing or have headquarters for producing systems and components that are used or useful in manufacturing renewable energy equipment.  To be eligible for these benefits, companies must meet and maintain certain requirements including paying wages above the state's annual median wage, paying certain health care costs and making annual investments in equipment.

Missouri TechLaunch:  The Missouri Technology Corporation (MTC) is a public-private partnership created by the Missouri Legislature to "promote entrepreneurship and foster the growth of new and emerging high-tech companies."  One MTC initiative is the Missouri TechLaunch which offers pre-seed funding to start-ups for intellectual property development and evaluation, including in-depth market analysis, competitive analysis, proof of concept, and prototype design and development.  Individual awards cannot exceed $100,000 and may be in the form of equity or convertible debt.

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