A Rome Full of Neros?

California’s economy continues to fall. Energy prices skyrocket. Unemployment rates leap. The housing market claims more foreclosures every month.

It is bad enough that state leaders are asking every stakeholder what they would be willing to bear in new taxes and suspended tax incentives. They should reframe the issue: What can we do to stimulate the Golden State and encourage revenue growth?

Governor Arnold Schwarzenegger refers to a “spending problem,” as opposed to a “revenue problem,” regularly citing that the State’s revenue has grown in a healthy, consistent fashion for years.

In 1998, the legislature passed and the Governor signed a budget of $72 billion. In 2007, the legislature passed and the Governor signed a budget of $145 billion – representing growth of 10.7 percent on 2006 and more than 100 percent in less than a decade. (Sidebar: were things really so bad in 1998 that we could never go back to a budget that included services at those pre-historic levels?)

The government’s growth makes nothing of the “how we got here” part of the story – which is significant and has been debated by government and scholars of all types. Regardless, the purpose of this example is to point out the single greatest flaw in the discussions in Sacramento at the present time.

Our Government’s budget discussion is informed and pressed on by a legislative analyst that no one elected (granted, the office serves a role to raise alternatives). Unfortunately, the discussion is remarkably not about the stalling economy.

The conversation in Sacramento is about what measures the State could take to increase its thirsty revenue streams. For business, it virtually pulls the emergency break when the accelerator is needed.

The State is identifying ways to cut business revenue and take more in taxes so that businesses will have less to spend in their communities and less to invest in growth in California. For those taking Economics 101, this dialogue reflects a belief in clamping down on a slowing economy. Just like throwing gas on a fire.

Did we learn so little from the Smoot-Hawley Tariff Act that this conversation is truly necessary almost 80 years later?

Increasing taxes in a slowing economy is a sure-fire recipe for worsening the crisis already dragging down the economy, which is embroiled in surmounting foreclosures and job losses.

Californians need jobs and business investment. They need it now.

How might the State stimulate immediate investment by the life sciences sector – California’s most robust industry and one that is counter-cyclical to the point of being opportune?

An Economic Stimulus Package for Life Sciences Investment in California

• Expand – don’t threaten or cut – the research and development tax credit. Give companies greater reasons to plow dollars into jobs, facilities, and research consumption.
• Establish new tax guidelines for companies willing to make major investments in California, with a window of opportunity designed to get dollars working immediately on expansion and hiring.
• Create a targeted incentive for individual or private equity investors for high-risk, entrepreneurial investments in areas of strategic interest to California, such as healthcare information technology related to the State’s healthcare reform discussions, human health in areas of greatest concern to our aging population, and bio-energy, where the mobilization of California’s world-leading experts and private sector resources can be put to highest and best use to serve State objectives. Entrepreneurial small businesses are the not-so-secret lifeblood of innovation in California. So are these the key ingredient to the U.S. economy. Between 66 and 93% of new jobs created in the last 15 years are estimated to have come from small businesses. In the life sciences, over half of California’s companies have 50 or fewer employees.
• Expand the allowable uses of net operating losses for life sciences companies. In an industry requiring an average of 15 years and more than $1 billion to develop a single product, long timelines are a part of the risk. California’s tax system should align with its strategic interest in keeping these companies investing in growth as much as possible here, and not elsewhere.
• Expand job training opportunities. When jobless rates grow, many go back to school for new skills. Enable them. The State’s current Employment Training Panel is unwieldy and many companies are reluctant to engage with it to harness resources for training. Make it simpler to access these funds, friendlier to business, and stop raiding the budget of this worthy program to feed other coffers.
• Create a fast-track program for major investors, such as what was done with the construction of power plants when our energy crisis hit bottom in 2001. We need a job creation program and the State’s average real estate entitlement timeline of 2 years won’t stimulate the immediate growth our economy needs.
• Spend those infrastructure dollars wisely. Incentivize companies and communities alike to grow where housing is projected to grow – and where it has grown for the last decade. If there was ever a time for this type of intervention, it is in an adjustment such as this.

Will we see such practical adjustments in this hour of need? There is hope. But such outcomes will not stem from a discussion of decreasing the dollars available to industry to foot the bill for hiring, investing and spending.

Put those dollars back in our hands, Sacramento, and light the way for industries such as the life sciences sector to carry the state forward.

For additional information and to get involved, contact Matt Gardner at mgardner@baybio.org