2010 State of the State Conference Introduction and Opening Remarks

• The 12th Milken Institute State of the State Conference adopted the theme "Restoring California's Promise," attended by over 700 registered stakeholders.
• The Milken Institute's California Center, supported by Guggenheim Partners, Bank of America, Chevron, Goodwin Proctor, Imperial Capital, One West Bank, the City of Ontario, and PG&E, aims to address long-term state prosperity through research and policy initiatives.
• A concurrent video project solicited ideas from thought leaders and the public on restoring the state's economy, categorized into business, government, and education sectors.

Economic Performance and Recovery Trends

• California's GDP contracted 4.1% in 2009 compared to a 2.4% national decline, with a peak-to-trough drop of 5.9% versus 4.1% for the U.S.
• Unemployment in California peaked at 12.5% against a national peak of 10.1%, leaving the state rate approximately 2.5 percentage points above the national average.
• Labor market recovery has been uneven, with a temporary dip in employment figures attributed to the expiration of census-related temporary jobs.
• Business investment in equipment and software surged at an annual rate of 25% in the second quarter of the reporting year, driven by record corporate cash levels and low capital costs.
• Port traffic and international trade are rebounding, specifically exports to and imports from Asia, reversing significant declines seen during the Great Recession.

Fiscal Challenges and Budgetary Constraints

• State tax collections from capital gains and stock options plummeted from $16 billion in 2007 to approximately $5 billion in the last fiscal year due to market instability and halted IPOs.
• Projections estimate capital gains and stock option collections will recover to roughly $7.4 billion in the upcoming fiscal year.
• The recently signed state budget agreement established a "rainy day fund" capped at 10% of the general fund to stabilize finances against future market volatility.
• A Milken Institute report warns that without corrective action, the combined liability of California's three major state pensions will exceed total state tax revenue by five times within three to four years.

Human Capital and Innovation Metrics

• California's ranking for the percentage of adults with a bachelor's degree or higher fell from 8th place in 2000 to 16th place with 26.5% of the adult population holding a degree.
• Despite human capital rankings, California remains a global leader in entrepreneurial activity, hosting five of the nation's top ten technology clusters, with Silicon Valley ranking as the leading tech cluster worldwide.
• Venture capital placements in California dominated the national landscape, accounting for 58% of all U.S. VC placements in the second quarter, with nine of eleven deals exceeding $50 million occurring in the state.
• The state lost approximately 35,000 jobs and $2.4 billion in wages to other states and countries due to the relocation of film production, a trend quantified in the "Film Flight" study.

Competitive Disadvantages and Policy Recommendations

• Business leaders cite regulatory burdens and high costs as primary drivers for relocation, noting that permitting a pharmaceutical plant in California takes three years compared to six months in Texas.
• A Milken Institute analysis suggests that making the federal R&D tax credit permanent and increasing it by 25% would boost California's real GDP by 1.6% over a decade.
• The report recommends modernizing Cold War-era export controls to facilitate the sale of dual-use technologies to allies like China and India, which competitors such as Germany currently supply.
• A "Best Performing Cities" report highlighted that five of the top ten U.S. metros were in Texas, with eleven of the top twenty-five originating from the state, suggesting California struggles with growing companies rather than creating them.
• Attendees polled in real-time identified "job creation and business retention" as the top immediate issue for the next governor to address.