Conference Presentation, Fireside Chat, Panel
2016 CA Summit - A Hard Sixth: Keeping California Strong in a Competitive Global Economy
Milken InstituteMichael Milken, Kevin de León, Scott Minerd, Gabriel Petek, Marcus Thygeson, Mimi Walters
- California is projected to remain the sixth largest economy globally and is expected to experience job growth exceeding the combined total of Texas and Florida, driven by clean energy initiatives that generated approximately 40% of U.S. jobs in August, a permanent R&D tax credit, and significant expansions in UC and Cal State enrollment of 20,000 slots by 2016.
- Future economic expansion is anticipated to rely heavily on biosciences, particularly in Los Angeles, biotech, AI, advanced manufacturing, and infrastructure investments, with policymakers expecting venture capital to remain above 60% of the national total if favorable market signals are sent.
- Significant fiscal risks include high volatility due to reliance on capital gains and top 1% income taxes, a $74 billion unfunded OPEB liability, and modeled scenarios where a 2% GDP decline, 2% unemployment rise, and 25% stock market drop would create a $14.7 billion general fund shortfall.
- Regulatory burdens, over-regulation, and corporate tax structures are identified as threats that have already driven a quarter million people to leave the state and continue to risk offshoring headquarters or capital if not reformed at state and national levels.
- Economic constraints related to housing costs in Silicon Valley and the Bay Area are expected to hinder workforce retention and competitiveness, requiring massive increases in housing supply and infrastructure investment to mitigate these drag factors.
- Long-term demographic and social plans emphasize the importance of human capital, with projections indicating early childhood education offers the highest return on investment, while policies such as raising the minimum wage to $15, implementing equal pay, and addressing healthcare for undocumented children aim to improve quality of life and business attractiveness.
- Retirement security faces a mathematically unsustainable path if current trends continue for those retiring between ages 50 and 55 with life expectancies reaching 90, prompting expectations that the 2018 Secure Choice Act will drive the largest retirement expansion since the New Deal era as traditional fixed income yields decline toward 1%.
- Technological disruption is predicted to eliminate jobs in sectors like finance and potentially driver positions within 20 to 30 years, while investors are expected to shift allocations from traditional fixed income to infrastructure and private equity to achieve returns amid a global environment where $30 trillion yields between 1% and minus 1%.
- The state faces a complex political landscape with 18 referendums in November costing half a billion dollars, and while recent institutional changes like Propositions 25 and 2 may provide future benefits, they are viewed as insufficient to prevent significant fiscal stress during the next economic downturn.
- Despite these challenges, the economy retains resilience factors including a diverse population fostering creativity, natural amenities attracting global wealth, and a belief that maintaining balanced budgets and credit ratings depends on sustained investment in education and the ability to navigate economic cycles without excessive volatility.