Insights from the C-Suite: California's Business Climate

Panel Overview

• Moderator: Kevin Clowden, Executive Director of the Center for Regional Economics and California Center.
• Context: The panel concludes a summit focused on sustainability, housing, workforce, and infrastructure, specifically analyzing the dichotomy between California's status as a global innovation hub and its reputation for having one of the worst business climates in the US.
• Core Theme: The primary barrier to doing business in California is identified not as the volume of regulations, but as the cost of living, housing scarcity, talent retention, and infrastructure inefficiencies.
• Panelists:
  • Ann Hoskins: Chief Policy Officer, Sunrun (Residential solar/battery).
  • Jeff Magidman: CEO, Coursera (Online education).
  • Mary O'Hara: CHRO & SVP, Blue Shield of California (Healthcare).
  • Sandra Stern: President, Lions Gate Television Group (Entertainment).
  • Pete Vlastelica: CEO, Activision Blizzard Esports Leagues (Gaming/Sports).

Regulation and Industry Growth

• Sunrun (Solar/Battery):
  • California's forward-looking policies, specifically the California Solar Initiative and CPUC frameworks, were the primary drivers for the growth of the $100,000+ job solar industry in the state.
  • Economic Impact: Distributed energy has already saved the California ISO $2.6 billion by avoiding the need for new transmission lines.
  • Regulatory Risk: The CPUC is currently considering reducing compensation rates for customers feeding excess energy back to the grid; Sunrun advocates for regulatory simplicity to ensure business growth and customer compliance.
  • Policy Advocacy: Emphasizes that while California is "creative" in regulation, policies must remain simple to enable new technology adoption like energy storage.

Legacy Industries and Competitive Disadvantages

• Lions Gate (Entertainment):
  • Production Exodus: Despite employing 22,000 people annually, a shrinking percentage of Lionsgate's production occurs in Los Angeles; historically, only a fraction of 100 scripted TV shows produced in the last 15 years were filmed in LA.
  • Tax Policy Gap: Competitor states offer competitive "soft money" tax credits (e.g., Georgia offers 25% of the budget); Lionsgate has never qualified for a California tax credit, whereas they receive credits in New York, New Jersey, Atlanta, and international markets.
  • Workforce Development Model: New Mexico successfully retained production by mandating training programs for unskilled workers in exchange for tax credits, leading to long-term economic development and housing construction.
  • Infrastructure Deficit: High housing costs force production crews to live far from sets, creating a two-hour daily commute; union contracts count this commute as work time, effectively costing employers two extra hours of labor pay per day.
  • Diversity Initiatives: Current diversity efforts in the industry are largely "self-policing" studio initiatives with "aspirational" legislative provisions that lack enforcement "teeth."

Cost of Living and Talent Retention

• Blue Shield of California:
  • Cost of Living Disparity: The Bay Area's cost of living is 193% above the national average; housing alone is 360% above the national average (average one-bedroom rent in SF is $3,400/month).
  • Recruitment Friction: The company cannot compete with Silicon Valley giants (e.g., Google, Facebook) on housing benefits or total compensation packages, leading to higher administrative costs to attract talent.
  • Infrastructure Safety: Rising crime and drug issues on BART have eroded public confidence; conferences are actively avoiding San Francisco due to safety concerns, impacting business travel.
  • Tax Impact: State tax deductibility changes have increased the financial burden on employees, necessitating higher compensation offers to offset state taxes for imported talent.

Education and Workforce Supply

• Coursera:
  • Talent Shortage: A severe supply-demand imbalance exists for engineers, driving wage inflation which further exacerbates housing price inflation.
  • Educational Assets: California's UC system educates 230,000 students (40% from low-income families) and 6 of the top 100 global universities are in the state; the Community College System educates over 2 million.
  • Strategic Pivot: The company is shifting from open courses to accredited, online master's degrees (e.g., Computer Science, Public Health) at less than half the tuition of traditional schools to facilitate "lifelong learning" for adults.
  • Hiring Partnerships: Collaborations with Google and the University of Pennsylvania have created pathways for individuals without prior degrees to enter IT and computer science fields; Google IT certification courses have enrolled 40,000 learners.
  • Remote Work Impact: While remote work offers solutions, it challenges the state's ability to retain the tax base if high-skilled workers choose to work remotely from lower-tax jurisdictions.

Esports and Future Work Models

• Activision Blizzard Esports:
  • Market Growth: Esports has an average fan age of 21, compared to 50 for NFL and 63 for MLB, making it the critical sector for capturing younger demographics currently trapped behind traditional paywalls.
  • Location Strategy: While aiming to make Los Angeles the global hub, the company maintains a significant operational base in Columbus, Ohio, to avoid California's cost of living adjustments for a 25-person executive team.
  • Diversity & Inclusion: The Overwatch League intentionally features 50% female characters and has recruited a female player to reset the sports industry model; the league over-indexes on female audiences relative to other esports.
  • Workforce Trend: The rise of virtual workforces allows for economies of scale without physical relocation, though the company acknowledges that collaborative industries like entertainment still require physical clustering.

Infrastructure and Geographic Equity

• Transportation & Logistics:
  • Transit Dependency: Coursera relocated offices near Caltrain lines to access the San Francisco talent pool, providing shuttles and free Wi-Fi to make transit viable.
  • Commute Reality: Long commutes in Los Angeles (e.g., Santa Monica to Irvine) have eliminated the ability to schedule "whirlwind" multi-city trips; business travel has shifted from intra-state to inter-state (NY/Boston) due to traffic inefficiency.
  • Last-Mile Solutions: Experts suggest automated driving technology will solve "last-mile" connectivity, but public transit upgrades are required for moving thousands of people across major corridors.
  • Regional Disparities: Businesses cannot easily locate in lower-cost centers (e.g., Fresno, Chico, San Bernardino) without access to adequate housing, higher education, and healthcare; "food deserts" remain a barrier in some areas.
  • Sunrun's Geographic Footprint: Sunrun employs installers and salespeople statewide, not just in major metros, providing high-wage opportunities for workers with high school educations in diverse communities.

Recommendations and Policy Priorities

• Housing Supply:
  • Primary Lever: All panelists identified increasing housing density and supply as the single most critical factor to retaining middle-class families and reducing administrative costs.
  • Bipartisan Support: There is a call for bipartisan support to increase density, noting that current legislation is often too restrictive.
  • New Construction Standards: Sunrun highlighted the 2020 mandate requiring solar on new housing as a positive regulatory step to reduce long-term energy costs and increase housing efficiency.
• Taxation:
  • High State Tax: Panelists cited high state and real estate taxes as a primary impediment to attracting middle-class families and businesses.
• Education Reform:
  • Online Expansion: There is strong support for expanding online community college systems and leveraging UC/CSU prestige to make high-quality degrees accessible and affordable for upskilling the workforce.
  • Skills Training: Partnerships between tech giants (Google) and educational platforms are seen as a vital mechanism to close skills gaps for non-traditional candidates.
• Legislative Action:
  • Enforcement: Entertainment industry leaders called for legislative "teeth" in diversity requirements rather than voluntary self-policing.
  • Pay Equity: Sunrun noted the effectiveness of California's law prohibiting the asking of pay history during interviews, which helped achieve 100% pay parity.