Despite a sluggish California economy, the state agency charged with business development and job creation appears to be in for a substantial downsizing.
The administration's proposed 2003-04 fiscal year budget for the Technology, Trade and Commerce Agency keeps the agency's Infrastructure and Economic Development Bank spending at a constant level, but the proposal reduces spending on all other agency programs by about 70%. Under the proposed budget, many programs would be eliminated and more than half of the agency's employees cut. Those cuts follow a 15% agency spending reduction during the current fiscal year.
The governor's budget proposal is widely seen as a non-starter at the Capitol. However, while schools, housing, transportation and other programs have their defenders in Sacramento, almost no one has rushed to aid the trade agency. The Legislative Analyst's Office (LAO) supports the administration's proposed reductions — and actually urges further reductions. The LAO also recommends returning the agency to department status.
Exactly why the trade agency is being cut so severely is unclear. The Department of Finance budget summary simply states that because of the current-year budget cuts, "the agency has reorganized to maintain operational integrity within the reducing funding levels." The governor's office referred CP&DR to the trade agency, whose spokesman did not return telephone calls.
It is worth noting that the spending reductions follow a late 2001 State Auditor's report — prepared at the request of lawmakers — that found the agency's planing for economic development was "fragmented and incomplete." The auditor also questioned the agency's method of quantifying program success (see CP&DR Economic Development, March 2002). The auditor recommended big changes at the agency, but it is unclear how the agency followed up.
The proposed budget provides no money for tourism promotion, the manufacturing technology program, a state and regional technology investment program, various rural technology efforts, and the Office of Military Base Reuse and Retention. Spending on science, technology and innovation programs would be cut to $131,000 — down from $17.9 million only two years ago, according to the LAO.
The only parts of the trade agency budget that would not get whacked are the infrastructure bank, which provides loans to local governments (see CP&DR Economic Development, October 2002), and a program to subsidize movie and television production. The infrastructure bank is pegged for $76.2 million, which would amount to about 70% of the agency's total budget in 2003-04. The filming subsidies would become the agency's second-largest program at $8.2 million.
The LAO recommended eliminating the filming subsidies of up to $300,000 per project, which cover things such as public safety expenses and public property use fees. The LAO found that the subsidies typically amounted to only 0.2% of production costs — not nearly enough to compensate for currency exchange rates and labor discounts that have drawn some film and television production out of California and the United States.
"It is unclear what the rationale is for this particular subsidy," the LAO stated. "These film-related fees are part of the cost of doing business and we have no information suggesting that they are either inappropriate or unreasonably high in California."
The LAO also recommended eliminating the foreign trade offices. The administration proposes $3.8 million to keep open 12 foreign trade offices — down from $5.6 million in 2001-02. The LAO has previously recommended eliminating the program because other entities, including the federal government, do similar work, analyst Todd Clark said. The state has exports of about $100 billion annually, yet the state's foreign trade offices claim a role in only $200 million to $300 million of that total — and there is no evidence those $200 million to $300 million in transactions would not have occurred anyway, Clark said.
Carol Whiteside, president of the Great Valley Center and an official who worked on economic development in the Wilson administration, said the state should eliminate its foreign trade offices before cutting other economic development programs. In particular, she said, the state should maintain programs for rural areas, including the rural "e-commerce" grant program.
"If you have cities with 15% and 25% unemployment, like we do in the Central Valley, you have to have some kind of intervention," Whiteside said. The rural e-commerce grants, which the Great Valley Center has received in the past, help rural areas that otherwise would see no investment in technology infrastructure, she said.
Meanwhile, City of Oceanside Economic Development Director Jane McVey questioned the proposed elimination of tourism promotion. The state's tourism website and the California Welcome Centers are more important than ever, she contended.
"To not have a tourism budget is detrimental in the long term because there are lots of spin-off benefits," McVey said. Facilities that serve tourists can also benefit locals, and efforts to attract tourists result in more attractive communities, she said. Furthermore, state fiscal policy makes the hotel bed tax attractive to local governments because locals can set the rate and spend the money on anything.
Eleven years ago, in the midst of a serious recession, then-Gov. Wilson elevated the Department of Commerce to its current agency status. Before then, the entity had been a department within the Business, Transportation and Housing Agency. The LAO did not favor the structural change at the time and has now recommended returning the agency to department status.
The move would not necessarily save much money. "It's a matter of size and function," Clark said. With the proposed budget cuts, the agency will be down to 100 full-time employees. And, like a department, the agency implements programs — unlike other agencies that manage departments which carry out the programs.
But Whiteside disagreed with the LAO. "If it has agency status and it has a secretary in the governor's cabinet, it makes economic development and job creation a high priority," she said.
The governor's "May revise" of the budget is due this month, and it could tell even more about the fate of the trade agency.
Todd Clark, Legislative Analyst's Office, (916) 445-4656.
Carol Whiteside, Great Valley Center, (209) 522-5103.
Jane McVey, City of Oceanside, (760) 435-3352.
LAO's website: www.lao.ca.gov
Department of Finance budget summary: www.dof.ca.gov/HTML/BUD_DOCS/Bud_link.htm
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