The 2022-23 Budget: Governor’s Office of Business and Economic Development Proposals

The 2022-23 Budget: Governor’s Office of Business and Economic Development Proposals FEBRUARY 2022 Summary. This post provides some background Film Commission, Travel and Tourism Commission, about the Governor’s Office of Business and and the Infrastructure and Economic Development Economic Development (GO-Biz), describes the Bank have been assigned for oversight purposes Governor’s budget proposals for GO-Biz, and to GO-Biz. offers comments and issues for the Legislature to consider. GOVERNOR’S PROPOSALS AND LAO COMMENTS Background GO-Biz Coordinates Business Assistance Local Government Budget and Economic Development Activities. The Sustainability Fund state has had various economic development Community Economic Resilience Fund departments over time. Prior to 2003, the majority (CERF) Established Last Year. The 2021-22 of the state’s economic development programs Budget Act included $600 million one-time were housed within the Technology, Trade, and American Recovery Plan (ARP) Act fiscal relief Commerce Agency. The 2003-04 Budget Act funds to start a new grant program for regions to abolished the agency and state funding for many develop and implement regional plans to diversify of its programs designed to encourage economic their economies and develop sustainable industries, development. GO-Biz was established statutorily including zero-emission vehicle infrastructure, in 2011 to be the lead entity for economic climate resilience, transit systems, biomass strategy and the marketing of California on issues projects, offshore wind, and oil well capping relating to business development, private sector and remediation. As of early February 2022, the investment, and economic growth. Since then, the responsibilities of the office have been expanded significantly. Figure 1 shows that the number of Figure 1 positions at GO-Biz has increased by 66 percent over the last five years. These staff provide a wide Number of Positions at GO-Biz range of advisory and coordinating roles across the Has Increased Significantly as administration related to economic development. Responsibilities Expanded Several units of GO-Biz serve as points of contact for businesses considering relocating to or 160 expanding in California. For example, the California 140 120 Office of the Small Business Advocate (CalOSBA) 100 provides resources for small businesses and Actual 80 financial assistance for small business advisory 60 centers. Other units assist international investors, 40 help businesses obtain information about business 20 permits, administer the California Competes Tax 2015-16 16-17 17-18 18-19 19-20 20-21 21-22 22-23 Credit Program, and administer the Cannabis Local (current) (proposed) Equity Grant Program. Additionally, the California GO-Biz = Governor’s Office of Business and Economic Development. 2022-23 Budget Series 1 Governor’s Office of Planning and Research, the in-state, domestic, and international tourism. Visit California Labor Workforce Development Agency, California receives funding from assessments on and GO-Biz still are developing the CERF. Proposed rental car companies, hotels, and other tourism budget bill language in Control Section 11.96 would operators. The assessments are collected by the change the funding source for the CERF from GO-Biz Office of Tourism. federal ARP fiscal relief funds to General Fund. COVID-19 Significantly Impacted State Governor Proposes New $450 Million Fund for Tourism and Visit California Revenue. Tourism is Economic Diversification Grants. The Governor an important industry in the state that was impacted proposes to create the Local Government Budget by the COVID-19 pandemic to a greater extent than Sustainability Fund to make grants to counties many other sectors of the state’s economy. While that have high poverty or high unemployment for total consumer spending in California declined economic diversification projects. This proposal by 4 percent in 2020, Visit California estimates would supplement the CERF, funding additional that direct travel-related spending declined by economic diversification projects. The total request 55 percent. The decline in tourism affects tourism is for $450 million General Fund, over three years: business and, by extension, Visit California’s $100 million in 2023-24, $100 million in 2024-25, assessment revenues, which declined from and $150 million in 2025-26. $124 million in 2018-19 to $76 million in 2020-21. Proposal Lacks Important Details. 2021-22 Budget Act Provided $95 Million This proposal does not provide a detailed for Tourism Marketing. The 2021-22 Budget Act justification for the amount of funding requested included $95 million for tourism marketing in the or the criteria that would be used to make the current year. Visit California received the funding in grants. The administration also is still developing October 2021 and has committed about $45 million its statewide economic recovery and economic for national and in-state tourism advertising diversification framework—the Just Transition expenditures. Visit California has a marketing plan Roadmap—and the CERF, so we are unable to that would exhaust the remainder of the $95 million evaluate whether this proposal would fill critical in the current year. The organization also may have gaps in CERF funding, as the administration has additional tourism marketing expenditures above claimed in its comments to the Legislature, or would the $95 million. None of the $95 million would be be a duplicative additional source of funding for used for administrative expenses. economic diversification projects. Governor Proposes Additional $45 Million Reject Local Government Budget for Tourism Marketing. The Governor’s budget Sustainability Fund. The administration has not includes $45 million one-time General Fund for provided a clear and compelling justification for the tourism marketing by Visit California. need for $450 million, in addition to the $600 million Visit California Net Assets Increased that already has been provided, for economic Significantly in 2020 and 2021. As revenue diversification projects. Given that this request is collections began to decline at the onset of the for funding beginning in 2023-24, we recommend pandemic in 2020, Visit California sharply reduced that the Legislature reject the Local Government its expenditures. The reduction in expenditures Budget Sustainability Fund proposal and direct outpaced Visit California’s decline in revenues. the administration to return with a more mature Consequently, Visit California has increased its net proposal next budget cycle. assets from $20 million at the beginning of 2019-20 to $58 million by the end of 2021-22. Tourism Marketing Additional State Funding for Marketing Visit California Promotes State as Tourism Appears Unnecessary. Tourism in California Destination. The California Travel and Tourism has begun to recover but likely will be depressed Commission, doing business as Visit California, is a for some time because of ongoing public health 501(c)(6) nonprofit mutual benefit corporation that concerns. While Visit California’s assessment operates a massive marketing program to increase revenue over the next several years will continue 2022-23 Budget Series 2 to be depressed to some extent, we do not think significantly alleviate supply chain congestion, there assessment revenues will decline below 2020-21 would be a clear private-sector interest in paying levels. Given the state’s $95 million contribution, to implement the recommendations using their stable or increasing revenues, and the significant own funds. amount of net assets, we find that Visit California Proposal Lacks Key Details. We are unable should be able to spend somewhat above their to fully evaluate the merits of the proposal without pre-pandemic levels without additional state funds. more information about how the funding would be allocated and used. Port Operational and Is GO-Biz Most Appropriate Agency to Process Improvements Administer This Program? Should the Legislature This item is part of a larger Supply Chain determine that state funding for these improvements Resilience package. Our analysis of the Governor’s is appropriate, it should then consider which agency full Supply Chain Resilience proposal, including a is most suited to administer the program. GO-Biz more in-depth analysis of this specific item in the has a cross-cutting coordination role for the state’s context of the other associated proposals, will be key economic issues but has limited expertise in published in a separate post. technical goods movement issues. Governor Proposes $30 Million for Grants to Retail Theft Grants Ports. The Governor’s budget includes $30 million General Fund, one time, for grants to make This item is part of a larger Public Safety operational and process improvements at the state’s package. Our analysis of the Governor’s full ports to help alleviate supply chain problems. proposal for addressing organized retail theft, Grants Might Help Implement Common including a more in-depth analysis of this item in the Standard for Freight Data. The Federal context of the other associated proposals, will be Maritime Commission currently is identifying published in a separate brief. data interoperability problems at ports. Their Governor Proposes $20 Million for Grants initial findings will be reported in spring 2022. to Small Businesses Affected by Retail Theft One possible use for this funding would be to Incidents. The Governor’s budget includes help implement recommendations for common $20 million General Fund, one time, to administer data standards. grants to small businesses victimized by Improved Data Interoperability Might Address smash-and-grab robberies or that have suffered Supply Chain Problems… Ports, ocean carriers, damage caused during retail theft incidents. The marine terminal operators, truckers, and railroads administration has suggested that it would define apparently lack common data standards that would a small business as having less than $5 million in allow for efficiently sharing cargo records or other annual gross revenue. relevant information about port and cargo handling Several Practical Considerations Must Be operations. This lack of data standards could be Addressed. GO-Biz has not finalized key details of contributing to recent supply chain congestion. The the proposed new grant program. This is particularly federal Maritime Commission and GO-Biz believe concerning because GO-Biz has no institutional that implementing data standards would help to experience implementing a program like this. There alleviate these problems. are several practical considerations that would need …But State Role Is Unclear. In the event that to be addressed and it may be very difficult or costly GO-Biz decides to move forward with a focus to do so. These include: on helping to improve data interoperability, we • What Types of Damages and Losses Would observe that there is not a clear role for the state. Be Covered and How Much Would Be Federal agencies may be better situated to play a Covered by the Grant? The range of damage coordinating or incentivizing role. The beneficiaries that could be covered by smash-and-grab would primarily be private, for-profit companies. We robberies and retail theft incidents is quite note that if adopting common data standards would 2022-23 Budget Series 3 broad. GO-Biz would need to define what Immigration Integration damages and losses would be eligible and Governor Proposes Package of Funding have the administrative capacity to distinguish for Immigration and International Investment between eligible and ineligible damages and Programs. The Governor’s budget includes losses. In addition, would businesses be $11.6 million General Fund, one time, in 2022-23, compensated for the entire amount of eligible and $500,000 annually thereafter, to support damages or just a portion? several GO-Biz functions related to international • How Would GO-Biz Verify Applicant trade, investment, and economic development. Eligibility? What evidence would be required Specifically, the proposal would: to substantiate claims of damages or losses? • Create a New Grant Program. $8.7 million, Would a police report be required and would encumbered over three years, for a that be sufficient? competitive grant program. The grants • How Would GO-Biz Verify the Amount of would be to provide seed funding to cities or Losses or Damages? Would businesses counties for programs that provide support to self-certify their damages or would they need immigrants and immigrant-owned businesses. to provide records? How much effort would be GO-Biz plans to make about 20 grants, in invested to verify the claims for compensation? amounts between $200,000 to $1 million. • How Would GO-Biz Verify an Amount Was • Expand Business Quick Start Guides. Not Covered by Insurance? Presumably, For many years, GO-Biz has been damages that are covered by insurance would producing pamphlets with information to not be eligible for compensation. Many retailers help entrepreneurs set up different kinds carry business owners insurance policies that of businesses. The proposal would provide could cover many common damages and $600,000, one time in 2022-23, and $200,000 losses. However, options allow coverage to ongoing to translate the existing guides into vary based on the individual needs of different languages other than English, expand the businesses. Some businesses may not number of guides, and to maintain the guides have insurance. over time. Program Could Have Unintended • Expand Export Training Network. $2 million, Consequences. It is unclear that a victim’s one time, to expand an existing program in the compensation model will translate well to small international affairs and trade unit of GO-Biz businesses. Would this program have unintended that helps business owners export their consequences, such as discouraging businesses products to other countries. This expansion from taking precautions to prevent theft or to carry would focus on mentoring immigrant and sufficient insurance? refugee entrepreneurs. Is This Proposal Consistent With Legislature’s • Fund Trade Missions. $150,000 ongoing to Public Safety Goals? In considering the individual expand cross-border trade between California components of the package to address organized and Mexico. retail theft, we suggest the Legislature consider • Establish New Immigrant whether the goal of this proposal—to provide Business-Focused Position. Support one compensation to some victims of organized retail new position to administer grant programs and theft—is consistent with its broader public safety coordinate other immigrant-focused activities. goals. Depending on the Legislature’s priorities, there How Proposal Complements Existing might be more effective alternatives to this proposal. Programs Is Unclear. The state supports many In our forthcoming brief, we provide a framework existing programs and organizations that provide to help the Legislature think through its goals and technical assistance, mentoring opportunities, and broadly provide various alternatives that expand on financial support to underserved businesses and existing programs and are based on research. entrepreneurs from underserved communities. 2022-23 Budget Series 4 How this proposal would help address challenges Consumer Affairs, the Secretary of State, and other specifically faced by immigrant businesses that are state agencies that provide services to businesses not addressed by these programs is unclear. should make more of their forms and informational Proposed Local Assistance Program Lacks materials available in languages other than English. Key Details. The single largest component of this Need for Export Trade Network Expansion proposal would fund grants to local governments Unclear. California is a major global exporter. for programs that might aid immigrants or immigrant The proposal does not provide an analysis of the business owners. The proposal is conceptual and specific shortcomings in the current program and lacks key details, including: how the requested one-time funding would address those shortcomings. The federal government also • Specific Objectives. The proposal provides provides export and trade assistance. Additionally, a broad range of possible uses for the grant many private companies offer consulting services funds which does not clearly indicate whether and technical information to exporters. the funds are to be used for immigrant support services generally or narrowly Technical Assistance Expansion and targeted economic development programs for Capital Infusion Programs entrepreneurs or existing business owners. The Technical Assistance Expansion Program proposal also is unclear whether the purpose (TAEP) Helps Fund Business Training and is to incentivize innovation—to develop a new Consulting Centers. TAEP provides supplemental pilot program—or to deploy programs or best financial support to a wide range of federally practices developed in other places. contracted and state supported programs—such • Grant Administration Details. The proposal as Small Business Development Centers (SBDCs), specifies that funds would be awarded Women’s Business Centers, Procurement Technical competitively, but it does not specify what Assistance Centers, Minority Business Development criteria the new program would use to evaluate Agency Centers, and Veteran Business Outreach the grant applications. While it may be Centers—that provide training and consulting to small premature to identify specific criteria, a more businesses and entrepreneurs. In 2020-21, CalOSBA mature proposal would describe a process for disbursed about $17 million among 83 centers. developing the criteria and other regulations Capital Infusion Program (CIP) Provides Grants for administering the grant program. Other key to SBDCs. The CIP is a competitive grant program administrative details would include whether for SBDCs, with a focus on expanding assistance in specific geographic regions or immigrant underserved geographic areas. The 2018-19 Budget communities would be targeted and how grant Act funded CIP at $3 million per year for five years. performance would be monitored. Governor Proposes to Increase and • Transparency and Program Evaluation. Permanently Fund Small Business Technical The proposal does not include specific Assistance Programs. The Governor’s budget reporting requirements or a process for proposes to increase TAEP by $6 million in 2022-23, evaluating whether the program was effective from $17 million to $23 million. The budget also would and whether it could be improved should the make the funding for TAEP and CIP permanent, a Legislature later decide to extend or otherwise total of $26 million in 2023-24 and ongoing. change the program. Increase in Funding Appears to be Supported Translation of Business Assistance Materials by Demand From Centers. CalOSBA has to Languages Other Than English Has Merit. demonstrated that the existing amount of funding Many of the state’s residents have a greater fluency for technical assistance centers is oversubscribed. in a language other than English. Translating state Ongoing Funding Reasonable, but Reduces resources into languages other than English would Accountability and Legislative Flexibility. have merit not limited to immigrants. The Legislature Should the Legislature strongly support continued also could evaluate whether the Department of state funding for the small business training and 2022-23 Budget Series 5 consulting centers, it would be reasonable to initiative (described above in the background consider funding on an ongoing basis. Ongoing of the Local Government Budget Sustainability funding provides GO-Biz and the centers more Fund proposal). In developing the CERF, certainty. While limited-term funding might make the administration has proposed a map that long-term planning by the centers more difficult, divides the state into 13 regions. While the limited-term funding allows for greater Legislative state still is developing key details regarding the oversight and budgetary flexibility. CERF program, allowing GO-Biz to establish one Inclusive Innovation Hub in each of the 13 CERF Inclusive Innovation Hub Program regions could be reasonable. Inclusive Innovation Hub Program Supports …But New Funding Would Be Premature. Underserved Start-Up Businesses. The state The Inclusive Innovation Hub program is still being created the Innovation Hub program in 2010 to established. No specific information is available develop formal partnerships between industry, about the program’s outcomes or needs because startups and entrepreneurs, universities and it is still being implemented. GO-Biz previously research institutions, and government in a specific requested and received one-time funding of geographic area, focused on a specific sector. $250,000 per hub to establish the new program. The Innovation Hub program lapsed in 2020 but The proposal does not clearly justify why a was relaunched in 2021 as the Inclusive Innovation significant amount of additional funding would Hub, with a greater emphasis on outreach to now be required. businesses and entrepreneurs from underserved Consider Evaluating Effectiveness of regions and communities. The 2021-22 budget Inclusive Innovation Hubs. The effectiveness of provided $2.5 million one-time General Fund the 2010-2020 Innovation Hub initiative has not, to to establish a new network of ten Inclusive our knowledge, been evaluated. The administration Innovation Hub partnerships. GO-Biz has not yet did not study the Innovation Hub programs before announced where the hubs will be located or which providing new funding for Inclusive Innovation organizations are participating in them. Hubs last year. Some Innovation Hubs continued Governor Proposes to Extend and Expand operating without state funds, while others became Innovation Hub Program. The budget includes inactive. Regardless of whether the legislature $20 million General Fund to extend and expand approves this proposal, we suggest requiring the the Inclusive Innovation Hub program and program to collect information about the Inclusive rename it to “Accelerate CA: Inclusive Innovation Innovation Hub programs, such as their other Hub.” Of that amount $13 million would fund an sources of funding, participants, and specific expansion of the network from 10 hubs to 13 hubs, activities, as well as measure specific outcomes. $6.5 million would be used to create a new, Such evidence would better inform future proposals one-time grant program, and $500,000 would pay to modify, expand, or to extend or end the program. for GO-Biz administrative costs. Human Resources Staffing Grant Program Administered by Inclusive Innovation Hubs. The proposed grant program No Concerns With Proposal for Increased would provide funds to the Inclusive Innovation Human Resources Staffing. The Governor’s Hubs. Each Inclusive Innovation Hub would budget includes $110,000 ongoing General Fund award up to $100,000 to five new businesses to increases GO-Biz human resources by one that participated in its programs. Each Inclusive position. The number of positions at GO-Biz has Innovation Hub would determine its criteria for increased by 66 percent over the last five years as awarding the grants. the Legislature has increased the responsibilities of Increasing Number of Inclusive Innovation this department. We are not raising concerns with Hubs to 13 Could Be Reasonable… The proposal this proposal because management and general would expand the number of Inclusive Innovation administrative expenses typically follow increases in Hubs from 10 to 13 in order to better align the departmental programmatic responsibilities. program with the CERF economic development 2022-23 Budget Series 6 2022-23 Budget Series 7 LAO PUBLICATIONS This post was prepared by Brian Weatherford, and reviewed by Brian Uhler and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. 2022-23 Budget Series 8