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CALIFORNIA
From Site Selection magazine, September 2015
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The Green Machine

How California is using renewable energy and other sustainable practices to grow its economy.

CALIFORNIA
Taylor Farms Wind Turbine
Photo by Heather Overman

by RON STARNER

Can renewable energy and a revamped economic development program turn a state around?

That’s exactly what California Gov. Jerry Brown is banking on.

After years of watching governors from competing states swoop in and poach California-based companies, Brown is fighting back — and he believes he has the formula to do it.

It’s called California Competes. The program is hailed by many as California’s most ambitious and aggressive economic development initiative in the state’s 165-year history.

The California Competes Tax Credit is an income tax credit available to qualifying businesses that want to come to California or stay and expand in the state. Tax credit agreements are negotiated by the Governor’s Office of Business and Economic Development (GO-Biz) and approved by a statutorily created California Competes Tax Credit Committee consisting of the state treasurer, the director of finance, the director of GO-Biz, and one appointee each by the Speaker of the Assembly and the Senate Rules Committee.

Vineyard Castoro Cellars Winery
Castoro Cellars Winery Vineyard in Paso Robles
Photo by Heather Overman

The new state incentive targets “high-value” businesses that are growing in California. The goal of the program is to attract and retain employers in industries with high economic multipliers and high wages. The tax credit is awarded through a two-phase competitive process and is capped at $200 million for each of the next two fiscal years. Any business may apply, and 25 percent of the available funds are set aside to help small businesses grow.

California Competes and two other initiatives replace the state's underperforming Enterprise Zone program. A partial sales tax exemption for manufacturing equipment and the New Employment Credit are the other two. The latter applies to qualifying firms that hire new workers in designated census tracts or economic development areas.


In total construction value for office properties in 2014, California was No. 1 in the nation, beating out Texas, New York and Pennsylvania.
(Dodge Data & Analytics)

One of the high-value sectors the state hopes to grow is its emerging green and sustainable economy. According to a recent report by the Los Angeles-based Kosmont Companies, “The march to an economy focused on industrial and commercial processes that reduce energy consumption and achieve significant carbon footprint reduction is on in California.” The report goes on to state that “the state is on the brink of adopting more green legislation that would accelerate the efforts of AB 32, SB 375 and SB 535 by requiring that the state generate 50 percent of its electricity from renewable sources, double energy efficiency in older buildings, and reduce gasoline usage by half.”

The conclusion of the Kosmont report is succinct: “With sustainability as a goal and potentially a foundation of California’s ‘green’ economy, to the extent the state does attract businesses, it will likely come from sustainable industries and processes.”

New Districts May Spur Progress

One of the ways the state plans to do this is through the development of newly formed Enhanced Infrastructure Financing Districts (EIFDs). “EIFDs return a mechanism to California local agencies that can help fund projects, which may in turn spur economic development,” the Kosmont report states.

The creation of EIFDs was authorized by SB 628, which enables a city or county to initiate a form of tax-increment financing which permits collaborative cities, counties and special districts to fund a broad array of economic development projects. These projects must conserve water, reduce greenhouse gas (carbon dioxide) emissions, and create new jobs in California.

“After wandering in the desert without effective economic development tools for a number of years, California is laying the groundwork to empower cities and counties to induce economic development,” says Larry Kosmont, president of the Kosmont Companies. “Although EIFDs are still a work in progress, getting TIF back allows the state to be more competitive in the fight to create economic development opportunities through attraction and retention of businesses.”


The four lowest non-CBD office vacancy rates in the country are all in California: San Francisco, Silicon Valley, San Francisco Peninsula and San Diego.
(Cushman & Wakefield)

Kosmont, who has been a vocal critic of California policies toward business interests over the years, says he is optimistic about these latest initiatives. “California won’t become business-friendly overnight,” he says. “Change is likely to be incremental, but hopefully sooner or later the state will figure out that the long-term answer to financial certainty is in great part through private investment that creates well-paying jobs, and that means the state will need to focus on greenhouse gas reduction measures as a way to induce industries to stay rather than leave.”

Companies that make their living in the green energy sector welcome moves like these in California government, and they are voting with their investment capital.

In Kern County in Central California around Bakersfield, a surge in investment capital in the renewable energy sector is the dominant economic development trend of this decade.

According to Richard Chapman, president and CEO of the Kern County Economic Development Corp., “Kern County will eventually have more than 10,000 megawatts of total renewable energy capacity. About 8,500 megawatts have been permitted, and 3,000 megawatts are in the pipeline. Over 5,000 megawatts are currently in operation. Kern generates at least five times more production than the number two county in the state — Imperial.”

The Alta Wind Energy Center in Kern is the nation’s largest windmill farm and second largest in the world. Located in the wind resource area at the Tehachapi Pass in Kern, the Alta windfarm supplies 1,548 MW of renewable energy.

Solar Star, which is located in both Kern and Los Angeles counties, produces 579 MW of solar energy and is the world’s largest solar plant.


During 2014, California ranked second only to Texas in total construction value in each of three property categories: warehouse, retail and all categories.
(Dodge Data & Analytics)

“We are also the number one county in the US in terms of oil production, so we are really the energy capital of America,” says Chapman. “Ninety-seven percent of the fracking that takes places in California occurs in Kern County. Solar is really going full bore. We are building the world’s largest solar array in Kern. A 580-MW solar farm is being built by Berkshire Hathaway right here. People are reinvesting into solar now.”

Why First Solar Chose Kern

One of those big investors is First Solar, which has been developing solar arrays in Kern for several years. With the completion of the 32-MW Lost Hills-Blackwell project and the 20-MW Old River project earlier this year, First Solar has completed construction on 52 MW of projects in the county, says Alex Martin, public affairs manager for First Solar.

“We’re currently constructing the 40-MW Kingbird and 175-MW Astoria projects in Southern Kern County,” Martin says. “We intend to be actively building projects over the next several years.”

Martin notes that Kern “is a favorable place to build solar due to its high solar resource, good electrical infrastructure, and a county supportive of renewable energy development.”

First Solar plans to expand again, he adds. “We are currently developing two large solar projects slated for construction in Southern Kern County on the Los Angeles County border,” says Martin. “With the construction of the 150-MW Rosamond and 150-MW Willow Springs projects, we expect to provide up to 900 new construction jobs and provide enough clean solar electricity to approximately 92,000 California homes.”

Bixby Bridge OutsideMonterey Bay Pacific Coast Hwy
Photo by Heather Overman

He adds that “California has proven to be a great location for utility-scale solar projects. The state’s commitment to renewable energy, along with excellent solar resources, combines to make this a particularly attractive region. Overall, the industry is seeing growth due to PV solar prices coming down and — in fact — is able to compete with traditional energy sourcing in many instances. In the US, there is also an accelerated effort to get projects through development and into construction phase prior to the reduction in the ITC [Investment Tax Credit].”

In addition to First Solar, Kern is seeing major investments into solar power from Recurrent Energy (175 MW, 300 construction jobs); 8minuteenergy Renewables (230 MW, 700 jobs); Pioneer Green Energy (125 MW, 350 jobs); and SunEdison (150 MW, 470 jobs). In the wind energy sector, EDP Renewables is adding 198 MW and 400 jobs in the Tehachapi/Mojave area.


Of the 300 largest metropolitan economies in the world, two California cities rank among the top 12 in GDP per capita — San Jose (third) and San Francisco (12th).
(The Brookings Institution)

In the oil and gas sector, Alon USA is investing $100 million into building a new crude flex project in the City of Bakersfield, creating 200 construction jobs and 130 permanent jobs.

Brook Taylor, deputy director of communications for California GO-Biz, says that state’s re-envisioned approach to economic development is working. “In 2014, California led the nation in job creation with 498,000 new jobs — 102,000 more than the number two state, Texas,” he says. “Since June 2014, GO-Biz has awarded $180 million to 241 companies that are projected to create 35,000 jobs and $9.1 billion in investment — companies like Tesla, Amazon, Samsung, Hyundai and Red Bull. With another $600 million in available tax credits, California is on track to recruit more massive job-creating projects.”


55 percent of all venture capital deals in the US during the second quarter of this year were in California, New York or Massachusetts, with California leading the way with 488 VC deals.
(KPMG)

Anchored by California Competes, Gov. Brown’s revamped approach to business development is “the most sophisticated economic development program in the US,” says Taylor. “We now have the largest corporate tax credit program in the US, the largest film tax credit in the US, the largest tourism marketing budget, and we are the first state to offer online applications for incentives.”

New Portal Addresses Business Needs

On top of these programs, the state announced July 1 the launch of the California Business Portal — a one-stop-shop website for business owners looking for information and assistance. The site — available at www.BusinessPortal.ca.gov — “is a response to the needs of the business community and their request for better online tools,” said Panorea Avdis, chief deputy director of GO-Biz.

The California Business Portal provides information to business owners on starting a new business, permits and licenses, incentives, local resources and more. Businesses can now file online applications for the California Competes Tax Credit and the California Film Commission Film Tax Credit directly through the new portal.

“As the global hub of innovation, California is often the first to meet challenges with novel solutions,” said Robert Callahan, California executive director for The Internet Association. “This portal is a great example of how government can harness the power of the Internet and empower citizens through the use of technology.”


Of the 10 lowest national industrial vacancy rate markets, five are in California, including the three tightest markets in the US: San Francisco Peninsula, Greater Los Angeles and Orange County.
(Cushman & Wakefield)

Leaders in the business community in California provided input and advice prior to the portal launch. “It was a top priority of GO-Biz to get people from the business community involved in the development of the California Business Portal,” said Thomas Boon, IT chief for GO-Biz. “As a result, the ease of use and content are reflective of the type of information and assistance business owners need.”

Gurbax Sahota, president and CEO of the California Association for Local Economic Development, says that “the state has gone a long way toward changing the mood of local economic developers around the state. I like the model that the California Competes Tax Credit is using. It is one of the best practices in economic development. In the big picture, the state is moving into a stronger position.”

She adds that “we have talked a lot at CALED about promoting California. How do we put out a positive story about California, using statistics? We have to have an answer to people who trash the state in the media. The reality is that we are turning around as a state. California is back in the lead in job growth and we are rebounding with our economy.”

Ron Starner
Executive Vice President of Conway, Inc.

Ron Starner

Ron Starner is Executive Vice President of Conway Inc. He has been with Conway for 16 years and serves as editor of the TrustBelt Report and lead organizer of the annual TrustBelt Conference. He also writes extensively for Site Selection and Conway's Custom Content Publishing Division. His Twitter handle is @RonStarner.

  



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