Innovation and Intellectual Capital
California leads the nation in trends and innovation. New ideas are a natural part of life here. Californians have a very strong need to express themselves and a long history of free thinkers conceiving the inconceivable. California supports creativity with a superior educational system and job training that produces an unrivaled, highly skilled labor force.
Over 2.5 million students are enrolled in 250 colleges and universities. Approximately 77% of California residents are high school graduates and over 27% have earned a bachelor’s degree or higher. California possesses the nation’s highest concentration of engineers, scientists, mathematicians and skilled technicians.
Six of the top 20 engineering schools are in California. California has the highest number of Inc. Magazine “500 Fastest Growing Companies.” California is a major center for design of automobiles, furniture, apparel, software, electronics, telecommunications services, computers and semiconductors. California boasts nearly 614 members of the National Academy of Sciences and 107 Nobel Laureates.
According to Alan Greenspan, former Chairman of the Federal Reserve Board, all this innovation and intellectual capital translates into California workers performing at 15% greater productivity than the national average.
Nation’s Leading High-Tech State
California’s culture embraced technology as part of its founding DNA. Technological innovation powers the California economy. We’re home to nearly 1 million high-tech workers, twice the number of the next closest state, and one-sixth of all U.S. high-tech workers.
High-tech exports totaled $48 billion in 2004, ranked first nationwide, and high-tech goods represent nearly 50% of the state’s annual exports.
California leads the nation in several strategic high-tech industry segments, comprising between 20-60% of U.S. market share in electronic components, commercial aerospace, medical instruments, biotechnology and transportation.
The state ranks first in employment totals for computer systems design, telecommunications, research and development laboratories, and engineering services.
California has been the #1 manufacturing states since 1977. High-tech accounts for 25% of California are manufacturing production workers and almost 50% of value-added manufacturing workers.
Motion picture, television production and other media employ 270,000 and accrue $31 billion in annual receipts. Forty three percent of the nation’s biotech employees and one third of its biotech companies are headquartered here. In many ways, California’s technology fortune has driven the nation’s economic future.
Research, Capital and Access to Financial Resources
California leads the nation in research and development (R&D) and benefits from receiving almost half of the nation’s venture capital investment. In 2004, California companies received more than $9.3 billion or 45 percent of all venture capital (VC) dollars invested in the U.S. Top sectors receiving VC funding are software, telecommunications, biotechnology, medical devices and semiconductors.
Biomedical companies in California now total 2,600 and employ over 230,000. They generate $32.3 billion in worldwide revenue and $7 billion in state exports. Of these, 86% were founded in the last 25 years. A total of 87 public and private research institutions in California received $2.9 billion in National Institute of Health funding in 2003. Total reported biomedical private investment R&D in California has now surpassed $15.5 billion.
California ranks first in nanotechnology companies, holders of over 200 patents. More research and VC funding for this emerging industry is invested here than anywhere else. The Silicon Valley has established a Blue Ribbon Task Force on Nanotechnology. The National Science Foundation predicts industry revenue will reach $1 trillion by 2015.
University science research expenditures in California top $3.3 billion annually. Industrial and academic R&D in California tops all other states with a total of $55 billion.
California offers a 15% R&D tax credit for in-house research and 24% for contract research, the highest in the nation. Commercial bank assets in California top $475 billion and the state is home to leading venture, investment banking, and private equity firms.
Sixth-Largest Market in the World
California has the largest, most robust and most resilient economy in the United States. The Golden State produced $1.55 trillion in goods and services in 2004, behind only Japan, Germany, United Kingdom, France and Italy. Our economy represents 13.3% of United States gross domestic product.
Our population of 36.8 million (January 2005) is growing dramatically in size and diversity. It represents 12.5% of U.S. population, one out of every eight persons. The state added 539,000 residents in 2004.
We’re expected to add 2 million more households and 6 million more residents over the next 10 years.
California is the #1 state in the nation for attracting foreign direct investment, reaching over $120 billion. Top investing countries are Japan, the United Kingdom, and the Netherlands. Foreign affiliate employment accounts for over 700,000 jobs in California. The state also has one of the largest concentrations of international banks, foreign consulates, and bi-national chambers of commerce in the United States.
California is the largest consumer market for biomedical, food and agriculture, apparel and entertainment products, and is a bell-weather for the nation’s economy.
California is globally connected with world-class infrastructure. More than 15,000 miles of highways and freeways carry over 1.3 billion tons of freight per year. Twelve cargo airports carry more than 3 million tons of freight per year. Eleven cargo seaports handle more than 7.7 million TEU’s (containers) and 60 million metric tons per year of shipments, over 1/3 of the nation’s total waterborne cargo. The ports of Los
Angeles and Long Beach combine to form the third busiest harbor in the world and, with the Port of Oakland, number 1, 2 and 7, respectively, in the United States.
Eighteen foreign trade zones (FTZ) allow tenants to delay or forgo import and export duties on goods and raw materials until they enter U.S. commerce. If the goods are warehoused in an FTZ, then exported to other countries, no duties are paid at all. Twenty-nine freight railroads in California operate over nearly 6,000 miles to form an integral part of the global transportation network. Two Class I railroads, one regional railroad, 13 local railroads and 13 switching and terminal railroads carried over 6 million carloads and 155 million tons of freight in 2003. Mixed freight, food, glass and stone, chemicals and primary metal products make up the bulk of the originated and terminated tonnage carried.
California is a global export leader with over $100 billion in goods and services in 2004, an increase of $15 billion from 2003. International-related commerce accounts for approximately one-quarter of the state’s economy. California exports goods to over 220 foreign markets around the world, with our largest trading partners being Canada, Mexico, Japan and the U.K.
Californians lead an enviable lifestyle that consistently ranks #1 in the Harris Poll asking respondents to name the #1 most desirable state in which to live. Residents here have the highest life expectancy in the country and receive the best health care. Our population has a median age of only 34.1 years. Californians enjoy natural beauty right in their backyards, featuring towering forests, snow-capped mountains, beautiful beaches and serene deserts.
The Golden State is home to over 1,000 golf courses, 45 snow resorts, 21 professional sports teams, 20 million square miles of national forests, 272 state parks, 134 wilderness areas, 900 miles of coastline and 700-plus wineries. Total direct travel spending in California during 2004 was $82.5 billion, a 7.4% increase over 2003, representing nearly 900,000 jobs.
California Business Investment Services (CalBIS) (www.labor.ca.gov/calBIS/) assists companies and investors interested in employing Californians. Major state level incentives are described in this section. Note that many incentives are site driven and/or negotiated with local government on a case-by-case basis or under an existing local economic development policy. As needed, “A–Teams” comprised of state and local officials are assembled to bring public and private resources together to assist investors or companies interested in the Golden State.
Targeted Economic Development Areas
The state offers four types of Economic Development Areas (EDAs): Enterprise Zones; Local Agency Military Base Recovery Areas (LAMBRA); Manufacturing Enhancement Areas (MEA); and, Targeted Tax Areas (TTA).
Foreign Trade Zones
California's foreign trade zones (FTZ) are located in San Francisco, San Jose, Long Beach, Oakland, West Sacramento, San Diego, Palmdale, Los Angeles, Port Hueneme, Shafter, Merced/Madera/Fresno counties, Stockton, Palm Springs, Santa Maria, Victorville, Imperial, and Riverside County. FTZs are secured areas legally outside of U.S. customs territory usually located in or near customs points of entry. Foreign trade Zones allow entry of foreign or domestic merchandise without formal customs entry or government excise taxes.
Small Business Loan Guarantee
The Small Business Loan Guarantee Program promotes job retention and creation and encourages small business entrepreneurship, particularly among minorities, women, and the disabled. The program provides loan guarantees on revolving lines of credit, small loans and agricultural loans, which are niche markets not typically served by the federal Small Business Administration (SBA).
Businesses applying to the program receive funding from a private lender, typically banks. This loan is guaranteed by one of 11 nonprofit offices on behalf of the state, called Small Business Financial Development Corporations, organized under the California Corporations Code. All loan proceeds must be used in California for the purposes for which the loan was given and proceeds cannot be used for speculative purposes. To qualify, a borrower must not be able to obtain credit through traditional means, but must still demonstrate reasonable capacity to repay the loan. The legal maximum guarantee is 90 percent of the loan amount, not to exceed $500,000 (there is no limit on the loan amount), with the guarantee not to exceed seven years. The lender negotiates the interest rate with the borrower. A loan origination fee of up to 2 percent and a documentation fee of up to $250 may be charged by the Financial Development Corporation.
USDA Rural Development
The U.S. Department of Agriculture sponsors “Business & Industry” guaranteed loans in rural communities. USDA guarantees up to 80% on loans from $750,000 to $5 million and up to 70% on loans up to $10 million. Rates are fixed or variable and negotiated between lender and business. Terms are typically seven years for working capital, 15 years on equipment and 30 years on real estate. Lenders negotiate their own fees and the USDA charges 2% of the guaranteed amount as a one-time fee. Most types of businesses qualify but the project must be in a rural area beyond the urbanized periphery surrounding a city of 50,000 or more. Communities that have grown beyond 50,000 since the 2000 census may still be eligible.
Sales and Use Tax
Administered by the Board of Equalization, the State of California and local jurisdictions impose sales and use taxes that average approximately 7.25 percent. The sales tax applies to the gross receipts of retailers from the sale of tangible personal property which is not specifically exempt. Specific exemptions include most food for home consumption and prescription medicine. Sales tax is imposed at the point of sale. It is the responsibility of the retailer, but paid by the purchaser. Use tax is paid on items purchased for the intent of use in California. Intent of use is defined as used in California within 90 days of purchase. The tax is self-reported and paid at the rate applicable in the jurisdiction in which the item will be used less the tax paid in another state. Note: Construction materials are not exempt from sales tax. Construction labor is not taxed.
Number of Businesses
The estimated total number of small businesses in California in 2003 was 3,202,800. Of the 1,063,230 employer firms in 2003, 99.1 percent or an estimated 1,053,700 were small firms. The estimated number of employer businesses increased by 4 percent in 2003. The most recent data available show that non-employer businesses numbered 2,149,145 in 2001. Self-employment increased by 3.2 percent, from 1,516,636 in 2002 to 1,565,698 in 2003.
According to U.S. Dept. of Commerce, small business proprietors' income in 2003 increased by 6 percent, from $129.7 billion in 2002 to $137.5 billion in 2003 in California.
WHERE TO GO FOR MORE INFORMATION
These resources will answer the most frequently asked questions business owners want to know when deciding where to locate.
Business & Individual Taxes www.taxes.ca.gov
California’s Economic Regions www.labor.ca.gov/panel
County Profiles & Demographic Data www.census.gov/acs
Labor Market Information www.labormarketinfo.edd.ca.gov
* California Business Investment Services
2005 Exports from California to World
Product Value ($) Percent
Computers & Electronic Prod. 41,751,541,679 35.7 %
Transportation Equipment 13,324,565,662 11.4 %
Machinery Manufactures 13,131,001,568 11.2 %
Chemical Manufactures 7,212,359,976 6.2 %
All Others 41,399,116,280 35.4 %
Grand Total 116,818,585,165 100 %
Asian and Pacific Islander-owned 316,000
American Indian and Alaskan Native-owned 26,600
Source: U.S. Dept. of Commerce, Bureau of the Census, in 1997.
Total Exports from California: in thousands ($ USD)
Partner 2000 2001 2002 2003 2004 2005 2005 thru Sep. 2006 thru Sept.
World 119,640,424 106,776,963 92,214,292 93,994,882 109,967,840
Total 116,818,585 85,510,793 94,729,563
Turkey 258,351 220,305 175,404 163,088 208,900 350,301 270,673 228,913
Provided by the Office of Trade and Industry Information, Manufacturing and Services, International Trade Administration, U.S. Department of Commerce