innovative solutions for california’s future · for complete ordering information for this and...

October 28, 2008 • Beverly Hilton, Los Angeles

briefing book

Innovative Solutions for California’s Future

Acknowledgments

The Milken Institute would like to thank the following individuals whose support and talents helped make the 2008 State of the State Conference and Briefing Book possible:

Director, Regional Economics: Ross DeVolSenior Managing Economist: Perry WongManaging Economist: Kevin KlowdenResearch Economist: Armen BedroussianSenior Research Analysts: Anita Charuworn, Anusuya Chatterjee, In Kyu Kim, Soojung Kim, Benjamin YeoEditors: Dinah McNichols, Lisa Renaud

For complete ordering information for this and all Milken Institute publications, please visit our Web site at www.milkeninstitute.org.

About the Milken Institute

The Milken Institute is an independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations in the United States and around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. We put research to work with the goal of revitalizing regions and finding new ways to generate capital for people with original ideas.

By creating ways to spread the benefits of human, financial and social capital to as many people as possible — by democratizing capital — we hope to contribute to prosperity and freedom in all corners of the globe.

The Institute’s California Center is dedicated to measuring and analyzing economic, demographic and social trends in the state, and proposing innovative ideas that will help ensure California’s long-term prosperity. Its goal is to help California’s business and government leaders maintain the state’s global preeminence in trade, technology, the life sciences, entertainment, alternative energy and other key industries, and to improve the quality of life for residents.

The Milken Institute is nonprofit, nonpartisan and publicly supported.

© 2008 Milken Institute

tAble of contents

Highlights ...........................................................................................1

Current Economic Conditions ........................................................ 8

State Budget and Finances ............................................................. 14

Human Capital and Education ......................................................24

Business Climate .............................................................................34

Technology and Energy Overview .................................................43

Industry ........................................................................................... 58

Real Estate ...................................................................................... 80

1 HigHligHts

HighlightsHighlights

0807060504030201009998

8

7

6

5

4

3

Percent

Sources: Global Insight, Bureau of Labor Statistics.

Unemployment rateCalifornia vs. U.S., January 1998-July 2008

CaliforniaUnited States

The housing downturn has impacted multiple

sectors, with construction and financial services posting sharp declines in employment.

Job losses have lowered the growth rate of

California’s median household income. Frozen credit markets, coupled with rising

foreclosures, are driving down housing prices across much of the state.

0807060504030201009998

20

15

10

5

0

-5

-10

-15

Percent change from preceding year


Employment by sectorCalifornia, January 1998-August 2008

ConstructionFinancial activities

070503019997959391

8

6

4

2

0

-2

-4


Sources: Moody's Economy.com, U.S. Census Bureau.

Growth in median household incomeCalifornia vs. U.S., 1991-2007


0807060504030201009998

30

20

10

0

-10

-20

-30

-40


Sources: Moody's Economy.com, National Association of Realtors.

Median sales price, existing single-family homeCalifornia vs. U.S., 1998-2008 Q2


0806040200989694929088

120

110

100

90

80

70

60

50

University of Michigan index (1966 Q1= 100)

Sources: University of Michigan, Federal Reserve Bank of St. Louis.

Consumer sentimentJanuary 1988-August 2008

1 HIGHLIGHTS

2 HigHligHts


20082007

20062005

20042003

20022001

20001999

19981997

19961995

19941993

19921991

120

100

80

60

40

20

0

-20

US$ billions

Source: California Department of Finance.

California revenues and expendituresFY 1991-1992 to 2008-2009

Total revenues and transfersTotal expendituresBalance

Although it narrowed in the last fiscal year, California’s budget deficit is expected to widen in FY 2008-2009.

Taxable sales in California decreased 1.8

percent in the third quarter of 2007, showing continued slowing overall economic growth.

Since 1994, California has paid out more in

federal taxes than it has received in federal spending.

3rd quarter2nd quarter1st quarter

10

8

6

4

2

0

-2

-4

Percent change in taxable sales


Taxable sales

2005 to 20062006 to 2007

State expenditures by agency US$ millions, FY 2008-2009

General Special BondCategory funds funds funds TotalLegislative, judicial, executive 3,816 2,157 411 6,384State and consumer services 563 862 18 1,443Business, transp. and housing 1,628 6,946 4,186 12,760Resources 1,832 2,222 1,626 5,680Environmental protection 81 1,151 397 1,629Health and human services 31,121 8,125 150 39,396Corrections and rehabilitation 10,342 22 1 10,365K-12 education 41,579 162 4,427 46,168Higher education 12,113 41 1,404 13,558Labor and workforce development 98 334 - 432General government 228 6,166 281 6,675Total 103,401 28,188 12,901 144,490Source: California Department of Finance.

0807

0605

0403

0201

0099

60

50

40

30

20

10

0

US$ billions

Source: California Budget Project, 2008.

General Fund program distributionFY 1999-2000 to FY 2008-2009

K-12Higher educationHealth and human servicesBusiness, transportation and housing

0504

0302

0100

9998

9796

9594

9392

9190

8988

8786

8584

8382

81

300

250

200

150

100

50

US$ billions

Source: Tax Foundation, 2008.

Federal taxes paid vs. federal spending receivedCalifornia, FY 1981-1982 to FY 2005-2006

Federal taxes paidFederal spending received

2 HIGHLIGHTS

3 HigHligHts


Academic year Charges (current US$)

Annual change

(percent)

Charges (current US$)

Annual change

(percent)1996-1997 12,994 na 2,975 na1997-1998 13,785 6.1 3,111 4.61998-1999 14,709 6.7 3,247 4.41999-2000 15,518 5.5 3,362 3.52000-2001 16,072 3.6 3,508 4.32001-2002 17,377 8.1 3,766 7.42002-2003 18,060 3.9 4,098 8.82003-2004 18,950 4.9 4,645 13.32004-2005 20,045 5.8 5,126 10.42005-2006 20,980 4.7 5,492 7.12006-2007 22,218 5.9 5,836 6.3

* In-state enrollments only.

Source: College Board, Trends in College Pricing 2006.

Private four-year Public four-year*

Average published tuition and fee chargesBy institution type

Nationwide, college tuition has steadily

increased, with public institution rates climbing even faster than those of private schools.

California’s ability to attract top talent was

negatively impacted in 2003-2004 as scrutiny of foreign students increased after 9/11.

California’s spending on higher education

increased from $273 per capita in 2003 to $294 per capita in 2007. But the state dropped from ninth to 12th place nationally in terms of relative education appropriations.

06-0705-0604-0503-0402-0301-02

81

80

79

78

77

76

75

74

Thousands

Sources: Open Doors, Institute of International Education.

California's foreign student population2001-2007

CA*LANENDALNCHINMAKWY

550

500

450

400

350

300

250

US$ per capita

Sources: National Science Foundation, Milken Institute.

State appropriations for higher educationTop nine states and California, 2007

* CA ranks 12th.

20052000199519901985

80

60

40

20

0

Percent

Sources: National Center for Education Statistics, IPEDS.

Female share of BAs in science and eng.1985-2006

Computer science

Psychology

Biological/agricultural sciences

Math

Engineering

Note: Data not available for 1999.

Description Hispanics White Black AsiansPopulation

Total population (thousands) 13,088 15,585 2,209 4,419Eligible voters (thousands) 5,011 12,165 1,542 2,468

English-speaking abilityDoes not speak English "very well" 23.1 2.4 0.8 36.0Speaks only English or English "very well" 76.9 97.6 99.2 64.0

Educational attainmentDid not complete high school 27.8 7.6 14.6 12.0Completed high school 31.8 23.3 29.7 16.8Some college 29.3 34.9 37.5 27.9Bachelor's degree or more 11.2 34.1 18.1 43.3

Household incomeLess than $30,000 19.6 16.3 28.5 14.3$30,000-$49,999 2.2 15.0 19.2 12.6$50,000-$74,999 22.1 18.1 19.4 17.2$75,000-$99,999 15.9 14.7 13.6 15.2$100,000 or more 22.2 35.9 19.4 40.7

Sources: Pew Hispanic Center; U.S. Census Bureau, 2006 American Community Survey.

Non-Hispanic

Characteristics of eligible voters in CaliforniaBy race and ethnicity

1 HIGHLIGHTS

4 HigHligHts


Rank State Index1 New York 132.92 Connecticut 129.93 Massachusetts 122.74 New Jersey 120.85 California 114.36 Maryland 109.37 Illinois 106.98 Delaware 106.39 Washington 104.710 Virginia 104.6

Wage costsMost expensive states, 2007

Sources: Global Insight, Milken Institute.

California posted the nation’s fifth-highest

wages in 2007, with wage costs 14.3 percent higher than the U.S. average.

While the state’s increasing tax burden and

wage costs strain the bottom line for businesses, declining electricity costs provide ongoing relief.

California appears competitive in the

categories of openness, technology and business incubation, which remained among the state’s key strengths in the Beacon Hill Institute’s 2007 State Competitiveness Index.

Rank State Index1 Alaska 193.82 Vermont 174.33 Hawaii 157.04 Wyoming 139.15 West Virginia 135.06 Arkansas 134.67 New Mexico 130.38 Minnesota 129.49 Delaware 128.510 Maine 125.214 California 117.2

Tax burdenMost expensive states, 2007

Sources: U.S. Census, Milken Institute.

0706050403020100999897

190

180

170

160

150

140

130

125

120

115

110

105

Index U.S. = 100 Index U.S. = 100

Sources: Global Insight, Energy Info. Admin., Milken Institute.

Historical Cost Index componentsCalifornia, 1997-2007

Electricity cost (L)Tax burden (R)Wage cost (R)

Rank State Index1 Hawaii 237.82 Connecticut 179.23 Massachusetts 178.04 New York 171.25 New Hampshire 167.96 Rhode Island 160.77 Maine 148.08 Alaska 146.39 Vermont 135.210 California 133.1

Electricity costsMost expensive states, 2007

Sources: Energy Info. Admin., Milken Institute.

Index components

RankAmong states

(1 = Best, 50 = Worst)Government and fiscal policy 49Security 21Infrastructure 45Human resources 36Technology 9Business incubation 17Openness 3Environmental policy 22Overall Competitiveness Index 24Source: Beacon Hill Institute.

State Competitiveness IndexCalifornia rankings, 2007

5 HigHligHts


070605040302010099989796959493

200

180

160

140

120

100

80

60

40

US$ thousands per worker

Sources: Moody's Economy.com, Milken Institute.

California's high-tech real output per employeeHigh-tech manufacturing vs. high-tech services

ManufacturingServices

Once again, San Jose was by far the best-

performing California metro area in terms of high-tech employment. Its high-tech industries represented a larger share of total employment when compared to both the national average and other top California metropolitan areas.

Continuing a recent trend, California’s high-tech

service industries are holding their own and even showing slight employment growth. High-tech manufacturing has not fared as well, with many jobs leaving the state.

SacramentoSanta Rosa

Santa BabaraLos Angeles

OaklandSanta Ana

OxnardSan Diego

San FranciscoSan Jose

3.5

3.0

2.5

2.0

1.5

1.0

0.5

Location quotient


Top 10 California metropolitan areasBy high-tech employment location quotient

TXNCNMWACOIAKSCAMASD

0.70

0.60

0.50

0.40

0.30

0.20

0.10

Per $1,000 of GSP

Source: Thomson Financial.

VC investments in clean technologyTop ten states, 2004-2007

070605040302010099989796959493

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

Percent share


High-tech manufacturing vs. high-tech servicesShare of California's overall employment base


07060504030201009998979695

120

100

80

60

40

20

0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

US$ billions Thousands

Sources: PricewaterhouseCoopers, Milken Institute.

Venture capital in industry/energyCalifornia, 1995-2007

Investment amount (L)Number of deals (R)

5 HIGHLIGHTS

6 HigHligHts


0806040200989694929088

2.0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

US$ trillions

Source: Moody's Economy.com.

California's nominal GDP1988-2008

California is one of the largest economies in

the world, with nominal GDP of almost $1.9 trillion in 2008.

California’s unemployment in August 2008

stood at 7.7 percent, exceeding the national unemployment rate of 6.1 percent.

Hollywood was hit by a contentious three-

month writers’ strike in late 2007 and early 2008. The losses associated with the strike were unusually high because the information, leisure and hospitality industry constitutes a large share of California’s output and employment.

0806040200989694929088

8

6

4

2

0

-2

-4



California vs. U.S.: real GDP growth1988-2008


0806040200989694929088

4

3

2

1

0

-1

-2



California vs. U.S.: employment growth1988-2008


California’s employment Thousands of employees

Sector 1998 2008

Percent change(1998-2008)

Percent of U.S.

employment2008

Government 2,166.2 2,526.6 16.6 11.2Professional and business services 2,017.0 2,281.8 13.1 12.7Retail trade 1,476.5 1,670.6 13.1 10.9Leisure and hospitality 1,264.7 1,571.0 24.2 11.5Manufacturing 1,853.9 1,429.5 -22.9 10.6Health care and social assistance 1,121.9 1,407.1 25.4 8.9Financial activities 785.6 876.7 11.6 10.7Construction 615.4 839.6 36.4 11.6Wholesale trade 615.0 720.0 17.1 11.9Other services (except public administration) 460.7 516.5 12.1 9.3Transportation and utilities 497.7 506.8 1.8 10.0Information 484.1 458.8 -5.2 15.3Educational services 210.1 298.8 42.2 9.8Natural resources and mining 27.4 25.7 -6.2 3.4Total 13,596.1 15,129.7 11.3 11.0Source: Moody's Economy.com.

0806040200989694929088

20

15

10

5

0

-5



Information, leisure and hospitality industryReal output growth


6 HIGHLIGHTS

7 HigHligHts

HighlightsHighlights The median sales price of existing single-

family homes in California fell by nearly 30 percent between Q2 2007 and Q2 2008.

Housing starts are at their lowest level in

more than two decades. Mortgage delinquency rates have increased

three times faster in California than in the nation as a whole.

One out of every five U.S. foreclosure

proceedings was initiated in California.

48 68 88 09 29 49 69 89 00 20 40 60 808280

350

300

250

200

150

100

50

150

100

50

0

-50

-100

Thousands of units Percent change from preceding year

Source: Global Insight.

Housing startsCalifornia, 1980-2008 Q1

Level (L)Growth rate (R)

89 99 00 10 20 30 40 50 60 70 80

80

60

40

20

0

-20

-40


Sources: Moody's Economy.com, Mortgage Bankers Association.

Delinquency ratesAll loans, 1998-2008 Q2


09 29 49 69 89 00 20 40 60 80

30

25

20

15

10

5

0

Percent


California share of foreclosuresAs percent of U.S. total, 1990-2008 Q2

89 99 00 10 20 30 40 50 60 70 80

80

60

40

20

0

-20

-40


Sources: Moody's Economy.com, Construction Industry Research Board.

Valuation of multifamily permitsCalifornia, 1998-2008 Q2

7 HIGHLIGHTS

0807060504030201009998

20

10

0

-10

-20

-30

-40



Existing single-family home salesCalifornia vs. U.S., 1998-2008 Q2


current economic conditions

Current Economic Conditions

8

Current Economic Conditions California’s real gross domestic product

(GDP) lagged relative to the nation’s, growing at about 1.5 percent in 2007. In the wake of the housing and financial downturn, the state’s GDP growth outlook is uncertain.

Not only is California’s unemployment rate

higher than the national rate, but the gap widened in 2008.

Due to its larger exposure to the subprime

market, the state will experience more severe impacts from the housing decline than the nation as a whole.

Housing-related industries — construction

and financial services, and sectors producing building materials and home goods — have declined considerably.

In the wake of a sharp rise in energy prices,

consumers have cut back on spending and travel. The retail sector, like leisure and hospitality, has weakened.

The state’s relatively diverse high-tech

industry base should help mitigate the extent of the economic downturn.

99 00 10 20 30 40 50 60 709897

8

6

4

2

0

-2


Sources: Moody's Economy.com, Bureau of Economic Analysis.

Real gross domestic productCalifornia vs. U.S., 1997-2007


89 99 00 10 20 30 40 50 60 70 80

8

7

6

5

4

3

Percent


Unemployment rateCalifornia vs. U.S., January 1998-July 2008


00 10 20 30 40 50 60 70 809998

4

3

2

1

0

-1

-2

-3



Employment growthNon-farm employment, January 1998-August 2008


080789 99 00 10 20 30 40 50 60

20

15

10

5

0

-5

-10

-15



Employment by sectorCalifornia, January 1998-August 2008

ConstructionFinancial activities

1 CURRENT ECONOMIC CONDITIONS



9


0706050403020100999897

6.5

6.0

5.5

5.0

4.5

4.0

3.5

22

20

18

16

14

12

Thousands Thousands

Sources: Moody's Economy.com, Bureau of Labor Statistics.

Mass layoff announcementsAll industries, 1997-2007

California (L)United States (R)

In 2007, California accounted for about 25

percent of the total mass layoff announcements in the United States.

Among selected metropolitan regions in

California, Los Angeles had the highest unemployment rate, at more than 8 percent. Sacramento followed, at 7.2 percent.

Most jobs cuts will likely result as the ripple

effects of the housing and financial downturns take their toll.

JULAPRJANOCTJULAPRJANOCTJULAPRJAN200820072006

8

7

6

5

4

3

Percent


Unemployment ratesBy metro, January 2006-July 2008

San JoseSan FranciscoSacramento


8

7

6

5

4

3

2

Percent


Unemployment ratesBy metro, January 2006-July 2008

Los AngelesOrange CountySan Diego


4

3

2

1

0

-1

-2



Employment growth By metro, January 2006-July 2008

San JoseSan FranciscoSacramento


3

2

1

0

-1

-2

-3



Employment growth By metro, January 2006-July 2008

Los AngelesOrange CountySan Diego




10


0706050403020100999897969594939291

37

36

35

34

33

32

31

30

12.20

12.15

12.10

12.05

12.00

11.95

11.90

11.85

Millions Percent

Sources: Global Insight, U.S. Census Bureau.

PopulationCalifornia, 1991-2007

Level (L)Share of U.S. (R)

Although California continues to see a steady

rise in population, its share of the nation’s population has declined since 2004.

Led by job losses in the real estate sector, the state’s median household income grew at a sluggish pace in 2007.

Average per capita income in California maintained an annual 5 percent gain from the previous year to rise above $40,000 in 2007.

070503019997959391

8

6

4

2

0

-2

-4



Growth in median household incomeCalifornia vs. U.S., 1991-2007


070503019997959391

45

40

35

30

25

20

15

US$ thousands


Per capita income1991-2007


070503019997959391

14

12

10

8

6

4

2

0

-2


Sources: Global Insight, Bureau of Economic Analysis.

Wage and salary growthCalifornia vs. U.S., 1991-2007


0706050403020100999897

70

68

66

64

62

60

58

56

54

Percent


Homeownership ratesCalifornia vs. U.S., 1997-2007




11


080706050403020100999897969594939291

220

200

180

160

140

120

100

80

60

40

20

0

-20

-40

-60

-80




Level (L)Growth Rate (R)

Housing starts have reached their lowest point

in over two decades. Not only has the cost of borrowing gone up, but it has become increasingly difficult to qualify for a loan, even for those with good credit.

Single-family home sales have picked up

some momentum, driven by the increase in foreclosure sales. However, California’s median existing home prices fell by nearly 30 percent between 2007 and 2008.

A slowdown in business activity, coupled

with rising energy costs, could trigger a further rise in vacancy rates.

0807060504030201009998

20

10

0

-10

-20

-30

-40





0807060504030201009998

30

20

10

0

-10

-20

-30

-40





0807060504030201009998

25

20

15

10

5

0

Percent

Sources: Moody's Economy.com, CB Commercial.

Metropolitan office vacancy rates1998-2008 Q2

United StatesLos AngelesSan Francisco

0807060504030201009998

9.0

8.0

7.0

6.0

5.0

4.0

Percent

Sources: Moody's Economy.com, Fannie Mae.

30-year conventional mortgage rateJanuary 1998-August 2008




12


0806040200989694929088

120

110

100

90

80

70

60

50

University of Michigan index (1966 Q1= 100)

Sources: University of Michigan, Federal Reserve Bank of St. Louis.

Consumer sentimentJanuary 1988-August 2008

With economic uncertainties lingering,

consumer sentiment has declined sharply during 2008.

Rising energy costs and limited credit

availability have affected business investment and consumer spending nationwide.

Consumers have cut back on discretionary

items, such as appliances, furniture and autos. A relatively weaker dollar, however, has helped stimulate export growth, minimizing the extent of the slowdown.

080706050403020100

160

140

120

100

80

60

40

20

0

US$/bbl

Sources: Global Insight, Wall Street Journal.

Oil pricesWest Texas Intermediate Crude, Jan. 2000-Sept. 2008

0807060504030201009998

6

5

4

3

2

1

0

-1



Real personal consumption expendituresJanuary 1998-July 1998

0807060504030201009998

30

20

10

0

-10

-20

-30



Fixed domestic investment1998-2008 Q2

ResidentialNon-residential

0807060504030201009998

30

20

10

0

-10

-20



Exports of goods and servicesJanuary 1998-July 2008




13


00 10 20 30 40 50 60 70 80

7

6

5

4

3

2

1

0

3.0

2.5

2.0

1.5

1.0

Percent Percent change from preceding year

Sources: Global Insight, Federal Reserve Bank, Bureau of Labor Statistics.

Fed funds rateJanuary 2000-August 2008

* Consumer price index (CPI) excludes food and energy

Fed funds rate (L)Change in CPI* (R)

In early October, the Federal Reserve cut

interest rates to 1.5 percent, their lowest level in more than four years.

Significant write-downs traced to mortgage-

backed securities caused several banks to go “belly-up,” setting off the financial meltdown.

Due to the severity of the crisis, the Fed has

stepped in to bail out some financial giants. The stock market witnessed some of its grimmest days since 9/11.

00 10 20 30 40 50 60 70 80

2.5

2.0

1.5

1.0

0.5

Percentage points

Sources: Federal Reserve Board, Moody's Economy.com, Milken Institute.

Credit spreadMoody's corporate Aaa minus 10-year Treasury bond

40 50 60 70 800300 10 20

14000

13000

12000

11000

10000

9000

8000

7000

Level

Sources: Global Insight, Federal Reserve Board.

Dow Jones Industrial AverageJanuary 2000-August 2008

30 40 50 60 70 800201

3000

2500

2000

1500

1000

Level

Sources: Moody's Economy.com, Nasdaq Stock Market.

NASDAQ Composite IndexJanuary 2001-August 2008

0830 40 50 60 700201

1600

1400

1200

1000

800

Level

Sources: Global Insight, The Conference Board.

Standard & Poor's 500 Composite IndexJanuary 2001-August 2008


stAte budget And finAnces

State Budget and Finances

14


20082007

20062005

20042003

20022001

20001999

19981997

19961995

19941993

19921991

120

100

80

60

40

20

0

-20

US$ billions



Total revenues and transfersTotal expendituresBalance

Although it narrowed in the last fiscal year, the gap between California’s actual revenues and expenditures is expected to widen in FY 2008-2009.

Personal income taxes comprise almost

45 percent of the revenues and transfers in the $129 billion FY 2008-2009 budget.

General Fund revenues are expected to be

$102 billion in FY 2008-2009.

20082007

20062005

20042003

20022001

20001999

19981997

19961995

19941993

19921991

25

20

15

10

5

0

-5

-10




Revenues and transfersExpenditures

Revenue sources US$ millions, FY 2008-2009

General Specialfunds funds Total

Personal income tax 55,720 1,449 57,169Sales tax 27,111 6,464 33,575Corporation tax 13,073 - 13,073Highway users taxes - 3,383 3,383Motor vehicle fees 29 5,937 5,966Insurance tax 2,029 - 2,029Liquor tax 341 - 341Tobacco taxes 114 934 1,048Other 3,574 7,980 11,554Total 101,991 26,147 128,138Source: California Department of Finance.

Total revenues and transfersFY 2008-2009

Highway users taxes2.7%

Personal income tax

44.7%

Motor vehicle fees4.6%

Liquor tax0.3%

Corporation tax

9.2%

Other8.9%

Sales tax27.0%

Tobacco tax0.8%

Insurance tax1.8%


State expenditures by agency US$ millions, FY 2008-2009

General Special BondCategory funds funds funds TotalLegislative, judicial, executive 3,816 2,157 411 6,384State and consumer services 563 862 18 1,443Business, transp. and housing 1,628 6,946 4,186 12,760Resources 1,832 2,222 1,626 5,680Environmental protection 81 1,151 397 1,629Health and human services 31,121 8,125 150 39,396Corrections and rehabilitation 10,342 22 1 10,365K-12 education 41,579 162 4,427 46,168Higher education 12,113 41 1,404 13,558Labor and workforce development 98 334 - 432General government 228 6,166 281 6,675Total 103,401 28,188 12,901 144,490Source: California Department of Finance.

Page 1 STATE BUDGET AND FINANCES



15

State Budget and Finances Total expenditures

FY 2008-2009

Health and human services

25.3%

Corrections and rehabilitation

7.3%

Environmental protection

1.1%

K-12 education31.0%

Legislative, judicial,

executive4.5%

State and consumer services

1.1%

General government

5.5%

Labor and workforce

development0.3%

Business, transportation and housing

9.5%

Resources4.1%

Higher education10.3%


California plans to spend $141 billion in FY 2008-2009.

In FY 2008-2009, General Fund expenditures

are expected to stay largely unchanged from last year’s level of approximately $103 billion.

K-12 education receives the largest share of

state funds, followed by health and human services.

0807

0605

0403

0201

0099

60

50

40

30

20

10

0

US$ billions

Source: California Budget Project, 2008.

General Fund program distributionFY 1999-2000 to FY 2008-2009

K-12Higher educationHealth and human servicesBusiness, transportation and housing

General Fund budget summary US$ millions, FY 2008-2009

2007-2008 2008-2009Prior year balance 4,305 3,999 Revenues and transfers 103,027 101,991Total resources available 107,332 105,990 Non-proposition 98 expenditures 61,781 61,458 Proposition 98 expenditures 41,552 41,943Total expenditures 103,333 103,401Fund balance 3,999 2,589 Reserve for liquidation of encumbrances 885 885 Special fund for economic uncertainties 3,113 1,703


General Fund expendituresFY 2008-2009

Health and human services

25.3%

Corrections and rehabilitation

7.3%

Environmental protection

1.1%

K-12 education31.0%

Legislative, judicial,

executive4.5%

State and consumer services

1.1%

General government

5.5%

Labor and workforce

development0.3%

Business, transportation and housing

9.5%

Resources4.1%

Higher education10.3%


General Fund expenditures by agency FY 2008-2009

US$ millions PercentCategory 2007-2008 2008-2009 changeLegislative, judicial, executive 3,914 3,787 -3.2State and consumer services 597 608 1.8Business, transportation and housing 1,526 1,680 10.1Resources 1,804 1,656 -8.2Environmental protection 91 86 -5.5Health and human services 29,577 29,298 -0.9Corrections and rehabilitation 10,096 10,268 1.7K-12 education 42,045 39,411 -6.3Higher education 11,803 11,699 -0.9Labor and workforce development 104 98 -5.8General government 1,816 2,407 32.5Total 103,373 100,998 -2.3Source: California Department of Finance.




16


General Fund revenue forecastCalifornia, US$ millions

2007-2008 2008-2009Actual Estimated Percent Projected Percent

2006-2007 amount change amount changeTaxesPersonal income 51,943 52,681 1.4 56,458 7.2Sales and use 27,445 27,689 0.9 29,215 5.5Corporation 11,158 10,675 -4.3 11,937 11.8Insurance 2,178 2,075 -4.7 2,276 9.7Other 485 481 -0.9 491 2.3Other revenues, transfers and loansDeficit-financing bond proceeds - 3,313 - - -Other revenues, transfers and loans 2,225 3,096 39.2 2,470 -20.2Transfer 453 749 - 57 -Total 95,887 100,759 5.1 2.1Source: Legislative Analyst's Office, 2008.

When budget negotiations began in early

2008, the state faced a $15.2 billion funding gap.

California’s taxable capital gains and stock

options climbed dramatically in the late 1990s and peaked with the stock market in 2000.

California community colleges will receive

$9.1 billion in total funding for the FY 2008-2009. The system encompasses 110 colleges and educates more than 2.6 million students.

How does the govenor propose to balance the budget?

Early release of inmates and parole

changes2.5%

Suspend SSI/SSP COLAs2.2%

CalWORKs policy changes

3.1%

Personal income tax accounting shift

13.4%

Suspend additional deficit-financing

bond payment 10.1%

Sell additional deficit-financing bonds

22.2%

Reduce proposition 98 spending

35.1%

Reduce Medi-Cal spending

7.5%

Unallocated UC/CSU reductions

3.8%

Other "solutions"13.7%

Source: Legislative Analyst's Office, 2008.

Major savings proposals in 2007-2008 and 2008-2009

US$ millionsDeficit-Financing Bonds Issue additional bonds (governor's proposal) 3,313 Suspend budget stabilization account transfer (governor's proposal) 1,551Revenues Reduce dependent credit 1,330 Limit research and development credit 335 Limit net operating loss carryforwards 330 Other revenue changes 660Proposition 98 K-14 education Fund flat year-to-year budget 2,769 Reduce current-year spending to minimum guarantee 950 Suspend Quality Education Investment act in 2008-2009 450 Use public transportation account for 2007-2008 home-to-school costs 409 Prepay 2008-2009 settle-up 150Parole realignment 483Other key spending solutions Reject pay raise for correctional officers in 2007-2008 521 Delete SSI/SSP cost-of-living adjustments (governor's proposal) 329 Reduce, shift or eliminate public safety local assistance funding 278 Change crimes from wobblers to misdemeanors 250 Shift wildland fire costs to fire protection fee 239 Cost containment for regional centers (governor's proposal) 229 Increase university student fees by 10 percent 215 Fund UC and CSU nondiscretionary cost increases, but not compact 207

Source: Legislative Analyst's Office, 2008.

20082007

20062005

20042003

20022001

20001999

30

25

20

15

10

5

0

Percent

* FY06-07 preliminary, FY07-08, FY08-09 estimated.Note: An assumed tax rate of 9% was used to calculate the tax revenue.Source: California Department of Finance.

Capital gains and stock optionsAs a percent share of General Fund revenues

Revenue sources for community colleges FY 2008-2009, total $9.2 billion

Local property taxes24.1%

State funds50.2%

Local misc. and debt service19.7%

Student fees3.1%

Federal funds2.9%





17


20082007

20062005

20042003

20022001

19991997

19951993

19911989

700

600

500

400

300

200

100

0

US$ millions


Cigarette and Tobacco Products Surtax FundProposition 99 revenues, FY 1989-1990 to 2008-2009

The state budget projects Proposition 99

revenues of $320 million in FY 2008-2009, $7 million below the level in the revised 2007-2008 budget.

While overall funding for health and human

services has been increasing, the percentage share of the total state budget allocated to these services remains below 2002 levels.

Revenues as a percentage of personal income

Rank Percent in U.S. averageCalifornia percent

Total state and local own source (2004-2005) 18 16.51 15.79Total state and local taxes (2004-2005) 16 11.23 10.93State taxes (2005-2006) 13 7.98 6.66Local taxes (2004-2005) 32 3.69 4.44State and local general sales taxes (2004-2005) 16 2.88 2.62State and local property taxes (2004-2005) 38 2.61 3.35State general sales taxes (2005-2006) 20 2.31 2.14State motor fuels taxes (2005-2006) 45 0.24 0.34State tobacco taxes (2005-2006) 42 0.08 0.14State alcoholic bevarage sales taxes (2005-2006) 41 0.02 0.05State individual taxes (2005-2006) 3 3.67 2.30State corporation income taxes (2005-2006) 6 0.74 0.45Sources: Bureau of Economic Analysis, U.S. Census Bureau.

How does California's spending compare? Spending as a percentage of state personal income, 2005-2006

Percent in U.S. avg. California'sCalifornia percent rank

Total expenditures 16.15 14.63 21General expenditures 13.73 12.7 26Corrections 0.49 0.4 14Education 4.96 4.54 29Health 0.7 0.48 11Highways 0.9 0.94 37Hospitals 0.4 0.42 23Natural resources 0.31 0.19 15Parks and recreation 0.04 0.05 36Police protection 0.09 0.12 39Sources: Bureau of Economic Analysis, U.S. Census Bureau.

20082007

20062005

20042003

20022001

20001999

19981997

30

25

20

15

10

31

30

29

28

27

26

25

US$ billions Percent


General Fund expenditures on health/human servicesTotal and percent, FY 1997-1998 to 2008-2009

Total (L)Percent of total (R)

20082007

20062005

20042003

20022001

20001999

19981997

45

40

35

30

25

20

42

41

40

39

38

37

36

US$ billions Percent


General Fund expenditures on K-12 educationTotal and percent, FY 1997-1998 to 2008-2009

Total (L)Percent of total (R)




18

State Budget and Finances CalWORKs program expenditures FY 2008-2009CalWORKs program expenditures US$ millionsIn DSS budget:Assistance payments 2,379Employment services 1,119County administration 426DSS child care 554Kin-GAP 121Tribal TANF 92DSS administration 30Subtotal 4,721Other CalWORKs expendituresStatewide automated welfare system 60Child welfare services 305California Food Assistance Program 6State Supplementary Payment Program 7State Department of Education child care 795After-school programs 462California community colleges child care 15CCC education services 29CCC fee waivers 86Cal grants 223DCSS disregard payments 21Department of Developmental Services 56County expenditures 108Subtotal 2,173General TANF reserve 133Total 7,027Source: California Department of Finance.

While California’s federal sharing ratio is

equal to New York’s, some 17.7 percent of Californians were served by Medicaid, while 21.7 percent of New Yorkers received Medicaid benefits.

Although its enrollment is projected to grow

from 888,450 at fiscal year-end 2007-2008 to 954,252 by fiscal year-end 2008-2009, the Healthy Families program is facing funding cuts that will necessitate reduced services and an increase in premiums and co-pays.

North CarolinaGeorgia

MichiganOhio

PennsylvaniaIllinois

FloridaNew York

TexasCalifornia

80

60

40

20

0

Percent

Sources: National Association of State Budget Officers, U.S. Census Bureau, Kaiser Comm.

Federal Medicaid programFY 2006-2007

Federal sharing ratioAverage monthly eligibles as a percentage of total population

20082007

20062005

20042003

20022001

20001999

1998

1000

800

600

400

200

0

1200

1000

800

600

400

200

0

Thousands US$ millions


Healthy Families program caseload and expendituresFY 1998-1999 to 2008-2009

Year-end caseload (L)Expenditures (R)

200820072006

850

800

750

700

650

600

550

500

US$ millions


Cal Grant fundingFY 2006-2007 to 2008-2009

20082007200620052004

13.0

12.0

11.0

10.0

9.0

US$ thousands


Total K-12 fundingPer pupil, FY 2004-2005 to 2008-2009




19

State Budget and Finances State-local realignment FY 2008-2009

Mental SocialAmount health Health services TotalBase fundingSales tax account 842 400 1,645 2,886Vehicle license fee account 415 1,249 73 1,737Total base 1,257 1,649 1,718 4,623

Growth fundingSales tax growth account 40 56 31 127 Caseload subaccount - - (23) (23) County medical services subaccount - (5) - (23) General growth subaccount (40) (51) (8) (23)Vehicle license fee growth account 17 25 3 45Total growth 57 81 34 172

Total realignment 1,314 1,729 1,752 4,765Source: California Department of Finance.

For 2008-09, state-local program realignment

revenues are estimated to total $4.8 billion, an increase of $171.6 million above revised 2007-2008 estimates.

Classroom instruction, followed by

instructional support, and maintenance and operations, are California’s largest school expenditures.

The main revenue source for schools in

California is state funding, followed by local taxes.

Where do schools spend their money?

FY 2008-2009

Instructional support12.7%

Classroom instruction

61.8%

Maintenance and operations

10.0%

Transportation2.5%

Other general fund3.6%

Pupil services4.4%

General administration

5.0%


Sources of revenue for K-12

FY 2008-2009

Local taxes24.0%

State funds60.0%

Federal funds9.0%

Local miscellaneous

7.0%


State transportation revenue FY 2008-2009

All other state31.2%

Local44.4%

Proposition 42/TCRF

6.4%

Proposition 1B18.0%


California's tax gap FY 2008-2009

Tax gap4.0%

Voluntary compliance

94.0%

Enforcement action2.0%





20


How tax-friendly is California? State-local tax burden, 2008

State/local taxes asRank State percent of per capita income

U.S. average 9.71 New Jersey 11.82 New York 11.73 Connecticut 11.14 Maryland 10.85 Hawaii 10.66 California 10.57 Ohio 10.48 Vermont 10.39 District of Columbia 10.310 Wisconsin 10.211 Rhode Island 10.2

Sources: Tax Foundation, Milken Institute.

California has the sixth-highest state and

local tax burden in the nation as measured as a percentage of personal income. California’s tax structure relies more heavily on personal income taxes than other states’ structures.

Since 1994, California’s federal taxes paid

have exceeded the federal spending the state receives.

0807

0605

0403

0201

0099

9897

9695

9493

9291

9089

8887

8685

8483

8281

11.0

10.5

10.0

9.5

9.0

Percent


State-local tax burden vs. U.S. averageFY 1981-1982 to FY 2008-2009


0504

0302

0100

9998

9796

9594

9392

9190

8988

8786

8584

8382

81

300

250

200

150

100

50

US$ billions


Federal taxes paid vs. federal spending receivedCalifornia, FY 1981-1982 to FY 2005-2006

Federal taxes paidFederal spending received

0807

0605

0403

0201

0099

9897

9695

9493

9291

1.2

1.0

0.8

0.6

0.4

0.2

0.0

US$ thousands


Taxes per capitaFY 1991-1992 to FY 2008-2009

General FundTotal

WashingtonUtah

OregonNew Mexico

NevadaHawaii

ColoradoCalifornia

ArizonaAlaska

2.5

2.0

1.5

1.0

0.5

0.0

Expenditures per dollar of taxes


Federal spending per dollar of federal taxesWestern states, FY 1995-1996 vs. FY 2005-2006

FY 1995FY 2005




21


20072006

20052004

20032002

20012000

19991998

19971996

19951994

1993

14

12

10

8

6

4

2

0

US$ billions

Source: California Budget Project, February 2008.*Note: FY 2006-2007 and FY 2007-2008 are estimated.

Annual cost of tax reductions FY 1993-1994 to FY 2007-2008*

The lowest-income households in California

paid the largest share of their income in state and local taxes.

CalPERS (the California Public Employees’

Retirement System) invests heavily in equities.

The market value of the CalPERS

Retirement Fund reached a historic high of almost $248 billion in the FY ending June 2007, but dropped to $239 billion in the FY ending June 2008.

Top 1%Next 4%

Next 15%Fourth 20%

Middle 20%Second 20%

Lowest 20%

14

12

10

8

6

4

2

0

Percent

Source: Institute on Taxation and Economic Policy.

State and local tax burdenTaxes as a percentage of 2004 household income

Actual asset allocation of CalPERS As of July 2008

Fixed income24.4%

Equities61.6%

Real estate10.0%

Inflation linked1.9%

Cash equivalents

2.1%

Source: CalPERS.

CalPERS investment As of July 2008

Fixed income25.4%

Equities64.2%

Real estate10.4%

Source: CalPERS.

59 69 79 89 99 00 10 20 30 40 50 60 70 80

250

200

150

100

50

US$ billions

Source: CalPERS.

CalPERS retirement fundMarket value, FY 1995-2008




22


08060402009896949290888684

40

30

20

10

0

-10

Rate of return

Source: CalPERS.* Year end is July 30.

CalPERS investment fundFY 1984-2008*

While CalPERS achieved a 19.1 percent rate

of return in 2007, its return was only -2.4 percent in 2008.

The CalSTRS (California State Teachers’

Retirement System) investment fund reached its peak in 2007, with holdings of approximately $172 billion.

The state budget assumes that some $38.3

billion of general obligation bonds will be issued in FY 2008-2009.

20072006

20052004

20032002

20012000

19991998

19971996

1995

180

160

140

120

100

80

60

40

US$ billions

Source: CalSTRS.

CalSTRS investment fundFund growth, 1990-2007

2007200620052004200320022001

7.5

7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.5

US$ billions

Source: CalSTRS.

CalSTRS investment fundTotal benefits paid, 2001-2007

Public transportation

US$ millionsPublic Transportation Account (PTA) funding 2007-2008 2008-2009Planning 23 23Intercity rail operations 112 106Rail projects 36 -Local transit grants 304 743Local transit projects 566 53Traffic Congestion Relief Program fundingLocal mass transportation projects 66 59State rail projects 12 5Proposition 1BTransit 600 350Rail 188 73Transit security 101 101Total 2,008 1,513Source: California Department of Finance.

OtherJudiciary

High-speed railWater

Higher ed.K-12

12

10

8

6

4

2

0

US$ billions


General obligation bondsFY 2008-2009




23


3rd quarter2nd quarter1st quarter

10

8

6

4

2

0

-2

-4

Percent change in taxable sales


Taxable sales

2005 to 20062006 to 2007

Taxable sales in California decreased 1.8

percent in the third quarter of 2007, reflecting slowing overall economic growth.

Annual growth in Californians’ personal

income slowed to 4.7 percent in 2007-2008, down from 5.8 percent in 2006-2007 and 6.9 percent in 2005-2006.

California lost more than 50,000 housing-

related jobs between the end of 2005 and the end of 2007, after having gained more than 170,000 housing-related jobs during the preceding four years.

200820072006200520042003200220012000

10

8

6

4

2

0

Percent

Sources: California Department of Finance, Bureau of Economic Analysis.

Growth in California's personal incomeFY 2000-2001 to FY 2008-2009

2006-20072005-2006

2004-20052003-2004

2002-20032001-2002

60

40

20

0

-20

-40

-60

Thousands

Source: California Budget Project analysis of Employment Development Dept. data.

Housing-related jobsGains or losses, Dec. 2001 to Dec. 2007

2007200620052004200320022001

4.0

3.0

2.0

1.0

0.0

Percent

Source: Bureau of Economic Analysis.

Real gross domestic productYear-over-year percent change

20082007

20062005

20042003

20022001

20001999

19981997

19961995

19941993

19921991

45

40

35

30

25

20

US$ thousands


Per capita personal incomeFY 1991-1992 to FY 2008-2009


HumAn cApitAl And educAtion

Human Capital and E ducation

24

1 HUMAN CAPITAL AND EDUCATION

Human Capital and Education

CA*VTVAUTNYMNCTCOMAMD

80

75

70

65

60

Score

Source: State Technology and Science Index, Milken Institute.

Human Capital Composite IndexTop nine states and California, 2008

* CA ranks 13th.

In the Milken Institute’s State Technology

and Science Index, California slipped out of the top 10 in the Human Capital Composite Index, falling from seventh position in 2004 to 13th place in 2008.

Deterioration in measures of California’s

human capital since publication of the 2004 index was seen from the bachelor’s degree level through the doctoral degree level.

Nationwide, tuition has steadily increased,

with public institution rates climbing even faster than those of private schools.

Academic yearCharges

(current US$)

Annual change

(percent)

Charges (current US$)

Annual change

(percent)1996-1997 12,994 na 2,975 na1997-1998 13,785 6.1 3,111 4.61998-1999 14,709 6.7 3,247 4.41999-2000 15,518 5.5 3,362 3.52000-2001 16,072 3.6 3,508 4.32001-2002 17,377 8.1 3,766 7.42002-2003 18,060 3.9 4,098 8.82003-2004 18,950 4.9 4,645 13.32004-2005 20,045 5.8 5,126 10.42005-2006 20,980 4.7 5,492 7.1

2006-2007 22,218 5.9 5,836 6.3

* In-state enrollments only.

Source: College Board, Trends in College Pricing 2006.

Private four-year Public four-year*

Average published tuition and fee chargesBy institution type

CA*NYHIMNVTNJMDCTCOMA

42

40

38

36

34

32

30

28

Percent of population

Sources: U.S. Census Bureau, Milken Institute.

Bachelor's degree or greaterTop nine states and California, 2006

* CA ranks 16th.

CONJCACTVAVTNMMAMD

24

22

20

18

16

14

12



Ph.D.s Top nine states, 2006

CA*RICONJVTVANYCTMAMD

16

15

14

13

12

11

10



Advanced degreesTop nine states and California, 2006

* CA ranks 15th.



25



070503019997959391898785

30000

25000

20000

15000

10000

5000

0

36

35

34

33

32

31

30

29

US$ Percent

Sources: U.S. Department of Education, National Center for Education Statistics.

Declining in-state undergraduate tuition discountPrivate U.S. institutions, 1985-2007

Private (L)Private in-state (L)In-state discount (R)

Nationally, the discount for in-state public

undergraduate tuition has shrunk from 72 percent to 62 percent of the average private college tuition over the past 20 years.

While public institutions remain more

affordable than private institutions, their steady rise in cost has increased the financial burden on students.

System-wide fees for University of

California undergraduates were $6,636 for the 2007-2008 school year.

070503019997959391898785

12000

10000

8000

6000

4000

2000

0

72

70

68

66

64

62

US$ Percent

Sources: U.S. Department of Education, National Center for Education Statistics.

Declining in-state undergraduate tuition discountPublic U.S. institutions, 1985-2007

Public (L)Public in-state (L)In-state discount (R)

20052004200320022001200019991998199719961995

10

8

6

4

2

0

74

72

70

68

66

64

Minority percent White percent


Minority share of BAs in science and eng.By race/ethnicity, 1995-2006

White (R)

Asian/Pacific Islander (L)

Black (L)Hispanic (L)

American Indian/Alaska Native (L)


06-0705-0604-0503-0402-0301-02

81

80

79

78

77

76

75

74

Thousands

Sources: Open Doors, Institute of International Education.

California's foreign student population2001-2007

Characteristics California total National totalUnder age 18 45,995 256,769

18-24 33,218 167,87825-44 113,119 555,87745-64 53,659 220,57165+ 18,674 65,119

Leading countries of birth:Mexico 66,744 173,753China 27,305 87,345

Philippines 26,982 74,607India 14,110 61,369

Source: U.S. Department of Homeland Security.

Legal permanent residence profileFY 2006



26



CA*PANCCTNENHAKNDMAMD

450

400

350

300

250

200

150

US$ per capita


Academic R&D spendingTop nine states and California, 2004

* CA ranks 19th.

California attracts the lion’s share of total

R&D funding, ranking in the top 10 for industry and federal R&D spending.

While California, like other states, is

spending more on higher education each year, the rising cost of education means that those additional dollars are not going as far.

California’s spending on higher education

increased from $273 per capita in 2003 to $294 per capita in 2007. But the state dropped from ninth to 12th place nationally in terms of relative education appropriations.

MNNHRINJDECAWAMIMACT

2200

2000

1800

1600

1400

1200

1000

800

US$ per capita


Industry R&D spendingTop 10 states, 2004

CA*LANENDALNCHINMAKWY

550

500

450

400

350

300

250

US$ per capita


State appropriations for higher educationTop nine states and California, 2007

* CA ranks 12th.

RICAMOMSCTMAVANMMD

2500

2000

1500

1000

500

0

US$ per capita


Federal R&D spendingTop nine states, 2004

CA*MDAKMSOKNCCOLAVAAL

20

18

16

14

12

10

8

6



Increases in state appropriations for higher ed.Top nine states and California, 2006-2007

* CA ranks 18th.



27 4

HUMAN CAPITAL AND EDUCATION


CA*CTTXNJWADECOMAMDVA

100

95

90

85

80

75

70

65

Per 100,000 workers

Sources: Bureau of Labor Statistics, Milken Institute.

Intensity of computer and info. science expertsTop nine states and California, 2006

* CA ranks 14th.

California has a strong supply of engineers,

ranking fourth in the nation. Although per capita R&D expenditures on

engineering ($22.11) place the state in the second tier nationally, California’s high-tech centers have continued to attract top talent.

California dropped from the top 10 ranks in

both intensity of life and physical scientists as well as computer and information science experts since the release of the 2004 State Technology and Science Index.

CA*WANDMDWIMAMTCOAK

100

95

90

85

80

75

Per 100,000 workers


Intensity of life and physical scientistsTop eight states and California, 2006

* CA ranks 11th.

AZTXMNWIMDVACAWACOMA

95

90

85

80

75

70

Per 100,000 workers


Intensity of engineersTop 10 states, 2006

R&D expenditures on engineering 2007

Top 10Second tierThird tierBottom 10

Average ACT scores

2007




28

5


Human Capital and Education Average SAT math scores

2007


Average SAT verbal scores2007


CA*RIVACOCTVTDENMMAMD

550

500

450

400

350

300

250

200

Per 100,000 people


Doctoral scientistsTop nine states and California, 2003

* CA ranks 17th.

VTVACONJCANHMDMADENM

140

120

100

80

60

40

Per 100,000 people


Doctoral engineersTop 10 states, 2003

200520042003200220012000

54

52

50

48

46

Percent

Source: National Science Board, Science and Engineering Indicators 2008.

Graduate enrollment in science and eng.By sex, 2000-2005

FemaleMale

20052000199519901985

80

60

40

20

0

Percent


Female share of BAs in science and eng.1985-2006

Computer science

Psychology

Biological/agricultural sciences

Math

Engineering




29 6



Demographic indicator 2000 2010 ChangeMedian age 33.3 34.9 1.6

Of males 32.2 33.7 1.5Of females 34.4 36.2 1.8

Dependency ratio 69.0 65.5 -3.5Youth 51.1 46.4 -4.6Old age 17.9 19.1 1.2

Source: U.S. Census Bureau.

California's demographic indicatorsBy age and sex

The median age for Californians will increase by 1.6 years between 2000 and 2010. Women live longer on average, and this demographic trend will continue to increase through the latest 2010 projection.

The dependency ratio represents the number

of individuals under age 20 and over age 65 who are out of the working population base (ages 20-64). California’s declining youth ratio (-4.6) and its aging population will increasingly strain the state’s public health-care and services systems.

LowestThird tierSecond tierHighest

Percentage of the population over age 65

2003

Sources: U.S. Census Bureau, Centers for Disease Control and Prevention.



30



Age group Male percent Female percent Total percentUnder 18 51.2 48.8 27.3

5-17 10.2 9.7 20.018-24 5.1 4.8 9.925-44 16.4 15.2 31.645-64 10.7 9.8 20.565+ 5.5 5.1 10.6

Under 18 51.1 48.9 24.95-17 8.9 8.5 17.5

18-24 5.6 5.3 10.925-44 14.2 13.8 28.045-64 12.1 12.6 24.765+ 4.9 6.6 11.5


Census 2000

Projection 2010

By age and sexCalifornia's population pyramid

While the aging trend is not unique to

California, the state is fortunate to have one of the largest working-age populations in the nation.

The segment of the state’s working-age

population that is projected to increase most significantly is the 45-64 age group. This age group will also become more heavily female in the coming years.

California has one of the nation’s highest life

expectancies. Residents who reach age 65 are likely to live another 19.3 years.

Top quartileSecond quartileThird quartileBottom quartile

Life expectancy at age 65

2003

Sources: Centers for Disease Control and Prevention, National Center for Health Statistics.



31



070503019997959391898785

2000

1500

1000

500

0

Thousands

Sources: Economy.com, U.S. Department of Homeland Security.

Immigration statistics1985-2007

California National

According to the National Science

Foundation’s Science and Engineering Indicators 2008, more than 85 percent of Asian doctorate recipients receive their degrees in science and engineering.

Overall, foreign students earned 36 percent

of all doctorates in science and engineering awarded in the United States in 2005.

California’s ability to attract top talent was

negatively impacted in 2003-2004 as scrutiny of foreign students increased in the wake of the 9/11 attacks.

0 5 10 15 20 25 30

Nigeria

Saudi Arabia

Taiwan

Hong Kong

China

Nepal

Canada

India

Japan

South Korea

Thousands

Science and engineering

All fields

Foreign undergraduate student enrollment in U.S. universities

By field and country of origin, April 2006

Sources: U.S Citizenship and Immigration Services; U.S. Immigration and Customs Enforcement, Student and Exchange Visitor Information System; Science and Engineering Indicators 2008.



32

9



Region 2006 2007 2006 2007 2006 2007

United States 151,428 153,124 144,427 146,047 4.6 4.6Northeast 27,881 27,920 26,605 26,685 4.6 4.4Midwest 34,723 34,888 33,001 33,095 5.0 5.1South 53,706 54,399 51,314 52,043 4.5 4.3West 34,821 35,444 33,222 33,773 4.6 4.7

California 17,907 18,188 17,030 17,209 5.4 5.2Source: Bureau of Labor Statistics.

Employment Unemployment rateCivilian labor force

Employment statusAverage annual

Educational attainmentLess than a high school diploma 28.3 6.6High school graduates, no college 24.5 31.1

6.923.61egelloc emoS

Bachelor's degree or higher 30.9 32.7

Source: Bureau of Labor Statistics.

Native-bornForeign-born

Educational attainment of labor force participants ages 25-plusPercent by nativity, 2005


State spending on student aid

2007

Source: National Association of State Student Grant and Aid Programs.



33

20062004

20022000

19971995

19931991

19891987

1985

100

80

60

40

20

0

Percent

Source: Higher Education Research Institute, UCLA.

Freshman intending to enter science and eng.By race and selected years, 1985-2006

WhiteHispanicAsianBlack

California California National Race (total) (percent) (percent)

0.897.69401,642,53ecar enO

9.378.95651,018,12etihW

Black/African American 2,260,648 6.2 12.4

American Indian/Alaska Native 265,963 0.7 0.84.43.21252,384,4naisA

Native Hawaiian/Pacific Islander 129,483 0.4 0.13.63.71206,692,6ecar rehto emoS0.23.3544,112,1secar erom fo owT8.419.53551,470,31onitaL ro cinapsiH

Source: U.S. Census Bureau, 2006 American Community Survey.

California race quick facts

California’s population is becoming more racially diverse, with Latinos and Hispanics representing 35.9 percent of the state’s population — an all-time high.

Hispanics comprise the largest pool of

ineligible voters in the state.

Some 27.8 percent of Hispanics and 14.6 percent of African Americans did not complete high school in 2006. This trend does not bode well for a state set on bolstering its science and engineering work force.

Description Hispanics White Black Asians

Population

Total population (thousands) 13,088 15,585 2,209 4,419

Eligible voters (thousands) 5,011 12,165 1,542 2,468

English-speaking abilityDoes not speak English "very well" 23.1 2.4 0.8 36.0Speaks only English or English "very well" 76.9 97.6 99.2 64.0

Educational attainmentDid not complete high school 27.8 7.6 14.6 12.0

8.617.923.328.13loohcs hgih detelpmoC9.725.739.433.92egelloc emoS3.341.811.432.11erom ro eerged s'rolehcaB

Household income3.415.823.616.91000,03$ naht sseL6.212.910.512.2999,94$-000,03$2.714.911.811.22999,47$-000,05$2.516.317.419.51999,99$-000,57$7.044.919.532.22erom ro 000,001$

Sources: Pew Hispanic Center; U.S. Census Bureau, 2006 American Community Survey.

Non-Hispanic

Characteristics of eligible voters in CaliforniaBy race and ethnicity

ainrofilaC.S.UnoitpircseD

Total population

854,63893,992)sdnasuoht(

Hispanic

9.538.41)noitalupop fo tnecrep( Hispanic voter

(percent of total eligible voters) 8.7 22.9Ineligible Hispanic voters

(percent of total Hispanic population) 40.6 38.3Sources: Pew Hispanic Center; U.S. Census Bureau, 2006 American Community Survey.

Population and electorate in the U.S. and California

20062004

20022000

19971995

19931991

19891987

1985

10

8

6

4

2

0

Percent

Source: Higher Education Research Institute, UCLA.

Hispanics intending to enter science and eng.Freshman, selected fields, selected years, 1985-2006

Physical sciencesEngineeringMathematical statistics

business climAte

Business Climate

34

Business Climate

Rank State Index1 New York 132.92 Connecticut 129.93 Massachusetts 122.74 New Jersey 120.85 California 114.36 Maryland 109.37 Illinois 106.98 Delaware 106.39 Washington 104.710 Virginia 104.6

Wage costsMost expensive states, 2007


Average wage costs in California remained

high, ranking fifth among the 50 states in 2007. The state’s wage costs were 14.3 percent above the national average and behind four New England states: New York, Connecticut, Massachusetts and New Jersey.

California’s high wage costs reflect its

extensive knowledge-driven industry base. The Wage Cost Index is measured by total

wage disbursements divided by total employment.

Most expensiveThird tierSecond tierLeast expensive

Wage Cost Index 2007


1 1 BUSINESS CLIMATE

business climAte

Business Climate

35

Business Climate

Rank State Index1 Alaska 193.82 Vermont 174.33 Hawaii 157.04 Wyoming 139.15 West Virginia 135.06 Arkansas 134.67 New Mexico 130.38 Minnesota 129.49 Delaware 128.5

10 Maine 125.214 California 117.2

Tax burdenMost expensive states, 2007


California’s tax burden was 17.2 percent

above the national average in 2007, placing the state in the moderately expensive, or third-tier, category.

Among Western states, California registered

the second-highest tax burden after New Mexico’s, which was 30.3 percent above the national average. Arizona, Nevada, Colorado and Oregon were below the national average.

The Tax Burden Index measures total tax

revenues as a proportion of total personal income.


Tax Burden Index

2007



business climAte

Business Climate

36

Business Climate

Rank State Index1 Hawaii 237.82 Connecticut 179.23 Massachusetts 178.04 New York 171.25 New Hampshire 167.96 Rhode Island 160.77 Maine 148.08 Alaska 146.39 Vermont 135.2

10 California 133.1

Electricity costsMost expensive states, 2007

Sources: Energy Info. Admin., Milken Institute.

California’s electricity costs ranked 10th in

the nation in 2007, 33.1 percent above the national average.

Nonetheless, California’s electricity costs for

commercial and industrial customers have dropped since 2002, relative to average electricity costs for the nation.

The Electricity Cost Index is based on

average commercial and industrial retail price per kilowatt-hour.


Electricity Cost Index 2007

Sources: Energy Information Administration, Milken Institute.


business climAte

Business Climate

37

Business Climate

20072006200520042003200220012000199919981997

20

10

0

-10

-20


Sources: Global Insight, Economy.com, Milken Institute.

Tax burden impact on manufacturingCalifornia, 1997-2007

Tax burdenManufacturing employment

Since 2005, the state’s tax burden has

declined. The state’s manufacturing employment has fallen at a slower pace.

Among Western states, California has seen

the greatest increase in tax burden and labor costs in the past decade; these have risen by 5.2 percent and 3.0 percent, respectively.

While the state’s increasing tax burden and

wage costs strain the bottom line for businesses, declining electricity costs provide ongoing relief.

CaliforniaUtah

OregonNevada

ColoradoArizona

WashingtonNew Mexico

10

5

0

-5

-10

-15

Percent change (1997-2007)


Change in Tax Burden IndexWestern states

CaliforniaArizona

ColoradoWashington

NevadaUtah

OregonNew Mexico

5

0

-5

-10

-15

-20

Percent change (1997-2007)


Change in Wage Cost IndexWestern states

0706050403020100999897

190

180

170

160

150

140

130

125

120

115

110

105

Index U.S. = 100 Index U.S. = 100

Sources: Global Insight, Energy Info. Admin., Milken Institute.

Historical Cost Index componentsCalifornia, 1997-2007

Electricity cost (L)Tax burden (R)Wage cost (R)

California Texas FloridaWage cost 114.3 100.7 90.0Tax burden 117.2 70.4 79.1Electricity cost 133.1 115.7 112.8Sources: Global Insight, Energy Info. Admin., U.S. Census Bureau, Milken Institute.

Cost of Doing Business IndexCalifornia vs. Texas and Florida, 2007

4 4

BUSINESS CLIMATE

business climAte

Business Climate

38

Business Climate

Index components

RankAmong states

(1 = Best, 50 = Worst)Government and fiscal policy 49Security 21Infrastructure 45Human resources 36Technology 9Business incubation 17Openness 3Environmental policy 22Overall Competitiveness Index 24Source: Beacon Hill Institute.

State Competitiveness IndexCalifornia rankings, 2007

In 2007, California ranked 24th in the

Beacon Hill Institute’s State Competitiveness Index.

California appears competitive in the categories of openness, technology and business incubation, which remained among the state’s key strengths on the 2007 index.

Two categories — government and fiscal policies, and infrastructure — ranked among the least business-friendly in the nation. Strict government policies and poor infrastructure may make it more difficult for California firms to stay competitive.

Least competitiveThird tierSecond tierMost competitive

State Competitiveness Index 2007

Source: Beacon Hill Institute.


business climAte

Business Climate

39

Business Climate

Index components

Rankamong states

(1 = Best, 51 = Worst)Personal income tax rate 51Capital gains tax rate 51Corporate income tax rate 42Corporate capital gains tax rate 43Property taxes 13Sales tax 29Unemployment tax 1Health insurance mandates 43Electric utilities 45Workers' compensation 47Crime rate 27The number of government employees 9Gas tax 51State and local gov. 5-year spending trends 45State and local gov. expenditures 47Highway cost effectiveness 44Overall Small-Business Survival Index 49Source: Small Business & Entrepreneurship Council.

Small-Business Survival IndexCalifornia rankings, 2007

California’s 2007 small-business climate was named among the worst in the nation (ranking 49th) by the Small Business and Entrepreneurship Council.

The state’s high capital gains and personal

income tax rates, as well as high gas taxes and electricity costs, contributed to its poor ranking in the Small-Business Survival Index.

Nevada, Washington, Florida, Colorado and

Texas ranked in the top 10 locations with friendly climates for small-business activity.

Most business-friendlySecond tierThird tierLeast business-friendly

Small-Business Survival Index

2007

Source: Small Business and Entrepreneurship Council.


business climAte

Business Climate

40

Business Climate

Rank State1 Texas2 North Carolina3 Georgia4 South Carolina5 Florida6 Tennessee7 Alabama8 Nevada9 Virginia10 Kentucky24 California

Source: Site Selection.

Business climate rankings2007

Site Selection magazine dropped California’s

business climate ranking to 24th in 2007, a decline from the previous year’s 19th position.

Californians must work on average 120 days

a year to earn enough to pay the federal and state taxes levied against them. The state ranks fourth nationwide, behind Connecticut, New Jersey and New York.

The Tax Foundation ranked California fourth

in the nation for its harsh state business tax climate.

Overall rank State

2006 NPrank

2004-2006NP rank

NPs per million

residents

Rank per1000 sq.

miles1 North Carolina 3 6 5 52 Georgia 5 7 11 83 Texas 2 1 22 244 Virginia 4 8 4 45 Alabama 7 12 1 106 Tennessee 11 10 7 77 Ohio 1 2 3 28 Kentucky 13 14 2 119 Florida 9 11 29 1310 South Carolina 18 18 14 1724 California 24 16 47 36

New plants (NPs)State business climate rankings, 2007

Source: Site Selection.

Rank StateWorking

daysIncome per

capita1 Connecticut 128 $63,1602 New Jersey 127 $56,1163 New York 125 $55,0324 California 120 $47,7065 Washington 119 $48,5746 Massachusetts 118 $56,6617 Maryland 118 $52,7098 Minnesota 117 $46,1069 Florida 116 $46,29310 Hawaii 116 $46,512

United States 113 $44,254Source: Tax Foundation.

Days spent working to pay all taxes Top 10 states, 2008

Selected states

Corporate Tax

Index rank

Individual Income Tax Index rank

Sales Tax Index rank

Unemployment Insurance Tax

Index rankProperty

Index rankTotal rank

Highest tax burdensRhode Island 34 47 33 50 48 50New Jersey 41 49 44 24 49 49New York 23 41 49 46 43 48California 40 50 42 15 5 47Lowest tax burdensWyoming 1 1 9 34 30 1South Dakota 1 1 38 33 11 2Nevada 1 1 43 41 13 3Alaska 26 1 5 47 22 4Source: Tax Foundation.

State Business Tax Climate IndexMajor components of the State Business Tax Climate Index, 2008


business climAte

Business Climate

41

Business Climate

All firms200+ workers3-199 workers

72

70

68

66

64

62

Percent

Source: California HealthCare Foundation.

California health insurance coverage rateBy firm size, 2007

Sixty-six percent of California firms offered health coverage to their employees in 2007. The rate is higher, at 71 percent, among smaller firms employing three to 199 workers.

In 2007, average monthly PPO premiums totaled $431 in California, $45 higher than in the nation as a whole. Average monthly HMO premiums, however, were $28 below the national average, at $330.

POSPPOHMOAll Plans

440

420

400

380

360

340

320

US$


Monthly insurance premiumsSingle enrollee in group health plan, 2007


Family coverageSingle coverage

10

9

8

7

6

5

4

3

US$ thousands


Average annual employer contribution 2007


2007200620052004200320022001

16

14

12

10

8

6

4



Annual growth in health ins. premiumsEmployer-based health coverage for all plans


High turnoverAdmin. hassle

Too new Emp. covered elsewhere

High premiumsFirm too small

70

60

50

40

30

20

10

Percent


Reported reasons to not offer coverageCalifornia, 2007


business climAte

Business Climate

42

Business Climate

Rank LocationIndex

(U.S. = 100)1 Honolulu, HI 125.72 San Jose, CA 112.23 Anchorage, AK 109.94 New York City, NY 109.25 Albuquerque, NM 109.16 San Diego, CA 107.77 Seattle, WA 107.18 Trenton, NJ 106.79 St. Louis, MO 106.510 Chicago, IL 105.3

Source: KPMG, www.competitivealternatives.com.

Highest tax burden 2008

San Jose’s high tax burden places it second

among 59 selected cities nationwide. San Jose and San Francisco ranked highest in

2007 among California cities in the Beacon Hill Institute’s Metro Competitive Index, a measure of economic competitiveness. Los Angeles and Riverside were in 36th and 50th place, respectively.

San Jose (third), San Francisco (fourth) and

Oakland (ninth) rank among the 10 most expensive metros for business on the 2008 Forbes Cost of Doing Business ranking.

Overall Rank Metro

Government & fiscal policy Security Infrastructure

Human resources Technology

Businessincubation Openness

Environmental policy

1 Salt Lake City 5 14 1 3 16 1 35 242 Boston 29 10 47 2 1 4 19 133 Denver 35 7 2 10 11 10 29 144 Portland 15 1 6 15 15 43 24 15 Washington 2 18 48 4 4 13 15 22

California metros9 San Jose 41 5 44 21 3 35 1 1115 San Francisco 48 39 45 14 6 11 3 420 San Diego 50 11 43 27 8 20 4 2331 Sacramento 45 27 38 29 13 34 8 3436 Los Angeles 41 20 46 42 17 23 2 4450 Riverside 46 19 49 43 22 24 5 50

Source: Beacon Hill Institute.

Metro Competitiveness IndexBased on rankings of 50 selected metros, 2007

Rank Metropolitan Area1 Greensboro, NC2 Asheville, NC3 Wilmington, NC4 Hickory, NC5 Shreveport, LA6 Fayetteville, NC7 Winston-Salem, NC8 Kingsport, TN9 Fort Smith, AR10 Springfield, MO

Source: Forbes.

Cost of doing businessLeast expensive metros, 2008

Rank Metropolitan Area1 New York, NY2 Boston, MA3 San Jose, CA4 San Francisco, CA5 Cambridge, MA6 Honolulu, HI7 Peabody, MA8 Philadelphia, PA9 Oakland, CA10 Southern Connecticut

Source: Forbes.

Cost of doing business Most expensive metros, 2008


tecHnology And energy overview

Technology and E nergy Overview

43

Technology and Energy Overview

California’s high-tech employment snapshot

Employment (Thousands) 1997 2002 2006 2007Percent growth

(97-07)Percent growth


(06-07)

High-tech manufacturing employment 623.32 543.77 488.31 485.85 -22.1 -10.7 -0.5

Pharmaceuticals and medicine 33.27 39.52 44.02 44.32 33.2 12.1 0.7Commercial and service industry machinery 22.46 20.82 14.96 14.02 -37.6 -32.7 -6.3Computer and peripheral equipment 82.00 75.72 57.17 57.01 -30.5 -24.7 -0.3Communications equipment 38.63 33.90 26.59 26.42 -31.6 -22.1 -0.6Audio and video equipment 13.78 8.75 7.63 7.51 -45.5 -14.2 -1.6Semiconductors and other electronic components 136.52 110.83 103.03 104.19 -23.7 -6.0 1.1Nav/measuring/medical/control instruments 130.69 112.07 105.57 103.82 -20.6 -7.4 -1.7Magnetic and optical media 19.82 12.39 8.22 7.45 -62.4 -39.9 -9.3Aerospace products and parts 100.83 79.58 73.04 72.29 -28.3 -9.2 -1.0Medical equipment and supplies 45.33 50.20 48.09 48.84 7.7 -2.7 1.6

High-tech services employment 703.65 835.48 848.33 872.69 24.0 4.5 2.9

Software publishers 34.42 48.79 41.29 43.14 25.3 -11.6 4.5Motion picture and video industries 156.71 138.96 143.42 145.30 -7.3 4.6 1.3Telecommunications 120.01 132.89 113.93 121.33 1.1 -8.7 6.5Internet services, Web search and data processing 34.93 52.76 20.89 21.45 -38.6 -59.3 2.7Other information services 4.94 9.52 36.45 30.14 509.9 216.5 -17.3Architectural, engineering and related services 123.31 154.68 174.42 181.19 46.9 17.1 3.9Computer systems design and related services 131.42 177.14 187.27 198.36 50.9 12.0 5.9Scientific R&D services 80.28 100.50 106.16 105.71 31.7 5.2 -0.4Medical and diagnostic laboratories 17.62 20.24 24.49 26.08 48.0 28.9 6.5

Total high-tech employment 1326.97 1379.24 1336.65 1358.54 2.4 -1.5 1.6


070605040302010099989796959493

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

Percent share


High-tech manufacturing vs. high-tech servicesShare of California's overall employment base


From 2002 to 2007, employment in California’s high-tech manufacturing industries declined by 10.7 percent. However, employment in the state’s high-tech service industries increased by 4.5 percent during the same period.

Continuing a recent trend, California’s high-

tech service industries are holding their own, and even showing slight employment growth. High-tech manufacturing has not fared as well, with many jobs leaving the state.

1

TECHNOLOGY AND INNOVATION



44


California’s high-tech real GDP snapshot

Real GDP (US$ millions) 1997 2002 2006 2007Percent growth



(06-07)

High-tech manufacturing real GDP 47,696.04 63,560.59 85,925.87 84,376.14 76.9 32.7 -1.8

Pharmaceuticals and medicine 3,817.50 5,884.40 9,669.17 9,622.85 152.1 63.5 -0.5Commercial and service industry machinery 1,662.44 1,743.84 1,690.06 1,506.85 -9.4 -13.6 -10.8Computer and peripheral equipment* 8,973.69 9,300.02 8,702.97 9,184.82 2.4 -1.2 5.5Communications equipment* 1,594.94 4,793.94 7,704.01 6,883.32 331.6 43.6 -10.7Audio and video equipment 972.47 617.82 618.12 610.80 -37.2 -1.1 -1.2Semiconductors and other electronic components* 12,217.13 10,647.69 11,108.56 11,141.01 -8.8 4.6 0.3Nav/measuring/medical/control instruments 5,400.09 15,336.24 28,155.18 27,925.43 417.1 82.1 -0.8Magnetic and optical media 873.20 1,704.19 1,871.19 1,844.86 111.3 8.3 -1.4Aerospace products and parts 8,237.64 8,011.17 9,179.20 8,652.44 5.0 8.0 -5.7Medical equipment and supplies 3,946.96 5,521.28 7,227.41 7,003.77 77.4 26.9 -3.1

High-tech services real GDP 84,965.03 119,917.12 154,764.86 165,545.16 94.8 38.0 7.0

Software publishers 4,785.16 10,119.43 12,846.08 14,850.57 210.3 46.8 15.6Motion picture and video industries 16,987.55 20,490.83 21,317.73 22,611.72 33.1 10.4 6.1Telecommunications 17,446.49 27,586.60 37,351.44 39,880.03 128.6 44.6 6.8Internet services, Web search and data processing 2,427.58 5,996.19 13,421.15 14,096.25 480.7 135.1 5.0Other information services 56.53 147.35 286.63 231.86 310.1 57.4 -19.1Architectural, engineering and related services 13,210.59 16,976.46 22,122.02 23,359.56 76.8 37.6 5.6Computer systems design and related services 19,616.05 24,599.97 29,130.78 31,430.28 60.2 27.8 7.9Scientific R&D services 9,180.39 12,345.39 16,078.08 16,800.48 83.0 36.1 4.5Medical and diagnostic laboratories 1,254.69 1,654.90 2,210.96 2,284.41 82.1 38.0 3.3

Total high-tech real GDP 132,661.07 183,477.70 240,690.73 249,921.30 88.4 36.2 3.8

Sources: Moody's Economy.com, Milken Institute.*Nominal GDP figures were used to adjust for deflation.

070605040302010099989796959493

200

180

160

140

120

100

80

60

40



California's high-tech real output per employeeHigh-tech manufacturing vs. high-tech services


California’s high-tech sector produced a

combined output of $250 billion in goods and services in 2007. Both high-tech manufacturing and high-tech services grew by more than 30 percent from 2002 to 2007.

Although high-tech services continued to

enjoy robust growth of 7.0 percent in output over last year, the state’s high-tech manufacturing industries declined by 1.8 percent during the same period.

2




45


California’s high-tech industry snapshot 2007

Sector Location quotient*Industry output

(US$ mil.)Industry growth

(2002-2007)**Pharmaceuticals and medicine 1.36 9622.85 41.90%Commercial and service industry machinery 1.18 1506.85 -66.01%Computer and peripheral equipment 2.77 9184.82 -2.92%Communications equipment 1.86 6883.32 16.02%Audio and video equipment 2.24 610.80 63.86%Semiconductors and other electronic components 2.13 11141.01 7.17%Nav/measuring/medical/control instruments 2.12 27925.43 20.14%Magnetic and optical media 1.81 1844.86 5.61%Aerospace products and parts 1.35 8652.44 4.59%Medical equipment and supplies 1.45 7003.77 20.92%Software publishers 1.55 14850.57 18.58%Motion picture and video industries 3.69 22611.72 40.30%Telecommunications 1.07 39880.03 12.02%Internet services, Web search and data processing 0.72 14096.25 28.31%Other information services 2.18 231.86 3.04%Architectural, engineering and related services 1.15 23359.56 16.31%Computer systems design and related services 1.32 31430.28 14.45%Scientific R&D services 1.60 16800.48 18.72%Medical and diagnostic laboratories 1.12 2284.41 18.55%Sources: Moody's Economy.com, Milken Institute.

*U.S. avg. = 1.00.**U.S. avg. = 100%.

California technology growth and concentration 2002-2007

3

TECHNOLOGY AND ENERGY OVERVIEW

Pharmaceuticals and medicine

Computer and peripheral equipment

Semiconductors and other electronic components

Nav/measuring/medical/ control instruments

Magnetic and optical media

Motion picture and video industries

Telecommunications

Other information services

Computer systems design and related services

Scientific R&D services

Audio and video equipment

Aerospace products and parts

Internet services, Web search and data processing

Software publishers

Architectural, engineering and related services

Medical equipment and supplies

Medical and diagnostic laboratories

Commercial and service industry machinery

Communications equipment

-70% -20% 30% 80%

Lo

ca

tio

n q

uo

tie

nt

(U.S

. ave

rag

e =

1.0

)

Relative GDP growth, 2002-2007 (U.S. Average = 100)

4.50

3.50

2.50

1.50

0.50

Relative GDP growth, 2002-2007 (U.S. average=100)

California technology growth and concentration, 2002-2007

Relative GDO growth, 2002-2007 (U.S. average = 100)

70%



46


San JoseSan Francisco

VallejoYuba City

BakersfieldSanta Babara

RiversideVisalia

HanfordModesto

70

60

50

40

30

20

10

0

Percent


Top 10 California metropolitan areasBy high-tech employment growth

Five-year growth (2002-2007)One-year growth (2006-2007)

While high-tech growth in the top 10

California metros exceeded the national average from 2002 to 2007, more recent one-year growth was more lackluster.

Once again, San Jose was by far the best-

performing metro area in terms of high-tech GDP output and employment.

Similar to last year’s findings, San Jose’s

high-tech industries represented a larger share of total GDP and employment when compared to both the national average and other top California metropolitan areas.

San JoseSan Francisco

VallejoYuba City

BakersfieldSanta Babara

RiversideVisalia

HanfordModesto

70

60

50

40

30

20

10

0

Percent


Top 10 California metropolitan areasBy high-tech wage growth


BakersfieldVallejo

El CentroFresno

RiversideChico

HanfordSanta Babara

Yuba CityModesto

140

120

100

80

60

40

20

0

Percent


Top 10 California metropolitan areasBy high-tech GDP growth


SacramentoSanta Rosa

Santa BabaraLos Angeles

OaklandSanta Ana

OxnardSan Diego

San FranciscoSan Jose

3.5

3.0

2.5

2.0

1.5

1.0

0.5

Location quotient


Top 10 California metropolitan areasBy high-tech employment location quotient

Santa CruzSanta Rosa

Santa AnaLos Angeles

Santa BabaraOakland

San FranciscoSan Diego

OxnardSan Jose

2.2

2.0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

Location quotient


Top 10 California metropolitan areasBy high-tech GDP location quotient

4




47


Top 10 U.S. universities for licensing and patents, 2003-2005

Rank University Rank University1 Emory University 1 University of California system2 New York University 2 California Institute of Technology3 University of California system 3 Massachusetts Institute of Technology4 Wake Forest University 4 University of Wisconsin5 University of Wisconsin 5 Johns Hopkins University6 University of Minnesota 6 University of Michigan7 University of Florida 7 University of Illinois8 Massachusetts Institute of Technology 8 University of Florida9 University of Rochester 9 University of Alabama10 University of Washington 10 University of Minnesota

Licensing income Patents issued

Sources: Association of University Technology Managers (AUTM), UC Tech Transfer Annual Report, Milken Institute.

Top TenSecond TierT

Academic R&D spending Dollars per capita, 2004

hird TierBottom Ten

Top 10 Second tier Third tier Bottom 10

Sources: Milken Institute, National Science Foundation.

5




48


Percentage of federal government R&D expenditures

2006

StatePercentage of federal government

R&D expenditures California 13.3 New York 8.2 Maryland 6.2 Texas 6.0 Pennsylvania 5.7 Massachusetts 5.6 Illinois 3.7 North Carolina 3.6 Ohio 3.3 Michigan 3.0 Florida 2.7 Georgia 2.5 Washington 2.5 Colorado 2.2 Wisconsin 2.1 Missouri 2.0 Virginia 1.9 Tennessee 1.6 Connecticut 1.6 New Jersey 1.5 Alabama 1.5 Arizona 1.4 Oregon 1.4 Indiana 1.3 Minnesota 1.1 Iowa 1.1 Utah 1.0 South Carolina 0.9 Louisiana 0.8 Kentucky 0.8 Mississippi 0.8 New Mexico 0.8 New Hampshire 0.8 District of Columbia 0.7 Hawaii 0.7 Kansas 0.6 Nebraska 0.5 Rhode Island 0.5 Oklahoma 0.5 Nevada 0.5 Montana 0.4 Arkansas 0.4 Alaska 0.3 Outlying areas* 0.3 West Virginia 0.3 Delaware 0.3 North Dakota 0.3 Vermont 0.3 Idaho 0.2 Maine 0.2 South Dakota 0.1 Wyoming 0.1Sources: National Science Foundation, Milken Institute.

*Outlying areas include Guam, Puerto Rico, and the Virgin Islands.

Percentage of industry R&D expenditures 2006

State

Percentage of industry R&D expenditures

California 11.8 North Carolina 8.4 Texas 7.5 Pennsylvania 7.0 New York 6.6 Ohio 5.6 Massachusetts 5.4 Florida 5.0 Maryland 3.0 Illinois 2.7 Indiana 2.6 Michigan 2.6 Washington 2.5 Georgia 2.4 Arizona 1.9 New Jersey 1.7 Virginia 1.7 New Mexico 1.5 Colorado 1.4 Iowa 1.2 Tennessee 1.1 South Carolina 1.1 Minnesota 1.1 Wisconsin 1.0 Connecticut 1.0 Nebraska 0.9 Alabama 0.9 Missouri 0.9 Louisiana 0.8 Oregon 0.8 Oklahoma 0.7 Rhode Island 0.6 Arkansas 0.6 Kentucky 0.6 Utah 0.6 Hawaii 0.5 Mississippi 0.5 District of Columbia 0.5 New Hampshire 0.4 Alaska 0.4 North Dakota 0.4 Kansas 0.4 Vermont 0.3 Outlying areas* 0.2 Delaware 0.2 Maine 0.2 West Virginia 0.2 Montana 0.2 Nevada 0.2 Idaho 0.1 Wyoming 0.1 South Dakota 0.0Sources: National Science Foundation, Milken Institute

*Outlying areas include Guam, Puerto Rico, and the Virgin Islands.

6




49


StateAmount Rank Amount Rank

Georgia $3,382 11 $602 1New York $6,180 3 $199 2California $10,747 1 $106 3Wisconsin $1,884 19 $97 4New Hampshire $5,580 4 $69 5North Carolina $3,743 10 $59 6Michigan $4,879 6 $50 7Florida $3,972 9 $46 8Texas $5,208 5 $37 9Massachusetts $2,785 16 $35 10Washington $2,885 13 $31 11Virginia $1,928 18 $30 12Colorado $2,269 17 $29 13Iowa $1,642 22 $23 14Missouri $1,395 24 $21 15Utah $1,361 25 $20 16Illinois $4,476 7 $18 17New Jersey $3,270 12 $15 18Ohio $2,875 14 $14 19Pennsylvania $4,143 8 $13 20Sources: Association of University Technology Managers (AUTM), Milken Institute.

University R&D expenditures and licensing income by state2003-2005, US$ millions

Total R&D expenditures Total licensing income

California is a leading state in terms of R&D expenditures and licensing income.

Capitalizing on its strong knowledge assets,

the state ranked third in the number of patents issued in 2006.

Proportionately, California does not have as

many business incubators as other states; it ranks 33rd in the nation. These organizations provide startups with guidance and resources that can assist in firm formation and growth.

Number of business incubators per 10,000 business establishments

Top 30 states, 2006 State

Business incubators per 10,000 businesses

Rank

Oklahoma 4.57 1Wisconsin 3.61 2Maine 3.15 3New Mexico 2.94 4Idaho 2.90 5South Dakota 2.82 6Hawaii 2.21 7West Virginia 2.20 8Virginia 2.17 9Louisiana 2.13 10Rhode Island 2.00 11Maryland 1.98 12Mississippi 1.98 13Indiana 1.94 14Massachusetts 1.93 15North Dakota 1.92 16Alabama 1.88 17North Carolina 1.83 18Pennsylvania 1.76 19Minnesota 1.75 20Montana 1.73 21New York 1.66 22Georgia 1.63 23Ohio 1.58 24Kentucky 1.53 25Washington 1.46 26Kansas 1.45 27Tennessee 1.44 28Missouri 1.43 29Arkansas 1.38 30Sources: National Business Incubation Association, U.S. Census Bureau.

USPTO patents issued per 100,000 people

Top 30 states, 2006

StatePatents per 100,000

peopleRank

Idaho 117.08 1Vermont 77.90 2California 68.69 3Oregon 68.53 4Massachusetts 67.87 5Minnesota 63.25 6Washington 56.60 7Connecticut 52.98 8New Hampshire 49.97 9Colorado 49.42 10Delaware 46.40 11New Jersey 41.60 12Michigan 41.39 13Wisconsin 38.71 14New York 33.19 15Rhode Island 33.16 16Illinois 31.59 17Utah 31.37 18Arizona 30.70 19Ohio 28.71 20Texas 28.57 21Maryland 27.74 22Pennsylvania 25.65 23North Carolina 25.21 24Iowa 24.55 25Indiana 23.74 26Kansas 21.02 27Nevada 18.91 28Georgia 18.36 29New Mexico 18.11 30Sources: U.S. Patent and Trademark Office, Milken Institute.

7




50


MTDEALNHCAVANMCOMDMA

35

30

25

20

15

10

5

0

Number of awards

Source: EPSCOR.

Phase I SBIR awards per 10,000 business establishmentsTop 10 states, 2004

RIWAALCANMVACOMDNHMA

16

14

12

10

8

6

4

2

0

Number of awards

Source: EPSCOR.

Phase II SBIR awards per 10,000 business establishmentsTop 10 states, 2004

Top TenS

SBIR awards per 100,000 people 2002-2004

econd TierThird TierB nottom Te

8


Top 10 Second tier Third tier Bottom 10

Source: Small Business Administration.



51


CA*AZALWYNDCOVANMMTMA

70

60

50

40

30

20

10

US$


Average annual STTR awards per $1 million of GSPTop nine states and California, 2002-2004

* CA ranks 15th.CAMTCTAZMDDECONMVAMA

5

4

3

2

1

0

Number of awards


Average annual STTR awards per 10,000 businessesTop 10 states, 2002-2004

Average annual STTR awards per 10,000 businesses

STTR award dollars per $1 million of GSP 2002-2004

Top TenSecond Tier

9


Third TierBottom Ten

Top 10

Second tier

Third tier

Bottom 10 Source: Small Business Administration.



52


07060504030201009998979695

6

5

4

3

2

1

0

350

300

250

200

150

100

50

0

US$ billions Number of deals


Venture capital in telecommunicationsCalifornia, 1995-2007


07060504030201009998979695

12

10

8

6

4

2

0

900

800

700

600

500

400

300

200

100



Venture capital in softwareCalifornia, 1995-2007


07060504030201009998979695

4

3

2

1

0

250

200

150

100

50

0



Venture capital in IT servicesCalifornia, 1995-2007


07060504030201009998979695

6

5

4

3

2

1

0

250

200

150

100

50

0



Venture capital in networking and equipmentCalifornia, 1995-2007


07060504030201009998979695

3.0

2.5

2.0

1.5

1.0

0.5

0.0

180

160

140

120

100

80

60

40

20



Venture capital in semiconductorsCalifornia, 1995-2007


07060504030201009998979695

1.00

0.80

0.60

0.40

0.20

0.00

80

70

60

50

40

30

20

10



Venture capital in computers and peripheralsCalifornia, 1995-2007


10




53


Top TenSecond TierThird TierBottom Ten

07060504030201009998979695

2.5

2.0

1.5

1.0

0.5

0.0

180

160

140

120

100

80

60

40



Venture capital in biotechnologyCalifornia, 1995-2007


California boasts world-class research

universities. However, despite its strong knowledge assets, the state only places in the nation’s second tier for R&D expenditures in biomedical science.

California has been attracting steadily

increasing levels of venture capital in the biotechnology field, both in terms of investment amount and in the number of deals.

R&D expenditures on biomedical science Per capita, 2005

Top 10

Second tier

Third tier

Bottom 10 Source: National Science Foundation.

11




54


200720062005

12

10

8

6

4

2

0

US$ billions

Source: PWC/National Venture Capital Association, MoneyTree Report.

Total venture capital investment in CaliforniaBy region, 2005-2007

Los Angeles/Orange CountySacramento/N. CaliforniaSan DiegoSilicon Valley

200720062005

1400

1200

1000

800

600

400

200

0

Number of deals

Source: PWC/National Venture Capital Association, MoneyTree Report.

Total venture capital deals in CaliforniaBy region, 2005-2007

Los Angeles/Orange CountySacramento/N. CaliforniaSan DiegoSilicon Valley

07060504030201009998979695

50

45

40

35

30

Percent share


California's share of U.S. venture capital1995-2007

Investment amountNumber of deals

California attracts a dominant share of total venture capital investments in the United States.

In the second quarter of 2008, California

landed nearly half of all venture capital investments in the United States.

Within California, Silicon Valley remains the

undisputed leader in terms of attracting venture capital.

Amount of venture capital investmentsQ2 2008

California51.0%

Non-California49.0%

Number of venture capital deals Q2 2008

California43.0%

Non-California57.0%

Source: PricewaterhouseCoopers/National Venture Capital Association, MoneyTree Report.

Source: PricewaterhouseCoopers/National Venture Capital Association, MoneyTree Report.

12




55

Technology and Energy Overview Net imports and domestic petroleum as

shares of U.S. demand2007

Slice 3Slice 4Slice 5Slice 6Slice 7 8 e 9

U.S. petroleum

42.0%

Net imports 58.0%

Source: Energy Information Administration.

The sharp rise in gasoline prices that

occurred in 2008 led to a decrease in U.S. consumption of foreign oil in the first three months of 2008 compared to the same period a year ago, according to the U.S. Department of Energy. Imports declined from 58.2 percent to 57.9 percent.

The West Coast, including California,

produced more electricity from solar/PV renewable sources than any other region of the country. In fact, this region produced more than 50 percent of the nation’s total renewable energy in 2006.

Sources of U.S. petroleum imports2007

Other14.0%

Persian Gulf16.0%

Western hemisphere

49.0%

Africa21.0%


2001 energy costsType ¢/kWhWind 4–8Solar photovoltaic 25–160Solar thermal 12–34Large hydropower 2–10Small hydropower 2–12Geothermal 2–10Biomass 3–12Coal 4.0

Source: World Energy Assessment, 2004 Update.

Renewable electricity costsBy energy source

Census Division Biomass Geothermal Hydroelectric Solar/PV Wind Totalconventional

New England 7,350,769 - 9,388,153 - 10,688 16,749,610 Middle Atlantic 4,968,671 - 30,224,233 - 1,032,470 36,225,374 East North Central 4,896,240 - 4,493,674 - 372,560 9,762,474 West North Central 1,217,891 - 7,501,194 - 6,144,355 14,863,441 South Atlantic 14,598,401 - 13,446,121 - 173,757 28,218,279 East South Central 6,376,740 - 17,592,137 - 54,598 24,023,475 West South Central 6,196,526 - 3,549,323 - 8,382,956 18,128,805 Mountain 725,616 1,534,319 33,802,580 13,134 3,485,620 39,561,269 Pacific Contiguous 8,095,302 12,821,434 167,905,306 494,572 6,851,671 196,168,284 Pacific Noncontiguous 332,355 212,276 1,343,694 - 80,462 1,968,788

Total 54,758,511 14,568,029 289,246,416 507,706 26,589,137 385,669,799Source: Energy Information Administration.

Renewable electricity net generationThousand kWhs, 2006

13




56


07060504030201009998979695

120

100

80

60

40

20

0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

US$ billions Thousands


Venture capital in industry/energyCalifornia, 1995-2007


TXNCNMWACOIAKSCAMASD

0.70

0.60

0.50

0.40

0.30

0.20

0.10

Per $1,000 of GSP


VC investments in clean technologyTop 10 states, 2004-2007

No Data

Top TenS

VC investments in clean technology per $1,000 of GSP 2004-2007

econd Tie

14


rThird TierB rottom Tie

Top 10

Second tier

Third tier

Bottom 10

No data Source: Thomson Financial.



57


MITXWIGAAZNCRICANMMA

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00

Per $1,000 of GSP


VC investments in nanotechnologyTop 10 states, 2004-2007

No Data

Top TenSecond TierThird TierBottom Tier

203020202010 2000 1 90 910

980

35

30

25 20

15 10

5

Quadrillion BTU

S ource: EIA

Energy Consumption by Fuel1980-2030

Renewables

Energy consumption by fuel 1980–2030

Natural Gas Coal Nuclear


VC investments in nanotechnology per $1,000 of GSP 2004-2007

Top 10

Second tier

Third tier

Bottom 10

No data Source: Thomson Financial.

15


industry58

Industry Overview

88 09 29 49 69 89 00 20 40 60 80

2.0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

US$ trillions


California's nominal GDP1988-2008

California is one of the largest economies in

the world, with nominal GDP of almost $1.9 trillion in 2008.

Employment and real GDP growth are

slowing in California and in the United States as a whole. According to the Bureau of Labor Statistics, California’s unemployment in August 2008 stood at 7.7 percent, higher than the national unemployment rate of 6.1 percent.

88 09 29 49 69 89 00 20 40 60 80

8

6

4

2

0

-2

-4



California vs. U.S.: Real GDP growth1988-2008


88 09 29 49 69 89 00 20 40 60 80

4

3

2

1

0

-1

-2



California vs. U.S.: Employment growth1988-2008


88 09 29 49 69 89 00 20 40 60 80

15.5

15.0

14.5

14.0

13.5

13.0

12.5

12.0

11.5

Millions


California's employment1988-2008

California’s employment

Thousands of employees

Sector 1998 2008

Percent change(1998-2008)

Percent of U.S.

employment2008

Government 2,166.2 2,526.6 16.6 11.2Professional and business services 2,017.0 2,281.8 13.1 12.7Retail trade 1,476.5 1,670.6 13.1 10.9Leisure and hospitality 1,264.7 1,571.0 24.2 11.5Manufacturing 1,853.9 1,429.5 -22.9 10.6Health care and social assistance 1,121.9 1,407.1 25.4 8.9Financial activities 785.6 876.7 11.6 10.7Construction 615.4 839.6 36.4 11.6Wholesale trade 615.0 720.0 17.1 11.9Other services (except public administration) 460.7 516.5 12.1 9.3Transportation and utilities 497.7 506.8 1.8 10.0Information 484.1 458.8 -5.2 15.3Educational services 210.1 298.8 42.2 9.8Natural resources and mining 27.4 25.7 -6.2 3.4Total 13,596.1 15,129.7 11.3 11.0Source: Moody's Economy.com.

Page 1

INDUSTRY

Industry Overview

industry59

Industry Wages

0806040200989694929088

80

70

60

50

40

30

20

US$ thousands


Manufacturing wages per workerCalifornia vs. U.S., 1988-2008


0806040200989694929088

90

80

70

60

50

40

30

20

US$ thousands


Financial services wages per workerCalifornia vs. U.S., 1988-2008


0806040200989694929088

60

50

40

30

20

US$ thousands


Government wages per workerCalifornia vs. U.S., 1988-2008


0806040200989694929088

70

60

50

40

30

20

US$ thousands


Professional business services wages per workerCalifornia vs. U.S., 1988-2008


0806040200989694929088

45

40

35

30

25

20

15

10

US$ thousands


Educational services wages per workerCalifornia vs. U.S., 1988-2008


0806040200989694929088

60

50

40

30

20

US$ thousands


Construction wages per workerCalifornia vs. U.S., 1988-2008


Page 2

INDUSTRY

Industry Wages

industry60

Industry: Agriculture and Allied Sectors

200820072006200520042003200220012000

315

310

305

300

295

290

285

280

Thousands

Source: California Department of Agriculture.

Calilfornia's farm employment Jan. 2000 - Jan. 2008

California’s farm employment showed strong

growth from 2005 to 2007, rising from 285,000 to nearly 315,000 jobs. That trend ended in 2008, however, as employment dropped to around 309,500.

Many major agricultural and allied industries are posting declining shares of total state employment and output, as the service sector has assumed a greater role in California’s economy.

Output in the logging industry has fallen sharply as a percent of the state total in recent years. The industry’s employment share has also been eroding.

080604020098969492

0.055

0.050

0.045

0.040

0.035

0.030

0.052

0.048

0.044

0.040

0.036

0.032

0.028

0.024

Percent Percent


Grain and oilseed millingOutput and employment, percent of state total

Output (L)Employment (R)

08060402009896949290

0.03

0.02

0.02

0.02

0.02

0.02

0.01

0.01

0.01

0.04

0.04

0.03

0.03

0.02

0.02

0.01

0.01

Percent Percent


LoggingOutput and employment, percent of state total


080604020098969492

0.12

0.11

0.11

0.10

0.10

0.09

0.12

0.12

0.12

0.11

0.11

0.11

0.11

0.10

Percent Percent


Dairy product manufacturingOutput and employment, percent of state total


080604020098969492

0.30

0.25

0.20

0.15

0.10

0.48

0.44

0.40

0.36

0.32

0.28

0.24

0.20

Percent Percent


Fruit and vegetable preserving/specialty food mfg.Output and employment, percent of state total


Page 3

INDUSTRY

Industry: Agriculture and Allied Sectors

industry61

Industry: Banking and Insurance

080604020098969492

1.90

1.80

1.70

1.60

1.50

1.40

1.30

1.20

1.68

1.64

1.60

1.56

1.52

1.48

1.44

1.40

1.36

Percent Percent


Insurance carriers and related activitiesOutput and employment, percent of state total


The insurance carriers and related activities

category saw its percentage share of statewide output and employment climb from 2000 to 2003, but those figures have declined sharply since then, falling to 1.29 and 1.40 percent, respectively, in 2008.

The industry comprising securities,

commodities, and other investments is recovering slowly but consistently from the recession that began with the bursting of the tech bubble in 2001.

080604020098969492

1.90

1.80

1.70

1.60

1.50

1.40

2.2

2.0

1.8

1.6

1.4

1.2

1.0

Percent Percent


Depository credit intermediationOutput and employment, percent of state total


080604020098969492

1.40

1.20

1.00

0.80

0.60

0.40

0.64

0.56

0.48

0.40

0.32

Percent Percent


Nondepository credit intermediationOutput and employment, percent of state total


080604020098969492

0.50

0.40

0.30

0.20

0.10

0.00

0.080

0.072

0.064

0.056

0.048

Percent Percent


Funds, trusts and other financial vehiclesOutput and employment, percent of state total


080604020098969492

2.5

2.0

1.5

1.0

0.5

0.0

0.72

0.64

0.56

0.48

0.40

Percent Percent


Securities, commodities and other investmentsOutput and employment, percent of state total


Page 4

INDUSTRY

Industry: Banking and Insurance

industry62

Industry: Real Estate

080604020098969492

5.5

5.0

4.5

4.0

3.5

3.0

0.40

0.38

0.36

0.34

0.32

0.30

0.28

0.26

0.24

Percent Percent


Offices of real estate agents and brokersOutput and employment, percent of state total


After experiencing several years of remarkable growth, the real estate industry now shows clear signs of a dramatic downturn. Construction, in particular, shows a steep decline in output since 2005.

High commercial real estate costs have taken

a steady toll on the real estate leasing industry, which has posted declining employment and output since 1997.

080604020098969492

6.0

5.5

5.0

4.5

4.0

3.5

0.60

0.57

0.54

0.51

0.48

0.45

0.42

0.39

Percent Percent


Lessors of real estateOutput and employment, percent of state total


080604020098969492

6.4

6.2

6.0

5.8

5.6

5.4

5.2

0.62

0.60

0.58

0.56

0.54

0.52

0.50

0.48

0.46

Percent Percent


Activities related to real estateOutput and employment, percent of state total


080604020098969492

1.10

1.02

0.94

0.86

0.78

0.70

1.80

1.60

1.40

1.20

1.00

0.80

Percent Percent


Construction of buildingsOutput and employment, percent of state total


080604020098969492

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.36

0.32

0.28

0.24

0.20

0.16

0.12

Percent Percent


Activities related to credit intermediationOutput and employment, percent of state total


Page 5

INDUSTRY

Industry: Real E state

industry63

Industry: High Technology

080604020098969492

17

16

15

14

13

12

11

10

9

11.2

10.8

10.4

10.0

9.6

9.2

8.8

Percent Percent


High technologyOutput and employment, percent of state total


The high-tech sector plays a vital role in the

state’s economy. Even after a sharp decline in the aftermath of the dot-com crash, high-tech employment remains above 8.8 percent of the state total. High tech accounts for almost 16 percent of total state output.

While output in the high-tech manufacturing

industries has fallen as a percentage of the state total, it remains notably higher than employment share, suggesting an increase in overall high-tech manufacturing productivity.

080604020098969492

7

6

5

4

3

2

6.0

5.6

5.2

4.8

4.4

4.0

3.6

3.2

2.8

Percent Percent


High-tech manufacturingOutput and employment, percent of state total


080604020098969492

11

10

9

8

7

6

6.4

6.0

5.6

5.2

4.8

4.4

Percent Percent


High-tech servicesOutput and employment, percent of state total


080604020098969492

2.00

1.80

1.60

1.40

1.20

1.00

1.25

1.20

1.15

1.10

1.05

1.00

0.95

0.90

Percent Percent


Architectural, engineering, and related servicesOutput and employment, percent of state total


080604020098969492

0.54

0.48

0.42

0.36

0.30

0.24

0.18

0.12

0.06

0.32

0.30

0.28

0.26

0.24

0.22

0.20

0.18

0.16

Percent Percent


Communications equipment manufacturingOutput and employment, percent of state total


Page 6

INDUSTRY


industry64


080604020098969492

2.6

2.4

2.2

2.0

1.8

1.6

1.4

1.2

1.8

1.5

1.2

0.9

0.6

Percent Percent


Computer systems design and related servicesOutput and employment, percent of state total


080604020098969492

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

0.75

0.70

0.65

0.60

0.55

0.50

0.45

0.40

0.35

Percent Percent


Computer and peripheral equipment mfg.Output and employment, percent of state total


080604020098969492

2.40

2.10

1.80

1.50

1.20

0.90

0.60

0.30

0.00

1.08

1.02

0.96

0.90

0.84

0.78

0.72

0.66

0.60

Percent Percent


Semiconductor and electronic component mfg.Output and employment, percent of state total


080604020098969492

1.15

1.10

1.05

1.00

0.95

0.90

0.85

0.80

0.75

0.74

0.72

0.70

0.68

0.66

0.64

0.62

0.60

0.58

Percent Percent


Scientific R&D servicesOutput and employment, percent of state total


080604020098969492

0.72

0.66

0.60

0.54

0.48

0.42

0.36

0.30

0.24

0.36

0.34

0.32

0.30

0.28

0.26

0.24

0.22

0.20

Percent Percent


Pharmaceutical and medicine manufacturingOutput and employment, percent of state total


080604020098969492

2.8

2.6

2.4

2.2

2.0

1.8

1.6

1.4

1.04

1.00

0.96

0.92

0.88

0.84

0.80

0.76

0.72

Percent Percent


Telecommunications servicesOutput and employment, percent of state total


Page 7

INDUSTRY


industry65

Industry: Manufacturing

080604020098969492

14.70

14.00

13.30

12.60

11.90

11.20

10.50

9.80

9.10

15.20

14.40

13.60

12.80

12.00

11.20

10.40

9.60

8.80

Percent Percent


ManufacturingOutput and employment, percent of state total


Manufacturing used to be one of the state’s

most vital sectors. However, it now accounts for less than 10 percent of the state’s total employment.

The high cost of doing business in California,

combined with greater incentives to operate overseas, has contributed to an erosion of apparel manufacturing.

080604020098969492

0.42

0.40

0.38

0.36

0.34

0.32

0.30

0.28

0.26

1.17

1.08

0.99

0.90

0.81

0.72

0.63

0.54

0.45

Percent Percent


Apparel manufacturingOutput and employment, percent of state total


080604020098969492

0.26

0.24

0.22

0.20

0.18

0.16

0.14

0.12

0.10

0.36

0.34

0.32

0.30

0.28

0.26

0.24

0.22

0.20

Percent Percent


Wood product manufacturingOutput and employment, percent of state total


080604020098969492

1.26

1.17

1.08

0.99

0.90

0.81

0.72

0.63

0.54

0.60

0.59

0.58

0.58

0.57

0.56

0.55

0.54

0.54

Percent Percent


Chemical manufacturingOutput and employment, percent of state total


080604020098969492

1.08

0.99

0.90

0.81

0.72

0.63

0.54

0.45

0.36

0.24

0.22

0.20

0.18

0.16

0.14

0.12

0.10

0.08

Percent Percent


Petroleum and coal products manufacturingOutput and employment, percent of state total


Page 8

INDUSTRY


industry66


080604020098969492

0.26

0.24

0.22

0.20

0.18

0.16

0.14

0.12

0.10

0.30

0.28

0.26

0.24

0.22

0.20

0.18

0.16

0.14

Percent Percent


Primary metal manufacturingOutput and employment, percent of state total


According to the Bureau of Labor Statistics, manufacturing employment in California stood at 1,432,900 in July 2008, a sharp drop from December 2000 employment levels of 1,873,200.

Since 2000, almost all divisions of

manufacturing (including primary metal; machinery; and electrical equipment, appliance and component manufacturing) have posted declining employment and output as a share of the state’s totals.

080604020098969492

1.05

0.98

0.91

0.84

0.77

0.70

0.63

0.56

0.49

0.90

0.85

0.80

0.75

0.70

0.65

0.60

0.55

0.50

Percent Percent


Machinery manufacturingOutput and employment, percent of state total


080604020098969492

0.48

0.44

0.40

0.36

0.32

0.28

0.24

0.20

0.16

0.36

0.34

0.32

0.30

0.28

0.26

0.24

0.22

0.20

Percent Percent


Electrical equipment/appliance/component mfg.Output and employment, percent of state total


080604020098969492

2.20

2.00

1.80

1.60

1.40

1.20

1.00

0.80

0.60

2.20

2.00

1.80

1.60

1.40

1.20

1.00

0.80

0.60

Percent Percent


Transportation equipment manufacturingOutput and employment, percent of state total


080604020098969492

0.30

0.28

0.26

0.24

0.22

0.20

0.18

0.16

0.14

0.54

0.51

0.48

0.45

0.42

0.39

0.36

0.33

0.30

Percent Percent


Furniture and related product manufacturingOutput and employment, percent of state total


Page 9

INDUSTRY


industry67

Industry: Transportation and Public Utilities

080604020098969492

0.14

0.14

0.13

0.13

0.12

0.11

0.11

0.10

0.10

0.26

0.25

0.25

0.24

0.23

0.23

0.23

0.22

0.22

Percent Percent


Transit and ground passenger transportationOutput and employment, percent of state total


Employment in transportation and public

utilities rose by only 1.8 percent between 1998 and 2008.

Employment in the air transportation

industry has yet to recover from the adverse impacts of the 9/11 attacks.

Transit and ground passenger transportation

have increased both output and employment share since 2005-2006. Possible reasons may include rising gas prices and increased advertising and marketing of these services in certain metros.

080604020098969492

0.69

0.66

0.63

0.60

0.57

0.54

0.51

0.48

0.45

0.60

0.56

0.52

0.48

0.44

0.40

0.36

0.32

0.28

Percent Percent


Air transportationOutput and employment, percent of state total


080604020098969492

0.92

0.88

0.84

0.80

0.76

0.72

0.68

0.64

0.60

0.90

0.88

0.86

0.84

0.82

0.80

0.78

0.76

0.74

Percent Percent


Truck transportationOutput and employment, percent of state total


080604020098969492

0.75

0.70

0.65

0.60

0.55

0.50

0.45

0.40

0.35

0.19

0.18

0.17

0.16

0.15

0.14

0.14

0.13

0.12

Percent Percent


Electric power generation and distributionOutput and employment, percent of state total


080604020098969492

1.20

1.12

1.04

0.96

0.88

0.80

0.72

0.64

0.56

0.34

0.32

0.30

0.28

0.26

0.24

0.22

0.20

0.18

Percent Percent


Natural gas distributionOutput and employment, percent of state total


Page 10

INDUSTRY

Industry: Transportation and Public Utilities

industry68

Industry: Wholesale and Retail Trade

080604020098969492

3.76

3.68

3.60

3.52

3.44

3.36

3.28

3.20

3.12

2.60

2.56

2.52

2.48

2.44

2.40

2.36

2.32

2.28

Percent Percent


Merchant wholesalers, durable goodsOutput and employment, percent of state total


Since 2004, merchant wholesalers in durable

goods have posted a growing employment share, but that trend has declined in the past year due to the current economic downturn.

Similarly, general merchandise stores have

been on an upward trend since 2004 but are now flattening.

Clothing and clothing accessory stores also

posted increasing shares of both output and employment from the start of this decade until 2007.

080604020098969492

2.10

2.05

2.00

1.95

1.90

1.85

1.80

1.75

1.70

1.71

1.68

1.65

1.62

1.59

1.56

1.53

1.50

1.47

Percent Percent


Merchant wholesalers, nondurable goodsOutput and employment, percent of state total


080604020098969492

1.19

1.12

1.05

0.98

0.91

0.84

0.77

0.70

0.63

2.00

1.95

1.90

1.85

1.80

1.75

1.70

1.65

1.60

Percent Percent


General merchandise storesOutput and employment, percent of state total


080604020098969492

0.72

0.68

0.64

0.60

0.56

0.52

0.48

0.44

0.40

1.29

1.26

1.23

1.20

1.17

1.14

1.11

1.08

1.05

Percent Percent


Clothing and clothing accessories storesOutput and employment, percent of state total


080604020098969492

1.56

1.52

1.48

1.44

1.40

1.36

1.32

1.28

1.24

1.50

1.47

1.44

1.41

1.38

1.35

1.32

1.29

1.26

Percent Percent


Motor vehicle and parts dealersOutput and employment, percent of state total


Page 11

INDUSTRY

Industry: Wholesale and Retail Trade

industry69

Industry: Services

080604020098969492

3.80

3.60

3.40

3.20

3.00

2.80

2.60

2.40

2.20

6.90

6.60

6.30

6.00

5.70

5.40

5.10

4.80

4.50

Percent Percent


Administrative and support servicesOutput and employment, percent of state total


For most service sectors, with the exception

of administrative and support services, employment share has been on the rise since the start of this decade.

The share of state output produced by the

personal and laundry services industry (a category that includes everything from hair and makeup services to parking) has been deteriorating for years, and after a slight gain in 2006-2007, it again fell sharply. This renewed decline toward the end of 2007 may have been a ripple effect from the Hollywood writers’ strike.

080604020098969492

6.40

6.20

6.00

5.80

5.60

5.40

5.20

5.00

4.80

9.60

9.40

9.20

9.00

8.80

8.60

8.40

8.20

8.00

Percent Percent


Health servicesOutput and employment, percent of state total


080604020098969492

0.64

0.60

0.56

0.52

0.48

0.44

0.40

0.36

0.32

0.98

0.97

0.96

0.95

0.94

0.93

0.92

0.91

0.90

Percent Percent


Personal and laundry servicesOutput and employment, percent of state total


080604020098969492

0.78

0.76

0.74

0.72

0.70

0.68

0.66

0.64

0.62

2.00

1.92

1.84

1.76

1.68

1.60

1.52

1.44

1.36

Percent Percent


Education servicesOutput and employment, percent of state total


080604020098969492

0.60

0.57

0.55

0.52

0.50

0.47

0.44

0.42

0.39

1.50

1.44

1.38

1.32

1.26

1.20

1.14

1.08

1.02

Percent Percent


Social assistanceOutput and employment, percent of state total


Page 12

INDUSTRY

Industry: Services

industry70

Industry: Media

Wages and salariesPersonal incomeOutput

-2.0

-2.2

-2.4

-2.6

-2.8

-3.0

-3.2

US$ billions


Effect of 2007 writers' strike on CaliforniaProjected, 2007Q4 - 2008Q4

Hollywood was hit by a contentious three-

month writers’ strike in late 2007. Revenue sharing from digital media was at the heart of dispute. The work stoppage resulted in an estimated $2.1 billion loss of output for the entire California economy.

The losses associated with the strike were

high because the information, leisure and hospitality industry constitutes a large share of California’s output and employment.

The strike had a wide ripple effect on many

other industries in the economy.

080604020098969492

10.8

10.4

10.0

9.6

9.2

8.8

8.4

8.0

7.6

Percent


Information, leisure and hospitality industry As percent of California's total GDP

080604020098969492

13.8

13.6

13.4

13.2

13.0

12.8

12.6

12.4

12.2

Percent


Information, leisure and hospitality industryAs percent of California's total employment

0806040200989694929088

20

15

10

5

0

-5



Information, leisure and hospitality industryReal output growth


0806040200989694929088

6

4

2

0

-2

-4



Information, leisure and hospitality industryEmployment growth


Page 13

INDUSTRY

Industry: Media

industry71

Industry: Media

080604020098969492

1.80

1.70

1.60

1.50

1.40

1.30

1.20

1.10

1.00

1.32

1.26

1.20

1.14

1.08

1.02

0.96

0.90

0.84

Percent Percent


Motion picture servicesOutput and employment, percent of state total


The number of production days in Los

Angeles has been declining for feature films but increasing for television shoots.

One of the factors driving down permitted

days of shooting in Los Angeles is the increase in tax incentives given by other states for movie production.

New York, New Mexico and North Carolina

have posted higher growth rates than California for motion picture production in recent years, but California still dominates in absolute scale.

Production days, Los Angeles County Permitted days of location shooting

2003 2004 2005 2006 2007

Features 7,329 8,707 9,518 8,813 8,247Television 14,395 18,257 18,740 20,652 23,315Source: Film L.A. Inc.

080604020098969492

42.0

35.0

28.0

21.0

14.0

7.0

0.0

-7.0

-14.0



Real output growth in motion picture servicesCalifornia vs. New York

CaliforniaNew York

080604020098969492

32.0

24.0

16.0

8.0

0.0

-8.0

-16.0

-24.0

-32.0



Real output growth in motion picture servicesCalifornia vs. North Carolina

CaliforniaNorth Carolina

080604020098969492

210.0

180.0

150.0

120.0

90.0

60.0

30.0

0.0

-30.0



Real output growth in motion picture servicesCalifornia vs. New Mexico

CaliforniaNew Mexico

Page 14

INDUSTRY

Industry: Media

industry72

Industry: Media

MagazineNewspaperInternetRadioCableNetwork

32

30

28

26

24

22

20

18

16

US$ billions

Sources: PricewaterhouseCoopers, TNS Media Intelligence, Radio Advertising Bureau.

Advertisement revenues in 2007United States

Internet advertising revenues have risen

steadily in past few years. Since sales of digital download-to-own

movies and television shows are expected to rise in the future, Internet advertising should also grow tremendously, representing an opportunity for California.

Technological breakthroughs are expanding

opportunities for new media growth. It now takes only 12 minutes to download a 700MB movie with a connection speed of 10Mbps.

201120102009200820072006

40

35

30

25

20

15

US$ billions

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates.

Internet advertisement revenuesUnited States

Actual Projected

Filmed entertainment market United States, US$ millions

Company 2006 2007* 2008* 2009*Physical sell-through 16,900 17,300 17,900 18,600Digital download-to-own 107 315 500 674 Movies 32 180 280 350 Television 75 135 220 324

Sources: Nielsen, Silicon Alley Insiders. * Projected.

201120102009200820072006

600

500

400

300

200

100

0

US$ millions

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates.

Expenditure on download-to-ownUnited States

ProjectedActual

MoviesTelevision

Digital movie downloads* Transfer time

Connection

speedTransfer speed

Transfer time

56Kbps 7 KB/s 28 hours, 27 mins128Kbps 16 KB/s 12 hours, 27 mins256Kbps 32 KB/s 6 hours, 13 mins512Kbps 64 KB/s 3 hours, 7 mins

1Mbps 128 KB/s 1 hours, 33 mins2Mbps 256 KB/s 47 mins

10Mbps 1.25 MB/s 12 mins

* assuming a 700MB file.Source: XviD Movies.

Page 15

INDUSTRY

Industry: Media

industry73

San Jose Industry Snapshot

0806040200989694929088

25

20

15

10

5

0

-5

-10

12

6

0

-6

-12

Percent change from preceding year Percent change from preceding year


San Jose output and employment growth1988-2008


Rebound from the dot-com crash can be seen

in the strong recovery of output and employment growth in the San Jose metro area since 2003. But another decline is apparent, beginning in 2006.

Productivity increased steadily from 2002 to

2006, but has been declining or flat since then. Still, driven by its high-tech sector, San Jose ranks among the top California metros for productivity and wages.

0806040200989694929088

130

120

110

100

90

80

70

60



San Jose productivity1988-2008

0806040200989694929088

90

80

70

60

50

40

30

20



San Jose wages1988-2008

Major employers in San Jose September 2008

Employer Employment*Corporate sales(US$ millions)

Lockheed Martin Corp. 10,200 41,862.0Santa Clara Valley Medical Center 7,500 353.4Stanford University 6,800 4,511.4Aricent US Inc. 6,700 519.6Solectron Global Services Inc. 6,700 18,853.7Nortel Networks NA Inc. 5,960 10,948.0Intel Corp. 5,700 38,334.0Palo Alto-Stanford Hospital 5,000 -Cypress Semiconductor International 5,000 1,596.4Sun Microsystems Inc. 4,600 13,873.0Advanced Cardiovascular Systems 4,200 25,914.2Source: Selectory.com.* Combined locations with at least 1,000 employees.

Page 16

INDUSTRY

San Jose Industry Snapshot

industry74

San Francisco Industry Snapshot

0806040200989694929088

10

8

6

4

2

0

-2

-4

-6

6

3

0

-3

-6

-9



San Francisco output and employment growth1988-2008


San Francisco’s output and employment growth have been volatile since early 2005.

Productivity showed solid increases from

2002 to 2006, but has stagnated since then. San Francisco boasts a highly educated work

force. The metro area’s leading industry is professional and business services.

0806040200989694929088

115

110

105

100

95

90

85

80



San Francisco productivity1988-2008

0806040200989694929088

90

80

70

60

50

40

30

20



San Francisco wages 1988-2008

Major employers in San Francisco September 2008


Wells Fargo & Company 44,100 53,593.0Oracle Systems Corp. 17,900 17,996.0City and County of San Francisco 16,200 -United Air Lines Inc. 16,000 20,143.0UCSF Medical Center 7,000 483.1Kaiser Foundation Hospitals 5,000 9,852.0San Francisco Community College 4,647 2.1Franklin Templeton Inc. 3,700 6,205.8San Francisco State University 3,500 -Source: Selectory.com.* Combined locations with at least 1,000 employees.

Page 17

INDUSTRY

San Francisco Industry Snapshot

industry75

San Diego Industry Snapshot

0806040200989694929088

10

8

6

4

2

0

-2

-4

12

10

8

6

4

2

0

-2



San Diego output and employment growth1988-2008


Industry output and employment growth in

San Diego have been declining since 2004. San Diego had one of the country’s most

inflated housing markets, so the broader effects of the bursting bubble can already be seen here.

The military has a strong presence in San

Diego, providing a stable employment base. The U.S. Navy and the U.S. Marine Corps are two of the largest employers in the metro area.

0806040200989694929088

110

100

90

80

70



San Diego productivity1988-2008

0806040200989694929088

60

55

50

45

40

35

30

25



San Diego wages1988-2008

Major employers in San Diego

September 2008


United States Navy 23,450 -United States Marine Corps 17,700 -City of San Diego 7,000 -Safeskin Corp. 4,632 18,266.0Science Applications International 4,300 8,935.0U.C. Medical Center 4,000 15,926.8Solar Turbines Inc. 3,890 44,958.0

* Combined locations with at least 1,000 employees.Source: Selectory.com.

Page 18

INDUSTRY

San Diego Industry Snapshot

industry76

Los Angeles Industry Snapshot

0806040200989694929088

8

6

4

2

0

-2

-4

-6

8

6

4

2

0

-2

-4

-6



Los Angeles output and employment growth1988-2008


Although overall industry output and employment have been volatile for several years, the L.A. metro has seen a consistent increase in productivity and wages per worker.

The entertainment, leisure and hospitality

industry has a strong presence in the county, with Warner Brothers and Walt Disney among the top employers. However, government and institutes of higher education are other major sources of employment.

0806040200989694929088

105

100

95

90

85

80

75

70



Los Angeles productivity1988-2008

0806040200989694929088

60

55

50

45

40

35

30

25



Los Angeles wages 1988-2008

Major employers in Los Angeles

September 2008


City of Los Angeles 48,600 -University of Southern California 22,112 2,523.5County of Los Angeles 20,300 -Boeing Company 15,500 66,387.0Northrop Grumman Space 12,650 32,018.0Warner Brothers Entertainment Inc. 11,000 46482/0California Institute of Technology 10,908 2,142.1Kaiser Foundation Hospitals 10,900 9,852.0Walt Disney Company 9,011 35,510.0University of California, Los Angeles 8,611 -United States Postal Service 8,000 68,529.0Source: Selectory.com.* Combined locations with at least 1,000 employees.

Page 19

INDUSTRY

Los Angeles Industry Snapshot

industry77

Orange County Industry Snapshot

0806040200989694929088

10

8

6

4

2

0

-2

-4

9

6

3

0

-3



Orange County output and employment growth1988-2008


Although per capita income and consumption

are high in Orange County, the area has experienced declines in both industry output and employment growth since 2004.

Productivity and wages have continued to

increase steadily.

St. Joseph Health System and the University of California, Irvine, are among the top employers.

0806040200989694929088

120

110

100

90

80

70



Orange County productivity1988-2008

0806040200989694929088

60

50

40

30

20



Orange County wages 1988-2008

Major employers in Orange County

September 2008


University of California, Irvine 25,000 -St. Joseph Hospital & Health System 17,085 4,124.5County of Orange 15,000 -McDonnell Douglas Corp. 6,000 66,387.0Boeing Company 3,500 66,387.0Experian Information Solutions 4,700 351.9Northgate Gonzalez LLC 4,000 433.7Ingram Micro Inc. 4,000 35,047.1

* Combined locations with at least 1,000 employees.Source: Selectory.com.

Page 20

INDUSTRY

Orange Count y Industry Snapshot

industry78

Riverside Industry Snapshot

0806040200989694929088

10

8

6

4

2

0

-2

8

6

4

2

0

-2

-4



Riverside output and employment growth1988-2008


Compared with Orange County and San Jose,

Riverside has significantly lower wages per worker. Output and employment growth has been falling sharply since 2005.

Riverside’s housing market has declined

sharply, and the area is experiencing one of the nation’s highest rates of foreclosures. Unemployment shot up to 9.7 percent in August 2008.

0806040200989694929088

90

85

80

75

70

65



Riverside productivity1988-2008

0806040200989694929088

45

40

35

30

25

20



Riverside wages 1988-2008

Major employers in Riverside

September 2008


Riverside County 10,343 -Loma Linda University 5,939 925.5KSL Recreation Management Ops. 5,000 373.3Champion Envelope Corp-West 5,000 425.0Pechanga Development Corp. 3,000 172.8Kaiser Foundation Hospitals 2,700 9,852.0Abbott Laboratories 2,500 25,914.2Arrowhead Regional Medical Center 2,500 117.0Sodexho Inc. 2,500 53.2Source: Selectory.com.* Combined locations with at least 1,000 employees.

Page 21

INDUSTRY

Riverside Industry Snapshot

industry79

Oakland Industry Snapshot

88 09 29 49 69 89 00 20 40 60 80

10

8

6

4

2

0

-2

10

8

6

4

2

0

-2



Oakland output and employment growth1988-2008


Oakland’s share of the state total for output

and employment growth has been sliding since 2006.

Wages in Oakland are substantially lower

than those in San Francisco and San Jose. The U.S. Department of Energy has a strong

presence in the metro area.

88 09 29 49 69 89 00 20 40 60 80

110

100

90

80

70



Oakland productivity1988-2008

88 09 29 49 69 89 00 20 40 60 80

65

60

55

50

45

40

35

30

25



Oakland wages 1988-2008

Major employers in Oakland

September 2008


U.S. Department of Energy 16,200 -AT&T Inc. 9,000 118,928.0New United Motor Manufacturing Inc. 7,000 466.8University of California 5,000 -John Muir Health and Physicial Network 5,000 272,400.0World Savings and Loan Association 4,389 55,528.0Summerville Management LLC 4,000 91.8Cooper Companies Inc. 4,000 950.6Pacpizza LLC 3,600 79.0

* Combined locations with at least 1,000 employees.

Source: Selectory.com.

Page 22

INDUSTRY

Oakland Industry Snapshot

reAl estAte

Real E state

80

Real Estate

0807060504030201009998

150

140

130

120

110

100

90

Index base = 100

Sources: Global Insight, National Association of Realtors.

Housing affordability ratesUnited States, January 1998-July 2008

Despite rapidly falling home prices, housing

affordability rates declined in the first half of 2008. Housing payments account for a larger share of median family income.

The abundance of foreclosed properties and

relatively lower prices, compared to a year ago, led to a rise in existing single-family home sales in California and the nation.

Single-family new-home prices continue to

plummet. As of Q2 2008, the median price in the state had fallen by more than 12 percent from the preceding year.

0706050403020100999897

70

68

66

64

62

60

58

56

54

Percent


Homeownership ratesCalifornia vs. U.S., 1997-2007


0807060504030201009998

20

10

0

-10

-20

-30

-40





0807060504030201009998

30

20

10

0

-10

-20

-30

-40





0807060504030201009998

30

20

10

0

-10

-20



Median, new single-family home sales priceCalifornia vs. U.S., 1998-2008 Q2


1 REAL ESTATE

reAl estAte

Real E state

81

Real Estate

200820072006200520042003

30

20

10

0

-10

-20

-30

-40



Construction put-in-placeUnited States, January 2003-July 2008


U.S. residential construction activity has

declined by nearly 30 percent, compared to 2007.

Residential permit valuation in California has

fallen to 1998 levels, driven by the sharp decline in the number of single-family permit issuances.

Housing starts are at their lowest level in

more than two decades. Rising inventories, coupled with longer time periods for homes sitting on the market, contribute to falling prices.

0807060504030201009998

5.0

4.0

3.0

2.0

1.0

0.0

US$ millions


Valuation of permitsCalifornia, January 1998-July 2008


0807060504030201009998

20

15

10

5

0

Thousands of units


Residential building permitsCalifornia, January 1998 - July 2008

Single-familyMulti-family

080604020098969492908886848280

350

300

250

200

150

100

50

150

100

50

0

-50

-100


Source: Global Insight.


Level (L)Growth rate (R)

0807060504030201009998

4.0

3.5

3.0

2.5

2.0

1.5

1.0

11

10

9

8

7

6

5

4

3

Number of homes available (mill.) Number of months


Inventory and months supply of single-family homesJanuary 1998-July 2008

Number of homes available for sale (L)Months supply of homes on market (R)

2 REAL ESTATE

reAl estAte

Real E state

82

Real Estate

0807060504030201009998

240

220

200

180

160

140

120

100

15

10

5

0

-5

-10

US$ thousands Percent change from preceding year


Median price, existing single-family homesUnited States, 1998-2008 Q2

Median price (L)Median price, % change (R)

In Q2 2008, the median price of an existing

single-family home in California was $356,000, 28 percent lower than in 2007.

Price declines in northern California were not

as severe as those in southern California. In fact, the median sales price in San Francisco and San Jose still exceeds $700,000, among the highest levels in the nation.

A rebound in high-tech industries, along with

the appeal of living in a high-density urban setting, has helped to mitigate the impact of the housing decline in the Bay Area.

0807060504030201009998

500

450

400

350

300

250

200

150

30

20

10

0

-10

-20

-30

-40



Median price, existing single-family homesCalifornia, 1998-2008 Q2


0807060504030201009998

900

800

700

600

500

400

300

30

20

10

0

-10

-20



Median price, existing single-family homesSan Francisco-San Mateo-Redwood City, 1998-2008 Q2


0807060504030201009998

900

800

700

600

500

400

300

40

30

20

10

0

-10

-20



Median price, existing single-family homesSan Jose-Sunnyvale-Santa Clara, 1998-2008 Q2


0807060504030201009998

800

700

600

500

400

300

200

40

30

20

10

0

-10

-20

-30



Median price, existing single-family homesOakland-Fremont-Hayward, 1998-2008 Q2


3 REAL ESTATE

reAl estAte

Real E state

83

Real Estate

0807060504030201009998

400

350

300

250

200

150

100

40

20

0

-20

-40



Median price, existing single-family homesSacramento-Arden-Arcade-Roseville, 1998-2008 Q2


Median sales prices in California’s Central

Valley and Inland Empire have fallen sharply, relative to other parts of the state.

The prevalence of subprime loans and

“payment shocks” has triggered higher rates of foreclosure and, consequently, an excess supply of housing across the region.

Between 2007 Q2 and 2008 Q2, the largest

housing declines in California occurred in the Sacramento, Stockton and Riverside metros. Prices fell more than 35 percent during this period in those regions.

0807060504030201009998

400

350

300

250

200

150

100

50

30

20

10

0

-10

-20

-30



Median price, existing single-family homesFresno, 1998-2008 Q2


0807060504030201009998

450

400

350

300

250

200

150

100

30

20

10

0

-10

-20

-30

-40

-50



Median price, existing single-family homesStockton, 1998-2008 Q2


0807060504030201009998

300

250

200

150

100

30

20

10

0

-10

-20

-30

-40



Median price, existing single-family homesModesto, 1998-2008 Q2


0807060504030201009998

350

300

250

200

150

100

50

40

30

20

10

0

-10

-20

-30



Median price, existing single-family homesBakersfield, 1998-2008 Q2


4 REAL ESTATE

reAl estAte

Real E state

84

Real Estate

0807060504030201009998

700

600

500

400

300

200

30

20

10

0

-10

-20

-30



Median price, existing single-family homesSanta Barbara-Santa Maria-Goleta, 1998-2008 Q2


0807060504030201009998

550

500

450

400

350

300

250

200

150

40

30

20

10

0

-10

-20

-30



Median price, existing single-family homesOxnard-Thousand Oaks-Ventura, 1998-2008 Q2


0807060504030201009998

600

500

400

300

200

100

30

20

10

0

-10

-20

-30

-40



Median price, existing single-family homesLos Angeles-Long Beach-Glendale, 1998-2008 Q2


0807060504030201009998

800

700

600

500

400

300

200

40

30

20

10

0

-10

-20

-30



Median price, existing single-family homesSanta Ana-Anaheim-Irvine, 1998-2008 Q2


0807060504030201009998

450

400

350

300

250

200

150

100

50

40

20

0

-20

-40



Median price, existing single-family homesRiverside-San Bernardino-Ontario, 1998-2008 Q2


0807060504030201009998

700

600

500

400

300

200

100

40

20

0

-20

-40



Median price, existing single-family homesSan Diego-Carlsbad-San Marcos, 1998-2008 Q2


5 REAL ESTATE

reAl estAte

Real E state

85

Real Estate

080706050403020100

220

200

180

160

140

120

100

Index Jan. 2000=100

Sources: Moody's Economy.com, Standard & Poor's, Fiserv, MacroMarkets.

S&P/Case Shiller Home Price IndexAggregate index for single-family homes, 2000-2008 Q2

20-city compositeUnited States

The widely used S&P/Case Shiller index

tracks repeat sales of single-family homes using a weighted index. Of the 20 major cities the index incorporates, three are located in California.

The fastest-declining home prices among

U.S. metros are found along California’s Central Coast and in the Central Valley.

Eighteen of the 25 U.S. metros experiencing

the fastest declines in home prices over the past year are in California.

Rank Metropolitan area 2003 Q2 2007 Q2 2008 Q25-year percent

change1-year percent

change2003 Q2-2008 Q2 2007 Q2-2008 Q2

1 Salinas, CA 425 709 401 -5.6 -43.42 Merced, CA 218 315 191 -12.2 -39.23 Stockton, CA 278 390 247 -11.3 -36.64 Sacramento-Arden-Arcade-Roseville, CA 240 352 226 -5.5 -35.65 Modesto, CA 169 242 160 -5.0 -33.76 Cape Coral-Fort Myers, FL 159 257 172 8.0 -33.17 Vallejo-Fairfield, CA 349 520 349 -0.2 -32.98 Riverside-San Bernardino-Ontario, CA 211 392 264 25.2 -32.69 Santa Cruz-Watsonville, CA 559 818 556 -0.6 -32.0

10 Port St. Lucie, FL 148 235 162 9.5 -31.311 San Diego-Carlsbad-San Marcos, CA 401 602 421 4.9 -30.112 Los Angeles-Long Beach-Santa Ana, CA 335 593 418 24.6 -29.513 Santa Rosa-Petaluma, CA 479 664 491 2.5 -26.114 El Centro, CA 116 184 137 18.2 -25.415 Bakersfield, CA 176 306 231 30.9 -24.716 Punta Gorda, FL 129 192 145 12.0 -24.417 Palm Coast, FL 164 236 180 9.6 -23.818 Fresno, CA 217 339 259 19.6 -23.719 Las Vegas-Paradise, NV 176 305 233 32.7 -23.620 Yuba City, CA 146 204 156 6.7 -23.521 Santa Barbara-Santa Maria-Goleta, CA 404 530 407 0.6 -23.222 Madera, CA 158 262 202 27.9 -22.923 Sebastian-Vero Beach, FL 144 203 156 8.6 -22.824 Phoenix-Mesa-Scottsdale, AZ 151 260 202 33.9 -22.525 Oxnard-Thousand Oaks-Ventura, CA 332 480 376 13.1 -21.6

US$ thousands

Median sales price of existing single-family homesRanked by metros with fastest-declining prices, 2007 Q2–2008 Q2


6 REAL ESTATE

reAl estAte

Real E state

86

Real Estate

0807060504030201009998

80

60

40

20

0

-20

-40



Delinquency ratesAll loans, 1998-2008 Q2


Delinquency rates have increased more than

60 percent since last year, and three times faster in California than in the nation as a whole.

Between 2006 Q2 and 2008 Q2, California’s

delinquency rates rose by 135 percent, the fourth-highest change in the nation. Arizona’s delinquency rates have grown by 192 percent, the fastest during that period, followed by rates in Nevada and Maryland.

Least delinquent (12.9% - 32.8%)Second tier (32.9% - 48.3%)Third tier (48.4% - 77.5%)Most delinquent (77.6% - 192.2%)

Percent change in delinquency rates of conventional subprime loans

2006 Q2–2008 Q2

Sources: Moody’s Economy.com, Mortgage Bankers Association, Milken Institute.

7 REAL ESTATE

reAl estAte

Real E state

87

Real Estate

0807060504030201009998

2.0

1.5

1.0

0.5

0.0

Percent


Foreclosure rates*As percent of all loans, 1998-2008 Q2

* started during quarterCaliforniaUnited States

Foreclosure rates in California surpassed

rates nationwide in 2007; they reached almost 2.0 percent in 2008 Q2, up from 0.3 percent in early 2006.

Relatively higher exposure to subprime loans

triggered higher rates of foreclosure in the state.

Foreclosure proceedings on both prime and

subprime loans have soared since 2006. Foreclosure rates are highest among subprime ARMs (adjustable rate mortgages), which have skyrocketed to nearly 10 percent.

0807060504030201009998

0.35

0.30

0.25

0.20

0.15

0.10

0.05

0.00

Percent


Foreclosure starts on prime loansFixed-rate loans, 1998-2008 Q2


0807060504030201009998

2.5

2.0

1.5

1.0

0.5

0.0

Percent


Foreclosure starts on prime loansARM loans, 1998-2008 Q2


0807060504030201009998

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Percent


Foreclosure starts on subprime loansFixed-rate loans, 1998-2008 Q2


0807060504030201009998

10

8

6

4

2

0

Percent


Foreclosure starts on subprime loansARM loans, 1998-2008 Q2


8 REAL ESTATE

reAl estAte

Real E state

88

Real Estate

08060402009896949290

30

25

20

15

10

5

0

Percent


California's share of foreclosuresAs percent of U.S. total, 1990-2008 Q2

In 2008 Q2, one out of every five foreclosure

proceedings was initiated in California.

With the financial markets currently in turmoil, the value of mortgage originations for purchases and refinances appears to be flattening out to levels seen before the housing boom.

Low interest rates and loose lending

standards made it easy to obtain credit and helped set off the housing boom. Now that banks have limited capital, they are following stricter lending standards.

0807060504030201009998

400

300

200

100

0

1800

1600

1400

1200

1000

800

600

400

US$ billions US$ billions

Sources: Moody's Economy.com, HUD, HMDA, Federal Reserve Board.

Mortgage originations for purchases1998-2008 Q2


0807060504030201009998

1200

1000

800

600

400

200

0

5.0

4.0

3.0

2.0

1.0

0.0

US$ billions US$ trillions

Sources: Moody's Economy.com, HUD, HMDA, Federal Reserve Board.

Mortgage originations for refinances1998-2008 Q2


07060504030201009998

5.0

4.0

3.0

2.0

1.0

0.0

Millions, SAAR

Sources: Moody's Economy.com, HMDA, Federal Reserve Board.

Number of loan originationsCalifornia, 1998-2007 Q4

PurchasesRefinances

0807060504030201009998

35

30

25

20

15

10

5

0


Sources: Moody's Economy.com, Federal Reserve Board.

Loans by typeUnited States, 1998-2008 Q1

Home equityConstruction

9 REAL ESTATE

reAl estAte

Real E state

89

Real Estate

08060402009896949290

12

10

8

6

4

2

0

Percent


Effective interest ratesJanuary 1990-September 2008

30-yr fixed1-yr ARM

Short-term rates on ARM loans are no longer

as attractive as they were five years ago. As interest rates begin to reset on ARM

loans, monthly mortgage payments will increase dramatically, cutting deeper into disposable income and reducing household wealth.

Those who purchased homes in the past few

years with little or nothing down face the greatest risk of their loan values exceeding the actual values of their homes, reducing their ability to refinance.

0807060504030201009998

40

30

20

10

0

Percent


ARM share of loansUnited States, January 1998-September 2008

0807060504030201009998

100

80

60

40

20

0

Percent


Refinance share of total applicationsUnited States, January 1998-September 2008

0807060504030201009998

70

60

50

40

30

20

10

0

400

300

200

100

0

-100

US$ billions Percent change from preceding year


Cash-out refinancingsUnited States, 1998-2008 Q1

Level (L)Change (R)

0807060504030201009998

10

8

6

4

2

0

Percent


Net equity extraction as share of disposable incomeUnited States, 1998-2008 Q1

10 REAL ESTATE

reAl estAte

Real E state

90

Real Estate

200820072006200520042003

80

70

60

50

40

30

20

Index

Sources: Moody's Economy.com, National Association of Home Builders.

Multifamily housing market indexUnited States, Class A rental occupancy, 2003-2008 Q1

Occupancy rates for multifamily housing appear to have tapered off over the past year, but demand for rentals should increase, particularly with the weaker single-family housing market. With mortgages more difficult to acquire, rents may begin to rise.

The state may also see signs that the financial

crisis is spreading to the commercial real estate sector.

080706050403

80

70

60

50

40

30

20

90

80

70

60

50

40

Percent Index

Sources: Moody's Economy.com, National Association of Home Builders.

Multifamily housing demandUnited States, 2003-2008 Q1

Apartments rented within 90 days (L)Asking rent (R)

89 99 00 10 20 30 40 50 60 70 80

80

60

40

20

0

-20

-40



Valuation of multifamily permitsCalifornia, 1998-2008 Q2

07050301999795

15

10

5

0

-5


Sources: Moody's Economy.com, S&P, GRA/Charles Schwab Investment Management.

Commercial Real Estate IndexUnited States, January 1995-May 2008

89 99 00 10 20 30 40 50 60 70 80

400

350

300

250

200

150

100

50

US$ millions


Valuation of nonresidential permitsCalifornia, January 1998-July 2008

Commercial buildingsIndustrial buildings

11 REAL ESTATE

reAl estAte

Real E state

91

Real Estate

0807060504030201009998

1.0

0.8

0.6

0.4

0.2

0.0

Percent

Sources: Moody's Economy.com, American Council of Life Insurers.

Commercial delinquency ratesUnited States, 1998-2008 Q2

The delinquency rates of commercial property

appear to be stable, even with the nationwide economic slowdown. However, as more banks turn to the Fed for bailouts, the nonresidential sector remains uncertain.

Vacancy rates have risen in more expensive

areas. Rising business costs and the economic slowdown have firms relocating to more affordable areas.

The ripple effects of the housing downturn

have slowed activity in many related sectors.

0807060504030201009998

25

20

15

10

5

0

Percent


Office vacancy rates*1998-2008 Q2

* Comprising metro, downtown and suburban average

Los AngelesSan FranciscoSan Jose

0807060504030201009998

20

15

10

5

0

Percent


Industrial vacancy rates1998-2008 Q2

Los AngelesSan FranciscoSacramento

0807060504030201009998

20

15

10

5

0

-5

-10

-15


Sources: Bureau of Labor Statistics, Global Insight.

Impact on industry employmentCalifornia, January 1998-August 2008

Non-farm employmentConstruction

0807060504030201009998

15

10

5

0

-5

-10


Sources: Bureau of Labor Statistics, Global Insight.

Impact on industry employmentCalifornia, January 1998-August 2008

Furniture storesBuilding materials Real estate agents and brokers

12 REAL ESTATE

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