The Silicon Valley Leadership Group

A transcript for

The Silicon Valley Leadership Group

GAME CHANGERS 2012

Panel Discussion #2 of 3 (out of 5)B“The State Economy and Public Services”

Barbara Marshman, Moderator

Santa ClaraConvention Center

September 13, 2011

Panel members in the order in which they were introduced:

Gavin Newsom, Lieutenant Governor

Patricia Gardner, Executive Director, Silicon Valley Council of Nonprofits

Kim Polese, Chairman, Clear Street, Inc.

James Gutierrez, CEO, Progreso Financiero

Mr. Guardino:

… and focused as we go into The State Economy and Public Services. We’re honored that our State Economy and Public Services panelis sponsored by SunPower. The moderator is Barbara Marshman, the Editorial Page Editor of The San Jose Mercury News. Serving on this panel [are] California’s lieutenant governor, Gavin Newsom; the executive director of the Silicon Valley Council of Nonprofits, Patricia Gardner; the chairman of Clear Street, and a serial entrepreneur here in Silicon Valley, Kim Polese; and the CEO of Progreso Financiero, James Gutierrez. Will you welcome our panel and our moderator? (applause)

Ms. Marshman:

…Before we start this discussion, I’d just like to say that I am so pleased that the Leadership Group has taken on this topic, because it’s so often that worrying about government and social services is seen as a competing value with helping companies to succeed. And, in fact, there’s a strong relationship between a good business climate and having a good place to live, meeting the needs of the region. So I’m hoping we’ll gain some insights into that today from this terrific panel.

Q:Let’s start with Lt. Gov. Newsom, who is becoming a regular in the valley. He was here just a few weeks ago to introduce an ambitious agenda for creating jobs and for helping California compete in the world market. Since our theme today is game changers, I’m going to ask the lieutenant governor to pick out maybe three of them that he thinks could actually start creating jobs in the next year.

A:(Lt. Gov. Newsom) Thank you. As some of you may know, we…spent about six months casing other people’s joints, to use the lexicon of Sam Walton of Wal-Mart, who used to talk about the “eyes of the enemy.” He was constantly searching for best practices and new ideas up until near his death. And the only way you could meet with Sam was to actually walk the halls and the aisles of his competitors, as he was constantly seeking new ways of doing things and adopting them to his own business model.

We need, in government, to act a little bit more like Sam Walton did. We need to start casing other people’s joints. We need to know what’s going on, region to region, state to state; but we also, in the context of the global economic realities, and the fact we’re a $1.9 trillion economy,…need to start learning more about what’s working in Bavaria. You were just talking about manufacturing. You should care about Bavaria. If you care about education, you should care about what’s going on in Shanghai, the city, not just the country of China. We should get out and we should disabuse ourselves [of the notion] that we have all the answers out here; because, at the end of the day, one thing I know fundamentally…is that there is not a problem that exists in this state that hasn’t been solved by somebody, somewhere. I really believe that. There’s not a problem in education. There’s not a problem in manufacturing. There’s not a problem in any of these areas…that hasn’t been solved somewhere. It’s a question of reaching out, scaling them, distributing them, and dealing with distortions…

I mean the first thing was the thing that Gov. Brown already did. You need a job czar. You need someone who’s focused 24/7 on the issue of jobs and the economy. And that’s not just recruitment. That’s retention. That’s a deliberative intentionality as it relates to a focus and an agenda on job creation in this state. We had never had that. We have that.

Second, you need economic- and workforce-development agencies, because you cannot have an economic strategy without a workforce-development strategy. We’ll have mostly that. It’s on the governor’s desk for signature, and we hope he will sign it, to actually create a jobs agency in the state. You don’t have one. We have something called “GoED.” It’s a version of one. This would create a much more robust economic-development agency in the state.

And, number three, you’ve got to go local. That’s the big game changer. We have regional economies in the state. The robust economy that does exist in the state is local economic-development strategies. Go local, regional economic-development councils. Those are my top three.

Q:…Patricia, we were talking the other day about the relationship between jobs and social services, and what you do. Could you talk a little bit about that, ‘cause it was interesting.

A:(Ms. Gardner) Sure. I think I want to talk about jobs, but I’m gonna ask the audience, have you seen an increase of the homeless in your committee, standing…at your stoplights, in front of your stores, looking for jobs, and looking for money? And I see a lot of nodding heads. So that’s the relationship between jobs and social services, is that we are seeing it. Every day I get in the car, I some more impact of…the lack of jobs in our community.

And we need all types of jobs. Jobs give people economic security and that economic security, without it, it leads to what we’re having right now, an increase in domestic violence, an increase in…children being left at home as their parents are out looking for work. We’re seeing the impacts and the rise in the need within our social-service agencies for the lack of jobs.

And we need entry-level jobs – jobs where people who are coming to this country, who are getting out of…tough situations, can enter the job market with health benefits. So it’s not just jobs. It’s jobs with health benefits; because, without those health benefits, they’re also in our emergency rooms and our community clinics. So “jobs” is definitely the path for that change.

Q:Let’s go back to the lieutenant governor for a moment. You just made the transition from big-city mayor to state official. Do you have any ideas for better connecting state funding to local government, which seems to provide the most-direct service needs, services to people? And is the state’s work on realignment currently part of that? Or do we just need to start over, and redesign government and taxes?

A:(Lt. Gov. Newsom) …States are laboratories of democracy. Cities are laboratories of innovation. The one place that government is still “working,” and, again, that’s with quotations – frankly, the only place! – is local government. For as bad as we love to beat up our city councils, and our boards of supervisors, and our local mayors, at the end of the day, you’ve got to get things done. No one cares if you’re Democrat or Republican. They just want you to pave those damn streets. You’ve got to balance your budgets. You don’t have a choice. You can’t point fingers and talk about “us versus them” as effectively as you can, and get away with it, in states like California, and, obviously, in Washington, D.C. So I’m all about flexibility. There’s not enough of that. That starts at the federal level, state level, into counties, and into cities; but realignment is a good part of it, but it’s not good enough.

Look, you want to get serious about economic development, you could change CEQA and all these fancy things in the state, but it means nothing if you’ve got some lousy building inspector down in your local city because you’ve got some lousy city council; and it’s even worse if you’ve got a county board of supervisors that redoubles their efforts to get even more unwieldy in terms of theirregulations. So you cannot solve these problems unless you have a bottom-up approach. It is fundamental, and it’s completely missing in this state.

There is no real deliberative connection to cities and counties, and to the state itself, for that matter, and the federal government. So I have strong opinions on this. We laid out 38 specific strategies in my plan. The challenge is, you made the point. I was mayor. I was empowered as chief executive of my city, and now I’m just the guy across the hall from the guy who is empowered as chief executive of California; and I confess, if you haven’t picked it up, a little frustration, but still, some optimism.

Q:Okay! Kim, you wrote an op-ed for the Mercury News last month about two bills, Senate Bills 14 and 15, about state budgeting. Could you talk a little bit about them and why you think they’d make a difference?

A:(Ms. Polese) Yes, absolutely. So these are two…pieces of legislation that are actually before the legislature and the governor today, SB 14 and SB 15. SB 14 calls for performance-based budgeting, and SB 15 calls for multi-year budgeting. So this…is the kind of stuff that kind of makes your eyes glaze over; but, in fact, it is absolutely, critically important, because it’s about ensuring that the large expenditures our state makes, and our tax dollars go to, actually deliver on their goals. So ensuring that funded programs actually deliver on their intended goals.

And this is really basic stuff. Performance-based budgeting basically calls for budgets to be, or programs, major spending programs, be reviewed every—at least every—10 years, and for greater transparency about what are those spending components of large programs, so ensuring that everybody knows where your dollars are going for a large-expenditure program.

And SB 15 calls for ensuring that you’re reviewing the spending of large programs every two years, that you’re forecasting two-year budgets, and then reviewing every three and five years. So this is multi-year budgeting, ensuring that you’re not just looking at the next fiscal cycle, that you’re actually forecasting two years out, and then doing three- and five-year reviews. Again, really basic stuff. It’s the kind of thing you do when you’re running a business. You don’t just spend the money. You check every so often and make sure that that money is, in fact, having the intended result. So SB 14 and 15 are critically important, really basic stuff, and common-sense measures we really need to get into our spending programs.

Q:…I want to have James in here. James has a really interesting company, Progreso Financiero. It’s already a game changer for working people who have trouble getting a credit history to move up the economic ladder. James, could you talk about what you do, and how it fits into the social-service and business structure?

A:(Mr. Gutierrez) Sure. How many of you have heard about access to capital being a problem? If so, raise your hands. So, well, multiply that by 10 in lower-income communities. So what Progreso Financiero does is, we wanted to bring the whole concept of sort of micro loans, small lending, small-loan lending, to Latino communities in California and now in Texas. Folks that don’t have credit histories can’t get a loan from their traditional bank. They can deposit their money, but the bank can’t lend it back to them. So Progreso came out with a product that can…provide that, and help people build credit.

Some ideas on game changing and access to capital. You know, we really believe in private-sector innovation and public-sector problems. And so what we…would promote is, we found this empowerment zone credit if you’re hiring people, providing jobs for folks that are in lower-income communities.

The challenge is, we’ve been a start-up company. We now have 500 employees. We’re growing. So we’re still losing money, and we don’t have any taxable income. So we can’t get any cash for these credits that we would have otherwise had against taxable income.

So the idea is for companies like us, so we can hire people in these empowerment zones, gives them a job, ultimately, more access to capital, you know, what if we could trade those credits to companies who have taxable income? And we could get 80 cents on the dollar, what-have-you, and get actual cash for it,…plow that back into making loans and hiring more people. So that’s sort of an idea we’d have around access to capital.

Q:…Speaking of paths to success, let’s turn to higher education, which has been hit very hard in these budget cycles, and is, of course, directly related to the business climate. Lieutenant Governor, as part of your jobs plan, you’re convening a working group to deal with higher ed. Could you talk about what…you see coming out of that? What you see it possibly do for the future?

A:(Lt. Gov. Newsom) Yeah, nothing worse than politicians’ announcing a working group. “Ladies and gentlemen, today I announce a task force,” you know, and nothing ever gets done. So I don’t want to be one of those. So we’ve got 60 days to do something differently, and, the fact is, let me – Here are the facts. You know the facts. It’s gonna—I’m gonna—lament just very briefly, for those of you who are not familiar [with the situation]. We have doubled tuition at the CSU and UC since 2007. We’ve tripled them in the last nine and a half, ten years. We’ve increased the tuition…11 times in the last 10 years. It’s now…$12,192 to go to the U. C. system. It was $3,400 in 2001.

We’re pricing out the middle class. We’ve done a very good job taking care of low-income families, but we’ve done a lousy job of taking care of middle-class families. We’re losing our middle class, which means we’re losing – we’ve got this barbell economy, which means our democracy is threatened. You’ve got a concentration of wealth. The new numbers just came out in California -- even more alarming than the rest of the nation. This is serious business. You can destroy a system in a decade that took you a hundred years to build up, and that’s what’s happened in higher ed in our state. It needs leadership.

And right now, what happens? The state cuts the budget. We increase tuition. The state cuts the budget. We increase tuition, and then, you’ll see in today’s front page of the San Francisco Chronicle, we are going to proactively say we’re happy to increase tuition just in case you cut the budget in the future, so we’re going to make it even easier on you. They’re talking about bringing tuition at UC up to $22,000 by 2016. Front page of the paper. Take a look at it. It’s a specific proposal that will be in front of the regents on Thursday. This is comedic! This is [tragic]. You can’t be serious.

The one thing that’s defined the best of California is our productivity advantage. Why the heck else do you want to do business out here? It’s not the cheapest place, but it’s the best place. It’s a workforce. It’s people. And we’ve always out-educated so we can out-compete and out-innovate. Education, innovation, manufacturing, [have] brought us a great middle class, at least as it relates to our rear-view mirror. So we’ve got to reconcile this.

I’ve brought everyone together. We have 14 people – some of the brightest people I can find, and some surprises, and we’ve got a 60-day mandate to do something dramatic. [To use] the old psychology term, we want to create a “pattern interrupt,” and we have some very specific plans that I can talk about if we have a longer conversation.

Q:Okay! But…if not, we’ll certainly see a report in 60 days with concrete recommendations.

A:(Lt. Gov. Newsom) And then we’ll see what…they do with it up there in Sacramento, a fabulous place!

Q:(laughter) Kim, you’re a product of our state university system. You’re a Berkeley grad, right? And I know you have a strong interest in higher education. You’ve been doing a lot of work in it. Are there ways for universities and corporations to collaborate better? Is there a reason more doesn’t happen along these lines? Because companies are always telling us education is so important.

A:(Ms. Polese) Absolutely! In fact, it’s critically important that industry engage, and really step up to the next level of engagement with our public universities here in California. There are…actually some really exciting examples of good work in progress right now, and results that are already being seen.

One example I’ll give you is the BP Energy Biosciences Institute. This was established [as] a partnership between U. C. Berkeley and BP. This is a multi-year – it’s actually a 10-year program, and researchers are converting plants into cellulose and biofuels critically needed for developing cleantech solutions.

Already, dozens of researchers at LBL (Lawrence Berkeley Lab) and U. C. Berkeley are developing innovations. These are publicly available. There is a real, meticulous focus on ensuring academic freedom, so all of the innovations that are developed are available publicly for review. And we’re seeing real breakthroughs begin to come out of this partnership.