CalBizBlog

A Plea for Financial Sanity

Tim Johnson — Thu, 25 Sep 2008 13:05:11 GMT

Dear Honorable Members of Congress:

Are we in a financial crisis yet? As recently as 2 weeks ago, conservatives like Larry Kudlow on CNBC
were inexplicably saying no. Robert Reich even asked for a pair of Larry's rose colored glasses. We
didn't suddenly get into a crisis last week and we will not be able to "fix" our economy in a short time, if at all.

What has been presented of the Paulsen plan is unacceptable. Huge dollars. No strings. No accountability.
No safeguards. No regulatory changes. No punishment. No restitution. We should not be giving taxpayer
money for any of this financial mess unless MAJOR strings are attached and it keeps more people in the
homes they bought. The resolution of this crisis must punish the perpetrators and reduce the chance that
this mess will happen again, at least during our lifetimes. The RTC did not work. If it had, we would not be
here. It appears that the only lesson learned from the RTC process was: the American taxpayers will
bail out the banking system from its mistakes.

It seems that now everyone, even Senator "our fundamentals are strong" McCain agrees we are in a financial
crisis. There are many proposals being thrown about to spend unbelievable sums of money "saving" financial
institutions. That is wrong. That will neither solve our problems nor keep us out of trouble next time. If we want
to try to "fix" our economy, "if" that is even possible, we need a closer look at the causes of the problems and
undo the causes. "Fixing" the symptoms of our crisis will not repair the deep, underlying damage.

While it seems perfectly fine with our leadership that the American taxpayer should be paying for this "fix",
I have heard nothing about how those connected to the crisis will pay their greater portion. The suggestions
which follow are only politically unappealing if you work in the financial industry. To the American taxpayer,
perhaps they are a reasonable consequence of inappropriate behaviors. Without real consequences, ones
that actually hurt, rules have no meaning. Now that we are talking "real money" in the range of $1 TRILLION,
can we please invoke some sanity and responsibility? Please forward this to anyone who might listen. I was
pleased to hear that some of these suggestions are actually being considered by Congress. If you can
promote even one suggestion that may be of value in minimizing the cost to the American taxpayer and
reduce the chance of recurrence, Thank You.

My view of the biggest causes of our problems:

1) Mortgage brokers who violated their fiduciary responsibility to borrowers, encouraging them to
   take loans that were not in their interest, including ones where the borrower clearly could not
   afford the mortgage
2) Inadequate oversight of individual brokers by the banks who lent the money
3) Lack of transparency - Inadequate ratings of mortgage security quality, which now leaves us with
   securitized mortgage products that we cannot value
4) Greed - Everyone was "doing it" and making money. Like 1929 or 1999, it appeared housing values
   could only go up
5) Poorly constructed bonus plans that put short term financial gains ahead of pretty much everything
   else, including legality and ethics
6) Corporations allowed to get "too big to fail"

= = Solution Part 1 - Assign responsibility and accountability = =
There is a lot of culpability to go around. When there is no punishment, there is no learning. Lack of
consequences for bad choices *guarantees* that bad choices will be made again. Regardless of how
much money we ultimately spend, we must spend around $1 billion for enough investigators, prosecutors,
prisons and associated government services that those responsible are found and punished. Every individual
who participated in loan originations should be investigated. It is likely that most are innocent. However, if
they encouraged borrowers to lie about income, guilty. If they lied about a borrower, guilty. If a borrower was
sold a loan the broker should have known they could not afford, guilty. Investigate. Speak to borrowers
who have lost or are losing their homes. Prosecute. Assess fines, with all of the money collected going
toward this huge bailout budget. Jail. If the problem extends up the chain of command, keep going. If we
do not do this critical first step, there are no disincentives for this out-of-control cancer to recur. The extent
of the malfeasance should not be a protection for the guilty.

= = Solution Part 2 - Enforce or expand banking oversight requirements = =
Require any bank making a loan to perform due diligence. They cannot simply rely on what they receive
from the loan originator. If the numbers don't add up, don't make the loan. If it is "too expensive" to verify
every piece of data submitted by the loan originator, verify every piece of data for every third, fifth or tenth
application. This process can be different for each bank to permit competition, but the necessity that each
bank have such a process should be part of regulations. If these regulations exist and are not being enforced,
then enforcement activities must increase and the penalties for non-compliance need to be much tougher,
including fines to both corporations and individuals who fail to comply. For those complaining about the dire
consequences of credit being too tight, too bad. It is a rational response to credit being too loose for too long.

= = Solution Part 3 - Rate mortgage related securities = =
All mortgage related securities (CDOs or otherwise) must be rated by one of the ratings organizations. Clear
criteria must be used and these criteria, developed by the ratings agencies, must be published to enhance
transparency. If the ratings criteria are inadequate to enable valuation of a mortgage related security, they
must be expanded. The SEC shall be the arbiter of whether the ratings are adequate based upon input from
the market, both buyers and sellers of mortgage related securities. If the ratings agencies cannot develop
adequate criteria, then Congress shall determine a mechanism to direct this to occur. If a mortgage related
product cannot be rated or does not achieve a minimum level of rating, it may not be sold. Thus, the security
creator will perform due diligence before selling it to the market. Once it is sold in the market, this security
should have a readily determined value on a periodic basis, perhaps monthly to correlate with the receipt of
monthly mortgage payments. Higher risk securities will command lower prices and the market will, in the future,
adjust price according to risk as it does for high risk corporate bonds. This would eliminate the crisis of confidence
we have had and continue to have where no one really knows the value of the mortgage related securities
that they hold. DO NOT bundle the securities together and resell them until and unless this procedure has
occurred.

= = Solution Part 4 - Moderate Greed = =
There is no cure for greed. It is as human as love. However, when greed causes significant financial harm
to others, as it has in this crisis, there needs to be a mitigating force. Key factors of greed at play in creating
this crisis:
1) mortgage broker compensation
2) corporate compensation

On the one hand, we are a capitalist democracy wherein individuals should be able to charge what the
market will bear. On the other hand, we should consider whether some of our incentives, which clearly
motivate personal choices, are harmful. Mortgage broker compensation must be independent of the type
of loan funded, so that they are not motivated by their potential earnings to direct borrowers to bad loans.
Any mortgage broker found to have directed a borrower to a harmful loan, for any reason, will repay their
commission on that loan to the bailout fund. This applies to all loans funded back to 2000, the approximate
beginning of the recent boom.

Corporate executives have been overly incentivized to do whatever is necessary to continually increase the
bottom line. This has led us down the path of finding the newest financial product, generally unregulated
because it is new. It is long past time to recognize that the obscene salaries paid to many corporate executives
are long overdue for a correction. The increasing number of angry shareholders wanting some say over corporate
pay makes that abundantly clear. In answer to the executives request for this huge financial bailout, for which
many have partial if not total responsibility, their pay must be reduced. All bonuses retroactive to 2000 must
be repaid (including stock or options) to the bailout fund by all named corporate executives in every affected
financial institution. In addition, all salaries shall be retroactively cut to a multiple of the median employee
wage at their company, no greater than 10. It may be variable from 4 (at 100 employees) to 10 (at 100,000)
depending on the size of the corporation. All money must be paid within 12 months regardless of any losses
the executive may suffer in the process. If they have inadequate personal resources, their debt shall fall to
their family for both future generations and distant relatives, including any former spouses. The American
taxpayer should only pay after culpable individuals and their families have first repaid.

Does this sound like retribution? It is partial restitution. Is there a reason the American taxpayer should not
be upset that while these executives were laying the groundwork for our current crisis they were being well
compensated for their terrible long term choices? Is there a reason the American taxpayer has greater
responsibility to pay for the errors of corporate greed than those who benefited?

= = Solution Part 5 - "Fix" the mortgages = =
Once we implement effective ratings, identify the problem mortgages and "fix" them. Don't buy CDOs as part of
the bailout, they are a derivative. Pay down mortgages or decrease interest rates or extend terms so that people
can stay in the homes they bought and the value of the collateralized mortgages increase, increasing the value of
the derivatives. Best to decrease interest rates as that reduces bank profits but costs the taxpayer ZERO. Putting
money anywhere else in the system both lets the homeowner lose and the American taxpayer lose. Who wants a
lose-lose proposition? Resetting mortgage terms to where banks make less money, still allows for some level of
profit and real live people benefit by staying in their homes. The real estate market will improve from reduction
of foreclosures and given enough time, prices will eventually rise again. While enabling bankruptcy judges to do
this will help, that should not be a necessary condition. Clear criteria could be established where banks are
simply required to make the change for qualified borrowers. Those criteria should *only* apply to owner-occupied
homes and would be considered to be recommendations to bankruptcy judges. Speculators, as part of the problem,
would not qualify for a "fix".

= = Solution Part 6 - Ensure that there is no company "too big to fail" = =
If there is the perception that any company can become "too big to fail", then once a company reaches a certain
size, it can increase the risks it takes without consequences knowing the American taxpayers will bail them out.
We must either specifically and explicitly state that "no company is too big to fail" to counter all the statements
made by our leaders, or we regulate away this possibility. Existing companies that are deemed "too big to fail"
must shrink by spinning off a few divisions as new companies. Regulations would have to prohibit mergers
beyond a certain "too big to fail" size and require companies that grow too big through prudent choices to spin
off one or more divisions.

If you support 'anything' in this message, please forward it to everyone you know in the hopes that it ultimately
reaches every member of Congress before Friday. While it would be better to fix the system right, it appears that
they are going to try to fix it fast. Of course, a very good argument could be made that Congress should only
implement reforms which do not require 'any' taxpayer dollars and allow our otherwise effective capitalist system
to run its course to resolve this problem.

Regards,

Larry Ozeran

http://www.PrinciplesforPolitics.org
http://www.DrOzeran.com
http://www.ClinicalInformatics.com

A Pessimistic Assessment

Tim Johnson — Thu, 18 Sep 2008 22:20:41 GMT

The Fiscal Future of Cities
Citing a perfect storm of rising home foreclosures, declining home values, and spiraling
costs such as the increasing cost of health care premiums, a report from the National
League of Cities identifies that the fiscal health of cities, especially in the West, is not
good and getting worse. It says “troubling developments” will likely affect the financial
health of cities over the next several years.

NLC’s report, City Fiscal Conditions in 2008, found that the decline in property tax revenues
(3.6 percent from the prior year, in inflation-adjusted terms) is having an impact on the fiscal
health of local governments.

Unlike the economic downturn in 2001, when property tax revenues were able to buffer the
effects of declining income and sales tax receipts, the weak housing market is likely to affect
city budgets until 2010,the report says.

Moreover the report found that other sources of revenue are headed downward as well, with
sales tax receipts declining by 4.2 percent and income tax revenues expected to decline by 3.3
percent in inflation-adjusted dollars in 2008 compared to 2007.

As a result, 64 percent of city finance officers surveyed expect cities to have a harder time meeting
fiscal needs in 2008, and 79 percent forecast even bigger problems ahead in 2009. “Even if economic
conditions improved immediately, the nation’s cities are likely to be realizing the effects of the current
downturn through 2010,” says Michael Pagano, co-author of the report and dean of the College of
Urban Planning and Public Affairs at the University of Illinois at Chicago. “The sharp decline in property
tax receipts erodes a critical buffer that has helped cities through economic downturns for the last three decades.”

On the spending side, increases of 3 percent in 2007 were met with flat or declining revenues,
according to the report. Taken together, city finance officers project a budget gap of 2.8 percent
in 2008, with revenues declining by 4.3 percent and spending declining by 1.5 percent in inflation
-adjusted dollars over 2007.

The areas affecting city budgets the most heavily include prices and inflation (including energy prices),
which were identified by 98 percent of respondents. Increases in infrastructure (85 percent) and public
safety spending (83 percent), and employee-related costs for wages (95 percent), health care (86
percent), and pensions (79 percent) were also cited as budget-busters. To meet budget shortfalls,
half of the cities responding (49 percent) have increased fees, while 28 percent have increased the
number or types of fees and 23 percent increased the level of impact and development fees.
Regionally, cities in the West are being hit hardest, with 74 percent of finance officers stating that their
cities are worse off in 2008, followed by cities in the Midwest (67 percent), Northeast (61 percent) and
the South (53 percent).

The situation also varies depending upon local tax authority. Finance officers in cities reliant upon property
tax were most likely to say their cities are worse off (75 percent), compared to cities that utilize a mix of
sales and property taxes (60 percent), or cities that use a mix that includes a local income tax (52 percent).
The pessimistic assessment is registered regardless of city size. Sixty-nine percent of the nation’s largest
cities reported a lessening ability to meet needs, 68 percent for cities with populations 100,000-299,999,
65 percent for cities 50,000-99,999, and 61 percent for cities with populations under 50,000.

“There is … only so much cities can do when faced with the macro-economics of a housing market in crisis,
flat revenues and soaring health care and energy costs,” says Donald Borut, executive director of the
National League of Cities. “It’s time we recognize that we must support strong cities if we are to expect
to benefit from a healthy, growing economy. Federal and state policies need to support local economies
if we want to improve the national outlook.”

Californians Like Prop 13

Tim Johnson — Thu, 18 Sep 2008 22:18:32 GMT

A new study completed by The Field Poll asked California voters a series of questions
about Prop. 13 and various proposals that have been made to amend some of its
main provisions. The survey's main findings include the following:

When California voters are asked how familiar they are with the landmark 1978 property
tax reduction initiative, Proposition 13, they divide into three camps. About one-third
(37%) report being very familiar with it, another third (30%) say they are somewhat
familiar, while the remaining third (33%) report being not too or not at all familiar with it.
Nearly three times as many homeowners (46%) as renters (16%) are very familiar with
Prop. 13. When a homeowner bought their current home is also a big factor, with long-time
homeowners more likely to report high familiarity than those who purchased their homes
more recently.

Three decades since its adoption, Prop. 13 remains very popular with voters. Statewide
more than twice as many voters (57%) report that they would vote in favor of Prop. 13 if
it were up for a vote again today as would vote against it (23%).

Support for Prop. 13 is much greater among homeowners (64%) than renters (41%),
particularly long-time homeowners. Support reaches 79% among homeowners who bought
their present home prior to the passage of Prop. 13.

When voters are asked their opinion about various proposals that have been made
to change Prop. 13, most are rejected by wide margins.

For example a proposal to gradually raise the property taxes of long-time property
owners, so the amount they pay is more in line with the amount paid by recent buyers
of similarly valued property, is opposed two and one-half to one (66% to 27%).
A proposal to amend Prop. 13’s provision that local governments cannot increase
property taxes by more than 2% per year is rejected by an even wider 78% to 17%
margin.

There appears to be strong resistance to the idea of changing the Prop. 13 provision
requiring a two-thirds vote of the state legislature to increase taxes, with about
seven in ten opposed.

In addition there were a variety of voter reactions to the idea of creating a split
roll property tax system, whereby residential and commercial properties would be taxed
at different rates, depend on how the issue is framed. Voters are divided if this means
ncreasing the property taxes of business and commercial property (47% approve and 44%
disapprove). On the other hand, the survey results show that voters would approve 61%
to 28% if this means lowering the property tax rates of residential property owners.
Six in ten survey respondents (voters) (61%) now describe state and local taxes as
being much too high or somewhat high and 37% saying they are about right. These findings
are near the thirty-year average result obtained across fifteen separate Field Poll
measures on this subject since 1977, and are quite similar to the four most recent
surveys conducted between 2001 and 2007.When asked to specify which state and local
taxes they feel are too high, survey respondents voters most often mention the gasoline
tax (32%), the property tax (29%), the state income tax (27%) and the sales tax (22%).
No other single tax is cited more than 9%.

A Hollywood Movie Becomes Reality

Tim Johnson — Thu, 11 Sep 2008 21:09:04 GMT

Only in California
In 1985, the comedy movie Real Genius starring Val Kilmer presented the scenario
of a college age undergraduate studying at "Pacific Tech," a fictitious technical university
based on Caltech. Chris Knight (Kilmer) is a genius and in his senior year working on the
development of a chemical laser. The story weaves through a variety of trials and tribulations
of this collegian’s life who is seemingly bored with his studies. However, the story takes a
turn when the CIA defines that they want a laser based system mounted on an aircraft.
Kilmer’s professor embellishes the request - demand for the laser and pressures the young
genius to find a solution for more power or suffer the consequences of not graduating and
loosing an unknown future career making millions. Suffice it to say the genius succumbs
to the pressure and finds a solution to the demand. Even the genius comes up with the
solution he also uncovers its subsequent use. The plot turns through a variety of humorous
outcomes. But last week at Edwards Air Force Base in southern California, this apparently
became a serious reality.

Reagan's Star Wars Redux
An aircraft-mounted laser designed to shoot down missiles was fired for the first time in a
ground test aboard a 747 located at Edwards Air Force Base. The test of the high-energy
chemical laser was conducted by the contractors and the U.S. Missile Defense Agency,
The laser is in the back half of a Boeing 747-400F jumbo jet. Subsequent tests will increase
duration and power before the beam is sent through a fire control system to a turret mounted
in the nose of the aircraft. Ground firings will be followed by flight tests of the system, which
is intended to be capable of destroying all classes of ballistic missiles in the boost phase of
flight. The laser was designed and built by Northrop Grumman Corp. Lockheed Martin Corp.
developed the beam control-fire control system, and Boeing provided the battle management
system. The program remains on track to reach the missile shoot-down demonstration planned
for 2009.

Of interest
I was sitting in my then office in Yuba City when a member of the Beale Military Liaison
Committee returned from a trip to Washington DC where apparently he had met with
Air Force officials that identified to him two unclassified military aircraft – the Global Hawk and
the laser armed 747. A community request was made to acquire the Global Hawk mission(Unmanned
Aerial Vehicle, ‘Jet Powered’). I always wondered what happened to the airborne laser aircraft.
Well, to para-phrase the radio commentator Paul Harvey, ‘Now you know the rest of the story.’
Now, let's see what's playing at the movies.

Tim Johnson
www.CaliforniaBusnessMinute.com

Refueling America's Air Force

Tim Johnson — Thu, 11 Sep 2008 20:35:11 GMT

Not So Quick California -
The U.S. Defense Department canceled competitive bidding on a $35 billion
air tanker contract, allowing the next administration to pick between rival bids
from Boeing and Northrop Grumman Corp. U.S. Defense Secretary Robert Gates
said the "cooling off" period will allow the decision to be made "objectively."

If you recall, this elongated contract process of selecting a bid to replace the
Air Force’s aging fleet of KC-135 refueling aircraft has taken on a life of its own.
If you remember it was announced by the Air Force that California based Northrop
Grumman was awarded the winning bid. However, then Boeing countered saying
that due to changes in the bid requirements, their bid was not correctly reviewed.
They demanded and received an audit by the federal Government Accountability
Office, GAO. The GAO detailed significant errors the Air Force had made in the
original award. The GAO’s conclusion was that had the mistakes not been made,
it might have lead to Boeing receiving the contract.

The Pentagon took over the bid process from the Air Force and conducted a limited
re-bid that examined 8 issues where the government auditors found problems in the
initial bid.

For California, specifically southern California, that means the potential loss of 7,500 jobs.

What are they doing at Stanford Now?

Tim Johnson — Thu, 04 Sep 2008 12:50:34 GMT

Winning Ethically

After a major victory on the gridiron this past weekend over Oregon State, the Cardinal looks
to be returning its football team back to a respectable level.

And speaking about respect, catching the headlines is the teaching of ethics at its Business
School. If the economic expansion from 2001-2006 taught us anything about respect, it would
have been hard to find it in the business world during this period. It was fraught with corporate
corruption. We all received a civics lesson or in this case an ‘ethics lesson’ as we watched or
read about companies and their executives as they were called into courtrooms across the nation
to plead their cases. The legal proceedings against companies such as Enron, MCI, Tyco, Adelphia
to mention just a few along with their corporate leadership that were paraded in and out courtrooms
in handcuffs provided a living classroom 'in real time' for ethics.

So it must be asked why would a parent pay $$$$$$’s to send their kids to learn about this topic
‘down on the farm’ when they can simply teach this subject by disciplining them by taking away their
Playstation or Wii and force them to watch such proceedings on cable television with the precursor
of saying “do not do as those depicted have done.”

But there is more to this story. According to a feature story in the Stanford Business Magazine
and at the Stanford Knowledgebase, many people, including students at business schools resist
discussing how the influence of a group or a situation can lead good people to do bad things.
Apparently research indicates that leaders who don’t acknowledge that group pressure exists
within their organization can create and perpetuate an environment of bad behavior if not corrupt.
Thus, those that do can use their understanding to promote an ethical organizational culture and
appropriate controls.

The idea that ordinary, good people can end up involved in corruption is counterintuitive to some.
“We underestimate the power of a situation to control people’s actions,” says Deborah Gruenfeld,
who is Moghadam Family Professor of Leadership and Organizational Behavior at the Stanford
Graduate School of Business. “Most of us believe we’re much more autonomous than we are.”
(Great, tell that to all of the former employees from Arthur Andersen).

Stanford Business School Accounting Professor Maureen McNichols teaches an elective course
called Understanding Cheating. Among other things, the course helps students see how good
leadership and the right organizational structure can cut down on the opportunities for corruption.

While these are admirable teachings, the efforts, specifically creating the right organizational
structure would be far more valuable and appreciated by 37 million Californians if Stanford would
do research on how to create the right organizational structure needed to pass a state budget.

Time to open a satellite campus in Sacramento.

To read the full story, go to: http://www.gsb.stanford.edu/news/knowledgebase.html.

What do you think? Is teaching ethics wasted on college age students.  Should ethics be taught to the
state's economic development and redevelopment professionals? Let's hear your comments


   Tim Johnson
   www.CaliforniaBusinessMinute.com

Bottle Shock: Napa Valley vs French Wines

Tim Johnson — Mon, 25 Aug 2008 21:29:43 GMT

A Movie with a Historic Flavor and a Hint of Jocularity

Bottle Shock is an independent film about the story of the early days of California wine
making and it tells the now infamous and true story of the blind Paris wine tasting of 1976
where a Napa Valley wine beat wines from France that has come to be known as
"Judgment of Paris". The movie chronicles the struggles of a small California winery,
Chateau Montelena located in the Napa Valley.

Bill Pullman plays Jim Barrett, who gave up his law practice to run the vineyard. What
was to be his romantic entrepreneurial effort quickly became an albatross around his
neck.   His venture causes him to become financially overextended and cranky about
his seemingly failing venture. He also is not at all thrilled with his long-haired son, Bo
(Chris Pine). Also working for him is Gustavo (Freddy Rodriguez), who has a finely honed
palate and aspirations to make his own wine, and an eager intern (Rachael Taylor), who
has the attention of Bo and Gustavo.



Meanwhile across the Atlantic, Alan Rickman plays the owner of a struggling vintner's
shop and wine academy in Paris who is seeking publicity for his foundering business.
He is spurred on by the suggestions of a neighboring shop owner (Dennis Farina). So
Rickman decides to expand his wine collection to include global offerings and heads to
Napa Valley to see whether the wines grown there are any good. Along the way, he
significantly improves his own position and permanently changes the fate of the global
wine industry. Rickman rents a bright yellow AMC Gremlin which is a show stealer. First
because who can image where they found this relic and second it too brings back the
memories of a time when Detroit had to reinvent itself to accommodate higher gas prices
from the early 70’s as is now the case and second, it harkens back to a time when there
were four major US automakers.



But it is the cinematography along with the cultural and historic context of the early days
of California’s wine industry that steals the show rather than the plot of romantic
entanglements and family conflicts.

The performances, particularly those of Pine, Rodriguez and Pullman, are excellent. Rickman
is great as a wine snob but proves to be even more than he appears. Bottle Shock is a California
crowd-pleaser with an intriguing story to tell.

It is rated PG-13 for brief, strong language, some sexual content and a scene of drug use.
It’s running time: 1 hour, 46 minutes.

If you have seen it, give us your review!

Airing California Legislative Laundry in Nevada

Tim Johnson — Mon, 25 Aug 2008 20:40:30 GMT

SPIN DRIED FRUSTRATION

A recent edition of the Las Vegas Business Press covered a speech by a California legislator that painted a very
bleak picture of California before a business group in a neighboring state.

State Senator George Runner (R) apparently in a speech before the Nevada Development Authority stated,
"In California, we treat businesses more like the enemy at times," Runner said. "In that process, we make
employees a greater and greater liability. And as we create greater liabilities, smart businesspeople decide
not to hire as many employees, or they choose to go ahead and do business somewhere else."

It appears that the legislator has a sense of frustration with the state’s regulatory environment in terms as
he sees it impacting the business climate. And his frustration manifested itself into his comments
presented at an out of state forum.

While he may have thought that it was politically expedient to make these comments, especially being out
of state, our Internet connected society can easily view such press and news media coverage and specifically
his comments - and it is these comments and where they were expressed that is of concern.

Unfortunately the legislator used an out of state venue to make his case. It is too bad, for it would have been
far more constructive to have had him speak at one or more of the many regional economic development
forums presented across the state to express his comments specifically to the professionals in business,
community, economic development, workforce development and edevelopment, thus enabling a dialogue
on his concerns related to these issues of regulation and taxation and working to find solutions.

The California Business Minute has written extensively about the business climate and corresponding
regulatory and taxation issues, specifically publishingthe annual review, California: Ranked Rated and
Graded. (The 2008 report is pending.) And it is true that many times California is not ranked high, such
as the recent case with a Forbes online ranking illustrating the state as the most expensive location in
the nation to do business. Yet in other cases it can be ranked extremely high. In addition, multiple cities
across the state find themselves ranked very high in terms of economic growth and business climate
such as Kiplinger’s ranking Sacramento as one of its ‘Top Ten Best Locations for Business’ in the
nation or Irvine as the one of the ’Top Ten Best Cities in the Nation to Live.’

The rub with the legislator’s comments stems from my nearly 30 years of service in economic
development particularly in the Golden State. For example, during my tenure as executive director of
the Yuba-Sutter Economic Development Corporation, we worked with our legislators, assemblymen
Doug LaMalfa and Rick Keene along with state senator Sam Aanestad. The region had been named
not once but twice as ‘The Worst Place to Live in the Nation’ by Rand McNally and Money magazine
-a horrible label to be given a community. In concert with this, the region also suffered from 20 percent
unemployment and corresponding double digit poverty levels.

So the community in concert with its legislators worked to reverse these trends and the unfortunate public
relations fiasco. Within seven years, coordinating work on business expansion, retention and recruitment
activities, the region reduced unemployment to 9 percent and poverty levels from a high of 25 percent to 13.
Forbes magazine ranked the region not once but twice the ‘Best Rural Location in the State to do Business’
and in the ‘Top Ten Rural Locations in the Nation for Business’. Additionally, the US Department of Commerce
bestowed it’s National Award Of Excellence to the Yuba-Sutter Economic Development Corporation as the
‘Best Rural Economic Development Program in the Nation in 2006’ Together local and state officials with
the private sector over came all obstacles even with the rigid regulatory and heavy tax environments expressed
by Senator Runner. And throughout, I never heard any business ever describe themselves as the ‘enemy’ in
the context to doing business in the state.

Again, while the legislator might have been trying to make his case not to create an environment like
California to the people of Nevada, he and other legislators might take these facts into consideration:

California Facts 2007-08

• California is the 8th Largest Economy in the World (State Finance Dept.)

• California comprises 13 percent of U.S. GDP (Bureau of Economic Analysis)

• 12.5 percent of the nation’s population lives in California (Census Bureau)

• 10 percent of all U.S. housing stock is in California (Census Bureau)

• California adds 400,000 to 600,000 people a year, creating a population the
current size of Kentucky in 4 years or of Oregon in 6 years (State Dept of Finance)

• California has the largest and most diverse agricultural crop production and dollar
value in the nation. (US Dept of Agriculture)

• Contrary to public opinion, California is not the most expensive state to do business,
that title goes to Hawaii (Milken Institute)

• Contrary to public opinion, California is not the highest taxed state in the nation for
business, that title goes to Rhode Island 2007, New Jersey 2008 (Tax Foundation)

• California is ranked #1 in the Nation in Aerospace based on employees and dollars
spent in production (Development Research Partners)

• Biomedical companies in California generated $62 billion in revenue last year and a
ccounted for two-thirds of the market value of all NASDAQ listed life sciences companies

• California is one of ten states that has out produced the national average in job growth,
average wages, total personal income, per-capita income and population growth over
the last ten years (Business Council of New York)

• California possesses 25 percent of the Forbes 400 richest people in the nation, larger
than any other state

• California possesses 10 percent of the Fortune 500 firms in the nation, just behind the
states of New York and Texas

• California’s Rank in the nation
#1 in High Tech jobs in the nation with 919,300 (AEA)
#1 in employment for Computer Design and Related
Services (AEA)
#1 in Telecommunications Services employment (AEA)
#1 in Semiconductor Manufacturing employment (AEA)
#1 in Computer and Peripheral Equipment Manufacturing employment (AEA)
#1 in health care employment with over 1,434,000 employees (Census Bureau)
#1 in Asian-Pacific, Black, Hispanic and Women Owned Businesses than any
other state (Census Bureau)
• California was ranked the ‘Best Place’ where Americans want to live (Harris Poll)

Rhetorically, if our state’s regulatory and tax environment is so bad, then how did we accomplish
all of this? These rankings are the reason why Nevada along with all of the other states come to
California to recruit business and industry, because it is where growing business and industry is
located. And that message more than anything is what the legislator should have taken the
privilege and honor of presenting.

The California Public Policy Institute earlier in the year identified in a study that the state has not
lost significant numbers of businesses and specifically has not lost due to its regulatory and tax
environment.


                                    Assistant Secretary of US Dept. Of Commerce, ( current director of SBA nominee)
                                    Sandy Baruah with Congressman Wally Herger and State Senator Sam Aanestad
                                    with community officials at the presentation of the National Award of Excellence at
                                    to Yuba-Sutter County Econ. Dev. Corp. at the California State Capital

If the response to the reason for the remarks is because it is about politics then that is too bad. California
deserves statewide elected officials and legislators who will engage business, community and economic
development professionals to vette these concerns across the state and then work together to identify and
subsequently implement actions to achieve economic success as did the Republican legislators Doug
LaMalfa, Rick Keene and Sam Aanestad.

Let's hear your comments----

Tim Johnson
www.CaliforniaBusinessMinute.com

Driving California

Tim Johnson — Thu, 07 Aug 2008 16:25:18 GMT

A Two Punch Combination Rock's the Industry
and Soon State and Local Government

New auto dealers in California are big business . . . $82.3 billion in sales to be
exact in 2007. But not all has been good for dealers. A boxing analogy puts
into perspective. The industry has been hit by a strong two punch combination.
The mortgage meltdown coupled with the spiraling costs of gasoline has brought
new car dealers to their knees. And while they have struggled to get back up,
their potential customers have been impacted by the credit crunch. Even with a
low prime rate, borrowers are confronted by some of the stiffest terms in recent
history.

Overview of New Auto Dealerships in California

Average sales per dealership...........................................................$51.6 million
Total sales of all new-vehicle dealerships in California ................... $82.3 billion
Dealership sales as % of total retail sales in the state....................18.9%
Estimated number of new-vehicle dealerships.................................1,594
Dealers provide thousands of well-paying jobs in California.
Total number of new-vehicle dealership employees in CA................133,721
Average number of employees per dealership..................................84
Average annual earnings of new-vehicle dealership employees.....$55,491
Dealership payroll as % of total state retail payroll..........................13.9%
Annual payroll of new-vehicle dealerships......................................$7.38 billion
Average annual payroll per new-vehicle dealership .......................$4.63 million
Dealers generate hundreds of millions of dollars of tax revenue
for state and local government through:
. Sales Tax Revenue
. Corporate Tax Revenue
. Payroll Tax Revenue

No More, but not impacting sales

Auto dealers in the Golden State have seen sales of new cars and light trucks
plummet by more than 18% in the first half of the year, according to figures from
the California New Car Dealers Association.

That's compared with a nationwide drop of 10%. Not counting sales to corporate
and government fleets, California dealers had sold 634,577 cars, SUVs, pickup
and minivans through June, versus 779,778 in the same period last year.
Here are a few other tidbits from the dealers’ association report:

•Toyota/Scion was the top-selling brand in the state, with a 22% market share,
followed by Honda (12%) and Ford (11%). Another Japanese brand, Mitsubishi,
came in last with a share of less than 1%.
•Domestic brands account for about 34% of new vehicle sales in California.
Nationally, the Detroit Three capture 48% of sales.
• The top-selling models in the state were (in order) the Toyota Camry, the Honda
Civic, the Toyota Corolla/Matrix, the Honda Accord and the Toyota Prius.
•The Ford F-series and Chevy Silverado were the top-selling full-sized pickups,
easily fending off a challenge from the Toyota Tundra.
•Cars (as opposed to light trucks) have accounted for almost 60% of new vehicle
sales in California, compared with around 54% nationwide

The California New Car Dealers Association in their most recent California Auto Outlook
identify two key factors for what they forecast as to be the reason for the continue decline
in sales, specifically a forecasted loss of 20 percent in sales for 2008.

•Number one roadblock to a rebound in new vehicle sales: Excessive household debt
•Number two roadblock to a rebound in new vehicle sales: Rising fuel prices and shifting
consumer demand

                                       An example of a two punch combination

The Golden State’s lackluster sales will manifest themselves into less tax revenue for local
jurisdictions. And unless the price of gasoline returns to the $80 to $100 a barrel, the transition
to smaller vehicles and specifically more fuel efficient vehicles will present a bind for the
manufacturers in the transition, causing further years of lackluster sales impacting local
governments who operate off of the life blood from the sales tax receipts created by new car
sales to also tumble. Now who is driving California?


Tim Johnson
www.CaliforniaBusinessMinute.com

Playing California Hold 'em: Dealing with the State Budget - Another Hand

Tim Johnson — Sat, 02 Aug 2008 16:51:48 GMT

Another Hand

A controversial tax measure — one provision under discussion in a state budget plan
calls for $8.2 billion in new taxes — is designed to close a loophole for large corporations
and generate $1.1 billion for the state. But small businesses earning less than $5 million
in revenue may suffer the most negative effects.

"Although 80 percent of the total taxes would come from businesses with more that $5 million
in revenues, it is the 20 percent of the total businesses in California that make less than this
that will suffer the most" said Scott Hauge, founder and president of Small Business California,
a business advocacy organization.

Companies in California are permitted to carry forward net operating losses incurred in one year
and use them as deductions against earnings in future years. The proposed budget would suspend
the losses for three years. If a business operates at a loss — often the case with start-ups or
businesses that add employees, expand inventory or upgrade equipment — a business could not
carry over that loss in subsequent years to mitigate the tax burden.

One hellava hand! Fold and deal again.

Tim Johnson
www.CaliforniaBusinessMinute.com

Let's Play California Hold 'em: Dealing with the State Budget

Tim Johnson — Sat, 02 Aug 2008 16:53:18 GMT

                                  A No Jive Diatribe

California Gov. Arnold Schwarzenegger on Thursday ordered the pay for 200,000 state employees
cut to the federal minimum wage of $6.55 an hour and ordered the termination of contracts of about
22,000 independent vendors.

“We do not have a budget, and as governor, I have a responsibility to make sure our state has
enough money to pay its bills,” said Governor Schwarzenegger. Without a budget in place, the

Governor says the the state has no authority to pay vendors and contractors for goods and services
chargeable to Fiscal Year 2008-09, or for payroll for legislative staff, appointees, exempt employees and
payroll for other state employees beyond that required by federal labor law. He also says other bills
cannot be paid including:

• Highway User Taxes that are apportioned to the state, cities and counties for highway
and road improvement projects
• Cal Grants to students in higher education
• Transfers to the Trial Courts
• Transfers to University of California, California State University and Community Colleges
• Transportation Revolving Fund disbursements
• Non-revenue limit school payments
• Payments for non-federally mandated social services programs such as:
Community Care Licensing, Adult Protective Services, State Only Foster Care; State
Only Adoptions Assistance and Cash Assistance Program for Immigrants
• Tax relief payments to low-income seniors and disabled persons.

Meanwhile State Controller John Chiang, who actually pays the state’s bills, says he will ignore the order
unless directed by a court. Mr. Chiang says there’s enough money to pay bills through September even
without a budget. The Governor contends the California Supreme Court has granted him the authority to
issue the order.

OK, let’s play this out. If a budget is not passed before September and the money runs out, then the State
will have to borrow. It will cost money to do that, thus increasing the size of the deficit.

It has been 31 days without a budget. California does not need this lack of inaction. Put party politics aside
and find a compromise and get on with fixing the broken budget system. California’s solons passed a law
this week to rid us of transfats. What we need is less fat in a budget. We have already recalled one governor;
do Californians need to be thinking about recalling the state legislature?


                                                                       BUDGET GODS

The 'Budget Gods' have shown their cards. There aren't any good ones. Fold - and get on with the business
of running this state. Win, loose or draw, California deserves a better hand.

Tim Johnson
www.CaliforniaBusinessMinute.com

No Jive Diatribe: BEWARE Celebrity CEO's

Tim Johnson — Thu, 24 Jul 2008 16:15:00 GMT

Celebrity CEO’s - Under Performers or Over Expectations?

Yet another study has been completed that illustrates that hiring and or retaining celebrity CEO’s are often bad for
the performance of a business.

The report by two professors from the University of California system - Ulrike Malmendier, associate professor of
economics at UC Berkeley and Geoffrey Tate, assistant professor of finance at UCLA's Anderson School of
Management, studied the performances of celebrity CEOs.

The study theorizes that many CEOs fail to live up to the hype they generate and they tend to under perform once
they reach the top spot. Intriguing as it may seem at a first glance, a second look might give a better perspective.
Maybe the expectations are too high from the people within the organization, its shareholders and Wall Street types.

According to Malmendier and Tate, the reason they fail to live up to the hype is an example of the mean reversion
model. The model suggests that any award winner performs extraordinarily to win a prize, but cannot maintain
that level of performance year after year.

In the book, Flexible Leadership: Creating Value by Balancing Multiple Challenges and Choices by Richard
Lepsinger, president of OnPoint Consulting and co-author Dr. Gary Yukl, they identify five problems associated
with celebrity leaders.

• Over reliance on the leader to solve all the company's problems
• Exaggerated expectations lead to exaggerated disappointments
• A single CEO misstep can have a catastrophic effect on profits
• Celebrity CEOs are too sheltered to be fast on their feet
• Employees don't want to be led by a figure on a white horse.

Again fascinating, but even a celebrity CEO knows well enough that in today’s market you cannot afford to
be a flash in the pan. Today’s celebrity CEO hires publicists and advisors that identify opportunities for them,
not just in terms of their role as a CEO but also for their own best interest which means they are looking not
only at their own personal future, but how the company they also lead will catapult them to greater celebrity
status. They recognize that they need to address the mundane tasks of running a business, but their advisors
also identify ways for them to remain within the public eye, for example by leading community and social based
activities that not only give a stage for the celebrity CEO but also places a personable if not a warm side to them
and the often cold view of corporations, specifically the one they lead enhancing it further through their value
added activities.

Malmendier and Tate suggest that increased publicity causes distractions that account for underwhelming
performance. Again, while on the surface it maybe easy for one to agree with this statement, it is hard to fathom
that the celebrity CEO falls to such a level given they possess characteristics of achieving the prize, specifically
if they have signed a performance based contract. And maybe that is the problem; the organization was so star
struck, it did not sign a performance based contract. So, who is to blame for the failure?

Lepsinger and Yukl believe that companies need to realize that effective leadership is not about glitz, glamour,
and charisma; it's about results. "Real world" CEOs must have the flexibility to respond to continually changing
conditions, he perspective to find an appropriate balance among competing demands, and the commitment to
drive coordinated action by leaders across levels and subunits.

"CEOs must be concerned with organizational performance, with doing all the things it takes to close the gap
between strategy and execution," he says. "And here's the thing: these are skills that don't necessarily make
sexy media stories and garner lots of camera time. They're behavioral. They are learned, not inborn. There are
no easy answers, just a lot of focused thinking and hard work-and realizing that is the first step out of the
star-struck land of the celebrity CEO and into the real world."

“There is nothing to be said against winning the award," said Malmendier, "but to keep that success going,
make sure the CEO's doing his job.”

As stated above, isn’t that the responsibility of the company?

Tim Johnson
www.CaliforniaBusinesssMinute.com

GDP by State

Tim Johnson — Mon, 14 Jul 2008 14:11:53 GMT

GDP by state: Economic growth slowed in 2007

New estimates released June 5 by the U.S. Bureau of Economic Analysis show that economic
growth slowed in most states and regions of the country in 2007. Real gross domestic product
(GDP) growth slowed in 36 states, with declines in construction and finance and insurance
restraining growth in many states.1 Nationally, real economic growth slowed from 3.1 percent
in 2006 to 2.0 percent in 2007, one percentage point below the average growth of 3.0 percent
for 2002-2006.

Real economic growth either slowed substantially or was unchanged in all eight BEA regions.
The Far West region experienced the largest deceleration, dropping from 4.1 percent growth in
2006 to 1.9 percent in 2007. Even the Southwest region, which led all regions in growth in 2006
and 2007, slowed to 3.7 percent, down from 5.1 percent in 2006. The two regions that did not
experience a slowdown in 2007 — the Great Lakes and Plains — were already the slowest-growing
regions in 2006.

The deceleration in growth in 2007 was most pronounced in Arizona, California, Florida, and Nevada.
Each of these states had experienced faster real growth than the nation since 2003, but slowed
dramatically between 2006 and 2007, to rates below the national average (Chart 2). In 2006, Arizona
and Nevada were in the highest growth quintile, and California and Florida were in the second-highest
quintile. But in 2007, Arizona dropped to the third quintile; California dropped to the second-lowest
quintile; and Florida and Nevada dropped to the lowest quintile. In Arizona, Florida, and Nevada,
construction subtracted more than 1 percentage point from real GDP growth. In California, construction
and finance and insurance combined subtracted one percentage point from real growth.

Three states — Delaware, Michigan, and New Hampshire — saw their economies contract in 2007.
Like the states above, construction- and finance-related industries were largely responsible for the
weakness. In Delaware, the decline was primarily due to a large decline in finance and insurance,
and secondarily due to a decline in construction. In Michigan and New Hampshire, declines in these
industries and in real estate, rental, and leasing were largely responsible for the decreases in real GDP.

In contrast, Utah had the fastest economic growth in 2007 (5.3 percent), growing at more than twice
the national rate. Durable goods manufacturing, retail trade, and real estate, rental and leasing led
the way in Utah, accounting for more than half the state's growth. New York was the only eastern state
among the ten fastest-growing states. Contrary to the nation and most states, finance and insurance
was a strong contributor to growth in New York. Finance and insurance along with real estate, rental
and leasing accounted for 53 percent of New York's growth.

Per capita real GDP by state in 2007
Delaware's per capita real GDP of $56,496 was the highest in the nation, 49 percent above the national
average. Delaware's ranking reflects a large concentration in the highly capitalized finance and insurance
sector. Mississippi's per capita real GDP of $24,477 was the lowest in the nation, 36 percent below the
national average. Nine of the top 10 states and all of the bottom ten states were in these groups,
respectively, in 2006 and 2007. In the top ten states, Colorado replaced Nevada.

Several states experienced actual declines in per capita real GDP in 2007. In addition to the states with
contractions in real GDP, economic growth slowed in several states to rates below population growth,
causing lower per capita real GDP.

San Jose - More than High Tech

Tim Johnson — Fri, 27 Jun 2008 19:09:01 GMT

San Jose Becoming A BioCenter

With more than $19 million invested in business incubator programs, the San Jose
Redevelopment Agency and the City of San Jose are getting a return on their strategic
investments.

According to a preliminary report, the bioscience sector in San Jose experienced a
year-to-year growth rate of approximately 28 percent from 2002 to 2008 -- a rate that
outpaces the Bay Area and the U.S. by a healthy margin.

"As a crossroad for ideas, talent and business, San Jose is delighted to attract and
grow companies working in biosciences," said Mayor Chuck Reed. "With the Redevelopment
Agency funding over the past decade, we have created the largest, most successful and
comprehensive business incubator program in the nation -- which includes the San Jose
BioCenter. We welcome a variety of bioscience companies to San Jose, from global
powerhouses to small companies. For innovators who envision their start-ups becoming
global leaders, San Jose offers access to talent, capital, and an entrepreneurial spirit that
is unmatched around the globe."


                                                  San Jose Mayor
                                                     Chuck Reed

A recent PriceWaterhouseCoopers' MoneyTree survey found that of 40 investments in the
first quarter of 2008 in biosciences, $436.5 million was raised from the San Jose region.
These are more investments and dollars raised than any other region in the nation. According
to BayBio, a nonprofit trade association serving the life sciences industry in Northern California,
Santa Clara County has the largest concentration of bioscience companies of all counties in
the Bay Area. Further, according to the Milken Institute, $5.9 billion or 50 percent of the life
sciences gross product of the entire metropolitan Bay Area, $12 billion, is generated here.

A strong driver of this growth has been the San Jose BioCenter, the cornerstone for a life
science cluster located in San Jose's Edenvale Technology Park. The San Jose BioCenter
opened in 2004 and currently has 22 tenant companies and 10 affiliate companies, and has
created more than 150 jobs. These companies have raised more than $700 million in growth
capital, a type of funding that will help a company accelerate its growth.

"We have a world-class facility providing wet labs, capital equipment and laboratory services
which normally are only available to large companies. In addition, we provide business expertise
to first-time scientist-entrepreneurs as they turn their innovations into commercial products," said
Melinda Richter, executive director, San Jose BioCenter. "Our goal is to ensure our companies
reach their goal of getting their research to market."

About the San Jose BioCenter
The San Jose BioCenter is a life sciences and emerging technologies incubator providing
state-of-the art laboratory facilities, specialized research equipment, and best-in-class business
support services. The BioCenter's mission is to provide entrepreneurs with that "Big Company
Advantage" through facilities, equipment, resources, contacts and expertise they need to
commercialize their technology. Established in 2004 by the Redevelopment Agency of the
City of San Jose and operated by the San Jose State University Research Foundation in
partnership with Prescience International, the San Jose BioCenter provides a comprehensive
suite of laboratory and business services for emerging biosciences companies. For more
information, visit www.sjbiocenter.com.

Californians Establish Life Science Alliance

Tim Johnson — Fri, 27 Jun 2008 19:09:08 GMT

                                               BayBio, BIOCOM and SoCalBio
                                   Establish the California Life Science Alliance
                     to Promote California’s Leadership in Life Science Innovation

SoCalBio (the Southern California Biomedical Council), BIOCOM and BayBio, which together
represent life science firms and research organizations across California, today announced
an alliance to promote the state’s life science industry.

The California Life Science Alliance is based upon a memorandum of understanding signed
at the 2008 BIO International Convention in San Diego. Under the terms of the three-year
agreement, the organizations will pool resources and work together to address a range of
public policy issues.

The new alliance recognizes that California is the birthplace of biotechnology and the
undisputed leader in global biocommerce and innovation. But while the life science industry
is one of the state’s largest employers and economic catalysts, it has not garnered its fair
share of visibility and recognition.

“Citizens and elected officials tend to understate our industry’s vast contribution to
California’s economy and society as a whole,” said Joe Panetta, president and CEO of
BIOCOM. “By working together as an alliance, we can make sure that our representatives
in Sacramento and Washington D.C., as well as the public at-large, understand that the
life science industry is vital to California’s future.”

With more than 200,000 employees at about 5,000 establishments that generate more
than $70 billion in revenues, California’s life science firms and research organizations
represent nearly half of the world’s biotechnology industry. They employ a large workforce
and generate a financial impact rivaling that of other sectors such as film and television
production which is routinely heralded as one of California’s most important signature industries.

BayBio President and CEO Matt Gardner added ”For too long, California’s biotech industry
hasn’t been recognized for its economic impact, as well as its role in shaping the future of
healthcare. The Alliance announced today will help remedy this problem.”

The alliance will focus on public policy and joint advocacy efforts at the state and federal levels.
The three organizations will also collaborate on life science industry conferences and joint
purchasing group opportunities.

”Regions throughout the world are aggressively trying to lure our biotech firms and the clean,
high-paying jobs that go with them,” said Ahmed Enany President and CEO of SoCalBio, which
represents the life science and medical device industries throughout the greater Los Angeles
area. “Raising the visibility of this vital industry will help Californians understand that California
must work proactively to retain its leadership in biotech innovation and commercialization.”

California is the undisputed world leader in biotechnology, serving as home to industry leaders
such as Amgen, Genentech and Invitrogen. It’s also home to hundreds of smaller biotech, medical
device, diagnostic and scientific service companies, as well as a diverse range of service providers
that help the industry succeed. In addition, California is home to world-renowned research
institutions including UCSF, Stanford, UC Berkeley, UCLA, USC, UCI, Caltech, UC-San Diego, Salk
Institute and the Scripps Research Institution, which serve as life science innovation and talent
centers.

The California Life Science Alliance is open for participation with other regional organizations that
help strengthen the alliance and promote the life science industry throughout California. The
memorandum signed today does not constitute an agreement by any of the entities to provide
financial support for any individual project or activity.

About BayBio
BayBio is Northern California's life sciences association. It supports the life sciences community
through advocacy, enterprise support and the promotion of best practices and research collaboration.
BayBio represents more than 400 members involved in research, development, and commercialization
of life science technologies. Over a third of BayBio members are engaged in developing medical
technologies, diagnostics and research tools. More info about BayBio can be found at www.baybio.org

About BIOCOM
BIOCOM is the largest regional life science association in the world, representing more than 570
member companies in Southern California. The association focuses on initiatives that position the
region's life science industry competitively on the world stage, and on the development and delivery
of innovative products that improve health and quality of life. This includes initiatives in capital
formation, public policy, workforce development, and member services. More info about BIOCOM
can be found at www.biocom.org

About SoCalBio
The Southern California Biomedical Council (SoCalBio or SCBC) is the member-supported trade
association of the life-science industry in Greater Los Angeles. Its mission is to promote biomedical
and life science research, development, manufacturing and overall economic development in the six
counties (Los Angeles, Orange, Ventura, Riverside, San Bernardino and Santa Barbara) that comprise
the greater Los Angeles region. The organization’s programs assist local firms in accessing capital,
potential partners and business support services. They also promote technology transfer and workforce
training. More information about SoCalBio is available at www.socalbio.org.

California Biotech

Tim Johnson — Fri, 27 Jun 2008 18:45:17 GMT

California Cures

California’s life sciences association, today released California Cures, a comprehensive
report examining the unique attributes equired for California to maintain the oldest,
largest and most productive life sciences cluster in the world. According to California
Cures, the state’s ife sciences companies are on the verge of investing close to $50 billion
over the next five years to manufacture 230 treatments in Phase III and create more
than 12,000 jobs per year in the process. The report also cites the State of California’s
lack of a long-term strategy to capture this massive, unprecedented economic opportunity.

The report lays out a roadmap for action by government and industry to ensure
that California’s statewide life sciences industry remains a cornerstone of
economic growth for both the State and the Nation. California Cures makes
specific recommendations in the areas of tax policy, infrastructure, education
and regulatory affairs that will help capture the return on California’s three
decades of investment in life sciences research.

According to Matthew Gardner, president of BayBio, “California has a rich history
of pioneering entrepreneurs who have churned out innovation at an extraordinary
pace. The California life sciences industry epitomizes that entrepreneurial
spirit and is a cornerstone of economic growth for the State and the Nation.
California’s elected officials have an unprecedented opportunity to capture the
economic boon offered by the manufacturing of these 230 new treatments and cement
the life sciences industry as a cornerstone to the state’s future, ensuring
long-term economic prosperity. Our policy makers must provide consistent policy
that encourages innovation, research, entrepreneurship and product manufacturing.”

Highlights of the findings in California Cures include:

In the next five years, 230 new treatments produced by California’s life sciences
companies will complete clinical trials and be poised for manufacturing. The
industry will invest $49.6 billion to manufacture these treatments.
Manufacturing jobs and general employment growth opportunities in life sciences
are high wage and benefit jobs with significant opportunities for career development.
In this current economic downturn, California’s life sciences industry is a bright
spot with robust company formation and 12,000 new jobs created annually. Fully 35
percent of global life sciences work is accomplished in California.

Over the next five to 10 years, the industry forecasts up to $17 billion in annual
investments into research, facilities and jobs to produce 815 treatments, currently
in phase II and phase III, including the 230 on the verge of manufacturing.
The birthplace of biotech and a global center for R&D, California is poised to
be the epicenter for alternative energy biofuels and biomass.

California does not accurately acknowledge the timeline required for developing
biotech products. The state’s current 10-year carry forward provision for net
operating loss (NOLs) deductions assumes that a life sciences company reaches
profitability in three to five years after incorporation, while the average life
sciences firm does so in year 15.
California’s current tax environment discourages homegrown life science companies
from expanding here.

Highlights of BayBio’s recommendations in California Cures include:

Tax Policy
1. Create a 20-year carry forward provision on the treatment of corporate
net operating losses.

2. Create corporate tax incentives for major investments in California.

3. Convert California’s R&D Tax Credit into a tax rebate.

4. Create a health information technology and life science early-stage
investment incentive.

Infrastructure
1. Establish a new California Science & Technology Trust.

2. Incentivize local communities to zone biotech regions in their master
planning documents.

3. Expand allowable uses for the California Infrastructure and Economic
Development Bank.

4. Establish a major economic incentive for bioprocessing and biomanufacturing
investments.

Education
1. Invest $150 million over 10 years in UC-oriented life sciences incubators.

2. Increase state investment in training centers of excellence.

3. Establish a science fellows program to serve the state government.

Regulatory Affairs
1. Establish a harmonization conference between CalEPA and U.S. EPA.

“We stand at a crossroads and California’s leadership position is at stake
with every clinical trial,” Gardner added. “We have the opportunity to decide
whether California will continue to be the world’s headquarters of the life
sciences industry or simply be remembered as its original source. Inaction
now will allow communities in other parts of the world to garner the jobs
and the dividends of manufacturing, as well as downstream investments made
by our industry as a result of California’s investment in life sciences
research over the past three decades. We must be proactive to keep California
biotech competitive in the global economy.”

California Cures is a discussion of the full potential this industry holds,
the economic role it can play for California, and the unlimited possibilities
that abound because of science. For a complimentary copy of the report and
accompanying CD-Rom, which chronicles the great deeds of California biotech.
Pease contact Travis Miller at (650) 871-7101 ext. 207 or travis@baybio.org.

From the BIO World Annual Convention

Tim Johnson — Thu, 19 Jun 2008 16:24:46 GMT

TEAM CALIFORNA AT WORK

TeamCalifornia members are busy at the Biotechnology Industry Organizations
Worldwide Annual Conference in San Diego. And with an attendance of over
22,000 visitors TeamCalifornia members welcome Governor Schwarzenegger
today as he addresses the industry that was born in California just 30 years ago.
Biotechnology companies have what our member cities and counties want -
"It's clean and fuels the economy with a well-educated, well-paid work force", said
Joe Panetta head of BIOCOM the industry trade group for Southern California.
Biotechnology is California's second largest high tech industry and members
like the City of Merced, Riverside County, City of South San Francisco, Cities
of Santa Cruz, Oceanside, San Jose and Dixon want to capture that growth.
"Our members are here to connect with companies that are investing in California
and working to foster biotech clusters in their communities" stated Mike Ammann
President of TeamCalifornia and the Solano County EDC.

The California Pavilion photos you see here is the culmination of a year long effort
to welcome industrial, agricultural and pharmaceutical companies from throughout
the United States, as well as site locators, corporate real estate executives and
scientists. "Biotechnology and related fields have something to offer every regional
area in California and each of our regions should be looking intently at how to become
involved in this leading growth industry", stated Ammann. TeamCalifornia was one
of the four organizers of this Pavilion in cooperation with the State of California Labor
Agency, BIOCOM and BayBIO.

From:
Mary Ingersoll
Executive Director
TeamCalifornia

The California Healthcare Institute released updated information on California’s Biotech Industry.

The Biotech industry is growing with business and research generating $73 billion in revenue in 2006,
up nearly 20 percent from 2005. The state has an educated 2700 firms employing 270,000 workers
with an average salary of $71,300.

Including medical devices and diagnostics firms, the state’s biotech company acquired 40 percent
of the 7.4 billion in biotech venture capital about three times as much as Massachusetts, the state’s
nearest competitor.

Additionally, the National Institute of Health awarded $3.3 billion in grants to researchers statewide,
significantly more than any other state.

Source:
California Business Minute, March 04, 2008