Celebrate Industry and Many SoCal jobs

There are three little words we all like to hear, “Made in America.”  Manufacturing helped grow our nation and build a middle class.  Manufacturing jobs pay good wages.  Manufacturing spurs economic growth and drives innovation. 

Many are quick to think that all manufacturing has left Southern California.  Not true.  While the number of jobs has declined, Los Angeles County still has a significant manufacturing base providing almost 815,000 jobs -8.6 percent of the total workforce. 

The Los Angeles Economic Development Corporation (LAEDC), which tracks employment by sector, reports “LA County has more manufacturing employment than any other county in the nation.  We have a diverse set of manufacturing industries here that don’t receive enough publicity and support.”

These companies sell products around the world which brings money here and creates wealth for the entire region.

The San Gabriel Valley - where I live and work - is the proud home of 58,900 manufacturing jobs.  In fact in the last 10 years several highly specialized advanced manufacturing sub-sectors have added jobs in the SGV - primarily those involved in making the parts, components, resins, and fibers for the aerospace industry and pharmaceutical and medical manufacturing serving the burgeoning healthcare industry. 

Tomorrow, October 2, 2015, is National Manufacturing Day.  You might wonder why we need a day to celebrate manufacturing.  There are lots of good reasons.

First, it is needed to set the record straight.  Manufacturing is not dead.  It is an important part of our economy and the infrastructure required to support manufacturing exists here in abundance - our ports, freeways, utilities, and workforce.

Second - LAEDC is right. These important companies don’t get enough publicity and support.  We want these companies to stay here and to grow here.  We should let them know they are appreciated.

Finally, manufacturing offers opportunities for future employment.  Manufacturing Day provides a good opportunity to get students thinking about careers in manufacturing.

Manufacturing companies, colleges, and universities are all pitching in to share the good news and cheer on manufacturing.  There are almost 2,000 events planned across the nation.  A quick visit to LAEDC’s website provides a list of the events planned closer to home.

One other top manufacturing sector in LA County is food manufacturing.  The SGV is adding jobs in this sector especially related to specialty sauces.  How about celebrating manufacturing by touring Huy Fong Foods to see how their famous Rooster Sriracha sauce is made?  It is chili picking season and the best time to pay a visit.  Sign up for Saturday tours on their website at Huy Fong Foods, Inc. www.huyfong.com

Happy Manufacturing Day however you decide to celebrate it.

CEQA Suits Block Housing, Transit

Housing has always been expensive in California. It is understandable since the state is a great place to live. Housing is in high demand. 

Buying a house has been out of the reach for many families for a long time.  California has the second lowest ownership rate in the country.  In the greater Southern California region, which includes Los Angeles, Orange, Riverside, San Bernardino and Ventura counties, approximately 48 percent of the housing stock comprises rental units according to the U.S. Census Bureau.

However, today, even the rental market is also becoming unaffordable.  A recent study by the California Housing Partners Corporation and Harvard University concluded, “The rental market in Southern California is the least-affordable it has ever been.”  One in five Southern California renters spends more than half their monthly incomes on rent.

The major cause of the housing crisis is lack of supply.  With more people and more demand economics tells us the market should increase the supply of housing.  But that is happening very slowly. 

A report by the nonpartisan California Legislative Analyst’s Office says the cause of California’s high prices is the California’s Environmental Quality Act (CEQA). 

Holland & Knight, a California law firm, recently released their study of over 600 CEQA lawsuits from 2010 to 2012.  What they found is that the most frequently targeted projects for CEQA litigation are residential projects (21 percent).  Forty-five percent of the projects challenged were multi-family (apartments and condominiums) and many of these projects included affordable housing.

Of course, just because a residential project is multi-family doesn’t mean it will not have environmental impacts. Projects proposed for wetlands or in sensitive natural areas should be scrutinized for environmental impacts.  Proposed projects located in undisturbed greenfields or where there is lack of infrastructure such as water, power, roads and public transit, should receive detailed environmental reviews. 

But the report also found that 80 percent of the projects sued under CEQA - not just housing but also parks, schools, commercial, retail and industrial projects - were in-fill projects.  They were proposed to be built in areas that had infrastructure in place and were already urban places.

Half of the CEQA lawsuits were filed against public projects.  The most frequent were against public transit projects.   A CEQA lawsuit delayed San Francisco’s plan to expand bicycle lanes for five years increasing the cost by millions of dollars of taxpayer money.  Student housing near USC, that was specifically designed to reduce impacts on adjacent neighborhoods, was tied up in the courts for years by a CEQA challenge.

These findings run counter to our perception of CEQA.  It is easy to see through the thinly veiled “environmental protection” arguments of so many CEQA cases and recognize them for what they are – efforts by business competitors, NIMBY’s, labor unions, and people just fearful of change – to use the law to thwart change or damage opponents. CEQA was never intended for such uses It is unfortunately easy to see how much damage is being caused in California under the banner of environmental protection.

Kaiser Polls Highlight National Drug Costs

Kaiser Permanente is well known for its excellent health care services.  The Kaiser Permanente Baldwin Park Medical Center recently received several awards including the American Heart Association and American Stroke Association’s Gold Plus Quality Achievement Award, a ranking in U.S. News & World Report as one of the Best Hospitals, and 2015 Women’s Choice Award as one of American’s Best Breast Centers. 

All 14 of Kaiser Permanente’s Southern California Hospitals received an “A” from the Leapfrog Group - a national non-profit watchdog organization.

This year Kaiser celebrates 70 years of excellent care, clinical research and community support.   Seventy years ago a young surgeon, Dr. Sidney Garfield, saw that the workers on the Colorado River Aqueduct Project needed medical services.  His 12-bed Mojave Desert hospital would not turn anyone away but cash flow was a problem - insurance companies were often slow to pay - and many workers had no insurance. 

An insurance agency associate suggested the insurance company pay Garfield’s hospital a fixed per day, per worker amount solving the cash flow problem and offering the workers an affordable insurance plan.  The “prepaid” system was born. 

A few years later Dr. Garfield partnered with Henry Kaiser, creator of the Kaiser Shipbuilding Company, to expand services to construction, shipyard and steel mill workers.  In 1945 the program was opened to the public.  Today Kaiser Permanente serves 10 million members.

Kaiser is also a leader in researching and addressing national healthcare issues in order to improve the healthcare system.  Kaiser conducts frequent nationwide polls of people over the age of 18 to provide information about a variety of health issues. The August 2015 poll covered one of the most pressing issues effecting American healthcare costs - prescription drugs.

Research and development along with FDA approval of new prescription drugs is expensive.  Drug companies deserve to make a fair return on their work.  Kaiser’s poll showed that while 62 percent of adults believe that prescription drugs make people’s lives better, 72 percent believe that the cost of prescription drugs is unreasonable.  To lower the cost, respondents preferred market place competition (51 percent) rather than government regulations (40 percent). 

Specific policies, such as requiring drug companies to release information to the public on how they set their drug prices, was overwhelming supported by 86 percent of respondents.

With federal legislative action unlikely, California is considering AB 463 (Chiu - San Francisco) which would require price reporting for any drug or treatments that cost more than $10,000.  The annual report would include breakdowns for research & development, clinical trials, manufacturing, marketing & advertising, and profits.

Getting this legislation passed won’t be easy.  Drug companies are fighting passage of AB 463.  Last year they contributed $2 million to California state campaigns and $14.8 million to federal campaigns. 

Happy anniversary Kaiser and thanks for helping us understand these important healthcare issues.

Where did the current term ‘bug’ come from?

Bugs - those little things that fly around your head and crawl up your leg - have a bad reputation.   If we are bugged, it means that either someone is annoying us or listening without our permission.  And if you have suffered from a computer bug, which most computer owners have, you know that bugs are not only annoying but can be very expensive.

How is it that we associate computer problems with a bug?  There are several theories but most trace back to Thomas Edison and the telegraph.  He was just 26 years old when he began his work on sending messages by wire in two directions by changing the direction of the current. 

But he had a problem with a false break when the current switched.  His solution was to isolate the unwanted break into a “bug trap.” 

Edison continued to expand the use of the word bug to describe problems that needed attention.  Bug appears frequently in his notes on incandescent lighting, “Awful lot of bugs still.” In 1878 He defined the word in a communication to his employee, Theodore Paskas, “This thing gives out and then that ‘Bug’ - as such little faults and difficulties are called - show themselves, and months of anxious watching, study and labor are requisite before commercial success - or failure - is certainly reached.”

By 1892 the terms “bug” and “bug trap” had spread widely in the engineering community and were included in Thomas Sloane’s “Standard Electrical Dictionary.”   A  “bug” was defined as “any fault or trouble” and a “bug trap” as “any connection or arrangement for overcoming said bug.”

On September 9, 1947 there was a more literal manifestation of the idea of a computer bug.   A computer programmer, Navy Commander Grace Murray Hopper, was working on the Harvard Mark II electromechanical computer.

The computer wasn’t working properly so technicians began digging around in the machine to find the cause.  Low and behold they found a moth - yes a real live, well actually dead, moth - between panel F and relay # 70.  If you know where that is you know a lot more about computers than most of us.

The moth was retrieved and taped into the log book with the citation, presumably from the Commander herself, “First actual case of a bug being found.”   The whereabouts of the moth today are a bit unclear.  Some accounts say it is in the Naval Surface Warfare Center Computer Museum in Virginia.  Others say it is kept at the History of American Technology which is a part of the Smithsonian National Museum of American History.

We do know that Commander Hopper’s work in computer languages including COBAL earned her the first ever Computer Science Man of the Year Award in 1969 and the National Medal of Technology in 1991.

Thomas Edison may have coined the term “bug” to describe a problem, but it was Grace Hopper who was the first person to actually “debug” a computer.  

Next Wednesday, September 9, is the 68th anniversary of that debugging and a good time to run an anti-virus “debugging” program on your computer.  Also a good time to salute Mr. Edison and Ms. Hopper.  They fixed a lot of bugs for us.

Minimum wage issue stirs mixed reactions

Major cities across the country are discussing the minimum wage.  The City of Los Angeles joined the growing list approving an annual wage increase from the current state minimum of $9.00 per hour to $15.00 per hour effective July 1, 2020. 

The Los Angeles Board of Supervisors adopted a similar proposal for the unincorporated areas of the County but gave small businesses until 2022 to meet the $15.00 per hour minimum.  They also created a task force to recommend a package of initiatives to help small businesses with tax credits, reductions in the cost of permitting or business licenses fees, and streamlined permitting.

While any reasonable person knows that the minimum wage needs to incrementally increase, at least to keep pace with inflation, the current proposals have raised many questions and complexities.  To begin a regional discussion, the San Gabriel Valley Economic Partnership recently held a forum for advocates and opponents of the minimum wage increase to offer their perspectives.

Peter Dreier, E.P. Clapp Distinguished Professor of Politics and Urban & Environmental Policy at Occidental College, described the plight of the working poor.  There are three million people living in poverty in LA County.  This is a drag on the economy.  Professor Dreier believes that increased wages will move people out of poverty.  With additional money to spend, minimum wage could mean increased revenues for local businesses.

Ruben Gonzalez, Senior Vice President of the Los Angeles Area Chamber of Commerce, quoted H.L. Menken in describing the Chamber’s perspective on minimum wage - “For every complex problem there is a clear, simple and wrong answer.”  Calling minimum wage increases the politically easy answer; he believes the way to move people out of poverty lies in education and training.  

Michael Hawkins, Founding Partner of Green Street Restaurant in Pasadena, asked elected officials to remember that decisions made by governments have real life impacts on people.  He gave a real life example.  Based on his existing staffing level, his payroll, income tax and worker’s compensation tax would increase by just over $1 million if the minimum wage rises to $15.00 in 2020.  That doesn’t take into account increasing costs he may experience from suppliers who have minimum wage impacts on their bottom lines.  He doesn’t see how his revenues can keep-up even if he increases prices. That could mean fewer jobs, reduced benefits, or even closing the restaurant.

Dr. Mark Maier, Professor of Economics at Glendale Community College, supports increasing the minimum wage but believes that it needs to be at a regional level.  While the panelists didn’t agree on many things, everyone admitted it is a big problem having a patchwork of minimum wage rates across an economic region.  It’s disruptive to competition and confusing to employers, employees and consumers alike.

Some audience members were concerned about the impact on non-profits.  Non-profits can’t raise prices.  Fundraising is difficult especially for existing services.  Many believe reducing services to clients could be the only option.

Warren Buffet recently penned an article in the Wall Street Journal saying that the best means to provide a livable income for those working below the poverty line is to expand the federal Earned Income Tax Credit.  He argues it could provide everyone willing to work an income that provides a decent standard of living without distorting the market system.

Are current proposals to raise minimum wages 66 percent over five years too much too fast?  Is it a necessary moral response to wage stagnation and economic inequality? Will it reduce poverty or reduce jobs?  Will it hurt the economy or help the economy? Are there better ways to reach the same goal?  Difficult questions.  Few answers.

Groundwater management needed during a drought

Managing water in California is no small task.  State legislators took a major step with the enactment of the 2014 Sustainable Groundwater Management Act. Prior to this Act, there were no comprehensive regulations governing groundwater in California.  Individual court decisions provided the only governing rules.

While much of the public attention related to water supply has been focused on the depth of the snow cap and the conditions on the Colorado River, local groundwater typically provides approximately 38 percent of the state’s water.  The State Department of Water Resources has identified 515 alluvial groundwater basins and sub-basins which provide this important water source.

The courts have adjudicated 22 of these basins - 20 in Southern California.  Where there are multiple users and development or other pressures have threatened to overwhelm the limits of the water supply in the basin, courts have been asked to establish rules determining the pumping rights of each user.

Adjudication takes years, even decades, as court must unravel established practices and water rights.  After adjudication, the court usually appoints a water master to make sure that going forward the court imposed limits are adhered to by all users having rights in the basin.

In non-adjudicated basins, the courts have upheld landowners “overlaying rights” – the right to extract and use water from the groundwater basin beneath their lands - as long as the water is used only on the land directly above the basin.  Of course, not everyone owns land over a basin but may still have a right to pump water.  So-called “appropriative rights” allow these owners to pump water for use on land not located above the basin or sell it to other customers.

But it isn’t just where your land is, it is also when you can show a chain of title to the land. Riparian rights - land abutting a waterway - that are pre-1914 are senior rights. 

This all works fine when there is plenty of water but when there is a drought, things quickly become complicated.   Disputes trudge through the courts.  Holders of “overlaying rights” and “senior rights” generally win leaving “appropriative rights” and later rights holders and their water uses high and dry. 

During the drought groundwater pumping around the state has increased to an unprecedented level with devastating results.  In some areas over pumping has caused land to sink at an alarming rate - as much as one foot per year. This is an irreversible condition.  The inequities of the current system were apparent.  The need for better groundwater management was clear. 

The new regulations require that non-adjudicated basins form local “groundwater sustainability agencies” (GSA).  Each GSA must measure how much water is being pumped in its basin, estimate future demands, and develop a plan that protects the basin from over-pumping.  If the basin is in a critical condition because of over-pumping, a plan must be completed within five to seven years.  If the basin is not endangered, a GSA may be given up to twenty years to complete its plan. If a plan is not completed on schedule, the state may intervene to impose its own plan.

Every person and business needs water.  Until the Legislature acted, California was one of the few western states that did not have a comprehensive statutory framework for groundwater management.  There remains much more to do and additional legislation will be needed as the plans are developed but this is a great first step to protect California’s future water supplies.

Business launch can be aided by crowdfunding

Have a great idea for a new product? Maybe you figured out how to make a cheaper phone or tastier pizza or even a better mousetrap. Perhaps you have a new service in mind that you are sure everyone is going to want to buy.

There are a lot of things you need to pull together before you start - a business plan, customer analysis, production and capacity contingencies - and don’t forget money.  You are going to need some money. 

Often traditional funding institutions aren’t as excited as a new entrepreneur is about that great idea. So many entrepreneurs are shifting the task of raising capital into their own hands by utilizing crowdfunding. 

Crowdfunding involves raising funds directly from a large number of people - friends, family and strangers - then using the money to launch your business. The internet is the preferred means for contacting the potential funding sources and telling them about your new project.

If you think this must just be for small players or is a passing fad, think again. According to the 2015 Crowdfunding Industry Report prepared by Crowdsourcing.org, a professional industry organization serving crowdsourcing and crowdfunding entities, crowdfunding “experienced accelerated growth in 2013, expanding by 167 percent to reach $16.2 billion raised, up from $6.1 billion in 2013.  In 2015 the industry is set to more than double once again.”

Crowdfunding can be structured in different ways. The vast majority - over 68 percent - is debt based, in other words, receiving a loan that you have to repay. But crowdfunding can also be reward-based with investors not expecting to be repaid directly but instead opting to be the first to receive your new product or service.

In 2012 the passage of the Jumpstart our Business Startups (JOBS) Act opened the door for equity participation allowing crowdfunders to become shareholders in your company.

You need to consider all your options before jumping on the crowdfunding bandwagon.  If your project doesn’t attract investors or customers, it is unlikely that you can later turn to traditional funding sources.  Banks and venture capitalist (VC) will be leery of the marketability of your great idea if crowdfunding fails.

On the plus side, if you attract a lot of interest with early crowdfunding, it will serve as validation of your idea when you need more capital from a bank or VC.

Reward based crowdfunding may sound like the best option. You get to keep all the equity in your company and the crowd funders share the risk. Crowdfunding can have tax implications. You are receiving income that may be taxable. Laws vary state by state so do your homework before starting out and taking any money.

The Small Business Development Center (SBDC) cautions that “no one like to be the first to a party.” Contributors will be hesitant to commit their dollars until you have reached about 30 percent of your stated goal. That means finding other sources up front - friends, family and selling the second car may all be part of the funding plan.

Don’t confuse crowdfunding with pennies from heaven. It is hard work. Don’t expect to do this in your spare time. You are introducing your idea to your future funders, customers, and competitors. Crowdfunding is a full-time commitment.

With the right plan and preparation, crowdfunding just may be the answer to funding your dream.

California Roads and Bridges are Hurting

California has the worst roads in the nation. The Road Information Program (TRIP), a national transportation research group, released a study in July on pavement conditions in large and mid-size urban areas ranking 25 of each size area which have the worst roads.

First on the large urban area list is San Francisco-Oakland with 74 percent of the roads in poor condition.  A close second is Los Angeles-Long Beach-Santa Ana with 73 percent of the roads in poor condition.  San Jose is 4th (53%), Riverside-San Bernardino 14th (46%) and Sacramento 24th (42%).  Six California cities - Antioch, Santa Rose, Temecula, Hemet, Stockton, Modesto and Oxnard - made the list of 25 mid-size urban areas with poor roads. 

And it’s not just roads.  Transportation for America ranks California as being the 18th worst state for bridge repairs.  Of the 24,542 bridges that are elements of California’s roads and highways, 12.8 percent or over 3,000 bridges are structurally deficient. 

So it is pretty clear we have a problem. Caltrans estimates the state has a $59 billion backlog while cities and counties have an additional $78 billion maintenance backlog..

If all these numbers only bore you, the collapse of the bridge on Interstate 10 near the Arizona border during a rain storm should serve as a wakeup call.  Bridges should not fall down because of rain storms.

You may wonder how we got in this predicament.  There are many reasons.  During a recession the politically easiest way to cut down spending is by deferring maintenance and repair so the transportation system went wanting.  Gas tax revenues - the traditional funding source for roads and bridges - are shrinking due to fuel efficient and alternative fuel vehicles.  And transportation funds have been diverted for other purposes.

As soon as the current state budget was passed, which didn’t include any new funding for road or bridge repairs, the Governor called a special session of the Legislature “To consider and act upon legislation necessary to enact pay-as-you-go, permanent and sustainable funding to adequately and responsibly maintain and repair the state’s transportation and other critical infrastructure…”

That includes finding money without resorting to borrowing. No easy task. The Legislature has not reached an agreement on where to find this funding - some $6 billion per year.  The sources being discussed include both existing ones such as cap-and trade funds and vehicle weight fees and new ones such as increasing the gas tax, diesel fuel tax, vehicle registration fees, vehicle weight fees and a new fee on clean fuel vehicles that don’t pay gas taxes.

The final legislation will most likely include something for everyone to like - the promise of safer, smoother roads - and something for everyone to dislike - new taxes and fees to pay for them.

If we don’t fix our roads and bridges, we will “save” on repair costs. However, poorly maintained highways and bridges raise vehicle maintenance costs, contribute to accidents, and slow down commerce. We “pay” for poorly maintained roads with increased vehicle operating costs, increased insurance costs, and higher prices for goods and services.  You know the lesson: pay me now or pay me later.  

The Art of Good Customer Service

Nordstrom has long been known for its gold standard customer service.  When you are shopping at Nordstrom, a good sales representative makes sure everything revolves around you - what you are looking for and what else you might like.  A few days later you get a personal note from your new BFF thanking you for the purchase and looking forward to your next visit.

Nordstrom isn’t the only store with a reputation for customer service - the Ritz Carlton Hotel, Whole Foods, and Trader Joe’s are just a few of the well-known companies known for great customer service. 

A more recent entry into the excellent customer service arena is Apple with their Genius Bar - the cadres of high tech geniuses who will remove the evil spirits from your Mac or iPhone without making you feel stupid in the process.

Great customer service creates brand loyalty.   When it is a great experience, you’ll return and buy again. You feel good. You are pleased with your selection. However, there is a lot more than soft and fuzzy feelings motivating great customer service. 

A great customer service representative will help you make decisions - decisions to buy things. You won’t notice.  You’ll think you made that decision on your own.  But while you are focused on the product, the store representative is focused on you. 

They are watching for hints about what is holding you back from saying “Yes” to the deal and  then relating that information to their sales approach. Your attitude, your expressions, and even your body language are all providing information about what is standing between you and the “cha-ching.”

If you hesitate about a new outfit, you might hear, “I bought that same skirt last month and wasn’t sure where I would wear it either but I found it can be the right outfit for almost any occasion.”   You express reluctance about learning something new and the techie might say, “I don’t like to change systems either but when I had to upgrade I found it was easy to install and the computer ran faster.” 

The scientific theory about what is going on is called Emotional Intelligence Competencies or EI Competencies.   First studied in 1998 by Daniel Goldman, EI Competency skills relate to both intra-personal awareness skills and inter-personal social skills.  The better you are at being aware of your own emotional state, controlling your emotions, and using your emotions to motivate your behavior, the better you will be at empathizing with others and building positive relationships.

Often a sales representative will offer you three choices.  Just a coincidence?  No – that too is based on research. It is easier for humans to choose between three products than it is to choose between two.  Too many options overwhelm but three are just right - and mostly likely the choice will be neither the premium nor the least expensive options but the value option in the middle.

Knowing that customer service is based on reading you may sound intrusive or manipulative.   But it shouldn’t.  Yes, the goal is to make a sale - but to make a sale that you are happy with and that makes you feel good.  And if you later decide it wasn’t a good purchase - no problem - good customer service means easy returns with no questions asked.

Study examines mindset of entrepreneurs

We all marvel at the innovation and creativity of young entrepreneurs.  Some people seem to be born with the entrepreneurial spirit - destined for careers of purpose and accomplishment.

Two renowned institutions decided to study the development of entrepreneurs and the qualities that spur their drive.  The Institute for Applied Research in Youth Development at Tufts University and the Stanford Center on Adolescence jointly developed a longitudinal study to identify the "cognitive, motivational, behavioral and ecological" characteristics of adolescents and young adults who display entrepreneurial purpose. 

The Young Entrepreneurs Study (YES) was in part funded by the John Templeton Foundation. 

If YES could identify the attributes of entrepreneurship and determine if those attributes were inherited or could be taught, the findings might have profound impacts on teachers, parents, employers and even on individuals themselves who wanted to prepare themselves for entrepreneurial careers.

Beginning in June 2011 YES tracked over 4,000 participants between the ages of 18 and 24 for three years.  The group represented a wide range of ethnic groups; 60 percent were females and 40 percent males; 16 percent were foreign born and 84 percent were U.S. born.

There were four areas where young people who were engaged in entrepreneurial activities exhibited markedly different traits.  They were twice as likely to have"business sense" - always on the lookout for investment opportunities and understanding the tax implications of financial decisions.  Many had started a business on their own as children mowing lawns or shoveling snow in the neighborhood.

Perseverance and initiative were also important.  Whether it was organizing others around a cause, reworking businesses plans until the winning model was developed, or overcoming challenges, once the goal was established setbacks didn't stop them. 

Over 76 percent of those identified as aspiring entrepreneurs demonstrated innovative thinking skills. They found new ways to do things rather than follow the beaten path.

The other major difference was in the availability of mentors and role models - 45 percent of the aspiring entrepreneurs had a family history or someone close who had started a business. 

Entrepreneurship comes with high risk and high reward.  Having these skills doesn't guarantee financial success.  However, for those who want to chase the golden ring, it can mean a lifetime of fulfillment.

Equally important, the researchers determined that these are skills can be learned.  Parents, teachers, friends and family can encourage young people to start businesses, become financially aware, spend time with entrepreneurial adults, and above all try, try again.

Creative Economy Packs a Big Punch

Are you the innovative, creative type?  Maybe you teach music or design software.  Perhaps you sketch new fashion ideas.  Maybe your love is architecture or interior design.  If so you are part of the creative economy, Southern California is the right place for you.

Traditionally we think about economic impact in terms of well-defined economic sectors such as manufacturing, healthcare, and financial services.  We count how many jobs and establishments are in each sector.  We compute their economic output in terms of GDP, wages, and tax revenues. 

All this data paints a picture of the economy - what businesses and jobs are increasing or decreasing - data which policy makers, educators and employers use when making public policy, training, and expansion decisions.

But there are other ways to look at the economy which cut across those defined industry sectors and measure some of the same economic output data based on professional attributes rather than by industry.

A recent report prepared for Otis College of Art and Design by the Los Angeles County Economic Development Corporation (LAEDC) did just that.  It asked, “What is the economic output of Southern California’s Creative Economy?”  

The word “creative” immediately brings to mind Hollywood and the entertainment business.   After all, Southern California is the entertainment capital of the world and, as would be expected, the entertainment industry is the largest employer in the creative economy.

But creativity is a critical aspect of many industries.  The Otis Report looked at entertainment and all the other “businesses and individuals involved in producing cultural, artistic and design goods or services.”  In the Los Angeles region those business and professions deliver a hefty economic return. 

The total gross regional impact of the Creative Economy in Los Angeles and Orange Counties is $766 billion. Creative businesses directly employ 406,600 people with a total payroll of $33.5 billion. 

When you add in the indirect jobs (people employed by the sector’s suppliers and vendors) and the induced jobs (jobs supported by employees’ spending) the total impact is 695,100 jobs - five percent of California’s wage and salary employment.

In Los Angeles County alone creative economy businesses have a combined payroll of $30.4 billion of which 45 percent or $13.7 billion is derived from the132, 700 direct employees of the entertainment industry.  Visual & Preforming Arts and Fashion are also significant contributors.

Over $5 billion in property, state and local income and sales taxes are generated by creative businesses in Los Angeles County.

California leads the nation in creative businesses and jobs.  Southern California claims 40 percent of the total creative jobs in California and Los Angeles County is home to 87 percent of the creative jobs in Southern California. 

That’s great news.  But these are the jobs every state and region wants to attract.  Other regions and states are looking to entice the creative, innovative talent who reside here. Our public policy, training and economic decisions must consider how they will impact the Creative Economy so it will continue to grow and thrive here.

Home cost increases curbing ownership

The American dream has always included owning a home.  A place you can paint your favorite color, hang a picture, adopt a pet, and best of all know your monthly payment is buying something for you.  There is a feeling of independence and stability when you become a homeowner. 

Since demand is high, there should be a lot of housing available that aspiring owners can buy.  Isn't that what we learned in Econ 101?  Markets respond to demand.  But when it comes to housing that isn't the case - and the reasons - well, it's complicated.

California's homeownership rate hit a high in 2006 of 60.2 percent.  Since the recession it has plummeted to 54.2 percent - almost 10 percentage points lower than the U.S. average of 63.9 percent. 

Pre-2005 ownership increases were to a great extent based on loose lending standards.  The memories are still vivid - a housing bubble that burst resulting in the worst recession in 50 years.  Now officials fear that lending constraints may have gone too far making it impossible for families to meet even minimum loan requirements. 

California's housing costs are the second highest in the country - roughly two and a half times the national average according to Zillow, an on line real estate data base.  In Los Angeles County the median priced single family house is $477,250.  To purchase this home and not pay more than the recommended 33 percent of income, a family needs to make $119,257 per year - far above the average Los Angeles County income of $54,.954.

There are many things driving up the cost of housing.  A recent study by the California Legislative Analyst found that the California Environmental Quality Act (CEQA) was a major reason for high housing costs.  The report stated that the CEQA and entitlement permitting process for a housing project takes local governments about two and a half years to complete. After the project is approved, there are frequently more delays for legal challenges.  All this time, costs add up and are eventually added to the purchase price.

Home loan approvals take into account what new owners will pay in property taxes.   Under the 1978 Prop 13 rules, residential property taxes are capped at one percent of assessed value indexed at two percent per year.  According to the Association of Realtors, a median housing in California costed $70,890 in 1978.  Today that house costs $449,700.  A seller who owned the house prior to the passage of Prop 13 is paying around $1,475 per year in taxes.  Property taxes for the new owner would be over $4,400.

Local zoning rules limit the number of units that can be built.  The rules are usually meant to protect current residents from added traffic congestion and other impacts of new development.  The unintended consequences are that housing projects are either downsized or moved further outside the urban core adding either higher unit costs or transportation costs for the buyer.

A recent Los Angeles County Economic Development Corporation (LAEDC) Business Scan showed 399 new single family housing permits were issued in Los Angeles County in March.  Year to date single family housing permits are slightly below last year's numbers.  But there were 1,631 permits issued in March for multi-family housing, an increase of 153.4 percent year to date.  That's good news.  In the end, no matter how we do it, the solution is more supply.

Drought reversal could bring flooding

According to a recent Public Policy Institute of California (PPIC) statewide survey, two-thirds of Californians consider the drought to be the most critical issue facing the state.  That’s why the news about a 2015 El Nino is so welcomed. This summer will be dry but meteorologists say there is a 90 percent chance of an El Nino in the fall and an 85 percent chance of it lasting through the winter.

El Nino predictions are based on warming Pacific Ocean waters off the west coast of South America near the equator.  An El Nino can alter the location of the jet stream resulting in more Pacific storms and rain.

When it comes to wishing for a strong El Nino, the PPIC blog also reminds us to be careful what we ask for - droughts often end with floods.

The most recent example is Texas - August 2010 to July 2011 was the driest year ever for the state.  Coupled with unprecedented heat, the state experienced wildfires and billions of dollars of economic losses.  Farmers and ranchers felt the most pain with an estimated $7.62 billion loss of crops and livestock.

This year the drought ended and the floods began.  May 2015 was the wettest month ever in Texas with an average of 8.81 inches across the state.  Some communities experienced over five inches of rain in a single day.

In August 2011, 93 percent of the state of Oklahoma was in an extreme to exceptional drought condition.  The Dust Bowl reappeared -- soil was hurled into the air by 60+ mile per hour winds creating clouds so thick cars were forced off highways.

In 2015 the rains returned averaging 14.4 inches across the Sooner state.  Instead of being forced off the roads, cars floated away. 

Australia is one of the driest continents on earth so drought conditions are not unusual.  Still nothing had prepared the Aussies for the almost decade long “Big Dry” - the worst drought ever.  Then in late 2010 and early 2011 the drought ended when torrential rains fell over Northeastern Australia causing one of the worst natural disasters the country ever experienced.

Does this mean we don’t want the rain?  Definitely not - we do want rain.   But strange as it may seem as we carry buckets of shower water to our potted plants, it might be a good idea to do some thinking about being prepared for when the rains return. 

Maybe you think your home or business is safe because you aren’t in a low lying area but think again.  According to FEMA, floods can happen anywhere.

Flash floods can occur quickly carrying rocks and debris in surging water.  Now is the time to assembly an emergency kit ready in case a quick evacuation becomes necessary.

Most insurance policies don’t cover floods.  Now is a good time to check your business and home policies and consider purchasing a flood insurance policy if you aren’t covered.  If you are in a special flood hazard zone you need to get National Flood Insurance.  Check the Flood Map Service Center at msc.fema.gov to find out. 

A few preparations now might lessen the impacts on your purse and your stress level when the rain returns. 

Most think Prop. 13 remains a good thing

The California Business Roundtable recently conducted a statewide survey of likely voters in the 2016 election.  They were trying to find out if voters still supported Prop 13, the 1978 constitutional amendment that caps property taxes until there is a transfer of title.  There are several proposals flying around Sacramento for amending Prop 13 especially regarding taxes on commercial and industrial properties.

As a backdrop to the Prop 13 findings, there are some other interesting results.  When asked if the state was on the right track or the wrong track, 54.9 percent said the wrong track with 45.1 percent saying right track. 

As one might expect, Democrats are feeling better with 70.5 percent saying the state is on the right track while 83.4 percent of the Republicans believed it is the wrong track.  The Independents sided with the Republicans - 62.8 percent said wrong track compared to just 37.2 percent believing things are going well.

The answer to the question of what is the biggest issue facing the state currently is no surprise - the drought - 60 percent of respondents agree.  The next highest issue - lack of leadership claimed a mere seven percent followed by jobs and the economy at six percent.

When it comes to where government should spend more, assuring a long-term adequate supply of water tops the list followed closely by fixing roads and bridges.  Programs on which the respondents thought the state was spending the right amounts included long-term debt reduction, social services and investments in addressing climate change. 

Democrats, Republicans and Independents all agreed there is one program that is getting too much money - prisons and the correctional system.

Surprisingly, 62.8 percent of respondents said that California is still in a recession.  Every day there is more good news about the economy, more jobs, and more people back to work.  But it doesn’t seem to be “trickling down” to voters - 52.5 percent of Democrats, 76.7 percent of Republicans and 62.7 percent of Independents say California is not out of the recession.

After 37 years, it is no surprise that only 35.8 percent of the respondents said they are very familiar with Prop 13 while 42.4 percent are somewhat familiar.  One in five said they are not familiar at all with the proposition.  

Yet, while the details may not be well known, 60.7 percent say Prop 13 is a good thing while only 20 percent say it is a bad thing for California.  Strong support is true regardless of the party:  Democrats 56.2 percent good, 28.9 percent bad; Republicans 77.9 percent good and 10.3 percent bad; Independents 60.7 percent good and 18.6 percent bad.

If the Proposition were on the ballot today, 65 percent of Democrats, 82.2 percent of Republicans and 72.2 percent of Independents say they would probably support it for combined survey result of 72.3 percent support. 

The results provide policymakers with several take-aways: the economy is still fragile for many people, most voters have no desire to “fix” Prop 13, but they certainly want lawmakers to fix the long term challenge of providing Californians with reliable supplies of water. I hope Sacramento is listening.

Watch out for online security breaches

Lately there is a lot in the news about cyber security.  Millions have been affected by breeches at major companies.  But hackers aren’t just after big companies.   If you have any personal or business information on a computer - and most of us do - you are vulnerable too. 

Marc Beaart, Assistant Head Deputy for the Los Angeles District Attorney’s Head Tech Crimes Division, recently spoke to a group of business executives about cyber threats and steps we should take to keep information safe, or at least safer, in a quickly evolving hacking world.

It helps to know some terminology.  Malware is the overarching term describing malicious software that is intended to disrupt a computer and perform actions without the owner’s permission.  Computer viruses and worms are self-replicating programs that install themselves without permission.  Viruses need another program to act as host while worms are self-contained. Both can corrupt your data or steal your personal information.

Ransomware is used by criminals to lock a computer and then demand payment in return for unlocking it.  The extortion message may look official such as posing as a government agency requiring payment of a fine.  I was surprised to learn that businesses often pay the ransom since it can be cheaper than ridding the computer of the ransomware and disrupting a company’s operations.  But if you do pay, don’t be surprised if the hacker returns for another bite at the apple.

A Trojan horse is a stealthy malware.  It is disguised as a safe program offering to help if you will just hit on the link provided and then give some personal information like an account number or passcode.  Keyloggers record your keystrokes and can then steal sensitive information. And a rootkit infiltrates your operating system so it can hide other malware.

Cyber-attacks can come from an email or by connecting to the internet.  Most photocopy machines now send faxes.  That means they connect to the internet and are susceptible to cyber-attacks.  Any machine that shares data or other files through the internet can be attached whether it is in a lab, a processing facility or an office.

There are things you can do to protect your personal information and your business.  First, understand how hackers can gain access to your information.   Approximately 80 percent of breeches occur from inside an organization.  Sometimes the breech is intentional but more often it is accidental.

Second, carefully review any link before connecting.   If it looks strange or doesn’t match the name of the file or company you are trying to access, don’t use it.  Call the reported sender and ask if the email or link is from them.

Third, free memory sticks are a frequently used method of marketing or sharing data.  They are also an easy way for malware to access your computer.  Never use a memory stick unless you are 100 percent sure of the source.  Free game downloads are another emerging technique for getting into your computer.  If you hit that link for the free game, you may get much more than you expected or wanted

Recently, an advertisement for stylish women’s shoes took over the San Gabriel Valley Economic Partnership’s website.  I received a call from a colleague who was trying to find information about one of our events.  We aren’t sure how long the bogus ad controlled our site.  Remember to check your website regularly. We do so now.

The best protection is a good password.  Memorize it.  Don’t keep it under your computer.  Don’t share it with vendors.  Don’t use words in the dictionary and please don’t use 123456.   Everyone knows that one.

Peer Pressure Affects Teen Educational Decisions

Peer pressure.  Typically it is blamed for bad behavior.  It’s the reason teenagers do things that they really didn’t want to do: it wasn’t their idea - everybody was doing it!

But is peer pressure only an excuse for bad decisions?  There is study that suggests peer pressure effects important education decisions as well.

I am interested in this peer pressure study because it relates to how teens make decisions about education.  The opportunity for financial success is tied to the decisions students make about their education after high school.  The Harvard Graduate School of Education found that by 2018, 33 percent of the workforce will need at least a college degree and 66 percent need technical skills, credentials or an associate degree.  Only one percent will find a job with no training required.

Leonardo Burszryn of UCLA and Robert Jensen of Wharton wanted to find out what factors influenced the decisions of 11th grade students to accept or decline the opportunity to sign up for free SAT prep courses.  You might think that it is parents or teachers who most influence these decisions or the careers these students are considering.

Instead, the researchers discovered that the controlling factor was whether or not their decisions were going to be made public to their peers.

Forms to sign-up for the free courses were provided to students in honor and non-honor classes.  The forms randomly included different instructions.  Some indicated that the students’ choices would remain confidential.  Some forms, however, noted their choices would be made known to other students in the class.

There was no other consultation available.  Students were required to fill out the form and return them during the same class period. 

In the non-honors classes 72 percent of students signed up for the extra study when they were told their decisions would remain confidential.  That dropped to 61 percent when students were told that their classmates would learn about their decisions - an 11 percent drop because their peers would discover they wanted SAT study assistance.

As one might expect, students in honors classes were more likely to sign up for the classes.  There was little difference based on whether the decision was public or private - 93 percent versus 92 percent.

But when the same students who had been offered the study in their honors class were offered the same extra study in their non-honor class, their decisions changed.  When they were in their honors classes there was a higher rate of signing up when they knew their colleagues would learn their choices - 25 percent more signed up.

When they returned to their non-honors classes, however, their decisions about signing up for the SAT assistance changed.   Students who were told their decision were confidential signed up 79 percent of the time. That dropped to 54 percent when told their decisions would be made public to their non-honor classmates.  Same students, same question, but different answers depending on what they perceived as the norm for their peer group at the time.

This is just one study but it speaks volumes about how important positive reinforcement is to teenagers when their make decisions about their education.  And it reminds us that the positive reinforcement from parents and teachers alone - while necessary - isn’t always sufficient. 

Celebrations take note of Asian-Pacific contributions

May is Asian-Pacific American Heritage Month, a federally proclaimed celebration of the contributions of immigrants and American-born residents from Asia and the Pacific Islands and the important role they play in our history, culture and economy.

The idea for an Asian-Pacific American Heritage recognition originated in 1977 with a bill co-sponsored by a bi-costal partnership - Rep. Frank Horton from New York and Rep. Norman Mineta from California.  In 1992 the designation was extended to include the entire month.

May is significant for several reasons.  First, May 10, 1869 is the date a fourteen year old fisherman, Manjiro Nakanohama, arrived in New Bedford, Massachusetts on a whaling boat.  The trip was not intentional.  Manjiro’s fishing boat was caught in a violent storm off of Japan’s coast. 

The crew including Manjiro was rescued from a deserted island 300 miles off Japan’s coast by a whaling boat captained by William Whitfield.   Captain Whitfield adopted the young fisherman and invited him along on their journey.  Today, Manjiro is celebrated in Japan for his influence ending Japan’s centuries of isolation.

May 10, 1869 is also the anniversary of the completion of the transcontinental railroad.  Lack of manpower was a huge problem for the Central Pacific Railroad’s big four - Huntington, Stanford, Crocker and Hopkins - who assumed the responsible for laying the tracks from the Pacific to Promontory Summit. 

It was Charles Crocker who convinced work boss James Strobridge to hire Chinese labors.  At first Strobridge was reluctant, believing that they were too slight in stature to undertake the difficult work.  After hiring 50 labors for a trial period, he had to admit the Chinese were “conscientious, sober and hard workers.”   Within three years 80 percent of the Pacific Central work force was Chinese.

In 2013 the estimated number of U.S. residents who are Asian, Native Hawaiian or other Pacific Islanders was estimated at 20.8 million.  The largest Asian population, 6.1 million, is in California followed by New York at 1.8 million.  The largest Pacific Island population is found in Hawaii, followed by California with almost 366,500.

According to the Minority Business Development Agency of the U.S. Department of Commerce, over 1.5 million U.S. businesses are owned by Asian or Pacific Island residents.  Together they represent spending power in excess of $508.6 billion and have generated 2.8 million jobs.

California has the largest percentage of these businesses with receipts close to $200 billion. Within California, Los Angeles County is home to an estimated 35+ percent of the state’s Asian and Pacific Island businesses with a significant proportion of those located in the San Gabriel Valley.

Sometimes it takes a proclamation like Heritage Month to help us realize that whether as explorers, investors, laborers, or entrepreneurs, the contributions of Asians and Pacific Islanders are invaluable for our state, county, and our communities.  Remember those contributions to California next time you visit a locally owned Asian or Pacific Island business.

U.S. Funding for roads is dwindling

Among many pressing problems, our federal policy makers are struggling with re-authorization of the nation’s surface transportation legislation.  We take for granted that the federal government’s role includes overseeing commerce and the network of roads and highways that carry goods and people.

The federal government’s role in transportation policy has not always been so clear and in fact has evolved significantly over the years.  With the narrow exception of “post roads,” meaning roads that were to access a post office, the U.S. Constitution does not specifically call for a federal role in providing transportation. 

The debate as to whether this language permitted a federal government role in providing other non-post roads began in the 1800’s.  Representatives of western states – which were expanding and building roads – strongly supported federal assistance in funding new transportation.  Not unexpectedly, older parts of the young country opposed such funding.

Instead of providing cash, the government began to authorize federal land grants to states.  States then sold the land using the revenues to support not only roads and bridges but also canals and railroads.  By 1900 the federal government had donated 3.2 million acres of federal lands for road construction; 6.725 million acres for canals and improved river navigation, and 37.8 million acres for railroad improvements.  States had almost full latitude over project selection and oversight.

The 1900’s brought together two strong interest groups pressuring for direct federal funding for local transportation projects – first the bicycle riders and then the newly emerging car owners.  Between 1900 and 1915 automobile ownership in the U.S. increased from 8,000 to over 2 million.  Bicyclists and motorists alike were tired of muddy roads.

These groups effectively represented by the newly formed American Automobile Association, the National Grange, and the American Association of State Highway Officials, successfully lobbied for direct federal funding to match local funding for post roads in 1916. 

By 1921 there were over 10.2 million automobiles and the role of the federal government in surface transportation again came under review including the need for a federal highway system.  Stopping short of a federal highway system, the Federal Highway act of 1921 increased funding available to match state funding (50-50 matching) but limited the funds to a system of federal “aid” highways.  These were to be were “interstate in character.”

By the beginning of the 20th century, populations had shifted with nearly 40 percent of the population living in cities.  Subsequent transportation debates centered on the interests of rural and urban areas as each jockeyed for transportation funding.  In 1944 separate pots of funding were set up for primary highways, secondary highways and feeder routes so both urban and rural interests received protected funding.  The federal government solidified its role in transportation and previous constraints became an issue of the past.

A 41,000 mile National Interstate System was authorized in 1956.  The next 35 years of transportation policy focused on the completion of that system and how to pay for it.  Governors opposed increases in the gas tax. Trucking organizations opposed fees.  A one cent gas tax increase pledged to a dedicated Highway Trust Funds was finally supported by the majority of interest groups.  With the Interstate System came the first national standards for highway design and construction.

The Intermodal Surface Transportation Act of 1991 introduced a new emphasis on bus and light rail projects with a $32 billion appropriation specifically for mass transit.  The population was shifting again and roads alone were not able to move people efficiently in large urban centers. 

Today, two hundred years later, the role of the federal government in transportation is once again the focus of debate about federal transportation policy.  But rather than based on Constitutional issues, it is prompted by dwindling gas tax revenues because of fuel efficient and non-gasoline vehicles.   Unless there is some agreement on new taxes or other revenue sources, states may soon find themselves without a federal funding partner.  And this time don’t expect the federal government to give away land.

Let’s give a cheer for Tax Freedom Day

Is your wallet feeling a little lighter post-April 15?  Everyone dreads tax day.  We hate finding those receipts.  We detest the forms.  No one wants to revisit how they spent their money last year.  But the hardest part is writing that check.  On April 16 you feel like having a party.

While we associate April 15 with taxes, people pay some sort of tax almost every day.  In addition to income taxes there are sales taxes, property taxes, excise taxes, and estate taxes.

Individuals and businesses pay income taxes to the federal government based on wages and other income.  With the exception of Alaska, Florida, Nevada, South Dakota, Texas, Nevada, South Dakota, Texas, Washington and Wyoming, states also collect some form of income tax.

Californians are no strangers to sales taxes.  Individuals pay sales taxes on goods and some services. The sales tax is levied primarily to fund state and local government services.  Businesses collect the tax and submit it to the state.

Business and residents who own property pay property taxes based on the assessed value of the real estate.  The county usually collects the tax.  The process of dividing the tax varies by state.  In California the tax is remitted to the state which divides it among schools, counties and local governments based on a complex formula established by Proposition 13 and its progeny.

Excise taxes are taxes on specific services and products. The tax is included in the price rather than added at time of sale.  Examples include gasoline, tobacco, gambling winnings, and highway use fees paid by truckers.

The estate tax is based on the value of assets to be transferred after death.  In 2015, any estate with gross assets under $5,430,000 is exempt from taxation.  The portion of an estate that exceed this amount is taxed by the federal government.

Benjamin Franklin told us, “Nothing can be said to be certain except death and taxes.”  While we might not enjoy paying taxes, we understand why we pay taxes.  We want highways, parks, schools, emergency services and national defense to name a few benefits. 

However, paying different taxes to different levels of government at different times makes it difficult to understand exactly the total amount of taxes we pay.  The Tax Foundation, a nonpartisan research group, has found a simple way to help taxpayers understand their total tax burden. 

By counting total income, based on the Department of Commerce’s Bureau of Economic Analysis figures, then adding-up every payment to the federal, state or local government that is considered a tax, the Tax Foundation computes how many days a resident needs to work to pay their taxes for the year.  Count that number of days on a calendar and the next day is Tax Freedom Day!  Since state and local taxes vary, the day varies by state.

Californians, our 2015 Tax Freedom Day is May 3, the day we will have earned enough to pay our 2015 taxes. Does California have the latest Tax Freedom day?  No, that honor is reserved for Connecticut (May 13), New Jersey (May 13), and New York (May 8).  The earliest Tax Freedom Days are Mississippi (April 4) and South Dakota (April 8).

No matter how you celebrated April 16, I think May 3 deserves a celebration as well.  That is the day you start working for yourself.