|Budget Issue:||Establishment of the Governor's Office of Economic Development (GoED)|
|Program:||Governor's Office of Economic Development|
|Finding or Recommendation:||Recommend rejecting the Governor's proposal to create a new economic development office, given that the Legislature should make this decision through the legislative process.|
Prior to 2003, the majority of the state’s economic development programs were housed within the Technology, Trade, and Commerce Agency (TTCA). The 2003-04 Budget Act abolished the agency and state funding for many of its programs designed to encourage economic development. While the state’s adverse fiscal condition precipitated the elimination of the agency, we had long questioned the value and impact of many of the agency’s programs. We found that the state’s economic development efforts assisted a very small portion of targeted industries or businesses. We continue to believe that state involvement is unnecessary in most individual business transactions.
In April 2010, the Governor issued an executive order establishing the Governor’s Office of Economic Development (GoED) within the Governor’s office. The purpose of this office is to support current and prospective California businesses.
In the May Revision, the Governor requests $2.1 million in reimbursement authority in 2010-11 and $4.2 million in 2011-12 and ongoing to support GoED. The request redirects 31 positions from existing state agencies and departments and requires those departments to reimburse the new organization with existing resources so that no new costs are incurred to the state.
Establishing New Agency Should Be Determined Via Legislation. We believe that the creation of a new state organization to provide specific services is an important policy decision that should involve the Legislature. There are currently various policy bills relating to economic development moving through the regular legislative process, including SB 1259 (DeSaulnier), which proposes to create a similar state organization called the Economic Development and Job Creation Agency. As the policy debate is still ongoing, establishing or staffing an office of economic development via this budget request, in our view, is premature.
What Specific Problem Would This New Office Solve? We believe that this proposal is loosely conceived. Because GoED’s mission seems very broad, it is unclear that it would address a well-identified problem, or provide a demonstrable net benefit. Absent this information, the Legislature has no way to determine the effectiveness of the proposed organization. In short, GoED could become just another TTCA.
Some Redirected Positions Appear Unnecessary. This proposal redirects significant resources, including 31 positions, from various departments and agencies within state government in order to fund and staff the new office. Removing these positions and assigning them new roles in the proposed organization could result in services left unprovided in their current departments. To the extent that many of these positions will be completing relatively similar duties in the new organization as they currently perform, this presumably would result in only a minor loss of state services provided. However, we estimate that roughly one-third of the redirected positions will be conducting entirely new workload activities. For example, the proposal redirects the director of the Department of Consumer Affairs and the Chief Deputy Director of the Department of Transportation positions to instead staff the new office. Either these redirected positions are important in their current roles and their redirection would result in work not being performed in their current departments or agencies, or these positions are currently unnecessary and could be eliminated.
We recommend rejection of the Governor’s proposal. As noted above, we believe that significant governmental organization decisions of this type generally should be crafted through the regular legislative process. Also, this particular proposal is loosely conceived and does not provide enough information to justify the new organization.
Finally, we question the decision to redirect the significant level of resources from the various departments and agencies to establish this new organization. To the extent the administration believes some or all of these positions are redundant, the Legislature may wish to consider their elimination.