California must invest now in education and infrastructure

By Lenny Mendonca and Doug Henton

(This article first appeared on May 14 in the San Francisco Chronicle.)

This spring, the governor and the Legislature have an opportunity to innovate a different future. Rather than building a new spending base that cannot be sustained, the state needs to invest its unexpected revenue like venture capital — it needs to invest in education and infrastructure projects that can catalyze job creation and reduce poverty. Now is the time to invest in our economic future and ensure the innovation that got us here continues through the next downturn.

To build the sturdy foundation that California requires for a lasting prosperity, we must think about where California needs to invest and how to pay for it. California’s long-term prosperity depends on investments in human capital and infrastructure, as California Forward wrote in its recent “Financing the Future” report.

The governor’s revised state budget, presented Thursday in Sacramento, increases spending for public schools, higher education and tax relief for the working poor. The governor also agreed to work with the Legislature on infrastructure investments. It may slow our state’s economic recovery unless we address deep structural issues, including:

  • Housing affordability — California is short 750,000 housing units, and rent is too high.
  • Infrastructure — An estimated $853 billion investment is needed in transportation, water and K-12 school facilities in the next decade.
  • Research and development spending — As a share of the federal government’s budget, this year’s outlays for R&D will be the lowest since 1968. The Silicon Valley Competitiveness and Innovation Project revealed the startling reality of slower growth in R&D funding in Silicon Valley compared with other regions. In 2013, Silicon Valley universities’ R&D levels actually fell below those of 2004 on an inflation-adjusted basis.

How do we address these concerns? We need:

Leadership by the public and private sectors, including elected officials, university presidents and industry representatives, to commit to our long-term economic future.

Sustained public investment, which will help attract private investment, as well as support from foundations and the federal government.

Sustained support for educational institutions, including research facilities, which will produce a trained workforce and a flow of ideas for commercial development.

Public-private partnerships to develop the necessary workforce, improve and expand infrastructure, and support bringing the resulting products to the market.

The work is under way. Enhanced Infrastructure Financing Districts and increased career technical funding are two “wins” the California Economic Summit already has achieved since it began its work four years ago. The Community College Chancellor’s Office has been traveling around the state to explore how the state’s vast community college system can better develop and import programs to train the 1 million middle-skills workers California needs. The California Council of Science and Technology plans to launch a California Innovation Initiative driven by public and private leaders that will promote investments in our future.

And more can be done.

Let’s let the governor and the Legislature know we can’t miss this opportunity to invest in our future.

Lenny Mendonca is co-chair of California Forward and chair emeritus of the McKinsey Global Institute. Doug Henton is chairman and CEO of Collaborative Economics, a San Mateo-based economic consultancy that worked on the Silicon Valley Competitiveness and Innovation Project for the Silicon Valley Leadership Group and the Silicon Valley Community Foundation.