From the Advocate

By Tara Lynn Gray 

January 2023

Plan for the Worst, Hope For the Best

There are financial experts advising us all to prepare for the worst in the form of continued inflation, recession, and a possible budget deficit. “Financial uncertainty” seems like the go-to forecast…and the safe bet.

I never want to diminish the anxiety that small business-owners carry when faced with uncertainty. My office has a responsibility to acknowledge that, in the current context of high interest rates, it is hard work to obtain a business loan …and the interest rates are scary, presuming you succeed. We must acknowledge that inflation has been eating into margins and that hiring is still a huge challenge. We have to be honest about possible budget deficits.

But here’s the thing: when I dug into the economic research to prepare for this month’s column, I found several reasons to hope for the best.

I am repurposing my quote from last year: “Resilience is still the word of the day.”

Let’s go ahead and make Resilience the word of the century.

California continues to demonstrate its economic resilience, defying all the naysayers. I don’t say this because everything is perfectly accounted for; that would be hubris. However, I say it because California has proven over the past two years just how good we are at both parts of the aphorism: planning for the worst…and hoping for the best. 

So open your browser and Google “recession” if you must…I’m here this month to remind you of some encouraging outcomes of 2022 and some things to look forward to in 2023.

California’s Stubborn Resilience

I know: people are leaving California. (To be precise, 343,230 residents, or 0.88 percent of the total population, moved out of state between July 2021 and July 2022.) Some of these are indeed the super-rich, leaving to hole up in states that don’t make them pay their fair share in taxes. And yet…

• According to Bloomberg, California is poised to overtake Germany as the world’s 4th largest economy, thanks to its performance on GDP growth, companies’ market value, renewable energy and more. According to the U.S. Bureau of Economic Analysis, over the five-year period from 2016 through 2021, real GDP in the U.S. grew at an annual pace of 2.0 percent compared to 3.7 percent in California.
• Since February 2021, California has created 1,650,900 new jobs (16.5 percent of the nation’s total new jobs). By comparison, Texas created 1,174,900 jobs and Florida 842,000 jobs. California has now recovered 99.1 percent of the jobs lost during the February 2020 – April 2020 pandemic-induced recession. In related news, California’s unemployment rate fell to 3.9 percent in September 2022, matching the state’s record-low rate.
• Now let’s talk about investment dollars. According to Pitchbook, California continues to dominate both deal count and VC investment dollars, attracting more than 3,800 deals (32.5 percent of total US deals) and nearly 50 percent of the total capital invested in the U.S. from Q1 – Q3 2022. This is more VC deals than the next 5 states combined (NY, MA, TX, FL, WA) and more VC capital than the next 17 states combined. Silicon Valley by itself brought in $66B+, roughly 34 percent of the U.S. total, and far more than any other state. In this same timeframe, the Los Angeles MSA raked in more venture capital dollars than every state except NY. “Dominate” is just not a strong enough word.
• According to a July 2022 report commissioned by California Manufacturing Technology Consulting, CA’s manufacturing output has exceeded the national rate by 83 percent since the late 1990s. (The headline of the press release about the report was “Surprise! California is Still the Largest Contributor to the U.S. Manufacturing Industry”.)
• From January 2019 through December 2021, California created 569,001 new businesses compared to 313,793 in Florida and 250,170 in Texas, according to the S. Bureau of Labor Statistics. This means that California alone accounted for 16.1 percent of the country’s new business starts in this timeframe.

You want more? I’ve got more…I had to stop myself there.

No one is denying California’s challenges, especially those of us who love and work for the Mom and Pop businesses that are chronically vulnerable to business interruptions, no matter the economic conditions.

Nevertheless, considering everything that has been thrown at us over the past two years, here are some pretty remarkable proof points to highlight.

Budget Investments in Small Business Support and Relief

The Newsom administration has supported these results through large-scale investments over the past two years, while looking ahead all along to a moment when the historic surpluses of the past two years would end.

Quoting from a recent interview with H.D. Palmer, Deputy Director for External Affairs at the California Department of Finance: “In the past in California, when we’ve been in good times, the governors and legislatures have thought, ‘this is going to go on forever and we can continue budgeting.’…The governor was very mindful of that back in May. And he said, let’s be smart about how we deal with this surplus.”

Being smart meant paying down debt, building up budget reserves, reducing pension obligations and using a good chunk of discretionary dollars on one-time spending, for example, investing in the largest small business direct relief program in the country, administered by my Office.

CalOSBA is still working to stand up new grant programs in 2023: $250 million in relief grants for businesses with 26-49 employees that have paid COVID-19 paid sick leave and $75 million in drought relief grants for small farmers.  

Additionally, CalOSBA will launch three brand-new technical assistance programs in 2023: one to help businesses in disadvantaged communities obtain new loan dollars provided by the U.S. Treasury; secondly, to boost the outcomes of employment social enterprise businesses; and a third to increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, and reduce barriers to employee ownership.

The Governor also added an additional $20 million to the Accelerate California program designed to support our continued domination of the innovation space by naming 13 new Inclusive Innovation Hubs and providing, for the first time, an Entrepreneurship Fund to seed the businesses created within them. Thanks to some grants from the U.S. Economic Development Administration, CalOSBA will add new resources to train businesses in preparing for the unexpected through our newly launched Outsmart Disaster program.

Conversely, let us not forget the best 2022 news of all – from the perspective of our office anyway – when the Governor approved permanent funding support for the Technical Assistance Program and upped the budget by $6 million. This means we are better able to support all the newly formed businesses of the past two years to grow and thrive.

Reflecting on the volume of California’s funding in our small business ecosystem, indicates our state leaders have been both substantive and strategic about securing the state’s economic future which means California’s stubborn resilience is not an accident.  So, even in the face of uncertainty, we can be confident in the programs and