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Turning Challenges into Turning Challenges into OpportunitiesOpportunities
2002 State of the State Conference Milken Institute
September 26, 2002
Michael MilkenMichael Milken
California Facts
• 770 miles long
• 250 miles wide
• 840 miles of coastline
• 163,707 square miles (3rd largest state)
• Highest point: 14,494 feet (Mt. Whitney)
• Lowest point: -282 feet (Death Valley)
• 10 National Parks
World’s Largest Economies After the U.S.
1
3
$5T(Gross Domestic Product, 2001)
JapanG
erm.
FranceChinaItalyCanada
Brazil
LA Area
U.K.
Source: Los Angeles County Economic Development Corp.
Cal
Top U.S. States in GDP(US$ Billions)
1. California $1,300
2. New York $ 764
3. Texas $ 732
4. Illinois $ 446
5. Florida $ 441
2000 20012001$$1,418
$ 852
$ 775
$ 483
$ 506
Number of Fortune 500 Companies1986 vs. 2002
Region 1986 2002Northern California 20 30Southern California 18 26Total California 38 56
Leading Universities
1985 1995 2002
New York 80 54 48
California 49 82 90
Investments made in science and technology – from higher education
to industry research and development – are the most critical factors in
deciding the fates of regional economies.
1. Massachusetts 84.902. Colorado 80.583. California 80.374. Maryland 77.86 5. Virginia 73.336. Washington 71.817. New Jersey 69.958. Connecticut 68.589. Utah 68.2610. Minnesota 65.87
Science & Technology Index
Issues Affecting California’s Future
Immigration
Housing/Infrastructure
Economy
Education/Human Capital
Immigrant Magnet States
Ethnic Groups in California(population/thousands)
Mexican 8,731African-American 2,060Chinese 956Filipino 913Vietnamese 429Salvadoran 400Asian Indian 360Korean 332American Indian 317
California's Changing Face
19801980
White Indian/Other Asian HispanicAfrican-American
66.7% 19.2%
7.5% 0.9%
5.7%
57.3% 25.8%
7.0% 0.8%
9.1%
19901990
46.7%32.4%
11.1%
6.4% 3.4%20002000
California’s Changing Faces
6.4% 11.1% 32.4% 46.7%Blacks Asians Hispanics Whites
KeyBelow 12.5%12.5% - 25.0%Above 25.0%
Hispanic Concentration2000
KeyBelow 4.3%4.3% - 10.0%Above 10.0%
Asian Concentration2000
California Latino PopulationProjected Growth
20402030202020102000
30
25
20
15
10
5
Millions of People
Source: California Department of Finance
Latino Spending Power in California
2007200220001990
300
250
200
150
100
50
$US Billions
Source: Selig Center for Economic Growth
Top 10 Homebuyer SurnamesCalifornia
LeeSmithJohnsonGarciaKimRodriguezLopezMartinezBrownGonzalez
1990Garcia NguyenLeeSmithLopezHernandezMartinezRodriguez JohnsonGonzalez
2002
Foreign born 28%
Asian language spoken at home 39%
Spanish spoken at home 29%
California’s Share of US:
Russian Landmass Dominates Mexico
But Mexico’s GDP Exceeds Russia’s
• GDP: $575 B• Population: 101 M
• GDP: $400 B• Population: 145 M
United States
•GDP: $10.2 Trillion•Population: 284 Million
Mexico
• GDP: $618 Billion• Population: 99 Million
Mexico Plus
• GDP: $3.2 Tr.• Population:
172 Million
• GDP: $7.6 Trillion• Population: 202.2 Million
7.6/3.2 = 2.38 times202/172 = 1.2 times
0
5
10
15
20
25
30
35
1960 1970 1980 1990 2000
CaliforniaNew York
California vs. NY Population(Millions of residents)
Median Age in Various Countries40
30
20
10
Gua
tem
ala
Ven
ezu e
la
Mex
i co
Col
ombi
a
Braz
i l
Arg
enti n
a
Chi
l e
Cal
i forn
ia
Uni
t ed
Sta t
es
New
Yor
k St
ate
Spai
n
Ital
y
Japa
n
35.5
23.3
33.636.4
17.8
41.2
2001 GDP per Capita40
30
20
10
Mexico Spain U.S. California
$6,215
$14,621
$35,820
$41,588(W
orld
Ban
k; U
.S. C
omm
erce
Dep
t.)
US$ thousands
Issues Affecting California’s Future
Immigration
Housing/Infrastructure
Economy
Education/Human Capital
Median Home Prices – CA vs. U.S.1980 - 2001
0098969492908886848280
$300
250
200
150
100
50
US$ thousands
CaliforniaUnited States
Lower Monthly Payments Drive New House Sales
0
200
400
600
800
1,000
1,200
75 78 81 84 87 90 93 96 99 02
10%
20%
30%
40%
50%
60%
New House Sales Mortgage Payment to Income Ratio
Share of Monthly Household IncomeSpent on Mortgage Payment
0200989694929088868482
80
70
60
50
40
30
20
Percent
CaliforniaUnited States
Mortgage Rate Stimulates Housing/Infrastructure Sales
California
02010099989796959493929190
900
800
700
600
500
400
300
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
Thousands (SAAR) Percent
Home Sales (L)Conventional Mortgage Rate (R)
Home Ownership
48%67%
Source: US Census 2000
California U.S.
Home builders will have to double their rate of home production each of the next eight years to
meet California’s needs.
-- Fannie Mae
Issues Affecting California’s Future
Immigration
Housing/Infrastructure
Economy
Education/Human Capital
0100999897969594939291
100
80
60
40
20
0
Business Conditions in CaliforniaPercent Who Say Conditions Have Gotten Worse
Business Costs Drive Growth
0
1
2
3
4
5
6
65 75 85 95 105 115 125 135 145
Cost
Gro
wth
CA
SDMT
ND
WYIL MA
NYCTNJ
MI
HI
DEMN
NM
NV
GA
COUT
ID
AZ
Top Issue Facing California Businesses
Percent ofTotal Mentions
Government Involvement 44Economy 21Cost of Living 18Taxes 14Lack of Trained/Educated Workers 10Worker's Comp 6Increase in Wages/Minimum Wage 5Labor Laws 4Environmental Concerns 4Labor Shortage 3
California Chamber of Commerce/2002 Annual Business Climate Survey
How Government Can Help
Percent ofTotal Mentions
Cut/Lower Taxes 26Reduce Regulations 17Reduce Worker's Comp 10Health Care/ Insurance Cost 8Reduce Energy/Electricity Cost 6Funding Issues 5Leave Business Alone 5Wage Issues 4Pass Laws to Help Small Businesses 4Modify Environmental Regulations 3
California Chamber of Commerce/2002 Annual Business Climate Survey
What’s Most Important for CA’s Future
Percentof total
mentions Improve K-12 education 35Reduce state taxes 29
Increase CA's electric energy supply 26
Increase spending to reduce traffic congestion 25
Build more median and average income housing 22
Improve school facilities and construct new ones 21
California Chamber of Commerce/2002 Annual Business Climate Survey
A Market of Stocks, Not a Stock MarketCorinthian College
Corinthian stock price
S&P 500
Federal Funds Outlay For Defense(Includes Prime Contract Awards)
02*010099989796959493
15
10
5
0
-5
-10
-15
Percent Change
* Estimate
California
United States
U.S. Defense Budget vs. National GDPsMexico $618 B/$815Spain $578 B/$645Brazil $503 B/$1,035Russia $400 B/$593Australia $387 B/$393U.S. Defense Budget $348 BArgentina $285 B/$374Indonesia $145 B/$602Venezuela $121 B/$195
U.S. Defense Spending EqualsAll Other Countries Combined800
600
400
200
(Dep
t. of
Def
ense
; CIA
.)
US$ billions
U.S. Dept. ofDefense 2003Budget = $380 B
CIA estimate ofglobal militaryspending = $750 B(includes U.S.)
Issues Affecting California’s Future
Immigration
Housing/Infrastructure
Economy
Education/Human Capital
“The preservation of liberty depends
on the diffusion of knowledge
among the body of a nation.”
-------- John Adams, John Adams, John Adams, John Adams, 1772177217721772
Unskilled vs. Skilled Jobs
1950 2000
60%Unskilled
20%Skilled
65%Skilled
15%Unskilled
California’s Educational Ranking2002
Verbal SAT scores 43
Math SAT scores 27
NationalRank
California’s Higher Education Spending2002
State spending on student aid 24
State spending on higher education 11
NationalRank(per capita basis)
50%of all students entering the California State
University system are not prepared for college math or English.
Education Expenditures Per Student
FLCATXUSAvg.
MIILMA
12
10
8
6
4
US$ Thousands
NY
Education and Wage DisparityLifetime Earnings (age 25-64)
20021992
5
4
3
2
0
US$ Millions
College degree$2.5M
Professional degree$4.4M+
1
High school diploma$1.2M
Source: U.S. Census Bureau
Earning Power of 30-Year-Old ManWith High School Diploma
1974$37,357 1982
$32,334 2002$32,084
2002 Dollars
Milken Institute
Turning Challenges into Turning Challenges into OpportunitiesOpportunities
2002 State of the State Milken Institute
September 26, 2002
Michael MilkenMichael Milken