Northern California Manufacturing Summit Tackles Challenges

March 03, 2016


On February 19th, the "Northern California Manufacturing Summit was held at the Hyatt Regency in Sacramento. The summit was co-hosted by the City of Sacramento, County of Placer, Gerdau, and the Coalition for a Prosperous America, with a long list of other regional businesses and associations as sponsors and partners. The purpose of the summit was to review problems and suggest solutions that will accelerate job creation and new investment in the manufacturing sector in California's capital region.

[Michele Nash-Hoff| March, 02 2016 |Michele Nash-Hoff

On February 19th, the "Northern California Manufacturing Summit was held at the Hyatt Regency in Sacramento. The summit was co-hosted by the City of Sacramento, County of Placer, Gerdau, and the Coalition for a Prosperous America, with a long list of other regional businesses and associations as sponsors and partners. The purpose of the summit was to review problems and suggest solutions that will accelerate job creation and new investment in the manufacturing sector in California's capital region.


Michael Stumo, CEO of the Coalition for a Prosperous America, welcomed attendees and provided an overview of the day's schedule.


Brian O'Shaughnessy, Chairman of Revere Copper Products discussed a "Tax Policy for Manufacturing Competitiveness." He stated, "Since 2000, more than 30% of the manufacturing facilities Revere ships product to in the USA have shutdown as their production moved offshore. It wasn't just the cheap labor offshore, it was the currency manipulation and Value Added Taxes (VATs) that nearly every other country has, but we don't. Currency manipulation worldwide averages almost 40% to the U. S. dollar, and VATs average 17% worldwide.The U. S. relied on tariffs on imports before the income tax was established, and tariffs protected domestic manufacturing and farm production." He pointed out that while tariffs have been reduced as part of the many trade agreements we've signed in the past 30 years, VATs have been allowed because they are border adjustable consumption taxes, imposed on imports and not exports. The effective trade barriers have remained constant because of the VATs being imposed. These consumption taxes have been a factor in increasing our trade deficits with our trading partners, which was $505 billion in 2015. He next presented the potential benefits of a U. S. system of border adjustable consumption taxes as contained in a bill introduced by Senator Cardin, details of which are too complex for this short article.


Next, Michael Stumo presented "An American Trade Strategy: Core Analysis." He said, "Our current trade goals are misleading and wrong: more exports, rather than net exports; more trade, without regard for balance of trade, global supply chains, but not domestic supply chains which increase our prosperity, Lowering Tariff Barriers, without addressing cheating through currency misalignment, increased border taxes, state owned enterprises, etc.; help export supported jobs, but not create net new jobs. America has no strategy to win in terms of being a successful producing and exporting nation, focusing upon domestic supply chains that grow wealth, jobs, innovation and wages. Unilateral trade disarmament makes us losers. We should want to win and not be ashamed of pursuing our national interest."


He pointed out that "free trade is supposed to produce balance and address foreign mercantilism, but our trade policies enable mercantilism...We cut tariffs and opened our markets, but other countries didn't. Instead, they played a new game consisting of rampant global currency devaluation, replacing tariffs with consumption taxes (VATs), subsidizing industries or state-owned enterprises, and establishing industrial policies to favor their domestic supply chains."


He concluded with the recommendation: "Develop and implement a national strategy to win the international competition for good jobs, sustained economic growth and strong domestic supply chains."


The next national speaker was Greg Autry, Adjunct Professor of Entrepreneurship, Marshall School of Business, University of Southern California, and he discussed "National Security Concerns with the Current U.S. Trade Regime." Among the highlights of his presentation was his statement, "An economy that builds only F-35s is unsustainable - productive capacity is what wins real wars. Sophisticated systems require complex supply chains of supporting industries. They require experienced production engineers and experienced machinists." He added that we cannot rely on China to produce what we need for our military and defense systems. "The Atlas V and Orbital Antares both use Russian lower stage engines. Virtually all U. S. military satellites are launched with Russian engines. We should not be relying on Russia's Mr. Putin to launch our satellites and space vehicles and provide us a seat to get to the international space station. "


He pointed out that our technical superiority in military systems will not assure our national security any more than the technical superiority of Nazi Germany's aircraft and tanks did for them. Economic superiority is what matters. The manufacturing industry of the U. S. out produced Germany during WWII and the Soviet Union in the Cold War. We wouldn't be able to do the same for a future war as China has become the shop floor for too many American manufacturers.


Autry stated, "Wall Street's new favorite, Jack Ma, founder of Chinese company Alibaba Group Holding Ltd, is a danger to American interests by the fact that Alibaba overtook Amazon as the world's largest online retailer by market capitalization in 2014. There has been considerable skepticism of Mr. Ma's independence from the Chinese government, and in reality, stockholders really don't own part of Alibaba. It isn't a private company like Amazon. It is a shell company set up in an offshore tax haven, and the real owner behind Alibaba is the Chinese government.


In contrast, he said, "It was the wealth he created at Amazon that enabled founder Jeff Bezos to now lead Blue Origin, which was selected by the United Launch Alliance to finish development of a new engine to replace the Russian made RD-180 rocket engine used by ULA's Atlas 5 rocket."


In conclusion, he warned that China has expanded their claim to territorial waters to include territory claimed by all of its immediate neighbors -- Taiwan, South Korea, Vietnam, Japan, the Philippines,   Japan and even New Zealand and Australia.


After the morning break, I provided a brief overview of California manufacturing. California lost 33.3% of manufacturing jobs between 2000 and 2009 compared to 29.8% nationwide and 25% of its manufacturing companies. California lags in manufacturing job growth at a 2% rate compared to the national 7.6% rate and a GDP growth rate in manufacturing of 11.2% in California compared to a. 22.6% GDP growth in the U. S. as a whole. Mexico, Canada, China, and Japan are the top four export markets for California, and California represents 11% of total U. S. exports.


I highlighted that the greater Sacramento region is comprised of five counties, but most of the manufacturing is concentrated in Sacramento and Placer counties. The Sacramento region has the following advantages over other regions of the state:

  • California's Policy HQ - Home base for federal & state agencies as well as state government.
  • Most affordable of California's major metro areas
  • Talented Workforce - for ALL occupations
  • Two major utilities (PG&E and SMUD) ranked in the top 5 in the U.S. for customer service and implementation of green technologies.
  • UC Davis/Sacramento State/Community Colleges (+170,000 students)
  • Safe from Natural Hazards - mild climate & an area of relative seismic safety.
  • Central location in western U.S. for air, roadway, rail, and waterway transportation.

After my presentation, Trish Kelly, Senior Vice President of Valley Vision presented "Opportunities to Enhance Manufacturing and Local Training Programs," explaining that Valley Vision is a regional civic leadership organization serving 16 counties in Northern California to convene, connect and partner with local and regional leadership and networks to address economic, social and environmental issues that no single group can tackle alone and deliver independent research for evidence-based decision-making and action . The areas of focus are: Next Economy: Regional Prosperity Strategy, Food and Ag - AgPlus (IMCP), Regional Food System Action Plan, Education and Workforce Development: Skills Gap Action Plan, Renewable Energy and Alternative Transportation Systems, and Regional Innovation and Entrepreneurship.


The current project, in partnership with Los Rios Center of Excellence and Burris Service Group and funded by JPMorgan Chase and Co., is the Sacramento Capital Region Cluster Workforce Action Plan to update job growth, occupational data and economic impact for the six key Next Economy industry clusters, Work with employers, education, economic and workforce development partners to identify critical skills and education and training gaps, resources.


The Next Economy Clusters are: Advanced Manufacturing, Agriculture & Food, Clean Energy Technology, Education & Knowledge Creation, Information & Communication Technologies, and Life Sciences & Health Services. After providing some of the details on the advanced manufacturing cluster's needs and resources for training, she explained that the Central Valley AgPlus Food and Beverage Manufacturing Consortium was designated as one of 24 national consortia IMCP (Investing in Manufacturing Communities Partnership) by the Economic Development Administration (EDA) in July 2015. This is a major federal initiative to strengthen and accelerate the growth of U.S. manufacturing and is a collaboration of 11 federal agencies, coordinated by the EDA.


Valley Vision is one of four Co-Lead organizations: - Office of Community and Economic Development, CSU Fresno (overall lead) - San Joaquin Valley, Center for Economic Development, CSU Chico - North Sacramento Valley, Tuolumne County Economic Development Authority - Central Sierra, but the IMCP actually has 27 Consortium members and 21 partner organizations.


The Implementation Plan Identifies eight integrated strategies and proposed catalytic investments that address the 6 pillars of our manufacturing ecosystem: Workforce Development, Supply Chain, Capital Access, Infrastructure, International Trade, and Innovation.


Gil Gonzales, Sr. Business Development Specialist at the Governor's Office of Business and Economic Development (GO-BIZ) was the next speaker. He said that the Go-Biz office has broad responsibility: California Business Investment Services, Site selection assistance, Incentive analysis, Facilitation with state and local governments, Coordination with utilities and supporting organizations, Permit Assistance, Identification of applicable permits, CalGOLD online permit tracking system, the Consolidated permitting program, International Trade, Coordination for Foreign Direct Investment interested in CA opportunities, Federal EB-5 Immigrant Investor program, Management of Investment Office and Trade Missions, Innovation and Entrepreneurship, Small Business, Cal Competes, Competitive Tax Credit Program, California Infrastructure and Economic Development Bank (I-Bank), Industrial Development Bonds, the Film Commission, and the Travel & Tourism Commission.


He highlighted the following State Financial Assistance, Credits and Incentives:


State Financial Assistance, Credits and California Research Credit - Income tax credit on the increased in qualified research expenses conducted for qualified research in California over a computed base year.

Industrial Development Bonds - Tax-exempt securities issued up to $10 million to provide financing for the acquisition, construction, rehabilitation and equipping of manufacturing and  processing facilities for private companies

Pollution Control Tax Exempt Bond - Private activity tax-exempt bond financing to California businesses for the acquisition, construction, or installation of qualified pollution control, waste

disposal, waste recovery facilities, and the acquisition and installation of new equipment.

Partial Sales and Use Tax Exemption - Statewide exemption of the state's portion of the sales and use tax (4.1875%) on equipment purchases as well as certain building improvements for manufacturing, research and development, as well as biotechnology. Limitations: $200 Million per year in qualified purchases per business. There is no cap on the program. Administered by the California Board of Equalization

Full Sales and Use Tax Exclusion - Administered by the California Treasurer's Office. Excludes the full sales tax from qualified manufacturing purchases for advanced manufacturers; manufacturers of alternative source energy products, components or systems; and advanced transportation products, components or systems. $100 million in tax savings per year allocated.

New Employment Credit (NEC) is a California income tax credit for employers engaged in a trade or business within a designated DGA for employees receiving starting wages that exceed 150% of the State minimum wage.

California Competes - Corporate income tax credits available to businesses that successfully compete in a tax credit notification period on certain project/business based merits. Applications are all online for no fee. Tax credit agreements will be negotiated by GO-Biz and approved by California Competes Tax Credit Committee. The next funding period is March 7, 2016, through March 28, 2016 ($50.9 million plus any remaining unallocated amounts from the previous application periods.)


Catherine Houston, Rapid Response and Women of Steel Coordinator for the United Steelworkers (USW) District 12, was the next speaker on "How 'Buy Local' Government Procurement for Public Infrastructure Projects Can Provide Environmental & Economic Benefits." Houston explained that United Steel Workers collaborate with the Unite, the largest union in UK and Ireland and has industry partnerships with the Alliance for American Manufacturing, and participate in the BlueGreen Alliance, a partnership of 10 unions and five environmental groups. The Rapid Response is member-to-member education and political program, and Women of Steel represents 100,000 working women in the steel industry. District 12 represents workers n California, Alaska, Arizona, Colorado, Hawaii, and Idaho.


She said that the USW supports AB 32: California's "Comprehensive" Climate Policy that incorporated "Cap and Trade," Low Carbon Fuel Standard, Renewable Energy Program, Advanced Clean Car Standards, and Energy Efficiency in buildings, appliances, and industry. She stated, "There is a hidden carbon cost of importing metals. According to the Iron and Steel Institute stated, 'Since 1990, the North American steel industry reduced the CO2 intensity per ton of steel produced by 37 percent. Today the industry operates with the lowest energy consumption per ton of steel produced in the world. She added, "90 percent of the world's goods are transported by sea. Maintaining business as usual will result in an estimated 250 percent growth in carbon emissions by 2050.


She concluded by recommending that California have a "Buy Green, Buy Local" Campaign for major infrastructure and construction projects and all government-backed contracts should look to use California-made materials in contrast to awarding contracts to a company that imported the steel and used Chinese labor as was done for the San Francisco-Oakland Bay Bridge. She said, "The USW is building support by providing a 'Buy Green, Buy Local' Toolkit, recruiting it business partners/support, recruiting environmental partners, activating the USW Rapid Response Network, meeting with legislators and government officials, and broadening their base of grassroots support."            


During lunch, keynote speaker Dan DiMicco, Chairman Emeritus of Nucor Steel Corporation, spoke on "Extremely Challenging 2009- 2015 Economic/Steel Market Conditions." He led off by stating that the AISI Weekly U.S. Steel Mills Capacity Utilization went from about 90% down to 30% in the depths of the recession and has only recovered to a little over 60%. He then shocked the audience with facts about the real state of our economy and our unemployment rate. He said, "There are still nearly 2 million less jobs than there were at the start of the Great Recession in December 2007! We lost 8.7 million jobs from December 2007 to the "trough" reached in February 2010. The manufacturing industry lost 20% of its jobs, and the construction industry lost 19% of its jobs. Because our recovery has been much slower than the previous recessions of 1974, 1981, 1990, and 2001, the gap in recovery of jobs compared to these recessions is much higher even 96 months out of the recession."


He stated, "In contrast to the misleading U-3 unemployment rate of 4.9% for January 2016 that is reported in the news media, the U-6 rate was 11.8%. The government's U-6 rate is more accurate because it counts "marginally attached workers and those working part-time for economic reasons." However, the actual unemployment is worse because the participation in the workforce has dropped from 66.0% to 62.7%. In other words, if the December 2015 Civilian Labor Force Participation Rate was back to the December 2007 level of 66.0%, it would add +8 million people to the ranks of those looking for jobs. If you add the people that have dropped out of labor force to the U6 number of people, we really have nearly 25 million people without full-time jobs.


DiMicco said, "We got in this position from 1970 until today because of failed trade policies allowing mercantilism to win out against true FREE Trade. The idea that we could be successful and create better tomorrows by having little or no manufacturing and all services is a failed theory - A MISERABLY FAILED MINDSET AND ECONOMIC MODEL! Real and lasting wealth is, and always has been, created by innovating, making and building things-ALL 3-- and servicing the goods producing sector NOT by a predominance of servicing services! Manufacturing supply chains are the Wealth Creation Engine of our economy and the driver for a healthy and growing middle class! The result has been that manufacturing's share of GDP shrank from over 20% in 1980 to 9.9%, causing the destruction of the middle class. It created the service/financial based Bubble Economy (Dot.com/Enron/Housing/PONZI scheme type financial instruments.)"


He added, "We have had 30 years of massive increases in inefficient and unnecessary Government regulations. These regulations, for the most part, in the past have been put in place by Congress and the Executive Branch. However, today they are increasingly being put in place by unelected officials/bureaucrats as they intentionally by-pass Congress."


He said, "Creating jobs must be our top priority, and we need to create 26-29 million jobs over the next 4-5 years. There are four steps we can take to bring about job creation:


  • Achieve energy independence.
  • Balance our trade deficit.
  • Rebuild our infrastructure for this century.
  • Overhaul America's regulatory and tax nightmares.

In conclusion, DiMicco said, "We need to recapture American independence through investment in our country's people, infrastructure, and energy independence, and by reversing the deficit-driven trends that currently define our nation's economic policy.


Harry Moser, founder and President of the Reshoring Initiative was the second keynote speaker discussing "Bringing Manufacturing Back Home." He stated, "The Reshoring Initiative's goal is to level the uneven playing field that American manufacturers have in the global marketplace by enabling companies to calculate the hidden costs of outsourcing offshore. Most companies only apply rudimentary cost models, such as Purchase Price Variance or landed cost and ignore 20% or more of total costs. The trends of producing near the consumer and bringing back manufacture of products that will be sold or assembled here are helping to increase reshoring, but not fast enough."


He explained that the Reshoring Initiative "provides Free Total Cost of Ownership (TCO) software, an online Library of 3,000+ reshoring articles, statistics from TCO and library databases, a case Study template for posting cases, solutions to major supply chain problems, and motivation for skilled manufacturing careers as manufacturing comes back."


He briefly described the TCO calculator works and shared a few case studies, commenting that that California ranks first in number of cases (34) of companies reshoring but 12th in number of jobs created. California companies include Flextronics for electronic products, Karen Kane apparel, and Ortho Mattress. He stated, "The bleeding stopped in 2014 with a 70% decrease in offshoring and a 400% increase in reshoring."


He concluded with the recommendation that "Start a program to accelerate reshoring adapting method used in the programs in Pennsylvania and Mississippi to make California the leader in reshoring. The possible team could be: Manex and CMTC, CALED, California Manufacturing and Technology Association (CMTA), Suppliers, and the Reshoring Initiative and Coalition for a Prosperous America."


After this last presentation, Michael Stumo invited attendees to stay for a breakout session in small groups to select the top two issues through discussion and pair-wise voting. After a lively discussion and voting session, the groups shared the results of the voting. Each of the following issues were paired with another issue and voted. The top two issues voted by the group were "manufacturing strategy" and "trade strategy." Other issues were "Tax strategy," "regulatory strategy," and "workforce development." All of these issues were deemed important, but the groups felt that if California had an overall strategy to support manufacturing, then taxes and regulations would be brought into alignment to benefit manufacturers. Workforce development would only be critical if manufacturing were flourishing and not decreasing. A letter report of the results of the voting will be prepared and released to all regional elected officials in the future.

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