Existing law establishes the Spaceport Office in the Department of Transportation to seek and obtain federal funding for the commercialization of private space activities in the state. Existing law, for the January 1, 2014, lien date to, and including, the January 1, 2024, lien date, exempts from taxation qualified property, as defined, for use in space flight. Existing law authorizes airport districts to provide and maintain spaceports and landing places for space reentry traffic.

Existing law establishes the Governors Office of Business and Economic Development (office), which is administered by a director appointed by the Governor. The office serves the Governor as the lead entity for economic strategy and the marketing of California on issues relating to business development, private sector investment, and economic growth.

This bill would establish the California Aerospace Commission to foster the development of activities in California related to aerospace, including, but not limited to, aviation, commercial and governmental space travel, unmanned aerial vehicles, aerospace education and job training, infrastructure and research launches, manufacturing, academic research, applied research, economic diversification, business development, tourism, and education. The bill would specify various related duties of the commission.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 1215 (Allen) - California Aerospace Commission

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 1215 would establish the California Aerospace Commission to foster the development of aerospace-related activities in the State.

Fiscal Impact:

The bill does not give guidance on how often the Commission would meet, nor how it would be staffed. Using the Milton Marks “Little Hoover” Commission on California State Organization and Economy (Little Hoover Commission) as a proxy, annual costs to operate and staff the California Aerospace Commission could total about $1 million annually (General Fund, see Staff Comments).

Background:

The aircraft industry grew more rapidly over the first half of the twentieth century than any other segment of the California economy. In 1910, William Randolph Hearst offered $50,000 to the first pilot who could fly from California to the East Coast in thirty days or less; however, no one claimed the prize. That same year saw the nation’s first public aviation meet, which occurred on Dominguez Ranch near Los Angeles. This event drew over 200,000 people, and the meet established initial aviation speed and endurance records. After World War I, Southern California’s airplane designers and manufacturers began to construct a variety of aircraft. By 1935, the output of California’s aircraft industry totaled $20 million annually ($340 million in 2013 dollars).

The industry steadily grew through World War II and during the Cold War, encompassing a wide range of activities, including military and civilian aircraft, reconnaissance and communications satellites, strategic missiles, and space exploration. The region’s economy became linked to the ebbs and flows of defense spending. By the early 1960s, roughly 40 percent of the $6.1 billion U.S. Department of Defense prime contracts for development, test and research work went to California. That proportion continued into the 1980s, and the industry employed roughly 500,000. One of the region's strongest selling points for aerospace was its environment: the clear blue skies and ample open spaces were ideal for testing new aircraft. California also was home to a variety of related industries, particularly petroleum, as well as top-notch research universities and a large labor pool.

Defense spending peaked at $557 billion in 1985 (in constant 2009 dollars) and then began a downward trend. The federal government conducted four rounds of Base Realignment and Closure (BRAC) closures between late 1988 and 1993. Nationally, that process led to (1) the closing of 350 large and small military bases, and (2) 55 major realignments. Reportedly, this saved federal taxpayers in excess of $16 billion through 2001 and six billion dollars more each subsequent year.

Prior to 1988, California had, by far, the largest military presence of any state, and was home 15 percent of the Department of Defense's (DoD’s) total 275,264 personnel and 18 percent of the major military bases around the country. Correspondingly, the base closures over those four rounds hit the State disproportionately hard.

Prior to the mid 1990's, California's response to BRAC was primarily focused on assisting local communities in the reuse of shuttered military bases. In 1994, Governor Wilson issued an Executive Order (W-87-94) which directed the Office of Planning and Research to coordinate the state's effort to assist local communities in developing strategies to protect California bases from further closings, as a means of focusing on the importance military bases have on the state’s economy.

Subsequent legislation (AB 639, Alby, 1998 and SB 1099, Knight, 1999) codified an Office of Military Base Retention and Reuse (OMBRR), placing it within the Technology, Trade and Commerce Agency (TTCA) and outlining the responsibilities of the office, including the creation of a Defense Retention Grant Program. The grant program aided local communities in preparing for future BRAC rounds. SB 926 (Knight and Ashburn, 2004) then renamed OMBRR to the Office of Military and Aerospace Support (OMAS), signifying the close relationship between military and aerospace activities. OMAS exited through the 2005 BRAC round and subsequently sunsetted in January of 2007.

Unlike previous rounds, the fifth BRAC round (2005) focused more on realignment than closure. Along with saving money, a top priority was military force readiness, consolidating assets onto centralized installations from which they can be deployed rapidly and flexibly in support of an evolving global situation, and joint service missions. Implementation of the 2005 BRAC recommendations was completed in 2011.

The collapse of the Soviet Union and the end the Cold War led to more than 50 major defense companies consolidating into only six. Employment Development Department (EDD) employment data indicate that the Aerospace Production and Manufacturing sector declined from 214,200 in 1990 to 71,900 in 2013, an average annual decline of 8.7 percent; Los Angeles County’s aerospace employment comprises roughly 60 percent of the statewide total, and shrank proportionately over the same time period. Most of the declines occurred before 2004. However, further job decline is possible to the extent that reduced defense spending results from federal budget cuts.

Proposed Law:

This bill would do the following:

• Create the California Aerospace Commission (Commission) to foster the development of activities in California related to aerospace, including, but not limited to, aviation, commercial and governmental space travel, unmanned aerial vehicles, aerospace education and job training, infrastructure and research launches, manufacturing, academic research, applied research, economic diversification, business development, tourism, and education.
• Establish that the Commission shall do the following:
  • Receive grants from state or local government sources or from private businesses or individuals, for California aerospace-related activities, as specified.
  • Be an advocate in support of California aerospace-related activities, including, but not limited to, the businesses, facilities, programs, developments, alterations, modifications, educational activities, and other programs impacting those activities.
  • Identify and recommend changes in federal, state, and local statutes and regulations that will enhance the development of California aerospace-related activities.
  • Report on the economic and employment impacts of California aerospace-related activities to the Governor and the Legislature and other state agencies and commissions that adopt regulations or make decisions or determinations that affect those activities.
  • Recommend to the Governor and the Legislature appropriate state funding mechanisms and amounts to promote development of California aerospace-related activities.
  • Provide recommendations to the Governor and the Legislature in the form of strategic planning documents, with regard to the development of California aerospace-related activities.
  • Act as a clearinghouse for aerospace-related issues and information.
  • Foster and promote activities related to aerospace in all parts of California.

Related Legislation:

SB 506 (Fuller) of 2015 would have established a military and aerospace program within the Governor’s Office of Business and Economic Development (GO-Biz), tasked with activities related to state and local defense retention, conversion and base reuse activities and urged local governments impacted by military installations to cooperate in efforts to retain these installations and recognizes a local retention authority for each active military installation in the state. The bill was held on the suspense file of this Committee.

Staff Comments:

The bill as currently drafted gives little guidance concerning (1) the number of Commission members, (2) how they would be staffed, and (3) whether members would receive per diem or have their travel expenses reimbursed. As noted earlier, the Little Hoover Commission could serve as a proxy; it has a $1 million annual budget and is comprised of seven staff: an executive director, three managers, and three analysts. The Little Hoover Commission’s personnel costs (salaries and benefits) total about $700,000 annually; operating expenses and equipment comprise the other $300,000 per year.

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Jerry Hill, Chair

2015 - 2016 Regular

Bill No: Hearing Date: April 4, 2016

Subject:

SUMMARY: Establishes the California Aerospace Commission to foster the development of activities in California related to the aerospace industry.

Existing law:

1. Establishes the Spaceport Office in the Department of Transportation to seek and obtain federal funding for the commercialization of private space activities in the state. (Government Code (GC) § 14007.2)
2. Establishes the Governor’s Office of Business and Economic Development (GO-Biz), which is administered by a director appointed by the Governor for the purpose of serving as the lead state entity for economic strategy and marketing of California on issues relating to business development, private sector investment and economic growth. (GC §§ 12096 – 12098.5)
3. Authorizes GO-Biz as the lead entity for economic strategy and the marketing of California on issues relating to business development, private sector investment, and economic growth. Authorizes GO-Biz, in this capacity, to coordinate the development of policies and criteria to ensure that federal grants administered or directly expended by state government advance statewide economic goals and objectives. Authorizes GO-Biz to market the business and investment opportunities available in California by working in partnership with local, regional, federal, and other state public and private institutions to encourage business development and investment in the state. Authorizes GO-Biz to support small businesses by providing information about accessing capital, complying with regulations, and supporting state initiatives that support small business. (GC § 12096.3)
4. Requires GO-Biz to designate Innovation Hubs (iHubs) within the state to stimulate partnerships, economic development, and job creation by leveraging assets to provide an innovation platform for startup businesses, economic development organizations, business groups, and venture capitalists. (GC § 12099.1)

This bill:

1. Creates the California Aerospace Commission (Commission) to foster the development of activities in California related to aerospace, including, but not limited to, aviation, commercial and governmental space travel, unmanned aerial vehicles, aerospace education and job training, infrastructure and research launches, manufacturing, academic research, applied research, economic diversification, business development, tourism, and education.
2. Establishes that the Commission shall:
3. Be an official recipient of grants from state or local government sources or from private businesses or individuals, for California aerospace-related activities, including, but not limited to, studies, services, infrastructure improvements, and modernization.
4. Be an advocate in support of California aerospace-related activities, including, but not limited to, the businesses, facilities, programs, developments, alterations, modifications, educational activities, and other programs impacting those activities.
5. Identify and recommend changes in federal, state, and local statutes and regulations that will enhance the development of California aerospace-related activities.
6. Report on the economic and employment impacts of California aerospace-related activities to the Governor and the Legislature and other state agencies and commissions that adopt regulations or make decisions or determinations that affect those activities.
7. Recommend to the Governor and the Legislature appropriate state funding mechanisms and amounts to promote development of California aerospace-related activities.
8. Provide recommendations to the Governor and the Legislature in the form of strategic planning documents, with regard to the development of California aerospace-related activities.
9. Act as a clearinghouse for aerospace-related issues and information.
10. Foster and promote activities related to aerospace in all parts of California.

FISCAL EFFECT: Unknown. This bill is keyed “fiscal” by Legislative Counsel.

COMMENTS:

1. Purpose. The Author is the sponsor of this bill. According to the Author, aerospace employs over 200,000 Californians directly and supports more than half a million jobs in related fields. The Author notes that California leads the United States in aerospace services, including the design and manufacture of aircraft, spacecraft, and commercial satellites, and is home to the burgeoning private space industry. “The Golden State is an unmatched pioneer in aerospace education, through its exceptional science, technology, engineering, and mathematics (STEM) education programs at its world-class research universities. Yet, within California government, there is currently no official, unified voice advocating on behalf of aerospace interests,” the Author writes.
2. History of Aerospace in California. California’s robust aerospace industry suffered a significant downsizing and restructuring with the decline in military spending following the end of the Cold War and as a result of numerous Defense Base Realignment and Closure rounds. In the early 1990s, there were efforts to retain many of California's aerospace companies and jobs through the development of commercial space activities on California's Central Coast at Vandenberg Air Force Base. These efforts generated legislation (AB 279, 1993) to designate the California Spaceport Authority (Authority).

The Authority was originally created to recognize the support and unique services required for operations related to space flight. A nonprofit corporation was designated as the Authority with a mission of developing the commercial space industry in California and assisting with defense conversion efforts. AB 1475 (Bordonaro, Chapter 938, Statutes of 1997) then designated a new nonprofit corporation as the Authority and also created two grant programs to foster space flight-related infrastructure and associated activities – The Space Flight Competitive Grant Program and the Highway to Space Competitive Grant Program. These grant programs were ultimately administered by two separate nonprofit entities; however, both were responsible for the promotion of commercial space flight activities in the state.

In 2003, all space flight related promotions and programs were consolidated under one entity and grant program with the passage of AB 1532 (Nakano, Chapter 627, Statutes of 2003), which tasked the Authority with responsibility for attraction and promotion of space flight industries in California and the administration of the space enterprise development program. Following the 2008 economic downturn, state and private funding for the Authority became limited. In 2010, the nonprofit corporation selected to administer the space enterprise development program shuttered, and no action was taken to select another nonprofit to administer the program. Language in the Government Code related to the Space Enterprise Development Program under the Business, Transportation and Housing Agency was repealed in 2014.

1. Current Status of Aerospace Industry. According to a 2012 report by the Los Angeles Economic Development Corporation (LAEDC), the aerospace industry is comprised of companies that manufacture aircraft (civil and military), missiles, satellites, and other space vehicles and the companies that manufacture and distribute parts and components. Buyers of these products include private industry, the military, and government space administrations. The report notes that, today, aerospace is a highly concentrated industry, dominated by a small number of large firms that are supported by a large number of smaller contractors. Profitability within this capital intensive industry depends largely on technical expertise, innovation, and the ability to accurately price long-term contracts for programs that may take years to design, develop, and build.

According to a brief prepared by the California Research Bureau, aerospace is one of the nation’s standout industries. Its workforce is highly skilled and well paid; its exports grow our economy, and it serves as a continuing source of innovation. Aerospace encompasses a diverse range of productive activities, including the manufacturing of both civilian and military aircraft, space vehicles, guided missiles and associated parts. In 2011, the aerospace industry produced more than $183 billion in goods nationally. With over $31 billion worth of goods produced, California’s aerospace industry represents 17 percent of this total. Overall, aerospace represented more than 72 percent of all transportation equipment manufacturing in California in 2011. Across all manufacturing sectors, aerospace contributed more than 6.3 percent of the $495 billion in manufactured goods produced in California in 2011.

Aerospace is particularly attractive for economic development due to the various “spillover effects” the industry brings with it. This can represent the promotion of related industries through the supply chain, such as engine and engine parts, electrical components, hydraulics and fluid power subassemblies, intake and exhaust systems, even including seating and interior trim manufacturing. Other support services such as transportation and logistics support, managerial services, construction, and utilities also see an increase in demand due to California’s large aerospace industry.

New technological trends are diversifying aerospace beyond military, defense, and commercial air travel markets. The expansion of unmanned aerial vehicles (UAVs, or drones) from purely military to law enforcement and civilian uses is one such trend. The other is the growth of commercial spaceflight. Two big names in commercial space are SpaceX and Scaled Composites, both of which were founded in and are based in California, with manufacturing facilities located in the state. SpaceX was the first private entity to launch a liquid fueled rocket into orbit, the first to successfully attach a craft to the International Space Station (ISS), and is currently fulfilling a $1.6 billion contract to supply the ISS. The first facility in the country to be certified by the FAA as a spaceport is also in California, the Mojave Air & Space Port. This has been the test site for many competitors in the Ansari X Prize—a $10 million prize for the first nongovernmental organization to successfully launch and recover a reusable manned spacecraft twice within a two­-week period. The winner of the X Prize, Scaled Composites, is based in Mojave and uses the spaceport as the initial test site for its projects. A spin­off called the Spaceship Company is currently under contract with Virgin Galactic to build the first private fleet of space vehicles for space tourism.

However, California has faced challenges in retaining even some California-based companies’ manufacturing, testing and launching activities. For example, the Mojave-based XCOR Aerospace moved its commercial space research and development center headquarters to Midland, Texas and will be establishing an operational and manufacturing site at the Kennedy Space Center in Florida with the assistance of Space Florida. SpaceX, based in Hawthorne, selected a site in Texas for a new launch facility and currently launches its Falcon 9 rockets from a Florida site, although it has also used Vandenberg Air Force Base in Lompoc, California. Since 2003, SpaceX has tested rockets at McGregor Air Force Base in Texas. While Virgin Galactic has facilities in Mojave, Los Angeles, and Long Beach, it also has plans to launch from New Mexico’s Spaceport America.

1. Governor's Office of Business and Economic Development (GO-Biz) and Current Aerospace Development Efforts. In February 2010, the Little Hoover Commission undertook a review of the state's economic and workforce development programs. In its final report, Making up for Lost Ground: Creating a Governor's Office of Economic Development, it analyzed the status and effectiveness of current programs since the 2003 demise of the Technology, Trade and Commerce Agency (TTCA) and recommended the creation of a new governmental entity to fill the void left by the dismantled agency.

The report called for a single entity that would promote greater economic development, foster job creation, serve as a policy advisor, and deliver specific services directly to the California business community. In April 2010, Governor Schwarzenegger issued Executive Order S-05-10 as a means to operationalize the report recommendations including the creation of the Governor's Office of Economic Development (GOED).

In October 2011, the Governor signed AB 29 (John A. Pérez, Chapter 475, Statutes of 2011), which effectively codified GOED and changed its name to GO-Biz. Since its inception, the office has served thousands of businesses, 95% of which are small. The most frequent types of assistance include help with permit streamlining, starting a business, relocation and expansion of businesses, and regulatory challenges.

In March 2012, Governor Brown initiated a reorganization process to realign the state's administrative structure. Key changes include dismantling of the Business, Transportation and Housing Agency (BTH) and the shifting of a number of key programs to GO-Biz including the Small Business Loan Guarantee Program, the California Travel and Tourism Commission, the California Film Commission, the Film California First Program, and the Infrastructure and Economic Development Bank (I-Bank). GO-Biz also administers the “Made In California” program for the purpose of encouraging consumer product awareness and to foster the purchases of products manufactured in California. GO-Biz also now has authority for undertaking international trade and foreign investment activities, including establishing any international trade and investment office (AB 2012, Perez, Statutes of 2012). GO-Biz has partnered with the Bay Area Council to open a California-China Trade and Investment office in Shanghai and is authorized under current law to accept private monies to establish, fund, and operate these offices.

A key initiative of GO-Biz is the "strike teams" which can be mobilized to help attract and/or retain specific businesses. Strike teams are especially well suited to engage with major employers and have been successfully activated to assist Bayer Healthcare, Jazz Semiconductor, and Baxter Pharmaceutical to locate and/or expand in California.

Among these other programs, GO-Biz also administers the Innovation Hub (iHub) program. According to GO-Biz, in the spring of 2010, the state launched its new, forward-thinking iHub program in an effort to harness and enhance California's Innovative spirit. The iHubs improve the state's national and global competitiveness by stimulating partnerships, economic development, and job creation around specific research clusters through state-designated iHubs. The iHubs leverage assets such as research parks, technology incubators, universities, and federal laboratories to provide an innovation platform for startup companies, economic development organizations, business groups, and venture capitalists. AB 250 (Holden, Chapter 530, Statutes of 2013) codified the iHub program at GO-Biz and expanded the program. There are currently 16 regional iHubs located throughout the state.

• CalValley Tech iHub in the Central Valley
• Cleantech Los Angeles iHub
• Coachella Valley iHub
• CNMI iHub in Torrance
• East Bay Green Corridor iHub
• iDEA iHub in Ridgecrest
• i-GATE iHub in Livermore
• iHub San Diego
• iHub San Joaquin in San Joaquin County
• Inland SoCal Link iHub in Riverside
• Innovate North State iHub in Chico
• North Bay iHub in Santa Rosa
• OCTANe iHub in Orange County
• Sacramento iHub in the Sacramento Region
• San Jose/Silicon Valley iHub
• SF iHub in San Francisco

California’s iHub for Defense, Energy and Aerospace, named iDEA Hub (referenced above), was founded in October 2013. Based in Ridgecrest the iDEA Hub’s region encompasses California’s Kern, Ventura, Orange, Los Angeles, and San Diego Counties and provides an ideal backdrop to encourage defense, energy, and aerospace technology and businesses. The iDEA Hub provides a focus both on small emerging technology companies and university research teams, as well as established high-tech businesses. The iDEA Hub in Ridgecrest facilitates advancement of the aerospace industry by: promoting the region’s innovation ecosystem nation- and world-wide, facilitating partnerships between government, industry, and academia, connecting private sector capital with technology commercialization opportunities, pursuing funded research opportunities, promoting and hosting STEM activities in the region, and helping businesses attract and retain a qualified workforce.

1. Related Legislation This Year. AB 2600 (Lackey) would request the Regents of the University of California to establish the California Institute for Aerospace to achieve specified goals relating to the development of the aerospace industry in the state and would request the regents to locate the California Institute for Aerospace at a satellite campus within 20 miles of Edwards Air Force Base or United States Air Force Plant. (Status: The bill is pending in the Assembly Committee on Higher Education.)
2. Prior Related Legislation. SB 506 (Fuller) of 2015 would have established a military and aerospace program within the Governor’s Office of Business and Economic Development (GO-Biz), tasked with activities related to state and local defense retention, conversion and base reuse activities and urged local governments impacted by military installations to cooperate in efforts to retain these installations and recognizes a local retention authority for each active military installation in the state. (Status: The bill was held in the Senate Committee on Appropriations.)

AB 2763 (Committee on Accountability and Administrative Review, Chapter 401, Statutes of 2014) reallocated specific duties of the abolished Business, Transportation and Housing Agency to GO-Biz and the Transportation Agency and eliminated language regarding the Space Enterprise Development Program.

AB 250 (Holden, Chapter 530, Statutes of 2013) codified the iHub program at GO-Biz and expanded the program.

AB 737 (Fox) of 2013 would have required GO-Biz to prepare and submit a proposal for an unmanned aircraft test site to the FAA on or before May 6, 2013.
(Status: The bill was never heard in a policy committee of the Senate in order to be considered in the 2013-14 Session.)

AB 1997 (Gorrell) of 2013 would have provided that tax exemptions for persons engaged in aircraft manufacturing, for use primarily in manufacturing, processing, refining, fabricating, or recycling of property, or research and development also applies to local sales and use taxes and those specified state taxes with respect to qualified tangible personal property purchased by a qualified person that is engaged in aircraft manufacturing of unmanned aerial vehicles. (Status: The bill was never heard in a policy committee of the Legislature.)

AB 29 (John A. Pérez, Chapter 475, Statutes of 2011) established GO-Biz within the Governor's Office for the purpose of serving as the lead entity for economic strategy and marketing of California on issues relating to business development, private sector investment and economic growth.

AB 2711 (Portantino) of 2008 would have required Business, Transportation and Housing Agency to develop a comprehensive state technology and innovation plan. (Status: The measure was held in the Assembly Committee on Appropriations.)

SB 1698 (Ashburn, Chapter 681, Statutes of 2006) extended the authority for Office of Military and Aerospace Support for two years, until January 1, 2009, and expanded its duties to include outreach to the aerospace industry for the purpose of fostering aerospace enterprises in California.

AB 1532 (Nakano, Chapter 627, Statutes of 2003) transferred the Technology Planning Program, California Space Enterprise Competitive Grant Program, and the Challenge Grant Program in the TTCA to the Business, Transportation and Housing Agency and referred to these programs as the Space Enterprise Development Program. 

AB 1475 (Bordonaro, Chapter 938, Statutes of 1997) established the California Space and Technology Alliance as the primary California Space Authority to oversee the operations of the California Space Flight Competitive Grant Program and the Highway to Space Program.

SUPPORT AND OPPOSITION:

Support:

California Conference of Machinists

Opposition: None on file as of March 29, 2016.

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