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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