California's challenges are well-known: soaring housing prices, an unfriendly business climate and too many unskilled workers.

But at the 7th annual State of the State Conference, panelists tended to agree on one thing: despite these issues, the potential of California remains enormous, and that's why so many people keep coming here.

Whether it's the advent of stem-cell research, which has been bolstered thanks to the passage of Proposition 71, or the realization that the state's diversity can be turned into one of its great strengths, the opportunities in California are vast, panelists said.

Among some of the session highlights:

  • Housing prices should begin leveling off, but there won't be any significant decline since the demand for homes will remain high.
  • The California Institute for Regenerative Medicine, the stem cell research organization created by the passage last year of Proposition 71, will act as a magnet for bringing intellectual capital to California.
  • If current programs and their costs continue as is, state expenditures would increase by about 12 percent without action to reduce them in fiscal year 2005-06, producing a gap of about $6 billion.
  • Since 9/11, it has become more difficult to attract the best and brightest immigrants. In the last four years, applications to U.S. universities by international students have dropped by almost one-third.
  • California does not currently have an energy supply crisis, but it may soon find itself with a cost crisis.

The keynote speaker was given by Los Angeles Mayor Antonio Villaraigosa, who addressed many of the themes of the conference, including education, the workforce, housing and the business climate. He called L.A. a microcosm of the state's challenges and opportunities, and urged the audience to help improve our schools, which would provide the workforce necessary for the 21st century.

"Our competitive advantage will always lie in our brain power," he said.

More than 500 business executives, public policy officials, academic leaders and journalists attended the conference, held at the Beverly Hilton.