7:00 AM
Registration and Continental Breakfast

8:00 AM - 8:25 AM
Introduction and Opening Remarks
General session

Speakers:
Ross DeVol, Executive Director, Economic Research, Milken Institute
Michael Klowden, President and CEO, Milken Institute

Summary:
Setting the stage for a day of discussion about California's challenges, the Milken Institute's Ross DeVol let the numbers tell the story.

The economic downturn hit California harder than the rest of the nation because of the state's exposure to the housing bubble and its dependence on international trade, which fell sharply. But California's recovery has begun, DeVol assured the audience.

• California's international trade — and thus its port activity — is picking up.
• In the housing market, the drop in prices has vastly improved affordability. Combined with low interest rates, this contributed to a 10 percent year-over-year increase in home sales the second quarter of 2010.
• Business spending on equipment and software has increased a dramatic 25 percent, which has had a significant effect on California high-tech and high-tech manufacturing sectors.
• California remains a magnet for venture capital investment, with 58 percent of all VC placements in the country.

Citing recent Milken Institute research, DeVol pointed to measures that policymakers could take to further improve the state and national economies: Make the R&D tax credit permanent and increase it by 25 percent, a move DeVol predicts Congress will make after the November elections. He also called for modernizing export controls on high-tech products — controls that President Obama has already loosened through an executive order.

Watch the video to hear DeVol's in-depth take on the economic indicators, the potential cost to taxpayers of underfunded public pensions and the loss of film production to other states. For a closer look at the indicators, visit the Data Bank at the Institute's Restoring California′s Promise website.

8:30 AM - 9:30 AM
Housing: A First-In, First-Out Recovery?
General session

Speakers:
Ross DeVol, Executive Director, Economic Research, Milken Institute
Steve Goddard, President, California Association of Realtors
Emile Haddad, President and CEO, FivePoint Communities
Steven Mnuchin, Chairman and CEO, OneWest Bank, FSB
Bert Selva, President and CEO, Shea Homes

Moderator:
Lewis Feldman, Partner/Los Angeles Chair, Goodwin Procter LLP

Summary:
Are better times ahead for California′s housing market? A panel of real estate experts at the State of the State Conference pondered whether affordability and low interest rates would carry the day, or whether continued unemployment would stifle the burgeoning recovery.

We′ve already cleared out a lot of inventory, noted the Milken Institute′s Ross DeVol. In fact, California is well below the national average in terms of the months′ supply of homes on the market. He cautioned that a national moratorium on foreclosures would be the fastest way imaginable to kill the momentum.

If we′re not at the bottom, we′re pretty close, said OneWest Bank CEO Steven T. Mnuchin, and that means we′re eventually heading up. This time around, he feels that housing won′t lead the economy. He emphasized that the priority has to be job creation — the housing market will fully recover only when people feel more secure about their prospects. Mnuchin also said lenders have learned their lesson from the bubble years and are much more diligent about underwriting standards.

The market will come back at some point, insisted Emile Haddad, CEO of FivePoint Communities, and that favors investors who can wait things out. It′s also a great opportunity for first-time homebuyers, though things are slower for people who want to trade up. He noted that construction permits for new single-family homes are at lows not seen in decades. This restricted supply means prices will eventually rise, especially when inflation kicks in.

Bert Selva, CEO of Shea Homes, followed up Haddad′s point regarding new home construction, noting that his own firm went through a period of painful layoffs. He believes the housing market is getting better, though it remains sluggish. Selva thinks that uncertainty and a desire to time the market is keeping buyers on the sidelines.

Market ups and down have happened many times before, said Steve Goddard, president of the California Association of Realtors. He believes there are fantastic opportunities for first-time buyers. When distressed properties are priced correctly, sellers are receiving multiple offers.

Panelists agreed that interest rates are likely to stay at or near their historic lows for the foreseeable future. The market is stabilizing and we are taking steps in the right direction, but it will take more time to work our way through foreclosures. Now the task is to create jobs and confidence. Once that happens, predicted Goddad, "California will lead the nation out of this."

9:35 AM - 10:35 AM
Giving Credit Where It's Due:
A Lifeline for California's Small Businesses
General session

Speakers:
John Chiang, California State Controller
Kevin Klowden, Managing Economist and Director, California Center, Milken Institute
Eric McAfee, Chairman, McAfee Capital
Maria de Lourdes Sobrino, Founder and CEO, Lulu's Dessert Corp.
Kathleen Sowa, Senior Vice President, National Commercial Products Executive, Bank of America

Moderator:
John Mack III, Executive Vice President and Co-Head of Investment Banking, Imperial Capital

Summary:
Think of it as the "small-business recession."

That's how the Milken Institute's Kevin Klowden described California's current circumstances. While small businesses have driven past economic recoveries, a lack of credit is hindering their comeback this time around.

Maria de Lourdes Sobrino of Lulu's Dessert Corp. detailed how financing has been hard to come by not only during the recession but since 9/11. She has relied on alternative measures, including family loans and sharing space with a similar business. Sobrino said she doesn't see the same energy as in the 1990s, when she thought of her bankers as partners.

Credit cards and home equity are the two most important sources of financing for small businesses, Bank of America's Kathleen Sowa said, and both are less available because of the housing downturn and regulatory changes in the credit card industry. Sowa said lack of cash flow is the No. 1 reason loans are being rejected, and lower real estate values mean less collateral.

On the up side, Klowden pointed to provisions of the federal Small Business Jobs Act passed in September, and Sowa said BofA is hiring 1,000 small-business bankers nationwide over the next year. Sowa also mentioned the potential of community development financial institutions, which can lend in situations where other banks are prohibited, and the availability of state capital access programs.

Watch the video to see: Eric McAfee of McAfee Capital extol clean tech and how to find the next industrial clusters, John Mack III of Imperial Capital neatly summarize why big companies can find financing and small ones can't, and State Controller John Chiang detail the downstream consequences of the delayed state budget.

10:35 AM - 10:50 AM
Break

10:50 AM - 11:50 AM
Advice From Leading CEOs: How to Fix California
General session

Speakers:
Art Coppola, Chairman and CEO, Macerich
Theodore (Ted) Craver Jr., Chairman, President and CEO, Edison International
Kellie Johnson, President and CEO, Ace Clearwater Enterprises
Michael Lynton, Chairman and CEO, Sony Pictures Entertainment

Moderator:
Michael Milken, Chairman, Milken Institute

Summary:
A panel of high-powered California CEOs came together to deliver a clear message for Sacramento: The state's education system is letting us down, and that has to change.

As Institute chairman and panel moderator Mike Milken pointed out, California's strength has always been its human capital and its ability to innovate. But today our schools are not producing students with the right skills to compete in the global economy — and business goes where ability is.

It's counterintuitive, said Ace Clearwater CEO Kellie Johnson, that unemployment is so high but she can't find workers with the skills to fit her openings. Today's manufacturing relies on sophisticated technology, and it takes more than a high school diploma to fit the bill. She believes we need a return to vocational education, and community colleges are the key.

Edison International CEO Ted Craver Jr. agreed, noting that as billions are invested in building out smart grid infrastructure, he needs high-quality workers. Edison has taken matters into its own hands by providing funding to local community colleges to provide content and scholarships that will train engineers.

Beyond the education issue, Milken challenged all the CEOs to provide practical solutions for California. Among their ideas:

• Macerich CEO Art Coppola suggested a concerted push toward "e-fairness" to standardize and enforce collection of sales taxes on Internet purchases. He noted that the current situation penalizes brick-and-mortar businesses, and the taxes could provide much-needed revenue to the state and to local governments.
• Sony Pictures CEO Michael Lynton called for California to take the lead in protecting intellectual property.
• Craver recommended streamlining the permitting requirements to get large infrastructure projects built. Coppola echoed this point, suggesting an expedited process for LEED-certified developments.
• Johnson suggested that the legislature take better control of the sweeping regulatory bureaucracy. Cost-benefit analysis needs to be applied to new regulation, and old rules need to be periodically re-evaluated.

Craver brought up the elephant in the room: California can't be a leader if our finances are in a shambles. We've got to demand that government deal with the structural issues behind the budget deficit. As Johnson noted, we can't keep delaying the day of reckoning: The uncertainty of putting it off is the enemy of investment and growth.

11:50 AM - 12:20 PM
Reception

12:20 PM - 2:10 PM
Lunch Program
Politics, California Style: Can We Break the Gridlock?
General session

Speakers:
Bill Carrick, Democratic Strategist, Carrick Consulting
Susan Estrich, Robert Kingsley Professor of Law & Political Science, USC Gould School of Law; Partner, Quinn Emanuel Urquhart & Sullivan LLP
Steve Schmidt, Vice Chairman, Public Affairs, Edelman; former Senior Advisor, John McCain Presidential Campaign
Don Sipple, President, Sipple:Strategic Communications

Moderator:
Frank Luntz, Author, "Words That Work" and "What Americans Really Want...Really"; CEO, The Word Doctors

Summary:
The latest polls put Jerry Brown ahead of Meg Whitman in the race to be California's next governor. A panel of political strategists suggested Brown's lead is as much about what Whitman has done wrong as what Brown has done right.

Here are a few snippets from the debate, which began with pollster Frank Luntz's entertaining analysis of the best ads of the campaign season.

Whitman vs. Brown: While it's not too late for Whitman to turn it around, the speakers believe Brown is on track to win. Bill Carrick of Carrick Consulting said Whitman lacked an overarching narrative, and USC's Susan Estrich said Whitman's ads were "cold" and failed to show her connecting with people. She alienated voters by campaigning for too long and spending too much, Edelman's Steve Schmidt said. Don Sipple of Sipple:Strategic Communications said Whitman′s fatal flaw may be timing: Like Gov. Schwarzenegger, she has no political background, and voters in this atmosphere won't "replace Schwarzenegger with another Schwarzenegger."

Bipartisanship: The panelists had greater hope for bipartisanship under Brown than Whitman. As Carrick said, only a Democrat can go to constituencies like the labor unions and ask them to make sacrifices for the good of the state. Asked if political strategists were partly responsible for the lack of civil discourse in general, the panelists generally agreed that anger, not political tactics, is motivating voters. "The tea party euphoria is making civil war in the Republican Party," Sipple said, and the decibel level isn't going down.

Term limits and initiatives: Term limits were the most often-mentioned challenge California faces, with the strategists saying it results in inexperienced lawmakers and an atmosphere of constant campaigning. The initiative process seemed to rank second, though Carrick noted that the vast majority of initiatives are voted down. Estrich said voters are unlikely to let go of the initiative process unless government can revive their trust.

Immigration: Carrick thinks other states that are now wrestling with immigration will eventually follow California's lead and support a path to citizenship. Proposition 187 had lingering effects on Republican candidates in subsequent elections, he said, and "demagoguing" no longer resonates with California voters.

2:30 PM - 3:30 PM
Keeping California on the Cutting Edge of Innovation
General session

Speakers:
Kevin Czinger, President and CEO, Coda Automotive
Tim Draper, Managing Director, Draper Fisher Jurvetson
Pervaiz Lodhie, President and CEO, LEDtronics Inc.
Perry Wong, Director, Regional Economics, Milken Institute
Shariq Yosufzai, Vice President, Chevron Corporation

Moderator:
Nancy McFadden, Senior Vice President and Senior Advisor to the Chairman and CEO, PG&E Corp.

Summary:
While great ideas are still incubated in California, the manufacturing muscle is applied elsewhere, said Shariq Yosufzai, vice president of Chevron Corporation and incoming president of the California Chamber of Commerce. We're losing out on these jobs because of red tape and high taxes.

In fact, Texas is using us as an example of how not to do manufacturing.

Californians like to rest on their innovation laurels, but Silicon Valley isn't going to bail us out of this, said leading venture capitalist Tim Draper. He was blunt about blaming unions for many of the state's woes. Instead of haggling over terms that make a business or government less competitive, he'd prefer to see unions negotiate for a management stake so they'd have incentive to make their enterprises great.

LEDtronics president and CEO Pervaiz Lodhie offered a breath of optimism. As a small business owner, he is seeing a strong spike in demand that signals a recovery, and he is firmly committed to keeping his company's jobs in California.

Unfortunately, that wasn't how things played out with Coda Automotive. CEO Kevin Czinger recounted his journey from R&D to scaling up manufacturing. He started a battery-cell manufacturing plant in China, where the government acted decisively with incentives and it's lightning quick to launch. Coda is also locating a plant in Ohio, which actively wooed his firm, in sharp contrast to his experience in California. In Ohio, he found qualified workers, no corporate tax on exports and a much more streamlined permitting process.

The Milken Institute's Perry Wong noted that California's human capital is slipping. We have long had a terrific ecosystem for innovation, but government, education and industry have act in concert. Somewhere along the line, he said, we forgot about industry's part of the equation.

But the golden age for the Golden State wasn't that long ago, Yosufzai reminded the audience. He believes we can take advantage of our size and diversity, and we have the opportunity to lead the way in sustainability. But we need to act now to stem the flow of jobs.

3:35 PM - 4:35 PM
Public Pensions: How to Protect Workers — and Taxpayers
General session

Summary:
Switching to a hybrid plan that calls for the state and its workers to share investment risks could be the way to fix California's underfunded public pensions in the long term.

Generally this type of plan guarantees a basic pension benefit or a minimum rate of return on pension contributions that are risk-free to the employee, similar to a defined-benefit plan. But the employee has to bear the investment risks for a portion of their future benefits, similar to the defined-contribution plans that are favored by most private employers.

Most panelists at a State of the State Conference session on pensions voiced cautious support, but the devil appeared to be in the details.

For State Treasurer Bill Lockyer, the question is, "Who's going to manage the risk? If you dump it just on individual investors with a 401(k), bad idea." Lockyer said the costs of administration in a 401(k) plan are much higher than the costs of the existing system. He suggested that CalSTRS, for instance, rather than a private firm should run the 401(k) to minimize administrative costs.

Like Lockyer, Jerilyn Harris of CalSTRS was concerned about workers carrying too much of the risk. "We're not good at following investments," she said. "All of a sudden we realize we're five years away from retirement, and, 'gee, I hope someone took good care of me.'" Harris also hinted at the political difficulty of altering the existing system, saying stakeholders have to be convinced that the problem is real and that "we're not going to be investing our way out of it."

Jon Hamm of the California Association of Highway Patrolmen said his union has already sacrificed as one of the numerous labor organizations that made concessions for the good of the state budget. While CAHP's givebacks were painful, Hamm remains concerned about the long-term solvency of the system as the baby boomers retire.

State Sen. Dennis Hollingsworth said the pension reforms included in the most recent state budget were significant. "The real question is, what are we going to do to get all the way there? I think we have to be looking at some type of alternative such as a hybrid plan, and we have to look at continuing to really rate how much of a benefit can we afford as taxpayers."

Scott Minerd of Guggenheim said a hybrid plan makes sense, but the state has to make these decisions sooner rather than later. "The problems the state is facing are easily fixable if we start on it now," he said. "If we wait another 10 years, it will be extremely hard to fix."

Watch the video to see Hamm explaining why he discouraged his son from a career in law enforcement and Lockyer discussing the parity of public- and private-sector retirement benefits, among other highlights.