California's Treasurer Offers Loan Twist
California's Treasurer Offers Loan Twist
By John Makulowich, Senior Writer
Philip Angelides, California's new treasurer, is advocating bundling loans to minority small businesses in emerging markets as a way of funding community development.
Using an investment approach at the state level that has never been tried by venture capitalists, he said, such loans could be packaged for secondary markets in the same way that mortgages and credit card loans are today.
"I would like to focus on neighborhoods and communities left behind in a period of major growth, to mainstream minority businesses. Such communities can make a contribution to California and the high-technology industry," Angelides said May 19 at California State University, Hayward. "It is time to change the way we are growing and to engage the private sector in new ways."
He defined emerging markets as lying along a community spectrum from those that are "tipping" to those that are hollowed out. On one end are communities with good housing in stable neighborhoods, a high percentage of home ownership but lacking newer public services, and showing increases in renting and crime. Such communities, he noted, are at the tipping point.
On the other end are those with high unemployment, high poverty, are distant from the business community and with a scarcity of retail, he said.
Addressing the challenges of growth into the 21st century, the Harvard University-educated treasurer, who took office in January, told an audience of 150 at a meeting of the Economic Development Alliance for Business that it is time to change the way the state is growing.
"It is time to adopt what is called the smart growth movement, to grow in intelligent ways, to support growth while preserving environmental quality, to ensure sustainable growth that respects the environment," Angelides said.
He pointed to data showing that California, a state with the seventh largest economy in the world, would grow by 12 million people in the next 20 years to a total of 45.3 million, adding 5 million jobs, 4 million households and 2 million students.
"Today, while there is 5.7 percent unemployment across the state, the gap between rich and poor is the fourth greatest of any state in the country," Angelides said.
On his agenda is development that uses land more wisely, offers workers options for transportation, places jobs near housing and revitalizes neighborhoods and urban areas.
Defining his job as being at the intersection of public policy and financial resources ? one which influences areas such as education, transportation, housing, energy, industrial development and pollution control ? Angelides highlighted initiatives he intends to pursue during his four years in office. They are:
? Encourage investment in distressed neighborhoods;
? Mesh public funding with sustainable growth by directing public financial resources to lower income communities;
? Support infrastructure investments and stronger regional planning;
? Focus on quality of education programming with specific attention to accountability, performance and deliverability;
? Engage the private sector in the challenge to deploy capital productively.
The fifth initiative contains the approach that Angelides claimed had not been considered before by venture capitalists. It amounts to creating a secondary market in small business minority loans to increase the flow of capital to underdeveloped communities.
"If there is even an attractive market with reasonable risk-reward ratios for credit card loans, why not a secondary market for small business minority loans?" asked Angelides. He said he already has met with venture capitalists that expressed interest in the concept.
Angelides highlighted several projects in Los Angeles sponsored by former Los Angeles Lakers basketball star Magic Johnson and supported with a $50 million investment by the state's pension funds.
Angelides said the projects, including small businesses and movie theaters, were showing a 13 percent to 15 percent return.
The seeds to invest already exist in the state. In 1992, California had 2 million companies owned by minorities generating more than $205 billion in revenue. In 1998, those numbers rose to 3 million firms with revenue of $600 billion.
Arguing for investment in emerging markets at home, Angelides compared the state's strategy and its holdings overseas in markets such as Indonesia, Turkey and Malaysia.
"At least for the local market, you don't need a CIA or State Department report to underwrite them," said Angelides.
The 45-year-old Angelides manages the state's Pooled Money Investment Account, which has more than $30 billion in taxpayer funds. He also serves either as chairperson or as a member of many state authorities, boards and commissions, including one of the largest pension funds in the world for public employees and teachers, which controls assets of $240 billion.
Standard & Poor's rates California general obligation bonds A-plus, while Moody's Investors Service gives the Aa3. That ranks them among the five lowest states in credit rating. Among the highest rated are North Carolina and Utah, with AAA.
One way to improve its rating is for California to adopt a midyear budget correction mechanism, which will revise budget projections through the rest of the fiscal year.