In summary

California needs to help companies commit the resources that new ideas and products require – a R&D tax credit does just that.

By Dee Dee Myers, Special to CalMatters

Dee Dee Myers is senior adviser to Gov. Gavin Newsom and director of the Governor’s Office of Business and Economic Development.

The governor recently signed a package of bills that will boost California’s continuing economic recovery by protecting frontline workers who are impacted by COVID-19 while also investing in those businesses that are creating jobs and providing essential goods and services to our communities.

This legislative package, developed in partnership with the Legislature amid the Omicron surge, underscores the important steps California has taken to protect workers and businesses over the last two years since COVID-19 wreaked havoc on our economy. In particular, it restores the tax credit for investments in research and development, including basic research, that are the foundation of California’s unmatched innovation economy.  

California outpaces all other states in research and development spending, accounting for more than one-fifth of the total U.S. R&D investments and nearly 30% of U.S. patents.

These investments helped create many of the incredible, life-changing technologies we now take for granted – smartphones, new pharmaceutical treatments, manufacturing breakthroughs, and even advancements in agriculture and farming, invented here in California.

In addition, R&D creates jobs. Many of California’s R&D-supported sectors – such as information technology, life sciences and entertainment – are experiencing rapid job growth, particularly in highly-paid occupations. The investments go beyond basic research. They drive innovation in testing, production and manufacturing. 

As a result, in addition to the engineers, analysts and lab tech positions that require advanced degrees, R&D also supports new jobs for Californians with a wide range of academic credentials and experiences – everything from maintenance technicians and marketing professionals to office managers and sales associates.

California isn’t alone in recognizing the benefits of R&D; 35 other states currently offer their own state-level tax credits. To stay competitive, and ensure the ongoing success of our innovation-fueled economy, California needs to help companies commit the resources, time and risk that new ideas and products require. The R&D tax credit does just that.

In addition to supporting investments in innovation, this early budget action also accelerates additional support for our state’s small businesses, which are the heart and soul of our local communities and the backbone of our economy.  

  • First, the bill eliminates state tax for the federal Restaurant Revitalization Fund and Shuttered Venue Operators grants, which will provide vital savings for restaurants and theaters that continue to struggle due to the pandemic. Their recovery is critical to our state’s economy and to our collective creative culture.
  • Second, it invests an additional $150 million in the Small Business COVID-19 Relief Grant Program. Last year, the program provided $4 billion in grants to more than 311,000 small businesses in highly impacted sectors, including hospitality, retail, tourism and the arts. These additional funds will allow us to serve thousands more businesses as they recover, bringing back lost jobs and creating new jobs.

These investments are all a down payment on the governor’s proposed California Blueprint, which offers a roadmap for how we can continue to tackle short-term crises and long-term challenges. The blueprint calls for billions of dollars to fight COVID-19 and educate and care for all our 40 million residents, prioritizing the safety and security of all Californians, and reinforcing California’s role as a global leader in climate protection, innovation and job creation.

Innovation drives our economy – and has fueled our nation’s economic recovery over the last year. Since February 2021, California has created nearly 1 million jobs – an unprecedented achievement. Last December, our state created 25% of the nation’s new jobs. We continue to lead the nation in new business starts with more than 222,000 from January 2020 through March 2021 – more than Texas and Florida combined. During this period, California accounted for nearly 16% of the country’s new business starts.  

But there’s still more work to be done. And these critical, early budget actions – which extend sick leave for those affected by COVID-19, prioritize research and development and embrace innovation – double down on our faith that we can support our workers and the businesses that create jobs and drive our economy while building a healthier, more equitable and more sustainable future for all of us.

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