California International Business Report

California now has more that 1.5 million unemployed nearly a third of whom have lost their jobs in the last year. The State’s unemployment rate jumped to 8.2 percent in October, the highest rate in 14 years. This is the third-highest unemployment rate in the nation after Michigan and Rhode Island, which were both have rates of 9.3 percent. The largest hit came in the construction industry, which has lost 65,900 jobs in the last year, followed by manufacturing. Between October 2007 and October 2008, the state lost 101,300 jobs, including 24,600 in the past month alone. The State Employment Development Department said its monthly survey found 527,918 people were receiving unemployment checks in October.

This bad news came just as a state fund that pays these unemployment benefits was about to run out of money and is on the brink of insolvency. The state’s unemployment insurance fund is expected to have a deficit of $2.4 billion at the end of 2009, forcing it to borrow from the federal government for only the second time since the program was established in the 1930s. If no steps are taken to increase the fund’s revenue or reduce its payouts, its deficit is projected to hit $4.9 billion by the end of 2010.

Governor Schwarzenegger has proposed filling this gap by raising the payments from employers into the fund and by reducing benefit levels for unemployed workers and raising income eligibility requirements. He has not been able to reach agreement with the State Legislature on this approach, as they struggle to address California’s now-$11.2 billion budget deficit.

California and Bay Area Officials have announced plans for a $1 billion network of electric car recharging stations for the San Francisco Bay area highways with a goal of greatly expand the number of electric vehicles on the road. A private company - Palo Alto-based “Better Place” along with San Francisco Mayor Gavin Newsom, Oakland Mayor Ron Dellums and San Jose Mayor Chuck Reed announced the deal, which sets out to install charging stations in homes, businesses, parking lots and government buildings by 2012. The company said it will also build mechanized battery swapping centers where robots will remove and replace the batteries in cars that are compatible with the system. These stations will allow electric car drivers to travel longer distances without recharging.

The initiative would make the Bay Area the first region in the U.S. to create an electric car network.
Gov. Arnold Schwarzenegger on Thursday supported the deal, which the company hopes to someday take statewide. “This type of public-private partnership is exactly what I envisioned when we created the first-ever low carbon fuel standard and when the state enacted the zero emissions vehicle program,” Schwarzenegger said in statement. “This partnership is proof that by working together, we can achieve our goals of creating a healthier planet while boosting our economy at the same time.”

The company also unveiled a prototype electric Nissan Rogue SUV, the second prototype developed
under Better Place’s partnership with automakers. Better Place has already struck similar deals with Israel, Denmark and Australia to create electric vehicle infrastructure in those countries.

“We put in the infrastructure, and the big carmakers make the electric cars for us,” said Joe Paluska, the company’s head of policy and communications. “This is an opportunity for California to apply its strength in technology and innovation to Michigan’s manufacturing might,” he said. “We now
need a strong national policy set by the new administration to help the U.S. revive its auto industry and it’s economy.” Until now, the knock on most electric vehicles is that they were prohibitively
expensive because the batteries cost $10,000 or more. Paluska said the new prototype vehicles solve that problem — the replaceable batteries in the prototype cars would be owned by the company, not the consumer. Better Place would charge drivers a subscription fee to use its recharging facilities.

As their part of the deal, the mayors vowed to help streamline local permitting and regulations to hasten the installation of hookups in the region, and to provide incentives for local businesses to install charging outlets for employees. “Our goal is to make the Bay Area — and eventually California — the electric-vehicle capital of the world,” Newsom said.

CalPERS has sold 80 private equity partnerships with a net asset value of $2.1 billion on the secondary markets, according to a report in Pensions and Investments

Leon G. Shahinian, senior investment officer, alternative investment management group, said in an interview that the $189.9 billion California Public Employees’ Retirement System, Sacramento, eliminated 60 partnerships from its alternative investment management program in July and August, he said. UBS assisted in the selection and sale of the private equity fund interests. Mr. Shahinian wouldn’t identify the funds or give selling prices. But according to CalPERS’ June 30 Alternative Investment Management Program Fund Performance review, funds missing from the June 30 list that had appeared on a year-end list run the gamut from buyout to venture capital to a few distressed debt funds and include the following: Technology Partners Fund VII, Thomas Weisel Capital Partners LP, Ticonderoga e-Services Fund II, TL Ventures V, Weston Presidio Capital IV, EuclidSR Biotechnology Partners, JPMorgan Partners Global, Thomas Weisel Global Growth Partners B, Thomas Weisel Strategic Opportunities, Provender Opportunities Fund II, Thomas Weisel Global Growth Partners II, Thomas Weisel Healthcare Ventures, Alta California Partners Fund II, Kohlberg Investors V, OCM Opportunities Fund V, OCM Principal Opportunities Fund III, Paladin Homeland Security Fund, Palomar Ventures III and Belvedere Capital II.

London-based private equity research firm Preqin estimated that funds sold for $2.1 billion in late 2007 in the secondary market — which trades private equity stakes between the pension funds and endowment funds that want to exit or buy. Preqin determined that the net asset value of funds sold equates to 9 percent of CalPERs overall portfolio, and calculates the remaining value of its private equity portfolio at $21.5 billion.

Calpers didn’t confirm Preqin’s calculations. The pension fund said it couldn’t specify how much more it gained from the sale in 2007, when the market was peaking, than if it had tried to sell it today.
But Leon Shahinian, Senior Investment Officer at CalPERS private equity program, said via an email from CalPERS spokesman: “In today’s market, we would have had hundreds of millions in losses.”

The pension fund said that its strategy dated back to late 2005, when its Alternative Investment Management program (AIM) presented a strategic plan to the CalPERS Board to lessen the administrative burden of having so many funds to oversee, and to optimize long-term private equity performance. In 2006, it hired UBS Investment Bank to scrub its private equity portfolio and develop a list to sell. At that time, it had investments in several hundred funds.

The inital sale of the $2.1 billion assets — which were sold in the secondary market and not all in one go — was in the third quarter of 2007, when the Dow was ranging between 13,000 to 14,000.
CalPERS said there were 80 partnerships in this portfolio and 60 different general partnership relationships, diversified over various private equity sectors such as venture capital, distressed, buyouts, etc. Sales were completed in the fourth quarter of 2007.

San Francisco-based Wells Fargo is now the nation’s largest bank in terms of value, with a market cap of $75.9 billion. In recent New York Stock Exchange trading, Wells moved ahead of J.P. Morgan Chase, which is now worth $75 billion. As reported in Bloomberg News, the San Francisco bank achieved the largest-bank status by being a contrarian in recent years, refusing to purchase mortgage assets at the peak of the market, issue millions of credit cards to those not already banking at Wells, trust that subprime paper blended together wouldn’t blow up or aspire to become a major player in investment banking, among other things. After Wells acquires East Coast rival Wachovia, it will also have the nation’s largest branch network. While there are other measures of bank size, Market cap reflects investor opinion on a bank’s operations and outlook and is considered the most reliable indicator.

Two Engineers from China have been sentenced to a year in prison after pleading guilty to economic espionage against the United States. The two men – Fei Ye, a citizen of the U.S., and Ming Zhong, a permanent U.S. resident – were facing a maximum of 30 years in prison after confessing to stealing microprocessor designs from their Silicon Valley employers in 2006. They had planned to smuggle the designs to China to launch a government-sponsored startup company there. Their guilty pleas were the first convictions for the most serious crime under the 1996 Economic Espionage Act. Prosecutors asked for a lenient sentence because the men cooperated with investigators - both apologized in court.

Unlike traditional industrial espionage economic espionage means that someone acted to benefit a foreign government and is a more serious crime. Only a few economic espionage cases have been resulted in convictions, mostlybecause it’s difficult to prove a person was acting to benefit a foreign nation. The case against Ye and Zhong began seven years ago, when they were arrested at San Francisco International Airport while attempting to board a flight to China. Their luggage was allegedly full of sensitive documents on chip designs taken illegally from four Silicon Valley tech firms who had employed the engineers. The companies include NEC Electronics Corp., Sun Microsystems Inc., Transmeta Corp. and Trident Microsystems Inc. Both had worked at Transmeta and Trident, while Ye had also worked at Sun and NEC. Other documents seized by authorities allegedly demonstrate the engineers were attempting to solicit money from Chinese government agencies to fund a startup firm.

Prosecutors say the documents showed that Ye and Zhong were promoting the startup as something that would elevate China’s chip-making capabilities, however, the documents do not confirm the Chinese government was aware that the chip designs were stolen.

Bank of America has awarded grants totaling $900,000 to Bay Area nonprofits.  As reported in San Francisco Business Times, four organizations won $200,000 unrestricted grants as part of Bank of America Charitable Foundation’s Neighborhood Excellence Initiative. They are Community Housing Partnership and Renaissance Entrepreneurship Center in San Francisco and Urban Gardens and Oakland Ballet Company in the East Bay.  In addition to these large unrestricted funds winners, the bank honored five community leaders in both San Francisco and the East Bay with a $5,000 donation to the nonprofit of the winner’s choosing. The program also honors local high school students, five from both San Francisco and the east Bay with a paid eight-week internship and other leadership training support.  Starting in 2009, the bank has a 10-year goal to give away $2 billion to community nonprofits.

Governor Schwarzenegger has ordered ordered preparations for rising sea levels from global warming, according to a report in Reuters News Service.  Recorded sea levels rose 7 inches (18 cm) during the 20th century in San Francisco, Schwarzenegger said in the executive order for study of how much more the sea could rise, what other consequences of global warming were coming and how the state should react.  California is considered the environmental vanguard of government in the United States, with its own standards for car pollution and a law to cut emissions of carbon dioxide, the main gas contributing to global warming, the report noted.  “The longer that California delays planning and adapting to sea level rise the more expensive and difficult adaptation will be,Schwarzenegger said, ordering a report by the end of 2010.

Online payment service PayPal, a subsidiary of San Jose-based eBay Inc. has announced that it has expanded into Mexico. Mexican buyers will now be able pay for online purchases using their credit cards or bank accounts with pesos as currency. According to a report in the San Jose Business Journal, the peso is the first Latin American currency to be added to the PayPal system. PayPal also enables payments in the U.S. dollar, Canadian dollar, Australian dollar, euro, British pound, Japanese yen, Chinese yuan, Czech koruna, Danish lrone, Hong Kong dollar, Hungarian forint, New Zealand dollar, Norwegian krone, Polish zloty, Singaporean dollar, Swedish krona, Swiss franc and Israeli new shekel. PayPal is now accepted in 190 countries around the world, and the company said users in Mexico can now shop at retailers that include including, Mixup, Sears, Match.com, Blockbuster, Best Day Travel, PlazaVIP, and PC en Linea “PayPal’s goal is to provide consumers a secure, fast and convenient way to pay and get paid online and to give online shoppers in Mexico more places to shop quickly and securely,” said Fernando Moreno, director of PayPal Latin America. “The launch of PayPal Mexico is a significant step towards our next phase of growth.”

The California Sustainable Winegrow-ing Alliance, created by the San Francisco-based Wine Institute and the California Association of Winegrape Growers has received a $125,000 specialty crop block grant from the U.S. Department of Agriculture’s Agricultural Marketing Service to create a certification system for the effort. According to a Business Journal Report, the program started five years ago with the creation of the voluntary Code of Sustainable Winegrowing. Some environmental-protection advocates have called for third-party verification of compliance with the extensive best-management practices in the code. The alliance is currently drafting guidelines for certification.

Amylin Pharmaceuticals will lay off 340 employees in San Diego, a decision expected to save the company more than $100 million. fter the job reduction, Amylin will have 1,800 employees, about half of which will be in San Diego.   Amylin says its priorities are to increase sales of Byetta and Symlin — its product for Type 1 diabetes.

Goldman, Sachs & Co. urged some of its big clients to place investment bets against California bonds this year despite having collected millions of dollars in fees to help the state sell some of those same bonds. According to a report in the Los Angeles Times, the giant investment firm did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California’s deepening financial misery. In Sacramento, officials said they were concerned that Goldman’s strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers. While it is not clear whether this is technically illegal, it is what gamblers call, “playing both ends against the middle” and California has been highly sensitive to the possibility of any major corporation gaming the system ever since Enron ran off with the entire State treasury in 2001. The full article can be read at this link.

Sun Microsystems of Santa Clara has announced plans to shed as many as 6,000 workers in the hopes of returning the company to profitability. The software and server maker has struggled to maintain sales of its servers, which has hurt its stock price and undercut plans of a larger comeback. According to a report in the San Francisco Chronicle, the company’s plan to jettison between 5,000 and 6,000 employees represents a reduction of between 15 and 18 percent of Sun’s global workforce, which should reduce costs by $700- to $800 million annually. Sun will take a one-time charge of between $500- and $600 million as part of the layoffs and restructuring.

In light of the shifting economic landscape, Sun said, the company is realigning its operations to put more emphasis on open source computing. Toward that end, Sun is reconfiguring its software business into three groups: applications platform software, systems platforms and cloud computing and developer platforms. “Today, we have taken decisive actions to align Sun’s business with global economic realities and accelerate our delivery of key open source platform innovations - from MySQL to Sun’s latest Open Storage offerings,” said Jonathan Schwartz, Sun Microsystems’ chief executive. Schwartz said in interviews that the credit crunch has delivered a blow to Sun’s business because customers are unable to secure loans for Sun’s premium servers. In addition, a quarter of Sun’s customers come from the financial services sector, which is reeling from the meltdown on Wall Street. Sun’s stock price has plummeted to a dangerous low, reflecting a dour outlook by investors for the company. Sun shares were trading at $4.11 at mid-day, putting the market value of the company at about $3 billion, a little less than what Sun has in cash on hand. The stock is well off its 52-week high of $21.55 a share and its historic high in 2000 of more than $250 at the height of the dot-com boom.

The Wine Institute hired a director of international marketing, according to a report in San Francisco Business Times.  Linsey Simpson Gallagher will fill the new position at the San Francisco-based Wine Institute, created because Joseph Rollo, head of the institute’s international department for 20 years, had seen his work increase dramatically.  Rollo will continue full time work at the Wine Institute under the title director of international trade policy.  Gallagher, who starts Nov. 1, was vice president of her family’s real estate business on the East Coast. She was also marketing manager for E.&J. Gallo Winery and also manager of finance for the NBC Today Show.  Robert Koch is president and CEO of the Wine Institute.

Hewlett-Packard Co. has announced plans for an advanced manufacturing complex in West China.   According to a report in Silicon Valley / San Jose Business Journal, Palo Alto-based HP plans a 20,000-square-meter facility in Chongqing where it will make notebook and desktop PCs for customers.  Manufacturing operations are expected to begin in 2010. When in full operation, the HP-managed plant is expected to have the capacity to meet market demand in Chongqing as well as other parts of China across government, public and retail sectors. 

EBay Inc. plans to eliminate 1,600 jobs, or 10 percent of its workforce, to reduce costs as the company tries to revive its slowing growth, according to a report in the San Francisco Chronicle:

The staff cuts include 1,000 full-time, temporary and part-time workers, plus some open positions that will be left unfilled. They come on top of 125 dismissals earlier this year by the San Jose company, whose core online marketplace is slumping in the face of stiff competition from Amazon.com and users’ growing preference for shopping for products at a fixed price rather than by auction.

John Donahoe, eBay’s chief executive, said that reducing staff will “make us a nimbler, more efficient organization.” He acknowledged that the economy and an unfavorable foreign exchange rate are hurting the company’s finances, although the cuts largely are prompted by internal problems.

Imran Kahn, an analyst with JPMorgan, said in a note to investors, “We believe the cuts could help position eBay to more efficiently weather the current challenging economic environment.” EBay expects upfront the job reductions to will cost $70 million to $80 million, which it plans to record in the fourth quarter.

Investors have been pessimistic about eBay for some time, driving its shares down and prompting calls for management to make cuts. Executives have launched a plan to revive the business by emphasizing bigger retailers in the marketplace along with changes to search and user feedback that have proved unpopular with many sellers.

EBay’s acquisition of Bill Me Later of Timonium, Md., is for $820 million in cash and $125 million in outstanding options. By combining forces, eBay is hoping to bolster its PayPal online payments service, which already dominates the industry. Bill Me Now allows users to buy online, but bills them up to 30 days later. At that time, they can pay immediately or take a loan… In addition, eBay plans to pay $390 million in cash to expand its online classifieds business by buying Danish classified site dba.dk and auto site bilbasen.dk.

Donahoe acknowledged that, given the bleak global environment, it might seem counter-intuitive to make major acquisitions. But he emphasized that eBay’s strong cash reserves - it has nearly $4 billion in cash and short-term investments in June - puts it in a position of strength. “In times like this, stronger companies get stronger, and that’s exactly what these acquisitions will help us do,” Donahoe said.

The cutbacks, the biggest ever at eBay, are yet another example of Silicon Valley giants shedding workers amid the economic slump and potentially foretell a stark job environment in the technology industry. Hewlett-Packard and Nvidia both have recently said they plan to pare their workforces, and Yahoo is in the process of reviewing its organization to make it more “fit,” as CEO Jerry Yang put it.

California may be the next domino to fall in the global financial meltdown, and it has gotten surprisingly little attention. Because of the credit crises, the State my had difficulty arranging financing for the bond sales it uses to generate cash flow to run the government. Governor Schwarzenegger has written a letter to the Secretary of the Treasury, Henry Paulson, advising him that California may need a $7 billion emergency rescue loan from the Federal Government. State Treasurer Bill Lockyer warned that the State’s cash revenues will dissipate completely by the end of the month, and the state’s 5,000 cities, counties, and school districts will face job layoffs and payments for law enforcement agencies, teachers, nursing homes and an array of other services and government entities could soon be suspended.  As reported in Financial Times:

California’s economy, which would be the eighth biggest in the world if the state was a separate country, is teetering on the brink of a financial crisis intensified by the credit crunch. California is weeks away from running out of money. In a letter to Hank Paulson, the US Treasury secretary, Arnold Schwarzenegger, California’s governor, last week admitted an immediate $7bn was needed to pay for essential public services, such as police and fire-fighters.

California would normally generate interim funding by issuing “revenue anticipation notes” in the short term credit markets to tide it over until tax revenues arrive later in its financial year. But the door to the credit markets is firmly closed.   Other states are also suffering from poor economic conditions and declining tax revenues.

Florida, Nevada, Massachusetts and Ohio have dipped into their reserves  to maintain spending, according to Robert Kurtter, managing director of Moody’s US public finance group. But he said California’s situation was unique as it often relied on the capital markets to maintain spending commitments.  “When you have that dependency year-in-year-out you are going to get caught out when the markets are disrupted,” he said. “And that’s exactly what happened.”

Unlike most other states, California does not have a reserve fund and because it depends heavily on capital gains tax and stock option realisations, its revenues can be volatile. The looming cash flow crunch has caused considerable alarm.  “We are two weeks or so away from not being able to pay teachers and fire-fighters,” said Ross DeVol, director of regional economics at the Milken Institute, a Los Angeles-based think-tank.

Passage of the $700bn bail-out bill last week may not have solved the state’s immediate problems. “If we could get through the next two or three weeks without another financial institution being taken over that might restore confidence in counter-parties. But I don’t think the bill will free up the credit markets in the near term.”

Bill Lockyer, California’s treasurer, said immediate cash needs could be met with as little as $3bn.  But to end its reliance on the markets, California must first become better at balancing its budget, said Mr Kurtter. “Typically, when entities get into trouble it begins with cash flow. And when you are chronically running budget deficits, your cash is going to dry up.”

California will be officially represented at CeBIT, a trade show for information and communications
technology (ICT) that will take place in March 2009 in Hannover, Germany.  According to Governor Schwarzenegger’s press release:

Governor Arnold Schwarzenegger today announced California will be the first state to be the official partner of CeBIT, the world’s largest trade fair for digital business solutions and information and communications technology (ICT). In previous years, CeBIT has partnered with other nations
including the United States, France, Russia, India and Canada. As the Partner State, California businesses will be highlighted above all others, providing a great opportunity for business matchmaking and networking for California businesses “I am excited to officially announce that California will be the 2009 CeBIT partner state, a role previously reserved only for nations, and we look forward to demonstrating California’s global leadership in information communications technology,” said Governor Schwarzenegger. “Not only does CeBIT provide California with a venue to showcase our innovative spirit, it is a tremendous opportunity for California companies looking to promote their
products in the global marketplace. I urge businesses across California to showcase
their innovation at CeBIT 2009.”

At CeBIT 2009, California will spotlight the state’s innovative ICT technologies in several key industries including green IT, entertainment, Internet-based services, TeleHealth, security, consumer
electronics, digital content generation and distribution, aerospace, and research and technology. The star attraction of the Partner State program will be the Germany-California ICT Summit. The two entities will use this opportunity to step-up collaboration and stimulate more bilateral business. “It is fitting that we are in the Silicon Valley today since it is a major source of global information, communications technology and venture capital. The region has garnered a lot of well-deserved attention over the years,” said Dale E. Bonner, Secretary of California’s Business, Transportation & Housing Agency. “But there are also many other innovative information and technology companies located in places like Los Angeles, San Diego and regions throughout California
that will play an important role in CeBIT 2009.”

Gap Inc. is expanding internationally with new franchise agreements to open stores in Mexico, Egypt and Jordan, according to a report in San Francisco Business Times:

The new agreement brings to 21 the number of countries with approved Gap franchisees. The first franchisee was signed in January 2006, and over 100 franchised Gaps and Banana Republic stores are now open in 13 countries.

In Mexico, Gap (NYSE: GPS) will open stores within stores at a Mexican department store chain through a partnership with Distribuidora Liverpool. Gap products will become available in spring 2009.

Gap Inc. will also expand its Middle East presence with franchised Gap and Banana Republic stores in Egypt and Jordan. Fawaz Alhokair Group will open the first Gap stores in Egypt and Jordan by the end of the year, with Banana Republic stores following in 2009. Fawaz Alhokair also has franchised Gap and Banana Republic stores in Saudi Arabia.

Gap and Banana Republic franchise stores are now open in Bahrain, Greece, Indonesia, Korea, Kuwait, Oman, Qatar, Malaysia, Saudi Arabia, Singapore, Philippines, Turkey and United Arab Emirates. The company has also announced franchise agreements to open stores in Bulgaria, Croatia, Cyprus, Romania and Russia over the next five years.

Mexico has open the bidding process for the huge new port complex being planned for Punta Colonet - currently a village about 150 miles south of Tijuana. This project is being designed specifically to compete with California ports, and the economic impact could be huge. The project bid is being structured as “joint port-and-rail project” and we don’t know the route of that rail road yet - it could point straight toward Texas and bypass California completely. As reported in the Los Angelest Times, however, its future of this project is anything but ensured:

Mexico’s government is setting sail with the largest infrastructure project in the nation’s history, a $4-billion seaport that it hopes will one day rival those of Los Angeles and Long Beach. President Felipe Calderon is scheduled to travel to northern Baja California today to open bidding on a development that his administration hopes will catapult Mexico into a major player in North
American logistics.

Plans call for the construction of a massive port in the tiny coastal village of Punta Colonet, about 150 miles south of Tijuana, along with new rail lines to whisk Asian-made goods north to the United States. Mexico’s aim is to snatch some Pacific cargo traffic from Southern California’s ports, whose growth is constrained by urban development and environmental concerns.

Punta Colonet is expected to have a capacity of 2 million shipping containers annually when it opens in 2014, Mexico’s transportation secretariat told The Times But officials envision it ultimately handling five times that amount. Last year, the ports of L.A. and Long Beach handled 15.7 million containers combined. The massive development is to be privately funded, with the first phase estimated to cost $4 billion to $5 billion. The government is expected to award the 45-year concession in 2009. A number of major players are expected to vie for the project, including Mexican billionaire Carlos Slim Helu, the world’s second-richest man. Slim’s infrastructure company, known as Ideal, has teamed with Mexican mining and railroad giant Grupo Mexico and New Jersey-based terminal operator Ports America Group to make a run at the deal. “We’ve spent a lot of years working on this,” said Miguel Favela, head of Mexican operations for Ports America. “It’s going to make Mexico . . . much more competitive.”

About 30 million shipping containers crossed the Pacific Ocean last year, a flow that increased about 10% annually in the last decade. A weak U.S. economy has slowed the trade, but experts predict it will rebound. With shippers increasingly worried about congestion at L.A.-Long Beach, Punta Colonet has emerged as an attractive alternative. It’s close to the United States. It possesses a wide, natural harbor. And it’s in a lightly populated area offering room for expansion. When Calderon visits the dusty hamlet of about 2,500 people today, he is expected to talk about the big changes in store. The village will need extensive upgrades to its roads, housing, electrical grid and water supply. State and local officials are planning for a city of about 200,000 to spring up around the port.

The changes envisioned are alarming environmentalists, who worry about the potential destruction of the area’s plants and wildlife. But the farmers who scratch out a living there are thrilled at the prospect. “What we need is employment for our kids,” said Jesus Lara, representative of several peasant landowner groups that are eager to sell. “Everyone is excited. Having the president come to your town is like winning the Lotto.”

But whether Punta Colonet turns out to be lucrative for Mexico won’t be known for years. Competitors up and down the Pacific coast are in the midst of major upgrades. Panama has begun a $5.3-billion expansion of its landmark canal. Canada’s Prince Rupert port in British Columbia began speeding containers to the American heartland by rail last year and is planning a major expansion. Little of the cargo bound for Punta Colonet will stay in Mexico, making the port vulnerable to the whims of shippers, who can choose other routes to the U.S.  “Nothing is guaranteed,” said Asaf Ashar, research professor with the National Ports and Waterways Institute in Washington. “It’s a big risk.”

Building a seaport from scratch would be difficult enough. But the overland transportation piece is likely to make or break Punta Colonet. The deal is being structured as a joint port-and-rail project,
requiring terminal operators, railroads and construction companies to team up in consortia to win the bid. The railroad’s ultimate route and U.S. crossing points will depend on which railway operator is chosen and how it manages to link up with existing rail networks on both sides of the border.
Union Pacific Corp. of Omaha and Fort Worth-based BNSF Railway Co. control the U.S. side of the tracks at most of the key U.S.-Mexico border crossings. Striking a deal with one of those companies to get the cargo to the American side will be crucial, said Paul Bingham, managing director of the global trade and transportation practice for Global Insight, a Massachusetts-based consulting firm.

“They have the ability to essentially choke off that port,” Bingham said.  BNSF spokesman Patrick Hiatte said Wednesday that the company was “very interested” in the Punta Colonet project. He declined to say with whom the firm might collaborate to make a bid. Union Pacific could not be reached for comment. The company earlier had teamed with Hong Kong-based Hutchison Port Holdings to make a run at the project, but that alliance dissolved last year.

The California Travel and Tourism Commission will open an office in Seoul on to generate marketing and promotional campaigns to bring South Korea travelers to California. The commission hired AVIAREPS Marketing Garden to represent the California tourism industry in South Korea. South Korea is California’s fourth-largest overseas market, with 331,000 visitors, according to Caroline Beteta, CTTC chief executive officer.  “We expect that number to increase dramatically with the easing of visa restrictions and expected expansion in airlift.” South Korean travel in California generated $405 million in 2007, with an average leisure travel expenditure of $1,368 per visit. California now has overseas travel offices in the United Kingdom, Japan, Australia, Germany and Mexico.

The New York Times has published a long report covering the housing bust in Merced, California entitled: In the Central Valley, the Ruins of the Housing Bust. They noted that while their is plenty of blame to go around, the situation is pretty desperate:

….hardly anyone in Merced planned very far ahead. Not the city, which enthusiastically approved the creation of dozens of new neighborhoods without pausing to wonder if it could absorb the growth.

Certainly not the developers. They built 4,397 new homes in those neighborhoods, some costing half a million dollars, without asking who in a city of only 80,000 could afford to buy them all.

Obviously not the speculators turned landlords, who thought that they could get San Francisco rents in a working-class agricultural city ranked by the American Lung Association as having some of the worst air in the nation.

And, sadly, not the local folk who moved up and took on more debt than they could afford. They believed — because who was telling them differently? — that the good times would be endless.

“Owning a home is the American dream,” says Jamie Schrole, a Merced real estate agent. “Everybody was just trying to live out their dream.” The belief that this dream could be achieved with no risk, no worry and no money down was at the center of the American romance with real estate in the early years of this decade, and not just in Merced.

How long will the economy have to pay the price for that illusion? The experience of Merced, which rose higher and fell faster than nearly anywhere else, suggests that recovery from the national real estate debacle will be painful and protracted.

In the three years since housing peaked here, the median sales price has fallen by 50 percent. There are thousands of foreclosures on the market. The asking prices on those properties are so low that competitive bidding, a hallmark of the boom, is back.

But almost no homeowner can afford to sell. If you cannot go as low as “the foreclosure price” — the cost of a comparable bank-owned house — real estate agents say you might as well not even bother listing your home. And so most people do not: three out of four existing-home sales in Merced County are now foreclosures, the highest percentage in the state…

As reported in Legal Newsline:

Californians are the most frequent victims of Internet crime and
complaints according to a new Federal Trade Commission report that
stems from data provided by the attorney general’s office.

California
collected 8,622 individual complaints on Internet-related fraud in
2007, according to a story first reported by the San Jose Mercury News.
The amount of complaints far exceeds all other states, including
runner-up New York that had slightly more than half the number of
complaints as California.

According to data from the California
attorney general’s office, complaints were filed over a diverse number
of reasons including identity theft, spam, disputes with service
providers and e-mail scams designed to discover personal information.

In
2007, the FTC report said nearly a quarter of a million complaints were
lodged nationwide, the Center for Democracy and Technology said.

Most
states have neglected to bring significant cases as a result of these
complaints, the press release states, with most of the cases brought by
attorneys general focused on sexual enticement of minors and child
pornography.

“These numbers are startling, but they may even
understate the problem,” said Reece Rushing, director of regulatory and
information policy at the Center for American Progress. “Consumers are
often unaware, and thus may not report, when they are victimized by
online threats such as spyware or phishing. We must take action against
these threats to protect consumers and preserve confidence in Internet
commerce.”

San Ramon-based Chevron Corp. will sell 2,000 Texaco gas stations and some related businesses in Brazil for about $730 million. As reported in San Francisco Business Times:

Chevron agreed to sell the businesses to Ultrapar Participações S.A., based in São Paulo. The deal requires separating out Chevron’s lubricant and oil exploration businesses, which aren’t included in the deal. The separation will take until early 2009, according to Ultrapar. Pedro Wongtschowski is CEO of Ultrapar. The company will pay the price, which is subject to a working capital adjustment, out of its cash reserves.

Ultrapar is licensing the Texaco brand name for up to five years, during which time it will phase in the use of its own Ipiranga brand name. In this deal it will also get some equity in terminal operations. Texaco is the No. 4 fuel brand in Brazil by sales volume, with sales of about 120,000 barrels per day.

Japan’s Mitsubishi UFJ Financial Group has offered to purchase the 35 percent stake in San Francisco based UnionBanCal- parent of Union Bank of California, that’s held by the public. As reported in the San Francisco Business Times:

Japan’s largest bank my market cap sees the Union Bank branch network as a nice launch pad for its own banking ambitions in America. “We view this transaction as a first step of our growth strategies in the United States, and we will achieve greater management flexibility and aim to further strengthen our presence,” MUFG said.

MUFG unsolicited offer calls for the Japanese bank to pay $63 per share, or $2.7 billion, for the UnionBanCal shares in public hands. That was up from a previously undisclosed offer of $58 per share that the San Francisco bank’s board rejected in June as too low. The proposed transaction values the entire bank at $8.8 billion. Investors anticipate that the purchase price may be nudged higher, pushing the bank’s shares up 13 percent Aug. 12 to $65.50 at the close of New York Stock Exchange trading.

UnionBanCal operates 330 branches in California, Oregon and Washington state. Union Bank in recent years has adopted a strategy of courting business owners and affluent customers rather than trying to go head-to-head against California’s two-largest banks, Bank of America and Wells Fargo. The numbers don’t work for Union Bank to engage in that costly battle, given the larger banks’ ubiquitous branches and ATMs.

As reported in Venturebeat:

Space Exploration Technology Corp., the company created by PayPal co-founder Elon Musk and better-known as SpaceX, has raised $20 million from The Founders Fund.

This is the first time SpaceX has raised outside funding, according to the Wall Street Journal; Musk previously invested $100 million of his own money. The news follows right behind the Hawthorne, Calif. company’s third attempted launch. The launch ended in failure last weekend, when the first-stage engine didn’t separate as required. The Falcon 1 (pictured left) carried three satellites — one for the U.S. Department of Defense, two for NASA — as well as the remains of 208 people who paid to have their remains shot into space, including astronaut Gordon Cooper and actor James Doohan, who played Scotty on Star Trek.

But Musk says a fourth launch is “almost ready” to go, and that the new funding is just a “precautionary measure.” Musk already has a connection with The Founders Fund, which was established by his PayPal co-founders Peter Thiel, Luke Nosek and Ken Howery. The Journal reports that SpaceX also held unsuccessful talks with aerospace company Northrop Grumman about a possible investment.

SpaceX has big goals — to make space travel, including missions to other planets, more reliable and affordable by a factor of 10. With three failed launches, it clearly has a way to go on when it comes to reliability, but apparently it’s not unusual to see these kinds of problems during the early stages of a rocket’s developent. SpaceX already has plans for 11 missions.

The Los Angeles Times reports that Iraq will open a consulate in San Diego to assist Iraqis with documentation, passports, visas and other consular services.

Coming soon to California: a consulate of Iraq. To take the strain off the Iraqi embassy in Washington, D.C., and help expatriates scattered around the United States, the Iraqi Foreign Ministry plans to place consulates in Detroit and San Diego. Detroit and San Diego? “Yes, there’s quite a big community in Detroit,” Labid Abbawi, Iraqi foreign undersecretary, said. “Also we have quite a big number in San Diego as well,” Abbawi said. “There are also in Los Angeles a lot, but we thought San Diego was more suitable.” There were 3,705 Iraqis in Detroit, 2,039 in Los Angeles and 822 in San Diego, according to the 2000 U.S. Census.

But there are also Iraqi communities in east San Diego County, particularly Christian Chaldeans. Many small market owners and professionals in the area are Iraqi. Some estimate that, including second generation, there are 25,000 Iraqis in the county. Those numbers are likely to increase as the U.S. State Department gears up its post-war refugee program. The Bush administration set a goal of admitting 12,000 Iraqi refugees this year.

The San Diego consulate should open before the end of the year, Abbawi said. It will assist Iraqis with documentation, passports, visas and other consular services. Americans flying from the West Coast to Iraq will also find it convenient. Now they will be able to pick up their visas in San Diego, which could be preferable to waiting a day or two in Amman, Jordan, to get the necessary papers. For now, it may be only reporters and military contractors who would care, but Abbawi thinks wider need could be coming soon. If Iraq has turned the corner on security, as Abbawi believes, tourism should follow.

“We hope the day will not be too long where you’ll be able to come and have a walk in Baghdad quite freely,” Abbawi said. “I hope this will not be long.”

Representatives for the State of California have signed a series of Memorandums of Understanding (MOU) the Republic of Chile. In a speech before the California Assembly, Chilean President Michelle Bachelet Jeria urged stronger ties between Chile and the United States. The two countries share a respect for freedom, human rights and fair trade, she said. Speaking of Chile, she said, “We aim to take a giant step and become a developed nation in the span of one generation.”. “We have not come to ask for aid,” she told legislators. “We have come to form a partnership for development.”

According to a press release from the Governor’s office, the first MOU was signed by officials from the Republic of Chile’s Ministry of Foreign Affairs and California’s Environmental Protection Agency, Resources Agency and Department of Food and Agriculture. It is an agreement establishing a California-Chile “Partnership for the 21st Century” that is based on the desire of both parties to open collaboration between their institutions, organizations, universities, research centers, companies and citizens.

Schwarzenegger, in a prepared statement, said that Chile and California are “natural partners, given our longstanding history of educational exchange, our excellence in agriculture and our similar geography and climate.”

“President Bachelet’s visit marks a continuation of our efforts to promote collaboration through cooperative actions and initiatives focused on issues of mutual interest, including education and workforce development, environmental protection, clean energy, agriculture, information technology and trade,” Schwarzenegger said.

Wells Fargo made a $100,000 grant to the California Hispanic Chambers of Commerce, of which $25,000 will be used to start a CHCC Foundation. Since 2000, the bank has given more than $1 million to the chamber. The CHCC says it represents the interests of more than 600,000 Hispanic-owned businesses and more than 60 Hispanic chambers and business organizations throughout California.

The state of California’s payroll is skyrocketing under Govern Schwarzenegger, even as its budget deficit has grown to billions of dollars, according to an analysis by the San Francisco Chronicle.

In Gov. Arnold Schwarzenegger’s first four years, the total bill for state workers salaries jumped by 37 percent, compared with a 5 percent increase in the preceding four years under then-Gov. Gray Davis, a Chronicle analysis of state payroll records shows.

One month before Schwarzenegger took office in November 2003, just eight state employees earned more than $200,000 a year working in the core state government, which excludes universities and the Legislature. In April of this year, there were nearly a thousand, according to records.

And the number of state employees making six-figure salaries has more than doubled since 2003, to nearly 15,000. Meanwhile, the number of state workers has grown by 26,000 under Schwarzenegger after being cut by Davis, who was recalled from office in the midst of a severe budget crisis.

Some of the pay increases in recent years have been out of Schwarzenegger’s control, including previously negotiated pay raises for some employee unions and court-ordered pay hikes for medical workers in the state prison system that are estimated to have cost the state hundreds of millions of dollars.

Also fueling the spurt in payroll growth: salary increases for employees in a few politically powerful labor unions, including the state’s prison guards, as well as pay hikes for workers in the upper echelons of state government. Elected members of the Legislature, who will decide in the coming weeks how to resolve the state’s $17.2 billion deficit for the fiscal year beginning July 1, also received increases last year.

“Salaries have only gone one way - up,” said Charles Murray, chair of the California Citizens Compensation Commission, which sets pay for the state’s top elected officials. Murray, a Republican from San Marino (Los Angeles County), has called for a pay cut for legislators and other elected officers in light of the state’s huge deficit.

“If we had control over the janitors, I’d ask them to take a pay cut, too,” he said. “The reasoning is very simple: We’re in big trouble moneywise.”

Legislators, gubernatorial aides and top medical professionals have received pay hikes in the last 12 months. And as the state looks at drastic cuts in many programs, the governor is proposing about $260 million in salary increases for the state’s prison guards, whose pay jumped about 34 percent in five years under their previous contract.

At the same time, pay for many lower-ranking civil service workers has not kept up with the 15 percent increase in the state’s consumer price index in the past four years, according to an analysis by the state Legislative Analyst’s Office. Most civil service workers saw their pay rise by only 12 percent over that time.

The winners of the payroll race seem to be the unions with the strongest political ties or those who spend big bucks on political contributions and lobbying, said Christina Lokke of California Common Cause, a good-government watchdog group.

“There’s lobbying going on among all these groups of state employees - and the outcomes are pretty imbalanced,” she said. Sometimes, politics and money beat good policy, that’s when the public loses out.

Schwarzenegger spokesman Aaron McLear said much of the blame rests with the Davis administration, which negotiated some contracts in which workers deferred initial pay raises for bigger gains in later years. Essentially, when the governor came into office, many of these promises had already been made, he said.

California Highway Patrol officers got a 32 percent pay increase over four years through a contract negotiated by the Davis administration that linked their pay to the five largest police departments in the state. The average officer now makes $73,000 a year. The state’s professional engineers received a 31 percent pay raise through a similar automatic-increase mechanism negotiated by Gov. Gray Davis’ administration.

Examples of the salary hikes revealed in the state’s payroll database and compensation documents include:

* More than 100 physicians and surgeons working in state prisons saw their pay increase from an average of $129,000 to $238,000 in four years, and salaries for supervising psychiatrists jumped to $236,000, after a federal court-appointed receiver, Robert Sillen, determined that pay had been so low that the system was having difficulty attracting competent medical workers.

* Legislators’ annual pay climbed from $99,000 in 2003 to $116,000 this year, while the state attorney general’s increased from $148,000 to $184,000. The governor’s salary also rose, from $175,000 to $212,000, but Schwarzenegger declines to accept his salary. The state citizen’s compensation commission sets these pay rates, and some of its members are now looking at whether it can lower them.

* Eleven top advisers in the governor’s office got hefty pay increases in August, a week after the governor signed a budget that slashed programs for the homeless, mental health services and parks. Chief of staff Susan Kennedy received a $32,000 pay raise, boosting her government salary to $175,000. Four years ago, the top aide in the governor’s office earned a base pay of $138,000.

* At the top of the state’s salary list were chief officers for the California Public Employees Retirement System and the state’s stem cell research facility in San Francisco, known as the Institute for Regenerative Medicine, each of which is controlled by a separate board that is independent of state elected officials.

CalPERS Chief Investment Officer Russell Read made a base salary of $555,000 - plus incentive pay that pushed his total earnings to more than $900,000, according to a spokeswoman for the system. Alan Trounson, a renowned biologist appointed last year to head the stem cell agency, is paid $490,000. Four years ago, the top employee in the retirement system made a base salary of $360,000, and the stem cell agency didn’t exist.

H.D. Palmer, a spokesman in the governor’s Department of Finance, said state pay rates often aren’t competitive with those in the private sector and in city and county governments throughout the state. This year, the three top investment officers at CalPERS, including Read, announced they will leave to pursue private-sector investment jobs, many of which pay millions of dollars a year.

While the public needs to be concerned with the salaries being paid out to state employees, it also needs to know the state is in a competitive market and we need to find ways to attract and keep the best people, said Jason Dickerson of the Legislative Analyst’s Office, which has recommended that the state keep a tight lid on any further pay increases.