Silicon Valley Losing Its Edge

Silicon Valley is going to lose its competitive advantage if it can't improve public education and traffic flow, contain the cost of housing, and reduce the effect of sales tax on manufacturing, says a report scheduled for release Sept. 21 by the Silicon Valley Leadership Group.

Silicon Valley must compete with concentrations of high-tech industry in Research Triangle Park near Raleigh, N.C.; Boston; Fairfax County, Va.; Austin; Seattle; San Diego; and Portland, Ore. To remain competitive, the area must invest more in its highway and education infrastructure, while encouraging manufacturing, argues Wells Fargo senior economist Scott Anderson in the 38-page report and in an earlier report available on the group's Web site, "Projections Silicon Valley: 2005."

The group, formerly known as the Silicon Valley Manufacturing Group, has made exempting manufacturers from the state's 6% sales tax on capital equipment purchased for manufacturing one of its key goals in 2005-2007. If granted, the exemption would save manufacturers in the state an estimated $2.9 billion and help California compete with other locations that don't impose a 6% sales tax.

The group includes IBM, which does little manufacturing in Silicon Valley, and Intel, which already moved much of its U.S. chip manufacturing to Oregon, Arizona, and New Mexico. The group also includes Apple Computer, Advanced Micro Devices, BEA Systems, Cisco Systems, eBay, Google, Hewlett-Packard, Hitachi Semiconductor America, Lockheed Martin Space Systems, Microsoft, National Semiconductor, Oracle, SGI, Sony Electronics, Wyse Technology, and Yahoo.

The region could address both its high cost of housing and its transportation snarl-ups by building more housing close to public transportation, the report said. Only 4.4% of the Silicon Valley's commuters use public transportation, compared with 18.6% in the San Francisco Bay Area as a whole.

Because of the state's ongoing budget crunch, road maintenance has been cut 40% since 1998, according to the Legislative Analyst's Office. The Federal High Administration ranks California's interstate highways and major arterial streets and roads as second roughest in the nation, with 26% rated unacceptably rough, Anderson's Projections report says.

In 1977, California's expenditures on K-12 public schools matched the national average, but since then it has dipped below by as much as $1,200 per student in 1996, as the Internet boom got under way, and it remained $600 below the national average in 2001-2002.

Student test scores are improving, but public schools "have great strides to make" to meet the requirements of the No Child Left Behind Act of 2001."Nearly five of every ten schools in Santa Clara County did not meet their Adequate Yearly Progress targets," Anderson notes on the effects of the act in 2004. Without further investment in public education, "students in the county will fall well short of meeting the federal proficiency goal by nearly 40%," Anderson write.

The share of fully credentialed teachers in Santa Clara County, he notes, "has stalled at 85%."