SILICON VALLEY CEO SURVEY BUSINESS CLIMATE Gateway Place Suite 101E San Jose, CA

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1 SILICON VALLEY CEO SURVEY BUSINESS CLIMATE 0 Gateway Place Suite E San Jose, CA

2 SILICON VALLEY CEO SURVEY BUSINESS CLIMATE The CEO Business Climate Survey is produced by the Silicon Valley Leadership Group. 0

3 Overview In his best-selling book, The World Is Flat, Thomas Friedman warns that globalization has produced an increasingly level playing field: This flattening process is happening at warp speed The faster and broader this transition to a new era, the more likely is the potential for disruption. It has been a decade since the publication of Friedman s book, and much of what he said has come true. Globalization has changed the way much of the world does business. Innovation magnets, massive assembly plants and data farms, modern universities, mobile and social, and new financial centers have sprung up all over the planet, disrupting and sometimes overtaking long-standing centers of production and thought. Yet, while much of the world s economic stage has been relocated, Silicon Valley remains intact and is more successful today than a decade ago. Once known as the home of silicon chips, the area has become the center for software, social media, biotechnology, clean energy, and a host of other industries that touch technology in one way or another. Even automobile research and development has found a home in Silicon Valley. continues to grow at a torrid pace - a struggle that would be met with glee almost anywhere else in the world. The Valley s stellar achievement is not an accident. Brilliant technologists and scientists, innovators, visionary corporate leaders and a st century workforce have produced an environment nurtured by world class universities. Investors have provided incredible support for creative ideas, many of which have become the outputs of booming companies. In, Bay Area startups received nearly half of the $ billion invested by venture capital firms. Local, state and federal governments have struggled to meet the needs of a region that (Note: The Silicon Valley Leadership Group has been working since, when it was founded by David Packard of Hewlett-Packard, on issues, programs and campaigns that improve the economic health and quality of life in Silicon Valley. Examples of some of this work is listed with key issues raised in this report.) Analysis by: Larry N. Gerston, Ph.D., Professor of Political Science, San Jose State University 0 CEO BUSINESS CLIMATE SURVEY It s within this framework that the Silicon Valley Leadership Group has undertaken its annual CEO Business Climate Survey. Aware of an increasingly complex and competitive world, the Leadership Group has again reached out to its members to gather first-hand assessments of the region s successes and challenges. Not content with past success, the survey asked about workplace conditions, the region s infrastructure, areas of strength and weakness, and how governments can work with the Valley to continue the innovation economy s momentum. Fifty-six percent of the 0 members responded an incredibly high participation rate attesting to their interest. The data from the survey reveal a region that has performed beyond expectations. Moreover, respondents in most sectors anticipate another banner year, setting up more profits for businesses, better salaries for employees, and additional tax revenues for local, state, and federal governments. But the members also realize that success can be fleeting, particularly in a changing world. With this in mind, the survey findings become an important roadmap for continued success. 0

4 the About Survey Key Findings The Silicon Valley Leadership Group conducted its th annual CEO Business Climate Survey between November, and January,. Many of this year s questions paralleled previous inquiries, enabling the survey to measure any changes of attitudes and experiences of the company members. Key areas of study included: The region s general business climate; employee living and working conditions; business concerns; the responsiveness of governments to Valley interests; and challenges and opportunities for the coming year. The survey also asked questions regarding recently enacted public policies and current issues of concern to the Leadership Group and Silicon Valley residents. In addition, the survey asked respondents to project their sense of the state and local economy for the coming year and, based on those sentiments, their recommendations on how governments might improve important areas of need. High-Tech Manufacturing/ Semiconductor Energy/Clean Tech/Utilities Gen. Manufacturing/ Aerospace/Defense Which of the following most closely describes your industry sector? 0 Software Health Care/Bio-tech/ Med-tech Professional Business Internet/Communications + = Education/University % Social Media Financial/Professional/ Venture Capital Transportation Employment Added jobs in : percent; compared with percent in Subtracted jobs in : percent; compared with percent in Expect to add jobs in : percent; compared with percent in Expect to subtract jobs in : percent; compared with percent in Job-Related Observations Employee movement out of state: percent; more than half cited reduced labor costs and/or more available labor force as the most important reasons. Physical presence in other states: percent, with Texas, New York, Colorado, and Massachusetts cited most often. Multinational presence: percent. Affordable Care Act: favored by percent, opposed by percent; compared with a percent to percent favorability in. California state budget surplus: percent believe that surplus funds should be spent on transportation. Strengths of Silicon Valley ( categories). Entrepreneurial mindset (# in ). Access to skilled labor: (# in ). Proximity to customers and competitors (# in ). Climate/weather (# in ). World class universities (# in ) Business Challenges ( categories). High housing costs (# in and highest response rate since 0). Employee recruitment (# in ). Traffic congestion (# in ). Business regulations (# in ). Business taxes (# in ) Cost of living challenges for employees and their families ( categories). Housing costs (# in ). Traffic congestion (# in ). High taxes (# in ) Recommendations to local government ( categories). Ease local street and road congestion (# in ). Approve more affordable home developments (# in ). Improve K- public education (# in ). Streamline permit approval process (# in ). Reduce public pension costs (# in ) Recommendations to state government ( catgories). Invest in traffic relief/transportation improvements (# in ). Help create more affordable housing (# in ). Strengthen K- education funding (# in ). Streamline regulatory and permit approvals. Strengthen higher education Recommendations to federal government ( categories). Comprehensive tax reform (# in ). H-B visa/green card reform (# in ). STEM (science, technology, engineering and math education to develop domestic talent (# in ). Expand and make permanent R & D tax credit (# in ). Growing concerns with cybersecurity up 0 percent from 0 CEO BUSINESS CLIMATE SURVEY 0

5 Quality of LIFE Business Climate In many respects Silicon Valley is the envy of the nation. The recent Silicon Valley Competitiveness and Innovation Project study, conducted by Collaborative Economics for the Leadership Group and Silicon Valley Community Foundation, highlights why this is the best performing tech region in the country (svcip.com). The review of economic indicators from VC spending, patents, global talent, business competitiveness and more, confirms that Silicon Valley leads all other tech regions in the country. The technology-driven economy also has created thousands of jobs in other industries. According to a Milken Institute report, each job added in the technology sector generates two professional positions and three nonprofessional positions. These days the Valley s economy is humming, which is why it is vital to maintain, and improve, the conditions unique to the region s success. The value of the region begins with its workforce, which innovates and produces the region s goods. What are the top cost of living challenges in Silicon Valley for workers and families? Housing Costs Traffic congestion High taxes Child care Health care To that end, the CEO Business Climate Survey asked respondents to name the three most important cost of living challenges to their employees and their families. The high cost of housing tops the list of concerns. In the survey, percent of the respondents cited housing as their top concern for employees. While housing costs are traditionally the number one concern, the percentage in is the highest response rate in this category since 0. And for good reason. According to Zillow, the median price for homes sold in Santa Clara County in was $,00, up. percent from the previous year. This number stands in stark contrast to the national median price for a home in, which was $,0, according to the U.S. Census Bureau. With housing prices so high in Silicon Valley, would-be employees must think long and hard about locating here. The lack of more affordable housing, in turn, places a huge strain on the ability of companies to secure a stable workforce. Percent of responders who chose housing as the top cost challenge from previous years Like the rest of the country, the economy in Silicon Valley is enjoying the fifth straight year of significant growth. Unemployment in Santa Clara County reached a six-year low of. percent at the end of, well below the national and state averages. Most economists suggest the U.S. economy will grow at the same, or even slightly faster pace, in. If that is the case, Silicon Valley will play a major role in the nation s success. The CEO survey results show that percent of the responding companies plan to add jobs this year, slightly less than the percent companies that added jobs in. This is even more encouraging because only percent of the respondents intended to add jobs last year. Valley companies may once again well exceed their own predictions. It is also impressive that only percent of the responding companies anticipate subtracting jobs during the coming year, half of the number for. While the anticipated growth of local companies is cause for celebration in its own right, it reminds us of the fragile nature of the Silicon Valley economy. Infrastructure concerns about housing, transportation, education and an available workforce remind us that the Valley s success is dependent upon factors in need of attention. Beginning January,, does your company expect to add jobs, subtract jobs, or stay the same in Silicon Valley? Stay the same Add Subtract Since January,, have you added, stayed the same or subtracted jobs in Silicon Valley? Added The Silicon Valley Competitiveness and Innovation Project report released in January showed that while the cost of doing business in Silicon Valley is percent higher than the national average, worker productivity is percent higher here (svcip.com). Silicon Valley Leadership Group s work on housing includes: Raised $ million to form Housing Trust Silicon Valley in which has helped more than,0 people through its three programs (first-time homebuyer, homelessness prevention and rental housing). Helped form the Housing Action Coalition of Santa Clara County to advocate for housing developments and policies across the region. Direct support for projects totaling approximately,000 homes. In, led the coalition to adopt a $ sq/ft housing impact fee in the City of San Jose which will result in $0 million annually for affordable housing. Stayed the same Subtracted 0 Added jobs Stayed the Same Subtracted jobs CEO BUSINESS CLIMATE SURVEY 0

6 Challenges & Strengths IN SILICON VALLEY Challenges The Valley s economic surge has brought incredible success to the region, but the swell of economic activity and high employment have also brought increasing attention to a series of underlying problems. Low unemployment means businesses are filled with workers who need places to live; successful business enterprises compete regionally and internationally for too few qualified employees; and the roads to those businesses and R&D centers are clogged with workers heading to and from work. It s difficult to imagine a regional juggernaut like Silicon Valley burdened with so many infrastructure issues, yet this is the case. Worse yet, these problems are not new. They have been improved upon over the years, but remain unresolved to the point of near crisis. In Silicon Valley, economic success comes at a price. With respect to the regional work environment, once again high housing costs for employees dominated the concerns of CEO survey respondents as obstacles to success. In the survey, percent presented housing as their number one employee concern, up from percent in. Employee recruitment/retention costs drew the concerns of two-thirds of the respondents, followed by traffic congestion ( percent), business regulations ( percent) and business taxes ( percent). Each of these five areas were among the most discussed in the survey, but business regulations and business taxes were reversed in rank. The point is that these issue areas are perennial concerns for survey respondents. On matters relating to the business environment, respondents expressed concerns largely about unnecessarily burdensome laws and regulations. Among these, the California Environmental Quality Act (CEQA) has been and continues to be particularly onerous for respondents, with half (0 percent) citing the law as their greatest challenge. Their responses are not surprising inasmuch as CEQA has been described as the third rail of California politics. In the words of one recent assessment, All who touch it [CEQA], from public agencies, to project developers, to environmental groups and labor unions, leave with singed hands and the conviction that they did not get what they wanted and that maybe even came off a little worse than when they started. Clearly, CEQA is lamented by a wide swath of the state, extending well beyond Silicon Valley companies. In addition to CEQA, percent of the respon- dents cited wage and hour issues as the greatest challenge to business in Silicon Valley, followed by percent who pointed to issues with Sarbanes-Oxley, 0 percent who mentioned Dodd-Frank, and percent who referred to AB requirements. All five of these concerns were mentioned in the exact same order in the CEO Business Climate Survey. What are the top business challenges in Silicon Valley? Business regulations Housing costs For employees $ Employee recruitment/ retension costs Traffic congestion Business taxes What are the top business regulation challenges in Silicon Valley? CEQA $ $$ Wage and hour issues Sarbanes-Oxley Act Dodd-Frank Act AB requirements Strengths Challenges notwithstanding, Silicon Valley companies have been able to thrive in recent years and are looking forward to success in the near term. A variety of factors contribute to the region s accomplishments, two of which focus on the area s collective mindset and phenomenal workforce. When asked about the top five strengths associated with doing business in the Valley, an astounding percent referred to the region s entrepreneurial mindset, up percent from the survey. Access to skilled labor was almost as important, drawing praise from percent of the respondents. Proximity to customers and competitors drew support from 0 percent, up seven percent from. Climate and weather drew accolades from half of the respondents (0 percent), followed by world class universities, which captured the attention of percent. Combined, these factors provide a solid foundation for Valley companies and employees. What are the top strengths of doing business in Silicon Valley? Entrepreneurial mindset % Access to skilled labor Proximity to customers and competitors Climate and weather World class universities Silicon Valley Leadership Group s work on transportation includes leading or co-leading four successful county sales tax campaigns since, generating money to: - Build Highway, improve Highways and - Make key road, rail and bus improvements 00 & 0 - Extend and operate BART from Fremont to San Jose s Berryessa neighborhood - Poised to lead a transportation funding measure in Santa Clara County to further extend BART to Santa Clara 0 CEO BUSINESS CLIMATE SURVEY 0

7 Elected OFFICIALS Today, business and government operate sometimes with different objectives, other times they are in synch. Depending upon the issues, the relationship can be sometimes frustrating for both universes. Nevertheless, on a fundamental basis, each appreciates the value of the other even during the most awkward moments because each is dedicated to sound public policy. Recognizing the many sources of information flowing into policy makers political inboxes, the Silicon Valley Leadership Group routinely provides valuable information to policy makers on the area s key economic and social issues in need of attention. The Leadership Group carries out this responsibility through many conduits, including special reports, symposia, one-on-one meetings with elected officials who travel to Silicon Valley, and visits from annual CEO delegations that visit policy makers in Washington, D.C. and Sacramento. Through these and other means, the Silicon Valley Leadership Group endeavors to keep open the channels of communication while finding common ground with elected officials wherever possible. Below we examine the attitudes of Leadership Group members on the policy making environment in California. Legislation The state legislature meets full-time in two-year increments, during which time members introduce between,00 and,000 bills. Close to half of these bills find their way to the governor s desk, and about percent of those are signed into law. These bills often exceed dozens of pages in length. Their numbers and complexity underscore the difficulty of keeping up with proposed legislation, yet it is of paramount importance for any group concerned with public policy. In the case of the Silicon Valley Leadership Group, legislators focus on numerous issues important to the organization, its companies and its employees. They range from funding K- public education to environmental management to workplace conditions to tax policy and beyond. As in the past, the CEO Business Climate Survey asked respondents for their assessment on the legislature s performance over the past year on a one-to-five scale, with one being the best and five being the worst. For the survey, percent viewed the legislature s policies on the wrong track (categories and combined), down slightly from percent in. At the other end of the continuum, percent viewed the legislature as being on the right track (categories and combined), comparable with the data produced in. Overall, the collective information suggests a slight improvement in legislative performance over the previous year. Regulations Buried deep within the policy making environment are myriad regulatory agencies created to carry out the general will of the state legislature and executive branch. Some, like the California Environmental Protection Agency, are well known. s, like the California Alternative Energy and Advanced Transportation Financing Authority rarely draw attention from more than a few interested parties. Still, the State of California has more than 0 agencies with regulatory authority, according to the California Office of Administrative Law, and many of them create rules that affect the business climate of Leadership Group members, as well as the entire state. On this note, most survey participants are not very pleased with the state s regulatory environment. Sixty percent see state regulation as being on the wrong track, a percentage identical to the data found in the survey. With respect to satisfaction, percent see statewide regulations moving in the right direction, up a bit from percent in. These slight gains notwithstanding, participants collectively still have a negative assessment of California s regulatory environment by a better than three-to-one ratio. Statewide regulations are on the right track () or wrong track () in creating a healthy business climate? Right Statewide legislation is on the right track () or the wrong track () in creating a healthy business climate? Wrong Right 0 0 Wrong 0 0 CEO BUSINESS CLIMATE SURVEY

8 IMPROVING Government The Governor Among the various policy making authorities at the statewide level, Governor Jerry Brown enjoys much more approval from CEO Business Survey respondents than the others. Brown started out with tepid approval ratings in, but his popularity has climbed steadily over the years. In the survey, percent of the survey participants believe Brown is on the right track in creating a healthy business climate, compared with percent who gave the Governor a favorable nod in. Twenty-two percent of the respondents view the Governor s performance negatively, compared with percent in. Clearly, the Governor has increased his popularity with Silicon Valley Leadership Group CEOs. Given the dismal levels of approval of the other state authorities, it would appear that participants are most comfortable with this office of state government. The Governor is on the right track () or wrong track () in creating a healthy business climate? 0 0 Right Wrong As an organization committed to getting the best out of the public policy process, the Silicon Valley Leadership Groups expends a good deal of its resources trying to improve the conditions of the state and region. Locally, members have worked for and helped secure voter approval for transportation, environmental and affordable housing measures. Statewide, members have focused on myriad issues, including improvement of harmful regulations, green legislation, and STEM (Science, Technology, Engineering and Math) education requirements. At the federal level, the Leadership Group has pursued immigration reform, cybersecurity and patent protection. These proactive approaches are invaluable efforts to improve the wellbeing of the nation, state and community. At the Local Level The Leadership Group is an important investor in the region with its strong presence of member companies and employees. As such, the survey respondents have insight on the areas of greatest need and attention not only as representatives of their companies but also as members of the community. Given this strong bond, the survey asked members to recommend the top three changes local governments might undertake to improve the business climate. Easing local street and road congestion received the nod from percent of the respondents, followed by more affordable housing developments ( percent), and improvement of K- public education ( percent). Significantly, concern about traffic congestion in the survey was a full five points higher than the report. The top three recommendations were clearly ahead of the rest of the pack. All three of these areas are part of the overall infrastructure, which has suffered from the inability of improvements to keep up with population growth. Nevertheless, the members recognize that it s difficult for a community to thrive without the flowing transportation of people and goods, affordable housing for employees, and a sound education system that produces tomorrow s workforce. What changes could local government undertake to improve the business climate for your company? % Ease local street and road Approve more affordable home developments K- education Streamline permit approval process congestion $ Reduce public pension costs + = Silicon Valley Leadership Group s work on education includes emphasis on Diversifying the STEM Pipeline through life-long learning, with the goal of preparing more home-grown talent for innovation economy jobs by: Early Childhood Education - Co-led the $ million fundraising campaign to bring Educare California at Silicon Valley to East San Jose Transitional Kindergarten - An early sponsor of new state law benefiting,000 school children annually Underserved Students - Hosted Young Women and Young Men Leadership Summits in the past six years exposing,00 low-income, ethnically diverse K- graders to adult role models in STEM Worked for years with elected and community leaders on increasing the number of tutor volunteers, salad bars in schools, teacher training in nearly 0 companies and launching a new Latino Scholarship Initiative with the Hispanic Foundation of Silicon Valley CEO BUSINESS CLIMATE SURVEY

9 At the State Level Aware of the important economic relationship between Silicon Valley and Sacramento public policy authorities, the survey asked members to recommend the five most important action steps state lawmakers could take to improve the overall climate for Valley companies. As with local government recommendations, a commanding percent mentioned investment in traffic relief and transportation improvement as the most important change, up percent from the survey and percent from survey. More affordable housing was mentioned by percent, and strengthened K- public education was cited by percent. These paralleled the recommendations for local government, and were mentioned by higher percentages of respondents than in. Streamlined regulatory and permit approval processes received mention from percent of the respondents, and strengthened higher education funding was stated by percent. Just out of the top five but still receiving considerable attention were recommendations for more reductions in public pension costs ( percent), reform of CEQA ( percent), and the recommendation to make permanent the state s research and development tax credit. At the Federal Level Improving Government Leadership Group members are keenly aware of the linkage between Silicon Valley, federal public policies and global competition. The policies set forth by the federal government greatly influence the economic climate in which Valley companies compete for customers of their products and services. Given this important connection, the CEO Business Climate survey asked participants to identify the five most compelling issue areas for the federal government to address out of possible categories. Comprehensive tax reform continued to weigh heavily on survey respondents, with percent citing it as among the most important issues in need of attention. This response level was slightly higher than the percent mentioned in, clearly indicating that concern about tax reform is not about to go away without significant change. H-B visa and green card reform was mentioned by percent of the respondents. This figure was also slightly higher than the percent mentioned in, reflecting another simmering public policy issue that is in need of attention. Commitment to STEM education programs was the third most mentioned category by 0 percent of the respondents. Expanding and making permanent R&D tax credits captured the attention of percent of the respondents, followed by the concern for cybersecurity, which came in fifth with attention from percent of the respondents. Only percent cited cybersecurity in, indicating heightened concern for this issue by the members this year. Issues With respect to the collection and distribution of resources, the state and federal governments play vital roles in establishing the opportunities and challenges for businesses and their employees. Two areas of significant activity are management of the California state budget and the resources dedicated to the Patient Protection and Affordable Care Act (known informally as Obamacare.) Leadership Group member assessments of the public policy areas are highlighted below. Recommendations for the State Budget Surplus Current Public Policy It s well known that California has a boom-and-bust economy. Much of it has to do with the state s unusual tax structure which relies upon personal income tax receipts for two-thirds of the state budget. Of that amount, the top percent of Californians account for about half of those revenues. This awkward arrangement has led many to propose dramatic changes in the state revenue collection arrangement to smooth out the highs and lows. For the moment, it appears that the state will have a budget surplus at the end of the - year amounting to as much as $ billion, which augurs the question of what should be done with it? This question was put to the participants in the CEO survey. Not surprisingly, an overwhelming percent called for transportation to receive some of the surplus. Higher education received support from percent of the respondents, followed by K- public education, which was cited by percent of the respondents. Concern for building up the state reserve came in a close fourth, receiving the attention of percent. With respect to suggestions for less spending, 0 percent called for spending reductions in the area of general government and government operation, followed by less money for corrections and rehabilitation ( percent), and health and human services (0 percent). All categories and the extent of member support for increases and decreases are cited in the chart below along with the percentage of the budget they are currently allocated. The nonpartisan state Legislative Analyst Office (LAO) projects an up to $ billion state budget surplus. Based on the state's current - budget, which of the following areas would you support changes in state expenditures? How could state government improve the business climate for your company? How could federal government improve the business climate for your company? + = Invest in traffic relief/ transportation improvements + = Help create more affordable housing Improve K- education Streamline permit approval process Strengthen higher education funding % comprehensive tax reform H-b visa/green card reform Stem education to develop domestic talent Enhance and make permanent the R&D tax credit Cybersecurity Building reserves; reducing debt (currently of budget) Labor and workforce development (currently 0. of budget) Health and human services (currently. of budget) Transportation (currently. of budget) Higher education (currently. of budget) Business, consumer services, and housing (infrastructure) (currently. of budget) % Corrections and rehabilitation (currently. of budget) Environmental protection (currently. of budget) General government and government operation (currently. of budget) K- education (currently. of budget) CEO BUSINESS CLIMATE SURVEY

10 Conclusion Health Care No domestic issue has consumed more time and potential reorganization of our lives than the Patient Protection and Affordable Care Act. The new health care law has implications both for individuals and businesses everywhere, including Silicon Valley. Given the importance of this relatively new public policy, the CEO Business Climate survey has been monitoring reaction to it. Beginning January, most business with 0 or more employees working 0 or more hours per week will be required to provide health insurance. This change will impact the cost of doing business, which is why it is so important to know the sentiments of survey respondents. Thus, in the survey, participants were asked about whether the new health policy should remain in place or be repealed. More than twice as many respondents favored keeping the legislation over repealing it, percent to percent, with 0 percent providing no opinion. These data show an increase in support from one year ago, when percent favored keeping the act and percent preferred repeal. For the moment, Obamacare seems to be gaining traction with a growing number of Silicon Valley companies. No doubt, we will learn more with implementation of the insurance requirement in. Which of these statements is closest to your feelings about the Patient Protection and Affordable Care Act of? No Opinion Keep Repeal The data in the CEO Business Climate Survey confirm what many in Silicon Valley have suspected, namely that the economy here continues to hum at a fast pace. Most businesses in the region exceeded the lofty expectations set in the survey. Their collective predictions for strongly indicate yet another healthy year for companies, their employees and the region. Given the difficulties of attracting and keeping a well-trained st century workforce in a competitive global economy, these accomplishments are all the more impressive. Thanks to an entrepreneurial mindset supplied by a rich combination of university innovation and available capital, Leadership Group members have been able to overcome the challenges of other regions with lower costs of doing business by having the highest worker productivity - percent higher than the national average (svcip.com). But in a global economy, a region s success today can be trumped by another region tomorrow. That s why the most important take-away from the current level of success is that it must somehow be exceeded in the future to stay ahead of the competition. Clearly, success of the region depends not only on continuous innovation and stellar products, but on a rich environment to support the businesses that provide them. More than ever, to compete Silicon Valley needs first-rate schools to educate tomorrow s workforce, reasonably priced and available housing to shelter employees, a fluid transportation network for employee and product movement, and sensible rules and regulations by which to operate. These necessities are difficult to manage in an environment with finite resources, yet are vital to the wellbeing of the combined outputs of Silicon Valley which, in turn, provide much of the tax base to fund local and state governments. For the businesses of Silicon Valley to operate at maximum efficiency and remain ahead of others, there needs to be an ongoing conversation among the partners to pursue mutual needs that benefit the region. The Silicon Valley Leadership Group stands as the vital conduit for such a dialog at the intersection of the private sector-led economy and public sector institutions. To that end, the Leadership Group has promoted vital community needs such as ballot measures for extending BART, the Housing Trust, public education initiatives, and numerous philanthropic efforts pursued through the Silicon Valley Leadership Group Foundation. Which takes us back to the reason for the annual CEO Business Climate survey. It s a tool for assessing Valley needs, business challenges, and engaging governments to make Silicon Valley the best place it can be for its residents. -Larry N. Gerston. Thomas L. Friedman, The World Is Flat, New York, New York: Ferrar, Straus, and Giroux Publishing Company, 0, p,. Automakers see road map to future in Silicon Valley, San Francisco Chronicle, February,, pp. A, A.. Venture funding returns to risky startups, San Jose Mercury News, January,, pp. C, C.. And the survey says, Silicon Valley is back, San Jose Mercury News, January,, pp, D, D.. Santa Clara County Home Prices and Values, Zillow Home Index, January, Growth in jobs rapid, broad, San Jose Mercury News, November,, pp. A, A.. CEQA Reform: The Third Rail of California Politics, Public CEO, September,.. One of the more interesting proposals comes from State Senator Robert Hertzberg, who has introduced a bill that would lower personal income and corporate taxes, while increasing sales taxes. See George Skelton, A smart California tax bill points the way to needed reform, Los Angeles Times, December,, CEO BUSINESS CLIMATE SURVEY

11 Results Full Survey. Which of the following most closely describes your industry sector: 0 % High-Tech Manufacturing / Semiconductor Software Internet/Communications Financial / Professional / Venture Capital Energy / Clean Tech / Utilities Health Care / Bio-Tech / Med-Tech Transportation Education / University Gen. Manufacturing / Aerospace / Defense Professional Business Social Media. Number of employees in Silicon Valley: % ,000,00-,000,00-,000,00 or higher Don t know/no answer. Since January,, have you added, stayed the same or subtracted jobs in Silicon Valley? Added jobs Stayed the same Subtracted jobs Don t know/no answer. If added, how many? % % % ,000 More than,000 Don t know/no answer. If subtracted, how many? 0 0 % % % ,000 More than,000 Don t know/no answer. Beginning January,, does your company expect to add jobs, subtract jobs, or stay the same in Silicon Valley? Add Jobs Stay the Same Subtract Jobs Don't Know/No Answer. How many jobs do you expect to add? % % % More than 00. What top five actions could the state government take to improve the business climate for your company?. How many jobs do you expect to subtract? More than 00. Did your company move jobs to another state since January,? Yes No. What was the MOST important reason your company moved jobs out of the U.S. since January,? % % % % % State and corporate taxes Reduced labor costs Proximity to customers More available workforce Lower land / lower infrastructure costs Less regulation Government incentives in new location / lack of tax policy incentives in CA. Did your company move jobs to another country since January,? Yes No. What was the most important reason your company moved jobs out of the U.S. since January,? Reduced labor costs Proximity to customers More convenient supply chain More available workforce Lower land / lower infrastructure costs Less federal regulation Government incentives in new location, please specify. How do you see job growth in Silicon Valley in your industry sector in? Better Worse No change % 0 % % % High housing costs for employees Employee recruitment / retention costs Traffic congestion Business regulations Business taxes Immigration: H-B visas and / or green cards Health care costs Frivolous lawsuits Shortage of Skilled workers Workers' compensation costs Energy costs State budget structure Lack of skilled workers Overtime / -hour work day requirement Intellectual property protection costs Water Access to capital Unemployment insurance costs Air transportation / cargo. Because you answered "Business Regulations" for business challenges, which of the following challenges applied: 0 California Environmental Quality Act (CEQA) Wage and hour issues Sarbanes-Oxley Act Dodd-Frank Act (a.k.a. financial services reform), including the Volker Rule AB requirements Green chemistry regulations Import-export controls. What are the top three cost of living challenges in Silicon Valley for workers and their families? Housing Costs Traffic Congestion High Taxes Child Care Costs Health Care K- Education Higher Education Energy Costs Don't Know/No answer. What top three changes could local government undertake to improve the business climate for your company?. What are the top benefits/strengths of doing business in Silicon Valley?. What are the top five business challenges in Silicon Valley? Entrepreneurial mindset Access to skilled labor Proximity to customers and competitors Climate / weather World class universities Merit-based work environment Access to venture capital Ethnic diversity Access to airports / seaports Arts and culture Pacific Rim locations Don t know/no answer CEO BUSINESS CLIMATE SURVEY % % % Invest in traffic relief / transportation improvements Help create more affordable housing Strengthen K- education funding Streamline regulatory and permit approvals Strengthen higher education funding California Environmental Quality Act (CEQA) reform Further reduce public pension costs Enhance and make permanent the research and development tax credit Limit frivolous lawsuits Invest in broadband deployment Reduce workers compensation rates Offer full sales tax exemption for purchases of manufacturing equipment Adopt performance-based budgeting Provide a financing mechanism for water infrastructure improvements and promote water supply reliability Avoid split roll tax Lower energy costs Don t know/no answer. Which of the following issue areas deserve the most attention from the federal government for Silicon Valley: % 0 0 % % Comprehensive tax reform H-B visa / green card reform STEM (science, technology, engineering and math) education to develop domestic talent R&D Tax Credit: Expand and make permanent Cybersecurity Repatriation of foreign earnings Broadband deployment Intellectual property protection Federal debt and deficit Comprehensive energy policies Sarbanes-Oxley reform Implementation of the Patient Protection and Affordable Care Act of, a.k.a. national comprehensive health care reform Internet privacy Dodd-Frank reform, a.k.a. financial services reforms More free trade. Are you a member of other regional business associations in the U.S. that are similar to the Leadership Group? Yes No. Does your company have a physical presence in states other than California? Yes No Ease local street and road congestion Approve more affordable home developments Improve K- public education Streamline permit approval process Reduce public pension costs Provide more community college training/ work force development Improve public safety Fund more street maintenance/pothole repairs Support development of professional sports facilities (e.g. ers in Santa Clara and A's in San Jose) Enhance arts and culture Provide more parks and open space

12 . Please select the states in which you have a physical presence: 0 0 % % % % % % % % % % California Texas New York Colorado Massachusetts Illinois Arizona Washington Oregon District of Columbia Georgia New Jersey Florida Pennsylvania Utah Virginia North Carolina Maryland Minnesota Ohio Michigan Nevada Connecticut Hawaii Tennessee Idaho New Mexico Alabama Kentucky South Carolina Delaware Kansas New Hampshire Oklahoma Wisconsin Maine Mississippi Missouri Indiana Louisiana Nebraska Vermont Iowa Rhode Island Alaska Arkansas West Virginia Montana South Dakota North Dakota Wyoming. Please select the cities in which you have a physical presence: 0 0 % % San Jose, California San Francisco, California Austin, Texas Boston, Massachusetts Los Angeles, California New York, New York Denver, Colorado Dallas, Texas Chicago, Illinois Washington, District of Columbia Portland, Oregon San Diego, California Phoenix, Arizona Atlanta, Georgia Seattle, Washington Philadelphia, Pennsylvania Houston, Texas Miami, Florida Raleigh, North Carolina Sacramento, California Oakland, California Baltimore, Maryland Las Vegas, Nevada Minneapolis, Minnesota. Are you a multinational corporation? 0 Yes No. What are your top three reasons for having a physical presence outside of the U.S.? Closer to Customers Lower Cost of Doing Business Talent / Workforce Closer to Supply Chain Lower Corporate Tax Rate More Competitive Incentives than U.S. U.S. Regulations. What percentage of your revenue is from sales outside of the U.S.? % 0-% Which of these statements is closest to your feelings about the Patient Protection and Affordable Care Act of, a.k.a. national comprehensive health care reform law? % % % % % Columbus, Ohio Fresno, California Cleveland, Ohio San Antonio, Texas Jacksonville, Florida Detroit, Michigan Colorado Springs, Colorado Charlotte, North Carolina Long Beach, California Albuquerque, New Mexico Memphis, Tennessee Nashville, Tennessee Fort Worth, Texas Tucson, Arizona Louisville, Kentucky Indianapolis, Indiana Kansas City, Missouri El Paso, Texas Omaha, Nebraska Mesa, Arizona Wichita, Kansas Oklahoma City, Oklahoma Milwaukee, Wisconsin Virginia Beach, Virginia Tulsa, Oklahoma Arlington, Texas Keep it Repeal it No opinion/no answer. The nonpartisan state Legislative Analyst Office (LAO) projects an up to $ billion state budget surplus. Based on the state's current - budget, which of the following areas would you support changes in state expenditures? Increase 0 Decrease 0 Stay the Same 0 0. Generally speaking, would you say that: Right Wrong Average Rating. K- Education Higher Education Health and Human Services Corrections and Business Consumer Transportation Environmental Protection and Natural Resources Labor and Workforce General Government Building Reserves... Statewide legislation is on the right track () or the wrong track () in creating a healthy business climate? Statewide regulations are on the right track () or wrong track () in creating a healthy business climate? Governor Brown is on the right track () or wrong track () in creating a healthy business climate? The state legislature is on the right track () or wrong track () in creating a healthy business climate?. In this economy, what should be the top two priority issues for the Silicon Valley Leadership Group that would be worth your personal involvement? 0 0 % Transportation Immigration Reform: HB Visas and Green Cards for Highly Skilled Workers Education: K- Tax Policy: Comprehensive Federal Tax Reform Housing/Land Use Cybersecurity Education: Higher Ed Energy State Budget and Governance Reform Tax Policy: State and Federal R&D Tax Credits Environment Regulatory reform: California Environmental Quality Act (CEQA) Health Care Internet Privacy Education: Pre-K CEO BUSINESS CLIMATE SURVEY

13 Participants About the Leadership Group Accela Adobe Systems AECOM Aemetis Akraya Advanced Micro Devices Amgen Allied Telesis All Nippon Airways ALOM Alsop Louie Partners Altera Apple Applied Materials Audience, Inc. Avaya Communication Aviat Networks Bank of America BD Biosciences Blach Construction Bloom Boston Private Bank Bridgelux Brigade Bright Funds Brocade California Water Service Company Cadence Cargill Salt Caribou Biosciences Casto Travel Celestica ChargePoint Chevron Corporation Chevron Energy Solutions Chrysalis Software Clean Power Finance Colliers International Comcast DBL Investors decarta DeVry University ebay Echelon EFI ehealth El Camino Hospital Empire Broadcasting EMQ Families First Enterprise Fleet Management Ernst & Young ETM Electromatic ExciteM Extron Federal Realty Investment Trust Finelite First Technology Credit Union Flextronics Flexlogix Technologies Flexus Biosciences Inc. Foothill-DeAnza Community College District FUJIFILM Dimatix Gilead Sciences Good Samaritan Hospital Gordon Biersch GRI Technical Solutions Hackers/Founders Harmonic Heald College Healthier Kids Foundation Heritage Bank of Commerce HipCamp HP IBM icontrol ilobby Imergy Power Inadco Infinera Insikt Intel Intuitive Surgical ipass Jazz Pharmaceuticals John F. Kennedy University Jolly Technologies Kaiser Permanente KLA - Tencor KQED Lam Research Lawrence Berkeley National Labs Lawrence Livermore National Labs Lehigh Southwest Lex Machina LibraryWorld LinkedIn Lipstick & Politics Lockheed Martin Space Systems Lucile Packard Children's Hospital Lumileds Luminix Marvel Semiconductor MBX Systems MetricStream Nelson Staffing NetApp NetGear Neustar NextSpace Noble Americas Energy Solutions NRG Energy NVIDIA OSIsoft LLC Pacific Gas & Electric Palo Alto Medical Foundation Pecabu, Inc. Pinger Pinnacle Bank PlanetEcosystems Plantronics POPVOX Power Integrations Presencia Progreso Financiero Proofpoint Systems Proterra Republic Family of Companies Robert Half International Ruckus Wireless San Francisco ers San Jose Earthquakes San Jose Giants San Jose Mercury News San Jose Sharks San Jose State University San Jose Water Company Sanmina Santa Clara University SanDisk SAP Schneider Electric SC Studios SGI ShoreTel Signature Flight Support Silicon Valley/San Jose Business Journal Splice Communications Splunk Streetline Networks Solar City Specialized Bicycles SunPower Sunrun SVB Financial Group Suffolk Construction Sylvatex Synaptics Synnex Synopsys Talentral Taos Technology Credit Union TeenForce Texas Instruments TiVo Trimble Trinet TSMC North America Umpqua Bank University of California, Santa Cruz Unitive Varian Medical Systems Verizon Virgin America Voom WaterSmart Software Webcor Builders Wells Fargo Bank West Valley Staffing Group Western Digital Corporation Xactly xovertime Zuman * company responses declined to self identify The Silicon Valley Leadership Group, founded in by David Packard of Hewlett-Packard, represents nearly 00 of Silicon Valley's most respected employers on issues, programs and campaigns that affect the economic health and quality of life in Silicon Valley, including energy, transportation, education, housing, health care, tax policies, economic vitality and the environment. Leadership Group members collectively provide nearly one of every three private sector jobs in Silicon Valley. Board Officers: Chairman: Greg Becker, SVB Financial Group Past Chairman: Steve Berglund, Trimble Navigation Past Chairman: Tom Werner, SunPower Past Chairman: Aart de Geus, Synopsys Past Chairman: Mike Splinter, Applied Materials Vice Chair: Ken Kannappan, Plantronics Secretary/Treasurer: John Adams, Wells Fargo Bank President & CEO: Carl Guardino, Silicon Valley Leadership Group Board Members: Mike Splinter, Applied Materials Ken McNeely, AT&T Raquel Gonzalez, Bank of America Claude Dartiguelongue, BD Biosciences Brad Bullington, Bridgelux Matt Mahan, Brigade Brant Fish, Chevron Corporation Kim Polese, ClearStreet Henry Fore, Comcast Ron Sege, Echelon Gary Lauer, ehealth Tomi Ryba, El Camino Hospital Ken Xie, Fortinet Enrique Lores, HP Laura Guio, IBM Thomas Fallon, Infinera James Gutierrez, Insikt Chris Boyd, Kaiser Permanente Rick Wallace, KLA-Tencor John Boland, KQED Martin Anstice, Lam Research Doug Graham, Lockheed Martin Space Systems Christopher Dawes, Lucile Packard Children's Hospital Shellye Archambeau, MetricStream Tom Georgens, NetApp Tarkan Maner, Nexenta Helen Burt, Pacific Gas & Electric Mark Hawkins, Salesforce Jed York, San Francisco ers Jeffrey M. Johnson, San Francisco Chronicle Steven Rossi, San Jose Mercury News Mohammad H. Qayoumi, Ph.D., San Jose State University Father Michael Engh, S.J., Santa Clara University Andy Ball, Suffolk Construction Tom Werner, SunPower Kevin Murai, Synnex Aart de Geus, Synopsys Steven Berglund, Trimble Navigation George Blumenthal, University of California, Santa Cruz Rosemary Turner, UPS Alan Salzman, VantagePoint Capital Partners David Cush, Virgin America Jes Pedersen, Webcor Builders Stephen Milligan, Western Digital Corporation Ken Goldman, Yahoo! Silicon Valley Leadership Group 0 Gateway Place, Suite E 0.0. Special thanks to Catharine Ingram, Nancy Sánchez and Steve Wright Report Design by Colin Buckner, Creative Director Silicon Valley Leadership Group CEO BUSINESS CLIMATE SURVEY