Propelled by private entrepreneurship, technology gains, and public support, clean energy and energy efficiency solutions began to proliferate in recent years. However, federal policy gridlock and state budget challenges are now jeopardizing the availability of government finance, exacerbating the serious finance challenges that impede the large-scale deployment of low-carbon energy solutions.

Fortunately a number of states are now exploring a variety of ways to leverage scarce public resources with sophisticated banking and finance mechanisms. Epitomized by Connecticut’s Clean Energy Finance and Investment Authority (CEFIA), the proposed new finance entities entail the creation by states of dedicated clean energy banks that leverage public money with private sector funds and expertise.

While these banks can take different forms based on each state’s unique circumstances, they essentially combine scarce public resources with private sector funds and then leverage those funds to invest in attractive clean energy and energy efficiency projects. A timely benefit of the low-cost financing that these banks will make available is that it will reduce clean energy projects’ dependence on expiring federal grants, tax credits, and subsidies and lower the cost of these projects enough to make them cost-competitive with conventional technologies.

Along these lines, state leaders can choose among at least three bank models. They may:

• Establish, as in Connecticut, a quasi-public corporation into which are combined existing state clean energy and energy efficiency funds so as to permit private investment in the bank and enable the new entity to make loans and leverage its capital with private capital
• Repurpose portions of one or more existing financing authorities from a grant to a lending model and then through a partnership agreement combine the financing authority’s funds with private funds
• Adjust an existing or new infrastructure bank so as to attach a clean energy finance bank to fund energy projects to a bank lending to traditional infrastructure projects

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In recent years, states and the federal government experimented with a set of innovative finance mechanisms, credit programs, and revolving loan funds to stretch public and private dollars and support the kind of infrastructure investments necessary to build the next economy.

For transportation projects, much of this support comes in the form of below market revolving loans and loan guarantees from state infrastructure banks (SIBs.) Since established in the 1990s they have provided billions in financing for more than 1,000 projects mostly focused on the 100 largest metropolitan areas. However, this activity is highly concentrated in just a few states as many SIBs are underutilized or inactive. This research shows that SIBs can be valuable tools for delivering infrastructure projects and can generate more investment per dollar than traditional federal and state grant programs.

This report recommends that U.S. states should:

• Align federal and state roles and responsibilities to streamline project delivery and ensure loan capacity is fully utilized
• Ensure the long-term sustainability of revolving infrastructure funds by leveraging capitalization and reach a broader range of sponsors and projects
• Develop partnerships with local public and private actors so projects have high economic, environmental, or social effects

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State clean energy funds (CEFs) have emerged as effective tools that states can use to accelerate the development of energy efficiency and renewable energy projects. These clean energy funds, which exist in over 20 states, generate about $500 million per year in dedicated support from utility surcharges and other sources, making them significant public investors in thousands of clean energy projects.

However, state clean energy funds’ emphasis on a project finance model—which directly promotes clean energy project installation by providing production incentives and grants/rebates—is by itself not enough to build a statewide clean energy industry. State clean energy funds also need to pay attention to other critical aspects of building a robust clean energy industry, including cleantech innovation support through research and development funding, financial support for early-stage cleantech companies and emerging technologies, and various other industry development efforts.

As it happens, some of these state clean energy funds are already supporting a broader range of clean energy-related economic development activities within their states. As more and more states reorient their clean energy funds from a project finance-only model in order to encompass broader economic development activities, clean energy funds can collectively become an important national driver for economic growth.

To become true economic development engines in clean energy state clean energy funds should:

• Reorient a significant portion of their funding toward clean energy-related economic development
• Develop detailed state-specific clean energy market data
• Link clean energy funds with economic development entitites and other stakeholders in the emerging industry
• Collaborate with other state, regional, and federal efforts to best leverage public and private dollars and learn from each other's experiences

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In a time of constrained public budgets, leveraging private-sector financial resources and expertise to deliver a range of infrastructure projects has growing appeal. However, these public/private partnerships (PPPs) are often complicated contracts that differ significantly from project to project and from place to place.

In the United States, many states lack the technical capacity and expertise to consider such deals and fully protect the public interest. To address this problem, countries, states, and provinces around the world have created specialized institutional entities—called PPP units—to fulfill different functions such as quality control, policy formulation, and technical advice. This report recommends that U.S. states should:

• Establish dedicated PPP units to tackle bottlenecks in the PPP process and protect the public interest
  
  
• Pass legislation and change the procurement culture to a more transparent and outcomebased project selection process
  
  
• Work with the federal government to address technical assistance gaps on PPPs, on an as-needed basis
  
  

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To enhance the quality of early childhood education, and provide better economic opportunities to early childhood educators themselves, states should create Charter Colleges of Early Childhood Education.  These research-driven, flexible, and accountable institutions would help increase the supply of high-quality early childhood educators, provide those workers and their families with stable, well-paying jobs, and create a new model of higher education and credentialing that can be applied to other fields.

The Challenge

A growing body of research demonstrates that high-quality early childhood education has tremendous potential to improve children’s and families’ lives.  Spurred by this research, as well as growing demand for childcare to enable parents to work, policymakers have seized on early childhood education as a strategy to improve student achievement and break the cycle of intergenerational poverty.  Yet despite increasing public investment, only one-third of American preschoolers have access to publicly funded pre-K or the federal Head Start program, and preschool quality is often low. 

One contributing factor is that the average preschool teacher in the United States earns only $23,870 annually, compared to $51,009 for public elementary and secondary school teachers.  To address this disparity and improve early childhood education quality, many advocates have called for extending the umbrella of traditional K-12 teacher policy over early childhood workers, by requiring preschool teachers to earn bachelor’s degrees and state certification.  But that system is ill-designed for helping early childhood workers get the skills and salaries they need:

• Research offers little evidence that bachelor’s degrees improve early childhood educator effectiveness
• Early childhood bachelor’s degree programs are not well designed to prepare educators for the classroom
• Bachelor’s degree requirements for early childhood educators would drain public and private coffers
• Students similar to those working in early childhood education who pursue bachelor’s degrees usually fail to complete them

Building on the early success of promising models in the field, policy makers should create new Charter Colleges of Early Childhood Education, built from the ground up specifically to give early childhood workers the education they need.  Like their K-12 counterparts, charter providers would receive increased flexibility in exchange for increased accountability to deliver results.  To create and empower these institutions, policy makers should:

• Set clear expectations for what early childhood educators need to know and be able to do, based on state early learning standards and current research
• Define credentials linked to skills and workforce needs, reflecting the variety of settings in which early childhood educators work and the differentiated roles they take on in those settings
• Identify metrics of teacher knowledge and skills, allowing charter colleges to confer credentials when students successfully demonstrate their effectiveness in improving children’s learning
• Create and empower authorizers to grant charters, enable charter colleges to grant credentials and access public funding, and hold the colleges accountable for their performance and use of taxpayer funds
• Enforce constructive accountability by organizing independent evaluations and tracking supporting data to assess early childhood educator preparation programs

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Governors and other state leaders are under pressure to increase the odds that their states will exit the recession poised to be productive, attractive to employers, and competitive for jobs and wealth creation. One fact is inescapable: to achieve economic recovery and longer-run prosperity, states must produce many more skilled workers with postsecondary credentials, not merely short-term training after high school.

The current economic climate has placed renewed priority on the performance and potential of community colleges, the primary postsecondary institution serving local and regional workforce needs. These institutions are critically important to individuals seeking higher skills and to employers looking for qualified workers. States that fail to align their community college goals with economic development efforts to address their human capital challenges run the risk of losing out in the competition for good jobs and sustain­able development.

However, states that maximize their return on every public investment dollar to prepare for long-term economic growth can use the current moment to their advantage. By champi­oning an integrated workforce and economic development strategy based on improving student success in community colleges and promoting regional progress through partnerships, they can ensure a stable supply of skilled workers for area employers. To that end, states should embrace the following agenda:

• Articulate a clear vision for the alignment of workforce development, postsecondary educa­tion, and economic development at the regional level, and regularly publicize progress;
  
  
• Improve student success and credential completion in community colleges; and
  
  
• Identify and target priority clusters and industry sectors critical to regional competitiveness and expansion, promoting partnerships that engage community colleges in economic development

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Vacant land and abandoned properties challenge both older industrial metros struggling with the effects of long-term population decline and metros that were booming until the foreclosure crisis and the recession wrought havoc on their economies. These properties are a significant drag on local economic and fiscal health, exacerbating already intense fiscal stress for local governments. Yet they are also major potential assets for business growth, job creation, and neighborhood revitalization.

Unfortunately, weak and antiquated state laws governing tax foreclosure, land banking, code enforcement, and other areas make it difficult for local governments to address vacancy and abandonment, and prevent them from unlocking properties’ productive potential. To give municipalities the tools the need to repurpose distressed land and buildings, states should:

• Reform inefficient tax foreclosure laws
  
• Create clear paths to public control of vacant and abandoned properties
  
• Empower effective code enforcement and nuisance abatement
  
• Enhance local government’s power to mitigate the harm created by mortgage foreclosure

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Few areas of policy are as critical to states' long term economic health, or as significant a share of state budgets, as transportation. However, state transportation systems face two overarching challenges: their funding sources are shrinking and their investments are not made in a sufficiently strategic, economy-enhancing way. In short, the systems are both broke and broken.

An emphasis on fiscal responsibility does not mean states should slow down investing in transportation. In fact, these investments are more important than ever because of the short-term job creation effects and the long-term implications for economic competitiveness. But states cannot rely on the same sources of revenue to fund transportation projects, nor can they spend transportation dollars in the same ways. Specifically, states should:

• Use transportation dollars to leverage other state investments and the strengths of metropolitan areas.
  
  
• Use market discipline to find savings and new revenue sources
  
  
• Create or augment new public/private institutions like State Infrastructure Banks

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Manufacturing remains a critical sector for the economic health of the nation as a whole and for the states. The sector accounts for the bulk of U.S. exports, is key to innovation, and provides many high-wage jobs for less educated workers. So reversing or at least stemming manufactur­ing job losses is essential to an economic recovery that leads to a sustained period of export-oriented, innovation-fueled, opportunity-rich economic growth.

For these and other reasons, manufacturing should be an important part of state job growth strategies. But state efforts are not focused on one of the things that small and medium-sized manufacturers need most: help with developing and implementing new technologies.

To remedy this problem, states should create advanced manufacturing centers that research technological problems that are important to a wide range of manufacturers help businesses throughout the supply chain apply the results to their work. These cen­ters would take only a modest investment of $9 million per year, which is a small share of what states typically spend on traditional business attraction efforts.

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An export strategy is a critical element of job growth in the immediate term. American exports grew 12.7 percent from the third quarter of 2009 to the third quarter of 2010, outperforming the 3.2 percent growth of the economy.

Exports are just as critical to state economies, but state export promotion efforts often suffer from several shortcomings, although not across all states and not to the same degree.

States do not have the data to understand their own export strengths, nor the effectiveness of their existing export programs. State export efforts are reactive, fragmented, and inconsistently funded. Finally, state export efforts all too often ignore (and therefore duplicate and fail to leverage) the export-promoting work of other groups or the federal government.

To remedy these problems, bolster their economies, and create jobs in the process, states should:

• Get smart about assessing exports and the performance of their export promotion activities
  
  
• Create an export strategy as part of the state’s economic agenda
  
  
• Leverage the resources of other organizations involved in export promotion

An export strategy is an essential component of a state competitiveness agenda in the 21st century. These recommendations show the way to a more focused and streamlined state export promotion policy for maximum efficiency and job creation effects in these tight financial times.

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The best way to create more jobs in a state is to grow them at home, rather than poach them from elsewhere: Some 95 percent of all job gains in a year in an average state come from the expansion of existing businesses or the birth of new establishments.

However, the usual recipe of tax credits, R&D, training programs, and physical infrastructure is not sufficient, by itself, to spur such “organic” job creation. States also need to cultivate their industry clusters—geographic concentrations of interconnected firms and supporting organizations. Properly designed, cluster strategies are a low-cost way to stimulate innovation, new-firm start-ups, and job creation by helping to link and align the many factors that influence firm and regional growth.

Additionally, thinking in terms of clusters gives governors a way to articulate a positive vision of economic prosperity, engage broad groups of stakeholders in driving recovery, boost the export intensity of the economy, and bring focus and discipline to myriad state investments and policies.

Specifically, states should:

• Develop and use data and rigorous analysis to identify industry clusters, target policy, and track performance
  
  
• Establish a modest grants program to address discrete gaps in cluster performance
  
  
• Reorient existing economic development programs, policies, and initiatives to support clusters

These steps offer newly elected governors an attractive set of concepts as they seek to govern for growth at time of gridlock in Washington. Governors should leverage clusters (as many already have) to drive their economic competitiveness efforts at a challenging moment.

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