Monthly Archives: May 2012

Economy Property

Real Estate Market Recovery?

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By Dr. Alfred J. Gobar
Chairman, Alfred Gobar Associates

As illustrated in Exhibit A, the recent recession was considerably deeper in percentage terms than the one that affected Southern California after June 1990. Sadly, the recovery from the most recent recession is a good deal more anemic than was the previous recovery, suggesting happy times for real estate properties (except for those who know how to profit from adversity) are still in the distant future.

Occasionally people wonder why nonagricultural wage and salary employment, as illustrated in Exhibit A, figures in so many of the graphs we use. The reason for that is shown in the graph in Exhibit B. The little triangles are estimates of the number of occupied units in the United States based on a statistical model, the major input to which is nonagricultural wage and salary employment. The little squares in the graph are actual households as reported by the U.S. Bureau of the Census.

For those of you with an unhealthy interest in statistics, the statistical model has estimated the number of occupied units nationwide with an R2 coefficient of correlation of 0.9867. In economics, this type of correlation usually implies the analyst is cheating. As can be seen, the estimate of number of households nationwide based on statistics has been flat since 2005. It is not expected to turn sharply upward in the immediate future—based on the trends in Exhibit A. The number of occupied units probably will rise above the estimate as the data evolves. Anecdotal information indicates that many households are living in homes on which they are no longer making payments on the mortgage—i.e., economic recovery is often less than physical occupancy in times of financial duress.

With more specificity with regard to Southern California (Ventura, Los Angeles, Orange, Riverside, San Bernardino, and San Diego Counties), growth in nonagricultural wage and salary employment in the twelve months ended February 2012 totaled 62,600 jobs. This is well below the long-term average in the six-county area during periods of normal housing markets—approximately 150,000 new jobs a year. Actually, employment growth in nonagricultural wage and salary employment over the most recent twelve months was considerably less than the comparable figure for the twelve-month period ended February 2011. Southern California’s economy (and therefore its real estate market) is not recovering rapidly. In fact, these statistics indicate the opposite.

Categories of nonagricultural wage and salary employment experiencing continued decline include construction, certain portions of the financial sector, and local government, as well as the information sector as newspapers become technologically less efficient than they were prior to the Information Age. Somewhat surprisingly, manufacturing employment grew during the twelve-month period contrary to the long-term trend over the last 15 years of a secular decline in manufacturing employment throughout the United States and with special regard to Southern California.

In 1969, analysts at Alfred Gobar Associates noticed the relationship between nonagricultural wage and salary employment and housing market trends. This led the number crunchers at the consulting company to develop a plethora of algorithms which incorporate generally available time series economic data published by the government and other sources into “models,” which simulate housing market conditions for each Metropolitan Statistical Area in the United States overall. The efficacy of these models with regard to the housing markets in each of these Metropolitan Areas was tested against the Census data for 1970, 1980, 1990, and 2000. Since Dr. Gobar’s retreat from consulting, less attention has been paid to the statistical simulation models, although kindly old Dr. Gobar did fund an analysis of the efficiency of the models in terms of estimating the number of occupied units by Metropolitan Statistical Area as of the date of the 2010 Census.

The output of the most recent update with extensions to Third Quarter 2011 is a basis for illustrating housing market conditions in each of the Metropolitan Statistical Areas that make up the Southern California market in which the Inland Empire is such an important segment.

The conventional output of the models, which was used by such investors as PMI, GE Capital, Nationwide Builders, etc., from the 1970s to the 1990s consisted of a total of 17 pages for each market. In the interest of simplicity, many of the outputs were combined into indices. The simplified index of housing market conditions for the Inland Empire is shown in exhibit C.

Although the statistical simulations of current market conditions overall in the Inland Empire are not quite as bad as they were at the depth of the 1990’s recession, the current trend is still down. The indices for this market have deteriorated fairly consistently since Third Quarter 2006. Housing price in the Inland Empire (as well as Southern California overall) has historically been high relationship to the ideal price structure. Because of declining demand derivative of the recession, even with the decreasing prices in the Inland Empire, the relationship between price and income is still not comfortable.

A similar index for Los Angeles County, which continues to be the largest economic entity in Southern California, is as follows in exhibit D. Currently the index on an overall basis is lower than at any time shown. The index suggests that spillover demand from Los Angeles County is not soon likely to be a major element in housing demand in the High Desert.

The exhibt E index for Ventura County shows overall market conditions about similar to what they were during the worst of the 1990s:

Between Third Quarter 2010 and Third Quarter 2011, Ventura County’s economy improved enough that incremental demand exceeded the incremental supply of new housing based on very feeble building permit activity in prior months in Ventura County in 2009 and 2010. The most recent index point is actually up a little bit from the two previous index points for the Ventura area.

Another of the Southern California economies that has suffered less than the Inland Empire is Orange County, see the graph in exhibit F. The index for Third Quarter 2011 was higher than in Third Quarter 2009 or 2010, indicating a very modest improvement in relative supply and demand conditions in housing in the Orange County Metropolitan Statistical Area.

By far the strongest recovery of the housing market in Southern California is in San Diego County where the index has been improving for about three years, and incremental demand has exceeded incremental supply, see exhibit G

As shown, the low point of the index in recent years is well above the comparable indicator for the 1990’s recession.

This column has referred in the past to economics as the “dismal science.” In a vain hope to counter this probably accurate definition of my life’s work, we have included a comparable graph (Exhibit H) for a market that is currently in much better condition:

This market appears to have been immune to the recession and, in fact, from 2006 to 2011 the index for the market increased year by year, while the price index shows that housing prices in the market are less than they need to be in terms of the consumer support levels driven by the local economy.

Another regional economy which reflects stronger-than-typical housing market conditions is illustrated by the exhibit I graph.

Although there has been some decrease in overall market strength (i.e., demand exceeds supply), it still remains a very viable real estate market in comparison with much of the U.S. Perhaps Joseph W. Brady wants to sponsor a contest for readers of this column to identify these two mystery markets which are apparently doing well despite the abysmal conditions in much of the rest of the U.S. (at least the statistics are a whole lot better).

An interesting anomaly related to the most recent analysis of these statistical data concerns the composition of employment growth. As noted in the early part of this column, nonagricultural wage and salary employment grew less between 2011 and 2012 than it did in the prior twelve months. Another source of employment data, however (based on the household survey), reflects a humungous increase in employment as reported by individual households. Typically, the difference in estimated employment between the household survey and the establishment survey relates to contract workers, small entrepreneurs, underground employment, etc. For long periods of time, the employment levels estimated on the basis of the employer surveys have been about ±87.0 percent of the employment levels estimated on the basis of the household survey. The most recent data available, however, suggests that reported change in nonagricultural wage and salary employment based on the employer survey was 58.0 percent of the level of employment change estimated on the basis of the household survey. Either an awful lot of people are working “off the books” or there is a glitz in the reporting or our interpretation of the numbers. We have been interpreting these numbers for roughly 40 years and have never seen this kind of relationship before. Since it is a one-time event, it could have been a typographical error, a simple transposition, or some other statistical screw-up. Not too much should be inferred from this unusual circumstance. Nonetheless, it is consistent with what we expected to happen with the onset of a highly-regulated society—an increase in informal employment as the market system worked to side-step a stifling bureaucracy. The late Jack Kyser and I discussed the implications of the Obama Administration’s ideology at a meeting a little over two years ago and hypothesized that the informal economy would grow faster than it has in the past in response to overregulation, mitigating to some extent the negative effects on growth of a highly-regulated economy.

If, in fact, the informal job growth was actually as great as the statistics seem to indicate, the overall condition of the market should be better than the graphs shown above suggest.

Let’s hope so.

Readers interested in reviewing Dr. Gobar’s observations about the statistical relationship of real estate market behavior to conventional economic time series data are referred to his book which is available from Alfred Gobar Associates.

Air Quality General

MDAQMD Board Reaffirms Support of AB 32 Suspension

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By Violette Roberts, Community Relations & Education Manager

During its February 2012 meeting, the Governing Board of the Mojave Desert Air Quality Management District reaffirmed a resolution requesting a suspension or revision of AB 32 – the Global Warming Solutions Act of 2006 – which it originally adopted and forwarded to then-Governor Schwarzenegger in 2010.

AB32 requires the California Air Resources Board to develop strict new regulations and market mechanisms to reduce California’s greenhouse gas emissions to 1990 levels by 2020, representing a 30% reduction statewide, with mandatory caps beginning in 2012 for significant emissions sources.

The resolution – which was brought to the local regulatory air agency’s Board by MDAQMD Board Member and City of Victorville Councilman Mike Rothschild – was accompanied by a letter from District Governing Board Chair and San Bernardino County First District Supervisor Brad Mitzelfelt, which outlined the MDAQMD Board’s ongoing concerns with AB32’s continued implementation.

“To date, there continues to be a failure to consider potential regulatory conflicts between AB 32 provisions and federal and state mandates in the AB 32 implementation process,” said Mitzelfelt. “In addition, an analysis of the potential impacts of multiple requirements on the local economy and ultimately, on the environment, have been minimal, at best.” Rothschild added that while the MDAQMD Governing Board composition has changed since 2010, “the key factors which render AB 32 a threat to the High Desert’s economy have remained virtually unchanged.” These factors include an unemployment rate of just under 15%, a severe jobs/housing imbalance, substantial air pollutant and greenhouse gas emissions resulting from over 50% of all area residents commuting at least 40 miles to work each way, and transported pollutants from the Los Angeles basin. Moreover, according to Rothschild, AB 32 threatens to engender indirect environmental consequences – such as longer, more polluting commutes – as a result of businesses and jobs leaving the area.

In addition to sending the adopted resolution and letter to Governor Brown, the documents were also forwarded to CARB, state legislators, and to directors of California’s 34 other air districts.

Economy Property

Industrial Firms Continued to Absorb Space in the Inland Empire at a Very High Rate in 2011

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By: Ronald J. Barbieri, Ph.D, CPA

One of the primary economic drivers of the Inland Empire and therefore the High Desert is the expansion of warehousing and distribution facilities as well as manufacturing operations in the Inland Empire. Such industrial operations provide Base Employment for the region which in turn generates Secondary Employment in other economic sectors of San Bernardino and Riverside Counties. Over 60,000 residents of the High Desert commute to the Los Angeles Basin for work. This represents approximately half the workforce of the High Desert. Hence, an increase in the demand for industrial space in the Inland Empire has a positive indirect effect on the High Desert.

Also, the absorption of industrial space in the Inland Empire would further reduce the limited supply of industrial land in the Los Angeles Basin. A study by John Husing dated August 2008 determined there were only 4,860 acres of land in the Los Angeles Basin portion of the Inland Empire that could be developed for industrial use. This number could be significantly reduced over the next few years, thereby reducing number of sites that are rail served or can accommodate the development of large industrial buildings. It will not be long before the very large industrial tenants or firms that require rail will have to locate in the High Desert or in the area along the I-10 Freeway in Banning, California; The migration of more industrial firms to the High Desert would create more Base Employment in the area, which in turn could generate additional Secondary Employment. This would lead to lower unemployment rates in the greater Victor Valley area.

There is 499 million Square Feet (SF) of industrial space in the Inland Empire. This is equivalent to half the inventory of industrial space in the greater Chicago area. Costar defines 482 million SF as Warehousing/Industrial space. The remaining 17 million SF is in smaller Industrial Flex space. The High Desert currently accounts for slightly over 4% of the total inventory; but in the intermediate term and beyond it is expected to be the primary expansion area for industrial development in the region. Southern California is home to almost 2.0 Billion SF of industrial space. Much of the increased demand for industrial space in the Inland Empire is attributed to firms relocating out of Los Angeles County in search of industrial sites on which to build larger, more efficient facilities. The vacancy rate for Warehousing/Industrial space in the Inland Empire has increased from 5.2% at the end of 2004 to 12.2% by the end of 2009. The increase in vacancy was the result of overbuilding rather than a decline in industrial demand. The vacancy rate at the end of the Fourth Quarter 2011 declined to 7.5%. Very little inventory was added in 2010 and 2011; but there was a substantial absorption of large box industrial space during that two year period. If the vacancy rate declined to 5% the industrial market in the Inland Empire would be in equilibrium. That could occur by 2013 if the developers do not build an excessive amount of inventory that is not preleased. Developers are beginning to build spec large box industrial space in the Los Angeles Basin.

There are a limited number of sites in the Los Angeles Basin that can accommodate large industrial boxes greater than 800,000 SF. Industrial tenants and users wanting larger facilities will have to locate either in the High Desert, Moreno Valley, or Banning California. The lack of larger industrial sites in the Los Angeles Basin could result in a substantial increase in the level of industrial development in the High Desert beginning as early as 2015.

In calendar year 2007 the Net Absorption of industrial space peaked at almost 27 million SF. In 2008 industrial demand increase by 4.6 million SF; but in 2009 the Net Absorption was a negative 400,000 SF. Net Absorption in the Inland Empire was a positive 12.1 million SF in 2010 and 15.0 million SF in 2011. A portion of the increase in Net Absorption was caused by the acceleration of demand due to relatively low rents compared to prior years. The increase in industrial demand in the Inland Empire in the last two years is substantial, especially in light of the slow economic recovery in both the U.S. and California. In fact the Inland Empire only experienced one year of negative industrial absorption during the last recession.

From 2005 through 2008 an average of 26.1 million SF of Warehousing/Industrial space was delivered annually in the Inland Empire. Deliveries declined to 7.0 million SF in 2009. Only 1.7 million SF was delivered in 2010; while 3.8 million SF was completed in 2011. The level of new construction has definitely increased in the last year. This limited level of construction coupled with the unanticipated increase in industrial absorption has resulted in the elimination of half of the Excess Vacancy in the market place.

The vacancy level was 22.1 million SF at the end of 2005. It peaked at 57.9 million SF by the end of 2009. As of the end of 2011 it had declined to 36.5 million SF. There is still an estimated 15 million SF of Excess Vacant space in the Inland Empire; but the industrial agents in the Los Angeles Basin are now reporting Excess Demand (no vacancy) for buildings of 500,000 SF and larger. Most of the vacancy is in the medium and smaller size buildings often occupied by small businesses that have not experienced much growth since the Great Recession.

Industrial agents are now suggesting there will be a new wave of construction for buildings larger than 500,000 Square Feet. When this is coupled with the fact there are only 4 sites in the Los Angeles Basis that can accommodate a building greater than 800,000 SF it is logical to conclude it will not be long before the High Desert will be able to successfully compete for the larger warehousing and distribution tenants. A higher level of industrial development will occur in the High Desert, though the timing is uncertain, and unfortunately very much a function of public policy that will be determined in Washington and in Sacramento, California.

In spite of all the political and economic uncertainty the big box industrial market in the High Desert is likely to add one or more users each year for the next few years before the increase in demand accelerates in the second half of this decade. This will probably be the case because large industrial users will continue to relocate from Los Angeles County to the Inland Empire in order to build larger, more efficient facilities. As the availability of large industrial sites in the Inland Empire diminishes those seeking larger sites will have no choice but to locate in the area of Banning, California or in the High Desert. Only an economic depression would defer this from happening.

All the inventory, absorption, and construction information contained in this article was obtained from reports The Bradco Companies generated from Costar. These numbers are deemed to be accurate by real estate industry standards; but they are not exact and subject to change.

Politics

Turning the Green State Golden Again

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By:  Assemblyman Tim Donnelly, 59th District

You have probably heard of cap and trade, but like most, you may have no idea what it actually is. Regardless, you are paying for it roughly every 3 days. Today, simply filling your gas tank so you can get to work and provide for your family feels like dropping a down payment on a brand new car. You are seeing and feeling the impacts of these misguided cap and trade policies instituted by out of touch lawmakers. Prices are going up. It is only the beginning, and your government CAN do something about it. The Governor can STOP it. I would argue that is in fact, the duty, of the Governor to undo this harm by suspending AB 32 and by scaling back on the California Air Resource Board’s (CARB) power.

California politicians have long tried to create a Green Utopia under the auspices of “saving the planet.” So, in 2006, the Legislature passed AB 32 – California’s version of “Cap and Trade,” which constituted the most sweeping expanse of environmental regulations up until, or since, then. It essentially put the ability to pollute in the process of manufacturing up for sale to the highest bidder. This meant that only large corporations could afford to purchase this new hot commodity and continue to keep up with the costs to do business, while the local “mom and pop” shops couldn’t afford the “carbon credits” necessary to keep their operations going. Since its passage, our unemployment rate has skyrocketed and it will only continue to do so as long as it stands. This is both irresponsible and a gross abuse of power. No matter where you stand on the issue of global warming, the simple truth is that your government is dictating based on science that is nowhere near settled and is ruining our livelihoods and economy in the process.

AB 32 has an impact on nearly every sector of our economy, including manufacturing, construction, housing, and transportation. It even impacts school bus access. For instance, one new regulation requires tractors to idle for 4 straight hours to clear the soot trap after only running for 4 hours. It further mandates that an operator must man the tractor at the business owner’s expense. How is California improved by this new regulation? Additionally, we see cement companies dropping like flies. Within our air quality district, we dropped from 11 to 8 just last year.

I recently asked a friend I did business with years back to share his perspective on what the State can do to improve the business climate.

He told me with pain in his voice about how businesses, the backbone of our economy, are struggling to breathe in the suffocating, regulation-laden California environment. Worse yet, while the State emits rule after rule, it fails to notify the people whose taxes and production it relies on to continue operating. Instead, it imposes fines on business owners who may fail to keep up.

“You’d think they’d be required to inform me at the very least, considering the enormous cost of not complying – fines and penalties that often run into the tens of thousands of dollars,” he said.

In California though, a truck driver–the person who delivers fresh food to our stores–can be fined $1000 for failing to have a certification slip in his truck at any given time, even if he is in fact certified and in compliance with all emission standards. What is the net effect of this kind of non-sense regulation? It is no surprise – trucking companies are moving out. They are now setting up shop and building the economy of bordering states. Our economy is dying the death of a thousand regulations just to continue feeding the bureaucratic beast that is California.

That is why, this year, I am running AB 1721 to ensure businesses are given a warning for first violations, rather than fined for simply missing yet another rule coming from the California Air Resources Board (CARB). With support from business owners, we have a good chance of pushing forward this common-sense piece of legislation to lessen the blow to California’s job creators. Still, much more is required to reverse California’s business and job-destructive course.

Good public policy hinges on two things: First, doing the right thing, and second, Doing the thing right. AB 32 does neither.

The right thing is certainly not to sink billions of taxpayer dollars into unfounded theories while simultaneously bleeding California businesses one restriction at a time. This is especially true when the policy does not even accomplish its stated goal!

Ironically, the “green police” have done nothing to decrease air pollution. Increasing restrictions on businesses only serves to force them out of state, or even out of the country. Many businesses are choosing to open in or relocate to China. California then not only loses revenue and jobs, but actually increases pollution since other states and countries have far more lenient environmental laws. Even before AB 32, for every dollar that California and China spent on manufacturing, California produced ¼ the carbon emissions that China did. Now California has taken it too far. This means dirtier air for all of us as more production moves out of the state. (Air does not recognize international borders the last time I checked.) AB 32 is actually increasing air pollution!

California’s irresponsible, go-it-alone approach to its environmental crusade has become all but a state mandated religion. If you don’t buy it, you are silenced, as has been seen with numerous teachers and scientists facing job loss for countering the environmentalists’ policy conclusions. Never mind that the science behind global warming promotion is documented to be fraught with fraud.

For every hard working Californian who loses his job, for each mom who gets a sick when she sees the rising food prices when shopping for her family, the results of this bill to the ordinary citizen are becoming impossible to ignore.

California, once the Golden State, can turn this around, but it will require keeping the “green police” from locking up our vast potential. We must stand up for California and demand that this massive legislative error be reversed so our communities and our businesses do not continue to suffer for the sake of a green dream.

59th District Assemblyman Tim Donnelly can be reached at:
DISTRICT OFFICE
15900 Smoketree Street, room 100
Hesperia, CA 92345
(760) 244-5277, (760) 244-5447 fax
assemblymember.donnelly@assembly.ca.gov

Film General

Inland Empire Film Commission

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By Sheri Davis

The High Desert remains the number one desert location for the film industry in California. Why you ask? It is really a simple answer – terrific light, diversity of locations (from a mountain community to the vast sand dunes at Dumont), experienced crew and service providers, and ease of permitting with the Inland Empire Film Commission serving as the One Stop Permit Agency for the County of San Bernardino, the United States Forest Service, and the Bureau of Land Management.

Special Effects Permitting Update

We are delighted to announce that the San Bernardino County Board of Supervisors approved an ordinance that will streamline the process of issuing film permits by eliminating the requirement to get an explosives permit in addition to a filming permit as long as they have a valid pyrotechnic and special effects license current with the State of California. This was a project the IEFC started in 1996 but it took the team of George Watson, Chief of Staff to Supervisor Neal Derry, San Bernardino County; Michael Delgado, Government Relations Officer, CAO’s office, San Bernardino County; Curtis Markloff, San Bernardino County Fire Department and Todd Cole, Sgt. San Bernardino County Sheriff to complete.

Filming Update Since October 2011 To Present

Seven feature films selected locations from El Mirage Dry Lake to the Dumont Dunes. Two of the more notable feature films was “G.I. Joe: Retaliation” starring Channing Tatum, Dwayne Johnson and Bruce Willis; and “Seven Psychopaths” starring Woody Harrelson, Colin Farrell and Christopher Walken.

Reality television has become the mainstay of television production for the High Desert region with shows such as “Stunt Busters,” “Pawn Stars,” and “The Biggest Loser” to name a few.

When 17 commercials selected locations in the desert, the commercials highlighted a number of the dry lakes in the districts with El Mirage Dry lake being the most used of all of them. Watch for these commercials and enjoy our locations being introduced to the world. A few of the car commercials were BMW, Chevy Volt, Lexus, Kia, Mazda and Subaru. Some of the other commercials that were not car related were Absolut vodka, Graiman, and Trane AC units.

Still photographers still consider the High Desert lighting and diversity to be perfect for their requirements. Fifty two still photography shoots with both National and International products such as Neiman Marcus, Glamour, Calvin Klein, American Eagle, Lefthansa Airlines, Rolling Stone Magazine, Nordstrom, Urban Outfitters and Mercedes Benz were shot in the High Desert region from Barstow to Baker. The town of Joshua Tree enjoyed an increase in production during this period also.

Do you ever wonder about all of the music videos that are watched daily and where they are shot? Out of the 18 music videos that selected the High Desert here are just a few: Michael Saranga (Coyote Dry Lake), James Durbin (Coyote Dry Lake), Megdelena’s “Drown in Me” (Soggy Dry lake), Keith Urban (Silurian Dry Lake), Liz Primo’s“ Wind Me Up” (El Mirage Dry Lake), Marc Lavoine (El Mirage Dry Lake).

Twenty one other productions selected varied locations in the High Desert such as the Town of Joshua Tree; and the City of Twentynine Palms had the documentary TV series “Who the Bleep did I marry?” shoot on various streets throughout the city.

Each year a film crew comes out to record the actions at one of the biggest desert racing events in the Nation called “King of the Hammers.” This 5-day event always selects Johnson Valley and is filled with races, vehicle rock climbing, etc. that have an audience of over 25,000 people attending.

Johnson Valley Update

For those who weren’t aware that Johnson Valley had been slated for use by the Marine Corp. out of Twentynine Palms which would have meant a loss of the use of most of Johnson Valley to both the Production Industry but also the recreational users as well. An article published on December 11, 2011 by writer Robert Burns of the Associated Press quotes Marine Corp. Commandant General James F. Amos stating that the future of the Marine Corps lies in a “smaller, versatile sea-based fighting force based primarily around the Pacific, including bases in Okinawa and Australia….but not in Iraq or Afghanistan.”

Since Marine representatives haverepeatedly stated that the sole reason for the very expensive and widely criticized takeover of the Johnson Valley area is to prepare Marines for land-based battles in Iraq and Afghanistan, General Amos has confirmed that this proposed expansion is no longer necessary or even critical to the future of the Marine Corps.

California Tax Incentive Update

The California Film Commission has been tasked with overseeing a five-year, $500 million dollar program (recently extended by one year), which provides tax credits to eligible film and TV productions that meet specific criteria. The program, which launched in July 2009, targets those productions most likely to leave the state due to incentives offered by other states and countries. The program has succeeded in attracting the target groups of basic cable TV series, mid-sized feature films and TV movies. This has enabled California to be competitive and keep many at-risk projects in the state. To date, approximately $400 million in tax credits has been allocated (reserved), resulting in:

  • Estimated total aggregate direct spending by Program projects – $2.9 Billion
  • Estimated total below-the-line wages paid / to be paid by Program projects – $1 Billion
  • An estimated 32,000 crew and 8,900 cast members have been / will be hired by the approved projects

The CFC will be accepting applications for its next round of tax credits on June 1, 2012. Please visit its website for more information – www.film.ca.gov/incentives.

As anticipated, Assemblymember Felipe Fuentes introduced a bill (AB 2026) seeking to extend the Film & Television Tax Credit for five years through 2019-2020. Please join the effort to extend the tax incentive program for California by contacting your state representatives and encourage them to vote for bill AB 2026.

General Water

Will a Big Quake Leave our Water Supplies “High and Dry?”

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By Art Bishop, President, Mojave Water Agency Board of Directors

[The following excerpts are from a February 22, 2012 article by Aaron Task of The Daily Ticker] “…The Strait of Hormuz is a waterway that connects the Persian Gulf to the Arabian Sea. It is the only passage to the open ocean for some of the biggest oil producers in the Middle East…

…Because so much of the world’s oil travels through the Strait, any disruption to the shipping channel would have a major impact on global crude oil prices, which ultimately determine the price we pay for gas at the pump.

Some analysts estimate the price of oil could go up by 50% within days if there’s a disruption of supply, which would mean much higher prices for us filling our tanks at the gas station — and anything else that requires the use of oil. Crude oil and gas prices have risen sharply since September in large part because of the threat of a disruption in the Strait of Hormuz…”

Once again, America is at the mercy of overseas oil producers and because of the instability in the Persian Gulf, we are paying much higher prices for gasoline—and the gasoline equivalent of “the Big One” (closing the Strait of Hormuz) hasn’t hit.

Californians face a similar crisis as the Strait of Hormuz, but our “Strait” is the Sacramento-San Joaquin Delta, and our “oil” is our water supply. We’ve been told for years when it comes to earthquakes, the “Big One” could happen at any moment and that a significant portion of the state’s water supply could be wiped out for a year or longer. So we buy earthquake kits, flashlights, bottled water, extra canned food for our homes—we take action to prepare. Billions of dollars have been spent retrofitting bridges, highways, hospitals, schools and prisons. But to date, no effective measures have been taken to secure our water supply in the event of an earthquake. Because of prudent management by the board of directors, including establishment of a water banking program, Mojave Water Agency’s service area would likely not be adversely affected like other areas in the state in the event of a catastrophic earthquake. But the region’s supplies won’t last indefinitely. It’s time to retrofit our state’s water delivery system.

The main concern is about a 6.7 earthquake striking Northern California and its effect on the Sacramento-San Joaquin River Delta, a network of rivers, streams, marshes and grasslands—the largest estuary on the West Coast and home to unique communities and farming interests, and it currently doubles as the state’s primary water conveyance system, sending freshwater to 25 million Californians throughout Northern, Central and Southern California.

But that water is ushered through by 100-year old levees that are weak, poorly engineered and could collapse in the event of an earthquake. If that happens, water from the San Francisco Bay would rush into the Delta, turning freshwater into saltwater. The economic toll of this seismic event could amount to $40 billion from losses in water supplies, farm production, wages and jobs, and downed utilities.

To avoid a catastrophe as described above, public water agencies have been working with state and federal agencies, environmental organizations, and other stakeholders on a comprehensive plan to protect California’s water supply, protect local communities, and restore the Delta’s ailing ecosystem. The plan, known as the Bay Delta Conservation Plan (BDCP), couples a new water delivery system with habitat restoration to achieve long-term water supply reliability and a healthy Delta ecosystem.

New infrastructure — either a tunnel or canal — would carry a carefully managed portion of water underneath or around the Delta, rather than through the fragile ecosystem and away from the weak levees. By doing this, we would restore reliability to our water supply, protect it from floods and earthquakes, improve water quality, all while restoring and protecting the Delta ecosystem.

The BDCP is likely to be one of the largest public works projects in California history and public water agencies have already agreed to provide the funding for construction. With five years of research and planning, and more than 300 public meetings already complete, the state is now close to finalizing the BDCP and beginning the environmental review process.

A survey released last month by California public opinion research firm Probolsky Research (http://www.probolskyresearch.com/new-poll-california-voters-support-water-bond-but-display-little-knowledge-of-the-bay-delta/) indicates that:

  • 78 percent of Californians did not know what the Delta is
  • 86 percent of Southern Californians did not know about the Delta
  • 70 percent of respondents outside of Southern California did not know about the Delta

It’s time for residents throughout the state to get informed and understand the risks to our water supply system and the solutions presented by the BDCP. The Southern California Water Committee, including support from Mojave Water Agency, has launched a public education program, “Delta Disrupted,” to provide more information on this critical issue.To learn more, to request materials or to download a sample letter of support for the Bay Delta Conservation Plan, check out www.socalwater.org/delta-disrupted.

Education

High Desert-Mountain Leaders Are Re-Engineering their Workforce STEAM 2020-a Local Initiative for Economic Success

Published by:

By Dale Marsden, Ed.D., Superintendent Victor Elementary School District

Imagine a Desert-Mountain region where every student graduates from high school concurrently with their community college degree or a vocational, technical or trade school equivalent certificate in a STEAM (Science, Technology, Engineering, Arts, or Math) related career field. Well that is exactly what is happening in this region! From Victorville to Hesperia, Apple Valley to Adelanto, and Baker to Big Bear, leaders from five key sectors – Public, Private, Higher Education, K-12, and Service and Faith-Based Organizations – are entering into a collective effort, which will align regional resources to ensure a systemic approach that ultimately re-engineers its workforce.

What does this look like on the ground and in the trenches? It all started with a kick-off event last summer when a score of community and educational leaders came together to draw a line in the sand and make a commitment to this goal:

By 2020, every child and adult in the Desert-Mountain region will be prepared for the 21st Century workforce by achieving their high school diploma concurrently with their community college degree, or vocational, trade or technical school equivalent certificate, in a STEAM (Science, Technology, Engineering, Arts or Math) related field.

Every person who attended the event pledged their commitment, including Mayor Ryan McEachron, Community College President Dr. Christopher O’Hearn, Chamber of Commerce CEO Michele Spears, and several other key community and educational leaders. From this meeting, and with the assistance of Inland Empire Economist, Dr. John Husing, and leading Commercial Real Estate Broker, Joseph W. Brady, CCIM, SIOR, President of the The Bradco Companies and Trustee for the Victor Valley Community College, the stage was set in November for a Solutions Summit.

Nearly 300 key sector leaders joined together during the Summit to hear presentations from: Craig Garrick, CEO of Aviation Assurance, explaining how his business is prepared to grow from 250 employees to over 2,500; Dr. Gary Thomas, County Superintendent of Schools, on just how desperate things are in our current educational system and a high school diploma is no longer enough; Joseph W. Brady, highlighting the potential for the region and what every leader must do to take advantage of the opportunities in their own backyard. The keynote speaker for the event, Dr. John Husing, left the audience with an unquestionable understanding that the key to the region’s success is a re-engineering of its educational system to ensure a prepared workforce. Key leaders then divided into groups to establish strategies or “Solutions” to achieve the STEAM 2020 Goal, and to better align regional resources to this end.

Some of the solutions developed during this inaugural Summit included the development of a Speakers Bureau of leaders from the community, Increasing parent knowledge about educational opportunities in the region, Creating Virtual Field Trips to local businesses, Increased Internships, and Increased Access to Certificate programs at Victor Valley College. This was a passionate group who all wanted to participate in following up on next steps to ensure implementation of these key strategies to achieve the goal.

Since the November meeting, much has taken place. Later in December, a workgroup of about 60 key leaders came together to draft strategicobjectives, metrics and action plans to achieve STEAM 2020. In January, a smaller representative group hammered out the details to include three key strategic goals for the initiative: Career Readiness, Communication, and Funding. Action steps outlined plans for a K-16 student tracking systems to electronically monitor the success of each child; there was a call for comprehensive “soft skills” training, including financial life planning; a plan to survey employers to assess gaps in the school curriculum; a plan to establish a communication center for STEAM goal engagement and development; and a plan to target regional resources and develop key sponsorships and funding for programmatic goals.

In addition to these meetings, education and business leaders participated in several workplace tours of local manufacturing and research and development firms. During the tour of Scott Turbon Mixer in Adelanto, students from Sultana High School in Hesperia filmed the entire tour to begin a series of virtual field trips so more students can experience the real world of work in their own community. Craig Garrick, CEO of Aviation Assurance, asked us to be sure when kids come to tour local businesses, we bring their parents with them! Once leaders finished the first half of the day at Scott Turbon, they headed over to Exquadrum, a small but very powerful Research and Development firm in Adelanto and listened to Vice President & Chief Operating Office Eric Schmidt explain about the skills needed for developing the latest technologies for the Warrior. This is rocket science!

Now with action plans established, next steps include having a community cabinet in each city or town comprised of key sector leaders who will meet regularlyto monitor progress. Additionally, representatives from each participating city and town will attend regional meetings where all resources will be presented and aligned to fit the tailored needs of each area within the region. As this work continues, the Desert-Mountain region is already looking ahead to build capacity for long-term strategic success. Several national models for community engagement have been studied and the region, under the leadership of the San Bernardino County Superintendent of Schools Alliance for Education, plans to align itself to the nationally recognized STRIVE Together Model out of Ohio. Its slogan is “Cradle to Career” – what an amazing testimony of one community’s efforts to ensure success for all. For additional information, you may contact Dr. Dale Marsden, regional lead for the STEAM 2020 initiative, at dmarsden@vesd.net.

Dr. Dale Marsden is superintendent of the Victor Elementary School District, one of the county’s highest performing districts, and member of the executive board for the San Bernardino County Superintendent of Schools Alliance for Education. Dale and his family have lived in the High Desert since 1990.

Economy

Employment Development Department

Published by:

By John Williams

2011 unemployment rates are shown in the following chart. The rates shown are National, State of California, San Bernardino County, and the High Desert Region.

It appears that 2011 was a year of fairly high unemployment for most of the nation as well as California. The High Desert cities had even slightly higher unemployment rates for most of the year than either the nation or the state. The last four months of 2011 did show a slight downward slope in unemployment rates, which we hope will continue throughout 2012. The data shows that it is trending in a more favorable direction for the economic growth of California, San Bernardino County, and the High Desert Communities.

 

Contributed by the staff of the EDD Workforce Services office in Victorville. Please contact (760) 241-1682 for further information.

Economy Property

Snapshot of the Commercial and Industrial Real Estate Markets in the High Desert

Published by:

By Ronald J. Barbieri, Ph.D., CPA

Office Market

As of the end of 2011, the High Desert had almost 5.5 million SF of office space. The net absorption for 2011 was negative 8,900 SF compared to the 135,000 SF absorbed in 2010. The vacancy level at the end of last year was 347,000 SF or 6.4% of the total inventory. The increase in the vacancy rate was mostly due to the delivery of 62,000 SF of office space in the second half of last year. Most of the increase in office space demand over the last two years was from the expansion by local government and the medical profession. There was 25,000 SF of office in Apple Valley under construction as of the end of 2011. The new construction is targeted for medical users. While the office space is only slightly oversupplied, there has not been any additional demand for space in the High Desert. This has resulted in a slight decline in rental rates over the last year.

Retail Market

There was 15.6 million SF of retail space in the High Desert of which 1,352,000 SF was vacant at the end of 2011. This represents a vacancy rate of 8.7%. The High Desert experienced a negative net absorption of 67,000 SF in 2011, compared to a positive 262,000 SF in 2010. Only 6,900 SF was delivered in the second half of that year. Macy’s has announced that they would be moving into a vacant 70,000 SF former department store in the Victor Valley Mall and adding an additional 30,000 SF to the structure. However, this will not be reflected in the absorption figures until early 2013. Three super Wal-Marts in Victorville, Hesperia and Apple Valley are under construction and are expected to be completed this year.

Industrial Market

There was 20.4 million SF of industrial space in the High Desert at the end of 2011. The vacancy rate was 6.1% or 1,241,000 SF. The net absorption in 2011 was 978,000 SF, which was approximately the same the prior year. There is 49,600 SF under construction. Most of the absorption was in the large boxes. Substantial warehousing and distribution as well as manufacturing companies counted for the increase in demand. The cities of Adelanto and Barstow accounted for the negative absorption in 2011. The City of Victorville absorbed over 1,000,000 in both 2010 and 2011. Most of this increased demand occurred at SCLA.

General

Federal Port Taxes Need to be Reinvested in the Ports

Published by:

By Senator Jean Fuller

California’s system of ports and goods movement might not be something many of us think about everyday. But recently, I felt it was important to lend my name to an effort for the maintenance of California’s ports.

Most of us take for granted that the majority of goods we buy have likely traveled on a ship and passed through one of California’s 11 ports. In addition to these imports, my Senate district is the third largest in the state for exported goods through the San Pedro Bay Ports. The locally grown and manufactured goods are shipped through these ports to reach the international markets, which accounts for roughly 25% of California’s gross economy.

The economic impact of California’s ports cannot be overstated. California’s three largest ports; Los Angeles, Long Beach, and Oakland have the cumulative impact of employing approximately 500,000 statewide workers and bring in roughly $7 billion in state and local tax revenues, while facilitating 40% of the nation’s total maritime trade with a value of roughly $375 billion. Agriculture goods from the Central Valley make up a large part of the total goods that are exported, and only by maintaining these trade gateways can we assure steady increases in the ability of agricultural goods to be shipped in a reliable, timely, and cost-effective manner to overseas markets.

But just as our ports are reaching this peak success and contributing so importantly to our economy, several challenges lie ahead.

The expansion of the Panama Canal, expected to be complete in 2014, will mean that no longer will large cargo ships from Asia have to stop in California’s ports in order to get goods in and out of this country. The Canal expansion opens the door for port business to be drawn away from California’s ports to other regions of the nation who are aggressively looking to increase their cargo-handling and pump up their local economies. When combined with the myriad of often burdensome state and local regulations – a topic ripe for a future discussion – the Panama Canal expansion has the potential to make California’s ports less competitive with Gulf Coast and East Coast Ports.

As a result of these challenges, I felt it was important to coauthor SJR 15, a resolution that calls on the Federal Government to return to California the federal port taxes that are collected from port users and shippers – and ultimately consumers. Unfortunately, the federal government has not fully utilized the funds available in the Harbor Maintenance Trust Fund for needed maintenance dredging, and, instead, it has allowed a large surplus to build up in the trust fund in order to mask the federal deficit or fund other programs unrelated to ports. Without these funds, our ports are further disadvantaged.

While generally taken for granted by those of us in this region, California’s ports have a huge impact on our everyday lives. The feds need to allow our ports to remain as competitive as possible by reinvesting these important tax dollars for their intended purposes.

State Senator Fuller represents the 18th Senate District, which includes Bakersfield, Visalia, Tulare, Ridgecrest, Tehachapi, Mojave, Taft, Kern River Valley, the Frazier Mountain communities, and other portions of Inyo and San Bernardino Counties.

Education

Victor Valley Community College

Published by:

By Bill Gruelich, Public Information Officer, Presidents/Office

The big news for the college was the dedication of the new Victor Valley Regional Public Safety Training Center. The 41,500 square foot building is now on line and serving students and the community. The multi-purpose facility functions as a training center for four distinct programs, including Fire Technology, Administration of Justice, Emergency Medical Services and Corrections. The future looks good for community partnerships that will potentially benefit the services in which these students will eventually transfer. The $31.5 million structure and prop yard also includes a CERT City that will be used to train community volunteers in disaster preparedness scenarios. The real advantage of this facility will be its ability to provide cross training/cooperative real-life training that involves everyday emergencies. This unique factor permits VVC students to take the giant leap from physical training to actual service duty.

The building features an indoor combat shooting range, a gun cleaning room, training simulators, and defensive tactics/physical training areas for Administration of Justice Programs.

Indoor Combat Shooting Range

The size of the combat shooting range is 90’ by 42’ and covered completely in a bullet proof material which by design, will partially absorb stray rounds, eliminate ricochet projectiles, and facilitate expended rounds down range to the collection pit. This material is on the side walls, doors, and ceiling of the range facility to ensure safety for shooters. The collection pit spans the width of the range and holds over 40 tons of rubber fragments along with coating of fire retardant material covering a hardened steel backing. The range was designed as a combat range and therefore, has no target retrieval mechanism or shooting booths. This open floor designed combat shooting range offers more flexibility in developing real-life shooting experiences for law enforcement officers as mobile props can be placed anywhere on the open floor area of the range and moved as necessary.

The range has a state-of-the art air filtration system, which virtually removes all expended lead and ancillary particles from the air through a whole air flow system which begins at the rear of the range and flows to the front ventilation system. This system is designed to remove any air particles forward of the shooter and filter out the ventilation system, reducing exposure to the shooter.

Gun Cleaning Room

The range is also equipped with an adjacent gun cleaning room, which also has a similar vacuum ventilation system, stainless steel work benches and gun repair and cleaning equipment. It also has a range master office, which houses all weapons and associated range equipment including: “state of the art” noise reduction communication ear phones, accompanying radio and push to talk microphone. The range master office also serves as the distribution center for all equipment to be used on the range and it houses several technological devices, i.e., “Milo Shoot-Don’t Shoot” simulator and the “Super Trap” targeting system.

Training Simulators

Milo is a 3 “D” projection scenario program when projected on a screen in the range, students decide which course of action to take “shoot or don’t shoot” based on the circumstances demonstrated. These scenarios may be altered by the instructor with a hand-held control device while adjacent the student. This flexibility in programming serves to challenge the student’s analytical and problem solving skills while offering a “real life like” exigent circumstance decision making experience. Scenarios may be run by the instructor in laser format with range weapons or in live fire with the student’s weapon.

The Super Trap targeting system consists of ten hardened steel (adjustable) electronically controlled target holders mounted vertically on the ceiling adjacent the target trap. These holders are designed to deflect oncoming projectiles into the range trap and they also hold the targets in place. The range master has the option of pre-loading a program to turn all or selected targets in a pre-designed manner to show “good guy” vs. “bad guy” images by the touch of a remote controlled button. The targets have the option of turning 180 or 360 degrees to show either image. Students then must decide to “shoot or don’t shoot” based on their observations and analysis of the target. The Super Trap target holders are designed to re-set themselves in the event of a malfunction caused by an unbalanced target or when the holder is struck by a projectile. This technology allows the range master to continue with the shoot and he/she is not forced to delay the shoot to repair or re-set the target device. Super Trap will also be installing a “Running Man” horizontal target system, which will run the width of the range in the range trap area. This system will allow students another shooting (target acquisition) dimensional challenge as the target moves in the manner a person would while running from a crime scene. The range trap area also contains sensors to evaluate the amount of lead building up in each area (lanes). The sensor sends an electronic message to the range master regarding the condition of the accumulated lead and recommends that lane or lanes be shut down and evacuated.

Additionally, the combat range has two large doors, which open to the exterior of the facility and are used for the ingress of police vehicles for shooting props and other large movable props. These doors weigh approximately 1200 pounds apiece; however, they can be manipulated quite easily by anyone. The range office safety windows and exterior windows (hall way) are made of level #7 glass, which will withstand several rounds of high caliber weapon strikes, yet they are clear for the purposes of auditing any firearms training in the range. The range ceiling has several layers of lighting, which may be dimmed by the instructor to simulate various lighting conditions found outside. It also has two emergency lights on the ceiling near the rear of the range that may be used to simulate a law enforcement traffic stop or emergency situation. The range also has an intercom system to communicate with observers not wearing head gear who may be in the range area. The range ingress is limited to one door near the range master office and notwithstanding the aforementioned exterior doors and one emergency exit, the only egress is through the same door near the range office. This ingress-egress system was developed to ensure the safety of all students and equipment.

Defensive Tactics/Physical Training Area

The Defensive Tactics/Physical Training area is approximately 1200 square-foot class room with 14 ‘ceilings. The room contains a ceiling-mounted projector for the use of the “Milo System” offering presentations in use of force decision making scenarios projected on a wall. This training area also contains permanent combat mats with fifty storage “cubbies” for student clothing and equipment. This area is also equipped with audio and visual surveillance equipment recorded in the center’s computer hard drive for safety and historical purposes. Adjacent the training area are two instructor offices, which have windows for auditing capabilities in both the range and the Defensive Tactics/Physical Training areas.

The complex also includes office space, classrooms, conference rooms, four apparatus bays, a fire tower, burn rooms, a prop yard with a tanker rail car, an overturned tanker truck, a low angle rope rescue prop, a collapsed building, and a confined space/trench prop.

Fact Sheet

Victor Valley College Regional Public Safety Training Center (VVCRPSTC)

Cost: $31.5 million; financing from Measure JJ bond funds

Location: 19190 Navajo Road, Apple Valley, CA 92307

Project awarded: August 11, 2009

Construction start: August 12, 2010

Project completed: October 2011

Architect: Carrier-Johnson Architects

Contractor: Highland Partnership

Opening: February 2012

Facility Size: Nine-acre campus including a four-acre prop yard for training; 41,500 square feet of building complexes, classrooms, etc.

Building Features

  • Recognized as a Gold LEED facility by the U.S. Green Building Council’s Leadership in Energy & Environmental Design (LEED)
  • Facility features a 230kW solar photovoltaic (PV) system, consisting of rooftop panels and solar covered carports providing up to 80 percent of the building’s total electricity demand.
  • 4692 SF apparatus bay
  • (4) bay doors east/west (drive thru)
  • (2) 567 SF storage rooms
  • Solar Panels located in parking lot and on roof of Building A and C
  • Prop yard
    • 5 Story Fire tower 4+ burn rooms Propane and Class A
    • Drafting Pit with Cone water flow calibration
    • Standpipe trainer
    • Fire training Connex trailer
    • Roof ventilation prop
    • Rail Tanker Prop
    • Collapsed Building prop
    • Confined Space/trench prop
    • Underground tunnel prop various size pipe
    • Low Angle rescue prop
    • Rubble pile
    • CERT (Citizens Emergency Response Team) City
      • House with Bedroom/living room facing West
      • Café with outdoor patio seating NW corner
      • Office N
      • Bank N
      • Warehouse N
      • Convenience store NE corner
      • Jail East
      • 2 cells
      • Processing desk
  • 15 classrooms, including 12 smart classrooms, providing seating for 368 students
  • Two student lounges
  • Computer lab
  • Video production lab
  • Outdoor courtyard
  • “N” level wireless network

Purpose

The VVCRPSTC offers a state-of-the-art facility that facilitates a dynamic, multi-agency learning environment for disaster training by incorporating the following disciplines: Fire Science, EMT, Paramedics, Administration of Justice, SWAT and Corrections. Future plans for the VVCRPSTC include the development of cooperative and contract ventures to expand educational and training opportunities for local and regional public safety entities, corporate safety personnel, community organizations, and governmental agencies.

  

 

 

Economy

Positioning California and the High Desert For New Manufacturing Investment

Published by:

By Jack M. Stewart, President, California Manufacturers & Technology Association

California manufacturing pays the highest average wages among all sectors at $71,000, offers the best opportunities for upward mobility for working families, and creates an abundance of local economic growth and activity.

In 2001, manufacturing accounted for 11.8 percent of the Riverside-San Bernardino metropolitan statistical area’s (MSA) workforce. Ten years later, that percentage has dropped to 7.6 percent.

Unfortunately it’s likely more of a state issue than a regional issue. California lost 34 percent of its manufacturing base over the last decade. The San Bernardino and Riverside MSA, which contains the “high desert region”, was not far behind at 28 percent. Accounting for 620,000 and 33,000 lost manufacturing jobs respectively, California and the High Desert region have much to fight for in any national manufacturing resurgence or the “re-shoring” of industrial jobs.

Bringing new high wage jobs to California will not come easy. We must scrap, wrangle, crusade, lobby, and contend for vital manufacturing growth. We must lay out the welcome mat with policies that allow production facilities to compete domestically and make secure long-term investments in capital and workers.

State policy has a tremendous impact on manufacturing job growth. States with a positive business climate (competitive operating costs, a trained workforce, and a predictable regulatory climate) outpace states with negative business indicators. California’s 34 percent manufacturing job loss compares with Texas at 21 percent, Indiana at 29 percent and Louisiana at 19 percent.

Specifically, there are some bottom-line issues that must be resolved. California imposes industrial electricity rates that are 50 percent higher than the national average and 95 percent higher than our competitors in western states. California is also one of only three states that taxes the purchase of manufacturing equipment, and, in 2011, the state had the fourth highest workers’ compensation premiums.

Business climate issues have a direct impact on new investment. From 1977 to 2000, California received 5.6 percent of the nation’s new and expanded industrial facilities. Since 2001, California’s share of those facilities has plummeted to 1.9 percent. Industrial investors plan on a 10 to 15 year time horizon when making large investments in land, buildings, and equipment. States with long-term budget deficits, excessive infrastructure needs, and aggressive regulatory agendas seldom make the short list of corporate planners.

It’s true that California continues to be the innovation state – we receive a large share of venture capital. But in the past decade, we have lost our ability to both innovate and manufacture new products here. From 2005 to 2009, California received 48 percent of U.S. venture capital investment, but only 1.3 percent of U.S. industrial investment.

The current model is to innovate in California, manufacture in a more cost-competitive state or country, and market back to California consumers. Under this scenario, California gets the jobs advantage of small, start-up research and development firms, but loses the enormous jobs benefit when those new products move to the production stage.

California’s modern government grew up of an era of rapid economic growth led by industrial expansion. During the 1950s, 60s, and 70s, California led the nation in industrial growth, becoming the top manufacturing state in 1977. With that growth came a flood of new tax revenues allowing California to invest in infrastructure, education, and new social programs. California became dependent on the largess of a robust industrial economy.

During the ensuing 40 years, California found pride in implementing “first in the nation” environmental regulations. Clean air, land, and water are laudable goals, but the associated regulatory costs have had an impact. Four decades of accelerating environmental activism have taken a toll on our ability to attract new investment and jobs.

We’re told by financial analysts that American corporations have $3 to $5 trillion available for investment when the current recession ends and that more and more U.S. manufacturers are re-shoring their overseas operations. The question is: will California, as well as the industrial-dependent high desert region, attract a fair share of manufacturing investment, or will investors look elsewhere for a more favorable business climate? We must prove California is serious about rebuilding a manufacturing economy by acknowledging where we must make improvements, not resting on an assumption that this is simply a national problem with a national solution. It’s California’s problem to fix.

Property

High Desert Assessed Values

Published by:

By Dan Harp, Assistant Assessor-Recorder

The County Assessor is responsible for the assessment of all taxable property within their respective counties, except for State Board of Equalization assessed property which includes utility-owned property and railroad property. The Assessor’s role involves three main objectives: (1) discovering and taking inventory of all taxable property within the county; (2) determining the taxability of each item of property; and (3) valuing and assessing each item of property in accordance with property tax law.

Proposition 13, which was overwhelmingly approved by California voters in June 1978, is the basis for property tax assessment today in California and all of its 58 counties. Prior to the passage of Proposition 13, property taxes could increase dramatically from year to year based on assessed value of the property. Proposition 13 limits the tax rate to 1 percent plus additional rates necessary to fund local voter-approved bonded indebtedness. It limits the property tax increases to a maximum of 2% per year on properties that did not undergo a change in ownership nor had completion of new construction. Proposition 13 placed explicit limitations on the power of government to impose additional property taxes and it requires real property to be assessed at its current market value upon a change in ownership and new construction is to be reappraised at its current market value as of its date of completion. Proposition 13 has been amended numerous times since 1978 resulting in several change in ownership and new construction exclusions from reassessment. Some of the more common exclusions are:

  • Reappraisal exclusion for parent/child transfers – property transferred between parent and children may be excluded from reappraisal. A timely filed claim form is required along with other statutory requirements and limitations.
  • Reappraisal exclusion for property owners age 55 and older – property owners age 55 or older may transfer their Prop 13 value from their original principal residence to a replacement residence if the replacement residence is of equal or lesser current market value compared to the original property and is located in the same county. A timely filed claim form is required along with other statutory requirements and limitations.
  • Property acquired or constructed to replace property destroyed in a disaster – owners of property that is substantially damaged or destroyed by a Governor-declared disaster may transfer the Prop 13 value of the damaged property to a comparable replacement property within the same county. A timely filed claim is required along with other statutory requirement and limitations.
  • Exclusions from market value assessment as a result of new construction include the following: addition of an active solar energy system, additions of fire sprinkler systems, seismic retrofitting and earthquake hazard mitigation features applied to existing buildings, and modifications to make an existing residence or structure more accessible to a severely and permanently disabled person.

When Proposition 13 was originally enacted in 1978, it did not provide the Assessor the ability to reduce assessments resulting from a decline in market value if the property was owned by the same taxpayer. California real estate was appreciating at record levels in the late 1970s so the drafters of Proposition 13 did not have the foresight or envision a need to allow Assessors the ability to reduce assessments resulting from economic conditions, depreciation, damage, obsolescence, or other factors causing a decline in value. Proposition 8 was approved by the voters in November 1978 to remedy this oversight in Proposition 13. Proposition 8 allows the Assessor to make reductions to assessed values when property has been damaged or its value has been reduced by other factors such as economic conditions. The Assessor can recognize declines in value if the market value of the property on lien date (January 1st) falls below its Proposition 13 value or stated otherwise, the correct value to be enrolled in any year is the lower of a property’s Proposition 13 value or its current market value. For example, if the current market value of one’s home on January 1st is $125,000 and its corresponding Proposition 13 value is $174,556, the assessed value for that particular assessment year should be reduced to the current market value of $125,000. It is important to note that a property owner may lose a substantial amount of equity in the property because of a declining real estate market but that does not necessarily mean the assessed value is incorrect. For example, the current market value of one’s home on January 1, 2007 is $360,000 and its current market value on January 1, 2012 is $150,000. The owners purchased the property in 1998 and their January 1, 2012 Proposition 13 value is $110,556. Even though the property owner has lost $210,000 in equity, its assessed value is still correct because the Proposition 13 value of $110,556 is less than the January 1, 2012 current market value of $150,000.

During the mid- 2000s, San Bernardino County experienced unprecedented appreciation in real estate prices in all areas of the county, which resulted in double-digit increases to the assessment roll for years 2004 through 2007. The 5 High Desert cities and adjoining unincorporated areas showed a particularly robust increase in their assessed values for years 2004 through 2007 then stabilizing in 2008. The peak of the real estate market in San Bernardino County occurred in 2007, stabilized in 2008 and then began its steep decline. During the late 2000s, the 5 High Desert cities and adjoining unincorporated areas were especially hard hit with decline of real estate values and substantial decreases to the assessment roll.

The decline in the real market created an assessment situation county-wide in which thousands of properties were over assessed because the current market value was now less than their Proposition 13 thus the Assessor was faced with Proposition 8 reductions on a mass scale. As with the case where the High Desert experienced the highest rate of increased real estate values during the real estate boom, conversely the High Desert experienced the highest rate of decrease in values when the real estate bubble burst. The effect the collapse of the real estate market had on the San Bernardino County assessment roll is staggering. Approximately 186,000 parcels have been reduced under Proposition 8 reductions and the total assessed value removed from the assessment roll for 2008 through 2011 is $27.3 billion.

There are several factors that contribute to assessment roll growth and decline. Assessment roll growth is a result of 3 primary components: (1) change of ownership reappraisals in an appreciating real estate market; (2) abundant new construction, both residential and commercial; (3) assessed value added by the 2% California Consumer Price (CCPI) index factor. Assessment roll decline is the result of 4 primary components; (1) change of ownership reappraisals in a declining real estate market; (2) dearth of new construction; (3) assess value added/deducted by the CCPI factor – for 2010 and 2011 the CCPI was minus 0.237% and 0.753% respectfully; (4) Proposition 8 reductions. property revenue collected on the basic 1% tax rate is used to support local schools, cities, special districts, the county, and redevelopment agencies (dissolved as of 2-1-2012). As one can imagine, when assessed values are increasing property tax revenue supporting schools, cities, county, etc. are increasing. Conversely, when assessed values are decreasing property tax revenue to schools and local government is reduced, which is the current situation in San Bernardino County and the State of California.

The compilation of the 2012 assessment roll will not be completed until June 2012 and will be certified by the Assessor July 1, 2012. It is projected the San Bernardino County assessment roll will decrease by 1% from 2011 and the High Desert portion of San Bernardino County is projected to experience a similar 1% decrease.