Category Archives: Economy

Economy Film General

How does the Inland Empire Film commission Make it so easy?

Published by:

By Sheri Davis – Director

The High Desert still 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) as well as experienced crew and service providers. Also, the film industry gets ease of permitting with the Inland Empire Film Commission which serves as the One Stop Permit Agency for the County of San Bernardino, the United States Forest Service and the Bureau of Land Management. How does the Film Commission make it so easy? They have some very important partners whose support is key to successful filming in the High Desert. The Barstow Bureau of Land Management leadership and staff deserve a medal for their excellence in assisting filming. This office is exemplary and should be the role model for other BLM field offices. County Supervisor Lovingood from the First District and Supervisor Rutherford from the Third District are very supportive partners to the film commission and are great proponents of filming in their districts.

Filming Update For 2014

Feature Films: 11 feature films selected locations from El Mirage Dry Lake to the Dumont Dunes. The pattern of studio features shooting out of state for most of their production continued through 2014 as they secure incentives, both in other states and other nations. Some of the smaller films shot were “Nothing Like Romance” shot in Oro Grande, “The Executer,” shot in Yermo, and “Zeroville,” shot at the Barstow Drive-in. We are very hopeful that the new incentive bill AB1839 that passed allowing $330 million a year for five (5) years to be used as an incentive to keep filming in California. This renewal and revision of the State Film Incentive program bumps the 20% incentive to 25% for films shooting outside the 30-mile zone around Hollywood (more details below). Hopefully, this will encourage production to come to the High Desert.

Reality Television: Reality TV still enjoys filming in the High Desert region with 14 shows such as “Top Gear,” Jay Leno’s untitled new show, “Masterchef,” “Sand Master,” “Die Trying: Gates of Hell,” “Storage Wars,” and “IQ Challenge,” to name just a few of the shows.

Commercials: 56 commercials selected locations in the High Desert. The dry lakes in the county still attract the largest numbers of commercials with El Mirage Dry Lake leading with 17 commercials. Here are a few commercials that did NOT involve the automobile industry: GE, Icon Health, Water Future, 7 Jeans, Megane-ichiba sunglasses. Other dry lakes like Soggy, Silurian, Lucerne, Rabbit and Coyote also attracted their fair share of commercials like Blacklist Olympics, Golden Girls, Pokémon Master Recruiter, USA Network Series Promo for “Dig,” American Eagle and California Lottery. Then, of course, we had many of the car agencies return for that special desert look…Subaru, Lamborghini, BMW, Mercedes Benz, Hyundai, and Dodge Viper, among many other products. The locations ranged from communities like Yermo to Baker, from Barstow to Wrightwood, from Lucerne Valley to Trona. Watch for these commercials and enjoy your locations being introduced to the world.

Still Photography: Still photographers still consider the High Desert lighting and diversity to be perfect for their requirements. 62 still photography shoots for both national and international products like Gala Paris, Macy’s, Prestige Magazine, Nissan Frontier, Lexus, Top Gear Clothing, American Eagle, Show Me Your Mumu, ESPN Magazine, Engelbert Strauss Workwear, Arch Motorcycles, W Magazine, Urban Outfitters and Grip (a German TV car magazine) are some the highlights.

Music Videos: The region enjoyed a huge increase in music videos over the previous year. There were 35 music videos shot throughout the High Desert. Have you ever wondered about all of the music videos that you have seen and thought look like your area. Well, here are just a few for your viewing pleasure – just go to the URLs below and enjoy a music video shot in your region.

Student Production: 19 film school projects discovered the High Desert region. Some of the larger film schools that used our region were Chapman University, University of California Irvine, New York Film Academy, Art Center College of Design, Loyola Marymount University and Columbia College.

Documentaries, Short films, Web Series: 51 other productions selected varied locations in the High Desert such as a market in Trona, the Barstow Hospital, as well as various locations in Newberry Springs and Daggett. However, 38 of the productions were shot on land managed by the Barstow Bureau of Land Management which includes El Mirage Dry Lake, Johnson Valley and the Dumont Dunes.

King of the Hammers: 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 is a 5-day event that always selects Johnson Valley, is filled with races, vehicle rock climbing, etc., and has an audience of over 25,000 people attending. We want to thank the Barstow Bureau of Land Management for their support of this important race to Lucerne Valley and the desert region.

Johnson Valley Update

Tony Perry, a reporter with the Los Angeles Times, in an article on May 9, 2014, reported on the final decision for the use of Johnson Valley by the U.S. Marines and the OHV community.

“After nearly a decade-long dispute between the Marine Corps and off-road vehicle enthusiasts over a rocky patch of desert west of the base at Twentynine Palms has ended in a compromise brokered by Congress. Neither side got everything they wanted in the tussle over the nearly 200,000 acres of forbidding Johnson Valley — a place of rugged beauty that off-roaders say is virtually without peer for their sport. The Marines say the same about their training needs.

As included in the 2014 defense bill signed by President Obama, approximately 43,000 acres of Johnson Valley will be for recreational use only, 79,000 acres will be for the Marine Corps, and 53,000 acres will be shared between the off-roaders and the Marines.”

Johnson Valley

The Inland Empire Film Commission is not certain at this time how these decisions will impact filming.

California Tax Incentive Update

California Film and Television Tax Incentive Expanded and Extended 20-25% Credit

The California Film & Television Job Retention and Promotion Act, signed by Governor Brown in September, 2014, expands and improves California’s Film and TV incentives. The California Film Commission is currently developing regulations and other procedures to administer the newly expanded film and TV tax credit program.

Key Changes from Prior Program

  • Increases tax credit program funding to $330 million per fiscal year; extended for 5 years
  • Expands eligibility to big-budget feature films, 1-hr TV series (for any distribution outlet) and TV pilots
  • Eliminates budget caps for studio and independent films
  • Replaces current lottery with a ranking system based on jobs and other criteria
  • Provides for multiple allocation periods throughout the year

Additional 5% Credit Uplift (Maximum credit = 25%)

  • Filming outside the Los Angeles zone + 5%
  • Music scoring/music tracking recording expenditures + 5%
  • Visual effects expenditures + 5%

Eligible Productions

  • Feature Films: $1 million minimum budget; while there is no maximum budget cap, credit allocation applies only to the first $100 million in qualified expenditures
  • Movies-of-the-Week and Miniseries: $500,000 minimum budget
  • New Television Series for any distribution outlet: $1 million minimum budget per episode (at least 40 minutes per episode, scripted only)
  • TV Pilots: $1 million minimum budget
  • Television Series, without regard to episode length, that filmed their prior season outside California; $1 million minimum budget
  • Independent Films: $1 million minimum budget; while there is no budget cap, credits apply only to the first $10 million of qualified expenditures (only independent projects may sell their tax credits)

New Selection Criteria

Productions will be ranked from highest to lowest based upon a jobs ratio and other criteria against “like” projects (TV ranked against TV, indie projects against indie, etc.). The CA Film Commission will award tax credits to those productions in each category with the highest ranking. The new program provides four separate funding “pots” for these categories : TV series and TV pilots / independent projects / non-indie feature films / and relocating TV series.

Key Dates

Final Lottery – Original tax credit program eligibility – APRIL 2015

  • Productions may not begin principal photography before July 1, 2015

New Program: First application period – May 2015 (TV only) / Summer 2015 (feature films)

  • Projects selected by new ranking system
  • Productions may not begin principal photography before July 1, 2015

Courtesy of the California Film Commission

High Desert Film Alliance

The High Desert Film Alliance, which is active and meets monthly in the region, has new Co-Chairs – Joshua and Tiffany Addante. With this new leadership, they are looking into expanding their internet exposure in hopes of being available to assist more productions as they come into the region. The alliance has also changed their monthly meetings to the 2nd Thursday of each month at 6:30 p.m. at the Marriot Courtyard in Hesperia. If you are interested in attending to find out more about the alliance, or if you are a film professional living in the High Desert and would like to network with other professionals, please feel free to come. Please RSVP to info@filminlandempire. com so we can save you a seat. Menu will be available for those of you who would enjoy dining during the meeting.

The Inland Empire Film Commission wants to take this opportunity to thank Phyllis Overall for her years as Chairman of the High Desert Film Alliance. Her dedication and energy for film production in the High Desert is unequaled and she will be missed.

Economy General Property

Most High Desert Home Values Trending Up

Published by:

By Bob Dutton
Assessor-Recorder-County Clerk
San Bernardino County

As the newly elected Assessor for San Bernardino County, I am very interested in monitoring and taking action to stimu­late economic development in the region. One of the key indicators of the regional growth is the value of the various prop­erty types within the County.

Over the last several years, dating back to 2008, there have been some very dra­matic changes in assessed property val­ue. Before we discuss property value, it is important to distinguish the difference between market and assessed property value.

Market value: The lowest price a sell­er would be willing to receive while at the same time the highest price a buyer would be willing to accept on an open and competitive market.

Assessed value: Value utilized by the As­sessor as the basis for taxation of prop­erty. In California this is constrained by Proposition 13 enacted in 1978.

In the 2007-2008 timeframe, properties within San Bernardino County reached a peak point. However, with the down turn in the economy and the resulting reces­sion, many properties had a dramatic re­duction in value. Properties located in the High Desert area followed this same pat­tern. This region includes the incorporat­ed cities of Adelanto, Apple Valley, Bar­stow, Hesperia, and Victorville, as well as the unincorporated areas of Lucerne Valley, Pinon Hills/Phelan, Wrightwood, Helendale, Hinkley, Yermo/Daggett and Newberry Springs.

When looking at the difference in all High Desert secured property from the peak in 2008 until the low in 2012, there was an overall decrease of 35% in assessed value. The majority of the reduction was felt within residential property with a de­crease of 48.5%. This accounts for 93% (by number of properties) of all property. Commercial, industrial and agricultural property remained relatively the same during this time frame with only slight fluctuation in the assessed value.

Fig 1 Most High Desert Home Values Trending Up

To understand the current trend, we can look at what has occurred in assessed val­ue over the last three years, 2012 through 2014. As shown in Figure 1 (Residential Average Assessed Value), all of the in­corporated cities except Barstow have experienced positive growth in assessed value for residential properties:

  • Adelanto: 14.41%
  • Apple Valley: 11.50%
  • Barstow: (4.93%)
  • Hesperia: 11.80%
  • Victorville: 12.67%

Of the unincorporated areas, some of the residential properties have realized slight growth and others have declined in as­sessed value:

  • Lucerne Valley: 1.41%
  • Pinon Hills/Phelan: 6.89%
  • Wrightwood: 6.82%
  • Helendale: 4.81%
  • Hinkley: (47.75%)
  • Yermo/Daggett: (5.29%)
  • Newberry Springs: (5.18%)

Fig 2 Most High Desert Home Values Trending Up

For commercial properties (e.g., stores) in the incorporated cities, there is mini­mal growth, with the majority realizing a decline in average assessed value as shown in Figure 2 (Commercial Average Assessed Value):

  • Adelanto: (6.99%)
  • Apple Val­ley: (2.32%)
  • Barstow: (2.73%)
  • Hesperia: 5.27%
  • Victorville: 3.21%

Similarly, the unincorporat­ed areas have predominately seen a decrease in the commercial as­sessed average value:

  • Lucerne Valley: 6.46%
  • Pinon Hills/Phelan: (0.22%)
  • Wrightwood: (1.17%)
  • Helendale: (18.63%)
  • Hinkley: (33.41%)
  • Yermo/Daggett: (0.43%)
  • Newberry Springs: 1.71%

Fig 3 Most High Desert Home Values Trending Up

The last area of interest is the industrial properties (e.g., warehouses, manufac­turing, etc.). As shown in Figure 3 (In­dustrial Average Assessed Value, the values for the incorporated cities have stayed primarily the same or had a slight decrease:

  • Adelanto: 6.76%
  • Apple Valley: (0.06%)
  • Barstow: 3.64%
  • Hesperia: 4.62%
  • Victorville: (3.45%)

These trends are also seen in the unincor­porated areas as well:

  • Lucerne Valley: (1.51%)
  • Pinon Hills/Phelan: (4.01%)
  • Wrightwood: 2.47%
  • Helendale: (13.22%)
  • Hinkley: (4.90%)
  • Yermo/Daggett: (8.02%)
  • Newberry Springs: (5.35%)

In summary the outlook for residential property has been positive and shows strong growth, but we are still lagging in commercial and industrial properties. I have a strong interest in working toward economic growth in the High Desert region, as well as throughout all of San Bernardino County. If we can stimulate development in the commercial and in­dustrial properties, it will in turn create additional jobs and provide for even stronger future growth for the residential property values.

Economy General Politics

Momentum is Ours

Published by:

By Larry Vaupel
Economic Development Agency Administrator
San Bernardino County

Momentum. Defined by force or speed of movement. Our County is experienc­ing momentum again. It is a speed of positive movement that will benefit us all. However, the challenge is to ensure this positive economic momentum is broad based, hitting all key aspects of our region from healthcare to education to business.

We have population momentum. Ac­cording to economist Joel Kotkin, Cen­sus Bureau data indicates that, from 2007 to 2011, nearly 35,000 more resi­dents moved from Los Angeles County to the Inland Empire than moved in the other direction. There was also a net movement of more than 9,000 from Or­ange County and more than 4,000 net migration from San Diego County.

Healthcare is expanding. Loma Linda University Medical Center recently an­nounced plans for a new construction project that will provide a new building to house the International Heart Insti­tute and establish two state-of-the-art centers for imaging, gastrointestinal, and pulmonary services, allowing for expansion of services and ease of access to accommodate the rapidly growing population of the Inland Empire.

Business is growing. The unemploy­ment rate in San Bernardino County dropped from 7.7 percent in November to 7.0 percent in December of last year, according to data released Jan. 23 by the California Employment Develop­ment Department (EDD). The county’s jobless rate had been one of the highest in the nation during the recession, but it has decreased steadily in recent years. Moreover, to further encourage greater job growth, five companies within the County of San Bernardino were award­ed California Competes Tax Credits totaling nearly $5.5 million for the cre­ation of 1,148 new jobs. The award is from the Governor’s Office of Business and Economic Development (GO-Biz) and approved by the California Com­petes Tax Credit (CCTC) committee. The California Competes Tax Credit is an income tax credit available to busi­nesses that want to come to California or stay and grow in California. These five local businesses were among the 56 companies statewide chosen by the Governor’s office.

Education is meeting demand. Chaffey College was recently awarded nearly $15 million to create an advanced man­ufacturing training center at California Steel Industries in Fontana. According to officials, the grant will provide a ma­jor economic boost since an expected 3,000 students will be able to benefit from the program over a four-year pe­riod, starting mid- 2015.

County government is innovating. We recognize that our role is to facilitate in­vestment and fuel the momentum. It is no small task that our County was rec­ognized in 2014 with multiple awards for its innovative programs from the National Association of Counties and the California State Association of Counties.

On Wednesday, April 15, I encourage you to join me at the State of the County where more than 1,000 business, gov­ernment and community leaders will be on site at the Citizens Business Bank Arena in Ontario. We will share more of what is driving an era of momentum for our region, as well as provide a forum for discussion and collaboration. We in­vite you to help build the momentum. Tickets are available at www.sbcounty­advantage.com

Economy General Property

Housing the Future: Availability = Affordability

Published by:

By Carlos Rodriguez
CEO of the BIA
Baldy View Chapter

The Inland Empire has a severe housing shortage, which if left unchecked will continue to negatively impact the economy by limiting housing affordability, job creation and local tax revenues.

On February 5, 2015, National Community Renaissance hosted a Symposium on the Affordability of Housing and published a study entitled “Housing the Future: The Inland Empire as Southern California’s Indispensable Geography.” Participating in the symposium were local elected officials, representatives from the California Realtors Association, California Apartment Association and the Building Industry Association Southern California, Baldy View Chapter (BIA).

“We need a government that understands that growth is important, that diversity of employment is important, and that housing is important,” said Joel Kotkin, researcher and author of the Housing the Future study. “We need to take care of the middle class, and the last place that’s going to happen in Southern California is the Inland Empire.”

The Inland Empire is home to more than 4 million residents, many of whom chose the area for moderately priced homes. However, that dynamic is quickly changing due to burdensome regulation that deters the development of new residential units. Many middle class families are being priced out of the market due to a drop in new development which has lowered the volume of housing stock below the growing market demand.

“There is a belief that housing is a drain on the local economy. Nothing could be further from the truth,” said Carlos Rodriguez, BIA Baldy View Chapter CEO.

Rodriguez cited research from the National Association of Homebuilders showing that over the course of 15 years, a 100-unit housing project will lead to $13 million in economic growth and $4 million in additional tax revenues for the community. Unfortunately, many cities and counties still regard housing as a detriment instead of recognizing it as a critical economic asset.

“Housing is an economic catalyst, and for Southern California, housing in the Inland Empire is critical to the region’s economic sustainability,” said Steve Pontell, President of the National Community Renaissance. “We (Inland Empire) have long been the place where the middle class could afford to live. As that goes away, so will our employment base.”

Rodriguez and Pontell both noted that California is 1 million housing units short of meeting the current population demand. Southern California alone, needs an additional 600,000 homes to meet the growing demand. With limited housing availability comes limited housing affordability.

In 2005, the Victor Valley pulled 6,408 residential permits, which attributed for over 43% of the total permits countywide. In 2014, the Victor Valley’s 271 permits accounted for only 14% of the total activity in the county. Likewise, construction industry jobs countywide declined 42%, with almost 19,000 construction-related jobs lost since 2006. In that same time period, unemployment in the Victor Valley has increased by 54%.

The “Housing the Future” report reveals several enlightening statistics about the Inland Empire’s market potential. The IE has the second highest concentration of children ages 5-14 in the nation and the most significant increase in Bachelor Degrees and College-educated residents in Southern California.

The study also reveals that California has the highest development impact fees per unit in the Nation (approximately $32,000/unit). That’s twice as high as the next two highest states, Maryland ($16,000/unit) and Oregon ($15,000/unit). A shortage in housing stock is also directly related to unemployment rates, home affordability and a broad tax/consumer base. This begs the question: How will we meet the employment and housing needs of the future if housing availability continues to be limited by increased regulation and dwindling incentives?

The BIA suggests that positive policy reform can be made through the San Bernardino Countywide Vision and Housing Collaborative Element Group. We commend Supervisor Robert Lovingood, the County Board of Supervisors and the San Bernardino County Associated Governments (SANBAG) for leading this timely effort. The goal of the element group is to improve the IE’s business environment and help California families achieve the American Dream of Homeownership.

BIA recently published a Best Recommended Practices Brochure to improve the efficiency in permitting and creating a more business friendly environment at the local municipal level. The brochure outlines five best practices to: 1) Increase Customer Service, 2) Have a Well-Defined Pre-Submittal Program, 3) Improve Information and Communications, 4) Engage Stakeholder in Policy-Making Decisions and 5) Maintain Fees at Reasonable Levels.

For more information and to find links to the “BIA Best Recommended Practices Brochure” and the “Housing the Future” study please, visit www.BIABuild.com

-Carlos Rodriguez serves as CEO of the BIA, Baldy View Chapter, a non-profit trade association advocating to help meet the housing and building needs in Southern California.

Economy General Politics

Change to California Revenue and Tax Code

Published by:

By Brad Golden

Effective January 1, 2015, anyone submitting a document for recording can no longer “hide” its associated transfer tax from the public records by use of a separately attached declaration.

Formerly, Section 11932 of the California Revenue and Taxation Code provided an option permitting that the amount of transfer tax due for a taxable document not be disclosed on public record but, rather, declared in a separate paper attached thereto when presented for recording. Pursuant to Assembly Bill 1888 of 2014 (Chapter 20, Statutes of 2014), effective January 1, 2015, Section 11932 is amended to repeal this option, thereby requiring that all documentary transfer tax declarations thereafter must be included in taxable documents and become part of the public record. Assembly Bill 1888 requires no change in the form or content of the presently used transfer tax declaration.

Assembly Bill 1888 was sponsored by the Appraisal Institute, an association of real estate appraisers, for the purpose of obtaining ready access to transfer tax information and provide much-needed assistance to appraisers. In the past, it was possible to hide this tax amount by simply requesting that the taxes be marked “Filed” thus hiding the transfer tax, and therefore the value of the property declared to the County taxing officials. The Appraisal Institute made contact with every county in the state, and received positive response to the proposed legislation from every county with the exception of one. The bill, carried by Assembly member Phil Ting (D-San Francisco), was passed overwhelmingly in the Assembly and State Senate. The Governor then signed it into law.

While some investors and speculators may be disappointed with this new transparency, it will definitely create better data points for the overall market.

Brad Golden is a Major Accounts Manager for Chicago Title in Southern California. He coordinates commercial and subdivision transactions throughout the region, as well as nationally. He can be reached at brad.golden@ctt.com or 805-218-8879.

Economy General

2014 Report County Residents Receiving Aid Distribution by Cities

Published by:

By Linda Haugan
Assistant Executive Officer, Human Services

County Residents Receiving Aid Distribution By Cities

(Based on data as of January 1, 2014)

This report contains information concerning distribution of CalWORKs (cash benefits), CalFresh (nutrition assistance), and Medi-Cal in the cities and communities in San Bernardino County. The benefit populations refer to persons, not families. The number of persons receiving CalWORKs has remained steady while CalFresh increased 4.2%. Receipt of Medi-Cal increased 20.0%. The increase in Medi-Cal is due to pre-enrollment for the Affordable Care Act, which began October 1, 2013, and the expansion of Medi-Cal.

Exhibit I ranks the cities with cash benefits as a percentage of the general population. The ranking ranges from a low of 0.7% to a high of 13.6%. Exhibit IA displays this information graphically.

Exhibit I

Exhibit I

Exhibit 1A 2014 Report County Residents Receiving Aid Distribution by Cities

Exhibit II displays the financial value of assistance, which includes CalWORKs, CalFresh, and Medi-Cal, by assistance category and by total for each city. For example, the annual financial value of assistance in the City of San Bernardino is approximately $750 million. The value of assistance is based on statistics from CalWORKs and CalFresh benefit disbursement and the California Department of Health Care Services.

Exhibit II 2014 Report County Residents Receiving Aid Distribution by Cities

Exhibit III displays the population receiving aid by program and in total by city.

Exhibit III 2014 Report County Residents Receiving Aid Distribution by Cities

Exhibit IV compares the receipt of cash benefits in January 2013 to January 2014.

Exhibit IV 2014 Report County Residents Receiving Aid Distribution by Cities

Exhibit V displays the total number of persons receiving CalFresh benefits by city. This information varies from the totals listed in Exhibit III in that it includes persons receiving CalFresh as a result of their eligibility for cash benefits.

Exhibit V 2014 Report County Residents Receiving Aid Distribution by Cities

Exhibit VI displays information on unincorporated areas by ZIP code. Some ZIP codes that are shared with other counties are not included. Information on cells with less than 15 persons or amounts less than $3000 is not included.

Exhibit VI 2014 Report County Residents Receiving Aid Distribution by Cities

Exhibit VI Continued 2014 Report County Residents Receiving Aid Distribution by Cities

Exhibit VII displays the amount of child-care funds paid to providers in order to assist those participating in approved Welfare to Work activities. The amounts are for the month of January 2014 and are aggregated by location of the family receiving assistance.

Exhibit VII 2014 Report County Residents Receiving Aid Distribution by Cities

Please direct any requests for additional information or questions about this report to: Brian Pickering, at 909.388.0168.

E-mail: bpickering@hss.sbcounty.gov

Economy General Politics

IEEP Working to Put Inland Empire on California Leaders’ Radar

Published by:

By Paul Granillo

The year that recently came to an end will be remembered as one where the Inland Empire was certainly on the agendas of more people than when the year started.

As the largest economic development agency in San Bernardino and River­side counties, one of our major goals has been and still is raising the region’s profile. To too many of the people in the coastal regions of the state, and in some political locations, California starts at the Pacific Ocean and ends 50 miles in­land.

The Inland Empire Economic Partner­ship worked hard in 2014 to teach the rest of the state that we do not live in “those cities east of Los Angeles,” that the inland Empire is its own region with its own identity. More importantly, it has a distinct set of economic and social needs.

That message can be delivered with strong effect on November 12 and 13 when the California Economic Sum­mit comes inland for the first time. The event, put on by the California Forward and the California Stewardship Net­work, assembles leaders from across the state to discuss economic prosperity for everyone in the state, and it will be held in Ontario this year. Previous summits have been in Santa Clara, Sacramento and Los Angeles.

As Co-chair of the Steering Committee for the Summit, I advocated for an In­land Empire venue. California may be famous for its beaches, lush vineyards and Silicon Valley, but it is made up of millions of working people. This year’s Summit will be among these people, among us.

However, this is just one small piece of the puzzle. To enhance the quality of life, we at the IEEP have worked hard in the past year building relations with elected officials in Los Angeles, Sacra­mento and Washington, D.C.

We believe, as we have for several years, that there are policies that predominate in California which do not consider the economic interests of the Inland Empire. No one in the area is in favor of more pollution or willing to tolerate danger­ous levels of emissions. But a one-sided policy that apparently does not consider the economic survival of millions of In­land residents is a severe problem for us. It is, however, one we now feel we can counter because we now have a place at the table.

Last April I led a delegation of Inland Empire business leaders to Washington and secured what we assumed would be a five-minute talk with U.S. Senator Di­anne Feinstein. Instead, California’s se­nior senator gave our delegation 35 min­utes. The result: an increased awareness on the part of one of the state’s leaders on the needs of the Inland Empire.

Another aspect of political leadership is our efforts to bring the area’s entire Congressional delegation together for an Inland Empire Caucus. Our organi­zation does not take political sides be­cause we recognize that the region has needs that really have nothing to do with party affiliation.

Our region has seen its economy re­bound from the pummeling it took dur­ing the Great Recession. There are about 1.3 million people collecting regular paychecks in the Inland Empire right now, almost as many as eight years ago when the economic struggles began.

But, as some have said, keeping the peace is often harder than waging the war. A lot of work still needs to be done. For one thing, cities such as Victorville, Hesperia and Barstow still have unem­ployment rates that are higher than that of the nation, state and the overall In­ region.

For another, we have to ensure that eco­nomic opportunities continue to happen and that the next generation of jobs is a good one. The IEEP is working with the leaders of Cal State San Bernardino and UC Riverside to help secure new fund­ing that support the schools’ ongoing ef­forts to reduce the time it takes to earn a degree and to make it easier to transfer from a community college. Less than one in five people in the Inland Empire have college degrees, and an underedu­cated workforce is one of the things that discourages next-generation investment in the region.

We are also working with educators and health care groups to make it easier to train a next generation of health care workers, a profession that is expected to be in demand in the coming years.

All told, we have almost returned from a long journey. There is still a distance to travel, but we are going to continue to fight for a better life for all our resi­dents.

Mobility 21 Helps Keep California Moving, In More Ways Than One

California is a place that almost literally grew up on the road. The importance of our car culture is in evidence every­where, and probably nowhere is this as obvious as it is in some of the more remote areas of the region, like the Inland Empire and the High Desert area.

That is one of the reasons I became Chairman of Mo­bility 21, a nonpar­tisan partnership of public officials, civic leaders and the private sector from across Southern California that looks for solutions con­cerning transportation and its related in­frastructure. These are very complex is­sues that affect everyone, from the small manufacturer trying to ship goods to a global market to the person going to the store for a bottle of milk. Transportation is a huge part of the quality of life equa­tion in Southern California.

Mobility 21 is a group that recognizes that our transportation issues have to be solved with 21st Century solutions. Not enough neighborhoods in the High Desert, or almost anywhere in the In­land Empire, have good job opportuni­ties that are only a few miles away from home. The era when a person can leave his or her great job and drive 10 minutes to a great home is probably over. And few people have public transportation options that create a convenient way to get to work or get almost anywhere.

Much of the debate is traced back to the logistics industry, which plays a signifi­cant role in the High Desert’s economy. In the Inland Empire, the goods move­ment industry accounts for more than 10% of all payroll jobs, and puts food on the table for hundreds of thousands of people.

But that industry often finds itself under siege because of an attitude in Califor­nia that looks at the issues of congestion and automotive emissions and tries to fix the problems by trying to slash the Inland Empire’s economic lifeline.

During my tenure as Chairman of Mo­bility 21, we addressed those problems from a responsible direction, one that recognizes that people need to make a living and respects the quality of our lives as well. The group’s summit last September, which was attended by more than 1,000 people, included discussions on new infrastructure investments, de­sign-build contracting and more express lanes across Southern California’s free­ways, among many other issues.

Many of those issues will be advanced when the Inland Empire Economic Partnership, the largest economic de­velop organization in our area, hosts the Southern California Logistics Sum­mit, which will be held on April 23 at the Fairplex in Pomona. A collaboration with the Drucker School of Manage­ment at Claremont Colleges, this is the first time this important event has been held in Los Angeles County, amplifying that these are critical issues to everyone in Southern California.

The IEEP recognizes that transporta­tion is a critical issue. Forums like those established by Mobility 21 ensure that these issues will remain in the forefront of regional discussions and that the so­lutions will benefit all the communities in Southern California.

Paul Granillo, President and CEO, In­land Empire Economic Partnership

Economy General

Our Economy in 1993-Remarks Before the Orange County Chapter of Lambda Alpha, an International Land Economics Society

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The Remarks below do not necessarily reflect the philosophy or moral values of Dr. Gobar, but have been set forth in an exaggerated form to raise the point of over-regulation and the free market system and our need to work to reduce regulations and stimulate the revitalization of our economy.

By Dr. Alfred J. Gobar
Chairman
Alfred Gobar Associates

This is the talk I gave to Lambda Alpha a little over 21 years ago. Because our speakers are usually dull, I tried to present a humorous discussion to make people laugh. To my surprise some of the audience took notes throughout, someone recorded the talk, transcribed it, and allowed me to edit for accuracy – which I did. It’s scary how topical this charade turned out to be some 21 years later. The question and answer was not part of the humorous presentation but followed immediately after.

I define some of our most pressing economic/political problems as being related to education, law enforcement, budget deficits, and health care. These problems are manifest in what many perceive as overly high taxes, over concentration of power in the hands of government at too high a level, and an unfavorable regulatory environment. The most effective economic tools to address these issues would mobilize the market system and the initiative of individual consumers and businessmen to create more constructive output and less “heat” with less input. To that end I will outline several hypothetical policies that I think deserve consideration even if expressed in a light-hearted and humorous form, some of which deal with local economic policy and others of which deal with policy formation at the national level. A brief tongue-in-cheek discussion of some of the more salient of these is as follows:

Deterioration of the schools has led to consequent enthusiasm for a vouchersystem to create competition between private and public schools, therefore stimulating public schools to improve. A voucher system, however, may not be easily achieved because of the entrenched strength of teacher unions and other advocates of the monopolistic public education industry. A local option policy that could address this issue as well as the law enforcement issue is as follows:

  1. Decriminalize the sale of narcotics-especially marijuana and cocaine – and make this a regulated industry within the free market system.
  2. Allow local agencies to establish a tax rate on dope sales that occur within their jurisdictions and commit tax revenues generated from this industry to the support of local education with no reduction in subventions from state agencies to local schools as a result; i.e., create public sector competition.

This policy would have several benefits, some of which are as follows:

  1. It would free law enforcement agencies from a good deal of their commitment to the enforcement of the war on drugs and permit them to concentrate on important factors such as seat belt law enforcement, motorcycle helmet laws, and parking violations.
  2. It would reduce state expenditures to maintain prisons – about one third of incarcerated persons in California are there for dope-related reasons.
  3. It would allow local communities to compete with one another in terms of the quality of schools subject to their willingness to devise tax policies that are optimal in terms of generating maximum revenue – taxes high enough to generate revenue but not so high as to discourage dope sales within the community. In essence, the communities would have to compete with one another in terms of tax structure and eventually in terms of the quality of their schools, the improvement of which would be derivative of the availability of additional funds from the local option dope tax.
  4. As was the case before the Serrano decision, the result would be increase in home sales and, therefore, stepped-up property tax values for housing in the communities that prospered under this system.
  5. It would also provide entry-level jobs for young people who are now criminals and would introduce them to the concept of competition on some basis other than brute force.
  6. It would also contribute to amelioration of one of our national problems – support of the agriculture industry – by encouraging farmers to grow marijuana as a cash crop.

A similar local option alternative with regard to prostitution would be desirable in terms of providing police with more time to devote to real crime – seat belt andmotorcycle helmet enforcement. A similar taxing structure could be implemented producing the following benefits:

  1. Noncompetitive motels constructed during the boom in hotel/motel construction could be converted to a more profitable use, generating increased property taxes.
  2. The spread of various and sundry sex-related diseases could be controlled by periodic health inspections by the bordello staff.
  3. Competition could be established on the basis of quality rather than the size and the strength of pimps – a lesson in market economics for young people who would otherwise be thugs.
  4. It would provide entry-level jobs for young ladies who might otherwise be reduced to similar efforts to be rewarded by aid to dependent children.

Another statewide recommendation along the same general line would be to establish a “strip” of casinos and related businesses ten miles north of Yermo, stimulating local employment in the High Desert where there is a deficit of jobs, capturing revenues that would otherwise flow to Nevada, enhancing property values in San Bernardino county ;minimizing air pollution through reduced automobile traffic to Las Vegas, providing entry-level jobs for young people who would otherwise be criminals, and just generally kicking the daylights out of Las Vegas’ strong economy.

Another tax policy that would have an effect on the educational field and, therefore, on local level government constraints, would be a surtax for households with children. Regardless of whether a household is on welfare or not, I propose a 2.0 % surtax over the basic income tax (federal and state) for households with one child, an additional 5.0 percent for a second child, and additional 10.0 percent surtax for the third child. These tax rates would be doubled if the children happen to be illegitimate. This would tend to discourage production of children and, therefore, pressure on schools. It would also generate revenues to help compensate for the short-falls in income related to “dead beat dads.” I expect it would also have a beneficial impact on the budget for aid to dependent children. A variation on this theme would be a similar surtax (the rates not yet determined) on divorced people who have not remarried. Disaggregation of households tends to be economically inefficient and create a dependency class.

In order to control demand for college education at the state universities, junior colleges, and the University of California, establish a similar surtax at about a 5.0 % rate over the combined federal and state tax for individuals or members of families in which one or more individuals hold degrees or have been significantly educated by one of the public institutions defined. This tax would have the finite life determined by aggregate collections that will eventually match the cost of the education plus interest on the unrecovered balance until fully paid off. Beneficial results of this policy would include:

  1. It would reduce pressure of demand on what is essentially now a free service. This will result in a reduction in state budgets for higher education, as well as for levels of funding at the local level for junior colleges.
  2. It would encourage graduates of public institutions in California to move somewhere else to work and, therefore, graduates of schools elsewhere in the country to move to California, creating a turnover of residential real estate assets and continually stepping up the property tax base without having to set aside the constraints of proposition 13.
  3. I think this alternative is significantly better than some type of forced public service such as that being recommended by Slick Willie. In fact, I am a little surprised he had the courage to recommend a civilian draft when he took such strenuous steps to avoid the military draft.

There is a good deal of general resentment to the high pay scale and excellent benefits accorded public sector employees. As a result, we recommend several policies that would bear on this issue. Among them are the following:

  1. Reduce public sector pay scales to a level such that when a public sector job becomes available, no more than ten qualified applicants show up. The long lines of applicants for new fireman positions attest to the likelihood we are over-paying for this type of position.
  2. Immediately allow private firms to compete directly with the post office and require the post office to not only be self funding in terms of revenues but also to pay a shadow property tax in order to create a level playing field. This may result in increasing postal rates which would in turn induce more effective use of electronic mail, maximizing the use of our electronic infrastructure and reducing the use of our physical infrastructure to distribute hard copies of various types of materials. The side benefit of this would be an increased number of jobs for high tech people who were made redundant because of the cessation of the cold war.
  3. I would also impose a surtax, calculated as a percentage of the combined federal and state income taxes on retired employees of public agencies, based on the differential between their retirement income and other cumulative benefits and the average benefits of retired people form the private sector. This would encourage public sector employees to save for the future, which would address another of our persistent economic problems – inadequate savings levels. It would also make much of the general public substantially happier than they are currently. The surtax, by the way, should be higher for those public sector retirees who are double dipping, enjoying wallowing in more than one public trough.

By raising the registration fees on older cars, we would, in essence, destroy their value, making it more feasible for industrial polluters to purchase old cars and destroy them in order to meet pollution targets. It would also take a lot of poor people who have no insurance out of cars and put them in public transportation, which currently is highly subsidized and achieves sub-optimal ridership. This is, in essence, a tax on poverty and irresponsibility, which should reduce poverty and make people more responsible while at the same time reducing pollution inexpensively and aiding our public transportation investment to better perform.

In addition to the benefits to the healthcare industry derivative of dope users living a more normal life and, therefore, being less subject to disease, specific policies that address the high cost of providing medical service to all include the following:

  1. Establish a two-tier medical industry, the lower tier of which would be staffed by qualified professionals who do not meet California medical bar standards but who could qualify in another country in order to provide medical service to indigents, illegal immigrants, and others who now put substantial pressure on medical resources, demanding the same quality of service as provided more affluent sick people. Dr. Kwan can only do so many open-heart surgeries a day. If Dr. Gonzales were to do a few (albeit not quite as well), more people would get surgery and the cost of this procedure would be reduced. We now have a two-tiered demand system – those with insurance who all want the “best” medical attention and those who are excluded from any medical care.
  2. Specific facilities would have to be developed either here or in nearby locations in Mexico to accommodate the second-tier medical market.
  3. Staffing for the second-tier medical market could also be generated by lowering professional standards – i.e., a more liberal level medical bar for people who can’t pass licensing requirements as they now exist. These practitioners would be restricted to the second tier of the consumer population, i.e., make the supply subject to variation in quality to match the variable quality and capacity of demand.
  4. Two-tiered service levels are not unique. Recently, the airlines went to a two-tier pay scale for pilots and other crucial professionals because of the competitive impact of deregulation. If we deregulate the medical industry to some degree, we might also be able to enjoy wider distribution of a broader quality spectrum of services at a range of costs. Specific diploma mill medical schools could be created to train second-tier professionals, if necessary. My grandfather was a respected physician in North Orange county for over thirty-five years on the basis of what amounted to about two years of medical training at Rush Medical College in Chicago before the turn of the century.

I would immediately, of course, allow for full deductibility of the purchase of productive assets. Machinery purchases, construction of new facilities, etc., for manufacturing firms and all businesses would be written off in the year in which they were incurred, causing a short-term reduction in taxes because of the accelerated depreciation but also contributing significantly to the development of new infrastructure and facilities, as well as stimulating the capital goods industry.

In order to encourage savings and reinvestment, we should eliminate any income tax (federal and state) on interest income or dividend income, as well as income generated as a result of working more than 40 hours a week – a special benefit to entrepreneurs (I am preparing this on a Sunday). As a matter of fact, I am not getting paid very much today, either.

There should be no tax on the proceeds of the sale of a business to its employees in order to foster broader ownership of productive assets (as distinct from homes) and stimulate more intense gut-level awareness of the concepts of entrepreneurship.

Because entitlements, particularly for older people, and for medically impaired people, consume such a large proportion of our gross domestic product, some thought should be given to each of the following potential policies:

  1. Instead of using extraordinary efforts to sustain the viability of alcoholics, dope addicts, and others, we should establish country club facilities for those people in which they would have custodial medical care and ample availability of the mind-altering substance of their choice. The effect of this would be to accelerate their demise and, therefore, minimize their drain on society, while at the same time giving them a happy guilt-free life – what little of it they have left.
  2.  A Kervorkin bonus concept would pay a bonus to hemlock society euthanasia assistors for assistance provided to those who truly wish to cross over. The bonus would be inversely related to the age of the client. Bonuses paid to euthanasia facilities for clients in their sixties would be substantially larger than bonuses paid with regard to services provided to clients in their eighties in order to reduce the number and extent of old people drawing down entitlement funds. Similar bonuses for abortion (less likely to be an issue because of policies described above) would minimize pressure of demand on elementary school facilities, cost of aid to dependent children, etc.

An income tax surtax based on age would also encourage people to live shorter lives partly out of frustration. A sliding scale income tax that increased every year after age sixty-one would be a useful device to encourage people not to live too long. A variation on the surtax that seems to be productive would be an exemption from the surtax for all people regardless of age who are still employed on a day-to-day basis and, therefore, not putting as much pressure on the entitlement system.

Since dividend and interest income are taxable, older people would be encouraged to save for retirement rather than to rely on entitlements subject to a tax and surtax.

No-fault workman’s comp in which the beneficiaries would be restricted to access to the second-tier medical system might also be beneficial by putting an overt price on medical service, not in terms of its cost, but in terms of its relative quality.

It could be argued that removal of the concept of depreciation as an income tax consideration, as well as exemption of interest and dividend income from taxation, would reduce public sector revenues. These reductions, however, will be accompanied by a reduction in demand for public services inherent in the policies described above, as well as an increase in revenue from other sources – a dope tax, surtaxes on various sectors, and an expanding economy. Many of these policies exhibit the crystalline logic of reducing demand at the same time as we increase resources – a combination that should improve everybody’s standard of living – except for a few public sector retirees and some really old people who don’t work, and perhaps some young ladies who don’t know how to spell contraception.

My initial thought to addressing some of these problems occurred many years ago in conjunction with my plans to develop an alcoholic retirement home in Mexico in which the guests would sign over their entire estate to the foundation in return for which they would receive an unlimited supply of the beverage of their choice daily along with some type of custodial care to minimize the negative impacts of hangovers. The guests would be considerably happier. Their life span would be significantly reduced. The foundation would make a lot of money because of the reduced life span and it would provide jobs for semi-alcoholic doctors during their retirement years.

The concept of allowing employees to purchase businesses and farms with what amounts to tax deductible dollars that do not generate taxable income to the seller establishes a basis for transferring productive assets to the next generation and allows for the possibility of creating 100.0 % inheritance tax; i.e., crucial assets could be transferred essentially tax free and the monetary assets would either be commandeered at death or donated to a private university or college or other charity which would provide an alternative (and more efficient) source of human services. Heirlooms and residential estate assets could probably be excluded from the 100.0 percent estate tax concepts. In addition, the kids could keep us on the payroll so that we could avoid the aged surtax for most of our life.

The litany of benefits derivative from these policies is virtually endless. My energy, however, is not.

Actually, there is a seed of merit in some of these ideas. They represent a reversal of conventional wisdom that the solution of problems is more regulation and more restrictions while, in fact, the solution to most problems comes from mobilizing each individual’s energies for his own best self-interest and the use of energy to create solutions rather than to resist or comply with regulation.

Dr. Gobar Also Responded to Specific Questions About our Economy as Follows:

Q. There has been a lot of talk lately that economic summits are popular, and there has been talk of at least two economic summits in this County. Would you share with the people in this room, seriously, what you think an economic summit could do and, if you could wave a wand and make changes, what recommendations would you make to summit attendees about things that need to be changed in this County? Specifically, in the State and in general.

A. It’s really hard for me to make irresponsible recommendations as I did before, but I think the bulk of the problems we have in Orange County and Southern California’s economy that anybody can do anything about would be resolved if we had a regulatory environment that wasn’t innately hostile to business, and I think that involves certainly workman’s compensation – not only in reality when you’re looking at the workman’s comp for a roofer being 50% of what he’s paid – that raises the cost of a lot of things and makes it difficult to do business, but also in terms of the symbolism (not that I believe that much in symbolism) that basically the employer is a victim and is a giant cow to be milked. I would really lobby hard to get the tort lawyers put where they should be – well maybe not completely where they should, but close – and do something about regulation; and I think that the people that go to a summit tend to be people who are prominent and tend not to want to say things that will come back to haunt them. I no longer have that concern. You need people who are basically not afraid to say, “Screw you, this is basically what is happening.” I don’t think the business community as a whole, because of our paranoia about regulations, is really willing to come out and be blunt with people about what is wrong with the regulatory system. I think the regulations are much more crucial than a lot of stuff that we talk about, and what I am afraid of is we will have summits, we’ll create committees, we’ll get a whole bunch of other people to stand around and hold hands and jump up and down and shout about things and write white papers, and that is just incredibly wasteful. I really think instead of building more agencies and committees and groups, we should work at destroying agencies and committees and groups and regulatory things that interfere. That is probably the most significant benefit I could see from a summit. If someone should get through to Willie Brown and whoever that there are a large number of people in California who do listen to Rush Limbaugh and who buy his book and may not agree with him, but really kind of believe in freedom rather than solving problems by increasing regulation. We have had a pretty severe recession and it’s concurrent with the restructuring of the economy and most of you haven’t heard me talk lately – look up Joseph Schumpeter’s book, Capitalism, Socialism, and Democracy and read it. During thi recession, you know the only category of manufacturing employment that has grown in some parts of Southern California has been apparel manufacturing, which is a third-world industry. If we can have growth in a third-world industry in the environment we have now – what could we have if every business person either had the disdain for regulations or the ability to side-step regulations that are a typical characteristic of apparel manufacturers. By and large, the growth in jobs in apparel acknowledged by the EDD probably represents less than half the true growth in jobs because so many of them are underground. That, I think, is a significant indicator of the underlying strength of Southern California’s economy that is being hampered by regulations here, and a lot of us are not physiologically adaptive to conceiving of ourselves as a mixed third-world and first-world economy in one County. We just can’t deal with the fact that a larger and larger proportion of our economy is potentially a third-world economy. Hong Kong’s got a lot of rich people.

Q. There is some speculation that there is tremendous demand for things like housing and that banks really do have money, but we are not getting those two together. What recommendations would you make in terms of how to get projects financed?

A. I think the banking system (I’ll probably insult a few bankers) . . . I think the S&Ls have managed to shoot themselves in the foot, and they will never come back to doing what they did before. I’m on the Board of a fairly good-size S&L, and we haven’t made a construction loan in three years and, historically, that’s what we did. Now what we do is buy paper discounted from other S&Ls so they can meet their liquidity requirements. We are having record profits, record profit ratios, etc. It’s a wonderful business, but we’re not doing what we were set up to do. The commercial banks are so thoroughly regulated now that a guy in this room and I were trying to borrow some money. In this case his net worth is insignificant. I called a couple of my banks and said if get a Mickey to sign with me and they said, “Well despite that, we might loan you the money,” but the interesting thing to me was the chairman of a bank who I know real well said, “I won’t make you a real estate loan, Al, but if you’ll write me a side letter that guarantees you won’t encumber the real estate, I’ll make you a personal loan, unsecured.” That’s frightening! Which to me means that the commercial banks are not really functioning very well in providing construction financing. My doctoral dissertation dealt with the evolution of Small Business Investment Companies, and my conclusion was that it would never amount to anything. As a matter of fact, it really hasn’t, but I like to look at the way the financial system changes. I think just like when you get a heart blockage, the system will find a way around the banks and the S&Ls and will begin to direct loanable funds to where there is a high yield. I was talking to a group of homebuilders yesterday morning, and they said, basically, from nontraditional sources their construction loans are costing 18%. A prime rate of 6% in the banks meant you should get a construction loan at about 8% for a pretty good borrower; but, in fact, in the real market, they are paying 18%. I think the money will eventually follow the yield. It will eventually find a way around the over-regulated financial sector, and I expect to see a non-regulated surrogate for the banking system to overcome what Mickey and I talk about a lot from one of the newsletters he forces me to read on the “socialization of credit” that has occurred in the S&Ls and the banks. If we socialize credit, it becomes inefficient. By the way, one of our local Orange County Republicans/Clintonites made that suggestion at the economic summit.

For those of you who find that interesting, Kathryn Thompson made that recommendation, and I think it was after talking to the good doctor about his white paper on ways in which we can develop some financing opportunities.

Q. It’s the first time I ever heard of construction interest being 18%. Capital funding is only so efficient. How can you afford to pay that kind of a premium for the cost of funds and create a product of housing or apartments efficiently? Are they just taking fees, no profits, capitalization?

A. Basically, the way they wind up paying that is they split the profit from the project, which would normally be 10% to 15% of the sales price. They split that with the lender one way or another for credit enhancement and it comes out to be that much or more, and lot prices for people who are doing construction loans now have come down, which gives them a little edge over the poor guy next door who is still trying to recover from the lot price he paid in 1989. So, you have a little room in there to do real well. An interesting thing we see – the projects that are being built on newly acquired lots at “today’s market price” are selling very well – Kaufman and Broad had a project in Rancho California next to a project that used to be called Red Hawk, and is now called Dead Hawk, which gives you some idea of what went on down there. Kaufman and Broad opened 55 units of prototypical Moreno Valley housing – 1,300 square feet, $121,000 in today’s market and sold 17 homes a week last summer. The reason is you back into their lot price – you know Kaufman and Broad – they didn’t pay that much – but I think backing in with my economics, they probably paid about $37,000 or $38,000 a lot and Red Hawk in 1989 was selling you tickets to a barbecue to be told about lots available for $80,000. Other developers are still battering it out on $80,000 lots, trying to unload their inventory. K&B can slide in, under price them, make a ton of money, and be gone. That’s the reason developers can afford high construction interest rates. It’s a two-tier situation also.

Q. RTC is offering the balance of the Dead Hawk lots for less.

A. In 1989, we told some of our clients – one of them comes here a lot – he’s a former student of mine – that we thought home prices in 1989 would have to come down by 26% to get the market energized again. In 1989 the market hadn’t really stopped, but you could see that it was beginning to stop and with the relationship between home prices, which was already highin Southern California relative to income – about twice what it should be nationally – would have taken a 26% reduction in price. Since then, for those people who are still working and who are not in the real estate business, household incomes have edged up and lot and home prices have edged down – not as much as people would like to have you believe because they talk about individual instances. In 1990 in Southern California, we had 5,887,000 occupied units (of which 826,000 were in Orange County). If we had the same ratio of jobs to housing occupancy in 1990 as it was nationally, we would have had 800,000 more occupied units because we’d need fewer jobs per unit. If we had the same ratio of housing ownership as was typical of the rest of the country, even at 5,887,000 units, we would have had 600,000 more homeowners than we had. What has kept the for-sale market going for the last three or four years is the kind of a half-life of this reservoir of potential first-time homebuyers who get into the system and then, through the food chain, let somebody sell a house at the far end. So there is demand for housing (not for apartments) right at the moment. We have seen apartment prices in Orange County come down by $20,000 a unit off of $80,000 which, by the way, is almost exactly 25%, which is kind of consistent with our theory. I don’t think they have come down quite enough yet because we are sill having this lack of ability to have transactions. If the buyer who has the cash to qualify for the loan wants a return on his cash (unique in apartment investing), the seller who bought the thing on a zero cash flow with a 7% cap doesn’t want to admit that he made such a giant blunder kind of tilted situation. We have gone from over 100 deals a year in apartments in Orange County down into the mid-20 deals a year because the market is not working smoothly because we are still in denial phases regarding the value that is supportable by rent incomes.

Q. We are being told regularly that businesses are leaving California in droves – particularly manufacturing businesses. Is that true?

A. I think that’s a crock.

Q. How do you really feel about it?

A. That’s an economic term. The Business Round Table did a survey a few years ago. It was a mail survey. They got back a response that indicated a whole bunch of manufacturers fully intended to move out of state, and that this was evidence of the fact that we are shooting ourselves in the foot. As I said earlier, we do have severe regulatory problems, but the regulations are such that if we really force somebody to move, we’ve really got to be onerous. What they do is tend to keep people from coming in or tend to keep people from expanding. I remembered seeing something in one of the ULI letters that come out every month which I thumb through to look for a number I could use in a speech – about a survey of manufacturers all over the United States and how many of them intended to move in a certain time frame and how many of them were going to move out of the city where they are located. The numbers from the national survey were much higher than the numbers from the Business Round Table survey, and the Business Round Table survey was a mail survey, which would automatically create a biased response from people who are upset about something. Because of the concern, I took the County business patterns and sat down and made a list of all the manufacturers (all the employers) in Orange County that employed over 500 people – not by company, but by type of company – the newspapers aren’t going to move, the hotels aren’t going to move, Disneyland’s not going to move, Knottsberry Farm’s not going to move, the hospitals are not going to move, major retailers are not going to move – you get down the list, we identified – I’ve forgotten how many firms – but I think 5% to 10% were likely candidates to move. They were people who made aluminum castings or people in the trucking business who needed larger, low-cost sites, but you are not going to see Kimberly Clark pick up and move because of the huge cost of relocating all of that heavy equipment which is already pretty well written off. They don’t have a high tax environment. I don’t really share the belief that we have droves of people moving out. What we don’t have is people moving in to offset the ones that would ordinarily be moving out. When I worked for Beckman Instruments and the Deutsch Co. and Microdot, we opened plants in other places. At Beckman, we had plants in New Jersey because we were looking for the technology and not much of anything else. This was a time when California was paradise, and Beckman was headquartered here, but we still opened plants out of state because it made good business sense. The Deutsch Co. didn’t because Alex Deutsch couldn’t find a place he could fly to in an hour out of state.

Q. Are you suggesting that the economic strategy of this County ought to be to viciously get rid of regulation and disincentives and then concentrate on attracting new people to come in because of the new environment.

A. I don’t even think you have to do the second one. I think if you could really create a less stringently regulated environment, the information would get out that this is not a hostile political environment and is, in fact, a positive environment and you wouldn’t really have to go the other way. In 1964, which is a little out of date now, I identified 18,000 major openings in the United States with over some number of employees (a reasonable number) and then I identified the number of local state economic development agencies, and it was basically about five agencies per major plant. That said if you were a really efficient or average efficient local development agency, you would make a home run maybe every five years. Some are going to be a lot more efficient than others, but I think there is an incredible amount of wasted effort that goes into the local promotion to cause job growth when the market system will cause it to happen if you get out of the way and let the market system do it.

Q. Just confirming – get rid of the regulatory environment and this other will take care of itself, then we are back to Willie Brown, the EPA. In other words, we come back to the polls again, don’t we?

A. Well, we come back to politics. It’s a basic political message – a basic political feeling that business is the cow that they get the money from and they are the taxing agency. You tax the business, the business has to pass it on to the consumer, the consumer doesn’t get mad because they don’t understand the message, and so the consumer continues to vote for the person who is making the business pay the taxes when, in fact, the business can’t survive without making a profit – so if they can’t pass it along, they go out of business. That basic set of economics has never been taught to people in high school. It should be.

Q. Do you put any credibility in some of the articles where they are talking about the administration making a deal with the Federal Reserve? In other words, when you lower the deficit, the Federal Reserve kicks down interest rates? Do you think that could possibly happen?

A. I don’t have as much confidence as Jim Doti in the ability of the Federal Reserve to control interest rates. They can ration credit, in essence, have created a system now through the banking system where it’s more productive as a banker to get the money from low-cost deposits or to get it from the discount window and put it into T-bills than it is to make loans to you and me. The bank doesn’t have to make the same capital requirements for that kind of investment as it does to make loans. The Fed has not so much driven interest rates down in the real market (credit card interest rates are still 18% or 19%), and we talked about construction loan interest rates. What we have done is take the measuring stick and say “Look-it, we really got rates low on the measuring stick.” The problem is that measuring stick doesn’t measure the credit economy anymore because society has had to go around the formal financial system. I don’t believe that Federal Reserve policies can sustain at the same time low interestrates, low inflation, and an expansionary monetary policy and the kind of fiscal policy we have had. I have been amazed that rates have stayed as low as they have, given the fiscal policy that we have here. We complain about rates being too high. One of the most instructive things to read on a regular basis is The Economist. The only thing you have to read is the last two pages. Every two weeks, they list international interest rates and growth rates and so forth. For a good part of the last year, we have either had the lowest or the second lowest interest rates anywhere in the industrialized world. I am amazed there hasn’t been more hot money going to the Deutsch Bank or someplace like that. I don’t think that we really have the ability to manipulate the system the way we used to. An economist by the name of Keynes, who wrote a book in the 1930s about how you use these techniques to manipulate the economy, referred to a concept called the “monetary illusion” which basically says the consumer is a dumb guy; if you give him more money, but it buys less, he thinks he’s better off. I think in 1968 we lost our innocence in this country, and the monetary illusion no longer works. We know if they give us more money, but if it buys less we’re worse off; and now I don’t think we have the ability to manipulate the credit markets nearly to the degree that an economist like me likes to think we should.

Q. Do you see them loosening the regulations on the banking system in this country? That is one of the things that came out of the Round Table that looked like it was attractive.

A. The question was did I think they were going to loosen the banking regulations. I really think they have to. I have a friend who is president of a bank and has been my banker for 20+ years. He is in his 50s and he says, “Yeah, I have been president of a bank somewhere for 20 to 25 years and never before in my life did I turn over the running of a bank to a 28-year-old regulator who told me what I could do everyday.” When I had to make a swing loan of about two months, I had the money in the bank to do it, but it was locked up in a CD. It was better to borrow the money than to cash a CD for accounting purposes, also. My banker told me that the file on that loan was two inches thick by the time he got through, and he said, “You know, when you first started dealing with me, you could come in and ask for a loan of the same magnitude, I would give it to you without going to a loan committee and all I had to add in there was a note with your signature on it. Now, I have to have a file, we have to have credit reports on you, we have to verify stuff. It’s prohibitive to make loans.” So, this bank is very heavily into passive investments and not making many loans. It’s a small bank for businessmen. That’s the kind of bank that the small business guy deals with, and it’s a pain in the neck for them to make loans. I think the regulators are going to have to get off their backs. Now, we’ve got some kid, who’d probably get a C in my finance class, who is telling us “you’ve got to do this and you’ve got to do that.”

Q. How do you re-regulate rather than de-regulate. In other words, we don’t want to go back to a mid-age, so where do we want to go with bank regulations?

A. What I think will happen is we’ll back off a little on bank regulations for political reasons because Kathryn Thompson and people like her who advise Clinton are saying, “Hey, you’ve got a lot of business people upset at the banking system.” But, I think what will happen is that we’ll set up a new set of institutions that are unregulated and do business that way. I have a friend in Las Vegas who builds homes whom I asked about how he got his construction financing. He said, “I can get a loan funded in less than 24 hours from a non-traditional lender, and if I pay it off on time, they let my wife and kids out. It works. They trust him; he trusts them; there’s not 45 lbs. of paper. When an institution in a capitalist or market driven economy fails to function, I think that the economy goes around it. I gave a speech to a group in Hacienda Heights; and when I was talking about it afterwards to a young Chinese lady, she said that she delivered over 60% of the business within five miles of where we were, didn’t have a business license, didn’t pay any income taxes, and just ignored the regulations because they say, “Well, I didn’t understand this stuff, we didn’t have to do this in Taiwan.” That, I think, happens. You read about Italy. Forty percent of the gross domestic product was underground, and I think a very large proportion of our economy is moving underground. We’ve seen a sharp decrease in taxable sales with this recession, and I think part of that decrease is real; but I also think an awful lot of it is swap meets and unreported sales tax. An example I use is the merchant works all day, sells $100 worth of stuff, pays the rent, labor, and so forth. He winds up with $6 or $8. In his other drawer there’s $8 that has to go to the government, and he stands there and thinks, “You know, I could double my profit by a simple process of not filing a piece of paper, and that’s a lot easier than sweating it out here all day to make $6. I can make $14 by not writing this thing on this piece of paper.” Now, I think there are probably massive amounts of under-reporting, non-reporting, since the penalties are not all that severe. One of my cousins used to be Chief Enforcement Officer for the State Board of Equalization. He’d probably disown me if he heard me say that I really fundamentally believe that the drive of a market system transcends the ability to regulate.

Q. I am going to give you two or three types of land uses. What I would like you to do when I give you the type of use is to give me a real short answer on where you think the future of that land use is in Orange County. General Retail?

A. General retail. Be very, very careful in general retail. There is a big revolution in retailing going on. We are going to need a lot less square feet per capita consumer than we used to. Because of subsidies from cities, we are building a lot more than we need to. This is something to be very careful about, and it’s very location sensitive because the most important thing about retail is location because you do have a monopoly, you could have a flourishing neighborhood center here and three miles away, you could have three dying; and yet their death wouldn’t kill this one.

Q. Anything different about auto sales.

A. We are going to have fewer auto dealerships or the cities that have sub-sized auto plazas are not going to realize their expectations because they were predicated on the belief that car dealerships in auto plazas do two to three times the volume that the average car dealership in the county does. When all of the dealerships are in an auto plaza, we are either going to have half as many or a third as many dealerships as we had before, or the average sales volume per dealership is going to regress down to what it was, and the sales tax give-backs that were predicated on sales may not match the front-end value of what was implied. There is going to be a lot of screaming and hollering going on. I think it is going to result in a lot fewer dealerships myself rather than the regression. The reduction in dealerships will make a bunch of old dealerships sites available.

Q. Office Space?

A. Don’t worry about running out. I used the real numbers on this. We were doing some work for the former employer or current employer of an awful lot of people in this room on this topic, and I won’t tell the part that’s proprietary to them. But I had to do some detailed background on our perceptions of Orange County overall. We expect to see (optimistically) by 1997 vacancy rates overall in office space come down from what they are now (depending on who you listen to, it’s 18% or 19%) down to on the order of 13%. So, that is probably a 5% or less reduction in vacancy rate. That really means to get down into single digits, you probably have got another three or four years beyond that. One of the things people tend to forget is that even when it is overbuilt, everybody knows it’s overbuilt and nobody can make any money building it, some office buildings will get built by companies that are expanding and need to have build-to-suits and by doctors who pay no attention to economies anyway.

Q. Industrial Development?

A. I think industrial development is going to be a surprise once we write down the value of R&D space, which is not really industrial space anyway. We are getting that out of the way, we are seeing building prices come down from $85 a square foot to $65 a square foot and less very rapidly. We think that the industrial sector demand, the true demand, is going to pop back a lot quicker than most people believe because two of the three legs of demand for industrial space are very sensitive to recession. Manufacturing employment and contract construction. We don’t expect either of those to come rushing back, but we expect them to come back with recovery. The problem in the office market is not the recession. The problem in the office market is just flat-out overbuilding. The problem in the industrial market is a little bit of both; but because it’s a little bit of both, it comes back a lot quicker. A corollary of that is if you assume we have a 20% vacancy factor in industrial space, which I disagree with although the broker surveys say 20% plus or minus, we think they don’t include in their base the Hughes, Rockwells, etc., because they forget about them. We think the effective vacancy rate is like 10% rather than 20%. No matter what, we think that vacancy rate will spin off a lot quicker in terms of the absolute magnitude than in the office sector. But if you say 20% and you say 20% in the office, the increase in employment in those two categories, which combined represents about 65% of jobs, the increase in employment to fill that space, basically a 25% increase, would create in essence 25% of 75% or 70% or say 80% at 20%, a 15% increase in jobs, which would increase demand for housing in Orange County by 15% because of the close connection between housing and jobs. Before the office guys get well, somebody is going to be making a lot of money in the housing sector just because that’s the nature of the beast.

Q. How about housing?

A. There are two ways to get overbuilt by our terminology. One is to have too many units, and the other is to have them too high priced. The elements that determine purchase or occupancy of housing are you need a place so you can sleep and whatever it is you do, and you need to be able to pay for it. So you have apparent demand and effective demand: Economics 100A. We overbuilt the market in Southern California, particularly in Orange County, in price in 1988, 1989, and 1990. We didn’t, I don’t think, over-build it in units, because if the units had been at the price that was consistent with our incomes, it wouldn’t have taken as many jobs to support occupancy of the units, and we would have occupied (as I mentioned earlier) in Southern California as a whole about 800,000 units more than we really did. This would have meant in 1990 we would have had a negative vacancy rate around 500,000 units. If you take Orange County’s median household income, which is higher than it should be because we have sort of a Will Rogers thing – we send the middle-income people from Orange County to the Inland Empire, raising the average income for both places – if you take that and divide it into our median home price, it is something like a ratio of 5.6:1. If you take the median income nationally and divide it into the median home price nationally, the number is 2.6:1. So, you have almost a double intensity in terms of disparity of price here. People like me who have lived in a house for a long time don’t notice the cost because it’s not an overt cost – but it’s a major problem, and I don’t think there is any way we are going to build significant amounts of new houses below the median price, except for some attached housing, because the lot prices in Orange County didn’t come down the way I thought they would when the bad news about Lusk and Lyon became conventional wisdom.

Q. The final land use is one that this County has a lot of and one of those land uses is going to expand – at least if they have their way. What about commercial entertainment? And I am talking about Disney.

A. It’s such a specialized use. We have a lot of it as a percentage of what there is in the county, but as a percentage of our total land, it is not the critical element. The critical element in terms of the impact of Disney or Knotts or whatever (Disney-like entities) is not the primary impact of that land use itself, but the derivative impact of all the land that is needed to house the people that work there, the hotel, the people who work the hotels, etc. For example, in Orange County, if you develop five acres of manufacturing land successfully and it’s occupied, you create demand for probably 90 acres of other land for urban uses because of the economic multiplier effect of those jobs and then the derivative jobs and the derivative people who create demand for land. For those kinds of economic multiplier land uses, the impact is not the facility itself; the impact is the derived impact that could easily be 20 times the primary impact as manifest in land use. The high density of employment in recreation entities implies a high economic multiplier in terms of land use.

Economy General Politics

Thinking Regionally

Published by:

By Paul Granillo
Director of Public Policy
IEEP

Everyday a thousand thoughts cross our mind. Most thoughts concern our family and loved ones. For those of us in the work force, much of our thought focuses on the job, our career goals and our co-workers. Many times it is not till the evening news when we think about politics, our nation’s economy, the world situation or just how our favorite team is doing. Hopefully we carve out a thought for the poor and suffering. So in that long list of thoughts there is not much time left to think about our region. Yet every thought in the previous list is effected by the economic and quality of life reality of our region, the Inland Empire.

The United States government’s Bureau of the Census defines the Inland Empire as the Riverside-San Bernardino-Ontario metropolitan area, which covers more than 27,000 square miles and includes the entirety of San Bernardino and Riverside Counties. If the Inland Empire were a state, we would currently be the 26th largest state in the nation; soon our region’s population will pass Kentucky and be able to claim a population greater than half the states in the nation.

Now, while most of us do not spend inordinate amounts of time thinking regionally, myself, and the organization I head, the Inland Empire Economic Partnership, do just that: we think about ways to better the business climate and quality of life of our two-county region. We do this because the economies of our two counties our interlinked.Moreover, our regional economy is tied to the larger Southern California economy, which is part of the 9th largest economy in the world (just behind Italy and larger than Russia’s) the State of California, which is part, of course, of the largest economy in world, that of the USA.

So, one might ask, how does one better a regional economy? The answer is with a lot of work. A lot of work because we have barriers in our way like our educational attainment rates, nonstop growth, reluctance to cooperate, lack of resources, and growing poverty rates.

First our baccalaureate attainment rate. Only 19% of our region’s residents have a bachelor’s degree, meaning 81% of our residents do not have a bachelor’s degree. Further, of that 81% of residents, almost 42% did not complete high school. So what does this mean? It means we are a region heavily dependent on economic sectors that have little to no educational requirements to enter. That is why manufacturing, goods movement and logistics, and construction are critical to the Inland Empire’s economy and job base.

IEEP sees the need and supports our region’s educational leaders as they work to educate our region’s children from the earliest opportunities parents have in the home to college graduation. And for those in the modern economy who may not choose a college path, we support the finest workforce training that our region can provide.

Second, the last 25 years has seen unprecedented growth in our region. Since 1990 alone our population has grown from 2,588,793 to 4,293,892 in 2012. The Southern California Association of Governments predicts we could grow to 6 million by 2035, with the County of Riverside becoming the second largest county in the state next to Los Angeles.

Third and fourth, the residents of the two counties move freely across the county lines working, shopping and playing from the wine county of Temecula, the forests of Lake Arrowhead and Big Bear and the deserts of Palm Springs and the High desert communities. Unfortunately, too often, elected officials, business and community leaders, although rightly looking after local issues, have failed to see the value of working collectively and regionally. And the cost of that has been our region’s lack of ability to attract the resources that our region is properly entitled to, like the resources available through philanthropic institutions that support the non-profit sector.

Finally, of all the issues we have, the most troubling to me is the growing rate of poverty in our region. Using the same years as I previously referencedfor population growth, in 1990, 306,417 or 11.8% of residents were defined as living in poverty. In 2012 that number was 809,234 or 19% of our population living in poverty and today, in 2014, the number has only grown.

The members of the Board of Directors of the Inland Empire Economic Partnership are business leaders, elected officials, college presidents and chancellors, non-profit and community leaders from throughout Riverside and San Bernardino Counties. They care about our region and its future. They want to tackle the hard problems that face our region and also celebrate the beauty and benefits of working and living in the Inland Empire.

From time to time they will write here about their perspective on our region, their struggles, wisdom and ideas as employers, educators and leaders about how together we can build a better Inland region.

Of course, that begins when we all take a little time to think regionally.

Economy General

California Cities Remain High Cost, but High Desert Cities Hailed as Business Friendly

Published by:

By Larry Kosmont, CRE
President & CEO
Kosmont Companies

It should come as no surprise to those in the real estate community that California cities are the most expensive for business in the western United States. Claremont McKenna College’s Rose Institute of State & Local Government, along with Kosmont Companies, recently released their 19th annual Kosmont-Rose Institute Cost of Doing Business Survey. The Survey gathers business fees and tax rates from 305 selected cities in California and eight other western states that many companies view as competitive alternatives. California cities consistently top the list of most expensive and 2013 saw little relief.

The State’s costly structure becomes more evident now that the Great Recession has receded. Real estate prices and occupancy are generally up, and unemployment is trending down, yet California’s cities still struggle to make ends meet. After disposing of Redevelopment Agencies and the Enterprise Zone programs, California has few economic development tools left in the shed to stimulate recovery at the State or the local level, often resorting to adding penalties or taxes to business rather than incentives to create jobs.

Relying on its historic perception as the land of opportunity and good weather, California has been slow to react to an exodus of companies seeking cost-effective tax policies and friendlier politics. Cities do not receive a nickel of the state’s high corporate income tax rate and may lack sufficient local revenue to support them while taxing a shrinking local business base.

High Desert Cities Lead in San Bernardino County as Business Friendly

Nineteen cities in the Survey are in San Bernardino County and five of those are located in the High Desert Region, namely Adelanto, Apple Valley, Barstow, Hesperia and Victorville. What’s interesting is that all these High Desert cities rank as “Very Low Cost,” “Low Cost” or “Medium Cost” in the Survey while most of their older San Bernardino Valley counterparts across the Cajon Pass rank as “High Cost” or “Very High Cost.” This is emblematic of a statewide trend.

Generally speaking, older core cities tend to be more expensive to business than younger, exurban cities. In particular, the Survey cites higher business taxes and utility user taxes as the culprit. There are many underlying factors at play, but older cities such as San Bernardino and Colton generally face higher costs of services. Relatively dense resident populations, an aging infrastructure and pensions owed a long history of past public employees, raises the structural cost burden for cities that did most of their growing in the ‘50s, ‘60s and ‘70s. The crux is in a city’s response to higher costs, and business is most often the path of least resistance. Taxing business becomes the most politically palatable solution, particularly when residents are more vocal about their own rising costs of living and access to services.

California Desirable but Expensive

Firms still want to locate in California, citing the Golden State’s world-class weather, large and diverse workforce, and strategic Pacific Rim location. Practically speaking, large corporations have a love-hate relationship with California. They want to be in California. But in their attempt to minimize costs, CEO’s are compelled to ask, ‘How small an operation in California can I manage and still service that market?’ As a result, sales, technology or design offices may stay or even expand in LA or the Bay Area or OrangeCounty or select coastal environs, but the remaining operating units are more likely to end up in states like Nevada, Arizona or Texas.

There are signs that the anti-business sentiment in California politics may be waning. In October Governor Brown signed three bills into law intended to promote economic growth by invigorating existing legislation and creating new methods to develop economic areas. The Legislature is considering additional bills that could further benefit Californian businesses. However, California won’t become business-friendly overnight. Change is apt to be incremental, but sooner or later the State will figure out that the long-term answer to their budget deficit is private investment that creates jobs, and that means it will need to woo business back.

Governor’s Budget Offers a Little Relief, but No Tax Increment Financing for Economic Development in Sight

A new economic development policy won’t have broad and lasting effects without a return of Tax-Increment Financing or “TIF,” which is the underlying tool that was lost when California dissolved Redevelopment Agencies in 2012. Today, the Golden State is one of only three states in the Union without this vital mechanism. The Governor appears open to enabling TIF primarily for public infrastructure in the form of limited reforms to an outdated and almost never used tool called Infrastructure Financing Districts (IFDs), but only if requests for TIF are first put to a public vote, of which he is willing to reduce to 55% from the prevailing 66% threshold.

It is unlikely the legislature will be able to advance any bill that uses TIF for economic development projects until the Governor can set aside ill feelings about the way TIF was used in Redevelopment. The stark reality is California cities are bringing a knife to a gun fight and losing business to other states that are better equipped. Until we get TIF and a more business-friendly culture, the economic development odds are stacked against local cities and counties.

In the long run, the road back to prosperity through economic development measures that avoid more taxes is simple. California gets 85% of its funding from income and sales tax. If we invest TIF in projects that create jobs and train workers and recent graduates, the State can get paid back over 11 to 1 on its investment because the new job handsomely returns increased income and sales tax back to Sacramento. The Project gets to happen. The State gets a check. The City gets a job. That’s a natural win-win-win. With most counties in the State at over 8 to 9% unemployment, the State should find the political will to bring TIF back in a productive way. Until then, attracting and retaining businesses will remain a heavy cross to bear for California.

High Desert is Growing Up

As the State is now discovering, complacency is dangerous. The High Desert isn’t the spring chicken it once was. In fact it’s approaching the next stage of maturity with a sizeable resident population and a newly revitalized Victor Valley Mall. The historic crossroads of the Valley has become a metaphorical crossroads.

There isn’t time to wait for a new tax increment tool to come down from Sacramento. High Desert cities have a lot in their tool kit already that can be used to stimulate private investment that brings jobs and revenue. Existing zoning regulations, special districts, project-specific tax revenue, innovative financing and former redevelopment agency-owned properties offer plenty of raw material to get started. In fact many of these tools were combined when Kosmont Companies guided shopping mall owner Macerich in the revitalization of the Victor Valley Mall – a successful public/private partnership which involved the City of Victorville.

The High Desert Region’s local and regional government has an opportunity to build attractive, walkable downtowns to lure startup firms that are the drivers of much of California’s growth. New private investment driven by young entrepreneurs can form a new, sustainable base of middle-class jobs in a region seen as an affordable alternative to coastal cities.

Economy General

Anatomy of a Crash

Published by:

By Bob Thompson

Things were beginning to happen in the Victor Valley area in 2005. It was high times for sellers as prices surged to new highs month after month. Buyers struggled to obtain loans before “it’s too late.”

That was then. This is now. Now we can look back with hindsight, also known as the “knew-it-all-along effect.” Was it predictable? Were the cues there?

Victor Valley Market Crash Timeline

January 2005-2006: Arizona, California (Victor Valley), Florida, Hawaii, and Nevada record price increases in excess of 25% per annum.

April 2005: Victor Valley percent selling peaks at 79%. When a property comes to market, there are only two outcomes. It will either close or not close. In April 2005, 79% of properties closed. 21% either expired, canceled, or withdrew. After April of 2005, percent selling began to decline precipitously. The market is beginning to show real weakness and will do so for a year.

April 2006: Prices peak at $325,000 one year after selling probabilities indicated a problem.

December 2007: Selling probabilities hit bottom at 15% and begin to rise for 17 months. Prices continue in a free fall.

July 2009: Price bottoms out at $103,000 (median) and begin to rise slowly. Selling probabilities have increased to 70% before prices stabilize and begin to rise.

December 2013: Selling probabilities gyrate in the range 70% to 80%. Median price has risen to $163,000 over a period of 4 years.

The clues were always there. Agents and brokers were not listening and looking: they were reacting—but only after the failing market was absolutely clear to all market participants. Even then, most sellers (as a class) resisted price reduction or moved too slowly to save their equity.

Conclusion: In their current form, real estate markets are slow and sluggish to react. Market reform is required to create methodologies and new concepts to analyze market activity looking for the subtle signals that say, “Change is on the way.” Agents and brokers need to be trained to see and react decisively when action is required. Sellers need to understand they are in a market, not at a tea party. When markets speak, they need to listen. And, no, your home is not special.

Economy General

Southern California’s Economy Recovering

Published by:

By Southern California Associations of Governments

The six counties of the Southern California Association of Governments (SCAG) region (Imperial, Los Angeles, Orange, Riverside, San Bernardino, and Ventura Counties) are home to over 18 million residents, 8 million workers, have a gross regional product of approximately $900 billion, all in an area covering 38,000 square miles. Between December 2007 and July 2009, the region experienced the “Great Recession,” a devastating economic downturn with over 1 million jobs lost. Even though the recession technically ended nearly four years ago, California continues to have the fourth highest unemployment rate in the nation with nearly 1.6 million out of work, including approximately 770,000 in the Southern California region.

In 2014, however, Southern California’s economic recovery is starting to gain traction, demonstrating significant job creation momentum. Recovery continues steadily as the unemployment rates across the region dropped to their lowest rates in five years. For example, Orange County’s rate dipped to 5.8 in January 2014, down from 7.1 percent in January 2013. Manufacturing, financial services, and construction, industries hit hardest during the Great Recession, have become leaders in job growth. Self-employment and new businesses are also growing rapidly.

Recovering Lost Jobs in The SCAG Region

The graph to the below shows unemployment rates by county in three time periods: December 2007 (pre-recession), December 2010, and February 2014. Recent data shows that Southern California unemployment levels are well below their recession peaks and moving in the right direction. Nonetheless, none have returned tothe levels enjoyed prior to the Great Recession. The Southern California region still has a ways to go to get back to pre-recession employment levels.

When Will we Recover Lost Jobs?

In 2010 the SCAG team of economic advisors compared the pre-recession to post-recession unemployment numbers in the region, State of California, and United States. The purpose was to determine the number of jobs that would need to be created to return to peak level employment in each county. In the fall of 2013, the economic team once again reviewed and analyzed the current economic indicators and employment trends to estimate a probable timeline for economic recovery by each county. The graph below outlines the projected best- and worst-case time frames for each county to return to pre-recession unemployment levels. Note the difference between Imperial County, where the recovery range is between 2013 and 2014, compared to Los Angeles and Ventura Counties, whose recovery dates could reach as far out as 2020. In general, much progress has been made so far in 2013 in terms of job creation, and economic recovery is on a steady path in most parts of the SCAG region.

Difficult Inland Empire Economic Environment Finally Improving

During the 2008-2010 Great Recession, the Inland Empire lost 148,425 jobs. The economy has finally started working its way out of that deep hole, creating 4,633 local jobs in 2011 and 23,025 in 2012. If 2013 goes as predicted by SCAG and Inland Empire Economic Partnership economist John Husing, 28,300 will be added. By the end of 2013, the total gain of 55,958 positions would represent 38% of the loss (Exhibit 1).

Unemployment Rate Lowering, but Still High

The unemployment rate has fallen from 14.3% in 2010 to 9.4% in February 2014. The October 2013 rate of 9.8% was the highest for any metropolitan area with over 1 million people, above Memphis, Los Angeles, Las Vegas, and Detroit, all of which are over 9.0% (Exhibit 2).

Job Growth Steady

Some good news is seen in the details of inland job growth of approximately 14,200 from 2013 (Exhibit 3).

The top three sectors adding jobs showed a wide range of recovery as they included:

  • Eating & Drinking (5,992), a low-paying sector driven by more funds circulating through the local economy.
  • Distribution & transportation (4,508), a moderate-paying, blue collar sector that brings money to the inland area from international port trade and the rise of fulfillment warehousing centers like Amazon.com.
  • Healthcare (2,758), a moderate-paying white/blue collar sector that brings money to the area via Medicare and insurance payments. It has grown in every quarter, including throughout the Great Recession.

With that said, the Inland Empire’s growth is blunted by difficulties in two sectors:

  • Federal & State (-1,083) and Local Government (-1,000) continue to shrink due to the federal sequester and low tax revenues at the state and local level. These difficulties will likely persist for a few more years. Growth would have been 16,282 without these job losses.
  • Construction (-1,167) has stopped its major decline but is still not growing. From 2007-2013, the area’s net loss of 106,500 jobs occurred largely because of a 52,500 loss in construction (49.3%).

High Desert Cities Show Growth in Education & Health, Losses in Industrial Jobs

The High Desert region, which is comprised of the cities Adelanto, Barstow, Hesperia, Victorville, Apple Valley town, and 11 San Bernardino County unincorporated areas, is summarized in brief within Exhibit 4with 2012 American Community Survey data, the most recent data available. The region is characterized by unemployment far above the state average and relatively high poverty rates despite a moderate median household income.

The High Desert region experienced good growth in healthcare-related employment, as shown in Exhibit 5 below. Education and health-related jobs are the largest sector in the region, but jobs have been created in arts and entertainment and wholesale trade as well. Job losses in 2012 in the region occurred in the construction, manufacturing, and transportation-related industries, but those industries have subsequently likely turned around and created jobs in the last year (see previous Inland Empire charts for a more current perspective at the larger county and regional level).

Total employment growth (Exhibit 6) was positive in four regions in 2012: Phelan, Barstow, Victorville, and Wrightwood, with other High Desert communities experiencing a tough 2012. Employment growth has likely occurred in most, if not all, areas in the last year.

Income levels are highest in several unincorporated regions such as Helendale and Wrightwood, as seen in Exhibit 7. Here, differences among major cities are less pronounced, with Victorville leading in terms of median household income and Apple Valley leading in terms of per capita income.

Summary

Looking ahead, the forecast for complete recovery was 2016-2018 due to low home prices and lack of construction. Recent economic and employment data provides evidence that recovery may arrive sooner. Why? Because existing home prices in the Inland Empire have recently soared, rising 59.3% from a 2Q 2009 low of $155,319 to $247,418 in 4Q 2013. That means fewer underwater homes (down from 54.9% in 4Q 2009 to 20.8% in 3Q 2013) and foreclosures averaging under 1,000/month (pre-2007 levels). Housing affordability issues are sending coastal residents inland, but finance availability is a big hurdle. Median home prices in the Inland Empire are competitive and low-cost, but there is an enormous difference in price between new and existing homes ($348,217 and $247,418 in 4Q 2013). The area will likely see increased migration from the coastal counties in 2014 as Southern California’s economy starts to normalize.