Category Archives: Economy

Economy

Putting Job Creation at the Forefront of Public Policy

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By Jonathan Weldy
President BIA Baldy View

The Building Industry Association Baldy View Chapter (BIA) recognizes how important infrastructure funding is for the long-term health of communities in which we build. Public infrastructure, particularly in the more rural communities of the High Desert remains a key component of building great communities, and the building community continues to seek to pay its fair share for these projects. However, we are concerned that San Bernardino County’s recent decision to begin the process of implementing a development impact fee (DIF) program will ultimately hurt the already fragile construction industry in our region and will not help to alleviate the existing infrastructure challenges our region faces.

For the record, home builders in the unincorporated areas of San Bernardino County do indeed currently pay per-home “fair share” transportation fees to help build new roads as required under the 2005 extension of Measure I, which the BIA supported along with numerous elected leaders and stakeholders. Similarly, home builders in San Bernardino County also currently pay fees for new schools and connection fees for water infrastructure. In addition, San Bernardino County currently charges a variety of permit fees, which they recently increased as well.

It is important to recognize all of these aforementioned development fees currently paid in the unincorporated areas of the county account for hundreds of millions of dollars for new infrastructure that improve the quality of life for current and future county residents. These fees are also carefully calculated based on objective economic variables, such as land and construction costs and paid on a per-home basis.

Indeed, some infrastructure fees within the county, such as parks, are paid on a project-by-project basis but are based on careful cost estimates calculated by county staff – not some arbitrary figure open to negotiation as the editorial suggests. Regardless, before adopting a $250,000 consultant contract that would seek to expand this aspect of fee collection, we have requested that the process be put on hold indefinitely until a careful analysis of the economic and job impacts of the proposal are considered.

San Bernardino County should first consider to what extent the proposed fee expansion would adversely impact the uncertainty of construction costs in an already volatile market. It is important to first embark on a careful and deliberative public review of any unintentional consequences to the proposed fee expansion, such as discouraging future land purchases, entitlements, and overall development resulting in fewer homes at higher prices, which inevitably all lead down the dead end road to fewer jobs and a longer recession.

There’s no debate that improvement of the 9% national and 14% countywide unemployment rate will be led by the job creation from new home development and the economic spark it also provides by triggering future commercial or retail job growth. To illustrate, a 2009 study by Dr. John Husing noted that over 54% or 141,000 jobs lost between 2005 to 2009 were linked to construction. Also, the decrease in the High Desert building activity in the past years shows just how much the construction industry has deteriorated. In 2005, the High Desert cities (Adelanto, Apple Valley, Hesperia and Victorville) issued 6,408 single family building permits. They issued 5,362 in 2006 and 1,942 in 2007. The cities issued 432 permits in 2008, 330 in 2009, and 407 in 2010. Through the first eight months of 2011, those cities have issued only 119 permits.

In addition, a July study released by the National Association of Homebuilder’s Economic and Housing Policy group finds that on average, regulations and fees imposed by governments at all levels account for 25% of the final price of a new single-family home built for sale. This is a hefty price home buyers are paying for government regulations and represents just one more obstacle to job creation and economic recovery. We hope San Bernardino County leaders will take a moment to pause before adding to this regulatory burden.

No matter how the county collects revenue from development, there is one simple fact that we cannot overlook: If there is NO development, the county will collect NO fees, regardless of what type of mitigation program is in place. Construction is the cornerstone of our economy, particularly in the High Desert, and we are unfortunately feeling all the effects of a market downturn: high unemployment, low construction activity, and low tax and fee revenues for our local jurisdictions. During this time of great economic challenge, our local jurisdictions should be doing everything they can to promote construction activity and to get people back to work. A new fee program will do just the opposite.

Economy Film Politics

Inland Empire Film Commission

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By Sheri Davis

During this economic age, the one thing feature film productions hunt after are tax incentives. So in 2009, California started offering production tax incentives through 2014 in hopes to encourage companies to stay in the state. Recently, the California State Senate voted to extend the state’s Film & Television Tax Credit Program for one more year. The original legislation (AB 1069) which passed the State Assembly as a five-year extension (through 2020), was amended in the Senate on August 26th to provide a one-year, $100 million extension (through 2015). If signed by the governor, it will add one year to the current five-year, $500 million program. Although the film commission’s pushed for an incentive “bump” on the original bill passed in 2009 to encourage the industry to travel outside of its comfort zone of Los Angeles, it was never included. The Film Commissions in the State are hoping that when this bill gets to the Senate, that piece will be added to encourage filming all across the state.

Feature filming is still on the decline as the studios continue to search for the best incentives around the world. The incentive package that the State of California implemented in 2009 did fund lots of smaller budgeted feature films; however most of the large tentpole features are still leaving because the program is not available to films over $75 million. In light of that, The Inland Empire Film Commission (IEFC) still capture 12 features, mostly in the desert areas of San Bernardino County. Some of those features included the Green Lantern, Fast Five (aka Fast & Furious 5), Thor and Priest. The feature film Priest reported expenditures of $625,718 in the High Desert when they filmed on Soggy Dry Lake.

There were 18 television shows that found exactly what they needed in the San Bernardino County desert. Shows like Chaos, Fact or Faked: Paranormal Files, Car Nutz, Wheels Up (for the Speed Channel), Top Gear (U.S. and U.K. versions), It’s Effin Science, Man vs Wild, Storage Wars, and The Event.

Commercial and still photography are still the two main types of production that select the region. 118 projects were shot in the area during 2010. The big attraction for the film industry is the open vistas, great light and diversity of locations.

We are in the final stages of opening existing BLM land for filming in the 1st District of San Bernardino County. We worked with Supervisor Mitzelfelt to accomplish this goal, that was started all the way back in 1999. The IEFC manages this project between the Bureau of Land Management and the County of San Bernardino.

The IEFC did numerous marketing ventures that showcased the desert at several Trade Shows in 2010. Being outside of the 30-mile zone has its challenges, but as residents and industry professionals in the valley work with the IEFC, we have developed our own local “incentive package”….hotels willing to give competitive rates, restaurants and other service providers offering incentives and, of course, the crew that is resident in the valley is always there to help.

The economy slowed down commercial production for 2010 but the High Desert still managed to hold its own with film companies electing to stay in California.

The 16th Annual California on Location Awards once again brought recognition to the High Desert with a number of the finalists who shot their projects in the desert region. The 2010 event attracted over 525 Industry professionals and was hosted by the premier awards hotel – the Beverly Hilton.

The California Film Commission’s “Power Breakfast” always gets attention as the Dumont Dunes was highlighted as one of the six photos used on the one-page flyer dedicated to the Inland Empire. This year’s breakfast was hosted by the Softiel Hotel in Beverly Hills, and 85 Studio Executives and production company owners attended.

The2010 estimated economic impact for District 1 was $8,995,500 and District 3 for 2010 was $3,765,500 for a total of $12,761,000.

Economy Property

The Demand for Industrial Space in the High Desert and Inland Empire has Increased Substantially Over the Last Two Years

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By Ronald J. Barbieri Ph.D, CPA

Approximately 12.4 million square feet of industrial space was absorbed into the Inland Empire in 2010 and 12.4 million SF were absorbed in the first 9 months of 2011. This bodes well for the High Desert, which also absorbed 430,000 square feet of space during the first three quarters of this year. In addition United Furniture Industries, a furniture manufacturer, signed a lease for 505,192 square feet at SCLA that will be reflected in the High Desert’s Net Absorption and Vacancy levels in the fourth quarter of 2011.

Overview

The demand for industrial, office, and retail space as well as residential units in the High Desert will be greatly influenced by changes in the occupancy of industrial space in the Inland Empire. The recent absorption of industrial space in Los Angeles Basin is expected to lead to more construction and a reduction in the limited supply of industrial land that could accommodate industrial facilities. A study by John Husing dated August 2008 determined there was only 4,860 acres of land in the Los Angeles Basin portion of the Inland Empire that could be developed for industrial use. This number could be significantly reduced over the next few years thereby reducing number of sites that are rail served or can accommodate the development of large industrial buildings. It will not be belong before the very large industrial tenants or firms that require rail will have to locate in the High Desert or in the area along the I-10 Freeway in Banning, California. This is expected to create more base employment in the High Desert, which could generate additional secondary employment and lower unemployment rates.

Also, the increase in demand for the housing, and commercial space in the High Desert correlates with the growth in base and secondary employment in the Inland Empire. An estimated 60,000 residents of the High Desert still commute to the Los Angeles Basin to work. These commuters represent the equivalent of base employment for the High Desert. The increase in the demand for industrial space in the Los Angeles Basin would lead to an expansion of secondary and total employment in the Inland Empire, which in turn would generate an increase in the demand for housing in the High Desert and retail sales. That would lead to more construction activity; and an increase in demand for small tenant industrial space.

Inland Empire

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

There is 496 million square feet (SF) of industrial space in the Inland Empire. This is equivalent to half the inventory of industrial space in the Greater Chicago area. Costar defines 478 million SF as Warehousing/Industrial space. The remaining 18 million SF is in smaller industrial flex space. The High Desert currently accounts for slightly over 4% of the total inventory; but in the intermediate term and beyond it is expected to be the primary future expansion area for industrial development in the region. Southern California is home to almost 2.0 billion SF of industrial space. Much of the increase demand for industrial space in the Inland Empire is attributed to firms relocating out of Los Angeles County in search of industrial sites on which to build larger, more efficient facilities.

The vacancy rate for warehousing/industrial space in the Inland Empire has increased from 5.2% at the end of 2004 to 12.2% by the end of 2009. The increase in vacancy was the result of overbuilding rather than a decline in industrial demand. The vacancy rate at the end of the Third Quarter 2011 declined to 7.9%. Very little inventory was added in 2010 and 2011; but there was a substantial absorption of large box industrial space during that two year period.

In calendar year 2007 the net absorption of industrial space peaked at almost 27 million SF. In 2008 industrial demand increase by 4.6 million SF; but in 2009 the net absorption was a negative 700,000 SF. Net absorption in the Inland Empire was a positive 12.4 million SF in 2010 and 12.4 million SF through the first nine months of this year. A portion of the increase in net absorption was caused by the acceleration of demand due to relatively low rents compared to prior years. According to Costar, quoted rents for warehousing space peaked in 2007 at $6.13 per SF per year. By 2011 the Quoted Rents declined to $4.65.

From 2005 through 2008 an average of 26.1 million SF of warehousing/industrial space was delivered annually in the Inland Empire. Deliveries declined to 7.0 million SF in 2009 and only 1.3 million SF has been delivered from January 2010 through September 2011. This limited level of construction coupled with the unanticipated increase in absorption has resulted in the elimination of half of the excess vacancy in the market place.

The vacancy level was 21.9 million at the end of 2005. It peaked at 57.9 million SF by the end of 2009. As of the end of the 3rd quarter 2011 it had declined to 35.7 million SF. There is still an estimated 10 to 15 million SF of excess vacant space in the Inland Empire; but the industrial agents in the Los Angeles Basin are now reporting excess demand (no vacancy) for buildings of 500,000 SF and larger. Most of the vacancy is in the medium and smaller size buildings often occupied by small businesses that have not experienced much growth since the Great Recession.

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

High Desert

To some extent the industrial markets in the High Desert have tracked the industrial activity in the Los Angeles Basin. As of the end of 2006 there was 17.0 million SF of industrial space in the five city area of Adelanto, Apple Valley, Barstow, Hesperia, and Victorville. Over the following 3-1/2 years the inventory of industrial space increased by 3.6 million SF. By the end of the 2nd quarter 2010 there was 20.7 million SF of industrial space in the High Desert. A substantial portions of the additions occurred at SCLA, though most of the cities participated in expansion. From the 3rd quarter of 2010 through the end of the 3rd quarter 2011 the few additions to inventory that were offset by the demolitions of older buildings. By the end of the 3rd quarter 2011 the inventory of industrial space was virtually unchanged at 20.7 million SF.

At the end of 2007 the vacancy rate was 4.1%. It climbed to 12.3% by the summer of 2009 due to delivery of the industrial space substantially in excess of absorption. Thereafter the vacancy rate fluctuated between 10.4% and 11.4%, peaking in the 1st quarter 2011. Recent leasing activity reduced the vacancy rate to 8.4% and it will be reduced even further due to a recently executed lease that will be reflected in this year’s 4th quarter’s absorption.

The following graph summaries net absorption, amount of space delivered and the vacancy levels for the industrial market in the High Desert in half year periods from the beginning of 2007 through the September 2011. From the beginning of 2007 through the 4th quarter 2008 the net absorption of the High Desert was slightly less than 1.3 million SF. During the second half of 2009 the High Desert experienced a decline in industrial demand of 107,200 SF. The net absorption in the 4th quarter 2009 and the 1st quarter of 2010 exceeded 1,100,000 SF. Dr. Pepper moved into their new facility at SCLA and the company that supplies containers to Dr. Pepper leased almost 300,000 SF of space in a nearby existing building. The net absorption in 3rd quarter 2011 was 632,000 SF; and another 506,000 SF was leased in September and will be occupied by the tenant in December of this year. A confectionary company took delivery of 495,000 SF of space in the western portion of the existing 1 million SF building at SCLA. Church & Dwight has taken over the 200,000 SF of industrial space the confectionary company vacated in the City of Victorville for the production of cat litter material. In September, United Furniture Industries leased the remaining 505,000 SF in the eastern portion of the existing building at SCLA. Joseph W. Brady of The Bradco Companies, publisher of this Bradco High Desert Report, represented the tenant. Jay Dick, Darla Longo and Mark Latimer of CBRE represented Sterling Capital Investments. This was the largest square footage lease ever brokered in the High Desert.

The graph depicts the distribution of 2.7 million SF that was delivered in 2007 and 2008. Another 860,000 SF was delivered and occupied in the first half of 2010. Only a limited amount of space was delivered since June 2010.

The vacancy level increased from 739,000 SF at the end of 2007 to 2,446,000 SF at the end of June 2009. As of the end of the 3rd quarter 2011, the vacancy level had declined to 1,755,000 SF; of which 505,000 SF had already been leased.

There are two different classes of industrial tenants and users in the High Desert. One class consists of the large box users. They typically are warehousing and distribution firms such as Wal-Mart in the Town of Apple Valley or large manufacturing operations, such as Northwest Pipe in Adelanto. Such companies usually occupy buildings in excess of 50,000 SF. The other class consists of smaller manufacturing or distribution firms that for the most part cater to the local population and businesses or are niche manufacturing players in the regional market. They are typically small space users that occupy single or multi-tenant buildings of 50,000 SF or less. A significant number of such tenants were involved with the construction industry.

The graph below categorizes the industrial inventory in the High Desert by city as well as by whether or not the structures are greater than 50,000 SF. It also segregates the industrial space in the City of Victorville into the inventory at SCLA and the non-SCLA portion of the city. Of the 20.7 million SF of industrial inventory in the High Desert, 8.5 million SF is associated with buildings of 50,000 SF or less. The remaining 12.2 million SF is in buildings greater than 50,000 SF. The City of Victorville has almost 8.6 million SF of industrial space, of which 4.5 million SF is located at SCLA. The balance of 4.1 million SF is in the Foxborough Industrial Park, which the city developed and in several other industrial sub-markets throughout its incorporated area. The City of Hesperia is home to 4.5 million SF of industrial inventory, much of which is in the older industrial area north of Main Street between the railroad tracks and I Street. Adelanto accounts for 3.5 million SF while the Town of Apple Valley has 2.8 million SF. Barstow has almost 1.4 million SF of industrial space.

Approximately 58.9% of the industrial floor area of the High Desert is in structures greater than 50,000 SF. The remaining 41.1% is in buildings that have a Rentable Building Area (RBA) of 50,000 SF or less. The distribution of industrial space between smaller and larger buildings varies by city. In Adelanto, 39.5% of the inventory is in larger buildings. In the Town of Apple Valley 65.5% is in structures greater than 50,000 SF. The 1.25 million SF Wal-Mart Distribution Center accounts for most of the large building inventory in that city.

Only 45.4% of Barstow’s inventory is in larger buildings. Hesperia is the city of smaller industrial buildings, with only 61.7% in smaller structures. Just over 89% of the industrial buildings at SCLA is greater than 50,000 SF, while 65.0% of the rest of Victorville is in larger structures. Over 60% of Adelanto’s industrial Inventory is in smaller buildings, many of which are located in one of its five industrial parks; the city developed 25 years ago. It is anticipated that a substantially greater percentage of the growth will be in structures greater than 50,000 SF. Many of these structures are likely to be warehousing and distribution facilities.

As of the end of the 3rd Quarter 2011, there was 613,000 SF of vacant space in the smaller industrial buildings. The largest amount was in the City of Adelanto, followed by the non-SCLA area of the City of Victorville. There was no vacancy in the less than 50,000 SF buildings at SCLA. The small building vacancy levels in the Town of Apple Valley and the cities of Barstow and Hesperia ranged from 62,000 to 107,000 SF. The vacancy level in larger buildings in the High Desert as of September 30, 2011 was 1,124,000 SF. SCLA accounted for 625,000 SF of which 505,000 SF was in one building and it has already been leased. Barstow had over 255,000 SF in two industrial buildings on Lenwood Road. Adelanto accounted for 105,000 and Hesperia had approximately 201,000 SF of vacant space while the Town of Apple Valley and the non SCLA areas of Victorville did not have any vacant space in the larger facilities. When all buildings are considered the City of Adelanto has the highest vacancy level at 346,000 SF followed by Hesperia at 308,000 SF. SCLA only has 119,000 SF of available space after accounting for the recently executed lease.

As of September 30, 2011, the vacancy rate in the High Desert for buildings 50,000 SF or less was 7.2%, while for larger buildings it was 9.2%. The City of Barstow had the highest vacancy rate for buildings over 50,000 SF. It was 30.7%. The vacancy rate for the smaller buildings in Barstow was 8.2%. The non SCLA portion of Victorville had a 9.1% vacancy rate in the smaller buildings; but none in the larger structures. In the Town of Apple Valley there was no vacancy in the larger buildings but the rate for the smaller buildings was 7.4%. The smaller buildings in the City of Adelanto had a vacancy rate of 11.5% while the larger buildings reached 7.7%. The vacancy rate for smaller buildings in the City of Hesperia was 3.8% compared to 11.7% for larger buildings. For an area the size of the High Desert the stabilized vacancy rate is approximately 5% provided the demand for industrial space is expanding.

During the first 9 months of 2011, the High Desert experienced a net absorption of 430,000 SF. SCLA accounted for 536,000 SF, all of which was in the larger industrial buildings. The City of Adelanto lost 161,000 in industrial demand of which 105,000 SF of the negative absorption was associated with larger buildings. During the same period the Town of Apple Valley had a net absorption of 29,331 SF, almost evenly split between smaller and larger sized buildings. The City of Hesperia absorbed over 26,000 SF; but more than 22,000 SF were in smaller buildings. City of Barstow experienced approximately 10,000 SF of negative absorption, all in smaller buildings, while the non SCLA portion of the City of Victorville recorded 9,100 SF of positive absorption.

Only three industrial buildings totaling 25,372 SF were delivered in the High Desert during the first three quarters of 2011. As of September 30, 2011, there was only one industrial building under construction in the area. It is a 49,672 SF reinforced concrete building located in the City of Hesperia. The building is scheduled to be delivered to the Victor Valley Transit Authority in November 2011. With the exception of the 860,000 SF Dr. Pepper’s Building delivered in the 1st Quarter of 2010, there has been little new industrial space delivered in the High Desert since 2008. This has enabled the large box industrial market in the High Desert to trend towards equilibrium; but there does not appear a need to build any speculative large box space at the present time. The negative absorption in industrial buildings of 50,000 SF of less argues against any speculative development in this size range.

According to the latest Costar survey, quoted NNN monthly rents in the High Desert declined from $0.58 per SF as late as the 3rd quarter 2009 to $0.37 per SF in the 3rd quarter 2011. Effective rents are significantly less; and antidotal evidence suggests both could continue to decline. In the Inland Empire quoted yearly NNN rents for warehousing and industrial space declined from $6.13 per SF in 2007 to $4.59 in the 4th quarter 2010. They have rebounded slightly to $4.69 per SF in the 2nd quarter 2011. Some industrial agents in the Inland Empire have indicated the effective rents have increase more than the quoted rents since the end of 2010.

Outlook

Short and medium term outlooks for the industrial markets in the High Desert are uncertain because the economic forecasts for the United States and California are greatly impacted by assumptions regarding political decisions made at the national and state level as well as in China and Europe. A majority of economists now believe that at best the U.S. economy will expand at an average of only 2% per year for the next few years. The economic forecasters are assigning a 30% chance that the economy will slide into a recession within the next year even if the level of deficit spending continues at current levels in the United States. Contributing factors may include: (1) a material decline in U.S. home prices that would adversely impact the equity reserves of U.S. banks and their ability to lend; (2) A sovereign default on Euro debt by Greece or other countries in Europe that would significantly reduce the equity reserves of European financial institutions, thereby impeding their ability to make loans; (3) the economic slowdown in China becomes greater than intended by its government so that China imports less goods from the U.S. and Europe; and (4) households and business in the U.S. increase their rate of savings and consume less or invest less in their business because they become more pessimistic regarding the economic outlook.

Between now and the elections of 2012, there is not likely to be any significant change in public policy at the federal level. Depending on which party gets their candidate elected president and which party controls the Congress and the Senate there could be a substantial increase in government spending, higher taxes, substantial increases in debt and more government regulation; or there could be less government, taxes, deficit spending, and regulation. The former would have a negative impact on economic growth while the latter could revive the U.S. economy especially if it allowed the private sector to aggressively drill for oil and gas throughout the United States. Within 10 years the nation could go from importing $400 billion of oil in a year to actually be a net exporter of gas and oil, while adopting conservation programs that reduced the consumption of fossil fuels. Of course, if one party controls the Senate or Congress and another controls the presidency then it will likely lead to more of the status quo; which would not result in much economic growth. Even if the Republican Party gained complete control of the U.S. government it is not certain that they would adopt the policies necessary to get the economy out of its doldrums. The State of California will not be able to significantly change any current public policies before November 2014 when a new governor could be elected.

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

We do not expect any substantial positive Net Absorption for smaller industrial buildings in the High Desert until small businesses in the United States and in California begin to participate more in the economic expansion. This is not likely to occur before 2013; and then only if the more business friendly public policies are adopted. When residential construction in the High Desert experiences a substantial rebound it will also add to demand for industrial space in buildings 50,000 SF or less. Before this can occur it will be necessary for household formation in the Inland Empire to eliminate the excess of vacant housing units in both the Inland Empire and the High Desert. This would necessitate the replacement of most of the 175,000 jobs that were lost in the Inland Empire during the last recession. To date approximately 15,000 jobs have be added in the Inland Empire; hence a high level of residential construction is not likely to occur much before 2015.

Economy Politics

Fast-Tracking Projects Should Be the Rule, Not Exception

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By Assemblyman Steve Knight

With California’s 2.2 million unemployed workers representing all socioeconomic backgrounds, encouraging job creation should not be a partisan issue.

Thankfully, on at least one project, Democrats and Republicans came together last month to pass Senate Bill 292, which will speed up the California Environmental Quality Act (CEQA) review for a new football stadium in downtown Los Angeles and create 23,000 jobs. I voted for this fast-track legislation because it is one of the many projects we need to get Californians working again as soon as possible.

However, I could not help but note the irony in the arguments that many Democrats were using to argue for fast-tracking the L.A. stadium. Governor Brown said when signing the bill, “it is imperative for the state to cut the red tape that could delay projects like this (the L.A. Stadium) for years.” I agree – but the state should grant the same privilege to all businesses, not just those that have political connections with Democrats.

The manipulation of CEQA by special interests is a major reason why it is difficult to build new projects and create jobs in California. The law’s intent is good – it requires state and local governments to identify the significant environmental impacts of new projects and to mitigate those impacts if feasible. Unfortunately, some groups have exploited CEQA to prolong lawsuits for years against projects they do not like even though a project’s environmental impact can be responsibly addressed.

That is a problem that hung over the L.A stadium project, where many worried that time-consuming lawsuits would prevent ground-breaking for years and endanger its chances for landing an NFL team. That is where SB 292 comes in – it does not exempt the project from our environmental laws, but it speeds up the time to resolve legal challenges.

In fact, the Legislature granted a similar exemption in 2009 to another NFL stadium proposal in the City of Industry, arguing that it was important for job creation. If CEQA is too burdensome for wealthy stadium developers, then isn’t it even more burdensome for the mom-and-pop businesses that want to expand their operations.

I have met with many business owners who have said that our state’s convoluted laws are making it difficult for them to build new projects. Some are mired in time-consuming lawsuits, others are bogged down trying to comply with the intricacies of CEQA. Don’t these entrepreneurs deserve a break as well? To paraphrase the governor, “isn’t it imperative for the state to cut the red tape for their projects too?”

In fact, my Assembly Republican colleagues and I have proposed 29 bills this year that make economic recovery state government’s number one priority. I introduced Assembly Bill 303 that would provide a tax incentive for companies, businesses and corporations which move their headquarters to California and employ a minimum of 30 people. I also introduced Assembly Bill 429 that would make unelected bureaucrats more accountable for the costly regulations they impose on businesses.

Legislative Democrats killed 28 of our 29 bills and Governor Brown vetoed the only one that made it to his desk, a modest measure that would require that one of the members of the powerful Air Resources Board be a small business owner. It is unfortunate that Sacramento did not go farther this year to promote lower business costs other than to pass SB 292.

We will take jobs wherever we can get them, but should it really take the prospect of a new NFL stadium for the Legislature to move on jobs? Ultimately, every business should have the opportunity to take advantage of the streamlined process that the L.A. stadium will enjoy. It is time for the state to review CEQA and ensure that it works for all Californians, not just for a few.

Assemblyman Steve Knight, (R-Antelope Valley), represents the 36th Assembly District in the California Legislature, which includes the communities throughout the Antelope and Victor Valleys

Economy

Barstow Casino and Resort An Economic Opportunity for two Communities

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By Tom Shields

For almost a decade, the Los Coyotes Band of Cahuilla and Cupeño Indians and the City of Barstow have been working together to pursue a casino development project that could provide jobs and revenue to both communities who are in desperate need of economic opportunities.

In 2006 the tribe filed an application to take land into trust for the purposes of gaming in the city of Barstow. The project has taken many twists and turns over the years, but now looks poised to move forward.

Los Coyotes Band of Cahuilla and Cupeño Indians

Los Coyotes Tribal members are descendents of the Cahuilla and Cupeño Indians who originally occupied two villages near the reservation, which is located in a in a remote area 70 miles northeast of San Diego and 105 miles southeast of Los Angeles. The reservation is extremely rugged and mountainous and is surrounded by state park and national forest lands.

Tribal members living on the reservation live in 12 single-family homes and 10 mobile trailers. Though electricity was brought to a part of the reservation 12 years ago, the service is substandard at best. Living conditions and the lack of economic opportunity on or near the reservation have forced tribal members to find work and housing in other areas scattered throughout southern California. In fact, 51% of the adult tribal members living off the reservation live within a commutable distance (70 miles) of the City of Barstow.

With economic development opportunities almost impossible on the reservation, the tribe was left with little choice but to pursue off reservation development to provide for the needs of the tribe and the tribal members.

Working with Barstow

Working with the City of Barstow, the tribe choose the 23-acre parcel in Barstow that is the subject of the Los Coyote Band’s fee-to-trust and two-part determination application. The site was selected with the city’s direct input as the most appropriate gaming location near shopping and commercial outlets and away from residential neighborhoods and schools.

Located on Lenwood road, across from the Barstow outlet malls, the casino would certainly be an economic catalyst for the other hotels, shops, restaurant, and gas stations in the area.

State approval

In 2005, then Governor Schwarzenegger signed a compact with the Los Coyotes to develop their casino in Barstow. But that was only one step in the process. The state legislature also had to approve the compact and the federal Department of Interior had to allow the tribe to take the land into trust for the purposes of gaming.

However, even with the governor’s support, the tribe and the City of Barstow could not convince the legislature to pass and approve their compacts with the state. The legislature wanted the Federal government to approve their land into trust application first. In September of 2007, the compact expired and the tribe decided to focus their efforts on the land into trust process.

The Casino Project

In 2008 the tribe re-submitted the application that is being considered today. The project includes:

• 57,000 square feet of gaming space

• 100 room hotel

• 2-3 restaurants

• Entertainment venues

• Convention and meeting room space.

Economic Impact

The casino project is expected to have a tremendous positive effect on the Barstow community. The project development costs are expected to be $160 million. The project will provide more than 1,000 construction jobs and more than 1,000 permanent jobs in the community once the casino/resort is open.

The casino location is designed to capture the more than 20 million cars per year carrying 45 million passengers along the I-15 corridor. Given that most of the traffic is heading to and from Las Vegas, the location is key to the success of the venture. The casino/resort is expected to generate more $135 million per year for the community. 82% of the revenue will come from patrons from outside the Barstow community.

The tribe and the city have also signed a municipal service agreement that will provide the city with a revenue sharing stream of 4.3% of the net win of electronic games at the casino. The city is expected to receive $4 million in the first year of the casino’s operation. The tribe will also share the cost of a new emergency service vehicle, a fire truck, and provide the city with an acre and one half to build a new fire station. The Municipal Service Agreement is a unique agreement among tribes and communities in California.

The Approval Process

Five years after the tribe submitted it’s first application, the Bureau of Indian Affairs (BIA) published the Tribes Draft Environmental Impact Statement (DEIS). The BIA held a public hearing on July 27th to hear the public’s reaction to the DEIS. They also continued to compile comments for the DEIS until September 16th. The information is now being added to the record for the Department of Interior to consider before they make their final decision that is expected some time in 2012.

The tribe will need to negotiate a new compact with Governor Brown and have it approved by the legislature. It is the tribe’s hope that a final determination on the land by the Department of Interior and negotiation and approval of a compact can happen by the summer of 2012.

Economy

Working Together to Bring Jobs to the High Desert

Published by:

By Brian Parno
Chief Operating Officer of Stirling Development

Over the past 12 month period, more than 500 jobs have been created at Southern California Logistics Centre (SCLC), demonstrating the success of the public-private partnership between Stirling Development and the City of Victorville for the redevelopment of the former George Air Force Base.

When Stirling Development contemplated the construction of its newest industrial warehouse facility, totaling over 1 million square feet and completed in 2009, they made a strategic move to develop a project designed to attract large companies that needed space quickly and would bring with them the promise of job growth to the region.

The recent commitment by United Furniture Industries, who will occupy over 505,000 square feet of new warehouse and manufacturing facilities in November, includes an anticipated 75 new jobs by year-end, with approximately 400 additional employment opportunities projected over the next 3-4 years. A Missouri-based manufacture of affordable furniture sold primarily under the Simmons brand name, UFI selected SCLC for its West Coast home based upon quality of available space, attractive workforce, and pro-business atmosphere. Local Broker Joseph W. Brady, President of the Bradco Companies, recognized the many benefits of introducing UFI to the High Desert and represented them in the transaction.

Following a trend in recent leasing activity at SCLC, UFI will join an extensive roster of other companies; to date in 2011 more than 1,078,000 square feet of industrial real estate has been leased by such companies as Sparkletts Water, Embry-Riddle Aeronautical University, Red Bull Distribution, and Southern California Aviation.

“We are thrilled to be adding a significant number of jobs to the Victor Valley,” said Brian Parno, chief operating officer of Stirling Development. With the addition of a major confectionary company who will occupy approximately 495,000 square feet adjacent to UFI, SCLC will welcome an additional 85 jobs.

Based upon a mutual commitment and shared vision between Stirling Development and the City of Victorville, Mayor Ryan McEachron noted: “This is a great example of a public-private partnership that is meeting its goals to create jobs and develop a long-term economic engine.”

Economy General

Applying Lessons Learned from Our Past

Published by:

By Joseph W. Brady, CCIM, SIOR and Susan Bloomfield

As we turn the corner on the second quarter of 2011, any indications of recovery are met with trepidation and a great deal of speculation about our economic future. The last three to four years has challenged even the most seasoned veterans of economic downturns and the High Desert commercial real estate market was hit especially hard as most tertiary markets were. But we have had plenty of experience with boom-busts and there is a lot to learn from history. As the saying goes, “The more things change, the more they stay the same” and the following economic cycles throughout history make that statement one of the few certainties we can rely upon:

1929-1945: The Great Depression

On what is now referred to as Black Tuesday, October 29th, 1929 marked the beginning of the Great Depression following a period of great economic growth. With investors buying stock with borrowed money, as the market began to spiral downward, stockholders had to sell stock rapidly to make margin calls. The market dropped 12.8 percent with unemployment skyrocketing to 17 percent.

1945-1970: Economic Growth

The end of World War II ushered in economic growth that lasted nearly 25 years even with short and shallow recessions in the 1950s and 60s. With Kennedy’s Revenue Act of 1964, the economy was bolstered and continued to gain momentum.

1970-1982: High Oil Prices & Stagflation

The 70s delivered a decade of economic struggle. With an oil embargo brought against the U.S. by Saudi Arabia and OAPEC early in the decade and Iran toward the end, a slow economy already fraught with stagflation was further aggravated.

1982-1987: Greed is Good

A period of marked affluence and Wall Street success, this decade is well known for hostile takeovers and corporate raiders as well as leveraged buyouts or LBO’s allowing for private equity firms to purchase profitable companies with little to no capital, creating substantial wealth.

1987-1988: The Bubble Bursts

The stock market experienced another crash known as Black Monday where the Dow Jones Industrial Average fell 508.32 points leading to severe job losses on Wall Street. Although the single largest crash experienced on Wall Street, the economy recovered fairly quickly.

1989-1991: Savings & Loan Crisis

In an attempt to prevent failure, the government set about to rescue the S&Ls from extinction through deregulation. However, in a high-risk market environment, S&Ls had no ability to survive and the government spent billions trying to stop what was inevitable. Compounded by a real estate bust and Gulf War costs, the US again experienced a recession in the early 90s.

1995-2000: The Dot-Com Bubble Bursts

Speculation about the Internet and its impact on business ushered in a new period of excitement and deeply flawed business ventures. As thousands of Internet based start-up companies cropped up daily so did willing investors looking to create generational wealth. But as we learn time and again, what goes up must come down and holders of over –valued stock rushed to sell, creating another busted bubble in which many lost their jobs and wealth.

2001-2002: Greed Makes a Come Back

Corporate scandals rocked the early 2000s and creative accounting brought down corporate giant Enron and WorldCom. This period marked the beginning of CEO accountability and indictments. As corporations were scrutinized, the U.S. was further rocked by the tragedies of September 11, 2001 and terrorism and Homeland Security forever changed the American landscape.

2008-Present: The Credit Crisis

Some call this the ushering of the new and harsher economy after a long period of prosperity. Not since the Great Depression has the globe been plunged into a period of great uncertainty.

A large portion of U.S. mortgages issued were sub-prime with adjustable rate loans. As interest rates rose with loan resets, delinquencies started to soar. As investors lost faith in the declining value of mortgage-backed securities, credit lending practices were tightened causing a lack of liquidity and the dominos began to fall. Lehman Brothers and Bear Stearns are just two giants that permanently failed.

So What Is Next?

Current market data doesn’t provide enough clarity as to whether the High Desert is yet experiencing a true recovery. What does appear to be back is increased confidence spurring greater interest from users and investors in quality product.

So whether or not we are in the process of recovery or on the verge of double-dip, investments based on unsound fundamentals and irrational exuberance will happen time and again. What we predict before us must be based on lessons from the past.

If you would like to receive the full edition of the Bradco High Desert Report, our quarterly newsletter, please click on the link: http://www.thebradcocompanies.com/register

Economy General

San Bernardino State of the County

Published by:

By Mary Jane Olhasso

On April 6, the County of San Bernardino presented its State of the County address to close to 1,000 business, community, and government leaders. The address included information gathered as part of the Vision Process.

The County-wide Vision Process included thousands of online surveys, community meetings held throughout the county’s 24 cities and towns, as well as meetings with more than 25 business roundtables, including retail, environment, home building, military, education, health care, and commercial real estate, among others.

The Vision Process results outlined the county’s priorities as jobs, economy, education, housing, public safety, transportation, quality of life, environment, health care and image.

In an era of limited and competing resources, the county is striving to prioritize its resources wisely and invest its energies in aligning priorities with the collective vision for the county. Business development, infrastructure enhancements and economic growth can complement – not compete – with the region’s valued natural environment. The county recognizes that a strong balanced economy must be built on adequate physical and social infrastructure.

While major national media outlets such as Forbes recognize the county for its pro business climate, the County’s Board of Supervisors are aware that they must provide stable leadership, predictable decision-making, and timely processing to attract and retain a wide range of employers who can offer high quality jobs that match the skills of the population in our area.

When you consider the current state of the economy, it is apparent that the number one priority should be jobs. However it is not sufficient to simply address unemployment, the county must also lay a foundation for future community-wide prosperity, with education as its cornerstone. The local economy will not improve nor grow any faster than the skills and abilities of its people.

In a fast-paced regional, national, and global competitive economy, the county must fight to maintain its competitiveness. The region benefits from an innovation corridor of 18 colleges and universities. Since 2003, the proportion of residents over 25 with a bachelor’s degree or higher is rising at a faster rate than the state and the nation. This fact coupled with a focus on industry-specific job training, the county is working toward preparing its workforce for the jobs of today and the opportunities of tomorrow.

To better understand the region’s job growth potential, consider the fact that between 2000 and 2008 San Bernardino County experienced 47 percent growth in professional, scientific, and technical services. In the next cycle, renewable energy, mining, advanced manufacturing, tourism, healthcare, and goods movement are only a few of the employment opportunities the county is poised to capture.

Fundamentally, the county has many advantages. It benefits from a population that ranks the region as 5th largest county in California and 12th largest county in the US. It also benefits from having a relatively young population with a median age of 31 and a workforce that numbers close to 1 million. Its strategic location in the center of Southern California puts its residents and businesses at the center of a consumer market of 22 million people. Finally the county’s wide range of affordable housing creates an attainable lifestyle. These advantages coupled with unparalleled recreation and a true county-wide sense of community make San Bernardino County a place where the American dream can come true. These advantages also provide for the opportunity to create a “complete county.”

A “complete county” is one that affords all citizens an opportunity for healthy lifestyles, strong public safety, employment opportunities, a range of educational opportunities, and quality amenities. The County of San Bernardino will become greater than the sum of its parts by recognizing, embracing, and celebrating the region’s cultural, economic, and geographic diversity and working together to promote its many strengths.

If you would like to receive the full edition of the Bradco High Desert Report, our quarterly newsletter, please click on the link: http://www.thebradcocompanies.com/register

Economy General Property

Victor Valley Housing and BIA Efforts Hold Keys to Recovery

Published by:

By Carlos Rodriguez
CEO Building Industry Association Baldy View Chapter

Residential construction in the Victor Valley and along the I-15 corridor cities leading to the region holds the key to San Bernardino County’s economic recovery, and the Building Industry Association (BIA) Baldy View Chapter is launching a program to ensure it happens.

According to figures released by the Construction Industry Research Board (CIRB) and compiled by the Chapter, “the Victor Valley and I-15 corridor continues to anchor our recovery and will provide the gateway to prosperity,” said BIA Baldy View President Jonathan Weldy of Meridian Land Development.

“In 2010, the four incorporated Victor Valley cities of Hesperia, Adelanto, Apple Valley, Victorville and unincorporated county areas in their spheres of influence accounted for over 40 percent of the 1,844 single – and multi – family permits issued in all of San Bernardino County in 2010,” Weldy said.

To ensure this recovery, the BIA Baldy View Chapter launched its own recovery strategy: the BIA Baldy View Jobs Creation Initiative – Keys to Restoring the Health of the Building Industry and our Region’s economy.

“When added to the total of the I-15 corridor cities of Ontario, Rancho Cucamonga, and Fontana in the Inland Valley, nearly 70 percent of the building in San Bernardino County took place along this important corridor in 2010 in a trend that has continued since 2005”.

While over one third of all the permits issued in the county were for multi-family uses, nearly 90 percent of the permits issued in the Victor Valley region were for single – family homes and over half of the 2010 single – family permits issued in the entire county last year were issued in the Victor Valley.

Weldy said the Chapter’s Job creation Initiative’s four – tiered approach incorporates a continued push for development impact fee (DIF) reductions, deferring  DIF payments to issuance pf a certificate of occupancy (particularly in school districts), implementing a lien policy regarding performance bonds in cities that have not adopted the ordinance and monitoring the implementation of SB375 – a land -use planning bill that aims to reduce greenhouse gas emissions through the reduction of vehicle miles traveled (VMTs) – in coordination with Southern California Associated Governments (SCAG) and San Bernardino Associated Governments (SANBAG).

“The importance of the Chapter’s Jobs Creation Initiative is that the current downturn imposes contradictory challenges on governments to the seemingly obvious approach to spurring economic recovery by encouraging homebuilding,” said former BIA Baldy View Chapter President Todd Tatum of the Victorville – based American Housing Group.

“Local governments faced with critical shortfalls and deficits resist considering or implementing fee reductions when projecting their budgets,” Tatum said. Yet, “I think now cities and city staffs realize that what homebuilding brought to the city in terms of overall community development: major employment, tax revenue streams, infrastructure, parks and libraries,” he added.

” They realize homebuilders are really the drivers of the economy.”

Because a decade – long shortfall of new housing fueled both the housing boom and bust earlier in the decade, revitalizing the housing market holds the key to economic recovery in the region and the state, according to noted economist John E. Husing, Ph.D., of Economics & Politics, Inc., in his 2009 report The Housing Crisis Issues & Potential Strategies.

Fundamentally, the Inland Empire has moved into a deepening recession because of what has occurred in its residential market,” said Husing.

According to the report, housing demand outstripped supply, fulfilling the classic definition of inflation as ‘too many dollars following too few products.’ Husing notes that the ratio of residents to single – family dwelling units was 4.66 as the region recovered from the post – Cold War recession in 1997. However, over the intervening decade, 5.71 people were added for each new single – family unit built during that period.

“To keep the ratio intact at 4.66, another 156,700 units would have had to have been built or 15,670 per year in this ten year period. San Bernardino over that period fell short by nearly 30,000 units,” he added.

The region’s recovery now hinges on “a resumption of residential construction activity,” Husing said. This is the case as the Inland Empire’s competitive advantages are the availability of land that can support new homes and industrial facilities as well as a large marginally educated adult population.

“In the meantime, new home development will stagnate and the recession will persist, unless policy action is undertaken to make home building profitable,” he added.

“And profitability is one of the major issues confronting homebuilders,” said BIA Baldy View Vice President Todd Leibl of Victory Homes. “Current inventories of repossessed homes, short sales, and distressed properties continue to hamstring investment in homebuilding by keeping prices artificially low.” However, he added, “as inventories are liquidated prices should return to reasonable levels.”

“Once that happens,” said Leibl, “we’ll be back in the building business.”

In addition, local governments need to adjust their fee structures to the realities of the current housing market and create incentives for homebuilding, local governments under pressure to maintain staffing levels and entitlement programs.

“The BIA has made an extreme effort with the Jobs Creation Initiative, but you have to have a government that wants to understand the issues and have the ability to make those changes,” Leibl said.

To make housing profitable, Husing recommends steps mirroring the Chapter’s Initiative, such as reducing DIFs while encouraging public policies that enable more compact and affordable housing and new home community designs consistent with the goals of SB375. With these programs in place, San Bernardino County will be positioned for return to prosperity.

The BIA Baldy View Chapter represents homebuilders and associates in the housing industry in all of San Bernardino County and the easternmost portion of Los Angeles County. Founded in 1938, the Baldy View Chapter is the most honored homebuilding chapter in the nation. It is a member of the California Building Association (CBIA), a statewide trade association representing nearly 6,000 businesses including homebuilders,remodelers, subcontractors, architects, engineers, designers, and other industry professionals.

 

If you would like to receive the full edition of the Bradco High Desert Report, our quarterly newsletter, please click on the link: http://www.thebradcocompanies.com/register

Economy General

The Difference a Year Makes

Published by:

By Bob Thompson
Advanced Listing Services

It is a surety that one day the current troubles in the real estate market will end and appreciation will replace the pervasive depreciation that rules today’s market—but not today. But if not today, when?

Guessing when a market will turn for any good or service is an imperfect exercise due to the number of independent variables that affect the final outcome. The changes and differences in this myriad of small variables make up the large overall swings that become apparent only after they have occurred.

One such indicator is the supply of properties on the market, or current listings. Observe Table 1. In April of 2010 there were 1,554 units of supply on the market in the listed cities. This year there are 76 fewer or 1,478. This informs us that these markets are highly predictable as to supply from year to year. Notice that the number of listings has declined 5%; however the number of REO listings have declined 17%.

We can also see the large differential in prices between non REO in 2010 and non REO 2011. The absolute level of median price declined about 12%. REO declined about 15%. The difference between the two in 2010 was 31%, in 2011 about 34%.

What can be concluded from this narrow study?

(1) REOs as a percentage of the total market fell about 17% between the two years.

(2) In 2010, 33% of the market was REO. Today it is about 29%.

(3) REO, because of price differentials, exercises a strong negative influence on the price line.

(4) REO, while declining, is doing so at a slow pace.

(5) REO will continue to populate the market in high numbers for the next 1-2 years.

(6) Consequently, from a supply perspective, prices will remain weak and in decline into the foreseeable future.

The difference a year makes is that the end of the beginning has begun. REO inventories must decline to achieve price stability, and they are. As REO inventory declines, a tipping point will be reached and prices will firm and turn from negative to positive. This tipping point should not be expected to occur in the near term as markets move slowly but inexorably.

If you would like to receive the full edition of the Bradco High Desert Report, our quarterly newsletter, please click on the link: http://www.thebradcocompanies.com/register

Economy General

Basis For Some Optimism?

Published by:

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

Nationwide employment figures released the day this article is being written are a basis for optimism in terms of significantly improved economic trends. There are at least two reasons to defer a major party based on this news. One of these is that optimistic numbers are frequently revised. Another is that even if true, the numbers still imply considerable wait for our economy to get into full swing. As the Wall Street Journal pointed out recently, employment recovery from the recent recession is substantially slower than recovery from other recent recessions, many of which were fully recovered within three years of their onset, while we are still wallowing near the depths of the current dislocation.

Even at the local level, employment statistics are considerably more optimistic than they have been recently. Throughout Southern California (Ventura County, Los Angeles County, the Inland Empire, Orange County, and San Diego County), total nonagricultural wage and salary employment increased by 73,500 jobs in the twelve months ended February 2011. This is the first twelve-month period ending in February that has shown an increase since the comparable figures for February 2007-just prior to the onset of the recession. These numbers, however, are somewhat ambiguous. Nonagricultural wage and salary employment numbers generated on the basis of a survey of employers provide a sample which is then expanded to the entire economy of the Southern California region to generate an estimate of increased nonagricultural wage and salary jobs in Southern California. Another source of employment information is the Household Survey in which analysts contact households and inquire about how many household members are employed and how many are unemployed and seeking work. The Household Survey is the source of unemployment data in addition to providing an alternative estimate of total employment including self-employed, etc. The most recent Household Survey for Southern California, however, shows that despite and estimated increase of 73,500 nonagricultural wage and salary jobs reported by employers, households report a decline of 68,00 employed persons over the same interval. One survey indicates an increase of 73,500 jobs overall, while the other suggests a decrease of 68,000 jobs overall. Biographies of economists show a surprising proportion of them with a fondness for strong drink. Statistics of this type may have some bearing on economists’ behavior in this regard.

The most recent graphic information for the nonagricultural wage and salary employment (based on the Establishment Survey) is shown in Exhibit 1, indicating the recession continues to be in relatively full force. By this time in the prior recession (beginning in 1990), employment in southern California had begun to show stronger signs of improvement.

A weaker local economy is reflected in building permit data for the High Desert. In 2010, 544 new units were authorized by permit in the High Desert area- basically north of Cajon Pass. This was a slight increase over the comparable figure for 2009 when 389 new units were authorized by permit. Neither is impressive in relationship to the 8,300 new units authorized by permit in the High Desert in 2005. In both 2010 and 2011, the total number of new units authorized was considerably less than the previous low water mark associated with the 1990 recession-908 new units were authorized by permit in 1997.

Exhibit 2 illustrates the pattern of building permit activity  for a single-family detached housing in Southern California and the High Desert are between 1980 and 2010, highlighting the increased volatility of new single-family housing production on the High desert as compared with Southern California in its entirety.

The positive employment figures, despite the ambiguity between the results of the Establishment Survey and the Household Survey, can be further broken down by area. Strength of the nascent economic recovery in Southern California is most significant in Los Angeles County, followed by Orange County and San Diego County. The Inland Empire’s employment data ranked last in terms of being indicative of economic recovery. The relationship between the Inland Empire’s economic base and the rest of Southern California as it impacts real estate development is not a matter of great concern, however. The housing market in the Inland Empire has historically been driven by shortages of affordable housing in Los Angeles, Orange, San Diego, and Ventura Counties-and not necessarily by indigenous economic circumstances within the two-county Inland Empire area itself.

As would be expected, nonresidential development activity on the High Desert is fairly meager. The ±75,000 new jobs from February 2010 to February 2011 tend to be concentrated in industries that create demand for real estate products that are in relatively ample supply. The largest job growth from February 2010 to February 2011 in Southern California was in professional and business services. These growth categories create demand for real estate products that are currently in ample supply.

The second most significant category of growth in jobs over this interval was in educational and health services, some of which may eventually require new facilities and, therefore, real estate development. The third greatest increase in employment over this twelve-month interval was in leisure and hospitality, which is not likely to stimulate major new development on the High Desert in the near term.

Development of retail space should not be a major contributor too the real estate sector on the High Desert in the near term because existing facilities have substantial capacity to accommodate increasing sales activity levels, especially in light of the increased sales efficiency of high volume per square foot merchants such as Walmart, Costco, Sam’s Club, Home Depot, etc., that characterize the evolving retail sector. In addition, some technologically-obsolete retailers are closing stores, making space available for other uses. Recent months have seen bookstore closures as well as closure of DVD rentals, etc. The retail sector has been involved in a substantial technological revolution for about the past 15 years as new retailers demonstrate the capacity to generate much higher than typical sales volumes per square foot, implying the need for fewer square feet per capita of consumer population as more retail activity is focused in high volume-type stores.

Recent employment data show a decline in retail employment in food and beverage stores and in clothing and accessory stores. This probably represents shift of purchasing from these types of specialty stores into general merchandise stores as Walmart and others broaden their range of product offerings to include more typical supermarket merchandise and/or the availability of broader lines of apparel.

Although the statistics showing net increase in nonagricultural wage and salary employment based on the Establishment Survey during the twelve months ended February 2011 are cause for some optimism that a str0nger recovery is on its way, especially in light of three years of strongly negative employment trends since February 2007, the ambiguity of these data in relation to information from the Household Survey is a matter of some concern. Overall, this is probably not a basis for a major three-keg party right away.

I’m frequently asked about the slow economic recovery this time, especially in light of the huge fiscal and monetary stimulus unleashed since 2008. I’m not sure the academic elites who shape policy are as smart as we’d hope. For example, I doubt the perspicacity of economic experts who brag about the “gazillion” jobs that were saved by the bailout of General Motors.Saving GM doesn’t mean the saving of auto employment. The source of jobs for auto workers is not a specific company; it is demand for automobiles exerted by consumers. No one has convinced me that if GM did not exist or existed under another name, it would constitute a positive or negative long-term impact on consumers’ desire to buy cars. Since I think that auto workers are employed because people want to buy cars and not specifically because they want to buy GM cars, I have a hard time understanding how the taxpayer support devoted to saving GM saved any jobs at all on a net basis unless the failure of GM would discourage future consumers from ever buying any type of car. Bankruptcy does not destroy automobile manufacturing facilities. Even if bankruptcy did result in the scrapping of large factories instead of their sale to some other entity that knew better how to operate an automobile company, there is probably enough worldwide capacity to produce cars to meet demand and, in the process, represent a source of employment for auto workers. Saving GM saved a particular group of jobs, but on an overall basis, really can’t be construed to have saved jobs in a general sense. As the performance of Ford illustrates, all saving GM did was perpetuate an institution that had proven itself to be incompetent in the first place.

Similarly, there seems to be a good deal of enthusiasm about taxing the “evil” corporations so that we don’t have to tax the rest of us as much. Every analysis I’ve ever seen shows that most corporations pass taxes along through higher prices for their product, lower wages and salaries to their employee, etc. Ultimately, financially-ineffective corporations will disappear (stockholders will receive no profit and bankers will be reluctant to lend to entities which have a high probability of being unable to pay back the loan). Bailing out incompetent institutions is not a path to economic progress, yet we choose to believe that two and two can be made to total five.

Historically, economists have believed that a potent tool to counter the effects of recession is stimulating the housing market. As a result of lower prices (derivative of a recession) and lower interest rates supported by the Federal Reserve Bank during recessions, it has historically been fairly easy to stimulate economic recovery through increased activity in the housing market. In this particular case, however, we have already shot those arrows from our quiver by several years of overstimulating the housing market through the Community Reinvestment Act, historically low interest rates prescribed by Greenspan and Bernanke, and irresponsible relaxation of loan qualifications to cause many marginal or latent first-time homebuyers to become owners of housing-in many cases, housing considerably more expensive than they would likely to have afforded in a free market environment.

Greenspan, et al., used the stimulus tool of the housing market at a time when it really wasn’t necessary. As a result, pent-up demand for homeownership is not a factor. We continue to see a good deal of consumer uncertainty as housing tries to find true market value in an environment that has been badly abused by the political or professional aspirations of policy-makers who took advantage of this tool at a time when it was not needed. It is somewhat analogous to taking antibiotics to cure minor ailments allowing toxic elements to develop resistance and, therefore, obviating the future value of specific antibiotics in relationship to their ability to control various diseases. We’ve already used the medicine of housing market stimulation and it’s no longer available to us to bail us out of this recession. We, therefore, need some other stimulus. It’s hard to figure out what it is in light of expansionary policies that have been tried and failed over the last two or three years-TARP, the stimulus, Easy Money, QE1, QE2 zero real interest rates, etc. What these policies have done is to scare the daylights out of investors and planners. This fright is likely to be magnified significantly soon as interest rates inevitably rise, causing the value of bond portfolios to decline sharply and destroying the “safe harbor” that many thought they had entered by buying Treasury Bonds. Some fairly knowledgeable people think that Treasury Bonds are significantly more risky than corporate common stocks in light of potential declines in sovereign bond prices as interest rates rise. I tend to agree with them.

Increasing intrusion of politics into business decision-making has created policy dilemmas as CEOs attempt to please stockholders, Sarbanes-Oxley, the IRS, appropriate regulatory agencies, the general public, and the press. Since these various audiences do not all have the same objectives, the probability that a significant proportion of the audience spectrum could be satisfied by a particular policy decision becomes increasingly remote. The general press then wonders why the private sector has accumulated trillions of dollars in cash and does appear to be enthusiastic about hiring permanent employees as distinct from”1099 contract” workers in an uncertain regulatory and political environment. This uncertainty spills over into hiring decisions in which it is less risky for some employers to “contract out” specific duties than to hire permanent staff. Contract employees often have a lower overhead component than would a permanent staff employee hired to achieve the same objective. Contract employees don’t join unions. Contract employees generally don’t mind working overtime. Contract employees don’t have to have medical insurance. Contract employees don’t file unlawful termination sits. There is a good argument that fear is a significant inhibitor to the economic expansion that will be the basis for creating a new generation of High Desert real estate millionaires. Maybe this time the winners will be those who are especially fearless.

If you would like to receive the full edition of the Bradco High Desert Report, our quarterly newsletter, please click on the link: http://www.thebradcocompanies.com/register

Economy General

High Desert Employment Information

Published by:

By Kristine Nix
Worforce Service Branch

High Desert Employment Information

High Desert area data for the month of July 2010

California’s unemployment rate was 12.3% (seasonally adjusted) in July 2010, unchanged from June 2010 (revised) and up  .5% from a year ago. The national unemployment rate remained steady at 9.5%. However, unemployment increased in parts of the High Desert with San Bernardino County increasing .5% from last month to 14.8%.

Area Labor Force Employed Umemployed Unemployment Rate Change
Nationwide       9.5% =
California 18,370,300 16,026,100 2,344,200 12.8% =
San Bernardino County 864,200 736,400 127,900 14.8%
High Desert 105,400 86,500 19,000 18.0%
Adelanto 7,000 5,400 1,600 22.9%
Apple Valley 26,300 22,100 4,200 16.0%
Barstow 10,800 8,800 2,000 18.5%
Hesperia 3,100 25,200 5,800 18.7%
Victorville 30,300 2,500 5,400 17.8%
           
  Please note that the above data is non-seasonally adjusted  

California lost 9.400 jobs last month and new unemployment insurance claims decreased by 2.7%

Riverside & San Bernardino Counties Overview:

  • Unemployment increased to 15.1% in July 2010
  • Nonfarm employment decreased by 22,000 jobs
  • Construction reported the only monthly gain in employment, adding 300 jobs

Highlights from the California Regional Bulletin (August 27, 2010)

  • A recent report by New York Federal Reserve bank shows that California ranks number 1 in consumer debt
  • The ports of Los Angeles and Long Beach saw increased cargo traffic in July, as reported in the Los Angeles Times
  • Monterey Gourmet Foods is moving from Salinas to Gilroy, CA. Opening in March 2011, the new facility will create construction jobs during the building phase and 50 new manufacturing jobs.

For questions and answers, see the Clifornia Labor Market and Economic Analysis. If you have not alredy done so, look at, use and register for the information at the Labor Market Information Division website www.labormarketinfo.ca.gov . This will allow you to obtain additional important labor related information. The report for August 2010 will be available shortly after September 24, 2010. Information is compiled from referenced sources by the Victorville EDD office.

For comments or questions plese contact Ms. Cindy Espindola or Kristi McAfee at (760) 241-1682

Economy

Economic and Business Climate

Published by:

By Steve Pontell
La Jolla Institute

Long-term employment trends show growth of 40% between 2000 and 2008 in two of the county’s largest industries: Professional Services and Logistics. However, recent employment figures show a decline across all key industries. San Bernardino County has the most affordable housing in Southern California. The county continues to build more homes, with the result that there are nearly two housing units for every job created in the county. As the importance of technological know-how increases, so does the county’s student access to computers and classrooms with Internet access.

 County Poised for Further Growth and Change

 Description of Indicator

San Bernardino County experienced explosive residential and commercial growth over the past two decades. The county’s unique geographic, environmental and economic characteristics allowed it to evolve into a dynamic region that is both independent of and integral to the Southern California region as a whole. This indicator examines components of the county’s transformation such as employment changes, housing trends, expanding opportunities, and human and societal impacts of this growth.

Why is it Important?

Understanding how San Bernardino County has changed from 1990 to 2010 allows residents, businesses and policymakers to be better informed about the characteristics that define San Bernardino County today – instead of what they imagine it to be, based on perceptions established in the past. San Bernardino County has emerged as an economic powerhouse as the Southland’s air travel and logistics hub, a recreational destination for tourists from across the state, and the booming, then busting, epicenter of the California residential real estate market.

How is San Bernardino County Doing?

Economy in Transition

Twenty years ago, the leading industries in the county were steel, agriculture and defense. The closures of George Air Force Base (in Victorville) in 1992 and Norton Air Force Base (in the City of San Bernardino) in 1994 resulted in the loss of approximately 3,000 jobs. Since that time, the region has gone through one metamorphosis and is on the cusp of a second. The first transition was from an economy based in military services, agriculture, and steel, to one where construction, logistics, and business and professional services are the dominant industries. The next transformation may emerge out of a combination of up-and-coming markets, demographic shifts, continuing growth in logistics, and San Bernardino’s unique set of assets including days of sun, established energy infrastructure, large areas of undeveloped land, and proximity to population centers and recreational resources.

The first transition witnessed employment growth of 62% between 1990 and 2007. According to the California Employment Development Department, the number of jobs in the county increased from 408,500 in 1990 to 663,600 jobs as of 2007. In 1990, the largest industry clusters were Retail Trade, Healthcare, Tourism (Leisure and Hospitality) and Durable Goods Manufacturing. Today, while the largest employment clusters are the same, the proportions are different with 300% growth in Administrative Support (which is a part of Business and Professional Services), 180% growth in Logistics, and 180% growth in Wholesale Trade. In the last 10 years, the changing nature of the San Bernardino County economy has become even more pronounced with significant growth in the Retail Trade and Local Government sectors while Durable Goods Manufacturing has declined.

The second transition may be fueled by San Bernardino County’s unique position for growth in certain industries not yet reflected in employment statistics. For example, the High Desert area of San Bernardino County is one of the best places in the world for solar energy development because of its high altitude, the number of sunny days each year, and existing power infrastructure. Additionally, proximity to the Colorado River, Nevada and Arizona may result in increasing opportunities for new housing and tourism that are currently underutilized.

Supplying Affordable Housing for the Region

As the population and employment base of Southern California continued to grow over the past two decades, the number of housing units built in Los Angeles and Orange Counties did not keep pace. The relatively lower cost of existing housing in the Inland Empire drew buyers from all over Southern California. In San Bernardino County, housing demand increased in response to both the lower priced housing and as a result of economic growth, and builders built new housing tracts to meet the increased demand. Cities and builders alike preferred to build lower density units (greater sales prices and income to local jurisdictions), and to a great extent larger, single family units were built instead of smaller, more affordable units.

Between 2000 and 2006, single family residences accounted for over 85% of all housing built, compared to the historical average of 70%. In the midst of this housing boom, it appeared that San Bernardino County had become the host of the American dream – one of the last places for middle class Southern California residents to be able to afford a home.

Between 2000 and 2008, nearly 100,000 residential permits were granted by local officials throughout the county with the peak of over 18,000 permits in 2004. The cities granting the most permits were Rancho Cucamonga, Chino Hills and Fontana which had higher numbers of permits earlier in the decade while Apple Valley, Chino, Hesperia, and Victorville granted more permits later.

Strong demand in the early 2000s led to rising prices, which prompted many first time homebuyers who were afraid of “missing the boat” to purchase. Speculators and investors also played a role in driving up housing prices, which increased from $134,000 for a median priced single family home in 1991 to $389,000 in the fourth quarter of 2005. Since then prices have dropped back to 2000 levels, with the median single family home priced at $163,000 in 2009. Paradoxically, due to the low housing prices, for those who could afford a down payment and have sufficient income and credit, owning a home today may be less expensive than renting a home (see Housing Affordability and Rental Affordability).

Human and Societal Impacts of Growth and Contraction

In the meantime, new and old residents of San Bernardino County are bearing the impacts of regional economic contraction. When residents of San Bernardino County who commuted to work in Los Angeles, Riverside, or Orange Counties lose their jobs, they apply for and utilize San Bernardino County government services.

According to the 2008 Inland Empire Annual Survey, a majority of residents who live in East Valley, Victor Valley and Desert areas also work in San Bernardino County. However, about 10% of East Valley and Desert region residents work in Riverside County. Over 30% of West Valley residents work in Los Angeles County, and about 6% work in Orange County.

The economic downturn is reflected in the number of residents living in poverty and the fact that most major public assistance programs in San Bernardino County experienced increases in enrollment (see Family Income Security):

• At 14.6%, San Bernardino County has the third highest proportion of residents living in poverty compared to peers. This rate is higher than the state and national averages for 2008.

• San Bernardino County has the highest Food Stamps “Program Access Index” scores among peers, with 56% of Food Stamps eligible residents actually participating in the program.

• The number of people receiving Food Stamps rose 27% in a single year, while CalWORKs cash assistance enrollment rose 18% in 2008/09.

• Medi-Cal participation also increased, rising 10%.

• A higher proportion of San Bernardino County residents have public assistance income (4.0% of all residents) than the state (3.1%), nation (2.3%), and all our peers (ranging from a high of 3.3% in Los Angeles County to a low of 1.2% in the Dallas metro area).

Expanding Opportunities

As businesses expanded in the Inland Empire in anticipation of more customers taking up residence, a reinforcing cycle was created wherein business growth fueled population growth resulting in greater home construction and further economic growth.

The Inland Empire’s location between the Ports of Los Angeles and Long Beach and the rest of the country as well as the location on the edge of the massive markets of Los Angeles County and Orange County primed the growth of the logistics industry which grew from 32,000 jobs to over 80,000 jobs between 1991 and 2008.

With the completion of the Alameda Corridor and the emergence of the Ports of Los Angeles and Long Beach as the largest ports in the U.S., shipping trans-Pacific goods from the booming Asian economies, San Bernardino County has evolved as the logistics and distribution hub for the 20 million resident Southern California market and into the rest of the nation. As the international economy recovers amidst tightening land availability for warehousing and transit, San Bernardino County is better positioned than other areas in the region to harness the opportunity to become an even more important logistics hub.

Interestingly, the closure of the George and Norton Air Force bases laid the ground work for the most extensive airport infrastructure in Southern California, thus promising an important role for the logistics industry in San Bernardino County as well as further opportunities in tourism.

In 1992, Ontario Airport served 6.1 million passengers annually and George Air Force Base in Victorville and Norton Air Force Base in San Bernardino were military installations. In 1998, Ontario International Airport relocated to a new 265,000 square foot terminal and the passenger count climbed to 7.2 million passengers in 2005 before declining to 4.9 million in 2009. Freight tonnage at Ontario International Airport has declined recently to approximately 400,000 tons in 2009, still higher than the 300,000 tons of freight transported in 1992.

The two military bases have been redeveloped as the Southern California Logistics Airport and San Bernardino International airport. These airports provide access to freight, airplane maintenance services, and commercial and general aviation use.

The Future

What might the future hold for San Bernardino County? As high housing costs elsewhere in southern California prompt younger and moderate income residents to search for a home in the Inland Empire, and large facilities such as warehouses and airports need more available land, San Bernardino County will continue to play a prominent role in the larger region. But its future economy will be shaped by a number of critical assets including military facilities and federal lands.

Overall, the role of the federal government cannot be understated, given that the federal government owns 81.4% of the land of San Bernardino County and the State of California owns another 2.1% of the land. While national parks and military facilities add to the tourism and services components of the economy, these outside institutions also wield substantial influence over the future of the county given the sheer amount of land outside of the control of local officials and residents.

Military Facilities

The military is once again growing both in terms of jobs and purchasing power. Fort Irwin has increased to a daily population of over 22,000 personnel and Twentynine Palms Marine Base has almost 8,000 personnel. These military facilities have a rotating population of individuals who both add to the economy through residence, purchases and tax contributions, but also subtract from the greater benefit of the local area with so much land off¬limits to local control, wear-and-tear on government infrastructure and increased use of local government services.

Capital projects at these locations also impact the local and regional economy. Fort Irwin has plans to construct a Wind Turbine Energy Project on site, and Twentynine Palms is in the process of developing a large scale training center that requires more training land and airspace than is now available anywhere in the United States. A Center for Naval Analyses study shows that Twenty-nine Palms is the only location with sufficient land and airspace potential to meet the training requirements.

Bureau of Land Management Renewable Energy Projects

The Bureau of Land Management plays a large role in establishing land use patterns for ranching, mining, renewable energy and recreation. Notably and recently, the Bureau of Land Management (BLM) is gearing up to take advantage of incentive funding under the American Recovery and Reinvestment Act, by committing to full environmental analysis and public review for 31 renewable energy projects planned on BLM lands. According to BLM Director Bob Abbey, these projects are “the first generation of large scale renewable energy projects to be carefully sited on public lands over the next several years.” The initial project list includes 14 solar, seven wind, three geothermal, and seven transmission projects. Of these, three of the solar energy projects and two of the wind energy projects are located on BLM land in San Bernardino County.

National Recreational Facilities

The national forests and parks that lie within the county provide recreational and open space amenities as well as educational and volunteer opportunities for San Bernardino County residents. Further, visitors to the San Bernardino National Forest, Joshua Tree National Park, and Mojave National Preserve generate significant revenue for the local economy (www.nps.gov and www.fs.fed.us/).

Established in 1907, the San Bernardino National Forest was set aside as public land for the conservation of natural resources. Spanning 676,666 acres in San Bernardino and Riverside Counties, the San Bernardino National Forest provides Southern California residents and visitors with year-round outdoor recreation opportunities and facilities, as well as providing valuable watershed protection. The forest administration has several departments including Fire, Police, Planning and Permits, Recreation, and Roads, along with three Ranger Districts, and a scientific arm that deals with issues relating to cultural, water, soil, wildlife, plants and trees. Joshua Tree National Park is 792,623 acres, 591,624 acres of which are designated as “wilderness.” In 2008, the base funding for Joshua Tree National Park was $5,035,900, and the park welcomed 1,397,554 visitors, a 7.2% increase in visitation from 2007.

At 1.6 million acres, Mojave National Preserve is the third largest National Park Service area outside of Alaska. In FY 2007 Mojave National Preserve had 541,000 visitors. The number of visitors to Mojave National Preserve has increased 42 percent over the past decade, with sharp increases from 1998 to 2003 followed by a leveling off in the following five years. While overall visitation has been flat recently, the population in surrounding counties is expected to double by 2030 and preserve staff is predicting an increase in visitation in the long term. The preserve’s funding from all sources grew from $1.3 million in 1996 to $5.9 million in 2007.

In 2006, the National Park Service conducted a study of how visitor spending impacts the community around the park. This report estimated that the 537,000 visitors to Mojave National Preserve spent $6.9 million in local businesses with non-local visitors accounting for over 90 percent of this total. Spending by non-locals supported an estimated 127 jobs, added $2.5 million to the incomes of local employees, and provided an additional $1.4 million in profits and sales taxes to the local economy.

Additionally, preserve operations had a positive impact on the local economy. Mojave National Preserve employed 64 people on a full-time, part-time, or seasonal basis in 2006, totaling $3 million in salary. In addition, the preserve approached local businesses for contracting and purchases. As local consumers, the employees of Mojave National Preserve also spend part of their paychecks at local businesses. These direct and secondary effects of preserve operations accounted for 92 local jobs, $4.7 million in payroll, and $660,000 in additional benefits to the local economy.

Conclusion

San Bernardino County’s unique geographic, environmental, and economic characteristics offer significant benefits to residents, employers, and visitors alike. The county’s economy has shifted from agriculture, military, and mining to construction, logistics, and business and professional services. The county has weathered the construction boom and bust, and closures of prominent military bases. While there are human and social costs with the recent economic downturn, military facilities are once again growing and affordable housing is likely to remain a stronghold for San Bernardino County. The county is also well positioned for expansive growth in the logistics industry and renewable energy, but the significant influence of federal government as the primary land owner in the county remains an ongoing challenge.