California Economic Condition& the Health of Regions

John Husing, Ph.D. Economics & Politics, Inc.

1. General Economy’s Problems Starting To RecedeRecede

After Losing 8.74 Million Jobs …U.S. Job Creation Is Crawling Back

VV Pattern of Likely Recovery

UUxx

Congressional Madness

U.S. Economy???

Fiscal Cliff

Worst National Unemployment RatesU.S. 8.6% CA 10.9%

VV Pattern of Likely Recovery

UUxx

Congressional Madness

U.S. Economy???

Fiscal Cliff

U.S. & California Unemployment RatesTrend is DownDown

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

U.S. California

Source: U.S. Bureau of Labor Statistics, CA Employment Development Department

Unemployment HistoryU.S. & California, 2001-2012

8.2%

10.4%

Worst National Unemployment RatesU.S. 8.6% CA 10.9%

CA Has Lost Every Job Created Since Mid-1999 Back to 2003

CA Legislature Seems To Have Little Interest In This Fact

California’s Job Creation/Losses

DefenseCutbacks

Dot.Com GreatRecession

CA Sector Growth & DeclineAugust 2011-2012

18,100

15,475

(763)

Distribution & Transport

Construction

Manufacturing

32,10030,825

28,950

8,8751,650

938

(650)

(2,988)

Employment AgcyEating & Drinking

Retail Trade

AccommodationAgriculture

Social Assistance

Amusement

Other Services

463

(8,538)

Mgmt & Professions

Local Government

46,163

9,838

613

(9,850)

Higher Education

MiningUtilities

Federal & State

34,775

17,113

15,15011,500

(12,700)

Publish, telecom, Other

Admin. SupportFinancial Activities

Health Care

Other EducationSource: CA Employment Development Department

Exhibit 8.-Job Growth Advantages & DisadvantagesCalifornia Job Growth, August 2011-2012

272,525

-35,488

Unemployment by Market Area

Avg. Jan-Aug 2012

CA = 10.6%

So. California

Central Coast

Bay Area

Sacramento I-80

Central Valley

3.10.6%

2. 9.6%

1. 8.4%

4.11.4%

5.15.1%

Where Are Job Gains

Avg. Jan-Aug 2012

CA = 238,1961.64%

So. California

Central Coast

Bay Area

Sacramento I-80

Central Valley

1.105,1971.33%44.2%

4.16,4303.00%6.9%

2.75,3172.40%31.6%

5.6,4130.63%2.7%

3.19,0851.52%8.0%

Gold Mine Theory

Primary Tier

Secondary Tier

Economic Drivers

Green

Construction Manufacturing

Tourism

Trade

Bio-Tech

Logistics

Motion Pictures

Computer Games Health Care

InformationAgriculture

What’s The Status of So. California’s “Gold Mines“Gold Mines?”D

Bottom

CUnstable

Regulators

BInventory

CInventory

B$ Helps

Incomplete?Unstable

Regulators

BStrong

A-Strong

BStrong

C-$ May Help

A-Boomers

A-Dollar

The Great Economic Threat

California Grabbing Money From Local Government

Long Term: Strangling Growth

CA

2. Tax Base Considerations Assessed Valuation

CAO/City Manager Counseling

So. California

Central Coast

Bay Area

Northern

Sacramento I-80

Central Valley

4.-3.6%

3.-2.6%

1.-1.3%

6.-12.1%

2.-2.2%

5.-5.4%

FY 2009 to FY 2012Assessed Valuation

% Change

CA -3.8%

So. California

Central Coast

Bay Area

Northern

Sacramento I-80

Central Valley

1.-$89.0 B51.7%

5.-$4.9 B2.8%

4.-$14.2 B

8.2%

2.-$47.0 B27.3%

6.-$2.0 B1.1%

3.-$15.2 B

8.8%

FY 2009-2012Assessed Valuation

Decline

CA -$172 Billion

Percent AV GainsGainsFY 2009 to FY2012FY 2009 to FY2012

Colusa $679,666,840 25.8%San Francisco $17,375,259,586 12.3%Trinity $106,696,930 9.3%Humboldt $671,453,335 6.3%Kings $244,293,626 2.8%Santa Barbara $1,545,095,906 2.5%Mendocino $204,025,240 2.1%Napa $532,896,981 2.0%Del Norte $29,494,143 1.7%Marin $722,357,955 1.3%Siskiyou $25,072,560 0.6%Kern $425,051,297 0.5%San Mateo $428,634,777 0.3%

Largest Percent AV LossesLossesFY 2009 to FY2012FY 2009 to FY2012

Shasta ($1,713,831,183) -10.4%San Bernardino ($19,646,919,334) -10.6%Placer ($6,445,290,638) -10.9%Madera ($1,459,832,632) -11.9%Sacramento ($16,766,074,365) -12.3%Yuba ($692,994,373) -12.9%Plumas ($557,756,508) -13.0%Solano ($6,481,892,146) -14.1%Stanislaus ($5,630,188,000) -14.1%San Benito ($996,855,852) -14.9%Riverside ($37,655,720,162) -15.6%San Joaquin ($10,790,493,651) -17.0%Merced ($3,522,361,333) -17.7%Calaveras ($1,363,977,244) -19.1%

Residential Markets: When Is The End?

Underwater HomesSan Francisco 14%

Santa Clara 19%

San Mateo 20%

Orange 24%

Los Angeles 30%

Alameda 31%

San Diego 34%

Riverside 51%

San Bernardino 52%

Fresno 53%

Madera 54%

Sacramento 55%

Tulare 57%

Kern 58%

Imperial 59%

San Joaquin 59%

Merced 61%

San Bernardino 78

Solano (Vallejo) 77

Merced 77

Kings 75

Madera 74

Sacramento 74

Fresno 71

Riverside 65

Monterey 55

Napa 50

Sonoma 49

Los Angeles 49

Ventura 48

San Diego 44

San Luis Obispo 41

Alameda 38

Orange 35

Santa Cruz 34

Santa Clara 32

Santa Barbara 32

Marin 27

Contra-Costa 26

San Francisco 24

San Mateo 23

Affordability

So. California

Central Coast

Bay Area

Central Valley

Feb-2012Median Price

Coast vs. Inland

Sacramento I-80

3.$272,611

2.$291,312

1.$371,182

4.$175,855

5.$170,635

6.$125,584

North

Underwater Inland Empire Homes

When Does Foreclosure Crisis End?If No Demand Growth, No Gov’t Solution

How This Ends: A Housing Shortage

106,230

During 2008 thru 2011California Population Grew by 1,026,471

Office Vacancy Weak Almost Everywhere!

2005/2006 20092009 20122012

Inland Empire 10.5% 24.3% 26.9%24.3% 26.9%

Sacramento 13.5% 21.4% 22.7%21.4% 22.7%

Orange County 8.0% 18.0% 20.8%18.0% 20.8%

Oakland 16.5% 15.6% 17.8%15.6% 17.8%

Los Angeles County 12.2% 16.3% 16.0%16.3% 16.0%

San Diego 9.0% 19.2% 15.5%19.2% 15.5%

Fresno 13.8%13.8%

San Francisco 13.0% 14.9% 9.7%14.9% 9.7%

Santa Clara 16.0% 20.5%20.5% 9.0% 9.0%

Industrial Vacancy Rate Down Almost Everywhere!

2005/2006 20092009 20122012

Sacramento 10.5% 12.3% 13.4%12.3% 13.4%

Fresno 9.8% 9.8%

San Diego 7.0% 12.0% 9.9%12.0% 9.9%

Silicon Valley 14.4% 13.9% 7.6%13.9% 7.6%

Inland Empire 2.7% 12.8%12.8% 6.6%6.6%

Oakland 6.0% 8.9% 8.9% 5.1%5.1%

Orange County 5.4% 6.5%6.5% 3.5%3.5%

Los Angeles County 2.1% 3.2% 3.2% 2.7%2.7%

Assess Valuation Future

FY 2013 A Mixed Year

3. Tax Base Considerations

Sales Taxes: A Serious Problem

CAO/City Manager’s Office

Gold Mine Theory

Primary Tier

Secondary Tier

Retail Sales

So. California

Central Coast

Bay Area

Sacramento I-80

Central Valley

36.7%

4.6.3%

2.7.5%

1.7.9%

4.6.3%

2nd Qtr. 2011-2012Change In Retail Sales

CA = 6.8%

So. California

Central Coast

Bay Area

Sacramento I-80

Central Valley

1.$752.2 B

53.2%

5.$49.7 B

3.5%

2.$310.7 B

22.0%

4.$100.7 B

7.1%

3.$137.1 B

9.7%

2nd Qtr. 2012Total Retail SalesCA = 1,413.0 B

6.8%

Retail Sales Future

2012 Continued Improvement

Still Below Highs

4. Economic Development

It is A Competition

Who Was Hurt By The Recession

Least Hurt = 12

4. So. California

1. Central Coast

2. Bay Area

3. Northern

6. Sacramento I-80

5. Central Valley

45

28

30

52

41

48

Environmental Issues

Take Precedence

Job Worries

Take Precedence

California Governing Philosophy

Command & Control

Markets

Vs.

California Ranks California Ranks LastLast in the U.S. in the U.S. For For Business LocationBusiness Location

- Forbes -- Forbes -

Unstable Regulatory Commands

If A Business Can’t Plan,

They Won’t Come or Stay

Exhibit 72.-State Taxes, 2011Business Income Individual Income State/Local Sales

Tax Gasoline Tax Property Tax per capita

California 8.84% 9.55% 8.25% 46.1 $1,397

Oregon 7.90% 9.00% 0.00% 25.0 $1,167

Arizona 6.97% 4.24% 6.60% 19.0 $1,139

New Mexico 6.40% 4.90% 5.13% 18.8 $589

Utah 5.00% 0.00% 5.95% 24.5 $846

Colorado 4.63% 4.63% 2.90% 22.0 $1,322

Nevada 0.00% 0.00% 6.85% 33.1 $1,344

Texas 0.00% 0.00% 6.25% 20.0 $1,600

Washington 0.00% 0.00% 6.50% 37.5 $1,257

State Taxes

Highest Highest Highest Highest 2ndHighest

Electrify Southern California?Electrical Rates

Electrify Southern California?Natural Gas Rates

State Mandated Costs Not Found Elsewhere In U.S.

Overtime After 8 Hours … Not 40 Hour Week

Mandatory Family Leave

Dysfunctional State Government

California Bond Rating Drops Lower Than Any Other State's

Lack of Investment InAging & Missing Infrastructure

Grade Separations

Transit Oriented Housing

Not Without Tax Increment Financing!

Modestly Trained Labor Force

K-12 Performance 38th Pew Center for States

Share of Adults: No College 44.9% Census Bureau, 2010

Education Funding Per Capita 27th Public Policy Institute

How Minnesota Can Avoid the "California Spiral"

CA Long Term Future?

Command & Control

Markets

Vs.?

While Waiting For Complete Recovery….

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