California Economic Condition & the Health of Regions

1. California Economic Condition& the Health of Regions John Husing, Ph.D. Economics & Politics, Inc.

2. General Economy’s Problems • Starting To Recede

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

4. Pattern of Likely Recovery x x  U V

5. Congressional Madness

6. Fiscal Cliff U.S. Economy???

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

8. Pattern of Likely Recovery x x  U V

9. Congressional Madness

10. Fiscal Cliff U.S. Economy???

11. U.S. & California Unemployment RatesTrend is Down Unemployment History U.S. & California, 2001-2012 14.0% U.S. California 13.0% 12.0% 11.0% 10.0% 10.4% 9.0% 8.0% 7.0% 8.2% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: U.S. Bureau of Labor Statistics, CA Employment Development Department

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

13. CA Has Lost Every Job Created Since Mid-1999 Back to 2003 CA Legislature Seems To Have Little Interest In This Fact

14. California’s Job Creation/Losses Defense Cutbacks Dot.Com Great Recession

15. CA Sector Growth & DeclineAugust 2011-2012 Exhibit 8.-Job Growth Advantages & Disadvantages California Job Growth, August 2011-2012 Mgmt & Professions 46,163 34,775 Health Care 32,100 Employment Agcy Eating & Drinking 30,825 Retail Trade 28,950 Distribution & Transport 18,100 Publish, telecom, Other 17,113 Construction 15,475 272,525 15,150 Admin. Support 11,500 Financial Activities 9,838 Higher Education Accommodation 8,875 Agriculture 1,650 Social Assistance 938 Mining 613 463 Utilities (650) Amusement -35,488 (763) Manufacturing Other Services (2,988) Local Government (8,538) Federal & State (9,850) Source: CA Employment Development Department Other Education (12,700)

16. Unemploymentby Market AreaAvg. Jan-Aug 2012CA = 10.6% Sacramento I-80 4. 11.4% Bay Area 1. 8.4% Central Valley 5. 15.1% Central Coast 2. 9.6% So. California 3. 10.6%

17. Where Are Job GainsAvg. Jan-Aug 2012CA = 238,1961.64% Sacramento I-80 5. 6,413 0.63% 2.7% Bay Area 2. 75,317 2.40% 31.6% Central Valley 3. 19,085 1.52% 8.0% Central Coast 4. 16,430 3.00% 6.9% So. California 1. 105,197 1.33% 44.2%

18. Gold Mine Theory Secondary Tier Primary Tier Economic Drivers

19. What’s The Status of So. California’s “Gold Mines?” Trade Construction Manufacturing Tourism Agriculture Green Information Motion Pictures Computer Games Bio-Tech Health Care Logistics C Unstable Regulators D Bottom B Inventory C Inventory Incomplete? Unstable Regulators B $ Helps A- Dollar B Strong B Strong A- Strong C- $ May Help A- Boomers

20. The Great Economic Threat California Grabbing Money From Local Government

21. Long Term: Strangling Growth CA

22. 2. Tax Base Considerations Assessed Valuation CAO/City Manager Counseling

23. FY 2009 to FY 2012Assessed Valuation% ChangeCA -3.8% Northern 2. -2.2% Sacramento I-80 6. -12.1% Bay Area 1. -1.3% Central Valley 5. -5.4% Central Coast 3. -2.6% So. California 4. -3.6%

24. FY 2009-2012Assessed ValuationDeclineCA -$172 Billion Northern 6. -$2.0 B 1.1% Sacramento I-80 2. -$47.0 B 27.3% Bay Area 4. -$14.2 B 8.2% Central Valley 3. -$15.2 B 8.8% Central Coast 5. -$4.9 B 2.8% So. California 1. -$89.0 B 51.7%

25. Percent AV GainsFY 2009 to FY2012

26. Largest Percent AV LossesFY 2009 to FY2012

27. Residential Markets: When Is The End?

28. Underwater Homes

29. Affordability

30. Feb-2012Median Price Coast vs. Inland North 5. $170,635 Sacramento I-80 Bay Area 4. $175,855 1. $371,182 Central Valley 6. $125,584 Central Coast 2. $291,312 So. California 3. $272,611

31. Underwater Inland Empire Homes

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

33. How This Ends: A Housing Shortage During 2008 thru 2011 California Population Grew by 1,026,471 106,230

34. Office Vacancy Weak Almost Everywhere! 2005/20062009 2012 Inland Empire 10.5% 24.3% 26.9% Sacramento 13.5% 21.4% 22.7% Orange County 8.0% 18.0% 20.8% Oakland 16.5% 15.6% 17.8% Los Angeles County 12.2% 16.3% 16.0% San Diego 9.0% 19.2% 15.5% Fresno 13.8% San Francisco 13.0% 14.9% 9.7% Santa Clara 16.0% 20.5% 9.0%

35. Industrial Vacancy Rate Down Almost Everywhere! 2005/20062009 2012 Sacramento 10.5% 12.3% 13.4% Fresno 9.8% San Diego 7.0% 12.0% 9.9% Silicon Valley 14.4% 13.9% 7.6% Inland Empire 2.7% 12.8% 6.6% Oakland 6.0% 8.9% 5.1% Orange County 5.4% 6.5%3.5% Los Angeles County 2.1%3.2% 2.7%

36. Assess Valuation Future • FY 2013 A Mixed Year

37. 3. Tax Base Considerations CAO/City Manager’s Office • Sales Taxes: A Serious Problem

38. Gold Mine Theory Secondary Tier Retail Sales Primary Tier

39. 2nd Qtr. 2011-2012Change In Retail SalesCA = 6.8% Sacramento I-80 1. 7.9% Bay Area 2. 7.5% Central Valley 4. 6.3% Central Coast 4. 6.3% So. California 3 6.7%

40. 2nd Qtr. 2012Total Retail SalesCA = 1,413.0 B6.8% Sacramento I-80 4. $100.7 B 7.1% Bay Area 2. $310.7 B 22.0% Central Valley 3. $137.1 B 9.7% Central Coast 5. $49.7 B 3.5% So. California 1. $752.2 B 53.2%

41. Retail Sales Future • 2012 Continued Improvement • Still Below Highs

42. 4. Economic Development It is A Competition

43. Who Was Hurt By The RecessionLeast Hurt = 12 Environmental Issues Take Precedence 3. Northern 41 6. Sacramento I-80 52 2. Bay Area Job Worries Take Precedence 30 5. Central Valley 48 1. Central Coast 28 4. So. California 45

44. California Governing Philosophy Command & Control Markets Vs.

45. California Ranks Last in the U.S. For Business Location- Forbes -

46. Unstable Regulatory Commands If A Business Can’t Plan, They Won’t Come or Stay

47. State Taxes Highest Highest Highest 2nd Highest Highest

48. Electrify Southern California?Electrical Rates

49. Electrify Southern California?Natural Gas Rates

50. State Mandated Costs Not Found Elsewhere In U.S. Overtime After 8 Hours … Not 40 Hour Week Mandatory Family Leave