final ieo spring 2011
Post on 07-Apr-2018
220 Views
Preview:
TRANSCRIPT
-
8/4/2019 Final IEO Spring 2011
1/15
INSIDE
Economic and Political Analysis
Volume II | Issue 1 | Spring 2011
ONT: An Airport in Crisis and at aCrossroads
pg. 2-6
A First Loo at Inland Empire CensusDatapg. 7
Great Recessions Impact on I.E. Economic
Performancepg. 8-11
Renewale Energs Future in the InlandEmpire
pg. 12-15
Redeelopment Authorities Under Firepg. 16-21
Stagnation and Recoer: The InlandEmpires Housing Maret
pg. 22-27
his issue oInland Empire Outlook
reects the Inland Empiresongoing struggle to emerge rom
the recession. In prior issues, we have
examined the recessions toll on this region
and have described strategies or building
a more secure economic uture. Tis issue
continues that important discussion.
We begin with an indepth analysis o
the crisis acing Ontario Airport (p. 2).
Te airport should be one o the regions
greatest economic assets, but or several
years mismanagement by L.A. WorldAirports and a high cost structure have
driven away passenger and cargo trac.
We explore changes that could make the
airport a more competitive and protable
transportation center.
Next, our economic update shows that
the Inland Empire still lags ar behind
the rest o the nation in its efort to
achieve economic recovery (p. 8), with
unemployment rates ar above the nationalaverage. Our analysis shows that Riverside
County was hit harder by the recession
and is recovering more slowly. We see the
same pattern in our study o the housing
market data or the two counties (p. 22).
Fortunately, there is some good news:
oreclosures are declining and prices
appear to be stabilizing.
Looking to the uture, we see renewable
energy as a potential growth industryor the Inland Empire. Governor Jerry
Brown recently signed into law a bill
that mandates 33 percent o electricitin Caliornia must come rom renewa
sources by 2020. We expect the Inlan
Empire to emerge as a key player, but
also analyze several actors impeding
development (p. 12). Also on the hor
is the potential loss o redevelopment
agencies and enterprise zones (p. 16).
Governor Browns proposal to elimin
them has ignited opposition rom Inl
Empire ocials. Finally, we take a r
look at the recently released 2010 cendata (p. 7).
On June 22, 2011, the Inland Empir
Center, in partnership with the UCLA
Anderson FORECAS, will hold the
second CMCUCLA Inland Empire
Forecast Conerence at the Riverside
Convention Center. Jerry Nickelsbur
the UCLA Anderson Forecast will pr
a state and national economic orecas
CMC economists Marc Weidenmier Manred Keil will present an econom
orecast or the Inland Empire. Te
conerence will also eature panels on
the uture o Ontario Airport and on
impact o trade, logistics, and oreign
direct investment on the Inland Emp
economy.
For updates to these stories and other
Inland Empire news, please visit our
website, www.inlandempirecenter.org
INlaND
EmpIrEOutlOOk
CLAREMONT MCKENNA COLLEGE
Claremont, California
INLANDEMPIREOUTLOOk.COM
INLANDEMPIRECENTER.COM
WorkingToWarda recovery
Te Edit
-
8/4/2019 Final IEO Spring 2011
2/15
Page 2 Page 3I N L A N D E M P I R E O U T L O O k | 2
I N L A N D E M P I R E O U T L O O k . C O M
around the country and in Southern Caliornia
have been on a road to a postrecession recovery,
Ontario Airport has remained stagnant.
Ontario Airports decline has seriousconsequences or the entire region. Recent
estimates by the city o Ontario suggest that theInland Empire lost upwards o $400 million
in business and revenue, as well as more than
8,000 jobs rom 2007 to 2009 directly becauseo Ontario Airports decline.
Ontario Airport wasnt always on such a
tumultuous path. Tanks to low costs and
robust support rom numerous airlines, OntarioAirport enjoyed signicant increases in annual
passenger volume throughout the 1980s and1990s. Annual passenger volume increased
rom approximately two million in 1980to seven million in 2007. In 2000, JetBluechose Ontario Airport as its rst west coast
destination.
What went wrong in Ontario? Te answer is not dicult to identiyor airlines, it is anexorbitantly expensive place to operate. Airports use a measurement called Cost per Enplaned
Passenger (CPE) to compare costs. In United States airports, the median CPE is $6.76. In
contrast, Ontario Airports estimated CPE was $14.50 or 2010, more than 214 percentabove the median. Tis is higher than every other major regional airport. Similar sized
airports in the southern Caliornia region, such as Long Beach ($5.34) and Palm Springs($4.07), are less expensive. Even LAX, despite being a much larger airport, has a CPE o $11.
With such prohibitively high costs, Ontario Airport is unable to ofer competitive prices,
and consequently, airlines have low prot margins at Ontario Airport and little incentive tooperate there.
What is behind these enormous costs? According to
Greg Devereaux, Chie Administrative Ocer o San
Bernardino County, there are three primary reasonsor the high cost o operation at Ontario Airport: a
costly and unnecessary administrative ee imposed byLAWA, overstang, and overcompensation o airport
employees.
LAWA charges Ontario Airport a 15 percent ee
as overhead or administrative ees. Some believethat this ee is superuous. Devereaux estimates that
once the administrative ee is taken into account,the airport is efectively paying stang costs triple
the size o other [comparable] airports. According
to a report commissioned by the City o Ontario in2010, Ontario International Airport A Recovery
Plan, this administrative charge alone adds $3.68per enplanement to Ontario Airports costswhich
ONt: an aio in Cisis nd Cossods
o the average traveler, a ight out o Ontario International Airport is a dream come
true. Located in the city o Ontario, it sits at the border between Los Angeles Countyand San Bernardino County, and ofers easy access to the LA metropolitan area as
well as the Inland Empire. While a trip to LAX rom the Inland Empire can take upwards
o an hour, trac going to Ontario Airport is rarely an issue. ravel through the airport isspeedy too. Even on the busiest travel days o the year, lines at Ontario Airport are virtually
nonexistent. Flights mostly run on time, and the airport is small, welldesigned, and easilynavigable.
While the short lines at Ontario Airport may be a blessing to passengers, to airport ocialsand insiders, they are just the latest symptom o a dying airport. Ocials in Ontario, Los
Angeles, and the Inland Empire have all expressed concern about Ontario Airports uture,and called attention specically to the airports unique operational structure. Ontario
International Airport is actually owned and operated by the city o Los Angeles. Los AngelesWorld Airports (LAWA), a department o the Los Angeles city government, runs bothLAX and Ontario Airport, as well as Van Nuys Airport in San Fernando. Although LAWA
successully managed Ontario Airport in the past, the airports recent decline has causedmany to question this operational model.
Te statistics or Ontario Airport certainly point to trouble. In 2009, Ontario Airportsannual passenger volume ell to ve million, a decline o 28 percent in a decade. Average
daily departures on Southwest, Ontario Airports highest volume airline, declined rom 58.4in 2001 to 39.7 in 2010. JetBlue and ExpressJet, once promising new additions, have more
recently abandoned the airport entirely. Passenger trac at Ontario Airport has allen sharply,domestic ights have been slashed, and airlines have let in droves. While other airports
PHOTO: GREG DEvEREAUx, CHIEF ADMISINSTRA
OFFICER OF SAN bERNARDINO COU
WHILE OTHER AIRPORTS
AROUND THE COUNTy ANDIN SOUTHERN CALIFORNIA
HAvE bEEN ON THE ROAD TO
POST-RECESSION RECOvERy,
ontario airport
remains stagnant.
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
3/15
Page 4 Page 5I N L A N D E M P I R E O U T L O O k | 4
I N L A N D E M P I R E O U T L O O k . C O M
While diagnosing the problem o high costs acing Ontario Airport is airly simple,prescribing a solution is much more dicult, and there remains a signicant divide over what
action should be taken.
Ocials in the City o Ontario and in San Bernardino County argue that the best course o
action is to have LAWA retain ownership, but to transer operational control to the City oOntario. Devereaux rmly believes that costs could be reduced immediately with the transer
o operational authority. You could get it down to about a $10.50 CPE right away, he says.
Devereaux isnt the only advocate or such a change at Ontario Airport. State Senate
Minority Leader Bob Dutton (RRancho Cucamonga) recently authored a resolution callingor a transer o control over Ontario Airport rom Los Angeles to a local authority. It is co
sponsored by Assembly members Wilmer Amina Carter (DRialto), Kevin Jefries (RLakeElsinore), Brian Nestande (RPalm Desert) and Norma orres (DOntario). Te resolution
asserts that a local authority, such as the City o Ontario, would be the most capable o
turning Ontario Airport around.
Deveraux and others have been involved in ongoing negotiations with the City o LosAngeles to transer control o the airport; however, Executive Director Lindsey and other
LAWA ocials have expressed concerns that the City o Ontario, without any experience
in airport management, may not be the best group to take over control. As a result, LAWAhas recently begun exploring other options or a transer o authority, including a number o
potential private solutions.
Viggo Butler, an expert in airport privatization and the chairman o the aviation
subcommittee at the Los Angeles Economic Development Corporation, sees a number opotential solutions involving private contractors working in conjunction with government
groups. en private rms, including the Carlyle Group and Goldman Sachs InrastructurePartners, have thus ar expressed interest in becoming involved with Ontario Airport.
is more than Orange County, San Diego, or Burbank paid in total
compensation and benets per enplanement in FY2008.
Te second issue is overstang. Until very recently, Ontario Airporthad more than twice the number o employees as most comparably
sized airports. With 302 budgeted employees, and 85 additional LAWA
employees (compensated via the administrative ee), Ontario Airportemploys a signicantly larger staf than John Wayne (175) and Long
Beach (124), despite comparable trac. Tis problem is nothing new.As Deveraux notes, Even at the point where [Ontario Airport] had 7
million passengers, it was clearly overstafed. While other airports were
able to cut down on staf ollowing a decline in business, local laborunions have been a major obstacle to initiating stang changes at the
airport.
Te nal source o Ontario Airports high cost is perhaps the most
surprising. Not only does Ontario Airport appear to have signicantly
more employees than necessary, it also pays them at an inated rate.Ontario Airport, with a compensation budget o $30.9 million or 302 budgeted employees,pays an average o $102,400 per employee. According to Devereaux, this high level o
compensation occurs because employees o Ontario Airport are paid according to the Los
Angeles living wage ordinance and payroll structure, rather than that o Ontario. OntarioAirport employees are compensated as i they lived in Los Angeles even though most live in
the Inland Empire, where the cost o housing alone is 34 percent lower, according to CNN/Money. Tus, overstang compounded by overcompensation o airport employees has
contributed to the high cost o operations at Ontario Airport.
In response to mounting criticism, LAWA recently cut Ontario Airport staf by 30 percent
through early retirements and transers to other LAWAowned airports. Yet even now, LAWAExecutive Director Gina Marie Lindsey acknowledged in an interview with the Daily Breeze
that the airport has not been able to keep pace with the reduction in trac and revenues.Ontario Airport remains an overstafed and exceptionally expensive airport, even ater these
reductions.
Te alleged ineciencies caused by the governance structure at Ontario Airport are not the
only points o concern or local ocials. Devereaux and members o the Ontario city councilhave repeatedly expressed their concern that the city o Los Angeles is not doing enough
to help save Ontario Airport. Devereaux points out that LAWA hasnt been meeting out
in Ontario or several years and appears to be ocusing on building in LA, rather than
Ontario Airport. Tese acts, says Devereaux, combined with LAWAs decision to slashOntario Airports marketing budget by 85 percent in 2008, appear to indicate o a clear lacko ocus and interest [rom LAWA] even as the number o passengers [at Ontario Airport]
was declining.
Executive Director Lindsey responded to these concerns in a March 1, 2011 letter
acknowledging the diculty o giving Ontario Airport complete ocus, while denying thatLAWA has been inattentive. We do agree that given LAWAs portolio o responsibilities, it is
impossible or our senior management team to devote its ull attention to [Ontario airport],just as it is impossible or us to devote our attention exclusively to Los Angeles International
Airport or our other two airports.
What Went Wrong in
ontario?THE ANSWER IS
NOT DIFFICULT TO IDENTIFy:
FOR AIRLINES, ont is
an exorbitantly
expensive place to
operate.
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
4/15
Page 6 Page 7I N L A N D E M P I R E O U T L O O k | 6
I N L A N D E M P I R E O U T L O O k . C O M
According to Butler, a private solution or Ontario Airport could take a number o orms.One idea involves Los Angeles retaining ownership, while granting operational authority to a
private entity through a long term lease. A publicprivate partnership, in which a governmentsponsoring agency (either Ontario or a new authority with Ontario and San Bernardino
County) joins with a private investment rm to operate the airport jointly, similar to the
model employed at the Burbank airport, may also be possible. A third possibility involvesan outright sale o the airport; Los Angeles ocials, including City Councilwoman Janice
Hahn, have expressed a newound willingness to put a transer o ownership on the table.
While there is little precedent or airport privatization in the United States, Butler pointsto London Heathrow Airport as an example o successul private airports. Further, he
notes that Ontario Airport has large capacity or terminal expansionan asset no other
Southern Caliornia airport enjoysand direct access to the Inland Empire. Both give itenormous potential or growth. According to Butler, these actors make control o the airport
particularly appealing to private entities.
Te potential or long term cost reduction with a transer o ownership is substantial. A
transer o operational control to the City o Ontario or a private rm could present cost
cutting options currently unavailab le to LAWA. Depending on the structure o ownershipand control, a new owner may not be bound by the L.A. living wage ordinance in the uture.Devereaux believes that with a staf cost reduction and relie rom the LAWA administrative
ee, Ontario Airports CPE could eventually all to the $5$7 range. I Ontario Airport
succeeds it may be able to convince low cost carriers like Virgin, Jet Blue and Southwest toreturn or expand service. With more carriers, lower costs, and increased marketing, Ontario
Airport may be able to get back on track.
Te battle over Ontario Airports control and uture is enormously important to the InlandEmpire and Southern Caliornia as a whole. Despite some setbacks and delays, local ocials
remain optimistic. We have made a lot o progress and I am hopeul that many o these
groups know that it is in the long term interest o Southern Caliornia and L.A. to makethe airport successul, said Devereaux. For now, Ontario Airport remains at a crossroads,
grounded squarely on the tarmac.
a Fis loo Innd Eie Censs D
he recent release o the 2010 Census data conrms that the population o the Inland
Empire has grown considerably in the last decade. Since the 2000 count, RiversideCounty has grown by about 40 percent, while San Bernardino County has grown by
about 20 percent. Te majority o the growth in these counties came in outlying areas rather
than in large cities.
Te population o Riverside County grew rom 1,545,387 in 2000 to 2,189,641 in 2010.Communities along the I15 rom Corona to Lake Elsinore have experienced rapid growth.
Te area rom the 60 Freeway south to Murrieta has also seen big increases.
In San Bernardino County the population grew rom 1,709,434 in 2000 to 2,035,210 in
2010. Chino Hills and Los Serranos along the 71 Freeway saw the large increases. Te otherarea o signicant growth is along the 210 extension corridor where Rancho Cucamonga
grew rom 127,743 to 165,269 in 2010.
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
5/15
Page 8 Page 9I N L A N D E M P I R E O U T L O O k | 8
I N L A N D E M P I R E O U T L O O k . C O M
he United States unemployment rate is now in single digits ater decreasing quitesharply over the last our months to 8.8 percent. It stood at 10.1 percent in
October 2009. At the same time, the Inland Empire continues to ace double digit
unemployment rates. Te region was hit earlier and harder by the Great Recession and isrecovering much slower than most parts o the nation. While output gures or the Inland
Empire are only published with a considerable delay and are only available at an annualrequency, these are now posted through 2009.
Te Great Recession started in December 2007 and ended in June 2009. Te output decline
or 2008 in the U.S., as a whole, was negligible (you may recall the Bush tax cuts in the
second quarter o 2008, when Gross Domestic Product (GDP) actually increases slightly):there was no decline or the U.S. gures in annual numbers. Te severity o the U.S.
recession started with the third quarter o 2008 with the all o Lehman Brothers, and we sawthe sharpest declines in the second hal o 2008 and the rst two quarters o 2009. Despite
the recovery or the last two quarters o 2009, U.S. real GDP declined by 2.6 percent or theyear, making it the most severe post World War II recession in the U.S.
However severe the U.S. numbers may sound, they pale compared to those o the InlandEmpire. o begin, there was a small decline in real GDP rom 2006 to 2007 o 0.7 percent,
probably starting in the summer o 2006 with the burst o the housing bubble. Te recession
worsened in the Inland Empire in 2008, when real GDP declined by 3.4 percent. 2009proved to be a true disaster year, with output declining by a urther 4.9 percent. Tis
represents 1/20th o output lost in a single year. At the end o 2009, real GDP in the InlandEmpire stood at a horriying 8.8 percent below its 2006 peak. It will take quite some time to
recover rom this low point.
How did the two counties within the Inland Empire are during this period? Te recessionand subsequent recovery are ar rom even or San Bernardino County and Riverside
County. While San Bernardino County currently has an unemployment rate o 13.7 percent,Riverside County is sufering rom an unemployment rate o 14.1 percent. A detailed
analysis o industrial composition and per capita income shows that Riverside County was
hit harder by the recession and is recovering more slowly.
Due to their location and proximity to the Greater Los Angeles area, both counties have asimilar industrial composition. rade and transportation (logistics) dominate, employing
approximately a quarter o the labor orce (26 percent in San Bernardino County and 23percent in Riverside County). Educational and health services, leisure and hospitality, and
manuacturing ollow closely, each
averaging roughly 10 percent in bothcounties.
Both counties have sustained severe
job losses in their key industries o
construction and manuacturing. Tis is
not surprising, since the Great Recessionafected these sectors particularly hard.As a result, it is sometimes reerred to
as a mancession due to the signicant
job losses or males in the two sectors.In September 2006, construction and
manuacturing employed 17 percento the workorce in San Bernardino
County and 23 percent in Riverside
County. By December 2009 thesenumbers had allen to 12 percent and
14 percent respectively. Tis is quitedramatic. Since the employment share
o construction and manuacturing is
higher in Riverside County, it is notsurprising that the recession had a more
severe efect there.
Te construction industry in RiversideCounty, in particular, has sufered
much more than its counterpart
in San Bernardino County. In
Riverside County, the constructionindustry accounts or 40 percent ocumulative losses since January 2007,
or approximately 36,000 jobs. In San
Bernardino County, the constructionindustry has lost 21,500 jobs since
January 2007, accounting or 27percent o the jobs lost.
Ge recessions Ic on I.E. Econoic pefonce
Figure 1: employment by industry in riverside
county, december 2009
Figure 2: employment by industry in san
bernardino county, december 2009
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
6/15
Page 10 Page 11I N L A N D E M P I R E O U T L O O k | 1 0
I N L A N D E M P I R E O U T L O O k . C O M
In contrast, the logistics industry has ared better during the recession in Riverside Countythan in San Bernardino County. San Bernardino County lost 2,300 jobs in the trade and
transportation industry rom 2007 to 2009. During the same period, Riverside County
actually gained 2,200 jobs in the same industry. Tese gains, however, are dwared by thesheer size o the losses in the construction industry.
Per capita income in Riverside County is historically slightly higher than that in SanBernardino County. However, San Bernardino County per capita income increased steadily
during the recent recession and is now almost equal to that in Riverside County. From 2006to 2008, San Bernardino Countys per capita income has climbed by roughly $1,750 to
slightly more than $30,360, while Riverside Countys increased by only $600 dollars to
approximately $30,900; there was actually a small decline in the Inland Empires per capitaincome rom 2008 to 2009. Although San Bernardino County and Riverside County have
historically grown at similar rates, the ormer has gained considerably on the latter rom2006 to 2009, which is the most recent year available. Looking at the graph, it appears that
San Bernardino County is approaching Riverside County primarily because the growth rate
o Riverside County has signicantly attened out, while San Bernardinos has not changedmuch rom historical patterns. It will be interesting to make urther comparisons once data
becomes available or the post recession year. It appears likely that San Bernardino Countywill pass Riverside County in per capita income in 2010.
Te continued growth o per capita income in both Inland Empire counties over the past
twenty years illustrates the incredible economic boom the area enjoyed until the start o theGreat Recession. In particular, rom 1997 to 2003 annual growth rates reached seven percent.Yet, despite the act that increases in per capita income have attened since 2006, per capita
income has still increased by over twothirds or each county since 1990. Meanwhile, OrangeCounty per capita income has actually dropped since 2007, though it remains signicantly
higher than the per capita income in either Riverside County or San Bernardino County. Los
Angeles County per capita income continues to grow at a rate similar to both parts o theInland Empire, despite the act that, again, Los Angeles per capita income is higher than in
the two counties o the Inland Empire.
Figure 5: personal income levels in san bernardino
county and riverside county, 1990-2008
Figure 4: cumulative employment losses by
industry in san bernardino county From
January 2007 to december 2009
Figure 3: cumulative employment losses by
industry in riverside county From January
2007 to december 2009
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
7/15
Page 12 Page 13I N L A N D E M P I R E O U T L O O k | 1 2
I N L A N D E M P I R E O U T L O O k . C O M
On April 12, 2011 Governor Jerry Brown signed into law a mandate that onethirdo electricity in Caliornia must come rom renewable sources by 2020. Caliornia
had previously required investorowned utilities to generate 20 percent o their
electricity rom clean sources by 2010, with a three year grace period. Te new law raises therequirement to 33 percent and will also apply to municipal utilities, which manage about a
quarter o the states electricity load. In the coming years the Inland Empire should emerge asa key player in Caliornias push toward meeting this mandate due to the regions abundant
available land, sun, and high wind.
Caliornia currently lags behind other western states in its quest to expand production o
green energy. Tere are our primary impediments to its growth: aesthetics, environmentalconcerns, huge acreage requirements, and cost. Even many people who support renewable
energy object to the sight o power lines or wind arms in their own neighborhoods. Tisissue came up recently in Chino Hills, where Southern Caliornia Edison is constructingpower lines and poles as close as 75 eet to some homes to bring windgenerated energy rom
Kern County to the Los Angeles area. Residents are rallying against Edison concerned thatthe project will lower property values, destroy trees and land, and risk toppling towers onto
homes. Edison counters that the new power lines are necessary because existing power lines
are at ull capacity. Continued construction o green energy will not make sense withoutsucient inrastructure to transmit power rom the generation site to the place where people
use it.
In addition to aesthetics, many people are concernedabout the environmental costs o green e nergy projects.
One o the rst largescale solar projects in the InlandEmpire is the Ivanpah Solar Electric Generating
Facility, currently under construction in northern San
Bernardino County. Te project, owned and designed byBrightSource Energy Company with the help o a $1.375
billion dollar loan rom the United States Department oEnergy, was recently approved ater years o debate over
its environmental impact. A key issue was the projects
impact on the desert tortoise.
Te desert tortoise was considered threatened orseveral decades beore this project began. It is prone to
various diseases, vulnerable to many predators, and alsohas very specic habitat requirements. Moreover, the
desert tortoise has not withstood past attempts to alter its
habitat. As part o the expansion o Fort Irwin military
base in the Mojave Desert, the Army was required torelocate the desert tortoise to unoccupied lands. But the$8.7 million efort to relocate over 760 tortoises proved
unsuccessul. Many tortoises died quickly rom attacks
by new predators like the coyote, increased spread odisease likely due to the tortoises close proximity to each
other during transport, as well as injuries inicted by humans and cars.
Flash orward to the BrightSource solar project.
Conservationists are extremely worried aboutthe desert tortoises continued survival. A pre
construction study o the area ound only 16tortoises in a 5.6squaremile area surveyed.
Yet when construction actually began in late2010, biologists hired by BrightSource ound
23 tortoises in the rst 2 squaremile area to be
developed, with an additional 18 ound very nearthe project area. While the company has taken
pains not to reproduce the overcrowding andpotential disease spreading transport methods
utilized by Fort Irwin, a number o tortoises have
already died. Tis spring another tortoise round
up and relocation will begin and conservationistsanxiously await the results.
San Bernardino County Supervisor Brad
Mitzelelt was initially opposed to BrightSourcesconstruction plan or a number o reasons,
including the impact on the desert tortoise. In aphone interview, Supervisor Mitzelelt expressed
his view that [we] need to adopt a more aggressive
renewbe Enegys Fe in he Innd Eie
PHOTO: bRAD MITzELFELT, S
bERNARDINO COUNTy SUPERvIS
THERE ARE Four primary
impedimentsTO THE
GROWTH OF RENEWAbLE
ENERGy: aesthetics,
environmental
concerns,
huge acreagerequirements, and
cost.
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
8/15
Page 14 Page 15I N L A N D E M P I R E O U T L O O k | 1 4
I N L A N D E M P I R E O U T L O O k . C O M
conservation plan, not just to stop
decline, but to recover the species. TeCaliornia Energy Commission compelled
BrightSource to purchase 8,000 acres odesert habitat to be set aside permanently
or conservation to ofset the 4,000 acres
used or the Ivanpah acility. Mitzeleltcited this as a positive start towards
conservation, but also pointed out thepurchase o this much land or a single
project raises other concerns.
BrightSource purchased a total o
12,000 acres in San Bernardino Countyto house both the solar acility and the
required conservation area. It now owns
ten percent o the undeveloped land inthe county. Supervisor Mitzelelt points
out that the scale o this habitat ofsetrequirement will not be sustainable
given the high number o potential new
projects in the area. He cautions, Well see more projects go to Arizona and Nevada i wecontinue to require such large ofsets. Mitzelelt says there is already an uneven playing eld
among the western states, as states such as Nevada require much lower ofsets or the deserttortoise. Because it is easier to do business in the other states, [San Bernardino] County is
in dangero losing opportunities.
Another problem is that much o the land eyed or solar or wind power projects is owned by
multiple entities. Te ederal government owns much o the desert land in San BernardinoCounty and Native American tribes also lay claim to some potential sites. In February, Native
American protection groups sued the Bureau o Land Management over plans to constructgreen energy projects, including a s olar project planned in Blythe (Riverside County). Te
lawsuit claims that the land is culturally signicant to tribes in several Western Deserts.
Te 7,000acre Blythe project has been moved several times in an attempt to address tribalconcerns, but construction is now underway despite the ongoing lawsuit.
Finally, the act that these developments will increase costs or consumers is also an issue.
In promulgating the new renewable energy standard, Governor Brown stated a goal o
developing 20,000 megawatts o green power rom new sources; he believes this willhelp create hundreds o thousands o new jobs. But the construction cost o enough
new renewable energy sources to reach this goal will require much higher utility rates orconsumers. According to an analysis done by Caliornias Public Utilities Commission, utility
rates could increase by as much as 14.5 percent in order to reach Browns goal by 2020.
A look to Caliornias northern neighbor is instructive: the largest wind arm in the United
States is currently under construction in the Columbia River Gorge in Oregon. Tebuilding costs are estimated to be $1.9 billion, much o which is subsidized by the ederal
government. Te Energy Department provided a $1.06 billion ederal loan guarantee so that
the owners, General Electric Co. and Caithness Development LLC, could nd lenders tonance the project. Te U.S. reasury will provide a $490 million cash grant once the wind
arm is operating. In contrast, a natural gas plant o comparable size would cost less than
hal, about $865 million, and would not need government support.
Te potential increase in costs or consumers also makes construction o new renewableenergy projects more dicult or developers. Because o the pressure on companies to plan
or consumer costs upront, a change in the [cost] margin doesnt have to be too much to
make a project not easible, says Fred Bell, COO o Noble Enterprises in Palm Desert.Initial costs are going to continue to be problematic or companies trying to develop green
projects in Caliornia. Its getting more expensive to make anything in Caliornia, says Bell,i we really want green power[we] must get involved in the key metrics to make it more
viable than it is now.
Despite an increased ocus on creating more renewable power, energy rom green sources still
accounts or just 8 percent o the countrys power, while petroleum makes up 37 percent. ICaliornia wants to reduce its dependence on oreign petroleum then it will have to make
major changes in its renewable energy plan.
With the recent enactment o the renewable energy stndard, the discussion o increasing
renewable power has now become a reality. Te Inland Empire will likely soon become theregion o ocus as Caliornia strives to lead the country in renewable energy use.
THE CONSTRUCTION
COST OF ENOUGH NEW
RENEWAbLE ENERGy
SOURCES TO MEET
GOvERNOR bROWNS GOAL
WILL REqUIRE much
higher utility rates
For consumers, WITH
RATES increasing by as
much as 14.5 percent.
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
9/15
Page 16 Page 17I N L A N D E M P I R E O U T L O O k | 1 6
I N L A N D E M P I R E O U T L O O k . C O M
Caliornia Governor Jerry Browns 201112 Budget proposal calls or eliminating theapproximately 400 redevelopment agencies throughout the state. It aims to shit
economic development responsibility rom the redevelopment agencies to local
governments, in an attempt to cut back the enormous debt incurred by the agencies andinvest the money saved directly in education and other local needs.
Redevelopment agencies are government subdivisions whose main goal is to reinvigorate and
improve blighted, deteriorated, and economically downtrodden areas. Sixty years ago, theCaliornia legislature established a process whereby a city or county can declare an area to be
blighted and in need o redevelopment. Tereater, most property tax revenue growth rom
the project area is distributed to a newly created redevelopment agency rather than to otherlocal agencies.
Once a community establishes a redevelopment project area, property tax revenue allocated
to local government bodies is rozen at its current level, known as the rozen base. I the valueo the property increases due to improvements to the redevelopment area or any other actor,than the amount o property tax revenue also increases. Te amount o the increase above the
rozen base is called the tax increment.
In many cases the use o redevelopment agencies has provided substantial benets. For
example, Riverside embarked on a housing redevelopment project in the citys Universityneighborhood by renovating a 64unit building rie with health and saety violations. oday,
the opaz and urquoise housing complex has been substantially rehabilitated and is now a
vibrant asset to the city, providing afordable housing or lowand moderateincome amilies.
On the other hand, redevelopment agencies have also come under attack or subsidizing
projects that would not ordinarily be considered blight. State Controller John Chiangsaudit o eighteen agencies ound that Palm Deserts redevelopment agency proposed to
eliminate socalled blight by spending nearly $17 million on reurbishing a municipal golclub.
Establishing a redevelopment area is one o the easiest ways or local governments to raise
signicant money. Tis is because they are not constrained by some o the key accountability
and transparency elements required o other local government bodies. Specically,redevelopment agencies can incur debt without voter approval and redirect property tax
revenues rom schools and other agencies without voter approval or consent o the otheragencies.
ax increment revenues in Caliornia totaled $5.7 billion in 200809. Over the last threedecades, redevelopment agencies share o total statewide property taxes has increased to 12
percent. In some counties, nearly 25 percent o all property tax revenue collected goes to aredevelopment agency rather than schools, community colleges, and other local agencies.
Te current law allocates 20 percent o tax increment revenue to low and moderate
income housing. Another 22 percent (on average) passes through to local governments
and is distributed among counties, K14 schools, special districts and cities. Te remaining58 percent o tax increment revenue is available or redevelopment activities. Controller
Chiangs oce ound signicant aws with the states redevelopment agencies. Tese includeinaccurate audits, substandard reporting procedures and inappropriate use o housing unds.
Supporters o redevelopment agencies argue that they reduce unemployment and promote
longterm economic prosperity. However, theLegislative Analysts Oce notes that there
are no objective or standard perormancemeasures to gauge whether these agencies
do, in act, promote job growth or generate
signicant economic returns to the taxpayers.
Under Governor Browns proposal, a localsuccessor agency, most likely the city or
county that originally authorized the
redevelopment agency, would be responsibleor managing the existing contractual
obligations and paying the agencys debts.ax increment revenue would rst go to the
successor agency to retire the redevelopment
agency debt and then to und other localgovernment services.
Te Governors proposal assumes tax
increment revenues o $5.2 billion in 201112. It allocates $2.2 billion to successor
agencies to pay down redevelopment debt.
It maintains the local pass through at $1.1billion, approximately 21 percent, and adds
redeveoen ahoiies unde Fie
GOvERNOR bROWNS
PROPOSAL HAS IGNITED
OPPOSITION IN THE
INLAND EMPIRE. riversid
county is among the
top ten counties
in the entire statein redevelopment
groWthand makes
extensive use oF
redevelopment
agencies.
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
10/15
Page 18 Page 19I N L A N D E M P I R E O U T L O O k | 1 8
I N L A N D E M P I R E O U T L O O k . C O M
another $210 million to local governments. However, the proposal also contains a onetime $1.7 billion dollar payment to the state in 201112 to und trial courts and MediCal.
Ater the rst year, any property tax revenues remaining ater the successor agencies pay
redevelopment debt would be distributed to other local governments in the county.
Brown projects that these changes will save the state approximately $1.7 billiontheamount o the onetime payment to the stateduring the next scal year. Te governor
argues that Caliornias enormous decit makes it no longer easible to subsidize the work o
redevelopment agencies.
Supporters o redevelopment agencies, however, ear that their elimination would bedevastating to the Caliornia economy or a number o reasons. First, they argue that the
eradication o these agencies will kill jobs and shit much o the scal burden on cities
themselves. At a time when the state aces a high unemployment rate, they argue that theredevelopment agencies provide much needed employment. Tey also point to the use
o redevelopment to improve many areas o the state through the revitalization o publicinrastructure and commercial development, such as Riversides opaz and urquoise housing
complex.
Further, because 20 percent o tax increment revenue must go to low and moderateincome
housing, redevelopment unds have been a signicant source o revenue to local housingdistricts. It has been noted, however, that state audits and oversight reports have concluded
that a signicant number o redevelopment agencies take actions that reduce their housingprogram productivity, such as maintaining large balances o unspent housing unds, using
most o their housing unds or planning and administrative costs, and spending housing
unds to acquire land or housing but not on actual building.
Te League o Caliornia Cities is also critical o the Governors plan, saying that it violatesProposition 22, which prohibits the state rom reaching into local government unds. Te
League argues that the rst year allocation o $1.7
billion to the state ies in the ace o the 61 percento Caliornia voters who passed Proposition 22 last
November.
Governor Browns proposal has ignited oppositionin the Inland Empire. With traditionally high
unemployment rates, his proposal has signicant
impact in this area o Caliornia. Riverside County inparticular is among the top ten counties in the entire
state in redevelopment growth (rst in the InlandEmpire) and makes extensive use o redevelopment
agencies.
Riverside County Supervisor John Benoit is a
leading local advocate o redevelopment agencies andargues that they have helped revitalize economically
depressed communities. We have absolutely beenable to use redevelopment agencies to ameliorate theunemployment problems. We have used RDA money
to put 8,700 people back to work in Riverside County,particularly construction workers who were previously out o
work, Benoit said.
Benoit ears that i redevelopment agencies in Riverside and
the Inland Empire are eliminated, it may require years to adapt to the change. Weve clearlymade some dramatic improvements using RDAs; its a source o pride or us in Riverside, but
its also in danger. Te projects that have been completed have created longterm economicdevelopment so signicant that it makes it hard to argue about the benets o RDAs.
Perhaps the biggest impact that redevelopment authority spending has had in Riverside isMecca, a community o 5,000 Hispanic arm workers. A small area in Riverside County that
had previously been severely impoverished, underdeveloped, and with over 40 percent o thepopulation under the poverty line, Mecca used $50 million dollars o redevelopment money
to vastly improve the lives o its inhabitants.
Tere has been impressive work being done by the redevelopment agency in Mecca, Benoit
says. Redevelopment has been used to build a medical clinic, library, sherifs station and alot more that never would have been possible without RDAs.
Redevelopment agency advocates acknowledge that eliminating them would provide atemporary improvement to the state budget decit. Advocates hope to see an improvement
o the redevelopment process and have developed compromise proposals to saveredevelopment authorities.
A recent proposal put orth by Los Angeles Mayor Antonio Villaraigosa, suggests that the
agencies could help the state borrow money in order to alleviate the budget decit. Te
proposal calls or allowing the agencies to divert approximately $200 million a year to thestate or 25 years, thereby allowing the state to nance a $1.7 billion loan to help reduce the
PHOTO: jOHN b
RIvERSIDE COUNTy SUPER
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
11/15
Page 20 Page 21I N L A N D E M P I R E O U T L O O k | 2 0
I N L A N D E M P I R E O U T L O O k . C O M
decit. In addition, the proposal would ask redevelopment agencies to divert more tax unds
to pay or local services with $50 million going to schools annually.
Governor Browns proposed budget also targets enterprise zonesanother popular local
government program. Currently, there are ortytwo enterprise zones throughout thestate that ofer special tax breaks and other incentives to businesses in designated areas to
encourage economic development and growth. Te tax benets provided or most o theseareas include a hiring credit, a credit or sales tax paid, a credit or employees who earn
wages within the area, and a deduction or interest received rom businesses in the area.
Te governor estimates that his proposal to eliminate all enterprise zone tax incentives willgenerate an estimated $343 million in
20102011 and $581 million in 201112in additional tax revenues.
Te enterprise zone program has grown
remarkably since the legislature enacted
it in 1984.Te program started in 1986with ten zones and expanded to orty
two by 2008. Te average cost per zoneincreased rom $48,000 to $11.1 million.
Te Caliornia Budget Project puts the
cost o enterprise zone tax credits anddeductions at $465.5 million in 2008, up
rom $657,000 in 1986. Te hiring taxcredit accounts or 58.7 percent o this
cost, $273.5 million in 2008. Yet because
the hiring credit is granted or new hires,rather than new jobs, companies can
claim it without creating any new jobs.Critics argue that this rewards companies
with high turnover rates more than those
that create steady employment.
Governor Browns proposal sparked an outcry rom local ocials, legislators, and businessleaders who have come to rely on enterprise zones as a tool or economic development.
Caliornians or Jobs and Sae Communities is a coalition o local government bodies,
statewide trade and industry groups, local and regional chambers o commerce, andbusinesses. It argues that eliminating enterprise zones is a tax increase on the more than
10,000 businesses in Caliornia currently beneting each year and it strongly opposes such amove.
Assembly Member Manuel Perezs Coachella Valley district is home to our enterprise zones.
Perez acknowledges that there are problems with the program, but believes that the solution
is to reorm it, not to eliminate it completely.
Perez has an alternative plan, the 2011 Enterprise Zone Reorm Package, which wouldreorm the program in several ways. Most notably his plan would phase out the 5year
hiring credit, replacing it with a 3year credit. Te new hiring credit would reward
employee retention by increasing the amount o credit each year. It also would ofer moreaccountability by designating poor perorming zones or zones that have not demonstrated
progress and tracks how local resources are spent on zone activities. Te Perez proposal wouldcheck the unlimited expansion o zones and require enterprise zones to ollow census tract
boundaries. It also would raise the reporting requirements or claiming the hiring credit andlimits the carryover o excess tax credits to 15 years.
Perez strongly supports these reorms because, under current laws, lowincome populations
in rural areas are treated diferently than those in cities. oo oten, rural areas are not invited
to the table and we tend to lose out to urban areas with regards to resources, Perez asserts.He contends that the perception that the program is a wasteul orm o corporate welare
is inaccurate, citing data to demonstrate that eneterpise zones have improved economicconditions in Indio.
Perez knows that accountability will be an important issue. Another element o my reormlegislation includes implementing measurements o success that over the course o time, will
show numbers grow steadily in terms o variables such as how many jobs are being created inenterprise zones and how many people are getting of social welare.
Deenders o enterprise zones also argue that eliminating them would be unconstitutional.
Marty Dakessian represents the Communities to Save Enterprise Zones coalition andstrongly opposes Governor Browns proposal. Governor Browns proposal violatesagreements involving the state, local governments, and businesses lured to the zones by hiring
tax credits, operating loss deductions, and other invectives. He argues that repeal o theenterprise zone program violates the contracts and due process clauses o the United States
Constitution and the contracts clause o the Caliornia Constitution.
Governor Browns proposals to eliminate redevelopment agencies and enterprise zones has
sparked serious debate throughout the state. Inland Empire ocials have come to rely onboth as valuable economic development tools. Tey vow to ght both proposals.
GOvERNOR jERRy
bROWN ARGUES
THAT caliForniasenormous deFicit
makes it no
longer Feasible to
subsidize the Work
oF redevelopment
agencies.
PHOTO: GOvERNOR jERRy bRO
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
12/15
Page 22 Page 23I N L A N D E M P I R E O U T L O O k | 2 2
I N L A N D E M P I R E O U T L O O k . C O M
Over the past two decades, the Inland Empire staple o afordable housing andabundant employment opportunities in the construction, manuacturing, and
trade/logistics industrieslocated adjacent to the Greater Los Angeles areamade
an attractive location to settle amilies. Tis led to remarkable population and output growthover that time period. San Bernardino County and Riverside County share many socio
economic aspects, but the recession has had diferent distribution efects on the two counties.Ater hitting rock bottom in 20082009, San Bernardino County shows signs o emerging
as the less bloodied o the two counties. Compared to Riverside County, San BernardinoCounty has exhibited lower rates o population growth within the last decade (18% versus
37% rom 2000 to 2009) and lower home value volatility over that time period as well. Prior
to the recession, the Inland Empire saw a steady population growth o nearly 3% per yearor 2001 to 2006, most o that due to the 4% growth levels observed in Riverside County.
For comparison, the entire United States typically sees population growth rates o 1% peryear. Since diferences in percentage points do not mean much to most people, we point out
that a population doubles roughly every 70 years i it grows at 1% per year, but that it onlytakes approximately 18 years to double i the population grows at 4% a year. I growth hadcontinued at that pace or Riverside County, then it would have seen twice as many people
living there around 2030!
As housing prices in the Inland Empire began to decline in the s ummer o 2006 and
accelerate through 2008, population growth rates ell to a low o 1% in 2008. Latelypopulation growth has seen a very small uptick to approximately 1.2% growth or each o the
last two years.
Residential home prices in the Inland Empire have ollowed a similar path. Ater an initial
plunge, they have stabilized over the same period as population growth ell and leveled of. Asearly as the summer o 2006, signs o instability appeared in the Inland Empire, nearly a year
beore Los Angeles County home prices began their decline in August 2007. A noticeablediference in oreclosure dynamics between the two areas presents a plausible explanation or
the laglead efect exhibited between the Inland Empire and Greater Los Angeles Area.
Fueled by low lending standards and a aith in the markets upward momentum, home values
swelled rom the stable levels o the mid 1990s to unsustainable heights peaking in 2006. Asearly as the summer o 2006, signs o an impending end to the housing bubble appeared in
the Inland Empire, nearly a year beore Los Angeles County home prices began their decline
in August 2007. In retrospect, this should have been a warning sign to policy makers andbusinesses everywhere: i the periphery experiences problems and i similar conditions exist
in the core, then the core can expect similar conditions in the near uture. However, thesewarning ags were ignored by most.
Te ollowing smoothed graph displaying oreclosures in the Inland Empire and the Greater
Los Angeles area is quite inormative.
From 2003 through 2005, banks lowered their lending standards and modied their
mortgage origination practices to approve marginal clients or loans, sometimes or over 80%
o the equity, and sometimes or piggybacking loans. In the words o Ed Leamer, Directoro the UCLA Anderson Forecast, these practices, extended the home ownership peripheries
o [many] cities both in terms o income and location. Subprime lending practices werepervasive throughout much o the Inland Empire, and the nancing plans in place on these
properties relied on the appreciation o leveraged houses or success. When credit tightened,
the one o the rst segments o residential demand to halt was in the owneroccupied housesin peripheral areas like the Inland Empire, notes Leamer. As demand in the peripheral
markets tanked, banks ound themselves in possession o many underwater properties
Sgnion nd recovey: the I.E.s Hosing me
Figure 1: Foreclosures in the inland empire
and the greater los angeles area, 2002-2010
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
13/15
Page 24 Page 25I N L A N D E M P I R E O U T L O O k | 2 4
I N L A N D E M P I R E O U T L O O k . C O M
in concentrated areas as mortgage delinquencies rose. Te market was soon ooded with
properties o delinquent owners, urther compounding the situation and triggering greater
home price depreciation.
During the teen years preceding the housing market crash in 2006, the Inland EmpiresAfordability Index, a statistic compiled by the Caliornia Association o Realtors (CAR)
measuring the percentage o amilies capable o afording a median home in the area,
plummeted rom the stable 50% levels o the late 1990s and early 2000s to 16% in 2006,its lowest point in 18 years. Te Inland Empires rising percapita income could not keep
up with its quickly escalating home prices, and it showed steeper declines in afordabilityrelative to its neighbors, notably the Greater Los Angeles area. Later, the all in house prices
resulting rom overbuilding and increased oreclosures contributed to alltime high housing
afordability levels; the CAR climbed to 69 or San Bernardino and 63 or Riverside in 2010.
Unortunately the underlying story behind the afordability data is more complicated thanprice and income movements might suggest. Mortgage rates also play a signicant role,
since the vast majority o buyers require a mortgage loan in order to purchase a house.
Te CAR pegs mortgage rates in a particular area to the national average o all xed andadjustable mortgage rates. As a result, a CAR index higher than the Caliornia average is an
indicator o a region with a lower overall credit standard than the Caliornia average. As othe ourth quarter o 2010, the CAR index or the Inland Empire stood at 64 compared to
the Caliornia average o 50. Tis 14point diferential indicates that, on average, the Inland
Empire has lower credit ratings, lower percapita income, and consequently, higher rates thanthe Caliornia average. Tis means that Inland Empire homeowners pay a higher interest rate
or their mortgages, reducing the underlying value o homes in the area.
Home Prices
Perhaps the most visible and accessible measure o housing market perormance is home salesprice. In many areas o the country, prices skyrocketed during the housing bubble, but ew
counties showed such extremes as San Bernardino County and Riverside County. Fueled bybullish housing speculation and aggressive lending practices, home prices in San Bernardino
and Riverside Counties soared nearly 124 percent rom 2002 to 2007 on the Conventional
Mortgage Home Price Index (CMHPI). Tis was the third largest spike in the nation behindBakerseld, CA (127 percent) and Miami Beach, FL (126 percent). Compared to 2002
levels, prices in both San Bernardino County and Riverside County easily climbed higher interms o percentage growth and subsequently experienced a larger decline than the Greater
Los Angeles area or, indeed, Caliornia as a whole. Furthermore, housing prices in the two
counties showed greater price volatility than the Greater Los Angeles Area. Tis diferencein price levels and volatility is typical o what is developing into an EastWest divide, rather
than the traditional NorthSouth divide, in Caliornia. It appears that prices have reachedbottom, and are rming now, as investors have entered the market and absorbed some o the
inventory through cashow investments. However, the absence o a strong recovery in the
Inland Empire underscores the uncertainty in the market and gives developers mixed signals,especially regarding the potential and timerame to undertake new construction.
Housing Permits, Starts, and Foreclosures
One o the most important indicators o a real estate markets health is the measure o newconstruction activity. It is well known, or example, that housing start levels and changes in
housing starts are leading indicators o general economic conditions. Te number o housingpermits issued on a countywide basis is a proxy or housing s tarts. Figure 4 shows seasonally
adjusted permits in San Bernardino County and Riverside County, taking into accountchanges in population.
Demand or new construction has two main components: speculative nonowner occupied
housing and owneroccupied housing. Speculative development oten outnumbers the more
individual, ownerdriven construction, and thereore serves as an indicator o the marketslongterm momentum.
Figure 2: housing aFFordability index, 1988-2010,
caliFornia, greater los angeles, and the inland empire
Figure 3: home prices in caliFornia, greater los angeles,
san bernardino county and riverside county, 2002-2010
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
14/15
Page 26 Page 27I N L A N D E M P I R E O U T L O O k | 2 6
I N L A N D E M P I R E O U T L O O k . C O M
Foreclosure data is also closely tied to the demand or housing permits and provides urtherinsight into the health o the housing market. High oreclosure rates indicate a depressed
market with lower home prices. Foreclosed homes are oten sold at resale pricesarbelow the cost o new construction. Accordingly, beore the undamentals are in place or
investors to take the risk o speculative development, the overall market must absorb and re
price the inventory o older oreclosed homes and allow home prices to rm.
In San Bernardino County and Riverside County, oreclosures lag housing permits.Construction there will not increase until oreclosures subside. Since San Bernardino County
has seen a downward trend in oreclosures over the past two years, new construction maypick up once the inventory o oreclosed homes changes hands and its supply diminishes. Yet
it is not clear that sucient demand exists to absorb these oreclosed homes. Tere is some
evidence o pentup demand rom the increased size o households as seen rom census data:evicted individuals rst moved in with riends and eventually with amily. Tese increases in
household size cannot be expected to be permanent. Eventually these individuals will moveout again. However, it seems more likely that they will move into rental units beore they will
be able to move into single unit houses. Compared to the decade lows set in January 2008,
home sales have increased 105 percent in San Bernardino County, 15 percent more thanRiverside County in 2010.
Both San Bernardino County and Riverside County demonstrate the laglead efect betweenoreclosures and housing construction permits. Each county issued the highest number o
gross permits (roughly 1,650 or San Bernardino County and slightly more than 3,100 orRiverside County) in the second quarter o 2004. Tis was almost a year beore oreclosures
hit their lows in April 2005 (23 in San Bernardino) and May 2005 (17 in Riverside).However, when the housing bubble burst in 2006 and oreclosures started to rise in 2008,
housing permits in San Bernardino County plunged to a decade low o 57 in January 2009
and in Riverside County to 75 in December 2008. Nearly eight months later, oreclosuresspiked in both counties to almost 2,800 in July 2008 or San Bernardino County and close
to 3,850 in August 2008 or Riverside County.
Tis leadlag efect ollowing the burst o the housing bubble indicates that the speculativecomponent o housing demand likely got out o hand. Even as developers were recognizing
a allof in demand, inventory continued to grow as projects were completed. Supply wasurther increased as the oreclosures began to enter the market in greater numbers. Ten,
when prices started to all, the relationship between housing permits, excess supply o homeson the market, and increasing number o oreclosures compounded to depress demand urther
and quicken the descent. Te interactive nature o housing construction and oreclosures
suggests supply stabilization is on the horizon since oreclosures have begun to stabilize (andeven tail of). And as demand gains a oothold, construction will begin to pick up. But when
this will occur is still too uncertain to predict.
San Bernardino County and Riverside County
Historically, San Bernardino County has had a lower oreclosure rate per 10,000 people than
Riverside County, which should translate to a brighter outlook. However, the housing permitgures also show e wer new construction opportunities in San Bernardino County than in
Riverside County. Tese are two elements o a complex story, and home sale prices add yet
another layer. In the past, Riverside County has experienced higher home prices, seemingly
more subject to the market conditions. Also note that San Bernardino County is steadilycatching up to Riverside County in the CAR afordability index. Similarly, despite loweraverage housing prices in San Bernardino County, the percent change in home price rom
2002 shows that San Bernardino County has emerged rom the current recession less batteredthan Riverside County. Tese actors lend many diferent perspectives to the same problem,
but perhaps the best indicator o each countys immediate uture is the measure o oreclosures
as a percentage o homes sold.
San Bernardino County and Riverside County have shown comparable levels o home salesper 10,000 people, with the slight edge avoring Riverside County. In the last three years,
however, San Bernardino County has halved this gap. More impressively, as shown in Figure
5, San Bernardino County has been recirculating through its inventory o oreclosures morequickly than Riverside County or Los Angeles County, which may be a positive indicator o
uture perormance. As home prices rm to a point above oreclosure sale values, speculativedevelopment should pick up, but again, there is little indication as to when this will happen.
Perhaps the saest bet is to say that, at least or now, San Bernardino appears better of.
Figure 4: housing permits, san bernardino county and
riverside county, 2002-2010
Figure 5: Foreclosure recirculation percent, los angeles,
san bernardino, and ri verside counties, 1998-2010
http://inlandempireoutlook.org/http://inlandempireoutlook.org/ -
8/4/2019 Final IEO Spring 2011
15/15
CLAREMONT MCKENNA COLLEGE
BAUER CENER500 EAS 9H SREECLAREMON, CA 91711-5929
Te Inland Empire Outlook is a publication of the Inland Empire Center at Claremont McKenna College.
Te Inland Empire Center or Economics and Public Policy is based at Claremont McKenna Colleg
It was ounded as a joint venture between the Rose Institute o State and Local Government and theLowe Institute o Political Economy to provide business and government leaders with timely andsophisticated analysis o political and economic developments in the Inland Empire.
Te IEC brings together experts rom both ounding institutes. Marc Weidenmier, Ph.D., director othe Lowe Institute, is a Research Associate o the National Bureau o Economic Research and a memo the Editorial Board o the Journal o Economic History. Andrew Busch, Ph.D., director o the RInstitute, has authored or coauthored eleven books on American politics and currently teaches couron American government and politics. Manred Keil, Ph.D., an expert in comparative economics, hextensive knowledge o economic conditions in the Inland Empire. Kenneth P. Miller, J.D., Ph.D., expert in Caliornia politics and policy who studies political developments in the Inland Empire. BiNadon, J.D., has worked in municipal government and specializes in local government policy. DaviHuntoon, MBA, specializes in economic development, survey research, and tribal governments issu
ANDEMPIREOUTLOOk.COM
Editorial Board
Andrew Busch
Director, Rose Institute
Marc D. Weidenmier
Director, Lowe Institute
David Huntoon
Manred Keil
Kenneth P. Miller
Bipasa Nadon
Student Editors
Liz Johnson
Aanchal Kapoor
StaffAlex Johnson
Saumya Lohia
Riley Lewis
Dave Meyer
Sarah Quincy
Jake Roth
Samuel Stone
The Inland empIre CenTer
http://inlandempireoutlook.org/http://inlandempireoutlook.org/
top related