no. 1 vol. xxxiii san diego’s newest banking endeavor...san diego’s newest banking endeavor the...
TRANSCRIPT
GIVE DAD THE GIFT OF DONOVAN’S WORLD CLASS SERVICEOPEN 3PM - 9 PM, SUNDAY, JUNE 16, 2013.
NO. 1 VOL. XXXIII
SAN DIEGO’S NEWEST BANKING ENDEAVORThe city’s newest bankers are Dan Yates, chief executive officer of Endeavor Bank, left, and Steve Sefton,president, in bank headquarters in Symphony Towers. See more on PAGE 8
Photo by Greg Lambert,
lambertphoto.com
C OV E R STO RYChairman | CEO
Robert [email protected]
PublisherRebeca Page
Managing EditorManny Cruz
Graphic DesignerChristopher Baker
Photography/IllustrationDavid Rottenberg
Contributing WritersJennifer Coburn
Tom Shess Eric Breier
Randi CrawfordDelle Willett
AdvertisingSALES & MARKETING DIRECTOR
Rebeca Page
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San Diego’s Newest Banking EndeavorWhen is a bank not a bank? When Dan Yates and
Steve Sefton are in charge. The two long-time
bankers and businessmen are opening San Diego’s
first new bank since 2007 — Endeavor Bank, with a
twist. Story on Page 8
2018 | ISSUE 1 Volume XXXIII
Our mission is to always provide quality journalism for our readers by being
fair, accurate and ethical and a credible resource for our advertisers.
California Has a Lot to Worry AboutPropped up by media idolatry, California is moving from denial to delusion.Case in point: A recent AP story claimed that the state “flush with cash froman expanding economy” would consider spending an additional billiondollars on health care for the undocumented.
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These Initiatives are Heading Your WayDirect democracy can be an exhausting business. This year Californianswill be expected to have informed opinions about affordable housing andpark funding, how best to divvy up cap-and-trade money, how to spendthe state’s new gas tax money— And those are just the measures on theballot so far.
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California Economic Outlook2018 is going to be another winning year for California. Perhaps the onlything that could hold the state back would be a dearth of entry-level laborreaching our shores or being forced to move out of the country. So saysAlan Nevin.
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SAN DIEGOSCENE
The Port of San Diego Board of Port Commissioners has voted toadvance the San Diego Symphony’s Bayside Performance Park En-hancement Project, proposed for the Port’s Embarcadero MarinaPark South.
At its Jan. 9 meeting, the board approved several items to advancethe proposed project, including certification of the Final Environ-mental Impact Report, approval of a Port Master Plan Amendment(PMPA), and approval of a binding Letter of Intent (LOI) with theSan Diego Symphony (Symphony).
The Symphony proposes to construct a permanent outdoor per-formance and event venue in Embarcadero Marina Park South wherethe nonprofit organization has operated a Bayside Summer Nights(formerly Summer Pops) concert series since 2004. Each year in thepark, the Symphony assembles and disassembles a music festival-style stage, bleachers, seating, ticketing booths, concession stands,food stands, portable bathrooms, a chain-link fence and other itemsfor the summer season.
The proposed Bayside Performance Park would allow the Sym-phony to offer a limited number of performances and events year-round.
Port of San Diego Moves Ahead on Bayside Performance Park Project
The San Diego Symphony proposes toconstruct a permanent outdoor perform-ance and event venue in EmbarcaderoMarina Park South. (Conceptual render-ing provided by Tucker Sadler.)
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Medical meetings at the San Diego ConventionCenter will continue to drive attendance and eco-nomic benefits to San Diego this calendar year, re-sulting in an estimated $1.2 billion in regionalimpact.
The forecast for the year, from Jan. 1 throughDec., 31, 2018 shows a total of 108 events – 58 city-wide conventions, known as primary events, and 50secondary events - booked at the San Diego Con-vention Center. These events will bring 862,408 at-tendees to the facility: that's almost equal to thepopulation of the city of San Francisco.
The $27.5 million in estimated tax revenues dur-ing 2018 are generated by convention visitors andhelps relieve the tax burden on local residents. Theserevenues pay for important services such as fire andpolice protection, beach and park maintenance, li-braries and street improvements.
Comic-Con International will be the top eco-nomic generator of the calendar year, with 130,000attendees and an estimated $147.1 million in re-gional impact. It is followed by four medical con-ventions, including the Society for Neuroscience.That one event alone is estimated to generate $88.8million, generate 46,850 hotel room nights andbring 30,000 medical and science attendees fromaround the world.
San Diego Convention Center to Generate $1.2 Billion in Regional Impact in 2018
SA N D I EG O S C E N E
Laura Rodriquez of Rancho Santa FeInsurance in Rancho Santa Fe has beenawarded a Certified Advisor of PersonalInsurance (CAPI) designation from theAresty Institute of Executive Educationat the Wharton School of the Universityof Pennsylvania and Chubb.
Rodriquez is among a group of only 38agents this year to receive the certificationafter completing a one-year intensive ed-ucational program on understanding thelifestyle and risk management and insur-ance needs of successful individuals andfamilies. Created by Wharton and Chubbin 2014, the CAPI program is the first ofits kind to focus on a specific client seg-ment in the personal insurance market-
place. Rodriquez is the third graduatefrom Rancho Santa Fe Insurance, and a afourth is enrolled for the 2018 program.
“The agents who have completed theCAPI program have proven that theyhave the highest level of skill and expert-ise required to understand the total fam-ily balance sheet and advise successfulclients on their complex risk managementand insurance needs,” said AnnmarieCamp, executive vice president, sales anddistribution leader, Chubb Personal RiskServices.
Laura Rodriquez Awarded Certified Advisor of Personal Insurance Designation
Laura Rodriquez
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Target to Open Store in North Park
Target has announced plans to open a small-format storein North Park in November, apparently believing that whatworked well in South Park will work again in this commu-nity.
The store will be located at 3029 University Ave., in thebuilding previously occupied by Wang’s restaurant. It will beTarget’s second small-format store in the area, joining theexisting South Park location, the Target Express, whichopened in October 2015. Rendering of the small-format Target store planned for North Park.
SA N D I EG O S C E N E
SDSU’s new Magnetic Resonance Imaging machine.(Image from a video by Scott Hargrove)
San Diego State University is the new owner of theuniversity’s first magnetic resonance imaging (MRI)machine. SDSU students and faculty will be able to dogroundbreaking research with brain imaging on cam-pus. The MRI machine sits in the imaging center of theEngineering and Interdisciplinary Sciences Complex(EIS).
MRI machines are among the most critical tools forscientists who analyze brain images to understand basichuman cognition as well as disease and disorders likefetal alcohol syndrome, autism and traumatic brain in-jury. While SDSU researchers have made great stridesin studying these topics over the years, they’ve previ-ously had to rely upon partnerships with other univer-sities and institutions to gain access to their machines.
“There’s a lot of advancement in the technology, andthis [machine] is the top-of-the-line one,” said psy-chology professor Martin Sereno, director of the SDSUbrain imaging center. “It puts us a little ahead of a lot ofother places.”
San Diego State University Gets itsOwn MRI Machine San Diego’s office market flourished in the second half of 2017,
according to Cushman & Wakefield’s latest year-end market report.With a commanding 716,600 square feet of positive net absorptionin the third quarter, San Diego’s office sector added another 356,000square feet of net gains in the fourth quarter, which pushed this mar-ket to well over 1 million square foot of occupancy growth in thepast six months.
“San Diego recorded an astounding 1.6 million square feet of of-fice net absorption overall in 2017, observing its highest annual fig-ure since 2005’s 1.9 msf,” said Jolanta Campion, Cushman &Wakefield’s research director in San Diego. “The fourth quarter rep-resented the 14th consecutive quarter of positive net absorption inthe region’s office market.”
San Diego Office Market Soars in 2017
General Atomics Electromagnetic Systems has been awarded acontract from the Office of Naval Research to design and deliver anadvanced permanent-magnet propulsion motor intended for use inlarge displacement unmanned undersea vehicles (LDUUVs).
“After completing a review of our motor’s capabilities and the ap-plicability for undersea operations, we are very excited to take thenext step to design and deliver a second-generation propulsion motorto ONR for further evaluation and eventual on-vehicle testing,” saidRolf Ziesing, vice president of programs at General Atomics Elec-tromagnetic Systems.
Over the next 18 to 20 months, the company will design, build,and test the advanced permanent-magnet propulsion motor and de-liver a complete motor system to ONR. Characterization and test-ing of the motor system will be conducted by the Pennsylvania StateUniversity Applied Research Laboratory.
General Atomics Awarded Contract from Officeof Naval Research
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When is a bank not a bank? When DanYates and Steve Sefton are in charge.
The two long-time bankers and business-men are opening San Diego’s first new banksince 2007 — Endeavor Bank — but theydon’t think of it as just a bank. This is an op-portunity to create a unique relationship-oriented platform to deliver business adviceand banking services hand-in-hand.
Many business people can feel anony-mous to their bank, where the delivery ofmodern-day banking services have becomeincreasingly more cookie cutter and with aone-size-fits-all approach. The only per-sonal contact clients may have with a bankeris when they need a loan.
Yates and Sefton envision a different typeof banking relationship.
They see the banker’s job akin to a trustedadviser. Starting with decades of knowledge,acquired while working with business own-ers, their banker continues to invest timeand research to learn the ins and outs of aclient’s business and industry. The payoff isthe ability to help clients solve their prob-lems, take advantage of opportunities togrow revenues and ultimately foster betterdecision making.
Embracing this concept of “consultativebanking,” the two are on a mission to turnthe way Southern California businessesbank on its ear.
The New EndeavorThe banking industry has seen tremen-
dous transformation, especially since theGreat Recession.
Significant changes in regulations andmarket forces have caused consolidation. Atits peak, the industry claimed more than16,000 banks nationwide. Today, that num-ber is less than 6,000.
In San Diego, the trend holds true. In themid-2000s there were 28 local banks. Now,only nine are headquartered here, includinga few specialty thrift and loan institutionsnot focused on commercial business bank-ing.
“Due to this exodus of locally based busi-
SAN DIEGO’S NEWEST BANKING ENDEAVORLongtime bankers envision a different kind of financial institution
By Andrea Papagianis-Camacho
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ness banks, there is a hole in the market,”Yates said.
It’s one the duo hopes to fill with an ex-perienced management team and provenbusiness savvy while taking advantage of thestrong economy.
Working in their favor is the fact that veryfew banks have outright failed in San Diego.Instead, local consolidation has occurredprimarily due to mergers.
“If there is a spot on the U.S. map to starta community bank, San Diego is it,” Seftonsaid.
And the numbers back him up. There arenearly $80 billion in deposits locally with anoverwhelming amount of those deposits atbig, institutional, national banks.
A Community EndeavorEndeavor Bank is a community owned
and focused business bank. Headquartered downtown in Symphony
Towers, its board of directors, advisory boardand management team are established SanDiego business people, and most of thebank’s shareholders are also local businessowners and the professionals who servethem.
Yates started in banking more than 30years ago and worked his way up the ladder.Most recently, he was president/CEO ofRegents Bank and then held the same titleat Neighborhood National Bank, where hewas recruited to improve asset quality andrecapitalize the specialty community devel-opment bank.
Sefton is also a career banker with over 35years of expertise. He followed Yates as pres-ident and CEO of Regents Bank after itwas acquired by Grandpoint Capital, grow-ing the bank during his five-year tenure.
The chairman of the board is Matt Rat-tner, the visionary craft brewer who co-founded San Diego’s Karl Strauss BrewingCompany. Fellow board members includeYates, Sefton, Lorne Polger, Gina Cham-pion-Cain, Joyce Glazer, James Ledwithand Christopher Woolley.
Joining Yates and Sefton on the bank’smanagement team are several San Diegobanking leaders including Robert Horsman,Robert Lampert and Nasrin Rostami.
Also backing the bank are a few hundredshareholders who participated in EndeavorBank’s initial capital raise of approximately
$25 million. The minimum buy-in was$25,000 at $10 per share.
Many community banks are privatelyheld with a very small number of share-holders, where selling the bank is often theonly option those shareholders have to re-ceive a return on their investment after cre-ating significant enterprise value fromgrowing a bank over the years.
Endeavor Bank is publicly traded and itsearnings will be reinvested back into thebank. Sefton and Yates expect the bank tobe profitable within 36 months and as theenterprise value is reflected in the shareprice over the years, some shareholders canelect to trade to realize their investment re-turn. This should create liquidity for allshareholders in three to five years.
The bank is focusing on creating a clientbase of Southern California businesses andwill offer both business and personal bank-ing services, including business and real es-tate lending.
With 43 percent of small business loansbeing made nationwide by communitybanks, business owners make it clear theirdesire to do their business with a local bank,Yates said.
“They want to know and talk to the per-son making the decisions and they want toknow their banker,” he said. “They want abanker who understands their business andis well connected and respected in the localcommunity so they can leverage theirbanker’s close influential network of keycontacts.”
A Competitive EndeavorSefton and Yates’ experience in both
banking and business helps create EndeavorBank’s competitive difference.
“Our focus is on connecting with businessowners, not just selling loans and deposits,”Sefton said. “Other banks that are heretoday have different focuses, very different.”
Yates coined the phrase “consultativebanking” years ago which he described as a“tool box.”
“We are always looking for the best toolsto help our clients solve their business issuesand seize opportunities,” Yates said.
By working with small and mid-size busi-nesses throughout their careers, Sefton andYates have gained a thorough understand-
ing of what makes businesses tick, what de-mands businesses face and how to best pro-vide value in serving clients. Through theirown experiences, they also know firsthandwhat it is like to start and run an organiza-tion — to be an owner, decision maker andproblem solver.
As they have done at previous banks, theEndeavor team plans to get to know theircustomers one-on-one and be a resource todiscuss challenges and options for every as-pect of their business, not just those needsthat are finance related.
“Dan and I always do a deep dive withbusiness owners. Our goal is to help expandrevenues and deal with their problems,”Sefton said.
They also envision bank customers doingbusiness together.
Yates and Sefton plan to leverage the nat-ural affinity group of shareholders and cus-tomers who are business owners byencouraging them to meet and network afew times a year to get to know each otherand find ways to create new business op-portunities. One investor even likened thisapproach and his ownership in the bank asa “business owners club.”
The Future EndeavorAfter envisioning Endeavor Bank for sev-
eral years, Yates and Sefton are excited to seeit launch and grow and the future is bright.In the past 25 years, only one quarter of onepercent of community banks nationwidehave failed. With the odds on their side, thepair is banking on Endeavor Bank to suc-ceed.
However, they don’t plan on aggressivegrowth, but rather a steady pace.
“We don’t want to grow too fast, that’s notprudent,” Yates said.
“You can grow a bank too fast, but youmay not like what you get,” Sefton added.
The duo is betting that San Diegans aregoing to like what they get from EndeavorBank — the bank that’s a bank and more.
Andrea Papagianis-Camacho is a San Diego-based freelance writer.
Direct democracy can be an exhaustingbusiness. This year civically engaged Cal-ifornians will be expected to have in-formed opinions about affordable housingand park funding, how best to divvy upcap-and-trade money, how to spend thestate’s new gas tax money, and when newvoter-approved laws ought to be enacted.
And those are just the measures on theballot so far. Joining those five — all ofwhich come referred from the Legislatureand most of which are destined for theJune ballot — are the citizen-backed pro-posals, which must compete for spots onthe November ballot. More than 40 havealready been cleared to be passed aroundthe state gathering signatures, while an-other dozen await the go-ahead from thestate attorney general.
What’s on the menu this year? It’s stilltoo soon to say for sure, but here are somemajor themes and a few examples of whatyou can expect to see:
FISCAL FIXERSCalifornia pioneered fiscal populism
with voter-approved constitutionalamendments like Prop. 13. So it wouldn’tbe a California election without at least afew voter-backed proposals that take ablow torch to the state tax code.Lower Taxes: Last year, the Democ-
rats kicked off the legislative session bypassing a $5 billion-plus transportationplan, funded with new fuel and vehicle fees.There’s a reason they chose to raise the gastax as far from election day as possible.
Now two initiatives have been proposedin response: One, backed by San Diego Re-publican Carl DeMaio, would require voterapproval for this and all future fuel and ve-hicle tax hikes. The second, supported byRepublican gubernatorial candidate TravisAllen, would simply repeal the fuel and ve-hicle fees. The DeMaio initiative has mademore progress so far, but either way, theCalifornia GOP’s political good fortune in2018 may rest on anti-gas tax fervor.
In the meantime, it’s an election year soexpect another fight about property taxes.Prop. 13, California’s original tax revolt
initiative, caps the rate that property taxescan increase on a particular homeownerfrom one year to the next. The longer ahomeowner stays in an appreciatinghouse, the stronger the incentive to stayput and keep your low taxes, even ifdownsizing or relocating might be morepractical. The California Association ofRealtors has proposed a solution: changethe California Constitution to allow olderor disabled homeowners to take a portionof their lowered property tax base withthem when they move.
The Howard Jarvis Taxpayers Associa-tion, named for the father of Prop. 13, hasproposed a simpler way to lower taxes:give qualifying homeowners and renters a$500 tax credit.Higher Taxes: While the Realtors
push for an expansion for Prop. 13, a grow-ing coalition of progressives will soon becampaigning for a partial rollback. Thisproposed initiative would strip the benefitsof lower property taxes from certain indus-trial and commercial properties and use theadditional revenue to fund schools.
The Service Employees InternationalUnion-United Healthcare Workers hasproposed a more straightforward sourceof revenue: hike taxes on millionaires by 1percent and channel the money to hospi-tals serving low income Californians.
NUCLEAR OPTIONSFor those who believe our politics are
dysfunctional, and compromised beyondrepair, these initiatives propose a new startfor California.Decentralization: Republican guber-
natorial candidate John Cox has a vision toblow up the Legislature. That is, he wantsto increase the number of legislators fromits current 120 to roughly 12,000 with eachlawmaker representing 5,000 to 10,000Californians. Cox, who has already sub-mitted the required number of signaturesfor the measure, believes the “neighbor-hood legislature” would make representa-tives more accountable and less beholdento outside campaign cash. Still, this smallarmy of lawmakers would vote for 80 as-sembly members and 40 state senators to
send to Sacramento, thus obviating theneed to convert the state capitol buildinginto a football stadium.
Or if 12,000 subdivisions of the state istoo many, how about three? Tim Draper,the Silicon Valley venture capitalist whounsuccessfully campaigned in 2014 tosplit California in six, is now pushing fora more modest three-state solution. Underthe proposal, the state would be dividedinto Northern California, California, andSouthern California.Separation: The 2018 election is rap-
idly approaching, but many Californiaprogressives are still recovering from 2016.Thus, two nascent initiatives that wouldpush the state toward a clean break fromthe other 49 states. One proposal wouldcall for a Constitutional Conventionwhere California would submit a legalpathway to possible independence. Theother, a constitutional amendment backedby Bush-era anti-war activist Cindy Shee-han, would declare the state’s intent to be-come an “autonomous nation.” It isunclear how likely it is that either measurewill make it onto the ballot.
MONEY MEASURESThis is where lawmakers and interest
groups come to the voter, hat in hand, ask-ing permission to borrow a bit of extramoney. Voters decide whether the new in-vestment is worth the extra debt—thoughhistorically, voters have seen more benefitthan cost. Since 1986, Californians haveapproved $9 in fresh borrowing for every$10 requested of them.New money for green things: Last
fall, lawmakers passed a bill to put a $4billion borrowing plan on the ballot. If ap-proved, the borrowed money will fund avariety of natural resource projects: build-ing new parks in low income neighbor-hoods, remediating soil and wetlandsaround the Salton Sea, revamping agingdams and levees, and funding grants toadapt to climate change. Voters will re-view the plan in June.
Conservation groups are gathering signa-tures for a $8.9 billion initiative exclusivelyto improve and expand water infrastructure— from drinking water to flood manage-ment to ecosystem restoration.New money for housing: Remem-
ber the package of housing bills the Leg-
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C A L I FO R N I A I N I T I AT I V E S
By Ben Christopher | CALmatters
BALLOT BREAKD WNTHESE INITIATIVE IDEAS ARE HEADED YOUR WAY
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islature narrowly passed at the end of lastsession? One major component was a $4billion bond measure placed by the Legis-lature on the November ballot. Roughly $3billion would be slated for new affordablehousing construction and $1 billion forbelow-market home loans for veterans.Also in the running…Two more bond
measures were submitted last month: Oneplan would borrow $1.5 billion to fundnew buildings and other improvements atchildren’s hospitals. The other would bor-row $2 billion to fund cleanup of mold, as-bestos, and lead at homes and schools.
PATCH UPSSometimes legislators need to tie up leg-
islative loose ends or keep promises madeto political allies. Here’s the place on yourballot where the sausage gets made.Legislative sweeteners: When De-
mocrats sought to renew the state’s cap-and-trade program last summer, theyneeded the votes of a few moderate Re-publicans. Under cap and trade, the staterestricts greenhouse gas emissions and auc-tions off the right to pollute. Democratsoffered an assurance to the GOP holdoutsby putting a new constitutional amend-ment on the ballot: Any cap-and-tradeauction revenue raised after 2024 would re-quire the approval of two-thirds of boththe Assembly and Senate before it could bespent, making Republican involvementmore likely. In June, voters will decide whatthat assurance is worth.
Second, the gas tax. Earlier last year, whenDemocrats raised the tax on gasoline alongwith other vehicle fees to pay for road andtransit improvements, they also passed a bal-lot-bound constitutional amendment along-side it. If approved by the voters, it willcreate a budgetary “lockbox” for the new gastax money that can be tapped only for trans-portation projects. Putting this measure onyour June ballot was intended to inoculatethe transportation bill against future politi-cal attack. It didn’t.Constitutional tweaks:Unless other-
wise specified, if a ballot measure gets over50 percent of the vote on election night, itbecomes law the following morning. Butwhat if a vote is too close to call? Or calledincorrectly only to be changed after absen-tee ballots are counted? This amendmentreferred by the Legislature, also up in June,
would delay the enactment of new voter-ap-proved laws until five days after the Secre-tary of State has called the result.
WORKAROUNDSFor special interest groups, the Califor-
nia ballot is a second chance. If you failedto convince enough lawmakers to advanceyour agenda during the legislative session,why not try the voters? At the very least,mounting a credible initiative campaign isa good way to force your political adver-saries to the bargaining table.Another shot at health reform:
Last year the SEIU-United HealthcareWorkers failed to convince lawmakers topass two bills that would have placed newpricing and staffing requirements on thestate’s for-profit dialysis clinics. While theunion tries to revive those efforts, they’velaunched a measure that would requireclinics to pay payers (namely, health insur-ance companies) back for any charge morethan 115 percent of the statewide averagecost of care. Note that this is all happeningas the union tries to organize the state’sdialysis clinic technicians.
A bolder health initiative campaign pro-poses to set up a health care fund exemptfrom the spending caps and revenue sharingrequirements that constrain other areas of thebudget. Most budget experts argue that thisis a necessary first step before the Legislaturecan pass a state-run, single-payer health in-surance program — an effort that was put onhold in the Assembly last year.Another shot at the labor code:
From the other side of the political spec-trum, three similar initiative proposals—stillin the early signature gathering stage —take aim at the Private Attorneys GeneralAct. Ever since the law was enacted in 2004,giving workers the right to sue their em-ployers on behalf of the state for allegedlabor code violations, business interests haveargued that it gives too much power toworkers and their attorneys to sue overminor infractions. Last year, three bills toweaken the law failed to gain traction. Eachcirculating initiative would make it morechallenging to bring cases and less profitablefor the attorneys who bring them.Another shot at housing: For more
than two decades, California cities havebeen barred from passing rent control or-dinances—rules that restrict the ability of
landlords to raise rents. The state’s ever-in-creasing cost of living has put pressure onlawmakers to change that. They resistedlast year, but 2018 brings fresh opportuni-ties—a new bill in the Legislature and aproposed ballot initiative that would repealthe ban on rent control.
NEW RULESCalifornia is often caricatured as the
state hogtied with red tape — often ap-plied by voters at the polls. Here are a fewpossible new ones, along with one regula-tory rollback.For companies: In case those 10,000-
word Terms and Condition policies don’toffer you the assurance of privacy, thismeasure would give consumers the right tolearn about the kind of personal data acompany is gathering about them or sellingto third-parties. It would also prevent com-panies from discriminating against thosewho ask, either by denying them equalservice or charging higher prices.
Another proposed initiative from theHumane Society of the United Stateswould tighten regulations on livestocktreatment—requiring farmers to provide acertain amount of floor space for confinedcows, pigs, and chickens.For workers: In 2016, the California
Supreme Court held that security guards inCalifornia cannot be considered on-callwhen on breaktime. Last year some Democ-rats in the Assembly unsuccessfully at-tempted to a pass a law that would guaranteeundisturbed rest and meal time for ambu-lance drivers and technicians too. Now theindustry is punching back with a ballotmeasure that would explicitly exempt them.
Of course, there are more. To date morethan 60 measures have been submitted tothe attorney general’s office. Beyond thoselisted above, they include proposals toloosen felony sentencing guidelines,tighten felony sentencing guidelines, repealthe California’s “sanctuary state” law, tax es-tates to fund college aid, pay public schoolteachers more, defund public schools,change the state’s voting rules for primar-ies, criminalize abortion, and decriminal-ize magic mushrooms.
Would-be reformers and repealers haveuntil late April to get their signatures inorder for the November ballot.
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Propped up by media idolatry, Califor-nia is moving from denial to delusion.Case in point: A recent AP story claimedthat the state “flush with cash from an ex-panding economy” would consider spend-ing an additional billion dollars on healthcare for the undocumented, as well as araft of new subsidies for housing and theworking poor.
All this wishful thinking and noble in-tentions ignores a slowing state economy,and a structural deficit, keyed largely tostate worker pensions, that may now beheaded towards a trillion dollars. Perhapsthe widely celebrated, although poorly dis-tributed “good times” of the past few years,have clouded Sacramento’s judgment.
Gov. Jerry Brown, repeatedly lionizedin the national press, finally leaves officeafter next year, he will likely leave his suc-cessor both a totally out of control legis-lature and looming fiscal crisis. Brown’sreplacement will also have to deal with astate that, according to the Social ScienceResearch Council, suffers the greatest in-come inequality in the nation and thethird worst economic environment formiddle class families. Worse yet — up-wards of one-third of the state populationsubsists near or in poverty.
A fading boom
It’s clear that period of tech-drivenrapid growth is coming to an end. In themost recent quarter, BEA reports, Cali-fornia’s GDP growth ranked a meager35th in the nation; just last year the state’sgrowth was twice the national average andamong the highest in the nation.
Two factors are driving this turnabout— the fading of Silicon Valley’s boom anda hyper-inflated real estate market. Aftersoaring for year, the tech economy hasslowed dramatically. The San Jose Mer-cury recently reported that even as thecountry overall enjoyed strong job gains,the Bay Area lost 4,700 jobs in the lastquarter, at least 1000 in the tech sector.
California has suffered from other techbusts before but this time there’s no suit-able alternative — such as manufacturingor homebuilding — to create new sourceof high wage jobs. Overall blue collar jobshave declined for a decade; the state haslost a net 160,000 manufacturing jobs. In2015-2016, sadly, near minimum wagejobs for almost two-thirds of the state’snet growth.
The unending housing crisis
California’s other primary driver hasbeen escalating property prices. The rapidappreciation in housing, which has beenmore than 3.5 times faster in coastal Cal-ifornia than the national average since1969, even after adjustment for incomes.This has certainly enriched many older,mostly white Californians, like me, butalso propelled both house prices and rentsto unsustainable levels for a populationthat increasingly earns far too little to payfor it.
No surprise then that we see a plung-ing rate of homeownership, particularlyfor younger people and a continued up-surge in homelessness. High-housingprices have contributed to driving impor-tant headquarters such as Toyota, JacobsEngineering and Occidental Petroleumout of state. Similarly many of our toptech firms — Google, Facebook, Amgen,Apple — continue to shift more jobs toless expensive states. One persuasive factto corporate relocators: to buy a medianpriced house in Atlanta, Dallas-FortWorth or Houston is between one-halfand one-third the cost in the Bay Area orLos Angeles.
More serious still is the impact on mi-gration and population growth, which lastyear was 9 percent less than the U.S. aver-age. High housing costs — you need toearn over $200,000 annually to buy a me-dian priced house in Silicon Valley — maywell explain dropping millennial popula-tions in both Los Angeles and San Fran-cisco. On a per capita basis only four states— Michigan, Ohio, Wisconsin and Illinois
— fared worse in bringing in new residents.
Insanity in the Age of Trump
The elevation of California-unfriendlyPresident Trump should have chastenedlegislators, but the Donald’s antic haveonly made them more extreme in theirstrident embrace of the self-described “re-sistance.” The people running Sacra-mento might do better to consider theimpact of the new GOP tax bill; the nowgreatly reduced write-offs for local taxesin California were worth some $100 bil-lion in 2014. Some believe these changeswill drive more high-income earners outof the state.
It would seem sensible to show theseresidents at least some commitment tofrugality and moderation. California gainshalf its income tax revenues from its topone percent of earners while the top 10percent of taxpayers supply nearly 80 per-cent of all personal income tax revenue, upfrom 70 percent two decades ago. Yet in-stead, the state legislature seems intent onramping up new social spending, consid-ering expanding the scope of rent controlstatewide and adding ever more dracon-ian environmental regulations. These arelikely to swell the budget deficit, acceler-ate de-industrialization and lead to, mostlikely, yet another round of tax increases.
Similarly, a state with an existing mas-sive poverty population should not behanging up a welcome sign to other poorpeople by proposing state health care forthe undocumented likely to put evenmore pressure on the state budget. Atsome point, there may be only so manytaxpayers willing to fund these mountingbills. But this is not an easy argument tomake in a one-party, one-ideology statewhere self-righteousness repeatedly tri-umphs over common sense.
Courtesy of the Orange County Register.Joel Kotkin is the R.C. Hobbs PresidentialFellow in Urban Futures at Chapman Uni-versity in Orange and executive director ofthe Houston-based Center for OpportunityUrbanism (www.opportunityurbanism.org).
In the New Year, California has a lot to Worry AboutBy Joel Kotkin
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I like 2018. It’s going to be a good year. I guar-antee it. Let’s look at the big picture for theUnited States:• Interest rates will remain low.• Oil prices are stable and will remain so.• The U.S. will add 2,500,000 persons (asusual).• Our nation will add 2,000,000+ jobs.• The unemployment rate will be 4.0. to 4.5percent (again).• The rate of inflation for urban dwellers willagain be less than one-quarter of 1.0 percent(exclusive of home prices).• Finally, job openings will continue to rise.• In January 2011, U.S. job openings totaled2,939,000. Now they are at the 6,000,000+level, a 10-year high mark.
Let’s not forget that one of PresidentTrump’s key concerns is ensuring the contin-uing rise in value of his family’s hotels, com-mercial space and apartment projects. Heknows that low interest rates, pro-real estatelegislation and taxation, and a strong econ-omy benefit him and his families (and, ofcourse, others).
Focusing on population trends: In 2018,45 percent of all the population gains willbe in California, Texas and Florida. Despitehurricanes, floods, earthquakes, res andpestilence, it doesn’t seem to make much ofa difference. The big three just keep ongrowing.
Then, there’s the housing market:In terms of total residential units permitted,
2018 will be the strongest housing market ina decade. That’s good, of course. However, sin-gle-family production is still meager. The2004- 2006 average production of single-fam-ily homes nationwide was 1,558,000 units. In2017, it will be 850,000, about half of the2004-2006 level. We project the 2018 totalwill rise to the 900,000 to 950,000 level, whichis pretty good. What we are unable to incor-porate into our projections is the total num-ber of replacement units destroyed byhurricanes, floors and fires.
Multi-family projects, which are over-whelmingly apartments, have become a
stronger part of the permit activity. In the pastfour years (including 2017), the average pro-duction was 445,000 multi- family units, upfrom 260,000 in the previous four years, foran increase of 70 percent.
I really like apartments, but recognize, inpure economic terms, that they have far less ofa multiplier effect than single-family homes.Apartment dwellers don’t visit Home Depotevery weekend. They don’t install pools, land-scaping, wall and window coverings or spendelaborately on furnishings. Apartments justdon’t pack the economic power of single-fam-ily homes.
In 2018, we will once again permit 450,000to 475,000 multi-family units. Importantly, alarger percentage will be townhomes andother attached for-sale housing.
On the existing home scene, sales nation-ally will stand a pretty good chance of reach-ing the 6,000,000 level for the first time inmore than a decade. I doubt if we will ever seesales rise to the 7,000,000 level as they did in2005, but 6,000,000 is still pretty good. Salesprices of single-family homes nationally willcontinue to rise at a pace of 4 percent to 5percent annually. In 2017, the average price ofa resale single-family home nationally will bein the $250,000 range. (I know, we Califor-nians can’t relate to that price range).
Now let’s turn to California. Legisla-tively, to the left of Lenin; businesswise,pure capitalism.
Once again, California will add 325,000 to350,000 to the population and be on the cuspof hitting the 40-million mark. By way ofcomparison, Canada has a population of 37million and Spain 46 million.
Job gains in 2017 edged downward from2016. In 2016, the state added 266,000 jobs,but only 175,000 jobs in 2017. The goodnews is that construction jobs increased from57,000 to 62,000 in 2017. It is highly possi-ble that the increase would have been greaterif labor were available.
In 2018, we project that job gains will onceagain be in the 175,000 to 200,000 range.Construction should be vibrant with a contin-uation of residential construction, in additionto a major boost in infrastructure (excludingthe Central Valley train to nowhere).
In new residential construction, Californiafinally passed the 100,000-unit mark in 2016(barely, at 100,961) and will do it again in2018. Single-family home production hasbeen moving up steadily since 2011 and in2018 will be in the 55,000- to 60,000-unitrange. Multi-family production will also con-tinue to rise, matching the 55,000 to 60,000single-family production.
Perhaps the most exciting part of theconstruction industry in 2017 was the non-residential component. In both 2016 and2017, non-residential construction in Cal-ifornia topped more than $27 billion, thehighest in state history and more than twicethe 2011 figures.
We anticipate that in 2018, non-residentialconstruction will top 28 billion with a majorboost from infrastructure spending and reno-vation/additions. The latter category accountsfor almost one-half of all non-residentialspending.
Lastly, we are in a quandary about the im-pact of the new Tax Act for Californians. Werecognize the state tax will no longer be de-ductible from the federal tax and there will beother limits on deductibility. Countering thatwill be the massive reductions in corporatetaxes that should inure to the bottom lines ofCalifornia businesses. Those reductionsshould result in more profits, which meanshigher dividends and distributions, higherstock prices and help to bolster California’spublic pension funds. Overall, we are not con-vinced that the new Tax Act will have anymeaningful impact on the business of Cali-fornia or its housing market.
In summary, it appears to me that 2018 isgoing to be another winning year for Califor-nia. Perhaps the only thing that could holdthe state back would be a dearth of entry-levellabor reaching our shores or being forced tomove out of the country. Those folks are thelifeblood of California’s economy.
Alan Nevin is the director of market researchand forensic services at Xpera Group. Heserves the real estate and legal industries withresidential and commercial real estate valua-tions, real estate development market studiesand litigation support. He can be reached at858.436.7770 or [email protected]
California Economic Outlook 2018By Alan Nevin
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