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

2. 1.General Economy’s Problems Recede Starting To Recede

3. California’s Job Creation/Losses Defense Cutbacks Dot.ComGreat Recession

4. U.S. & California Unemployment Rates

5. Unemployment by Market Area CA = 12.3% So. California Central Coast Bay Area Northern Sacramento I-80 Central Valley 3. 12.2% 1. 9.8% 2. 10.8% 4. 13.1% 5. 13.4% 6. 15.4%

6. Where Are the Job Losses? CA = -756,600 So. California Central Coast Bay Area Northern Sacramento I-80 Central Valley -383,900 58.9% -16,300 2.5% -153,500 23.6% -58,000 8.9% -6,700 1.0% -33,200 5.1%

7. Begun A U.S. Recovery Has Begun 1.0 8.0 0.3 2.4 -1.3 2.6 -1.1 1.4 3.5 2.1 2.0 0.1 1.6 3.2 6.9 3.6 2.82.9 3.0 3.5 4.1 1.7 3.1 2.1 5.4 1.5 0.1 3.0 1.2 3.2 3.6 2.1 -0.7 1.5 -2.7 -5.4 -6.4 -0.7 2.2 5.7 20002001200220032004200520062007200820092010 Source: U.S. Bureau of Economic Analysis, Wall Street Journal U.S. Gross Domestic Product, 2000-2009 Percentage Change, Annualized Growth Rate (no inflation) Why?

8. Empty Shelves

9. Where Will Recovery Be Seen?

10. 2. Tax Base Considerations Assessed Valuation City Manager Financial Help

11. So. California Central Coast Bay Area Northern Sacramento I-80 Central Valley 4. -2.5% 3. -1.4% 2. -0.5% 6. -5.9% 1. +0.6% 5. -5.2% 2009 Assessed Valuation CA -2.4%

12. Decline High Growth Inland Areas 10 Largest Percent AV Decline High Growth Inland Areas I-80Central

13. Gain 10 Largest Percent AV Gain

14. Residential Markets: Bottom Behind Us?

15. Foreclosures Less Important October 2009 Foreclosure Sales Share of Total Sales California 41%59% 41% down from 59% in Feb.

16. Foreclosure Problem Not Over Sub-Prime Over Alt-A Option Adjustable Unsecured ARMS

17. Affordability

18. Supply & Demand Demand From Lower Prices Supply From Foreclosures vs.

19. So. California +2.8% Central Coast: -1.4% Bay Area: +5.6% Central Valley: -9.3% Sacramento I-80: -12.0% Volume Uneven

20. So. California Central Coast Bay Area Central Valley Prices Rising Everywhere Sacramento I-80

21. Shadow Inventory But: Shadow Inventory of Foreclosures Inland Empire (example) Upside Down: 628,327 Bank Resale Notice of Trustee Sale: 183,447 REO/ 3 rd Party Sale: 119,066 Notice of Default: 230,691 47,244 64,381 ??? 111,625

22. Housing SummarySupply ForeclosuresForeclosures will continue to late 2013 Shadow InventoryShadow Inventory Of Upside Down Properties An IssueDemand AffordabilityAffordability much higher – At record levels in the most affordable markets VolumeVolume up substantially from lows DemandDemand should absorb foreclosures & let prices rise –Federal tax credits helping –Financing less of an issue in affordable markets (FHA) –Mortgage negotiations some help Prices Have Bottomed & Started Up In Every Market ?

23. Office Vacancy Rate Up Almost Everywhere! 2009 2005/20062009 24.3% Inland Empire10.5% 24.3% 21.4% Sacramento13.5%21.4% 20.5% Santa Clara16.0%20.5% 18.0% Orange County 8.0%18.0% 19.2% San Diego 9.0%19.2% 16.3% Los Angeles County12.2%16.3% 15.6% Oakland16.5%15.6% 14.9% San Francisco13.0%14.9% Valuation Falling

24. Industrial Vacancy Rate Up Almost Everywhere! 2009 2005/20062009 13.9% Silicon Valley 14.4% 13.9% 12.8% Inland Empire 2.7% 12.8% 12.3% Sacramento10.5% 12.3% 12.0% San Diego 7.0% 12.0% 8.9% Oakland 6.0% 8.9% 6.5% Orange County 5.4%6.5% 3.2% Los Angeles County 2.1%3.2% Valuation Falling

25. Assess Valuation Future 2009 Very Rough Year 2010 Rough Year 2011 Should Stabilize (Homes vs. Non-Res.)

26. 3. Tax Base Considerations Sales Taxes: A Serious Problem City Manager’s Office

27. Gold Mine Theory Primary Tier Secondary Tier Retail Sales

28. California Prop 172 Sales Tax Receipts

29. So. California Central Coast Bay Area Northern Sacramento I-80 Central Valley -12.8% -12.5% -11.6% -9.8% -9.5% -8.5% 4 th 2008 Change In Retail Sales CA = -11.8%

30. Drop 10 Largest Percent Retail Sales Drop So. CAI-80 No. CA

31. Gain 10 Largest Percent Retail Sales Gain Central No. CA

32. Retail Sales Future 2009 Very Rough Year 2010 Rough Start, Modest Improvement Late 2011 Modest Improvement

33. Stuck Economic Future Most Drivers Remain Stuck

34. CA Jobs: From All Negative to Erratic

35. What Sectors Drove 4 th Quarter’s –40,200 Job Loss? 5,500 2,900 (200) 13,000 Private Education 6,800 Health Care & Social Agcy. Local Government & Schools 4,800 8,500 Information Professional, Scientific, Technical State Government & Colleges 1,400 Finance, Ins., R. Estate Federal Government (5,700) Arts, Entertainment & Recreation 8,600 Administrative Support & Part Time (15,600) Agriculture (6,600) (10,100) (16,900) Logistics Construction Manufacturing (4,000) Accommodation & Food Service (32,600) Retail Trade & C. Service Source: CA Employment Development Department Seasonally Adjusted Job Changes California, September to December 2009 +51,500 -91,700

36. Gold Mine Theory Primary Tier Secondary Tier Economic Drivers

37. Green ConstructionManufacturing Tourism Trade Bio-Tech Logistics Motion Pictures Computer GamesRetirement Center Information Agriculture “Gold Mines What’s The Status of So. California’s “Gold Mines?” F+ Bottom F- Unstable Regulators D+ Inventory D+ Inventory C $ Helps Inc. Unstable Regulators B Strong C Strong B Strong B- $ Helps B Boomers D- Water

38. Geographically Where Did 4 th Quarter Changes Occur?

39. 2010: Job Future National:Inventory Recovery (early) Slow Recovery Continues (late) CA:Inventory Related Recovery (early) West CA Areas Respond To U.S./World East CA Miniscule Recovery (housing)

40. 5. Economic Development It is A Competition

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

42. California Governing Philosophy Command & Control Markets Vs.

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

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

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

46. Dysfunctional State Government California Bond Rating Drops Lower Than Any Other State's

47. Lack of Investment In Aging & Missing Infrastructure Grade Separations

48. Modestly Trained Labor Force K-12 Performance38 th Pew Center for States Share of Adults: No College42.6% Census Bureau Education Funding Per Capita27 th Public Policy Institute

49. How Minnesota Can Avoid the "California Spiral"

50. CA Long Term Future? Command & Control Markets Vs. ?

51. While Waiting For Complete Recovery….

52. www.johnhusing.com