Forecast not too good, but not too bad

BY COLBY FRAZIER
DAILY SOUND STAFF WRITER

In a climate of financial chaos throughout much of the United States, economists from UC Santa Barbara’s Economic Forecast Project told a Lobero Theatre audience yesterday that Santa Barbara County could escape the turbulence relatively unscathed.
Not only will the county navigate smoothly through possible national and state recessions, said Bill Watkins, executive director of the Economic Forecast Project, it will experience 1 percent growth this year.

Though 1 percent would chalk up images of financial ruin in some economies, for Santa Barbara County, Watkins said it’s just about on par with where it should be and will outpace sluggish state and national economies.
Watkins said this is a “rare event,” but what’s more intriguing, he said, is how it has happened.
The county’s economic engine, which has long been located in North County, has grinded to a standstill over the past two years and the slack is being picked up by the Santa Ynez Valley and South Coast,” Watkins said.
“The story is that the South Coast is going to truck right along,” he said. “North County is going to suffer.”
According to the 500-plus-page forecast document, which is presented on an annual basis, some of the local economy’s life preservers will be tourism, Vandenberg Air Force Base, and the wine industry.
Because the South Coast relies heavily on tourism, Watkins said the weakening of the dollar could attract more visitors to the area and open up the international market to local wines.
The South Coast has not been as negatively impacted by the real estate slowdown as the north county, which absorbed 87.3 percent of all foreclosures in 2007. There were 437 foreclosures last year in Santa Maria, which is 64.6 percent of the county’s total, the forecast document says.
Countywide there were 676 foreclosures in 2007 compared to a mere 115 in 2006 and only 18 in 2005.
A large contributor to the escalating number of foreclosures in the North County was a vast climb in adjustable-rate mortgages from 2001 to 2005. In 2001 there were 1,149 homes financed with adjustable-rate mortgages and by 2006 that number had climbed to 9,263.
There is little data in the forecast documents that show how many of these were for north and south county homes, but because the vast majority of home sales and construction in the county during this period occurred in North County, it assumes the majority of adjustable-rate mortgages were issued there.
Population trends in North County are also on the decline, reaching the lowest level since 1974.
When it comes to jobs, the largest gains over the past two years have occurred in the Santa Ynez Valley and on the South Coast. Over that same period of time in the North County, jobs have been lost.
Business sectors that saw the most growth in 2007 were service related, which added 1,442 new jobs, while the public sector grew by 942 new jobs and the agriculture sector tacked on 442.
Watkins said job increases in these sectors don’t necessarily translate into good news.
He said agriculture workers are very low paid and “Their living standards are sub-par, and they may generate more demand for local government services than they generate in local government revenues.” Surprisingly, none of the agricultural job growth occurred in North County, which Watkins said is a testament to the strength of the wine industry in the valley and nurseries on the South Coast.
Job growth in the tourist industry presents similar challenges because these are also traditionally lower paying jobs, Watkins said.
In past years Watkins has highlighted quality-of-life disparities between the middle and upper classes and the low-paid workforce that he said “is necessary in an economy like Santa Barbara County’s.”
But this year he used this space to discuss the potential impacts gangs and escalating violent crime could have on a tourist-based economy.
Watkins said the numbers show violent crime in the county peaked in the mid 1990s, then fell until 2004 when there were 1,804 violent crimes recorded — the highest number in county history. In 2006, the last year discussed by Watkins, there were 1,752 violent crimes, or roughly 4.2 per 1,000 people.
The escalation in violent crime concerns Watkins because in order to remain a viable tourist destination, the area must preserve a safe image for wealthy retirees and tourists who spend.
“Rising violent crime rates and headlines about violent crimes will not encourage a sense of security, for the visitor or the retiree,” he said. “In order to maintain this important component of Santa Barbara County’s economy, gangs and violent crime must be contained.”
Watkins said it wouldn’t be right to panic, but urged schools, non-profits, and government agencies to band together and address the issue.
For the time being, Watkins said there has been no traceable decrease in tourism as a result of violent crime, but he believes the potential exists.
“This is a potential issue for the economy and it would be addressed,” he said.
Watkins said he does not believe the nation will see a recession, but said California almost certainly will and likely already is.
During the presentation, there were a number of literary comparisons, one of which described the local real estate market as a “tale of two cities,” a take on Charles Dickens’ “A Tale of Two Cities.”
Watkins’ forecast was just that, and his advice for South Coast residents was simple: “Relax, be happy and look at your neighbors suffer.”