How Will the Fires Impact Our Local Economy?

On Friday, March 2, 2018, I had the pleasure of attending the SSU/North Bay Business Journal’s Economic Conference in Rohnert Park. Amongst other speakers, Sonoma State Economist Robery Eyler discussed the National economic state, the California economic state, and the local economic state. Eyler talked about where we are, where we are trending, and what to watch in the next few months. Overall, Eyler has established a lot of credibility in deciphering “the tea leaves” and the economic data over the years, so I thought you all might appreciate some of the forecasting points he made on Friday. Also-a shout out to Exchange Bank and North Bay Business Journal (article link) for sponsoring and hosting the event on Friday.

Nationally:

Eyler displayed some forecasts on Gross National Product growth for 2018 by Quarter, unemployment figures for the same period and the more telling statistic (at least to me), was the forecast on Payroll dollars in “000’s”

Here is what Eyler and the “professionals say about the economic factors nationally:

Growth             Unemployment         Payroll $’s

(ooo’s/month

2018:Q1   3.0%                 4.0%                         183.3

2018:Q2.    2.9%                    4.0%                             171.3

2018:Q3.     2.8%                   3.9%                             168.7

2018:Q4      2.5%                   3.8%                             151.8

I am no economist, but it seems like real payroll dollars are forecast to be decreasing.

But then, Eyler puts up a slide that shows where the jobs in California are trending from 2017-2026

Government————————————up 4.6%

Leisure——————————————-up 9.6%

Health and Education————————up 9.0%

Information services————————up 11.4%

Professional Services———————–up 14.3%

Finance and banking————————up 11.1%

Wholesale/Retail—————————- up 3.8%

Transportation and Utilities —————up 5.7%

Manufacturing———————————up 3.8%

Construction ———————————–up 9.0%

Farm and agriculture (non-cannabis)—-down 2.6%

Total Wage and Salary Increase Expected From 2017-2026 = up 7.9%

Then Eyler talked about local impacts due to the fire. Amazingly, the fire and rebuilding has a negligible effect on the overall economy of the local 4 Counties affected. Although a very big deal to those that lost their homes and businesses, it seems like overall the fire and the rebuilding just are too small a part of the overall economy locally.

Eyler concluded that no major recession expected until at least the end of 2020 BUT cautioned the impact of Tariffs and Trade Wars could “bigly” effect that forecast.

Overall-Eyler continues to be “bullish” on our local economy and because we are so diverse, we are in good shape.

GOOD NEWS! You all can spend more on sponsoring ECA Events! Woot Woot!

That’s All Folks!

John

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Be on the lookout!

Truck thieves target Petaluma area.

Link

A.  General Contractor Inability to Price Housing Costs for Property Owners.

One thing to keep in mind as we “wrestle” with the rebuilding questions. In many of the original home construction processes some 20-40 years ago, there were subdivisions being constructed. Whether it was Coffey Park, Mark West Estates, or Fountaingrove, there were developers that built entire areas of houses. That means the developer was in charge of the land, the customer, and in many cases the financing of the original construction of the houses. Now it is different. There are no developers in charge of any of those three issues. So, contractors have to reinvent a business model to deal with the reality of the situation. They are having trouble figuring out all they need to figure out. They are close, but it has taken some time to get the pricing in place. They have had to go to overtaxed architects, then to overworked subs, then to their own processes and design centers to get staffed and running. It is almost there, but it is not quite there.

B.  Property Owners Are Undecided:

Because (at least partly) of “A)” above, property owners have not decided If they can afford to rebuild yet. Under insured is a real problem. Many owners are worried they cannot afford to replace what they had, and are trying to decide what kind of “reset” of their lifestyles and type of home they want to consider. They are indecisive. In some cases, they do not like the original plans of their Coffey Park house that was designed in the 1970’s or 80’s and a 2-story house with lots of stairs does not appeal to them now they are in their 50’s and 60’s. In other cases, their insurance coverage is dictating how many square feet they can afford to build and if too small, they are deciding if they want to pocket their insurance dollars and rent until they retire and relocate. Lots of decisions.

C. Cash is King:

Many of the GC’s are trying to make sure they can afford the increased volume they are being asked to build. Payment draws from the banks are one thing, but lines of credit are quite another. GC’s are finding out there is not one bank that is offering them a complete package on all their cash flow needs so there is a delay as GC’s determine their appetite for risk.

D. Labor Both Hammer in Hand and Drafter in Hand Type Labor:

We keep hearing there is not enough labor to go around with all the building that is needed. It is true that we have lost two generations of workers in the home building area since the 1990’s-the first due to a big push to get kids into colleges and the second due to the recession that started laying off workers in the construction area in 2005. How to deal with the labor shortages? Some builders are deciding to contract with huge framing firms that have hundreds of carpenters or more. Others may choose smaller framing companies and make “sweetheart” deals with them. In either case, there is a need for those framers (and all trades are the same, I am just using framers as an example) to fix their quotes to the GC’s for some finite period (say 6 months out) and then the GC can determine their costs to the property owners. The other type of labor that is in short demand is the architects needed to draft, and the structural engineers needed to determine the calcs once the architect is through with the revisions to their plans. Both are in short supply, and both are delaying GC’s from getting going with housing starts.

For these reasons and others, there is still uncertainty in rebuilding. Things are moving, just lots of moving pieces need to be fixed before actual contract signing and housing starts take place.

ECA Newsletter 1-30-18

There is a lot of news that is pertinent to your businesses right now so, for brevity, I will forsake my “editorial” comments to just bring you some of the issues that are in front of us:

SB-1 And the California Budget;

Last week Governor Brown unveiled his 16th, and last, proposed budget for California. Our good friends at ACEC have written a nice summary of what is included because of the historic passage last June of SB-1. Here is the ACEC summary-

Governor Brown has advised major spending on transportation projects with newly available SB 1 funding. The budget proposal includes $2.8 billion spending on “fix-it-first” investments to repair neighborhood roads state highways, and bridges. Additionally, $556 million are allocated for key trade and commute corridors to support economic growth and $200 million to match locally generated funds for high-priority transportation projects. There is also a $721 million investment in passenger rail and public transit modernization and improvement.

These projects are the direct result of last year’s historic transportation plan. ACEC California was a proud supporter of that plan and will continue to defend it from politically-charged repeal attempts. Our State’s transportation networks need maintenance and new capacity, and ACEC California members are ready to get to work!

SB-1 And Requesting Dollars from the California Transportation Commission;

Although most of what the ECA does for advocacy is at the County and City levels, occasionally the State level is appropriate for the ECA to voice our opinion. Now that Brown has proposed SB-1 expenditures, the time is right to request some local funding from the “effective keeper and distributor of those SB-1 funds- “The California Transportation Commission”. If you click on this link, you can read the letter I am sending on behalf of the ECA to request funds from SB-1 for the Marin-Sonoma Narrows Segment C2 HOV Lanes Gap Closure Project. As part of SB-1, there are funds allocated for “Solutions for Congested Corridors Program (SCCP)” that are available to solve regional congestion. Our Marin Narrows is estimated at $121 Million and we have local funds of $37 Million on hand. The ECA, as well as the SCTA and several other organizations, are requesting $85 Million from the SCCP and we are one of five projects that have requested funding from the SCCP. The timing is right, and the ECA is requesting that our Marin Narrows should be the best of the five projects submitted for a variety of reasons, not the least of which is, that our request is the only one for a “closure” project that would close out a much larger and proven record of projects that have widened Highway 101 since 2004’s Measure M Sales Tax was enacted. Wish us luck!

Regional Measure 3 Going To Voters On June 5;

If you attended the General Membership Meeting in November of 2017, you will recall Jake Mackenzie (Chairman of the Metropolitan Transportation Commission) talking about the likelihood of putting a ballot measure to the voters in June of 2018 that could raise $4.45 Billion for traffic congestion relief in the Bay Area. Here is an update voted on January 24, 2018 by the MTC- On June 5, voters will decide on a $4.45B package of congestion relief projects that in the North Bay would include upgrades to improve Highway 37; complete widening of U.S. 101 to three lanes in each direction through the Narrows; and extend SMART to Windsor and Healdsburg. It would be paid for by a $1 increase in tolls on Bay Area state-owned toll bridges beginning Jan. 1, 2019, with a $1 increase in 2022 and another $1 increase in 2025.

If you would like to read more about this, please click on this link to the MTC-

City of Santa Rosa Active Measure M Projects;

Yesterday, I attended the Sonoma County Transportation Authority Citizens Advisory Committee meeting and was able to hear from the City of Santa Rosa about the status of several projects long discussed. More information can be found by going to the SRCITY.org website and going to the Measure M link.

*  Hearn Avenue Interchange Phase 3-this project would add a turn lane Southbound on Highway 101, construct a new bridge over Highway 101 to carry 2 lanes in each direction, and redo the off ramps and approaches to the interchange. The project is estimated to by $23.85 million and the timeline is to be “ready to list” for construction in September of 2019.

*  Fulton Road Improvements-this project would go to bid in Phases and the first phase is from Wood Road to Piner Road. No construction estimate is available yet, but the Project is scheduled to be constructed beginning in August of 2020.

That’s All Folks!

John

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Army Corps Of Engineers Crews have finished a milestone-Coffey Creek is completed-click here for the Press Democrat article.

ACOE last week announced there were currently 130 crews working in Napa, Sonoma and Mendo Counties on debris cleanup. The crews were expected to grow to 150 crews as of this week.

ECA Spec Committee-Rebuilding Houses-Coffey Park and other areas will need substantial regrading before contractors can start constructing the houses so needed. Last week at our ECA Specifications Committee meeting, we discussed the details of what is going to be needed to be ready for either a beam and pier construction or a post tensioned slab construction. Because of Code changes, slopes of 5% must be accomplished for pervious (earth) slopes away from the edge of the foundation, and a 2% slope from back to front must collect that runoff from the edge of foundation and carry it out to the front curb. Many of the homesites do not have the needed elevation to accomplish this so fill will have to be brought in. Other complications are the grading needs to cross over property lines or potentially some retaining walls need to be constructed. Also, fencing lines were discussed and there are complications for building fences on property lines that have two different elevations. ECA Spec Committee also discussed preliminary plans being submitted for underground utilities being run under sidewalks and in the streets of Coffey Park in the next year. Needless to say, the debris cleanup is not the end of our ECA Member’s work that needs to be done.