Board of Contributors: Projecting the state economy and housing needs | January 2, 2008 | Palo Alto Weekly | Palo Alto Online |

Palo Alto Weekly

Spectrum - January 2, 2008

Board of Contributors: Projecting the state economy and housing needs

by Steve Levy

Each year I prepare a report that looks ahead 10 years for the economy of California and major regions of the state, including the Bay Area. This year's report will be published in late spring, and we've already started work on it.

The report focuses on the outlook for job, population and housing growth and is used by large private companies and pubic agencies to do strategic planning for the future.

The conceptual approach to developing these projections is the same as is used by the Association of Bay Area Governments (ABAG) in its long-term projections, currently the source of controversy in Palo Alto and other communities.

The approach may be of interest to Palo Alto residents puzzled by how ABAG developed its regional totals for 2035. I have done similar projections for ABAG's counterparts in Southern California and the Sacramento region.

The first concept is that population and household growth follow job growth, although the location of jobs and housing within the region also depends on other factors (such as schools). People come to California or a region in response to major movements in job opportunities and migration falls when industries such as aerospace or high-tech decline. A million people left Southern California after (not before) the 1990s recession. So we project job growth first.

Projecting the number of jobs in a region is easy in theory, harder to nail down precisely in practice because the future, of course, is uncertain. We look at key "export" industries in each region and at statewide factors such as high tech, foreign trade, Internet services and tourism.

And we ask two questions: 1) "How fast are these industries expected to grow in the nation?" and 2) "What is a reasonable share of job growth to expect for California or the Bay Area?" The Bay Area has a strong base in industries with good growth prospects — industries such as Internet services, international trade and finance, "greentech" (or "cleantech"), biotech and a wide variety of professional services that compete in markets worldwide.

Our strength is symbolized by companies with a Palo Alto presence such as Facebook, VMWare, Google and Hewlett Packard, and their counterparts throughout the region.

So, in economist talk, we have a good economic base.

As a result, Bay Area job-growth rates will likely outpace the nation for awhile longer — unless we become a less-favored location for some of these fast-growing industries.

ABAG projected a year ago that Bay Area jobs would increase by 15 percent between 2005 and 2015 compared to a nationwide job gain of 12 percent. But my last Bay Area projections anticipated a 19 percent job gain — which would have meant an even larger housing allocation for Palo Alto had ABAG used it.

Does the lower job-growth projection mean it's time to worry a bit that California may be losing its "favored state" status? Will the region and state continue to be favored locations for fast-growing high-wage industries as in the past?

Or is California becoming an "average" state in terms of job growth, as recent data suggest? I know that a number of residents, my Palo Alto neighbors, wouldn't mind if job growth slowed — as long as it's not their job.

So what is the big deal if we grow a bit more slowly?

My real concern is that slower job growth would come only if we drop the ball in terms of keeping California and the Bay Area a great place to work and live. Unless we shoot ourselves in the foot by making the region a bad place to live, companies do and will want to locate here to tap into our highly educated talent and venture capital — and most cities will welcome their jobs and related revenue.

So I worry about unaffordable housing, poor funding for schools and a general paralysis on state policy issues, such as the upcoming $10 billion to $14 billion state-budget shortfall.

When I have to assess what share of Internet jobs the Bay Area will capture I have to wrestle with whether firms will shy away from the state because we can't balance the budget, can't seem to decide on education or housing or prisons or water or health care or much of anything.

Sometimes I wish Mountain View or San Jose would agree to take our Palo Alto ABAG housing allocation, not because I think this is a good solution but because then Palo Alto residents could participate in the major policy debates in California without thinking only about whether maintaining California as a great place to live will increase the population in Palo Alto.

I worry that we are losing our ability to recognize how we are connected, rich and poor, old and young across this region and state.

I offer two examples:

1) An affluent area like Silicon Valley can and does have many low- and middle-wage jobs because most of us residents can afford to eat out, have nannies and gardeners, hire people to repair our computers and toilets and use lots of health care and public services.

Those "service" folks must live somewhere.

2) As the baby boomers retire during the next 20 years, they will be replaced by a generation filled with immigrants and their children, some affluent, many not. These will be the taxpayers and homebuyers of the future.

Even if all of our children in Palo Alto do fine, our future is still connected to the millions of students who do not go to Palo Alto schools.

As I project the likely growth in the Bay Area and state, part of my task is to assess how we will do in meeting these difficult, interlocked challenges.

And each year I become a bit more concerned that we are slipping more toward average in areas that used to be our edge.

I fear we are slipping because we have become a people who would rather fight with each other than plan for and invest in the future. This is not the path to give California the economy or quality of life I wish for my children.

Stephen Levy is director of the Palo Alto-based Center for Continuing Study of the California Economy. He can e-mailed at slevy@ccsce.com.

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