New Decade Economic View of S.D.

San Diego’s increasingly diversified economy kept humming right along in 1989, with job and economic growth outperforming that of both the state and nation. But pundits were uncertain at year’s end how well the region would withstand the deep cuts in defense spending planned by the Bush Administration for coming years.

During 1989, the San Diego region lost the headquarters of several publicly owned companies and financial institutions to mergers and acquisitions, lending substance to San Diego’s image of being, essentially, a branch office town. Such an image would be reinforced if the proposed merger of San Diego Gas & Electric by SCEcorp, now midway through its second year of hearings and legal skirmishing, goes through.

Tourism continued to flourish in 1989, with another bumper crop of visitors expected in 1990 with the new San Diego Convention Center heading into its first full year of trade shows and conventions. The center is expected to pull up to 14,000 additional visitors into San Diego each week, adding $250 million to 1990 visitor spending.

And foreign manufacturers continued to flock to Baja California to set up maquiladoras, the in-bond plants where goods destined for the U.S. market are made with low cost Mexican labor. What was different in 1989 was that two heavy industrial manufacturers, Hyundai and Louisiana-Pacific, announced plans to set up operations in Tijuana and Ensenada, respectively. Heretofore, the overwhelming majority of maquiladoras have involved the assembly of components shipped in from foreign countries.

The San Diego gross regional product, the sum of goods and services produced, grew by 4.6% in 1989, according to Wells Fargo Bank economist Joseph Wahed. That’s down from the growth rates of the previous two years but still ahead of the state and U.S. overall. Jobs in San Diego County increased 3.7% to 1.1 million over the year and the unemployment rate as of October was 3.8%, a full percentage point less than the state’s.

But the good times in San Diego over the past decade have been fueled in no small measure by the defense build-up sought by the Reagan Administration. And those dollars could drop off substantially if the Bush Administration carries out its aim to reduce defense spending by as much as $180 billion over a three-year period beginning in the 1991 fiscal year.

Direct defense expenditures in the county totaled $9.7 billion last year, or more than 20% of the county’s gross regional product, and should come in at roughly the same amount in 1989, according to the Greater San Diego Chamber of Commerce’s economic research department. Since 1975, defense spending has risen here nearly fivefold from $2 billion.

Local economists generally view the San Diego economy as being diversified enough now to avoid the devastation that defense spending cuts wrought in the early 1960s. Still, any significant spending cut will be felt in a county that is home to 144,000 uniformed service men and women, 34,000 civilian employees and an estimated 72,000 workers directly involved in defense contracts.

There was a rash of acquisitions of locally based public companies and banks by outsiders during the year, including Gen-Probe (acquired by Chugai Pharmaceutical), Monitor Technologies (Lear Siegler Measurement Controls), Pancretec (Abbott Laboratories), Smith Laboratories (proposed merger with Columbia Hospital Corp.), Torrey Pines Bank (Wells Fargo), La Jolla Bank & Trust and Southwest Bank (both by Security Pacific Corp.)

Western Health Plans, parent of Greater San Diego Health Plan, filed for bankruptcy and sold its membership to a group of local hospitals. Both Syntro and Henley Group moved their headquarters away from San Diego and Cipher Data Products, which last month received an unsolicited takeover bid from Archive Corp. of Costa Mesa, could be on the verge of disappearing.

The local business community was startled by the arrest of Yuba Natural Resources Chairman Richard Silberman in April in connection with attempted money laundering, one of a host of problems that the San Diego-based gold mining company faced. Silberman is the husband of county supervisor Susan Golding, a former partner of Jack in the Box fast food chain founder Robert O. Peterson and a former state cabinet secretary under California Governor Jerry Brown.

The three major savings and loans headquartered in San Diego--HomeFed Bank, Great American Bank and Imperial Savings--each faced problems of varying degrees of seriousness in 1989 as did many other U.S. thrifts. All were knuckling under tough new capital standards imposed by the federal S&L; rescue bill passed over the summer.

Imperial Savings President Kenneth Thygerson, who resigned in July, saw the defeat of his “nontraditional” approach to S&L; management when ICA’s junk bond portfolio of investments lost more than $200 million in market value, resulting in write-downs that left the S&L; with a negative net worth at year’s end and vulnerable to a federal takeover.

Great American continued to wrestle with its troubled Arizona loan portfolio which so far has caused the S&L; to take more than $100 million in loan loss reserves. Even HomeFed, the strongest of the three local thrifts, saw its stock price drop precipitously on reports of problems with its real estate loans.

A bright light in the local economic firmament was tourism. Visitor spending for the first 10 months of 1989 was up 5% over the previous year to $2.6 billion. Total visitors were up 1.6% and hotel room nights sold rose 2.8%. The San Diego Convention Center which opened in late November but which will host its first full fledged convention this month, should bump those tourism increases up to even higher levels in 1990.

Sea World of San Diego, one of the area’s top tourist draws, was sold by parent Harcourt Brace Jovanovich, along with five other theme parks, to Anheuser-Busch for $1.1 billion. The sale was necessitated by the need to pay down debt incurred by HBJ’s costly restructuring in 1987.