THE CALIFORNIA DROUGHT : 50% Cut in Water May Worsen S.D. Recession Woes

In addition to forcing layoffs and production cuts at many San Diego County companies, a 50% water supply cut could lengthen the recession in San Diego and fortify the county’s reputation as an expensive place to live and do business.

Conventional wisdom had suggested that San Diego’s multifaceted economy was strong enough to make an early escape from the nationwide recession. But those rosy predictions were made before the continuing drought brought about a 50% water supply cut by the Los Angeles-based Metropolitan Water District, provider of most of San Diego County’s water.

The unprecedented cutbacks are “not something you have to account for in other parts of the country,” said Max Schetter, a senior vice president at the Greater San Diego Chamber of Commerce. “It could slow the recovery down” in San Diego, he said.

“Companies have got to start thinking about how this affects their investment plans,” said Raford Boddy, an economics professor at San Diego State University. “No matter if you view this as a short-term thing or with the context of the next several years, you’re talking about how the drought affects jobs . . . it could be a severe problem.”

Local economic development officials are worried that the drought will further sully the county’s image among out-of-town companies that might be considering San Diego for plant expansions. “They will have serious reservations about moving to San Diego if they thought that they couldn’t find water at any price,” Schetter said.

All San Diego County water consumers, including businesses, were ordered to cut consumption 30% on March 1 in response to the five-year drought that has severely depleted the state’s water supply.

On April 1, the MWD will begin cutting supplies by 50%. Local business leaders are complaining that regulatory agencies and municipalities have hindered drought planning by failing to forge an early agreement on how to implement and enforce the 50% reduction.

Those leaders placed some of the blame on San Diego Mayor Maureen O’Connor, who, alone among Southern California civic leaders, remains a strong advocate of voluntary rather than mandatory guidelines.

San Diegans could get definitive guidelines later this week when the San Diego County Water Authority adopts a countywide policy on the implementation and enforcement of cutbacks.

“We’re hoping our proposal will end the confusion in everyone’s mind,” spokesman Mark Stadler of the county water authority said Monday. The county proposal calls for “all allowable uses of potable water (regardless of agricultural, residential or industrial use) . . . to be reduced by 50%,” Stadler said.

Spokesmen at several large companies agreed that, although the 30% cutback is achievable, the 50% supply cut would force layoffs and production cuts in the construction industry at a wide variety of industrial companies.

The proposed cutback would also disrupt many smaller companies in industries that use relatively large amounts of water. To that end, the owners of turf farms, landscapers, golf course operators, coin laundries and swimming pool sales companies last week deluged the county water authority with complaints about the 50% cut.

Frank Panarisi, president of the Construction Industry Federation, said the “worst-case scenario” would occur if various jurisdictions simply prohibit water hook-ups that developers must seek before beginning construction. “You’d see 65,000 to 70,000 jobs lost . . . within a year if permits were cut off on April 1,” Panarisi said.

Developers are lobbying the county authority to approve a plan designed to offset water demand created by new construction through the retrofitting of older buildings that use relatively large amounts of water.

Although developers might win that battle, “you have to wonder how banks are going to factor the drought into their considerations” when it comes to financing new development, Boddy said. “Bankers might still say no to developers in order to protect themselves” in case the drought worsens and water-use permits are canceled, endangering their loans.

The picture is equally glum in San Diego’s industrial and commercial community.

Kelco, the city of San Diego’s single-largest industrial water customer “could not hit a 50% reduction without severely impacting production and . . . significant layoffs,” Kelco spokesman Steve Zapoticzny said.

Kelco, which uses water-intensive processes to manufacture thickening agents for various industries, has spent more than $1 million to reclaim waste water. Kelco also has received regulatory approval to utilize sea water rather than fresh water in a pollution-control process.

Kelco, with 610 employees, can cut consumption by nearly 30% without curtailing production, but the 50% cutback will raise serious problems because “99.2% of water we use is for manufacturing processes,” Zapoticzny said. “There has to be some flexibility given to manufacturers to limit the loss of jobs.”

The 50% cutback could also disrupt production at Pepsi Cola Bottling Co. of San Diego, another of the city’s larger water customers. “Close to 60% of the water we use goes into the product,” said Mark Kimmel, plant manager for the local Pepsi franchise. “By that fact alone, you can’t cut 50% of our consumption without cutting production.”

The bottler intends to cut consumption by 30% through a series of process changes and the installation of a high-tech bottling line that uses less water. But, if water supplies are cut by 50%, Pepsi would have to import beverages from elsewhere in the country, Kimmel said.

A 50% reduction in water will also hamstring hundreds of newer companies in San Diego County that “tend to have significant growth curves,” said Dan Pegg, president of the San Diego Economic Development Corp. “Growth is demanding that they increase (water consumption), but you’d be telling them to stop growing. . . . Then you’re talking about laying people off.”

Pegg said that one local company has spent millions of dollars to expand its operation and “they’re ready to hire 75 to 100 additional people, and the one key ingredient in their process is water,” Pegg said. “In order to flip on the (expansion) switch, they need more water.”

Restaurant owners who use the bulk of their water to clean dishes and cook meals also are scurrying to trim water use.

“A brewery without water is a sad thing,” said Chris Cramer, founder of Karl Strauss’ Old Columbia Brewery & Grill, a downtown establishment that opened its doors in 1989. The cutbacks are occurring just as Old Columbia entered “the expansion mode,” Cramer said.

“We’d recently got approval to distribute our beer off premises,” Cramer said. “But we don’t know how much this water limitation is going to affect that.” Old Columbia’s owners also wonder if they’ll be able to secure the water needed to open additional breweries and restaurants in San Diego.

The regional drought also will force operating changes at the county’s hospitals, which theoretically would have to reduce patient admissions if the drastic water rationing occurs. But hospitals have hopes of winning exemptions from the cuts that would enable them to continue providing patient care at or near current levels.

“The way you cut business in health care is to essentially stop the patients from coming to the door,” said Ben Morris, director of engineering services at the La Jolla-based Scripps Clinic and Research Foundation, one of the city’s 33 largest water customers. “But that’s not something you have a lot of control over.”

Scripps, which has hired a consulting firm to suggest water-saving methods, “will not be able to achieve a 50% cutback” without serious disruptions, Morris said. “We’ve spent $100,000 to get a 30% reduction, but even spending double that won’t achieve 50% . . . and there’s only so much you can do without affecting patient care or affecting science.”

Although business leaders acknowledged that the drought is largely caused by events beyond anyone’s immediate control, they argued that planning could have been better.

“We’re all disappointed in the way this is being handled,” said Andrea Korogi, executive vice president of the Otay Mesa Chamber of Commerce. “There’s not been good communication (by water authorities and municipal governments), which makes it difficult to take it seriously.”

The Otay Water District, for example, “says it’s only allowing 30% of temporary water permits for development, which means 70% of permits requests are turned down,” Korogi said. “But we don’t know how those decisions are going to be made.”