Once Immune, San Diego Now Suffers Economic Ills : Recession: Region is going through a humbling experience after priding itself on diversity and resiliency.
Mortgage loan executive Joan Berry, Navy Capt. Robert Doane and electronics engineer Michael King began 1992 feeling confident that their jobs--in fields where each had decades of experience--were secure.
They could not have been more wrong. As 1993 begins, all are out of work.
Berry, Doane and King are victims of San Diego’s worst economic downturn in memory. In a state reeling from a prolonged economic slump, the severity of San Diego’s plight stands out.
And what makes the hard times even harder to accept is the fact that for years San Diego was touted as virtually immune to recession--a place where prosperity seemed to have no limits.
San Diego’s unemployment reached a 10-year high in 1992. Home building has fallen to historically low levels, and construction of offices and shopping centers has ground to a halt. Thousands of jobs in aerospace and defense manufacturing were lost at General Dynamics and Rohr, and more will be slashed this year. Federal regulators seized Homefed Bank, the last of San Diego’s three major home-grown savings and loans, in July.
“The negative forces came to a head at the same time and there has been a domino effect,” said Berry, 44, who was laid off in September from her job at First National Bank’s mortgage loan department. She is one of at least 4,000 workers in San Diego’s financial services industry who have lost their jobs since 1989.
Doane, a 28-year Navy veteran, was forced into retirement in August, the victim of armed forces reductions that have trimmed the number of uniformed military personnel in San Diego County by 10% since 1990. “The military is not the secure haven that it once was. . . . There are no guarantees anymore,” Doane said.
For King, laid off in October after 25 years with defense contractor Logicon, the causes of the defense industry’s problems are obvious. “With the Cold War over, there’s no big enemy. There’s no one to fight anymore,” he said.
Berry, Doane and King thus became part of some grim statistics that shook the San Diego economy in 1992. Among them:
* Greater San Diego’s gross regional product--the combined value of goods and services produced--will shrink for the first time since the Great Depression.
* Defense contracts will drop to $4.1 billion, down about 17% from $4.8 billion in 1991.
* San Diego has lost 50,000 jobs since 1991--a 5% drop in total employment. Another 8,000 jobs may be lost this year, a San Diego State University study predicts.
* Average personal income will show a decline for 1992 (in inflation-adjusted dollars) for the first time since World War II. As a result, homeowners are having more trouble making mortgage payments and residential foreclosures in San Diego County are running double the rate of last year.
The economic wringer that the region is going through is a humbling experience for an economy that has prided itself on diversity and resiliency.
There were several sources of that confidence. There were the tourist magnets--Sea World, the San Diego Zoo and the nearby U.S.-Mexico border crossing--that bring in dollars during good times and bad. The housing and commercial real estate construction industries employed more than 60,000 workers who built shelter, shops and offices for the county’s bulging population, which during the 1980s grew at double the U.S. rate.
The city even has had its own military-industrial complex.
More than 127,000 uniformed military personnel work, rent and spend locally, and the area’s four military bases employ another 28,000 civilians. Defense contractors such as General Dynamics, Rohr and National Steel & Shipbuilding fed the Reagan Administration’s defense buildup with missiles, ships and sophisticated electronics.
Three of the nation’s largest savings and loans--Great American Bank, Homefed Bank and Imperial Savings--were home to thousands of financial professionals who jetted across the state and nation as the S & Ls spread their networks of branches and loan offices.
But the illusion of economic imperviousness has been shattered by S & L failures, a 25% decrease in construction-related jobs and deep defense cuts.
San Diego’s economic woes--which have added urgency to the business community’s call for less government red tape--have made their mark on local political leaders.
New Republican Mayor Susan Golding won a bruising battle in November against controlled-growth advocate Peter Navarro, partly by promising to make the city more “business-friendly.” That sort of platform would have been political heresy during the 1980s, when politicians made hay by espousing growth controls.
“There are several concrete measures that I think we can take to create a better atmosphere,” Golding said. “That doesn’t mean we’re going to cut out permits or issue them in a day. What it does mean is that we ought to be able to convey an attitude that business is important to us.”
Golding has proposed using the city’s bonding authority to finance construction of low-rent plants for the city’s growing biotechnology industry--a bright spot in the local economy. The city’s 103 biotechnology companies are expected to add 1,450 jobs--a 20% boost--during the next 12 months, according to a study by accountants Ernst & Young.
But San Diego’s economy will not be climbing out of its hole anytime soon, notwithstanding Golding’s proposals. The damage done to the region’s economic structure is so profound that it may take years to repair, according to studies by San Diego State University and San Diego Gas & Electric Co.
Raford Boddy, chairman of San Diego State’s economics department, said the county has lost thousands of white-collar service and professional jobs--loan officers, defense engineers and the like--that are not likely to be replaced soon.
During the 1980s, the county benefited from a tide of well-trained, highly paid workers moving to San Diego from other states. They bought houses and furniture. They ate at restaurants.
But that flow of new professionals has all but stopped.
Population growth now is largely from births and arrivals of younger, less-educated and often foreign-born workers who produce and spend less and who are likely to place a burden on the area’s social services and school system.
“It’s not a stimulating effect at all,” said Matthew B. Herndon, SDG & E’s economic forecasting supervisor. “It means we are losing our middle-class job base and with it we are losing a lot of our income-generating capacity.”
Defense
Since World War II, San Diego’s economic trump card has been the spending power of military personnel stationed at local Navy and Marine bases. But Pentagon budget cuts have trimmed the number of uniformed personnel here to 127,000 from a high of 139,000 in 1991.
The importance of the military to San Diego’s economy was brought home in Operation Desert Storm, when 80,000 sailors and Marines were sent to the Persian Gulf. The war crippled San Diego’s retail industry, and merchants fear a similar impact if the U.S. military mission in Somalia is prolonged.
San Diego business and civic leaders breathed a sigh of relief when the area escaped waves of military base closures in 1989 and 1991. But Max Schetter, senior vice president of the Greater San Diego Chamber of Commerce, is worried that San Diego’s bases--particularly the Marine and Navy recruit training centers--may get the ax this year. The bases employ 1,270 civilians.
The combined value of 1992 military contracts and payrolls in San Diego will decline for the first time since just after World War II, according to the chamber--to $9.7 billion from $9.8 billion.
At General Dynamics, once the city’s largest defense contractor with 13,500 workers, half of the employees were laid off or warned to expect pink slips or transfers in coming months. Rohr laid off 1,200 of its 5,300 local workers in 1992 and may let another 1,000 go over the next few years.
Construction
The construction industry is in a nose-dive. Consumer uncertainty, job insecurity and the scarcity of developer financing combined to lower 1992 housing permits to 7,000, a startling comedown from the average 25,000 annual permits issued in the 1980s.
More dismal is the outlook for commercial real estate development. Construction of retail and office buildings nearly stopped in 1992; there were three months last year in which no new apartment permits were issued in the county.
Commercial real estate building permits plummeted to $132 million in 1992, down from $710 million in 1989, said Joe Drew, an economic analyst at San Diego State.
Not surprisingly, construction employment has dropped 25% in two years. That is a particularly bad sign, economists say, because of the multiplier effect that construction jobs have on other industries.
Another example of the city’s problems: SDG & E expects to have hooked up only 11,000 new customers in 1992 and as few as 9,000 this year. That is down from nearly 50,000 new customers in 1986.
New home construction in San Diego has hit a 16-year low, and the median price of new single-family homes fell to $222,900 for the January-September period, down from $254,990 at its peak in early 1991.
Tourism
San Diego’s tourist industry has held its own throughout the recession, showing steady gains in visitor spending. The industry was greatly helped, however, by a series of onetime events: San Diego played host to the 1992 major league baseball all-star game, the America’s Cup yachting regatta and the Volvo International equestrian competition.
But times are tough for the local hotel industry.
A flurry of construction during the last decade added about 19,000 hotel rooms in the county, which now has 44,500 rooms. As a result, average hotel occupancy in the county plunged to 65% in 1992, not enough for a typical hotel to break even, said Bill Hoffman, president of Trigild Corp., a San Diego-based hotel management firm.
Savings and Loans
The failure of Homefed last year, after Great American’s downfall in 1991 and Imperial Savings’ in 1989, raised to about 4,000 the number of displaced financial executives. Many of these laid-off employees have left the city or state in search of work.
The S & Ls took their civic roles seriously, and charities and civic organizations have felt the loss as donations and volunteer rosters have shrunk.
All of the bad news has had a deep effect on San Diego, said John Robbins, president of American Residential Mortgage, an Imperial Savings spinoff. It has injured San Diegans’ consumer confidence, he said.
“This is a very unsettled time,” Robbins said.
Slumping San Diego
San Diego County’s economy was hit hard in 1992. A big drop in defense contracting, the county’s major industry, pushed up the jobless rate. Demand for housing permits also plunged.
Housing Permits Issued (new single and multi-family units) 1987: 31,327 1988: 28,394 1989: 18,813 1990: 15,807 1991: 7,992 1992: 6,200* *
Average Annual Unemployment Rate 1987: 4.5% 1988: 4.3% 1989: 3.9% 1990: 4.5% 1991: 6.3% 1992: 7.3%* *
Defense Contracts (in billions, includes manufacturing, procurement, construction and expenditures by local bases) 1987: $4.4 billion 1988: $4.7 billion 1989: $4.8 billion 1990: $5.1 billion 1991: $4.8 billion 1992: $4.1 billion (*) * estimate
Source for all: Greater San Diego Chamber of Commerce.
