Up and Humming : San Diego’s Back, With the Help of Telecom and Tourism

When San Diego was named as the site for the upcoming Republican National Convention, the local economy was still whacked-out from its third straight year of recession--one of the state’s bloodiest victims of defense industry cutbacks and savings and loan failures.

But when the political and media hordes descend here this summer, they will find an economy on the mend and employment recovered to pre-misery levels, thanks largely to telephones and tourists. And while Cold War-era prosperity still eludes this military-dominated town, economic energy and mood are in the ascendant.

In just five years, San Diego has emerged as a telecommunications industry hub on a par with the Dallas-Austin corridor, Silicon Valley and North Carolina’s Research Triangle. Seventy companies, most of them new and all trying to tap into the booming market for cellular and satellite communications, have generated 10,000 new jobs since 1990.

After a dark stretch in the early 1990s--when every week seemed to bring word of another defense contractor leaving town--the buzz now centers on the frenetic hiring by companies such as Qualcomm, a wireless communications company, which is adding 200 jobs a month, and National Dispatch Center, adding 70 workers a month. Both say they would hire more engineers and technicians if only they could find them.

Meanwhile, San Diego’s timeless appeal is being rediscovered by tourists, long kept home by recession. Hoteliers and others say this is shaping up as the best year since 1990, with attendance up a strong 13% and more at major attractions such as Sea World and the San Diego Zoo.

A 7% boost in visitor spending is a sure sign, they say, that regional travelers--who account for half the visitors here--feel better about the economy and are finally taking long-deferred trips.

And there’s more, including a surprising net increase in military-based employment despite the defense cutbacks, a surge in business tied to the booming maquiladora industry across the U.S.-Mexican border, a tripling of exports through the San Diego customs district, and continued growth in the community’s leading-edge biotech industry.

The result: After losing nearly 60,000 jobs, or 6% of the employment base, the community now enjoys more jobs than it had at the 1990 peak. The county’s unemployment rate stood at 5.2% in April, well below the statewide figure of 7.3%.

“Those jobs are all back,” said Alan Gin, a UC San Diego professor who tracks the local economy.

The Republican convention, which gets underway Aug. 12, should be the frosting on the cake, serving up a projected $82-million spending feast from 30,000 delegates, guests and media.

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No one is claiming that San Diego’s economy is now or soon will be as potent as it was in the days of the Iron Curtain, before defense giants General Dynamics, Hughes Electronics, Rohr, Teledyne Ryan and others began shrinking or leaving.

Like the rest of Southern California, San Diego is readjusting to a leaner existence without lucrative defense and aerospace contracts. Most of the new jobs simply don’t pay as well or span as much of the demographic spectrum as defense jobs did.

Reflecting that bitter truth is the per-capita income of $22,545 in San Diego County last year--about $800 less, in inflation-adjusted dollars, than in 1989, according to the Greater San Diego Chamber of Commerce.

Proof of San Diegans’ reduced spending power is all too apparent in average housing prices, which, adjusted for inflation, are down 12% since 1990. Homes in the $250,000-plus range, which aerospace engineers and managers once found affordable, have fallen 25% or more. Housing construction is running at about one-third the rate it was at before the recession hit.

Further evidence of the generally weaker economy: Shoppers in the county aren’t buying any more than they did six years ago, even though the population has grown 7%. The aggregate total of retail sales has remained flat in inflation-adjusted terms, said Kelly Cunningham, chief researcher at the Greater San Diego Chamber of Commerce.

In the throes of its slow and painful recovery, San Diego County found out the hard way how dependent it was on defense and aerospace, which accounted for a fifth of the region’s economy. San Diego lost two-thirds of its defense and aerospace jobs between 1989 and 1995, and the region’s economy shrank three years in a row.

“Losing aerospace jobs hurt because they paid an average $50,000--that was twice the county average--and they brought outside dollars into the local economy,” Cunningham said. With the departure of companies such as General Dynamics, which had been filling Pentagon orders for aircraft here since 1935, the city also lost a big piece of its heritage.

Adding to the misery was the failure of the three major locally based savings and loans--HomeFed Bank, Great American Bank and Imperial Savings--which erased thousands of high-paying financial services jobs from the local landscape.

The “net out-migration of spending power from San Diego” caused the sluggishness in retail sales and housing prices, Gin said. Simply put, more people left the county than entered it during the early 1990s. (The population continued to grow because of a relatively high birth rate.)

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Against this tableau, signs of economic life can be detected most obviously in tourism, especially the renewed vigor of the downtown tourist districts such as the Gaslamp Quarter, which just a decade ago was a blighted area. It is benefiting from the foot traffic generated by the San Diego Convention Center, which opened in late 1989 and is now paying handsome dividends in tourism. The center is due for a $180-million expansion to be completed in 1998.

Another sign: San Diego hoteliers are raising room rates for the first time in five years, a sure indication of solid demand, said Lynn Mohrfeld, research manager for the San Diego Convention & Visitors Bureau. In the first four months of 1996, visitors shelled out $1.2 billion, up 7% from last year’s pace.

Four major high-rise hotels with a total of more than 3,000 rooms have been proposed for a one-mile stretch along San Diego Bay in what would be the first spate of new building in a decade. Included in the proposals is a $180-million, 1,000-room Hilton just north of the Convention Center.

“There has been a pent-up travel demand among companies and people who were waiting to see if the recovery would hold. Now that it has, they are saying, ‘Let’s have that meeting and let’s take that trip,’ and that has benefited us,” said Bert James, Hilton’s San Diego-area general manager.

Meanwhile, despite the downsizing of the armed forces in general--and the well-publicized departure from San Diego last month of the Top Gun Navy fighter pilot school and the closure of the Naval Training Center--the San Diego region is coming up a net gainer of active-duty personnel. It already boasted the highest military payroll in the nation, and the military-related population has climbed to 420,000.

Although San Diego lost 10 of its 75 home-ported naval vessels, that’s a proportionately far smaller hit than the average of those taken by other bases as the Navy mothballed nearly half its fleet. Meanwhile, various military support, school and research jobs have more than offset the community’s decline of 17,000 “afloat” personnel.

The latest news is that San Diego Bay has been named home port to a third aircraft carrier: the nuclear-powered Ronald Reagan, on which construction is now beginning. The carrier will bring 4,000 sailors and tens of millions of dollars in supply contracts to the city in 2005.

Another boost is coming from the growth of the maquiladora industry across the border in Tijuana, where Mexico’s export boom and an influx of Asian high-technology manufacturing is generating more business for San Diego suppliers and service firms. Whereas foreign-owned plants in Tijuana once were mainly low-tech plastic-, wood- and metalworking companies, the area is better known now as the largest television manufacturing center in North America.

Sony, Samsung, Hitachi and JVC have moved or expanded here in the last two years. And Matsushita, maker of Panasonic electronics, moved its U.S. headquarters and engineering center to San Diego from suburban Chicago last year to be close to its huge TV manufacturing operation in Tijuana.

“San Diego is selling $2 billion in raw materials annually to the maquiladora industry. That’s $2 billion in legitimate exports,” said Dan Pegg, president of the San Diego Economic Development Corp.

Other industry sectors showing strength are the region’s robust biotechnology community, which has added 5,000 jobs, a 40% increase since 1991, and foreign trade. From 1987 to 1994, the most recent year for which figures are available, the value of San Diego-made goods shipped overseas more than tripled, from $1.6 billion to $4.9 billion. Nearly a third of the 1994 exports were televisions and telecommunications equipment.

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But if there is a new hallmark of San Diego’s economy, it is telecommunications. The community’s brightest corporate stars now have names such as Qualcomm, Pacific Communication Sciences and Comstream. Qualcomm will become the county’s largest nonmedical private employer later this year with 6,000 employees--although it was founded in only 1985.

The region’s telecommunications profile will grow with the arrival this year of the headquarters of the Navy’s satellite-based Space and Naval Warfare Systems Command Center (Spawar) with 800 direct employees and a $4-billion annual budget, a quarter of which will be contracted out to the private sector. To be close to that font of cash, contractors Booz, Allen & Hamilton and Hughes Aircraft each announced they are moving operations and hundreds of jobs to San Diego.

Qualcomm is a brash, home-grown company that is trying to establish its technology as the standard digital language for future wireless products and service, the term for the next generation of cellular services that will combine voice with paging, electronic mail, even video imaging and cable.

The jury is out on whether Qualcomm’s technology, known as code division multiple access, or CDMA, will prevail against other wireless methods--and if it fails its commercial introduction, many of the newly created jobs could evaporate. But for now, the company is hiring feverishly and snatching up some of the buildings that defense contractors left vacant after hurriedly leaving town or closing up shop altogether.

From one small office and six employees in 1985, Qualcomm now occupies 2 million square feet of manufacturing, office and lab space in the Sorrento Valley area north of downtown. In fact, a hiring frenzy among San Diego telecom companies is underway here with technical help-wanted ads plastered on billboards and buses. They have participated in job fairs as far away as Atlanta and Miami in a bid to attract electrical engineers and technicians.

Pacific Bell, with 200 new jobs, and Nokia, with 400, both moved here recently to be close to the action.

Human resources executives at the new firms sprouting up in industrial parks in Sorrento Valley say the only limit on hiring is a paucity of qualified candidates.

To help fill manpower needs, Qualcomm and nine other telecom companies are helping to fund the new Center for Wireless Communications, which opened on the UC San Diego campus in 1995, in hopes that the research and education program will generate future job candidates.

But the dislocations linger.

Unfortunately, many engineers and technicians who lost their jobs because of defense cutbacks have found that their skills were not easily transferable to telecommunications employers. Many of them were forced to leave town and sell their houses at a loss or retrain for lower-paying work, which helped depress real estate values, Cunningham said.

He added, “We don’t see the boom of the 1980s happening over again yet, but we could be in the middle of one by the end of the decade if high tech and international trade keep growing.”

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Economic Snapshot

San Diego County jobs are on the rebound...:

Since 1990, the region lost 58,500 jobs in aerospace, missile manufacturing and finance, although those losses were offset by gains in other categories. Today, the county’s nonfarm wage and salaried employment base has shot above 1990 levels.

1990: 977,600

1995: 991,800

...while the number of military employees and beneficiaries never stopped growing...

Defense cutbacks hit San Diego County hard, the economy was sustained by steady growth in the number of uniformed personnel, civilian defense employees and military retirees.

The County’s total military-based population:

1992: 363,000 (13.8%)

1993: 365,000 (13.7%)

1994: 372,000 (13.7%)

1995: 415,000 (15.1%)

1996: 420,000* (15.2%)

* Estimate

Source: Economic Research Bureau, Greater San Diego Chamber of Commerce

...but countywide average home resale prices still lag.

1992: $235,425

1993: $222,172

1994: $219,892

1995: $218,991

1996: $216,660

Note: Sale prices are for January through April each year.

Source: California Employment Development Dept., Economic Research Bureau, Greater San Diego Chamber of Commerce, San Diego Assn. of Realtors, State Board of Equalization