For Sacramento, the New Economy Comes at a Price

Robert Fountain still remembers the smell of tomato soup drifting from the downtown canneries into the lazy streets of this capital city. It was 1976, and the young economist had moved here from West Los Angeles to draw a paycheck from government, like practically every other worker in town.

The city was, in every sense, “a plain vanilla government town,” Fountain recalls. “It was two years before I saw a Rolls-Royce.”

Nowadays, Fountain is similarly incredulous. But it’s from the plethora of luxury cars on congested roads, the construction cranes rising in the Sierra foothills and the arrival of firms with names such as EarthLink and NextLink--all of which speak of the dramatic growth and transformation of this region.

During the last decade, a steady stream of high-tech and other businesses and people from the Bay Area and Southern California have flowed here, in search of more space, lower costs and quieter lifestyles.

They have linked Sacramento more closely to the Bay Area economy and helped make it one of the nation’s fastest-growing regions--a trend that is projected to continue in the next decade. Since 1980, the four-county Sacramento area’s population has grown from 1.1 million to 1.7 million, a 55% increase.

Job growth has brought greater economic diversification. But the arrival of high-tech firms has been a double-edged sword. Sacramento hasn’t received a proportionate share of technology’s higher-end jobs. Nor does more high-tech equate to more stability.

Just this week, Japan-based NEC Corp. said it would shutter Packard Bell’s computer assembly plant here, eliminating the more than 1,000 jobs that remained after previous cutbacks. The plant once employed several thousand workers at the site of the old Sacramento Army Depot.

Government employment has been inherently more stable, but its overall share of the area’s employment, 45% in the mid-’70s, has dwindled to one-fourth and will slip further. McClellan Air Force Base is set to close by 2001, eliminating 8,000 or so high-paying federal jobs left there. Still, economists see little slowing in Sacramento’s job growth.

To many here, the bigger question is how the region will emerge from all this rapid change. The area’s growth has raised hopes of building a more diverse and culturally rich urban center, befitting the capital of the world’s seventh-largest economy. But it also has evoked images of another San Jose or Los Angeles, with soaring costs, traffic nightmares and unsightly sprawl.

Sacramento already is grappling with a host of urban issues--a widening income gap, gridlock, excessive smog--that were more or less absent when life and commerce were dictated by the slow rhythms of government and agriculture, as they have been for much of the city’s post-Gold Rush history.

“Government and farming no longer dominate as they did, and they never will again,” says Al Gianini, head of the Sacramento Area Commerce and Trade Organization, a private group that has pushed the transformation with aggressive recruitment efforts.

One of its latest recruits is EarthLink, an Internet service provider whose arrival reflects the region’s new economy.

For a year, Pasadena-based EarthLink scoured the country for a suitable site for a customer call center, jetting to places such as Seattle, Baton Rouge, La., and Charlotte, N.C. But it settled on a place just north of downtown Sacramento, where last month 400 technical assistants were moving into a blue-tinted building overlooking a grove of oak trees.

EarthLink liked Sacramento’s comparative costs, available work force and proximity to its headquarters--a plane hop away yet safe from earthquake risks. (Sacramento has no identified fault lines.)

The biggest draw, though, was the ample and well-educated labor supply. Earlier this year when EarthLink held a job fair, lines spilled out to the street. The area’s unemployment rate has since fallen to less than 4%. But that’s still higher than the Bay Area. And the educational level is well above average.

Garry Betty, EarthLink’s chief executive, says that in Sacramento, he’s finding one potential hire for every five applicants. In the L.A. area, the ratio is 1 to 20.

Propelled by firms such as EarthLink and the region’s two high-tech pillars, Hewlett-Packard and Intel, information technology employment has increased to more than 71,000 in the Sacramento area, according to the forecasting firm RFA. That’s 11% of total employment in 1998, a hair above the national average.

By comparison, government still employs about 170,000 in metropolitan Sacramento, which provides a stable core of middle-class incomes and keeps downtown thriving. But the numbers have changed little over the decade. Three years ago, services overtook government as the region’s single largest employment category.

Much of the services growth has come from the Bay Area as well, as Sacramento has become the Bay Area’s low-cost alternative--much the way the booming Riverside-San Bernardino area has been to Los Angeles and Orange counties.

But the spillover has been a mixed blessing. EarthLink’s customer service workers, for example, start at $10 an hour, but the company hasn’t opened any engineering, research or marketing functions in Sacramento. That pattern has been repeated by other firms moving here.

Another downside to Sacramento’s growth is air pollution. Last year the Sacramento area had 42 days when ozone levels exceeded state standards--twice as much as a year earlier.

“I find myself clearing my throat more often,” says Earl Withycombe, a Sacramento native and environmental engineer.

Increased traffic congestion, meanwhile, has spurred officials to expand or build roads, raising the ire of residents. One neighborhood group, called “No Way LA,” sued to block the county from widening Watt Avenue, the main north-south thoroughfare connecting Interstate 80 and U.S. 50 that leads to the sprawling suburbs.

Still, people are drawn by Sacramento’s open space--and its bargain prices.

Jenny Newcomb says she “wanted to get out of the mad and crazy rush of San Jose.” So earlier this year, she took an administrative job at EarthLink. After selling a modest home in San Jose, she and her husband had more than enough to buy a 2,100-square-foot house by a new golf course in Roseville, a booming city in Placer County 20 miles to the east.

The typical house in Roseville, although expensive by Sacramento area standards, runs about $170,000--half the median price in the San Jose area.

Newcomb’s house sits by the second tee and near Hewlett-Packard, Roseville’s benefactor. The Palo Alto firm arrived in 1979; it makes networks and tests instruments in Roseville. Employment has grown to 5,500, more than a third hired since 1995. And the company is bulking up again, as Asia’s economic recovery boosts its overseas business.

One reason the firm came was the quality of life--the rivers and lakes, the Sierra nearby. The other was available space; its campus today encompasses 500 acres. HP’s arrival lured others this way, such as Schoolhouse Software, once based in Thousand Oaks.

Robert LeVine, Schoolhouse’s president, boasts that it takes him just three minutes to get to a river to water ski. He flies around in his own plane. “It’s close to San Francisco and less than an hour [by car] to Napa,” he says.

The region’s other boomtown, Folsom, lies about 10 miles southeast of Roseville. The city’s population has nearly doubled in the last decade, to 50,000. The big driver isn’t the famous state prison but chip maker Intel, which employs 5,400 in research and development. Its annual payroll there nears $250 million.

All of this has created much wealth in the foothills, but has also fostered a growing disparity between the sprawling suburbs and Sacramento. Placer County now ranks as the state’s seventh-wealthiest county; its income per person averages $31,105, ahead of Orange County.

Average incomes in Sacramento County, where most people in the region live, are far more modest: $25,392, slightly below the statewide norm. Part of that has to do with the county’s larger size and age. The city of Sacramento has older housing stock, for example. But the city also can’t compete with the suburbs in space or amenities, so Sacramento has tended to get more production or assembly jobs.

Like low-cost Phoenix, Sacramento has also become an outpost for processing data, telemarketing and handling calls from customers nationwide. Those jobs, too, generally pay modest wages.

Rusty Hammer, head of the Sacramento Metro Chamber of Commerce, worries about the growing disparity. More encouraging, he says, is how Sacramento’s growth has brought more cultural diversity. He points to Sacramento’s Asian American vice mayor and the addition of another African American and another woman to the City Council.

Townsfolk talk about Sacramento’s livelier night life, the new Hard Rock Cafe downtown and the construction of a stadium for a minor league baseball team, to go with the city’s one major league pro franchise, the basketball Kings. There’s hope of reviving the city’s symphony.

Another promising effort underway is the North Natomas development, which will add 30,000 houses just a mile north of downtown Sacramento. Officials hope that will shorten commutes for downtown workers.

But that doesn’t address the lack of roads to absorb the growth in the suburbs. And environmental groups are preparing a lawsuit to block 58 road expansion projects.

“Where we are falling down as a region is on the transportation front,” says Paul Hahn, Sacramento County’s economic development director.

In large part, that’s because the area’s four counties are growing at varying speeds and have different attitudes about development, typified by Yolo County’s preservationist style and Placer’s more freewheeling ways.

Hammer, the chamber executive, calls Sacramento’s ample supply of land a blessing. And thus far, the region has benefited handsomely from it. But he and others know it could become a curse.

“We’re growing rapidly, much like San Jose and Southern California did,” he says. “But we have the opportunity to look ahead and learn the lessons from them.”