Far-Off Terrorism Cuts Close to Home
Philip Linssen, co-owner and manager of the San Diego Ice Arena in Mira Mesa, always figured that a few outside players could have a big effect on his small business: the local banker and maybe Fed Chairman Alan Greenspan. But now, he has another name to add to that list: Osama bin Laden.
The awful truth is that terrorism is becoming a permanent factor in the U.S. and world economies.
The terrorist bombing that just killed more than 180 people in Bali, Indonesia, drove that point home. So did the flood of airline industry losses reported last week -- hundreds of millions of dollars in red ink at AMR Corp.’s American Airlines, UAL Corp.’s United Airlines and Delta Air Lines Inc.
Bluntly put, the economy is at a turning point -- and terror is one reason. The easy growth of global trade and access to finance that characterized world business in the last two decades are over now.
“America is at the beginning of a contained depression, a period of generally disappointing profits and financial retrenchment that may last for years,” says economist David Levy of the Levy Forecasting Institute in Mount Kisco, N.Y.
The need to work down corporate debt and correct abuses of the 1990s is to blame for most of the those troubles, Levy says. But terrorism is definitely a factor as well.
Feeling the Effects
Most everyone is familiar with the drumbeat of costs associated with terror. Skyscrapers cannot easily get insurance these days. The newest estimates by the Bush administration and insurance experts show that $15 billion in new building projects and a potential 300,000 jobs have been lost in the year since the great terror attacks of Sept. 11, 2001.
Communities around the globe that are dependent on tourism have suffered, with more losses anticipated in the wake of the Bali bombing.
The federal government has responded rightly to both the terrorist threat and the economic one by spending heavily -- an additional $40 billion this year on homeland security, plus $355 billion on defense, of which about $100 billion is paying for the worldwide war on terrorism. Last week, the White House and congressional leaders worked to create government protection for the insurance industry so projects could get coverage.
But less well recognized amid these ballooning statistics is that the effects of terror have seeped down into the warp and woof of the economy, affecting small businesses directly and indirectly.
Listen, for instance, to the worries of Teresa Covington, chief financial officer of Line 6 Inc., a 208-employee company in Agoura Hills that makes sophisticated guitar amplifiers and other musical accessories that are sold online and in stores in 60 countries. Line 6 will struggle this year to equal its $38.9 million in sales in 2001.
“Our insurance broker has told us to expect a 25% to 35% increase in our general property coverage and 50% in workers compensation for 2003,” Covington says. “I attribute most of those increases to the weak financial conditions of the insurance companies and re-insurers as a result of the terror attacks.”
After the Indonesia bombing and incidents in the Philippines last week, Covington says, “we are greatly concerned about any terror activity in Malaysia since our contract manufacturing is done there.”
$1.9 Billion in Loans
Recognizing the effect of far-off terrorism on small companies, the Bush administration in January set up the Supplementary Terrorist Activity Relief program to guarantee loans to firms that may have been affected by 9/11.
To date, the Small Business Administration effort has lent more than $1.9 billion to 4,897 companies nationwide, including $466.3 million to 1,017 firms in California.
Linssen, the Mira Mesa ice-rink entrepreneur, got one of those loans to upgrade his 30-year-old arena and keep it in business.
The effect of terrorism was slow and indirect.
“On Sept. 11 we closed and stayed closed another day, but people didn’t come back to skating right away,” he says. “It has taken a year to stabilize.
“In an Olympic year like this,” he adds, “we normally would do $1.8 million in annual revenue. But we won’t do that this year.”
Linssen and partners were considering closing up shop.
“I didn’t want a commercial loan with the business so uncertain,” Linssen explains, “but the banker kept insisting that I apply to SBA.”
He did so, and after months of preparing a business plan, the rink won an SBA-guaranteed loan of more than $600,000, enough to pay for a new skating surface and other upgrades to accommodate the young figure skaters and hockey players
who keep the place open from 4:30 a.m. to midnight.
“It’s really impressive to see those young skaters come out so early in the morning to practice,” says Linssen, an accountant by training who immigrated to Southern California from Cape Town, South Africa. “It makes you think that maybe higher profits are not that important.”
A nice thought perhaps. But is it good business for the government to guarantee a loan to an ice arena just because 9/11 seemed to have slowed its already struggling business?
All things considered, the answer is yes. The river of government spending now flowing strong is a big factor in keeping the nation’s economic malaise from becoming something far worse.
In the case of Linssen and his 40 employees at the Ice Arena, their dedication promises to make the place work. It’s a good bet that the loan will be repaid.
In microcosm, the Linssen loan and the many more made to small firms this year reflect the U.S. economy’s ability to adapt -- even in the face of something as menacing as this new challenge of terror.
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James Flanigan can be reached at jim.flanigan @latimes.com.
