No one is completely insulated from our economic slowdown.
In February, a local nonprofit – Reason in Government – released a detailed report assessing and grading the economic health of Santa Barbara County. The County did not fare well. It received an overall grade of D+, with several key indicators trending in the wrong direction. Since the release of the report, the economic news for County residents has gone from bad-to-worse:
- The unemployment rate in January was 5.9%, which was substantially higher than December, and only .1% lower than January 2016. It remains well-above the statewide average and the rates in our peer counties.
- The unemployment rate in Santa Barbara County for the past few years may have been higher than previously reported by the Employment Development Department.
- The County Government is facing a $35 million budget shortfall in addition to all of its deferred maintenance obligations. To close the gap, the County will reduce service levels and consider layoffs.
- The Hope School District has implemented teacher layoffs. The Santa Barbara Unified School District may be forced to consider layoffs as a means to close its budget shortfall.
As our local cities begin to review their budgets in light of their increased pension shortfalls, it is likely that this bad news trend will continue through the spring and more service cuts and layoffs will follow.
Why should you care? Indeed, one could wonder whether any of this bad news will have any bearing on South County residents, especially those in the more affluent areas of Goleta, Santa Barbara, and Montecito. In those areas, high employment rates, median incomes, and home values appear to insulate residents from the economic ills plaguing many other communities in the County. But do they really?
The answer is: “Not for long.” Consider, for example, the broad and pernicious impacts of the already high unemployment rate across our County and the prospects for more layoffs. To state the obvious: The unemployed spend less money. This reduces the customer base for retailers, restaurants, general contractors, and many other businesses in our community. Eventually, the loss of customers will cause businesses to fire employees or close, continuing the downward economic spiral. If you are a patron or owner of one of these negatively affected businesses, you have an obvious stake in avoiding this outcome. So do the owners of commercial real estate. Store closures and vacancies are not only depressing, they depress earnings and future rents, thereby increasing the risk of layoffs in these real estate firms as well. The spiral continues. At some point in the not-too-distant future, the ever-increasing number of unemployed and underemployed in our County will be unable to pay their bills, especially their mortgages. As recent history demonstrates, too many houses on the market at once and/or too many foreclosures will depress median home prices – the number one source of net worth for most people. And these effects are not necessarily neatly bounded by geography. A string of foreclosures a couple miles away from your home can negatively impact its value.
The negative effects of high unemployment also extend to public finances. First, cities and the County collect less revenue from sales taxes, permit and license fees, and real property taxes. As Reason in Government reported, this trend is already discernible in public finances across the County. Second, the unemployed may also put more demands on public services. When these impacts are combined with astronomically rising pension and retiree healthcare costs, it is easy to see why our local governments are already facing substantial budget deficits that will need to be addressed through a combination of service reductions, layoffs, and tax increases. Eventually, this downturn will negatively affect your quality of life:
- Your favorite teacher at your local school may be let go;
- Your local library may reduce its hours or close;
- A local road may be covered in debris from slides because there were no nets on the rocky hillside above during heavy rains;
- Your renovation may drag on, even by Santa Barbara standards, because there are no staff in planning and development;
- Homeless may panhandle on your favorite street or congregate in your favorite park as local governments lack funding to provide them with alternatives and needed services;
- Your favorite park may lose its luster from a lack of maintenance;
- There may be no nearby police presence when you call 911; and
- The road to your house may become so littered in potholes that it wears out the suspension on your car.
In sum, like “Instant Karma,” this downward economic spiral is “gonna get you,” no matter your address.
What can you do about it?
Thankfully, we can get ourselves together before our local economy is dead. As Reason in Government has noted, reversing this negative economic news is feasible, but it is going to take sustained efforts by local governments and local businesses, often in strategic partnership, for the next 18-30 months. First and foremost, our local governments must take aggressive measures today to slow the rate of growth in their pension and retiree healthcare contributions. Absent such steps, local governments will pursue both service reductions and layoffs, with widespread negative economic impacts. If you would like to avoid this outcome, write your local elected official today and tell him or her to start controlling pension and retiree healthcare costs. Second, the local business and banking communities, aided by changes in local government policy and regulation, and in partnership with our local colleges and universities, must commit to increasing economic development, jobs, and housing in our communities. If you would like to encourage this type of community-led economic development, consider joining your local Chamber of Commerce, Rotary Club, Reason in Government, or similar civic-minded institutions. We need institutions like these to develop and execute strategies for sustainable, community-led, economic growth. With enough civic engagement on the right set of economic issues, we can “all shine on.”