A State of Turmoil As Director of the California Economic Forecast, Mark Schniepp says developing a business-friendly environment is crucial for the state and Valley’s long-term economic health By SHELLY GARCIA Senior Reporter Mark Schniepp knows about Sacramento’s budget crisis he was cut as the senior economist to the State Controller’s office as a result of it. But as the founder and director of the California Economic Forecast, an independent economic and demographic research group, Schniepp doesn’t really need to rely on his personal experience to know that these are troubled times for the state, and the various California counties. Specifically, Schniepp believes that unless California is able to dig out of its position as one of the most onerous places to conduct business, the economic climate for the state, along with Los Angeles and the San Fernando Valley, is not likely to take much of an upward turn. Schniepp, who was senior economist with the California State Controller’s office from 1999 to 2003, had also been head of the Economic Forecast Project at UCSB for 15 years, and spun off the California Economic Forecast about 10 years ago. The research group monitors economic and demographic trends and develops forecasts for each of California’s counties along with a number of government agencies and public and private companies. On May 25, he, along with Gary Zimmerman, an economist with the Federal Reserve Bank of San Francisco, and Daniel Blake, the head of the San Fernando Valley Economic Research Center at Cal State Northridge, will discuss his take on the economy and prospects for recovery at the university’s second annual economic forecast at the Sheraton Universal. Question: What are the factors most likely to influence how the budget from Sacramento will look? Answer: The tax revenues coming in are not that auspicious, so there’s probably going to be increasing pressure for even greater budget cuts than thought, if not greater pressure to raise taxes. Q: The most recent headlines note that the national economy grew at a 4.2 percent rate in the first quarter. Has California not kept pace with that growth? A: The Bay Area has dragged down the state of California. When you ask how California is doing, the answer to that is what’s California, because there is such a split of economic progress depending upon which jurisdictions you look at. Southern California is growing, particularly the inland areas the Inland Empire, Santa Clarita and Kern County, Northern San Diego, that’s where all the momentum is right now. But the Bay Area and those regions, they continue to lose jobs and there’s not very much momentum at all. Q: Why hasn’t the growth in the Southern regions compensated for what is happening up North? A: There’s no job growth in the aggregate L.A. area. When you add it up, L.A. County is still losing jobs as of March of this year. When you add in the downward impact of Santa Clara County and San Francisco, that tends to neutralize the jobs. During March, California, which represents 11 percent of total employment in the nation, only created 2.5 percent of the total job creation of the nation. So we are not performing as well as the country right now. Q: What are the prospects for such things as business tax reform, which the city of Los Angeles has been struggling with for years? A: There are a lot of things on hold because of that wait-and-see thing. I think the prospects of (cutting taxes) are remote in this environment, even though prudently it would probably be the wisest thing to do because you want to make L.A. County much more business friendly. We have to do whatever is humanly possible in as exaggerated a manner as possible in order to show the world that California is changing and opening the doors to business growth. Q: How are the recent increases in gas and foods like milk and meat likely to affect consumer spending, which has held the economy together? A: Gasoline is a volatile commodity. We anticipate that going down again. That’s temporary. Same with food. And you have to understand that at the time energy and food is going up there are other things going down broadband, electronics, cars, plasma screen TVs so there’s both things happening. They do look like they’re hitting the motherhood and apple pie issues, but in the grand scheme we need to look at an index of prices and that is not runaway at all. I think what we should be concerned about mostly is the fact that interest rates are rising and that will affect homeowners who have adjustable mortgages and that’s a more immediate issue. It will affect housing costs. But we need to see to what extent interest rates will rise. Q: The national economy grew by 4.2 percent in the first quarter of the year. How did our area compare? A: It takes about a year to get the state data. When I look at L.A. County criteria over the first few months of the year, I see no job growth, but at least we’re cutting the losses; very slow income growth. There’s a few more homes being permitted but not significantly. Motion picture production is up, but not really in terms of employment. We’re at a level of employment in motion picture production which is equivalent to 1995. Manufacturing is in the tank. Retail seems to be up, so people are spending. Q: Why has job growth been so slow locally? A: There are very, very steep home prices with very little building so employers who want to hire in the main population centers really can’t. Given that unemployment rates are extremely low, anyone who wants a job has a job. So if there were anyone to hire there’s only two choices people have to come in and relocate or they have to commute. It’s impossible to relocate because housing prices are up there and it’s nearly impossible to commute because traffic is so bad. I’m exaggerating a little bit, but the housing crisis is certainly affecting employment growth. All the growth is inland. It is in the Inland Empire and Kern County. Q: What other issues are impacting job growth? A: We also have the business climate issue and that means workers’ comp which is still going to be a wait-and-see issue. This passage of (the reform bill) is not going to cause everybody to start hiring. Then we’ve got the highest cents per kilowatt hour in the nation in the industrial sector. Then we have very, very high corporate taxes, eighth in the nation. And then companies selling their products, particularly the final users, are taxed with the highest sales tax in the country, so that makes the consumers more discerning of whether they buy it from a California firm. So all those things add to the anti-competitive environment of California. Q: What’s your take on the whole outsourcing issue and how it is affecting employment? A: I’m a firm believer in outsourcing. We don’t really do that much basically because it’s very hard to find those people here. We all talk about how outsourcing takes away jobs but at the same time it makes the same products that are made by outsourced labor a lot cheaper. That circulates more money, that causes business to expand we actually could end up hiring more people. So we forget the other side. Q: What are the prospects for the region in the coming year? A: Southern California will continue to probably lead the rest of the state in growth but the employment growth will still be modest, probably 1.5 percent, and that’s probably because of the Inland Empire helping to pull things out. The national expansion is doing so well and that’s our biggest customer and there will be more orders from producers. And things will be OK in the short run. We don’t have high unemployment, we don’t have high misery. SNAPSHOT: Mark Schniepp Title: Director, The California Economic Forecast Born: Feb. 12, 1956, San Diego Education: Bachelor’s degree in economics and mathematics and doctorate in economics from UCSB, 1982 Career Turning Point: Leaving academics Personal: Married, three children Most Admired Person: Nostradamus
