Removing Bay Area’s ?‘self-created’ economic limits

Micah Weinberg, Ph.D., president of the Bay Area Council Economic Institute, will be the keynote speaker for North Bay Business Journal’s 2015 Construction Conference on May 27, talking about the state of the Bay Area economy.

From mid-2011 through January of this year, he was a senior policy adviser on health care matters for the council, an advocacy group backed by nearly 300 of the region’s largest employers. Now he manages the council’s research team.

Since 2011 Weinberg has led his own health care and economic-development research firm, Healthy Systems Project. He has been a regular guest expert in news media, journals and lectures on the transformation of health care, focusing on insurance market reforms under the Affordable Care Act.

Weinberg spoke to the Business Journal about what’s most concerning for employers in the region. In the interview, he warns of a “bubble mentality” of taking the currently hot economic growth in San Francisco and Silicon Valley for granted.

“As economic development planners begin to think about the next five years, there is a likelihood of another economic downturn, and it could come sooner,” he told the Journal.

What are the top five issues facing Bay Area businesses?

Weinberg: We won’t be unique in our perspective of this.

First is housing affordability at all levels of income. You often hear about “affordable housing.” It’s important to make sure that we have government subsidized housing for very-low-income people, but we’re at a point now when folks making hundreds of thousands of dollars a year are finding that they have very limited to no housing options. In addition to being a tremendous financial strain for families across the income spectrum, it’s a real challenge for employers, who are having trouble with attracting and retaining talent because of the fairly high cost of living in the Bay Area.

This is largely attributable to a lack of supply of housing. We’ve underbuilt by about 100,000 housing units a year for the past 30 years on the coast of California. We’ve certainly underbuilt in the Bay Area by tens of thousands of units every year for the past several decades.

When I talk about economic development with other communities across the nation - I’ve done economic-development studies in Ohio, Illinois, North Carolina and lots of other places - largely the conversation is how do we attract industries here, how we retain the industries that we have, what industry clusters do we want to build and how do we export more goods. That is important, to some extent, in the Bay Area, and it’s more important, perhaps, outside of the urban core. And we definitely need to think about growing businesses.

But broadly speaking, our challenges in the Bay Area are self-created. It’s not much a matter of attracting businesses here. It is getting a handle on some of these substantial regional challenges that we have in order to ensure we keep this regional economy, which is the envy of the world, from essentially choking itself out, because of a lack of affordable housing, because of clogged highways.

Second: regional transportation. We should already have a BART 2. We should already have another bridge across the bay. We should already have many more ferries. There are some improvements to our roads that need to happen, but much more than that there are improvements to how we use our existing infrastructure that need to happen.

There is a lot more we need to do to increase throughput on our existing highways. There are all sorts of intelligent metering systems and mechanisms for charging folks for using different highways at different times that could dramatically reduce commute times while we got a better throughput on the highways.

The issue is we really don’t do any of this on a regional level. There are these HO/T [high-occupancy or toll] lanes near San Jose. There are different places - almost randomly, it seems - we’ve got different types of HOV lanes. In some places, roads are metered; in some places, they aren’t.

Some say that HOV lane utilization rates, if they are 10 percent, they’re doing good, and that metering lights are only really needed at poorly designed choke points and should not be applied to a wide area.

Weinberg: Part of the problem is that we create a lot of poorly designed choke points in the Bay Area by doing a lot of the transportation development on the county or local level. Highways go from four lanes to two. We have a lot of problems we have created for ourselves.

You’re right, there are a lot of different strategies that need to be deployed in concert with each other. There are some that are more effective. There are some that are less effective. But because we have 110 or more local governments, special districts and JPAs [joint powers authorities] in the Bay Area, there is a very limited capacity to the regional transportation funding and planning that we really need to do.

MTC [Metropolitan Transportation Commission] does the best job it possibly could, but it is hamstrung by federal lack of funding for transportation, state bureaucracy for transportation and various other state regulations and the local dynamics of transportation funding. When you have a poorly functioning mishmash, it’s no surprise.

The 101 corridor is the artery of the most-innovative economy in the entire world, and it is the stupidest highway. The metering is all messed up, to the extent there is any. We’re not deploying the HOV or HO/T lanes effectively. It is a really dumb, old highway, and we’re paying for it.

There’s a bill in the legislature right now - AB 378, carried by Assemblymember [Kevin] Mullin [D-San Mateo] and sponsored by the Bay Area Council - that would try to get some traction on this and improve a number of aspects of the 101.

What are the other three trends?

Weinberg: Third is workforce development. It is an area where a mishmash of institutions leads to a lack of regional coordination.

I was very struck when I gave a talk at the North Bay Leadership Council that had both employers and educators in the room. The employers were all calling out their workforce needs as being this really big priority, and the educators were essentially saying we’re training these people for you. Even though these people are in the same relatively small communities, compared to the other population centers in the Bay Area, and they’re in the same room as members of the same group, we’re not producing the workforce that we need, whether it’s high school graduates that have STEM [science, technology, engineering and mathematics] education or college graduates with workforce readiness.

It’s actually across the life cycle. One of the biggest challenges employers face on the workforce side is the retirement of baby boomers and the need for people with middle-management skills to come in.

Fourth, 21st century infrastructure. The most exciting stuff in broadband is happening outside of the Bay Area - sort of shocking. The places where the superfiber and other things are put in are not in the Bay Area.

It is difficult to do anything in California that involves any type of infrastructure: permitting, coordinating with local governments and dealing with California Environmental Quality Act.

We have these enormous data and energy needs. We’re riding into the 21st century on the back of the Pony Express. There are infrastructure needs around creating a smart grid that can use these renewables we’re requiring folks to have and making sure we have the amount of digital data transmission capacity that we need.

Fifth is figuring out how to share the prosperity broadly a culmination of all these trends. It’s actually a pretty big challenge for the Bay Area. We are not creating middle-wage jobs, for the most part, in our community. We are creating high-end, well-compensated information-sector jobs on one end and very-low-end, low-skill, low-compensation service-sector jobs on the other.

There has been a bit of recovery in manufacturing, but it is mostly advanced manufacturing, which is really not that personnel-intensive. The operations of organizations are often kept in different parts of the country. The headquarters, with the middle-level operations, are often elsewhere.

People have different strategies for creating prosperity that is more broadly shared, but we need to ask ourselves seriously these questions in California. It is easy to get upset at the rich or get upset at employers or get upset at whomever your ideology says you should be upset at, but we need to step back and ask why aren’t we producing the middle-wage jobs that are going to not Mexico but, in a lot of cases, Oregon, with companies relocating their operations up there. Why aren’t those jobs here?

It’s a conversation around which we need to have more modesty as a region and be careful not to default back to our easy ideological “It’s the fault of the rich” or “It’s the fault of Obama” answers to this. We’re creating this two-tiered economy, not because anyone necessarily likes it but that’s the nature of the situation in which there isn’t affordable housing for anyone, it’s difficult for folks to get around, the cost of business is as high as it is and so on. We need to be modest about our certainty on the answers.

Anything else?

Weinberg: Anyone who tells you with any degree of certainty that they know when the next economic downturn is coming is lying to you. I don’t know, and no one knows.

However, there are a number of economic indicators that make now look a lot like the end of the 1990s. Whatever economic strategies we come up with need to endure and need to be resilient, not only for the economy but also the state treasury.

I’m worried that we have a bubble mentality in what to do about some of these things. We’re taking our economic growth for granted and we are assuming it will continue, inflating the valuations of various companies with uncertain business plans to just nosebleed heights. As economic development planners begin to think about the next five years, there is a likelihood of another economic downturn, and it could come sooner.

When the economic downturn comes, we need to be careful not to sell the farm. Overnight, people go from taking economic growth for granted to doing too much, whether it’s tax incentives for companies to site their facilities. Creating a more resilient economy means tackling some of these generational issues I’ve outlined.