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Economic look at Sonoma County predicts job losses, long recovery

Negative economic impacts of COVID-19 on Sonoma County are projected to linger into 2023, perhaps to 2024, as the ongoing recession moves slowly toward recovery, based on a study commissioned by the Sonoma County Economic Development Board (EDB).

A major issue is how to quantify this impact, both annually and cumulatively, over this period. The study offers given a trio of forecast models looking at better, median and worse estimates for Sonoma County while also finding ways for local companies to stay in business. Those scenarios outline any where from 20,000 to more than 40,000 in job losses.

Economist Robert Eyler, president of Economic Forensics and Analytics, said lost jobs and income leading to falling home prices and large numbers of businesses closing are the largest threats to local economic recovery in the wake of COVID-19 social policies.

In a presentation to the Board of Supervisors on Tuesday, Eyler gave his assessment of the County’s future over the next four years.

Sonoma County COVID Impact Scenarios for 2020

Better outcome

Jobs lost: 20,700 Income lost : $1,539,700,000

Median

Jobs lost: 30,135 Income Lost: $2,421,800,000

Worse

Jobs lost: 48,451 Income lost: $4,134,600,000

Sources: Economic Forensics and Analytics (EFA), California EDD, Bureau of Labor Statistics and California Department of Finance for 2020

His analysis shows that in 2020, the median economic impact estimate will result in a loss of approximately 30,135 jobs, with $2.4 billion in lost business income and $614 billion in lost state and local tax revenue.

This information comes as local government county officials are developing budget strategies for the year ahead, including forecasting future revenue such a big source of revenue, property taxes.

Looking forward to 2023, the estimated cumulative impacts in 2020 dollars for the median recovery scenario are predicted to result in lower job losses (19,880 jobs below the December 2019 level) but with a higher total Gross Regional Product loss totaling $6.157 billion, along with a $1.685 billion loss in total tax revenue.

Another indicator to watch nearing the end of this 4-to-5-year period, is the number of employers that could be lost, which the study estimates at -6.9% for the “median” scenario, with a range between -1.5% and -15.6% for the “better” or “worse” scenarios respectively.

“With more anticipated business closures, we should not expect jobs to recover to pre-COVID levels perhaps for four years,” said Eyler.

“We need a mix of things to happen to minimize future risks, including an effective vaccine to clear impediments acting as a drag on spending. Without this, there is always the possibility of another tumble downhill with a new COVID resurgence and more SIP lockdowns in fall or winter coupled with additional job losses and business closures.”

California has experienced unprecedented speed of jobs losses across all industries. While jobs are slowly returning, the depth and breadth of the recession makes recovery a matter of years – not months, Eyler observed.

Industries heavily affected include retail stores (not groceries) decreasing sales tax revenues. Hotel and motels also have been hit hard, cuting Transient Occupancy Tax (TOT) revenues. Bars and restaurant income has dramatically declined, and salons, fitness centers and non-profits not associated with healthcare have been adversely impacted.

There are some indications that the recovery may – in fact -- be slowing. For example, jobless claims have been on the rise for four weeks in a row, as reported by the Mercury News. Initial unemployment claims during the week that ended on Sept. 5 totaled 237,500 in California, up about 18,000 from the approximately 219,500 that filed unemployment claims in the week ending on Aug. 29.

California accounted for 27% of the unemployment claims filed in the U.S. during the week that ended on Sept. 5, even though the state has only 11% of the nation’s workforce.

The state now lags far behind the United States in its recovery from wide-ranging business shutdowns. The recent surge was attributed to in part by a rise in claims from gig workers and the self-employed.

Between March and July 2020, certain industries remained at risk, along with some cities and unincorporated areas of Sonoma County that have experienced job losses to, or more than 20% from the previous year.

In addition, health care employers – even with front-line first responders standing by -- saw job cuts because many procedures and on-site visits were not possible due to physical distancing concerns.

“Another key concern is can we support -- from a regulatory standpoint -- policies that do not allow businesses to operate indoors when days get shorter and the weather changes?,” he stated.

Housing markets are not showing a lot of problems as yet with more homes for sale, based on the EDB study. Residential prices have increased as of July 2020 from July 2019 for many of the county’s cities with only Healdsburg and unincorporated areas trending down only slightly from last year. Property taxes should follow current estimates if home prices remain stable.

Commercial real estate values and vacancies are likely to see more uncertainty under any scenario up to 2023, according to Eyler.

NBC News reported that Twitter plans to sublet 100,000 square feet of its San Francisco office space as a result of allowing many employees to work permanently from home.

The holiday buying season, expected to be the strongest in years, could provide temporary employment to fill an additional 33,000 Amazon positions and upwards of 100,000 openings at UPS, among other short-term opportunities.

Shifting to the impact on education, Eyler observed that if schools do not reopen, adults may not be able to return to office environments. A trend could develop in the use of residential space as office space accompanied by a rise in professional services to support this model. Such a trend could also trigger municipalities to require business licenses for remote home office workers.

“There is so much uncertainty and lots of caveats, that beginning in October actual economic data will be put into a database to update the model with the most current information and thus update the estimated economic impacts as time moves on so we can better gauge the direction of the economy and more accurately inform ongoing forecasts. This process should become even more refined over the next 2-3 quarters.”

He said a lot depends on who will be in the White House after Nov. 4. Even if policies change, it could still be Christmas before such actions would be generalized and implemented across the nation. Case in point is Prop. 22 on the ballot to allow gig workers at Uber, Lyft and other categories to continue to be independent contractors.

Eyler noted that people should be wary about clinging to optimism based on rising equity markets. These markets are setting values based on looking far down the road, not what is happening now or in the near term.

He said the good news is there is evidence that the national economy began to recover in August, and if this continues – and California follows – the more optimistic of the three forward-looking scenarios could be more likely.

Interest rates in short-term markets are similar to their levels in 2009, based on aggressive Federal Reserve policy to stimulate growth. Spending by the Federal Government on households, employers and governments has been relatively large and ubiquitous.

Job losses are slowly reversing due to measures designed to stimulate economic growth and the gradual lifting of social policies.

Still unknown is whether Congress will approve another stimulus package in the near future or after the general election, but the question is will it be enough.

Positive economic signs and new opportunities include seeing businesses springing up to fill service and product delivery gaps. Housing is looking relatively bullish for the next 12 months. Alternative work and worksite models are emerging, resulting in higher productivity in some cases. There is a significant rise in online virtual training and career education giving people new skills, such as IT upgrades for homes and telehealth support.

Demand for rural broadband expansion could provide workers relocating off-site work beyond the suburbs. The market for those who can innovate, renovate and help design or downsize existing offices for social distancing and to accommodate a reduced staff presence, Eyler added.

EDB Challenges and Opportunities

“We are making every attempt to understand the real impact of the current economic turndown and how long it will last, while searching for ways to assist and sustain the business community,” said Sheba Person-Whitley, executive director of the EDB, who works closely with the Sonoma County Office of Recovery and Resiliency – a division of the Sonoma County Administrator’s office initially created in 2017 to develop a recovery framework after the fires.

“In addition to the recent study by Dr. Eyler, we ran a series of weekly surveys of businesses in Sonoma County asking questions about the effects of COVID-19 and the recession on their businesses from several different angles and assess the general consensus among leaders in this sector.”

Ethan Brown, EDB director of development, said these surveys were distributed from May to June via email and social media channels with responses ranging from 75-80 up to 300 per week.

“One objective of this poll is to see where business gaps may arise given COVID-19’s impact on the economy, and especially what may happen if there is a second or third wave of the virus causing a return to more stringent national, state and local public health orders,” Brown said.

Eyler said summary data is available on the economic impact study, and its findings are documented a 50-page report. While fact-finding is still ongoing, several conclusions can be drawn from data received so far. For example, hours have been reduced across industries and municipalities, with Rohnert Park as the only exception, on average. Unincorporated areas of Sonoma County were hurt marginally more than any of the nine cities.

“We need more data to provide clarity. While we continue to conduct research and gather information, we are also bringing business leaders together to prioritize strategies for addressing their concerns, and frustrations, and to assist in developing models, templates and best practices to help them succeed and recover,” Person-Whitely added. “Some manufacturers already changed product lines to focus on high demand items.”

She pointed out that this process is about problem solving and finding creative solutions. “Our goal is to leverage what we have to achieve recovery. Major challenges lie ahead during the response times after public health orders are issued and following the governor’s change to the four-color reopening criteria. It sometimes takes weeks for the private sector to make changes, such as doing business only outdoors.”

New partnerships with restaurants are being developed including pop-up space, coping with how to handle sidewalk dining that may involve encroachment issues and ordinances, and the process for temporarily closing traffic lanes on certain days and nights as proprietors adopt nontraditional ways to serve customers.

She noted that not every establishment may be able to take advantage of these solutions, and the window is closing for outdoor alternatives, so other public policies and options will have to be brought forward.

Person-Whitley said the EDB formed a steering committee comprised of three working groups of 30 members each who started to address these issues beginning in July.

“Our plan is to reveal a very aggressive report in the October/November timeframe containing recommendations based on what these working groups learned from the economic impact study, EDB weekly surveys and their own experiences. The outcome will be a mid- to long-term plan containing details on how proposed recovery projects will be implemented.

“There are a lot of great things being done in our community as resources and people come together to address common concerns and make a broad impact on the economy. We’re reviewing a number of ideas focusing on we can do, and how to get companies to think about what it means to be resilient when facing economic shocks.”

She said the EDB will also provide guidelines for big-to-micro businesses defining what needs to be accomplished six months from now, and how to put resources together.

“We’re facing an emotional situation for some on the brink of closing and have to keep our eyes on the future,” Person-Whitely said. “Together we can do this.”

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