North Bay economy being pulled by remote worker shifts, state population exodus

Pandemic isn’t the only thing reshaping the economy of the North Bay and Bay Area by confirming the idea that workers can work from anywhere. Experts also said Wednesday that housing and taxation are driving people and business from the state.

In a webinar, “Forecasting the Future” organized by the Marin Economic Forum, Jim Wunderman, CEO of the business group, Bay Area Council, said the organization’s Economic Institute found that nearly half of all Bay Area residents have occupations that are remote work “eligible,” including 51% of those working in San Francisco County, 39% of the workforce in Marin, 32% in Sonoma, 29% in Solano and 26% in Napa counties.

Wunderman said more tech companies are predicted to look to a hub-and-spoke relocation model (37.3% of those surveyed by Initialized Capital’s Annual Portfolio Survey) while an additional 36.1% say a fully decentralized, remote work paradigm may emerge

An introduction to the forum was presented by Mike Blakeley, CEO of the forum, followed by an economic overview and forecast from Robert Eyler, the organization’s chief economist and dean of Extended and International Education at Sonoma State University. Marin County Supervisors Judy Arnold and Damon Connolly provided input on the state of recovery in Marin County, and Assemblymember Marc Levine representing Marin and Sonoma counties presented a recovery update at the state level. More than 275 individuals registered for this virtual presentation.

Third-highest unemployment

Wunderman noted that California’s unemployment rate was third highest in the nation with 9% unemployed as of December, up from 8.2% in November, based on U.S. Bureau of Labor Statistics.

The California Employment Development Department reported that Bay Area’s unemployment rate was 6.8% as of Dec. 20; Sacramento 8.5%; and Los Angeles at 10.7%. Locally, urban areas such as Napa saw unemployment at 7.3%, Santa Rosa 6.5%, San Francisco 6.1% and San Rafael 5.5%.

He reported that the Bay Area lost 321,300 jobs since the beginning of the pandemic with the highest losses seen in the leisure and hospitality sector (-31.5%), information (-8.6%), government (-8.5%), wholesale trade (-8.4%), manufacturing (-7.2%) and education and health services (-5.6%), based on EDD seasonally adjusted statistics.

During this period, Marin County experienced larger percentage job losses led by leisure and hospitality (-22.8%), personal services (-19.3), retail trade (-14.5%), wholesale trade (-12%), information (-11.5%) and government (-10.2%).

Residents are leaving California

Turning to the longer range picture, he highlighted the exodus from California and the Bay Area, along with other large urban U.S. cities such as New York. One example, as rents decline in some areas, like San Francisco (23.9%), they are rising destination locations such as Boise (+15%) or Dallas (5.2%).

As fewer people come to California, over a three-year period, its population declined by 430,452, the first time since annual counts began in 1900, according to Wunderman.

He cited figures which point to a lack of affordable housing. During 1955 to 1989, the average number of new housing permits issued statewide was 205,000. From 2006 to 2020, the average number of permits issued fell to 90,000, according to the Construction Industry Research Board and California Homebuilding Foundation Reports for 2005, 2013, and 2015.

“In 2018, the 9 Bay Area counties produced just 15,400 new housing units – with Marin’s share of that total at 100. That year some 1,500 babies were delivered at Marin General Hospital, where will these children live in the future?” Wunderman added.

Tax rates also may be driving people out of state.

Individual income tax rates here are at 13.3% while most other states are below 10% and many have single digit rates. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have none.

California’s corporate income tax rates are also high (8.84%), but below those in Pennsylvania, Iowa, Minnesota and New Jersey. By comparison, New York’s corporate tax rate is 6.5%. States without corporate income tax include Wyoming, Nevada, Texas, South Dakota and Washington.

At the same time, Wunderman said California’s general fund spending continues to rise with a 6.6% compound annual growth in general fund expenditures since 2011–2012, according to the California Policy Center.

Venture funding pulls back

On top of that data, Wunderman believes a pullback in venture capital investment in the region could be beginning with the Bay Area share of venture capital investment declines posted from the first quarter of 2018 through the third quarter of 2020 and companies like Oracle, Digital Realty, Toyota, Palantir, Hewlett Packard Enterprise, Charles Schwab, CBRE, the North Face, Jamba Juice and McKesson deciding to move headquarters out of state.

To respond, Wunderman said the Bay Area Council has launched a Business Climate Initiative.

“We want the state to put renewed focus on business attraction and retention, while also addressing a myriad regulatory hurdles that affect the economy, and taking major steps to address homelessness and housing unaffordability,” he concluded.

Economist Eyler cautioned that challenges will remain for the travel industry along with public finance challenges that parallel relief efforts. He estimates that housing stability issues will remain to 2022, but said “price rises will be a blessing for owners, and a curse for those trying to own their own homes.”

National economic growth expected through early 2022

A key measure of the economy involves comparing changes in real gross domestic product growth. In the first quarter of this year, the real GDP percentage is predicted to be 3.2%, estimated to rise to 5% in the second quarter and 5.3% in the third quarter then taper off to 4% in the fourth quarter, according to the Federal Reserve. It expects 3.7% growth in the first quarter of 2022.

While U.S. job losses occurred between April 2020 and January 2021 in all industries, Eyler said the hotel/motel sector saw jobs numbers drop by 33.4%, along with losses in food service and drinking place jobs (-18.8%), as well as among educational services (-11.5%), and personal service providers (-7.7%).

While employment recovery from the Great Recession of 2008 was “V” shaped, the COVID-19 recession recovery will be more gradual, lasting for an estimated 76 months, according to Eyler.

Business expectations on the rate inflation show a rise to just about 2% by December 2019 to 2021, while the actual personal consumption expenditure (PCE) inflation percentage, a measure of consumer spending, is estimated to be at 2.3% as of December 2020, according to figure Eyler cited from the Federal Reserve Bank of Atlanta and FRED.StLouisFed.org.

North Bay counties retain their residents

He said household migration in-and-out of Marin County from the second quarter of 2020 through Feb. 1 were balanced almost equally by numbers of those leaving and arriving, with Marin having a net positive number of inbound households of 0.3%. This is also the case in other North Bay counties, compared with a 56% loss in San Francisco County.

Marin government opens its coffers in the pandemic

Marin County Supervisor Arnold (District 5 in Novato) said the focus from the start of the pandemic has been is on developing an economic vitality strategy and other efforts underway through the Marin Economic Task Force.

“Without waiting for CARES Act funds to arrive, on April 14, 2020, the Marin Board of Supervisors passed the first small business disaster relief fund for COVID-19. Through this partnership with the City of San Rafael, County of Marin and our board of supervisors supported matching up to $50,000 to any participating city or town,” Arnold said.

She said more than $250,000 for small business grants was raised and distributed to San Rafael businesses. Novato’s small business fund raised over $360,000 with a contribution of $200,000 from 2,000 video game companies. Other major donors contributed, and 76 small businesses in Novato received a grant to help maintain jobs and support the local economy. Additional cities followed suit.

Countywide, over $1.1 million was raised and distributed. The county, through the Community Development Block Grant Program, received $950,000 in additional CARES Act funding which was allocated toward small business owners in Marin.

“These federal funds will be used to disburse $800,000 in zero interest loans and $115,000 in grants over next few months. Some 53% of small county/small business fund will be targeted for businesses in or near San Rafael, 27% in Novato and 20% to the rest of the county,” said Arnold.

Funding distribution is tied to the corona’s infection rate throughout the county. The county’s partner on funding distribution is the Marin Economic Development Agency (MEDA) working with community partners to promote the program.

At the policy level, Supervisor Connolly and others are looking at having an impact on specific communities, such as the Latinx community in the San Rafael Canal area where some residents affected by COVID live. This community represents 16% of Marin’s population, and 54.5% of the county’s confirmed COVID cases as of Feb. 21.

“In July 2020, that case rate was about 80% of cases countywide. High risk occupations such as construction, food service, caregiving and crowded housing conditions contributed to the spread of virus. Persistent racial disparities in employment, income and housing and access to health care contributed to spread of virus.

To date $13 million in emergency rental assistance has been provided. Partnerships with city of San Rafael, the Canal Alliance, Marin Health and Marin clinics have added testing sites within walking distance of canal neighborhoods.

“We recognized early that small businesses were hard hit. Workforce alliance of north Bay, supervisor Arnold and I are collaborating on an Employer Advancement Retention Network (EARN) to create a stakeholder network where members enhance business vitality and talent retention through efficient and effective use of local resources. The idea is centered on offering a single point of contact for triage where network members unable to meet a specific business need can refer a business.

Assemblymember Levine, representing the 10th Assembly District including Marin and Sonoma counties, recently voted for an economic recovery package that will provide $2.1 billion in grants to small businesses and nonprofits impacted by the pandemic. Billions more in aid is being made available to support to low wage families impacted along with billions more in PPP aid just released is on its way to small businesses.

“We are making progress, but the State of California has to do more. A lot of things did not work well in 2020. We need to focus on the economy we need and one that works for everyone,” he said. “The MEF’s call for an economic development agency in Marin County is an idea whose time has come.”