Ill-planned N. California fire recovery could sicken ‘good’ economy: expert

Construction work continues on a home being built on Kerry Lane, near Sumatra Drive, in the Coffey Park area neighborhood destroyed by the October 2017 wildfires, in Santa Rosa on Tuesday, February 20, 2018. (Chad Surmick / The Press Democrat)



Economist Robert Eyler, Ph.D., sees the North Bay as having good fundamentals and a few uncertainties during post-fire recovery, but he does not anticipate a local recession before 2020, or one prior to a national economic downturn.

“Overall, the economy is in good shape with positive fundamentals in place. Tax and job reforms should provide a short-term boost without shrinking the economy or posing a long-term threat until possibly 2025 or later,” said Eyler, professor of economics, senior international officer and dean of the Sonoma State University School of Extended and International Education.

Eyler will present his assessment of themes impacting local, state, national and global economies on March 2 at the Business Journal’s Economic Outlook Conference at the Doubletree Hotel in Rohnert Park.


Eyler believes technology companies should keep the economy stable, enabling California to grow faster than the U.S. — with the North Bay helping to feed this broader expansion cycle two to three years from now as ramped up rebuilding efforts gain momentum.

He said real gross domestic product (GDP) projections for the state are trending higher now than they were before 2018 and are predicted to reach 2.8 percent this year. Unemployment rates are lower than expected, as shown in median forecasts for selected variables based on current and previous surveys.

The exception was unemployment insurance claims that spiked in fire-impacted areas in the fourth quarter of 2017. Claims in Sonoma County more than doubled those reported in the 2002 index year and in Napa County by one and a half times the index. Claims dropped back almost to or below prefire levels by January of this year.

In Lake County, two unemployment-claims bumps were seen due to massive wildfires, in 2015 and 2017.

At the same time, payrolls — in terms of total dollar amounts per month — are also seen as moving higher this year than previous estimates indicated.

“While the fires were certainly catastrophic for those affected in four counties, they were not as damaging to the overall economy as some might think — even with a loss of possibly $12 billion worth of housing and commercial real estate stock and insurance claims rising to match,” Eyler said. “I believe insurance underwriters are going to have to find creative ways to fill gaps between existing coverage and the total cost of home replacement or risk a loss of public relations and suffer brand damage.”


A critical question is, how will the region rebuild, he said. Will it be through the provision of more housing units, by building more junior accessory dwellings or by emphasizing multifamily rebuilds over single-family homes? In the final analysis, will we have more or fewer units than before?

The trend among California agencies granting housing permits has favored multifamily units over single-family homes by a ratio of 2 to 1 since the end of the Great Recession in 2010.

At his March 2 presentation, Eyler said he also plans to address value-added economic benefits to be derived from rebuilding in terms of jobs supported, additional revenue from local vendors to construction firms, worker and business spending, as well as state and local taxes.

Eyler will show examples of the potential negative impact on the economy if all the affected households in Sonoma County (17,266) and Napa County (4,200) did not rebuild and opted to leave the North Bay.

Voicing a cautionary note, he sees a regional financial crisis coming unless local government and private entities can collectively develop a recovery plan that includes multiple funding sources and opportunities, while putting aside political concerns in an election year.


Looking ahead, he will point to several events that should be watched closely stemming from geopolitics, bond markets and other factors that could indicate a drift toward recession.

“There are some signs that loan delinquencies are rising, combined with the specter of unpredictable price and interest-rate increases (due to the falling spread between long and short term rates),” Eyler said. “The Federal Reserve is poised to impose higher rates to thwart creeping inflation, and stock market jitters have already led to a 600-point selloff correction, quickly followed by a return to previous all-time highs.”

According to Eyler, heavy fiscal policy and trade wars can speed up a fall toward recession, along with higher import fees, oil prices and the possibility of another increase in initial unemployment claims beyond those seen in post-fire North Bay communities.

“These indicators currently suggest a mild-to-no-recession scenario before 2020,” Eyler said. “Meanwhile, we all need to think regionally, consider funding alternatives as both a dubious and positive impulse as well as an opportunity. We should think in terms of having an adequate housing stock, as well as an ongoing flow of new units, so we can rebuild strategically. It is also important to monitor the effects of a cannabis industry start and take steps to support displaced labor and train local workers — especially for construction-related skills.”

With the generous outpouring of contributions to fire victims, Eyler also sees a nonprofit pinch coming, given donor fatigue. But he still sees a continuing need to give.

“Historically, our region has had a big heart,” he said. “I don’t see that diminishing.”