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HomeMy WebLinkAboutNB-Public Works POTENTIAL ECONOMIC IMPACT OF THE DEFENSE FINANCE & ACCOUNTING SERVICE I i ON THE EAST SAN BERNARDINO VALLEY Ma>@ 1992 .CAP econolic and political analrsis 3142 Cactus Circle Highland. CA 92346-1739 (714)425-8952 PAX (714)425-8952 rJ ~ /1 ~ /1' . ECAP ec:ono.ic aDd political analysis 3142 Cactus CI rele Highland, CA 92346-1739 (714)425-8952 FAX (714)425-8952 POTENTIAL ECONOMIC IMPACT OF THE DEFENSE FINANCE & ACCOUNTING SERVICE ON THE EAST SAN BERNARDINO VALLEY In the wake of the Norton Air Force Base phaseout, the possibility has emerged for the East San Bernardino Valley to bid for the Defense Finance and Accounting Service (ltDFASIt). This operation, which is scattered across the U.S., will be consolidated In one location. This report Investigates the potential impact which DFAS would have on the economy of urban San Bernardino County from Fontana to Yucaipa. It concludes that local economic activity would rise $137,092,926 and create 4,000 DFAS jobs plus 3,152 other local Jobs. Of these 7,152 Jobs, as many as 6,432 could be local. The $137,092,926 would replace 52% of the $263,123,000 economic loss ECAP has estimated would come from the Norton phaseout. I The assumptions used In this study were derived from the following agencies: i 1. DFAS through information supplied to the San Bernardino City Economic Development Agency, the San Bernardino County Department of Economic and Community Development, and Joe White Pathfinders, economic consultants to the latter. 2. RANCON Financial which could be called upon to develop the complex in which DFAS would be housed. 3. U.S. Bureau of Labor Statistics, which conducts extensive research on consumer expenditure patterns throughout the u.s. 4. U.S. Bureau of Economic Analysis, which conducts research on the amount of spending req u i red to create jobs in various sectors. ASSUMPTIONS - CALCULATIONS The accuracy of impact analysis is dependent upon the assumptions under which it is made. As assumptions simplify reality, ECAP has endeavored to err on the conservative side. ASSUMPTIONS ABOUT DFAS Six assumptions were made about the size of the DFAS operation: 1. DFAS Labor Force 2. Average Salary with Benefits 3. Benefit Package Val ue 4. Percent of hires in Southern California 5. Percent of budget currently being spent in the Fontana-Yucaipa area 0% These assumptions lead to the conclusion that the location of DFAS in the East San Bernardino Valley would bring an annual payroll of $120,000,000. 4,000 $35,000 $5,000 85% Average Salary with Benefits (less) Benefit Package Value Average Salary without Benefits DF AS Labor Force Total Pay roll $35,000 5.000 $30,000 4.000 $120,000,000 All of this payroll and any attendant operations budget would represent new money to the East San Bernardino Valley as currently none of it is coming to the region. However, every dime of this money will not actually pass through the local economy. That amount depends on further assumptions about the behavior of DFAS employees. GEOGRAPHIC & SECTOR SPENDING ASSUMPTIONS Where will the new DFAS employees live? How will they spend their payroll? What impact will this have on the aggregate level of economic activity in the East San Bernardino Valley? Answers to questions such as these require assumptions about DFAS employees and the operation of the local economy: 7. Percent of DFAS employees who will reside within the Fontana to Yucai pa area. . . . . . . . . . . 75% I This assumption is based on the fact that DFAS only expects about 15% of its ! current employees to transfer to Its consolidated facility. Thus 85% will be hired In the new location. Based on this behavior, it assumed that as many as 25% of the staff will choose to live where they currently are located, or in Riverside County or Western San Bernardino County. Thus the result that 75% will end up living inside of the Fontana to Yucaipa area. Some will already living here; others will move into the region. The latter will do so to be near their Jobs and take advantage of the area's affordable housing. This assumption leads to the conclusion that $90,000,000 of the $120,000,000 payroll will reach local East San Bernardino Valley residents. The balance will be put in the pockets of commuters and taken to other Southern California communities. Total Payroll Percent of DFAS employees who will reside within the Fontana to Yucai pa area Local Direct Household Payroll $120,000,000 75% $90,000,000 How this $90,000,000 local payroll directly affects the Fontana to Yuciapa economy will depend upon the expenditure patterns of DFAS employees. Here two kinds of assumptions must be made. First: what will the money be spent on? Second: how much of the money spent in each sector will go to local institutions? Expenditure pattern assumptions are taken from the Consumer Exoendlture Survey. 1988-89 complied by the u.S. Bureau of Labor Statistics for the Los Angeles region. This document shows how a dollar of payroll would "typically" be spent on every type of activity ranging from federal taxes to alcohol. These assumptions (#8) are shown in the table on the next page. Assumptions (#9) about how much of the money spent in each sector will be spent within the East San Bernardino Valley were made by ECAP. They are shown in column 4 of the table below: .., ....... ..... .... .... ....... ........ ...' . ....... ...... ..... .... . . ....-.. ....,--................ ....... ....... ................................ ...... ........ ............ ............. ....... ....-............ ... .... ....................... ..... CATEGORY 8. Percent Sector Spending 9. Percent by Sector Spend in East SB East SB Sector Spending Food at Home 7 6% $6,800.839 99% $6,732.830 Food Out 6 0% 5,432.725 90% 4,889,453 Alcohol 0.9% 801,997 99% 793.977 Home Mortgage Interest 8.0% 7,170,800 50% 3,585,400 Home Property Tax 1 7% 1.571,716 100% 1,571,716 Home Maintenance &: Repairs 1 7% 1,517,091 95% 1,441,237 Rented Dwellings 8.0% 7,188,181 100% 7,188,181 Other Dwellings 1 5% 1,323,420 100% 1,323,420 Utilities 4 6% 4,163,931 100% 4,163,931 Household Services 2 1% 1,854,774 100% 1,854,774 Household Supplies 1.2% 1,085,055 95% 1,030,803 Furniture &: Fixtures 3.6% 3,198,058 75% 2,398,543 Apparel 5 1% 4,623,279 75% 3,467,459 Vehicle Purchases 6.8% 6,100,643 75% 4,575,482 Gas &: Oil 2 7% 2,473,032 70% 1,731.123 Vehicle Insurance 2 0% 1,827,462 15% 274.119 Vehicle laintenance/Repair/Other 3.3% 2,984,523 90% 2,686,071 Public Transportation 1.3% 1,162,027 100% 1,162,027 Health Insurance 1.4% 1,234,033 15% 185,105 Medical Service 2 1% 1.929,263 95% 1,832.800 Drugs &: Medical Supplies 0.7% 628,190 95% 596,780 Entertainment 4.4% 3,957,845 65% 2,572,599 Personal Care Products 1.4% 1,238,999 95% 1,177,049 Reading 0.4% 369,962 95% 351,464 Education 1.1% 973,322 65% 632,659 Tobacco 0.5% 484,178 99% 479,336 Miscellaneous 2 2% 2,003.752 95% 1,903,564 Contributions 3.1% 2.780,920 95% 2,641,874 Lit e l Other Personal Insurance 0.5% 476,729 15% 71,509 Pensions &: Social Security 6.4% 5,777,857 0% 0 Federal Income Tax 6.1% 5,499,765 0% 0 State Income Tax 1. 5% 1,330,869 0% 0 Other Taxes 0.0% 34,761 0% 0 TOTAL LOCAL EMPLOYEE DIRECT PAYROLL SPENDING $90,000,000 $63,315,287 Taxable Local Spending 4,889,453 793,977 1,030,803 2,398,543 I 3,467,~9 4,575,482 1,731,123 2,686,071 1,177,049 351,464 479.336 1,903,564 $25,484.324 ECAP assumptions Include figures such as 100% on Items like public transportation, rent, utilities, property taxes and household services. A 99% level was assumed for purchases of groceries, alcohol and tobacco; 95% was used for items like medical services, home maintenance and supplies, and contributions. "" Assuming people look in a wider area for more expensive items, a 75% local spending assumption was used for purchases such as apparel, vehicles, and furniture and fixtures. Also, as people travel alot in Southern California, 70% was used for gas & oil, 65% for education and entertai nment. In the financial arena, 50% of home mortgage payments were assumed made to local financial institutions and spent in the area. Only 15% of insurance purchases were assumed to reach the local economy. This was based on the assumption that commissions go to local brokers, but most premium payments go to national firms and are not spent back In the region. Finally, income and social security tax payments were assumed to have no direct impact on the local economy. CONCLUSION: The table indicates that $63,315,287 of the $90,000,000 in direct local payroll spending will be In Institutions Inside of the Fontana to Yucaipa area. Of this, $25,484,324 will be taxable sales. These, however, are not the only dollars which the local economy would receive from the employees of DFAS. Since 25% of the labor force Is assumed to live elsewhere but work i nsi de the East San Bernard I no Valley, some part of thel r Income w I II spent locall y. 10. Percent of Non-Local worker Payroll spent inside Fontana to Yucai pa. . . . . . . . . . . 10% Thus, of the $30,000,000 DFAS payroll assumed to go to commuters, $3,000,000 will be spent Inside the East San Bernardino Valley. All of these monies are assumed to be taxable s)lles. Total Payroll DFAS employees who will n.Qt reside in the Fontana to Yucai pa area Total Commuter Pay rol I Percent of Non-Local worker Payroll spent Inside East San Bernardino Valley Total Commuter Employee Direct Payroll Spending in Fontana to Yucaipa $120,000,000 25% $30,000,000 10% $3,000,000 Thus total direct payroll spending reaching the East San Bernardino Valley would be $66,315,287 of which $28,484,324 would be subject to local sales taxes. Local Employee Direct Payroll Spending Commuter Employee Direct Payroll Spending Total Direct Payroll Spending $63,315,287 3.000.000 $66,315,287 Local Employee Taxable Sales Commuter Taxable Sales Total Local Taxable Sales $25,484,324 3.000.000 $28,484,324 A RANCON COMPLEX ASSUMPTIONS Another way in which money from the DFAS would reach the East San Bernardino Is through that organization's local operations spending. Most of this spending will be on expenses related to the rental and maintenance of its facilities. This is the case as most of Its supplies will be purchased through national contracts. This supply spending Itself will be low since the operation is a professional rather than an production facility. Two assumptions from RANCON Financial, the organization asked to pro forma a facility for DFAS, are thus relevant to estimating DFAS' local expenditures. 11. Complex Square Footage 660,000 12. Operations costs per foot $7.50 These assumptions lead to the conclusion that DFAS will spend $4,950,000 with RANCON which will in turn spend It with local institutions and employees: Complex Square Footage $660,000 Operations costs per foot $7.50 Total Complex Operations Costs $4,950,000 In addition, it is assumed that RANCON's $1,897,450 estimated net cash flow from the project, which stays 100% leased to DFAS, reaches people spending in the local economy. i 13. RANCON Net Cash Flow. . . . . . . . . . . . . $1,897,450 Finally, it is assumed that DFAS will spend about $250,000 a month buying local incidental supplies plus paying for items like computer servicing. 14. Local incidental supplies & services. . . . . $3,000,000 Thus the total local operations spending resulting from DFAS occupying the RANCON facility is estimated at $9,847,450 as follows: Total Complex Operations Costs RANCON Net Cash Flow Local incidental supplies & services Total Local Operations Spending MULTIPLIER & TOTAL LOCAL ECONOMIC IMPACT $4,950,000 1 ,897,450 3.000.000 $9,84 7,450 Altogether, DFAS would bring $76,162,737 in new direct spending into the East San Bernardino Valley economy. Each of these dollars represents new outside money flowing into the region. In a sense, they are thus like the money coming into an old western town because of its gold miners. Local Employee Direct Payroll Spending Commuter Employee Direct Payroll Spending Total Local Operations Spending Total New Direct Local Spending $63,315,287 3,000,000 9.847.450 $76, 162, 737 The miners sell their gold outside the area, and bring money into the region. They, in turn, help the local economy as they spend with local saloons and general stores. Finally, as bar maids and store owners buy food and drink from each other, the economy continues to grow until the money is spent elsewhere bringing in supplies. For the Fontana to Yucaipa area, the $76,162,737 coming into the economy from DFAS employees and operations spending would help local stores and workers. As these people buy hair cuts, food and legal services locally, this money continues to expand the region's economy. This process stops once all of the money drains away as people and stores purchase goods and services elsewhere. As the East San Bernardino Valley economy is relatively small, it is assumed that each $1.00 entering the area has a $1.80 impact on expanding the region. This Is a small assumption. 15. Multiplier per $1.00 of new money. . . . 1.80 Thus the total economic Impact of DFAS would be $137,092,926. Total New Direct Local Spending $76,162,737 Multiplier per $1.00 of new money TOTAL DFAS ECONOMIC IMPACT ON THE FONTANA TO YUCAIPA AREA 1.80 $137,092,926 In January, 1989, following the announcement of the Norton AFB phaseout, ECAP analzyed the negative annual economic impact of this event on the East San Bernardino Valley at $263,123,000. This work Is shown In Exhibit A. Based upon it, the location of DFAS to the Fontana to Yucaipa area would offset 52.1% of this problem. I To translate the volume $137,092,926 figure Into job creation, an assumption of the nuthber of jobs per dollar of economic growth must be made. This was done based upon work done by the u.S. Bureau of Economic Analysis for the Southern California area. 16. Average dollars of new economic activity needed to create one new Job . . . . . . $43,500 Based upon this assumption, the location of DFAS to the East San Bernardino area would add Its own 4,000 jobs plus 3,152 additional jobs. Of this 7,152 total, 6,432 would represent new employment to Southern Californians, not including jobs induced by spending in areas outside of Fontana to Yucaipa. TOTAL DFAS ECONOMIC IMPACT ON FONTANA- YUCAIPA $137,092,926 Average dollars of new economic activity needed to create one new job Multiplier Induced Job Creation DFAS Labor Force Total Jobs $43.500 3, 1 52 4,000 7, 1 52 DFAS Labor Force Percent of hires in Southern California New Southern Cal iforn ia Jobs Multiplier Induced Job Creation Total New Jobs to Southern California Residents 4,000 ~ 3,280 ~ 6,432 c IMPACT ON TAXING AGENCIES If DFAS were to come to the East San Bernardino Valley, it would have a positive impact on tax collections by a variety of local agencies. In the estimates below, the spending by households Is taken from the table on page 3. It Is based upon the sectoral spending of the $90,000,000 in new local payroll. 1. The total of Household Property Tax payments by DFAS employees were estimated to be $1,571,716. Based upon 1991 distribution of San Bernardino County property taxes, local agencies would benefit as follows: U.:::.::::: ................................................................................................................................................................................................................................................................... City 11.0% $172,889 Co. Library 1.0% 15,717 County 30.0% 471,515 RDA 10.0% 157,172 Special Districts 16.0% 251,475 Schools 32.0% 502,949 TOTAL 100.0% $1,571,716 I j :> 2. DFAS is assumed to lease space In a facility that will also pay property taxes. This facility is assumed to be located inside of the Tri-City redevelopment project of the City of San Bernardino. The following are the taxes this project would generate: ......,.........................,...........................................................,....... ............................,............................ ............. ..........,................. ............................................. ........................................................,......................,.................... ...................................................................................,...............,.......................... ............................................. ......,.........,.........,............................,.,.................."...."................, ......,........'.............. .............,................................................................. ............................................, ..................................................................................... .................................................. ............................................................................. ........................................ :.}:/:.:::;:::;::::::::::::::;:::}:}:?:::/:/:::.:::.:i:/:};::?::::::::}\~:}?}}:::}}:::::;:~~:#.:#.}::;~#~~#:?~#.~:*-:r:/~#.#?:~:~!~~~:{'::::}}:}~://:::;i;::::;::;:,;;;:::}:::::?)i::::::;:,:}::::;::::V~;::;::;::;;:}:;::;:}::::::: Complex Value incl Parking Structure Cities $83,558,000 RATE AMOUNT o 8759% .730,055 o 2531% 30% 63,287 25% 52,739 35% 73,835 10% 21,096 o 25% 2,358 $943,370 AGENCY RDA Tax (less County Fee) Other Agency Tax (less Co Fee) County Schools Other County Collection Fee TOTAL COMPLEX TAXES .., 3. Every local DFAS employee will not pay utility taxes. However, If they did, and If the rate was the 10.0% used by the City of San Bernardino, the following would be the result in uti I ity tax reven ues $416,393: Househol d Uti I ity Payments Uti Iity Tax Rate Total Uti I ity Tax $4,163,931 10.0% $416,393 4. Previously it was estimated that the total of direct taxable sales by DFAS employees would be $28,484,324. At 7.75% this would yield $2,207,535 in sales taxes. This does not include extra sales induced by other East San Bernardino Valley Residents as a result of the multiplier impact of DFAS coming to the region. The following Is where these monies would go: ..,............................................. .. ...............-............................. .... ..... ................................................... ..........................,....................... ............ .................................................. ................................................................ .'.......,....................................................... --............................. ................ ::::::::::::::::jfo:uMfu)ia:::::ra~ab:l:.:~:::sa:f.$:f\\:::.:i$:y.:&i:~::324::::::::::::::.:::: .............................................................. ...........................-.................................. ............................................................... ......................................................-...... ......................................................... State 6 00% 0.25% o 50% 1 00% $1,709,059 71,211 142,422 284,843 I I ;. County Transportation Fund SANBAG Cities TOTAL 7.75% $2.207,535 The $284,843 in extra annual sales taxes for cities would be distributed as follows, assuming DFAS employee spending followed the pattern of the period from the past four quarters for which the State Board of Equalization as released data: ..................... ..............................................................................................,... .... ............,............,...-........................................................................................ ........................................................................................................................".. .............,................................................,............................................................. ........................ ............................................................................................................................ ............................................................................................................................. ........................ .......................................................................................................................... ............................................................................................................................ :.:.:.:.:.:.:.:.:.:.:.:.:-:.:.:.::::::::::::::;::;:/:::::)::::::::::::::?::}:::;,::::::::.::::::::~:::::::::{{{t}}~:~~~::!::~~~~::}*#.#.;:::::~:}:~:#p~::f#.#~;~:::::::n::~~:~~:i:~~~:)':}}i;:t::::}:t}::::}:.}::::}:!}{{{:}::}i:::}:}::i!':}}}\!::::::':;':::: Colton 9 8% $ 27.880 Fontana 15 8% 44,986 Grand Terrace 0.7% 2,086 Highland 1 7% 4,911 Loma Linda 2.7% 7,766 Redlands 11 1% 31,646 Rialto 8.6% 24,363 San Bernardino 47 4% 134,862 Yucaipa 2 2% 6,344 TOTAL 100 0% $284,843 5. Assuming that the entertainment spending estimated by DFAS employees was at facilities subject to the same TOT tax rate used in San Bernardino, the following shows that the total impact on that tax of DFAS's locating in the Fontana to Yuciapa area would be $395,784. Household Entertainment Spending TOT tax rate TOT tax $3,957,845 10.0% $395,784 EXHIBIT A I !. ECONOMIC IMPACT OF THE NORTON AIR FORCE BASE PHASEOUT ON THE EAST SAN BERNARDINO VALLEY Credit Union Concern Over Phaseouts by Larry Sharp, President Like most citizens of San Bernardino County, those of us at the San Bernardino Central Credit Union are enormously concerned about the impact which the closure of Norton and George Air Force Bases will have on our community. For that reason, our January 1989 Quarterly Economic Report is devoted to analyzing the economic consequences of these events. By coincidence our consulting editor, Dr. John Husing wrote his doctoral thesis on the role Norton AFB plays in the East Valley economy. This report thus delves into that phaseout in some depth. The analysis, however, provides insights into the forces operating in the George AFB situation as well. While it is unfortunate these phaseouts are occuring, we are encouraged to find that our area's natural growth will buffer us against their worst effects. Clearly it has become imperative that local planning policies be finalized so logical development can continue. As a county-wide financial institution, the Credit Union hopes business and elected leaders will now form a partnership in efforts to attract new firms to diversify our economic base and end this type of vulnerability in the future. QE Index Article Page President's Report 1 Norton/George Impact 1 San Bdno Co Home Values 2 Employment & Commuter Trends 3 Retail Sales 4 Interest Rate Movements 4 A San BenJardino +":+7!!3IItral W™OWitllnion QUARTERLY ECONOMIC JANUARY 1989 The Economic Impact Of The Norton And George Phaseouts San Bernardino County has been dealt twin blows by the decisions to close Norton and George AFBs. There is no doubt these events will hurt the East! Victor Valleys. The questions are: "How soon, how much, and what can be done to reduce the pain?" Of these, timing is the critical unknown. It is well established that valley and desert areas are growing for reasons unrelated to local economic conditions. This growth is bringing new commuters who work in Ontario, L.A. and Orange County, but spend their pay checks at home. If the timing of base phaseouts is slow enough, local spending by these com- muters will be sufficient to match some, if not all of the base spending losses. Where'. The Gold? To determine the local growth needed to offset the Norton/George closures, it is necessary to measure the losses they are expected to cause. To do this, it must be realized that any economy has two tiers of employment: 1. "Primary" jobs which bring money to an area from the rest of the world. 2. "Secondary" jobs which depend on spending by primary job holders. In an old mining town for example, miners sold gold and brought "primary" money from outside the area. Their local spending supported "secondary" jobs at the saloon and general store. When the mines closed, the primary money quit coming and the miDers left. Without their spending, the saloons and stores closed. . . leaving a ghost town. For the EastIVictor Valleys, Norton and George are gold mines. Their payrolls bring primary money from the outside world. As base workers spend it, they create secondary jobs for clerks, I lawyers and mechanics. !. As the bases close, local spending by their workers will be lost, as will base spending with local contractors. Many secondary jobs will vanish if other primary income sources are not found. Total Impact From Norton Closure: $225,484,000 To $263,100,000 The availability of detailed data on Norton AFB allows calculation of the full primary and secondary spending losses to the East Valley from the pending closure of that base. The primary loss will be: Reduced Employee Spending $128,364,000 Reduced Contract Spending 21,992,000 Total Primary Spending Loss $150,356,000 This is the spending that must be replaced by commuters or new firms if the East Valley is to avoid losing secondary jobs. The secondary spending loss will be: $75,178,000 to $112,767,000, as secon- dary jobholders themselves cease to be able to spend locally. The full loss from closing Norton would thus be $225,534,000 to $263,123,000 and 2,750 to 3,200 non-base jobs. To explain: Payroll Primary Spending Loss: $128,364,000 Most of this impact from Norton's closure will be caused by the loss of (Continued on Page 5) PHASE OUT IMPACT (Continued from Page 1) primary spending by its work force, $128,364,000 calculated as follows: 1. It is assumed the East Valley will lose the entire Norton AFB payroll except the Ballistic Missile Office: Table 1. Approximate SMO payroll retained at Norton (000). Category Number Avg Pay Payroll Officers 402 $35,215 $14,156 Enlisted 62 14,978 929 Civilian 362 37,439 13,553 TOTAL 826 $34,671 $28,638 Source: Norton Air Force Base 2. The total Norton payroll minus these BMO amounts is shown in column #1 of Table 2, by worker type and residence. The expected loss is $208,173,000. Table 2. Impact Of Norton Payroll Losses On The East Valley (000) 10 years of surveys. Table 2 thus calculates the East Valley primary payroll spending loss from losing Norton at: $128,364,000. Purchasing Primary Spending Loss: $21,992,000 A second part of the impact of Norton's closure will be caused by the loss of non-BMO primary contract spending. For the East Valley, this will be about $21,992,000, calculated as follows: 1. Norton construction contracts total $5,738,000: 38.4% or $2,203,000 for labor, 60% or $3,443,000 for materials. It is assumed workers will spend 73o,i) of their payroll (Table 3). 2. Similarly, non-BMO service contracts are about $10,000,000: 52.4% or $5,240,000 for labor and 18.3% or $1,830,000 for materials. Again, it is assumed 73% of payroll is spent. Table 3. Impact of Norton Purchases On So. California (000) Lost Spent In So. Category Payroll California Category Amount So Cal Impact Military Cnstr Labor $2,203 73o,i) $1,609 On Base $19,223 51% $9,803 Serv Labor 5,240 73% 3,825 Military Cnstr Material 3,443 100% 3,443 Off Base 102,181 68% 69,483 Civilian 80,428 73% 58,712 Serv Material 1,830 100% 1,830 BXlNAF Comissary/BX 5,917 100% 5,917 Civil 5,638 73% 4,116 Education 1,345 100o,i) 1,345 Non-Gov Health 5,934 100o,i) 5,934 Civil 703 73% 513 Total $208,173 690Al $142,627 Temp Living 342 100% 342 Local % 90% Other Supply 5,422 100% 5,422 EAST V ALLEY LOSS $128,364 TOTAL SO CAL IMPACT $29,667 Source: Norton AFB and SBCCU Source: Norton Air Force Base 3. Some of Norton's payroll qoes not reach So Cal stores. The amount that does is estimated by applying the percentage of local spending by each class of workers to their payroll. So Cal's loss will thus be: $142,627,000. The spending percentages in Table 2 ,allow for: saving and payroll deductions for all workers; BXI commissary, officer and enlisted club, and base mess hall privileges for all military; and on-base quarters for some military. 4. Of the money East Valley consumers spend in So Cal, about 90% is spent at home according to . 3. Norton's So. Cal spending also includes wholesale supplies for its ax and commissary, local education and medical services, temporary hotel rooms and other supplies. 4. Table 3 estimates the So. Cal impact from losing Norton's non-BMO purchases at: $29,667,000. However, some of this spending is not in the East Valley. Based upon local spending patterns and types of outlets, Table 4 calculates the East Valley loss at $21,992,000. Secondary Spending Loss: $75,178,000 To $112,767,000 The last factor in determining the impact of Norton's closure on the East Valley is its impact on local secondary Table 4. Impact Of Norton's S. Cal Purchases on East Valley (000). Category So Cal Cnstr Labor $1,609 Serv Labor 3,825 Cnstr Material 3,443 Serv Material 1,830 Comissary/BX 5,917 Education 1,345 Health 5,934 Temp Living 342 Other Supply 5,422 E VALLEY LOSS E Valley 90% 90% 65% 65% 50% 90% 95% 100% 65% Impact $1,448 3,443 2,238 1,190 2,959 1,211 5,637 342 3,524 $21,992 spending. This is between $75,178,000 and $112,767,000, estimated as follows: 1. When Norton dollars are spent with East Valley firms, they are used to buy supplies and pay workers. "ost of the money paid for supplies> leaves the area as the local economy is not very diversified. However, the money paid to clerks, lawyers, mechanics and owners stays and supports their tier of jobs. 2. The secondary spending impact occurs when, after saving and paying taxes, these local people in turn spend locally. While much of their money also leaves for supplies, some of it stays and supports a third tier of jobs. This process continues until all of the primary money Norton brought to the East Valley has left the area. As the East Valley is not very diversified, it is estimated that each $1.00 of Norton primary spending in the area only creates from $.50 to $.75 in additional spending before it leaks away. These figures are larger than those found in a 1968 study of the East Valley, but much less than for a diversified area like Los Angeles. Table 5. East Valley Secondary Spending Generation (000). Primary Spending $150,356 $150,356 Impact 50% 75% Scndry Spending $ 75,178 $112,767 TOTAL IMPACT $225,534 $263,123 Source: Based upon 1970 doctoral thesis, John E. Husing. (Continued on Page 6) A San Berflardino .~.cc;Ntral Y™O'idit Union Po. Box 735 San Bernardino, CA 92402 .... Address Correction Requested ~ BULK RATE U.S. POSTAGE PAID San Bernardino, CA Permit No. 448 PHASEOUT IMPACT (Continued from Page 5) East Valley Secondary Job Loss: 2,750 to 3,200 As Table 5 shows, the full primary and secondary spending loss from Norton's closure will be between $225,534,000 and $263,123,000. Since, in 1988, it takes about $82,000 in sales to support one worker, this total decline translates into 2,750 to 3,200 secondary, non-base, East Valley jobs lost when Norton AFB closes. These unemployed people would be added to any base workers not able to find work somewhere else in the federal system. Wanted: 7,630 New Commuters! In order to avoid these spending and job losses, the East Valley must add enough new income from outside the region to offset the $150,356,000 loss in primary Norton payroll and contract spending that is expected to set off this chain of events. Assuming a worst case scenario, with no growth in new primary private businesses, one way for this to occur is through an increasing number of commuters. As indicated commuter incomes, like Norton's payroll, bring new primary money to the East Valley since they are earned elsewhere but brought home for spending. An average commuter brings $19,710 in new primary spending to the East Valley. At that rate, it would take: $150,356,000 I $19,710 = 7,628 new commuters moving into the area for the economy to exactly offset the loss of Norton, with no growth or decline. This assumes the following about commuters: --- Table 6. Assumed Commuter Income And Spending Profile income. . . . . . . . . . . . . . . . . . . . . $30,000 Spending 0/0................... 73% Amount Spent. . . . . . . . . . . . . . .$21,900 East Valley %. . . . . . . . . . . . . . . . . .90% EV PRIMARY SPENDING.... .$19,710 2 Years 9 Months To Replace Norton's Primary Spending According to the California Finance Department, from 1985-1988, 50,352 people moved into the East Valley, or an average of 16,784 a year. Assuming 3 persons per family this is 5,595 new families. If 50% have one commuter, the Valley is yearly adding about 2,797 new pay checks. At this rate, it would take 2 years 9 months for the East Valley to replace the lost Norton primary spending. This result is cause for optimism as it assumes that none of Norton's current staff will commute to March AFB. Some no doubt will as much of the Military Airlift Command and the Auditor General are relocating there. Policy Options This analysis suggests several policy options for the East Valley: 1. If Norton is to close, the military should be held to its pledge to take no action for one year and phaseout the base over a period of years. If this occurs, the area's natural growth will more than offset the loss. 2. Taking a longer view, work should begin immediately to set up the mechanisms for converting the base runway and capital facilities to joint use now and full private use later. It is difficult to convince primary employers to locate outside of L.A. and Orange Counties. However, this facility could be a strong lure to some firms, particularly in light of the high cost of land and crowding at LAX, Ontario and John Wayne Airports. 3. As the Ballistic Missile Office is remaining in the East Valley, contacts should begin to see if similar t operations, such as those in EI Segundo, might wish to come to a less congested area. Such commands are environmentally safe ~nd would add educated, high income citizens to the community. 4. As commuters will playa key role in the local economy, it is imperative that efforts be made to improve the 1-10 and 210 corridors to L.A., Highway 91 to Orange County, and 1-215 to March Air Force Base. Like it or not, a SB County transportation sales tax is now in nearly everyone's best interest. 5. As the recent rise in interest rates will soon slow local home building, it is important that Congressional action to cut the U.S. deficit be supported. sa County is about to suffer for the national interest, it would be fair if other areas did too. For More Information... The Quarterly Economic Report is edited by John E. Husing, Ph.D. a general partner in E-CAP, a San Bernardino based firm specializing in economic and business analysis. Individuals seeking more detailed information, or wishing to join the mailing list for this report, can contact him through the Credit Union Marketing Department (714) 881-3355 Ext. 151 or E-CAP (714) 881-5596. . ( . I I ( SPACE REQUIREMENTS I [J I: No. of Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4,000 (+ 500) Office Space Mandatory Space 150 x 4000 + 60,000 .. ......... ...... .......... Preferred Additional Space Warehouse: ................................. wcker Storage: .............................. Total Space Desired (Mandatory Plus Preferred) . . . . . . · · . . · i L f 660,000 60,000 ft2 6.000 ft2 726,000 ft2 ~' c... .\ U t. ~ J t J I 1 f-zi , 8 I 0 I I I -' M ..... .. --- L ".,C1L -. I I. e!: . . I -.J'\ . OPTION 1 -- 2C (I ~:> 3d d '-J.. - .. . - ~ 0 -, ( ) L- ) ( ) W t- I <t LJ C\J lI1 CD ~ ~ 0'\ ...... (]\ 0'\ (\J lI1 co I I06 C\J (\J (\J 0'\ 1206 i (j\ (]'I I I [I 0 C\J t'E06 I ( ) ( r-1Q'\ ) ( ) i v06 ( ) 0 ( ) 2( ) I (\J lI1 00 M ('J ("') (j\ 0'\ 0'\ I If') 00 ~ ~ 0'\ (]\ Qf . L ) ...... \D ...... 0'<\..1 ~ \DC"') O'\\D l- e" C> I (/) f'O' 0' 0 ~ \!) co ]^~ HI S 0'\ \!) (]\ l - .. i I i , f ! I I / I . \: ,,~ I ' - -\ ~ {~ .~ if ...." " .r~ I. /0 , , 1--1 ::J .'J~ 1 "., , c' i /,. : :f#'" ~} i -f{; /!"l I ..,,,,1 , ''/ p; ,'" J; ." . ,,", 1:-,' ~" L ., - \ '1, ~ . t" l~..~ . -r. ~ , ; ~.'- "~ I .' '\O~~, ';;~ ;~~J (-~~? l' \of ~ :~f'~ .... ,,'j .t J. ';1# :f{W ~ I I I I I , I ! 0 ", i en ./ ~, , 1. ~. ~} I 4 ',. '" , ' . \ , \i "~' I 'f , , t t. .' V'J ~ 0::: UJ en ~ C ~ o d :J CQ ~ UJ ~ ~ o z J I J i OPTION I Use existing onbase 900 series buildings as permanent facilities. Retrofit as follows: Building Current Proposed Total Cost Number Area (ft2) Use Use Cost/ft2 ('000) 912 83,782 Warehouse Office 55/ft2 4,608 915 83,782 Warehouse Office 55/ft2 4,608 918 90,037 Office Office 15/ft2 1,350 922 83,782 Warehouse Office 55/ft2 4,608 . 925 83,782 Warehouse Office 55/ft2 4,608 .' [; 928 83,782 . Warehouse Office 55/ft2 4,608 935 83,782 Warehouse Office 55/ft2 4,608 L: 938 83,782 Warehouse Office 55/ft2 4,608 932 83.782 Warehouse Warehouse 15/ft2 1.257 Total: 760,293 $35,863 Parking: 2,160 Site Preparation: 500 Utilities Fees: 600 TOTAL Estimated Cost: $38,123 - Notes: Cost of purchasing land and buildings not included. Requires about 75 acres. .,J.... OPTION 2 .I .. . ..... ~ .. ~ - - '----' ~ v V '-.J '----' '----J L/ '--\ Ocri :.n r-L.9 CJ' .. (\j If) Lf") I.{') ~ !.f) ro ~"") l;') C\J If) co ~ v V LI") V1 If) ( ) ( ) H 1. S( ( ) ( ) ( ) ( ) ( ) ( [ , "' C\J ("-; ~ If) \D r--... 00 \V) C'" CV' ("') (Y) (V) ("') liJ tn LJ"") If) If) 'f) If) i C\J ("') ~ If) \D '" ro C\J (\J (\j C\J (\J (\J (\.J t.f) L') If) If) If) If) If) ( ) ( ) ( ) ( ) ( ) ( n~I~(~ ?~ ( ) ( ) ( (\.J ....... If) If) - If) co ....... If) C\J o If) ( ,D. u-uw( ][ . N ] [IJ CJLfJ I J IS Wl\1d ~a Hl~ON'~a HInDS 'IS s~\"Ia~ P I '~a anlJ (. I 1 I~ z o z ~ o o ...J Z o ~ 'Q.. (.IJ en ~ o UJ :E " I I 00 j ~ :r: o ::> o 0:: :r: t- o N V'l en o ~ o d ::> co .J'~f',\'...';' .. . "c.. - <Jl, cG 0 - cG ~ ~ lI'\ ('f') lI'\ 0 ~ 9 . "'t - . '.~. ::> ~ r cG o ~ ~ z - .. V') (or') V') o !~ to ~ :3 co .' l' J, J,-1 . ; , "'1 , 0::: o ~ ~ - In (or') In ,0 I~ Q ...J 5 c:Q . OPTION II Use existing onbase series 500 buildings for interim use. Assume 5 years with new facilities constructed offbase. Building Current Proposed Total Cost Number Area (ft2) Use Use Cost/ft2 ('000 ) ,. , 520 thru 538 606,900 Office Office 10/ft2* 6,069 542 54,000 Warehouse Office 30/ft2 1,620 .' IJ 545 66.000 Warehouse Warehouse 2.5/ft2 165 Total: 726,000 $7,854 I. Site Preparation and Parking 1,080 Utilities Fees 600 TOTAL Estimated Cost: $9,534 Notes: * Includes existing furniture in the buildings. Cost of purchasing land and buildings not included. Advantage: No permanent land commitment.