John Husing, Ph.D.

Economics & Politics, Inc.

Chief Economist, IEEP

Inland Empire Economic Growth . . .

Take Off?

After Losing 8.78 Million Jobs …U.S. Jobs Are Still Crawling Back

-664,000 Government Jobs+8,221,000 Private Sector (94.1%)

Unemployment Falling, But High

Worst U.S. Metropolitan Area Unemployment Rates

Primary Tier

Secondary Tier

Economic Development … Increase The Economic Base!

How Regional Economies Work

Three Step Growth ProcessBased On Interaction Of:

• Population

• Preferences

• Dirt

Prices Force Decisions

Southern California Population Growth, 2000-2012

People Prefer To Live Near The Coast

As a homeowner, would you prefer to move closer to work if it involved a townhouse or condo?

(I-15 & Sr-91 Commuters, 2008)

72.3% No

Same question to Renters:

87.5% No

Answer stable over 5 years

•People forced to move inland for affordable homes

•Population Serving Jobs Only

•High Desert & I-215 South are current examples

Stage #1: Rapid Population Growth

Commuting Bad, But Stable Over Time

1,650,384 Total Jobs

1,156,313 Inside IE

494,071 Commute Outside County

154,845 Between IE Counties

339,226 Outside IE

20.6% Commute Outside the IE

16.3% Orange County Commuters

Construction: Finally Some Hope

Share of Underwater Homes Plunging

4Q 2012 to 3Q 2013

333,720 to 170,768-48.8%

Home Price Trends

52.8%

32.3%

49.5% less for Existing home

-39.2%

Long Term Competitive Price Advantage Still Exists

Permits: Finally Some Optimism

Firms Prefers The Coastal Counties

Stage 2: Strong Industrial Growth

Vacancy Nearing Historic Lows

Undeveloped Land … Industrial Prices Much Lower In Outlying Areas

84.2%

107.2%

156.6%

$0.38

$0.56$0.63

$0.78

Inland Empire Los Angeles Co. Orange Co. San Diego (non-R&D)

Price Per Sq. Ft.

Price with 20% Cubic Factor

Difference

.

% Difference

nnn=net of taxes, insurance, common area feesSource: CB Richard Ellis

Exhibit 13.-Industrial Space Costs DifferencesSouthern California, Sub-Markets, March 2013

Workforce Needs Jobs Without Educational Barriers

Workers Will Work For Less Not To Commute

0.0%

4.26%2.55%

5.81%

$33,240 $34,656 $34,089 $35,173

Inland Empire San Diego Los Angeles Orange

Weight Median Pay Percent IE Pay Is Lower

Note: Occupations in common weighted by Inland Empire JobsSource: CA Employment Development Department, Occupational Wage Survey, Economics & Politics, Inc. calculations

Exhibit 82.-Median Wage & Salary Percent DifferenceInland Empire vs. Coastal Counties, 2010459 Common Occupations, Under $70,000

Logistics Flow of Goods

Port Container Volumes

Fulfillment Centers

17 Firms Looking For Space7 Are Fulfillment Centers

1,500,0001,000,0001,000,000

800,000 to 1,000,000700,000 to 1,000,000500,000 to 800,000700,000 to 900,000

850,000700,000700,000

700,000 to 800,000600,000

600,000 to 700,000500,000450,000

300,000 to 400,000350,000

Source: Jones LaSalle

Inland Empire Logistics Jobs

32.5% of All Inland Jobs … Jan-Nov. 2012-2013

Manufacturing: Could Be A Major Growth Source

Manufacturing Orders Irregular

U.S. v. California Manufacturing Jobs

Manufacturing Slowing

Regulatory Environment Aimed At

“Dirty” Blue Collar Sectors Impacts

Construction, Manufacturing, Logistics

Median Pay By Sector Groups

Exhibit 6.-PM 2.5 Days over National Standard vs. Total Square Feet of Net Industrial Absorption Since Highest PM2.5 level

Monitoring SitesMira Loma-Van

BurenRiverside-Magnolia

Riverside-Rubidoux

Fontana-Arrow Highway

Ontario-1408 Francis Street

San Bernardino-4th Street

2001     120.2 58.2 79.5 80.8

2002   88.4 92.6 73.7 67.4 88.9

2003   69.7 78.1 54.3 62.2 55.2

2004 * 47.8 57.3 * * *

2005 * * 39.7 22.9 25.3 9.3

2006 46.2 31.3 * 27.2 * *

2007 43.4 * * * * *

2008 * 12.4 15.0 19.3 19.4 9.5

2009 19.0 6.0 15.1 6.2 9.0 6.2

2010 8.0 6.3 4.0 6.6 3.2 5.9

2011 13.0 7.1 5.0 7.1 6.8 *

2012 7.0 * 7.0 10.6 0.0 0.0Change From

Highest -39.2 -81.3 -113.2 -63.1 -79.5 -88.9

Change -84.8% -92.0% -94.2% -85.6% -100.0% -100.0%Net Absorptiont Since Highest 86,378,254 183,911,357 229,967,544 183,911,357 229,967,544 183,911,357

Air Becoming Cleaner

Poverty

Exhibit 2.-Share & Number of Inland Residents Below Poverty Level

Census Bureau Year

People In PovertyShare of Population

in PovertyPopulation

1990 306,417 11.8% 2,588,793

2000 477,496 14.7% 3,255,526

2012 809,234 19.0% 4,293,892

Changes +164.4% +7.2% +65.9%

African American: 27.2%Hispanic: 23.9%White: 12.1%Asian: 10.4%

Stage 3.-Office Based Firms Follow Their Workers

Skilled WorkersSkilled Workers Migrate InlandFor Better Homes

Office Absorption Finally Starting to Recover

High-End Jobs Follow Workers

into the Area

Outlying Workers Will Work For Less Not To Commute

0.0%

7.70% 9.17% 9.22%

$86,806$93,489 $94,768 $94,806

Inland Empire San Diego Los Angeles Orange

Weight Median Pay Percent IE Pay Is Lower

Note: Occupations in common weighted by Inland Empire JobsSource: CA Employment Development Department, Occupational Wage Survey, Economics & Politics, Inc. calculations

Exhibit 98.-Median Wage & Salary Percent DifferenceInland Empire vs. Coastal Counties, 2010138 Common Occupations, $70,000 & Up

Office Vacancy Rates Improving But Still Very High

18.1%

High End Occupations & Office Unstable

Inland Empire’s In-migration From Coastal Counties Has Not Yet Recovered

-15,538

Not Bringing Skills, Wealth, Income & Spending

Health Care

Health Care Jobs: Continuous Growth

700 600 800

Health Care Demand Set To Explode

People Without Health Insurance (2012): 828,431 (19.0%)People Will Age, Already Those 55 & Over are 926,696 (21.3%)Population Growth Will Resume (2000-2013) 1,075,807 (33.0%)Inland Health Care Workers Handle More People Than CA: (35%)

Federal Job Cuts

Debt CeilingBudget Fights

Assessed Valuation Finally Growing (6.1% for SB County)

-1.0%

Government Remains Weak

Primary Tier

Secondary Tier

How Regional Economies Work

Retail Sales Almost Back

Retail, Consumer Service, Hotel, Amusement Jobs Gaining Speed

Where Will IE Be In Its Job History?30,050

41,025

37,642

36,533

36,775

41,483

46,008

6,342

9,758

4,575

16,917

28,925

23,083

38,325

40,692

56,467

49,850

40,567

33,292

35,467 59,275

61,533

44,692

2,508

(46,208)

(84,892)

(17,325)

4,633

23,025

14,282

28,300

35,000

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

edd

2013

bls

2014

e

Sources: CA Employment Development Department, U.S. Bureau of Labor Statistics, Economics & Politics, Inc.

Exhibit 8.-Wage & Salary Job ChangeInland Empire, Annual Average, 1984-2014e

2011-201355,958 of 148,425 lost or 37.7%

2011-201490,958 of 148,425 lost or 61.3%

Forecast

2014 Better Than 2013• Health Care Will Grow• Logistics Will Grow • Retail Gaining• Office Growth Very Slow• Home Building Starts Back• Growth Looks Normal• Still Well Below Pre-Recession

www.johnhusing.com