By Pacific Coast Business Times Staff Friday, June 6th, 2008

San Luis Obispo wants to speed up, and Goleta wants to keep up.
The Tri-Counties’ oldest municipality, San Luis Obispo, and its newest one, Goleta, both gave “state of the city” addresses late last month.

In San Luis Obispo, the speeches detailed slow times with a silver lining in surging enrollment at California Polytechnic State University. In Goleta’s first state of the city address, officials highlighted bright spots in building a city from scratch in only six years, but hinted at potential revenue shortfalls if budget issues aren’t resolved.

Slow times in SLO
While the city of San Luis Obispo is in an economic slump, it is not officially in recession, said economists and business leaders at the May 30 State of the City’s Economy meeting.

Most of the economy’s weakness is because of the recession in housing, according to a report from the California Economic Forecast. There’s also an overall drag on labor and consumer spending, but those factors didn’t derail the general economy.

“There are struggling regional economies in areas with the weakest housing markets,” said Mark Schniepp, the California Economic Forecast’s director.

Existing home sales are at the lowest level they’ve been since the mid-1990s, and California’s residential real estate as a whole hasn’t been this low since 1982.

“It’s a buyers’ market without buyers,” Schniepp said. Buyers are waiting for prices to stabilize and mortgage rates to fall. While there’s an increase in high-end markets like Newport Beach, prices are still falling in most places.

‘Liar Loans’
The bad housing market was partially caused by the prolific “liar loans” of the early 2000s, which have led to defaults and foreclosures, said Paso Robles real estate broker Jim Liptak. The Central Coast was a “magnet for urban refugees” and people were buying up property like crazy with readily available, yet often undeserved, loans.

Data for the city of San Luis Obispo looks like the county’s because it comprises much of its population. However, much of the county is worse off in terms of foreclosures, residential selling values and labor markets.

The weak housing market also helps explain slowing job creation and rising unemployment. At 5 percent, unemployment is the highest in years, though still considered low.
Some sectors of the city’s economy remain strong, including commercial real estate, which has low vacancy and new construction, and visitor services, which is at a record high for the region.

While sales growth has softened and business sentiment is souring, according to a survey of local business leaders, most people look for stagnation or an upturn soon. Those surveyed expected little change in the next six months.

While officials expect only natural population growth over the next few years, builders have construction plans as enrollment at nearby Cal Poly continues to climb.

arry Kelley, Cal Poly’s vice president of administration and finance, assured the audience that the college will remain important. Ninety percent of its students come from other areas, and those students purchase a quarter of their needs within the county. Cal Poly itself provides 12 percent of the county’s gross domestic product and has a stabilizing effect on employment, Kelley said.

Kelley pointed to more than $500 million in construction projects and the near completion of Poly Canyon Village, the largest on-campus housing complex in the country.

“We’re here, and we’re planning to be here for the long run,” he said.

The county and city will likely endure a few more years of slowdown in the job market and housing sector, with a rebound around 2010. Home values will probably keep dropping, at least until the end of this year, Schniepp said.

“We need to stabilize housing and the credit market, but can’t do one without the other,” he said.

Goleta faces shortfalls
At Goleta’s first state of the city address May 29, city officials touted some of the formidable achievements it has notched since its incorporation in 2002, among them pouring millions into infrastructure improvements and bringing on a double-digit decline in the traffic accident rate for each of its six years.

But at the top of Goleta’s successes were keeping a balanced budget each year and even putting away cash reserves.

“The conservative budget politics that the city has implemented are enabling Goleta to fare better in these slow times than many California cities,” said Tina Rivera, the city’s finance director.

But budget projections show the city running into the red in as little as three years unless it generates more money. Rivera said the city has considered increasing user fees and the cost of business licenses to mitigate the projected shortfalls.

A major part of potential money woes is a revenue-sharing agreement with the county that Goleta Mayor Michael Bennett called “the worst” in the state.

Under the agreement, which was designed to soften the blow to county revenues when the area became a city, Goleta diverts half or nearly half of some of its most lucrative taxes, such as property and bed taxes, to the county. The problem isn’t the arrangement, Goleta officials say, but that it’s indefinite.

Bennett said the city and the county have started talks about the agreement, an important step when cities and counties alike face bearing some of the brunt of the state’s multi-billion dollar budget shortfall.

“Let’s be fair about it: It’s a serious issue for the County of Santa Barbara, too,” Bennett said. “They don’t have any money either.”

And money is needed. The city has put $2 million to $3 million a year into improving its roads, sewers and sidewalks, but more projects are in the works to accomplish what Steven Wagner, Goleta’s community services director, calls “more capital improvement than this city has seen in 50 years.”

“Goleta wasn’t built to sustain the community it is today,” Wagner said. “It was an agricultural community. This creates a lot of challenges for the city.”

Development in the city is moving at a brisk pace, said Steve Chase, director of planning and environmental services. He said the city approved $30.5 million in projects already this fiscal year, with nearly $20 million more in the pipeline, including 96 hotel rooms and 13 condos.

But even with that development, the city can only accommodate so many, Bennett said. That makes public transportation crucial, and Bennett outlined the need for a rail system that would extend to Goleta and the need to approve Measure A, a transportation investment plan for the county. “We already subsidize the bus system, but if we want to do better, we need to do more,” Bennett said.

Goleta officials also touched on the city’s general plan and ongoing efforts to transfer development rights from the pristine Gaviota coast to within the city limits to prevent sprawl.

“We have a choice,” said City Manager Dan Singer. “We can either get a future that we didn’t plan for, or we can plan for the future that we want.”