ARTICLE
Successful business managers are attuned to change. Their adaptations to market and other environmental forces drive their success. Today these skills of perception, projection, and strategic response are being tested as never before. The Chamber’s staff and board are in the midst of a strategic evaluation of our own industry. To fulfill our purpose, “to promote economic vitality and community prosperity,” we must respond to both changes in the means and identity of business associations, but, also, to changes in the economic environment. Following are a few of the questions we are asking about the Santa Cruz County economic environment and their impact on local business. Demographics How will the demographics of residents change in the future? AMBAG projects there will be 35,000 more residents in the County by 2025. Current trends suggest a proportional shrinkage of young adults (25-45), more out commuters, more retired residents, and more second-home owners. As housing prices increase new home owners are wealthier and the median renter is either wealthier, better paid, or allocating an impressively-larger share of their income to housing. We have initially framed this issue in terms of the location of the jobs of employed residents. The alternatives: Lower percentage of locally-employed residents: more out-commuter, retired, and second-home residents – accompanied by a greater dependence on savings, investments, and social security. OR Greater percentage of locally-employed residents: more local employers and jobs and/or more “contingent” workers including part-time, self-employed, contract workers, and “gig” economy residents. We have framed these alternatives as most representative of the economic alternatives Santa Cruz County faces. Many of the other strategic questions will have an impact on this issue of “who lives here.” But the answers to those other questions will also be strongly influenced by trends in these resident demographics. How will the identity of our resident population influence our economic characteristics? Here are a couple of the many important elements determined by shifts in demographics: Values and priorities of the electorate. Today we tend to be willing to tax ourselves, especially for education, environmental protection, and – if current survey results are a good measure – for infrastructure investments such as transportation improvements. As with all of these issues and questions, the strategic planning impact is not “for which outcome do we wish” but, rather, how will we adapt to either end of this spectrum. Retail and Services needs and wants. There are some obvious alternatives – do we need more obstetricians and pediatricians or more rheumatologists and gerontologists, business lawyers or estate planners? More importantly, what are the capital investments and business structures that will best address these needs locally? Housing The next question is in no small part, an element of the answer to the prior question of “who lives in Santa Cruz County.” How will the housing stock in Santa Cruz County evolve? The principal forces that determine the answer to this include market conditions (demand for and supply of housing), political forces (community vision, building quality, neighborhood character, environment protection), and property owner/ investor needs, wants, and vision. This is the archetypal “chicken or egg” origination issue: “Is housing dependent upon the configuration of current jobs and who is already employed here or are local jobs and the characteristics of the local labor force dependent upon our housing stock?” Here are the strategic alternatives: Increased housing availability suitable to the resident workforce: an increase in the number of housing units that are suitable and affordable to those employed in Santa Cruz County OR Decreased housing availability suitable to the resident workforce: a decrease in the number of housing units that are suitable and affordable to those employed in Santa Cruz County Of course, in addition to family size, wealth, and housing preferences, “suitability” and “affordability” depend upon the character and, especially, the rate of pay of the jobs. However, we believe there are very few imaginable conditions in which below-market cost housing will expand the number of jobs available in Santa Cruz; it is economically beyond our reach to create that much subsidized housing. Public Sector The evolution of the public sector will both influence and be influenced by who lives here. UCSC, Cabrillo, and a variety of research institutions are major sources of externally-generated net revenues that feed the local economy. K-12, the cities, the County, and other local government agencies are also major employers. Our third strategic question is: Does public sector employment and public capital investments in Santa Cruz grow or shrink? Stronger public sector (education, research, government): growth in residents employed in public-sector jobs and in public capital invested in Santa Cruz County OR Weaker public sector: fewer local public sector jobs and less public capital investment in the county The probability of continued growth of the UCSC student population is great but whether that will include continuing growth of research is dependent upon success in continuing to attract world-class faculty (to an uncommonly expensive housing market) and the reversal of a trend in Congress to reduce funding for research. Local governments and educational systems are burdened by a growing shortfall in pension and health care funding that, in the absence of structural changes will reduce local budgets. Perhaps most importantly, the quality and character of living in Santa Cruz will be affected by capital investments in public infrastructure. Streets and roads, educational infrastructure, and an array of existing buildings and systems are in decline. These investments will depend upon the electorate’s willingness to support taxes and assessments for these capital improvements. Core Industry Segments The configuration of the County’s core industry segments will also play a significant role in who works here and in the economic vitality of local governments. In these areas it is particularly important to be prepared for both alternatives – actually for the range of alternatives along a continuum of growth or decline. The question is: How will the largest industry groups in Santa Cruz County’s economic base evolve? Retail: Will there be a resurgence of local retail centers OR will trends of increased shopping out of the county and online continue? Trends in the demographics of residents will also have significant impact on what kinds of retail thrive and on the character of shopping areas. Tourism: Will there be growth in per capita visitor expenditures OR a reduction in per-visitor revenues? Growth in the absolute number of visitors will also increase local revenues but per-visitor costs (transportation infrastructure, net land-use costs, etc.) reduce the net economic impact of more visitors spending at the current rate. The upgrading of lodging stock, investment in higher-end restaurants, and new attractions suggest opportunities for higher per-visitor revenues… and for better-paid jobs. Agriculture: retention of agricultural land and growth in productivity and crop value OR decline in agricultural revenues. Water, constraints on the use of agricultural chemicals, international competition, and land use encroachments are all forces at work in these industries. But the most difficult agricultural issue is… workforce housing. Consumer services: growth in local employment and local revenues in services such as health care, personal and household services, and professional services OR decline in that employment and those services. While this is somewhat less dependent upon trends in out-of-the-county providers than retail, market supply and demand forces are powerful, and services providers are very significantly dependent upon resident demographics. Technology Industries: growth of local technology employment, from bio-, digital, and other research-centric tech to the array of local “contingent” workers” employed in their homes and shared workspaces like the Satellite Centers, NextSpace, and Cruzio Workspace OR a resurgence of the out-migration of both tech workers and successful local tech start-ups experienced in the dot-com era. Velocity of Money: the number of times a locally held dollar changes hands in a fixed amount of time within Santa Cruz County. This rate tends to increase in high multiplier businesses (e.g., construction and agriculture) vis a vis low multiplier businesses (e.g., retail). While the velocity of money tends to follow national recession and expansion economic cycles, it is also highly dependent upon the mix of industries located here. Flow of Information Finally, a core economic environment question is how business and the economic community communicates with local residents and each other. While this is a many-faceted question, at the core is: Do current “general” media resources (newspapers, broadcast news, local radio) continue to lose market share or recover market share? Are there media that provide a common core of information to the local electorate and economic community creating a widely-shared base of knowledge and issues and an economically-efficient means to influence opinion and access local markets, OR Is media increasingly fragmented into self-informing “tribes” of perception, analysis, and expectation? Again, focusing on the both ends of this continuum is critical. Information is fundamental to efficient markets and good public decision-making. The degree to which business and the economic community are able to communicate widely as well as selectively will have great influence on the quality of the local business environment. This is certainly not an exhaustive list. The Chamber will continue to share strategic context questions and important trend data with its members. We invite your comments and observations.
Flow of Information Finally, a core economic environment question is how business and the economic community communicates with local residents and each other. While this is a many-faceted question, at the core is: Do current “general” media resources (newspapers, broadcast news, local radio) continue to lose market share or recover market share?
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Again, focusing on the both ends of this continuum is critical. Information is fundamental to efficient markets and good public decision-making. The degree to which business and the economic community are able to communicate widely as well as selectively will have great influence on the quality of the local business environment. This is certainly not an exhaustive list. The Chamber will continue to share strategic context questions and important trend data with its members. We invite your comments and observations.