More information on the finances of our great State:
"Last month, I mentioned our concern about the deficits at the State, County and City levels in California. The State of California reported a shortfall of $22.8 Billion on April 29th. Now we are told the new number is $34 Billion. The State has the right to divert county property tax revenues from cities and counties for State spending so long as they are paid back within 3 years, plus interest. The City of Los Angeles expected to lay off 2,800 jobs to balance their budget before the State announced the $1.0 Billion hold back from Los Angeles County. The State of California and County of Los Angeles are required by their charters to balance their budget each year. The State just held a special election with Propositions to help borrow and shift moneys held in other coffers, but all propositions failed by a wide margin except Prop F limiting pay to the legislatures while the state does not have a balanced budget. Just last week, in order to balance the budget, the State announced that they will take $1.0 Billion from Los Angeles County in all areas of government, which will be devastating. The State, Counties, and Cities of California will be forced to cut jobs and lay off many more workers than planned. We expect these cuts will start to happen over the summer and unemployment will continue to rise for the balance of 2009.
On another front, we have heard rumblings about the decline in international shipping imports to the West Coast. With the decline in consumer spending and tough new government restrictions on container shipping pollution levels, the shipping industry has started to decline on the West Coast. Also the 3 local Southern California Airports are reporting reductions in total passenger traffic of 11.1% and a 23.5% decline in freight tonnage also due to the slow down in business. The Ports of Los Angeles, San Pedro, Oakland, Seattle and Portland are all showing declines in Asian shipping into the country. There are several reasons for this decline. One is the rail system. Although the US rail owners have increased their investments in recent years, with numerous bankruptcies and mergers of US railroads, the results today are just two major US Western railroads (BNSF and Union Pacific) and two major railroad companies in the East (CSX and Norfolk Southern). This consolidation has not led to efficiency or better investment. Due to higher operating costs, especially fuel; the railroads have increased their pricing with the mistaken belief that they had a captive audience. Second is the fact that most of America?s population is concentrated east of the Mississippi, nearly 2,000 miles away making high-volume distribution impossible without trains. Third, the Panama Canal widening due to be completed by 2014. The Panama Canal has rejuvenated aggressively, and the soon-to-be widened canal is about to take that ?not-so-captive? market away, possibly forever from the rail lines (see attached articles). The widening of the Panama Canal will allow the larger tanker ships to go to ports in Texas, saving days of shipping time and money than if they docked on the West Coast Ports. This weakness started in 2007 as the Western US Ports saw their container box traffic fall by 1.1% in 2007, and Eastern Ports saw an increase in volume of 4.9% last year. This new trend is expected to end the prosperous container shipping that supports over 880,000 jobs in the ports of Los Angeles and Long Beach. The last time Los Angeles County lost over 550,000 jobs was in 1991, the start of our most devastating recession in decades. Although we do not expect to lose all port jobs to these changes in the shipping industry, the costs to Southern California jobs will be hit hard starting in 2011 just when most hope the recession will be over. And the distribution story sold for over 15 years to investors as why they should invest in real estate in the Inland Empire, in my opinion is over as distribution centers and warehousing (the job drivers) will be highly impacted in the next few years to the potential point of decimation, in my opinion."
