John Husing, Ph.D. Economics & Politics, Inc. & Chief Economist, IEEP Inland Empire Economy

Three Step Growth Process Based On Interaction Of: Population Preferences Dirt Prices

Why Southern California Population Grows

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 As a renter, would you prefer to move closer to work if it involved a townhouse or condo? (I-15 & Sr-91 Commuters, 2008) 87.5% No Answer stable over 5 years

Lack of Land or Inadequate Zoning Drives Up Coastal Prices Forcing Home Buyers & Renters to Move Inland $24,000 $189,000 $215,000 $371,000 $239,000 $263,000 $428,000 $454,000 $610,000 San Bernardino Co.Riverside Co.Los Angeles Co.San Diego Co.Orange Co. Median All Home PriceSan Bernardino County Price Advantage Source: Dataquick Exhibit 20.-Home Prices, So. California Markets Median Priced New & Existing Home, 2nd Quarter 2013 $191,000 $165,000 $247,000

Don’t Build Them & They’ll Come Anyway! I-210 Delayed For Years San Bernardino County went 900,000 to 2,000,000 people BUILD FREEWAYS & THEY’LL COME

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 1,650,384Total Jobs 1,156,313Inside IE 494,071Commute Outside County 154,845Between IE Counties 339,226Outside IE 20.6%Commute Outside the IE

Business Prefers The Coastal Counties

Not Enough Land … Industrial Prices Much Lower In Outlying Areas 84.2% 107.2% 156.6% $0.26 $0.33 $0.48 $0.30 $0.38 $0.56 $0.63 $0.78 Inland EmpireLos 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 fees Source: CB Richard Ellis Exhibit 13.-Industrial Space Costs Differences Southern California, Sub-Markets, March 2013

Blue Collar Jobs Important To Outlying Areas 37.9%

Outlying 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 EmpireSan DiegoLos AngelesOrange Weight Median PayPercent IE Pay Is Lower Note: Occupations in common weighted by Inland Empire Jobs Source: CA Employment Development Department, Occupational Wage Survey, Economics & Politics, Inc. calculations Exhibit 82.-Median Wage & Salary Percent Difference Inland Empire vs. Coastal Counties, Common Occupations, Under $70,000

Stage 2: Rapid Industrial Growth

Jobs:Housing Balance lmproves IE Western Edge is today’s best example

Step #3 Higher-End Migration Upscale Housing

Skilled Workers Skilled Workers Migrate Inland For Better Homes

Condo Living Becomes More Prevalent

Higher-End Workers Added

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 EmpireSan DiegoLos AngelesOrange Weight Median PayPercent IE Pay Is Lower Note: Occupations in common weighted by Inland Empire Jobs Source: CA Employment Development Department, Occupational Wage Survey, Economics & Politics, Inc. calculations Exhibit 98.-Median Wage & Salary Percent Difference Inland Empire vs. Coastal Counties, Common Occupations, $70,000 & Up

Stage 3.- High-End Companies Ultimately Follow Workers

Jobs:Housing Balance Achieved Southern California Avg Jobs per Occupied Dwelling

Primary Tier Secondary Tier Economic Development … Increase The Economic Base!

Current Economic Status & Issues

After Losing 8.74 Million Jobs … U.S. Job Creation Is Crawling Back Without Loss of -682,000 Government Jobs 7,495,000 Growth or 85.8%

26 th Largest U.S. State by Population

Ethnic Composition

Relatively Young Population

Share Stopped Education High School or Less BA or Higher Bay Area: 42% Inland Empire: 18% Lake Elsinore: 16% 37.9%

Why Not High End Jobs? Labor Force Education Dictates Type of Growth Possible

Stagnant Incomes for 23 Years +7% -8% Lake Elsinore $61,250

Job Growth vs. Other CA Areas

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, e Sources: CA Employment Development Department, Economics & Politics, Inc. Exhibit 3.-Wage & Salary Job Change Inland Empire, Annual Average, Continuous Job Growth For Decades, But... (46,208) (84,892) (17,325) 4,633 23, , %

Unemployment Falling, But High

Worst U.S. Metropolitan Area Unemployment Rates

Share of Underwater Homes Plunging

Poverty Exhibit 2.-Share & Number of Inland Residents Below Poverty Level Census Bureau Year People In Poverty Share of Population in Poverty Population , %2,588, , %3,255, , %4,293,892 Changes+152.9%+6.2%+65.9% Lake Elsinore 14.5%

Water Issue 1.Delta Smelt 2.20 Years Water Supply To Build 3.Santa Ana Sucker 4.Replacement Water Cost: $1,862,000,000 5.If Water Can’t Be Found … Can’t Build Large Projects

CA’s Regulatory Environment CEO’s: California is the Worst State for Business

Status of Sectors Capable of Driving Recovery

Logistics Flow of Goods

Truck To Inland Empire

Sophisticated Warehousing Operations

Port Container Volumes

Fulfillment Centers (John & Dan) Sales Tax Revenue to Cities (1,000,000 SF) ($5 million per year under assumption 50% of Sales Out of California)

17 Firms Looking For Space (John & Fran) 1,500,000 1,000, ,000 to 1,000, ,000 to 1,000, ,000 to 800, ,000 to 900, , , ,000 to 800, , ,000 to 700, , , ,000 to 400, ,000 Source: Jones LaSalle Size Jobs E-Commerce: 6,150,000 to 6,450,000 SF 5,467 to 5,733 Jobs Conventional: 5,800,000 to 6,800,000 SF 1,850 to 2,092 Jobs Total Potential: 11,950,000 to 13,250,000 SF 7,282 to 7,826 Jobs Average Square Feet Per Job Combined = 1,641 to 1,693

Industrial Vacancy Rate Recovering Everywhere! 5.8% Inland Empire 2.7% 12.8% 5.8% 9.9% San Diego 7.0% 12.0% 9.9% 3.2% Orange Co. 5.4% 6.5% 3.2% 2.0% L.A. Co. 2.1% 3.2% 2.0% 2013Q2 2005/ Q3 2013Q2 IE Gross Absorption Back at 12.5million Sq. Ft. But Still Under Its Long Term Average

Inland Empire Logistics Jobs 28% of All Inland Jobs … Jan-July

Health Care

Health Care Jobs: Continuous Growth

Determinants of Public Health Robert Woods Johnson-University of Wisconsin 40%Socio-Economic 30%Health Behaviors 20%Access to Health Care 10% Environmental Factors

Public Health Determinants San Bernardino County46 th Riverside County36 th No Health Insurance23% People Per Physician: SB Co.1,86840 th People Per Physician: Riv Co.2,51447 th Health Care Issue

Manufacturing: Could Be A Major Growth Source

Manufacturing Orders Declining

Inland Empire Manufacturing Jobs

U.S. v. California Manufacturing Jobs

Regulatory Environment Aimed At “Dirty” Blue Collar Sectors

Air Becoming Cleaner Exhibit 6.-PM 2.5 Days over National Standard vs. Total Square Feet of Net Industrial Absorption Since Highest PM2.5 level Monitoring Sites Mira Loma-Van Buren Riverside- Magnolia Riverside- Rubidoux Fontana-Arrow Highway Ontario-1408 Francis Street San Bernardino- 4th Street * *** 2005** *27.2** ***** 2008* * * Change From Highest Change -84.8%-92.0%-94.2%-85.6%-100.0% Net Absorptiont Since Highest 86,378,254183,911,357229,967,544183,911,357229,967,544183,911,357

Median Pay By Sector Groups

Results: A Policy Cause Crisis California Uncompetitive for Manufacturing & Other Blue Collar Work Reduced Access To Middle Class Jobs For Marginally Educated Who Are A Huge Share of Workers Disproportionately Impact Hispanic & African American Families Health & Social Justice Issue Being Created Increasing the Income Disparity in the State

Construction: Finally Some Hope

Construction Share of Lost Jobs 56.1% 118,800 66,300 Total Job Decline Construction Job DeclineConstruction Share of Lost Jobs Source: CA Employment Development Department Construction Share Of Lost Jobs Inland Empire, Dec

Share of Underwater Homes Plunging

Home Prices Finally Rising 46.4% 26.5% 48.2% less for Existing home

Lake Elsinore Price Trends +37.4%

Lake Elsinore Price Advantage

Inland Empire’s In-migration From Coastal Counties Has Not Yet Recovered -15,538 Not Bringing Skills, Wealth, Income & Spending

Investor Pre-Market Home Buying 2007July July July July July July % 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% Source: Foreclosureradar.com Exhibit 12.-Direct Investor Purchase of Foreclosure Sales Inland Empire, % Families Can’t Compete Realtors Have Less Business

How Much Higher Is The Likelihood of Calls for Police Service? Single Family Rental v. Owner Occupied

How This Ends: A Housing Shortage 106, per new person During 2008 thru 2012 California Population Grew by 993,624 Looming Shortage

Permits: Finally Some Optimism

Construction: Data Weird

High-End & Office Based Jobs

Office Market: Some Recovery

Office Vacancy Rates Improving But Still Very High 19.2%

High End Occupations & Office Operations Gaining Strength

California Grabbing Money From Local Government … School Funding Cut Jerry Brown’s Hand

Federal Job Cuts Sequester Budget Fight Debt Ceiling

Assessed Valuation Finally Growing (3.6% for both Counties) -6.7% With 7.3% Inflation -14.0% Less Purchasing Power Riverside Co % Lake Elsinore +2.91%

Retail Sales Returning -$3.9 Billion -6.3% With 12.5% Inflation -16.7% Less Purchasing Power

Lake Elsinore Retail Trade: Rising! Inland Empire $3.9 Billion -6.3%

Retail, Consumer Service, Hotel, Amusement Jobs Growing Growth Occurring But Restrained

Public Sector A Drag!

Where Will IE Be In Its Job History?