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 Process Based On Interaction Of: Population Preferences Dirt Prices Force Decisions

Southern California Population Growth,

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 1,650,384Total Jobs 1,156,313Inside IE 494,071Commute Outside County 154,845Between IE Counties 339,226Outside 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 ,720 to 170, %

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% $0.30 $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

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 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

Logistics Flow of Goods

Port Container Volumes

Fulfillment Centers

17 Firms Looking For Space 7 Are Fulfillment Centers 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

Inland Empire Logistics Jobs 32.5% of All Inland Jobs … Jan-Nov

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 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 Air Becoming Cleaner

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+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 Workers Skilled Workers Migrate Inland For 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 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

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

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 ( ) 1,075,807 (33.0%) Inland Health Care Workers Handle More People Than CA: (35%)

Federal Job Cuts Debt Ceiling Budget 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 37,64236,53336,775 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, edd 2013bls 2014e Sources: CA Employment Development Department, U.S. Bureau of Labor Statistics, Economics & Politics, Inc. Exhibit 8.-Wage & Salary Job Change Inland Empire, Annual Average, e ,958 of 148,425 lost or 37.7% ,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