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					E c o n o m i c
R e c e n t Tr e n d s
Employment
HealthCare               ECONOMIC
                         OUTLOOK
I n d u s t r y
Te ch n ol o g y
&Innovation
Po r t s &Tr a d e
Co ns u m e r
D e m a n d
BusinessTrends
Residential
RealEstate
Commercial
L o n g - R u n

                                    2012
Considerations
Education
T heImpactof                          MAY
Educationon
Employment
andIncome
Health Insurance
and Soc ial
ServicesShifting
D e mo g raphic s
RecessionEffects
                     This publication was created for:


               East Bay Economic Development Alliance
     The East Bay Economic Development Alliance (East Bay EDA) is a
           public/private partnership serving the San Francisco
East Bay (Alameda and Contra Costa Counties) whose mission is to establish
     the East Bay as a world-recognized location to grow businesses,
                  attract capital and create quality jobs.


              For new quarterly forecasts and updates visit
                         www.eastbayeda.org.




                    This publication was prepared by:
           Christopher Thornberg, Ph.D, Founding Partner
    Jordan G. Levine, Economist & Director of Economic Research
                 Dustin Schrader, Research Associate
                        Beacon Economics, LLC
                               310.571.3399
                         www.BeaconEcon.com


     For further information about Beacon Economics, please contact:
                            Victoria Pike Bond
                       Director of Communications
                         Beacon Economics, LLC
                               415.457.6030
                        Victoria@BeaconEcon.com
              Or visit our website at www.BeaconEcon.com.




                 © East Bay EDA 2012. All rights reserved.
ECONOMIC

OUTLOOK
CONTENTS
                                         2012 MAY
EXECUTIVE SUMMARY                        1

RECENT TRENDS                            3
Employment                               3
Employment in the Health Care Industry   4
Technology and Innovation                5
Ports and Trade                          7
Consumer Demand                          10
Business Trends                          10
ResidentialReal Estate                   12
Commercial Real Estate                   16

LONG-RUN CONSIDERATIONS                  19
Education                                19
The Impact of Education on Employment
and Income                               22
Employment and Income                    22
Health Insurance and Social Services     26
Shifting Demographics                    28
Lingering Recession Effects              30

CONCLUSION                               31
EXECUTIVE SUMMARY
                   Economic indicators point to a            could have a substantial positive
                   better year for the East Bay as the       impact on the quality of life for many
                   region continues down the path            residents. Educational attainment
                   of recovery. Month after month,           varies widely across ethnic groups
                   residents of the East Bay are finding     in the region. Given the significant
                   jobs, while employers are continuing      impact of education on both
                   to supply new jobs locally. Industries    earnings and the ability to find work,
                   fundamental to the long-term strength     especially in weaker labor markets,
                   of the East Bay, like health care and     it is unsurprising that household
                   professional, scientific, and technical   income also varies widely across
                   services, are growing by some of the      ethnic groups in the East Bay. As
                   largest margins. Strong year-over-        in other parts of the Bay Area, in
                   year growth in bellwether sectors like    the East Bay, Hispanic and black
                   retail trade shows that the short-run     residents have lower educational
                   gains in the labor market are not         attainment levels on average,
                   aberrations like some had feared, but     and, in turn, significantly lower
                   rather part of a long-term trend in       household incomes and higher rates
                   the East Bay.                             of unemployment than either non-
                                                             Hispanic white or Asian residents.
                   On top of the positive indicators in
                   the labor market, the abundance of        The rates of unemployment
                   venture capital funding in recent years   for young people also remain
                   for companies in the East Bay harbor      disproportionately higher than for
                   the promise of robust economic            other age groups. The gap widened
                   development in the region. In terms       in the recession as employers sought
                   of investment, East Bay firms hold        out longer-tenured workers to fill
                   their own against the heavyweights of     scarce job vacancies. At the same
                   Silicon Valley and San Francisco. In      time, while the percentage of top
                   the past two years, nearly $1 billion     income earners in the region grew,
                   of funding went to industrial energy,     and grew substantially, the middle
                   which will help to cement the East        class shrank slightly. As economic
                   Bay’s reputation as the epicenter of      recovery in 2012 will continue to
                   clean-tech production.                    bring much-needed relief to the East
                                                             Bay economy, now is an ideal time to
                   The cost of residential real estate       more closely examine the obstacles
                   in the East Bay remains at historic       to prosperity for many of the
                   lows, while the cost of commercial        residents that make up this vibrant,
                   real estate in the East Bay remains       diverse community.
                   the most affordable in the Bay Area,
                   which will likely attract the attention
                   of the new and growing businesses
                   that benefit from the continuing
                   economic growth of the region.

                   As economic growth brings more
                   prosperity to the East Bay in the
                   coming years, there are long-run
                   issues to consider that, if addressed,



2| East Bay 2012
   OUTLOOK
                                                                                                                      RECENT TRENDS
EMPLOYMENT                                driven by residents re-entering the
                                          labor force. While the process of
                                                                                                                          East Bay Household Employment
                                                                                                                          Jan-08 to Mar-12
                                                                                                             1,220                                                                    12




                                                                                  Employed Residents (000s, SA)




                                                                                                                                                                                           Unemployment Rate (%, SA)
                                          recovery in the job market has been
There are many reasons to be                                                                                 1,200
                                                                                                                                                                                      10
                                          slow on the whole, the East Bay has                                1,180
optimistic in the East Bay as the                                                                                                                                                     8
                                          seen more solid improvement, with                                  1,160
economy continues to see post-                                                                                                                                                        6
                                          over 39,000 newly employed residents                               1,140
recession growth. East Bay residents
                                          since last hitting bottom in December                              1,120                                                                    4
are clearly benefitting from the                                                                                      Jan-08       Jan-09      Jan-10          Jan-11        Jan-12

                                          2009. Household employment is now                                                      Employed Residents            Unemployment Rate
broader economic recovery.                                                                                                Source: CA Employment Development Department
                                          within 3% of its pre-recession peak.
Household employment has made
consistent gains month-to-month           East Bay employers have expanded
                                                                                                                          East Bay Payroll Employment
since mid-2011. Additionally, the         their payrolls by almost 27,000 jobs                                            Jan-08 to Mar-12
region’s employers have continued         since hitting a trough in July 2011,
                                                                                                                  1,050


to bring on new workers. While the        including a spike of approximately
                                                                                                                  1,025




                                                                                  Total Jobs (000s, SA)
U.S. and California economies have        9,400 new jobs in January alone.
                                                                                                                  1,000


brought slower-than-desired job           Clearly, employment remains well                                         975


creation, the East Bay has recently       below the heights reached during the                                     950

started to outpace them. Total            bubble, but the recent growth pattern                                    925
                                                                                                                      Jan-08        Jan-09            Jan-10        Jan-11            Jan-12
nonfarm employment growth trails          is promising, and the area remains                                              Source: CA Employment Development Department

that of San Francisco and the South       13,800 jobs stronger than where it
Bay on a year-over-year basis—1.5%,       was a year ago.
versus 2.5% in San Francisco and
3.1% in the South Bay—but growth in       Household employment growth from        East Bay employers have
the East Bay has kept pace with that      its trough in November 2010 has
of San Francisco and the South Bay        exceeded payroll employment growth      expanded their payrolls by
in some of the biggest employment         from its trough in July 2011, 3.5%      almost 27,000 jobs since
sectors. For example, employment in       to 2.9%, respectively. More East
the Education and Health Services         Bay residents have found work since     hitting a trough in July
sector of the East Bay has grown by       employment hit its lowest levels than
                                                                                  2011, including a spike of
5.4% since last year, matching the        East Bay employers have added new
5.4% growth in the South Bay and far      workers. As the Bay Area economy        approximately 9,400 new
surpassing the 0.2% growth in San         began to climb out of the recession,
                                          many East Bay residents searched
                                                                                  jobs in January alone.
Francisco. Unemployment in the East
Bay is trending steadily downward,        for work outside of the East Bay and
while employment in sectors that          found it. Much of the solid growth
promote growth in industries like         in household employment in the past
clean-tech is trending strongly           two years has come from commuters.
upward. Employment in Professional,       Only in mid-2011 did employers in the
Scientific, and Technical services        East Bay begin to add new workers in
has grown by 6.2% from a year ago,        abundance.
compared to 7.8% in San Francisco
                                          The labor market recovery has begun
and 3.6% in the South Bay.
                                          to broaden out across a variety
The number of jobless residents in        of sectors in the East Bay. The
the East Bay continued to decline         construction industry in the East Bay
as the unemployment rate reached          has yet to reach 2010 levels, but its
9.3% in January, its lowest point since   recent growth has been substantial:
February 2009. The unemployment           2.7% more jobs than a year ago.
rate did edge back up to 9.6% in          Notably, manufacturing continues
February and March, but this was          to slide, off pace 4.4% over two

                                                                                                                                                      OUTLOOK 2012
                                                                                                                                                                        East Bay
                                                                                                                                                                                          |3
RECENT TRENDS
                                                                                                           East Bay Employment by Sector
                                                                                                           Variable                 March-12        1-Month       1-Month         1-Year      1-Year     2-Year        2-Year
                                                                                                                                   Employment       Change        Change          Change      Change     Change      Change (%)
                                                                                                                                                     (000s)         (%)            (000s)       (%)       (000s)

                                                                                                           Total Farm                        1.6           1.6         2.2              1.4       16.1         1.5          9.6

                                                                                                           Total Nonfarm                   962.5         960.5         0.2            948.7        1.5       950.7          1.2

                                                                                                           Total Private                   801.7           799         0.3            783.3        2.3       784.2          2.2

                                                                                                           Education/Health                144.2         142.1         1.5            136.7        5.4       137.2          5.1

                                                                                                           Wholesale Trade                  43.2          42.6         1.4             41.7        3.5        41.9          3.1

                                                                                                           Leisure/Hospitality                89          87.8         1.4             87.7        1.5         84           5.9

                                                                                                           Professional                     85.9          85.2         0.9             80.9        6.2         79           8.7

                                                                                                           Other Services                     38          37.7         0.8             35.3        7.7        34.7          9.6

                                                                                                           Management                       25.5          25.4         0.5             25.7       -0.7        24.7          3.2

                                                                                                           Manufacturing                    78.2          78.1         0.1             79.3       -1.4        81.9         -4.5

                                                                                                           Financial Activities             46.8          46.8              0          47.2       -0.7        48.2         -2.8

                                                                                                           Natural Resources/                1.2           1.2              0           1.2       -0.1         1.2            0
                                                                                                           Mining

                                                                                                           Trans/Warehouse/Util             31.6          31.6         -0.1            31.2        1.2        31.8         -0.8

                                                                                                           Retail Trade                    101.3         101.5         -0.2            99.9        1.4       100.2          1.1

                                                                                                           Information                      22.7          22.8         -0.4            22.8       -0.2        24.3         -6.4

                                                                                                           Construction                     46.9          47.6         -1.6            45.6        2.7        48.8         -3.9

                                                                                                           Admin Support                    47.2          48.6         -2.9             48        -1.8        46.4          1.7

                                                                                                           Government                      160.8         161.5         -0.4           165.4       -2.8       166.5         -3.4

                                                                                                           Source: California Employment Development Department



                                                                                                           years. The manufacturing sector                                      counterbalanced by job growth in
                                   East Bay Health Care Employment
                                                                                                           has lost a substantial 3,700 jobs in                                 ambulatory care services. Rather
                                   Jan-00 to Feb-12
                                                                                                           two years. Still, solid year-over-year                               than cut health care consumption
                        100,000

                         80,000
                                                                                                           growth in wholesale trade, leisure                                   altogether during the recession,
Employment (SA)




                         60,000                                                                            and hospitality, retail trade, and other                             residents of the East Bay moved away
                         40,000                                                                            services shows that the recovery is                                  from expensive hospital care toward
                         20,000
                                                                                                           well underway and these bellwethers                                  more affordable outpatient services.
                               0
                                Jan-00     Jan-02     Jan-04     Jan-06     Jan-08     Jan-10     Jan-12   point to continued expansion over the                                That pattern has carried all the way
                                                 Ambulatory Care Services
                                                 Nursing/Resid. Care
                                                                                          Hospitals
                                                                                                           coming years.                                                        into 2012 and should continue into
                                   Source: CA Employment Development Department
                                                                                                                                                                                the near future.

                                                                                                                                                                                The education and health services
                              Education and Health Services Employment
                              East Bay, Q1-00 to Q4-16                                                     EMPLOYMENT IN                                                        sector is expected to continue
                                                                                                           THE HEALTH CARE
                        150

                                                                                                                                                                                growing over the next five years, to
Employment (000s, SA)




                        140


                        130
                                                                                                           INDUSTRY                                                             an estimated 149,000 jobs by the end
                                                                                                                                                                                of 2016. As it has been for the past
                        120
                                                                                                           The health care industry has been                                    decade, health care is expected to be a
                        110                                                                                one of the brightest spots in the                                    reliable job creator for the East Bay in
                          Q1-00          Q2-03        Q3-06         Q4-09         Q1-13          Q2-16

                                                        Actual              Forecast                       East Bay labor market over the past                                  the next several years.
                              Forecast by Beacon Economics
                                                                                                           decade. Nursing and residential
                                                                                                           care facilities have added over 2,900
                                                                                                           jobs since 2002, while ambulatory
                                                                                                           health care services have added over
                                                                                                           15,000 jobs in that period. Health
                                                                                                           care employment was near-recession-
                                                                                                           proof, as hospital job losses were


4| East Bay 2012
   OUTLOOK
                                                                                                                   RECENT TRENDS
TECHNOLOGY AND                                         East Bay Venture Capital Funding
                                                       by Sector Q4-09 to Q4-11
INNOVATION                                              Sector
                                                                                                Total Dollars
                                                                                                  (Millions)
The East Bay has made good progress                     Industrial Energy                           1015
on developing a niche for itself in
                                                        Semiconductors                              382
the new economy. Companies in the
                                                        Software                                    374
East Bay received over $2.5 billion
                                                        Biotechnology                               357
in venture capital funding over the
                                                        Medical Devices and Equipment               300
last two years, and many of these
                                                        Electronics Instrumentation                 110
dollars were directed toward high
                                                        Consumer Products and Services               70
tech sectors. Nearly $1 billion of this
                                                        Computers and Peripherals                    67
investment went to industrial energy
                                                        Media and Entertainment                      49
alone, which includes clean-tech firms
                                                        Business Products and Services               20
like BrightSource Energy, Fulcrum
                                                        Networking and Equipment                     10
Bioenergy, Amyris Biotechnologies, and
                                                        Healthcare Services                          8
GreenVolts. Venture capital funding
                                                        IT Services                                  8
will continue to flow into the East Bay
as it furthers its reputation as the center             Telecommunications                           6

of the country’s clean-tech industry.                   Financial Services                           6

More traditional “tech” sectors received                Total                                      2,781

solid funding as well. Software,                       Source: Money Tree

biotechnology, and semiconductors
together received over $1 billion in                   York Metropolitan Area and bested
funding since 2010. The center of the                  Los Angeles and Orange County in                         Companies in the East Bay
high tech industry is expanding beyond                 Q4-11. Funding also increased faster
Silicon Valley and now encompasses                     in the East Bay than in some of our                      received over $2.5 billion
the East Bay, which is carving out a                   larger neighbors in 2011, increasing                     in venture capital funding
particular niche in clean-tech.                        by 42.5% from 2010, compared to
                                                       29.3% in the South Bay.                                  over the last two years.
Venture capital funding in the
East Bay compares favorably with                       In addition, in each of the past five
other regions. Though funding still                    years, Inc. Magazine has tracked the
trails that of Silicon Valley and San                  fastest growing companies in the
Francisco in terms of funding levels,                  country and at least four East Bay
the East Bay nearly matched the New                    companies have made that list. The


Venture Capital Funding over Time ($ Millions)
   Quarter      East Bay   San Francisco   South Bay       LA & Orange County   NY Metro Area       Midwest


   Q4-09             150       999           729                   463                466             155

   Q1-10             239       549           632                   453                566             234

   Q2-10             385       1058          1362                  675                344             291

   Q3-10             190       641           817                   225                322             221

   Q4-10             213       1012          714                   305                508             376

   Q1-11             456       824           1183                  393                580             323

   Q2-11             300       1278          1380                  542                624             344

   Q3-11             196       1554          897                   401                891             280

   Q4-11             512       1400          1097                  469                545             201

   Q1-12             139       1167          755                   567                378             285

Source: Money Tree
                                                                                                                                     East Bay
                                                                                                                              OUTLOOK 2012      |5
RECENT TRENDS
                                                      East Bay is still not home to as many                                    How has the region been so
                                                      Inc. 500 firms as San Francisco, but                                     successful in developing this niche in
                                                      the East Bay has begun to track the                                      technology-oriented-sectors? Partly,
                                                      South Bay’s numbers closely in recent                                    this is due to the presence of strong
                                                      years, which is a positive sign of things                                research institutions like Lawrence
                                                      to come given the South Bay’s strong                                     Livermore National Laboratory and
                                                      recovery since the broader economy                                       the University of California, Berkeley,
                                                      hit bottom.                                                              and established companies like Clorox
                                                                                                                               that has led to the commercialization
                                                      Inc. 500 Fastest Growing Companies                                       of new products and services. This
                                                       Location             2007     2008      2009      2010        2011      shows in the region’s patent filings.
                                                                          Comparing with California                            Year to year, the East Bay produces
                                                       East Bay              11       5         4        11            5       approximately 2.5% of U.S. patents.
                                                       San Francisco         18      11         14       16           12       This number still trails Silicon Valley
                                                       South Bay              9      11         7        13            5
                                                                                                                               patents by a significant margin,
                                                       California            90      77         82       91           88
                                                                                                                               but it suggests that on the national
                                                                      Comparing with Other States
                                                                                                                               scale, entrepreneurship in the region
                                                       East Bay                11         5          4        11           5
                                                                                                                               is thriving. The growth in patent
                                                       Illinois                18      29        24           22        18
                                                                                                                               applications over the past two years
                                                       Florida                 26      23        27           28        35
                                                                                                                               should help to bolster new business
                                                       New York                27      28        35           37        33
                                                                                                                               formation in the region and help to
                                                      Source: Inc. Magazine                                                    advance the East Bay’s status as a hub
                                                                                                                               for the technology sector in its
                                                      The East Bay performs quite well                                         own right.
East Bay produces                                     relative to other metros and states in
approximately 2.5% of                                 the nation in terms of venture capital                                   However, it is important to point
                                                      funding and fast-growing companies.                                      out that the entrepreneurial spirit
U.S. patents.                                         Given the size of the East Bay economy                                   of East Bay residents is not limited
                                                      relative to that of some states, the                                     to the technology sector. In fact, the
                                                      region stacks up surprisingly well on                                    East Bay is also becoming a popular
                                                      the Inc. 500 list. For instance, in 2010,                                hub for social entrepreneurship.
                                                      the East Bay had half the number                                         So called “B-Corporations” are
                                                      of ranked companies as the entire                                        certified as promoting sustainable
                                                      state of Illinois. Thus, while frequent                                  business and maintaining high social,
                                                      comparisons relate the region with our                                   environmental, and legal standards.1
                                                      closest neighbors to the south and west,                                 Corporations qualify based on an
                                                      it is important to keep in mind that                                     impact assessment survey examining
                                                      these are very fast-growing areas that                                   a company’s employees, consumers,
                                                      the East Bay has almost kept pace with.                                  community, accountability, and
                                                                                                                               environment.
                                                      Patents Per Year
                                                                                                                               B-Corporation designation has had
                                                                                                                   United
                                                                  East       Per      Silicon         Per
                                                       Year
                                                                  Bay       Capita    Valley         Capita
                                                                                                                   States      such an impact in California that in
                                                                                                                    Total
1
    B-Corporations receive their certification from                                                                            2011, the state government legally
B Lab, a non-profit organization founded by the        2006       2,360     0.0013     8,108         0.0062        89,814
                                                                                                                               recognized a new corporate structure,
Co-Founder and former President, Jay Coen Gilbert      2007       2,064     0.0011     7,159         0.0054        79,522
and Bart Houlahan, respectively, of AND1 apparel
                                                                                                                               the “benefit corporation,” based
                                                       2008       2,023     0.0011     7,172         0.0054        77,500
and a private equity investor, Andrew Kassoy.                                                                                  on the model of a B-Corporation.
                                                       2009       2,190     0.0011     7,805         0.0058        82,379
                                                                                                                               Since B Lab’s founding in 2007, 521
                                                       2010       2,850     0.0015    10,047         0.0074        107,787
                                                                                                                               corporations nationwide have been
                                                      Source: U.S. Patent & Trademark Office                                   certified B-Corporations. Of these,
6| East Bay 2012
   OUTLOOK
                                                                                                                                           RECENT TRENDS
B-Corporations in the East Bay
 Corporation        Location       Corporation       Location         Corporation       Location

 Berkeley           Berkeley, CA   Greenerprinter    Berkeley, CA     Opticos           Berkeley, CA
 Patients Group                                                       Design, Inc.

 Bison Brewing      Berkeley, CA   GreenHeart        Oakland, CA      PACT Apparel      Berkeley, CA
 Company, LLC                      Global

 Cultivating        Berkeley, CA   Greenlight        Fremont, CA      Revolution        Oakland, CA
 Capital                           Apparel                            Foods

 Cutting Edge       Oakland, CA    Heller            Berkeley, CA     SCS               Emeryville, CA
 Capital                           Consulting

 FogBusters, Inc.   Oakland, CA    Katovich Law      Oakland, CA      SolarNexus,       Berkeley, CA
                                   Group                              Inc.

 Free Range         Berkeley, CA   Mal Warwick       Berkeley, CA     Sun Light &       Berkeley, CA
 Studios                           Associates                         Power

 Further The        Richmond, CA   Moving Forward    Emeryville, CA   Sungevity, Inc.   Oakland, CA
 Work                              Education

 Galileo ED         Oakland, CA    Nest Collective   Emeryville, CA   VIASYN            San Ramon, CA

 Give Something     Oakland, CA    New Avenue        Berkeley, CA     Weinreb Group     Berkeley, CA
 Back Office
 Supplies

 Green              Oakland, CA    Numi Organic      Oakland, CA      Wendel Rosen      Oakland, CA
 Retirement                        Tea                                Black & Dean
 Plans, Inc.                                                          LLP

Source: B Lab


30 or 5.76%, are headquartered                        the 9.1% export growth at the Port
in the East Bay. This is significant                  of Los Angeles over the same period,                                                      Exports & Imports
                                                                                                                                                Port of Oakland, Jan-07 to Jan-12
given that the East Bay represents                    and surpasses that of the Port of Long                                            2,500

                                                      Beach, which has seen flat growth in
                                                                                                         Total Value ($ Millions, SA)


only 0.8% of the U.S. population—                                                                                                       2,000

clearly there is a ground-swell of                    exports. And while import growth at
                                                                                                                                        1,500
social entrepreneurship locally, fitting              the Port of Los Angeles increased by
                                                                                                                                        1,000
of the East Bay’s image as a hub                      over 16% in that span of time, the
of sustainable, socially-productive                   import growth at the Port of Oakland                                               500
                                                                                                                                            Jan-07      Jan-08       Jan-09     Jan-10       Jan-11   Jan-12

business.                                             nearly doubled the 4.4% import                                                                                  Exports            Imports
                                                                                                                                                Source: WISERTrade
                                                      growth at the Port of Long Beach.
                                                      Not only is traffic picking up at the
PORTS AND TRADE                                       Port of Oakland, but it’s also keeping                                                    Total Value of Exports
                                                                                                                                                Port of Oakland, Jan-07 to Jan-12
                                                      in lockstep with some of the state’s                                              1,600
Trade activity continues to expand                    larger ports.
                                                                                                         Total Value ($ Millions, SA)




at the Port of Oakland during the                                                                                                       1,400


post-recession period, which has                      Since the end of the recession, exports                                           1,200

helped to bolster the local economy.                  generally have moved steadily upward                                              1,000

The total value of imports has grown                  in value. The latter half of 2010 saw
                                                                                                                                         800
62.7% from its relative minimum in                    more rapid growth, but values quickly                                                 Jan-07      Jan-08       Jan-09     Jan-10       Jan-11   Jan-12
                                                                                                                                                Source: WISERTrade
February, 2009, while the total value                 receded back in mid-2011. In large
of exports has grown 83.1% over the                   part, this slowdown was driven by
same period. Both import and export                   an appreciation of the dollar, which
growth have remained relatively                       increased in value as fears over the
steady in the short run, with an 8.4%                 European Sovereign debt issues
increase in import value since January,               intensified last year. However, as the
2011, compared to a 9.1% increase                     European Central bank stepped up
in export value. This is on par with                  to provide more certainty to shore

                                                                                                                                                                          OUTLOOK 2012
                                                                                                                                                                                         Economic
                                                                                                                                                                                                       |7
RECENT TRENDS
                              up the banking system, the dollar has                             biggest gainers in 2011. In addition,
                              since depreciated again and the pace                              the Port of Oakland remains a hub
                              of exports has accelerated recently as                            for high-tech exporting. Four of the
                              a result, with over 14% growth since                              port’s top 10 exports are advanced
                              October.                                                          manufacturing commodities, and the

                              Port of Oakland Advanced Manufacturing Exports
                                                                                                   Port of           Percent of           Percent of
                                                                              Export Value
                               Commodity                                                           Oakland           Port's Total       State's Export
                                                                            (000s of Dollars)
                                                                                                    Rank              Exports           of Commodity

                               Industrial Machinery, Incl Computers               1,120,566           3                 6.14                4.17

                               Vehicles/Parts                                     702,065             6                 3.85                8.16

                               Electrical Machinery/Sound Equip/TV Equip          639,662             7                  3.5                2.26

                               Medic or Surgical Instruments/Parts                489,273             9                 2.68                3.18

                              Source: WISERTrade



                              In line with the East Bay’s burgeoning                            port oversees over 8% of the vehicle
                              specialization in the tech arena, annual                          exports from the state of California.
                              exports of the Port of Oakland’s                                  Clearly, demand for U.S. products
                              biggest commodities grew substantially                            abroad is helping to drive the first part
                              between 2010 and 2011—and this                                    of the economic recovery locally.
                              follows solid growth in the previous
                              year. Specifically, eight of the top 10                           Food commodities remain the Port of
                              had more than double-digit growth,                                Oakland’s flagship exports. Combined,
The Port of Oakland                                                                             edible fruit and meat exports
                              and only electrical machinery exports
remains a hub for high-tech   dipped from the previous year.                                    constitute over a third of the Port’s
                              Medical/surgical instruments, a                                   exports, while those commodities
exporting.                                                                                      constitute just 6.1% of the state’s
                              high-tech commodity, was among the


                              Port of Oakland Top Exports by Commodity
                                                                                Export Value                        Percent of All Exports

                                                                        2011          2010                   Port of
                               Commodity                                                          Chg (%)                  California     Difference
                                                                       (000s)        (000s)                  Oakland

                               Edible Fruit/Nuts/Citrus Fruit/
                                                                      3,943,198     3,230,363      22.1       21.6             3.4            18.2
                               Melon Peel

                               Meat/Edible Meat Offal                 2,374,670     1,896,085      25.2        13              2.7            10.3

                               Industrial Machinery, Incl
                                                                      1,120,566     954,921        17.3        6.1             14.2           -8.1
                               Computers

                               Beverages/Spirits/Vinegar              793,479       681,982        16.3        4.3             0.6            3.7

                               Iron/Steel                             751,146       563,407        33.3        4.1             2.4            1.8

                               Vehicles/Parts                         702,065       569,480        23.3        3.8             4.5            -0.7

                               Electrical Machinery/Sound
                                                                      639,662       684,085        -6.5        3.5             15            -11.5
                               Equip/TV Equip

                               Inorg Chem/Rare-Earth Metals/
                                                                      632,162       603,616         4.7        3.5             1.6            1.9
                               Radioact Compds

                               Medic or Surgical Instruments/
                                                                      489,273       410,770        19.1        2.7             8.1            -5.5
                               Parts

                               Cereals                                465,646       420,835        10.6        2.6             0.8            1.8

                              Source: WISERTrade

8| Economic 2012
   OUTLOOK
                                                                                                           RECENT TRENDS
Airport Traffic (in thousands)
                                 Oakland                     San Francisco                 California

 Month                 Passengers             Freight   Passengers    Freight   Passengers      Freight

 Jan 1, 2010                 339              40,768      1,401       32,493      10,976        523,540

 Feb 1, 2010                 315              39,366      1,240       29,497      9,800         530,043

 Mar 1, 2010                 381              44,508      1,530       34,055      12,060        608,176

 Apr 1, 2010                 384              46,501      1,536       31,289      11,955        606,291

 May 1, 2010                 386              46,050      1,661       46,161      12,481        622,605

 Jun 1, 2010                 428              46,596      1,800       44,684      13,444        627,473

 Jul 1, 2010                 432              47,271      1,811       39,889      14,154        607,138

 Aug 1, 2010                 434              46,625      1,816       36,790      13,972        582,798

 Sep 1, 2010                 386              48,401      1,654       35,359      11,986        595,676

 Oct 1, 2010                 408              50,356      1,738       33,564      12,601        617,048

 Nov 1, 2010                 385              43,341      1,571       27,116      11,802        577,166

 Dec 1, 2010                 395              56,781      1,587       32,014      12,197        654,927


 All 2010                   4,672             556,565     19,345      422,910    147,429       7,152,881


 Jan 11, 2011                335              41,087      1,396       27,533      11,240        520,683

 Feb 1, 2011                 316              40,145      1,288       26,625      10,205        505,192

 Mar 1, 2011                 369              48,508      1,552       32,084      12,271        615,197

 Apr 1, 2011                 355              41,656      1,573       29,863      12,260        561,856

 May 1, 2011                 379              42,354      1,747       39,821      13,052        564,677

 Jun 1, 2011                 407              45,927      1,855       39,393      13,741        598,345

 Jul 1, 2011                 406              41,622      1,892       39,667      14,591        576,503

 Aug 1, 2011                 414              45,145      1,878       35,852      14,331        582,227

 Sep 1, 2011                 379              45,742      1,736       32,271      12,535        568,623

 Oct 1, 2011                 389              46,071      1,752       31,112      12,831        590,126


 Year to Date               3,748             438,257     16,670      334,220    127,057       5,683,430

Source: U.S. Bureau of Transportation Statistics



total exports. As strong as high-tech                         exporting down the road. At the same
exporting has been at the Port of                             time, as the strong year-over-year
Oakland, there is still room for high-                        growth in edible fruit and meat shows,
tech commodities to increase their                            food exporting at the Port of Oakland
presence. Electrical and industrial                           shows no sign of slowing down.
machinery are leading exports for
                                                              On the other hand, passenger and
the state, constituting a combined
                                                              freight traffic from the Oakland
29.2% of total exports, compared to
                                                              International Airport in 2011 was
only 9.6% of exports at the Port of
                                                              down slightly from where it had been
Oakland. The year-over-year growth
                                                              in 2010. January through October,
in exports of industrial machinery,
                                                              passenger totals were down 3.7%,
for example, at 17.3%, bodes well for
                                                              while total pounds of freight were
the expansion of the Port’s high-tech
                                                              down 4.0%. The drop in freight was
                                                                                                                     Economic
                                                                                                                OUTLOOK 2012    |9
RECENT TRENDS
                                                                                                             not exclusive to Oakland, though. San                     off somewhat, taxable sales have
                                                                                                             Francisco International Airport freight                   increased almost continuously since
                                                                                                             dropped 8.1% over the same period,                        Q2-09, with just a marginal 0.36%
                                                                                                             while freight out of all California                       dip in Q2-11.
                                        Hotel Occupancy
                                                                                                             airports dropped 4.0%. Both San
                                                                                                                                                                       Demand has increased in almost every
                                  80
                                        Bay Area Comparison, Q1-07 to Q4-11                                  Francisco and the state saw an uptick
                                                                                                                                                                       sector in the East Bay, as well. From
                                                                                                             in passenger traffic, though, by 3.0%
 Occupancy Rate (SA)




                                  75
                                                                                                                                                                       Q4-10 to Q4-11, tax receipts for auto
                                  70                                                                         and 2.9%, respectively.
                                  65
                                                                                                                                                                       and transportation sales increased
                                  60                                                                         Despite the decrease in passenger                         by 7.7%; 9.5% in the building
                                  55
                                   Q1-07           Q1-08        Q1-09        Q1-10           Q1-11   Q1-12
                                                                                                             traffic out of the Oakland                                and construction sector; 6.2% in
                                                             Oakland                     San Jose            International Airport, hotel data                         restaurants and hotels; a steady 4.5%
                                                             San Francisco
                                        Source: Property and Portfolio Research                              show positive signs for the hospitality                   in general consumer goods; and a
                                                                                                             and tourism in the East Bay. Hotel                        considerable 17.1% in fuel and service
                                                                                                             occupancy in Oakland stood at 67.7%                       stations. Business investment, whether
                                         Hotel Revenue Per Available Room
                                         Bay Area Comparison, Q1-07 to Q4-11                                 in Q4-11, a 5.2% jump from Q4-10.                         it be new construction, research and
                                  120

                                  110
                                                                                                             San Francisco occupancy increased                         development, or labor, is likely to ramp
 RevPAR (Indexed)




                                  100                                                                        by 3.8% over the same period, while                       up in response, and it will almost
                                   90                                                                        San Jose occupancy increased by                           certainly make 2012 a stronger year
                                   80                                                                        4.2%. Though San Francisco is well                        for commercial growth than 2011.
                                   70
                                       Q1-07        Q1-08        Q1-09           Q1-10       Q1-11   Q1-12
                                                                                                             ahead, Oakland occupancy is catching
                                                             Oakland
                                                             San Francisco
                                                                                         San Jose
                                                                                                             up to San Jose. Hotel revenues are
                                         Source: Property and Portfolio Research
                                                                                                             steadily rising in Oakland, as well.                      BUSINESS TRENDS
                                                                                                             Oakland has kept pace with San Jose,
                                                                                                             with 16.6% growth in revenue per                          Many large companies are located in
                                         East Bay Taxable Sales
                                         Q1-04 to Q4-11
                                                                                                             available room compared to 13.9% in                       the East Bay, some of which are based
                                  10.0
                                                                                                             San Jose. The decrease in Oakland’s                       within the East Bay itself and others
 Taxable Sales ($ Millions, SA)




                                   9.5
                                                                                                             airport passenger traffic does not in                     that are headquartered outside the
                                   9.0                                                                       turn reflect a decrease in visitors to                    East Bay but maintain a large presence
                                                                                                             the region.                                               in the local area. According to the
                                   8.5
                                                                                                                                                                       2010 NETS database, Chevron is the
                                   8.0
                                                                                                                                                                       largest firm in the East Bay, generating
                                                                                                             CONSUMER DEMAND
                                        Q1-04          Q1-06             Q1-08            Q1-10      Q1-12
                                         Source: CA Board of Equalization
                                                                                                                                                                       $1.4 billion in sales during 2010.

                                                                                                             As expected, consistently improving                       Importantly, there are several high-
                                                                                                             employment numbers in the East Bay                        tech, high-skill firms that make the
Hotel data show positive                                                                                     are accompanied by solid growth                           list of largest companies in the East
                                                                                                             in consumer demand. Taxable sales                         Bay, including, AT&T, Chevron
signs for the hospitality and
                                                                                                             in the most recent quarter have                           Corporation, Oracle systems, Bio-
tourism in the East Bay.                                                                                     exceeded pre-recession numbers,                           Rad Laboratories, Bayer Healthcare,
                                                                                                             and while growth has begun to level                       Abbott Diabetes Care and LAM



                                                                                                             East Bay Tax Receipts by Catagory
                                                                                                                           Fuel and
                                                                                                                                      Building and     Autos and      Restaurants   Food and    Consumer     Business and
                                                                                                              Quarter      Service
                                                                                                                                      Construction   Transportation   and Hotels     Drugs       Goods         Industry
                                                                                                                           Stations

                                                                                                             Q4-10        8,376,291    6,546,470      11,491,261       8,506,678    5,909,299   23,759,155    14,611,574
                                                                                                             Q4-11        9,811,998    7,167,002      12,373,468       9,030,991    6,190,325   24,835,225    15,191,677
                                                                                                             Change (%)      17.1         9.5             7.7             6.2          4.8         4.5            4

                                                                                                             Source: HdL Compaies
10 | Economic 2012
     OUTLOOK
                                                                                                                          RECENT TRENDS
East Bay Small Business Loans, 2011
 Loan Program                           Recipient                                     Recipient Location    Face Value

 7(a) Loan Guarantees                   Svenhard's Partnership, L.P., a Californ      OAKLAND                 5,000,000

 7(a) Loan Guarantees                   KPM CAR WASH INC                              LIVERMORE               4,287,000

 7(a) Loan Guarantees                   AltCare Willow Creek, Inc.                    CASTRO VALLEY           3,971,500

 7(a) Loan Guarantees                   Dublin Boulevard                              DUBLIN                  3,163,000

 7(a) Loan Guarantees                   KAI Hospitality, LP                           BRENTWOOD               2,900,000

 7(a) Loan Guarantees                   Rogelstad-Thorpe LLC (EPC) Thorpecorp dba     PITTSBURG               2,649,000

 7(a) Loan Guarantees                   Armaan Investments, LLC                       MARTINEZ                2,200,000

 7(a) Loan Guarantees                   NORTH STAR EMERGENCY SERVICES, INC.           OAKLAND                 1,791,900

 7(a) Loan Guarantees                   Clarence Schneider Family Trust               HAYWARD                 1,775,000

 7(a) Loan Guarantees                   1500 Winton Ave., LLC and AAA Flooring &      HAYWARD                 1,650,000

 504 Certified Development Loans        The Sports Basement, Inc.                     BERKELEY                5,500,000

 504 Certified Development Loans        Oakley Executive RV & Boat Storage LLC        OAKLEY                  3,165,000

 504 Certified Development Loans        Quick Mount PV                                WALNUT CREEK            3,067,000

 504 Certified Development Loans        Hurricane Electric LLC                        FREMONT                 2,321,000

 504 Certified Development Loans        Foam Distributors, Incorporated               HAYWARD                 2,055,000

 504 Certified Development Loans        Inland Metal                                  HAYWARD                 1,841,000

 504 Certified Development Loans        US Spices Corp.                               UNION CITY              1,775,000

 504 Certified Development Loans        B&C Transit, Inc.                             OAKLAND                 1,612,000

 504 Certified Development Loans        Liberty Group, LLC                            OAKLAND                 1,604,000

 504 Certified Development Loans        Lighthouse Worldwide Solutions, Inc.          FREMONT                 1,566,000


Source: U.. Small Business Administration



Research, not to mention that GE is                                   Among firms specifically based in the
hiring 400 new employees for a $1                                     East Bay, several are showing very
billion Global Software Center it is                                  strong performance. Most notable
creating in the East Bay. These firms                                 among these is Pixar Animation,
maintain the strength of the high                                     located in Emeryville. Since 2000, this
technology industry in the East Bay and                               firm has seen annual revenues grow
offer high wages that boost the overall                               from roughly $17 million per year
cost of living. Each of these firms                                   to more than $235 million per year
generated annual revenues in excess                                   in 2010, averaging more than 30%
of $400 million in 2010, and many                                     growth annually. Some of the other
employ a fairly large workforce, as well.                             large, fast-growing firms headquartered
Some of the other largest companies                                   in the East Bay highlight the shift
in the region are manufacturing firms,                                toward high-tech industry in the region,
and are fundamental contributors to                                   such as IT firms like ASI Computer
strong GDP growth.                                                    Technologies, and medical technology

Small Business Loans Over Time

 Loan Program                                            2008               2009          2010               2011

 504 Certified Development Loans                       70,414,000       50,285,000    69,942,000           65,109,000

 7(a) Loan Guarantees                               113,498,230         33,227,135    80,669,993      109,364,251

 Disaster Assistance Loans                                  153,800         -89,600       362,200            494,800


                                                                                                                                              |11
Source: U.. Small Business Administration
                                                                                                                                   Economic
                                                                                                                              OUTLOOK 2012
RECENT TRENDS
                                    Retail Property Vacancy Rates                                                                                      companies like Bio-Rad. Not only            In 2011, East Bay businesses secured
                                    Bay Area Comparison, Q1-00 to Q4-11
                                                                                                                                                       are these firms exhibiting strong           approximately $29.4 million in 7(a) loan
                               6
                                                                                                                                                       year-over-year growth in sales (even        guarantees, and approximately $24.5
  Vacancy Rate




                               4
                                                                                                                                                       after including the numbers from the        million in 504 Certified Development
                               2                                                                                                                       most recent downturn), but they also        Loans, to support investment
                                                                                                                                                       represent a sizeable portion of the         companies, sports stores, bakeries, and
                               0
                               Q1-00                 Q1-03             Q1-06              Q1-09                Q1-12                                   overall economic output of the region.      biochemical technology firms, among
                                                              Oakland                    San Jose
                                                              San Francisco                                                                            As a result, these firms are having a big   others. Small businesses in the East Bay
                                    Source: Property and Portfolio Research
                                                                                                                                                       impact on the overall economic growth       are feeling more secure and beginning
                                                                                                                                                       of the East Bay.                            to reinvest, and credit is once again
                                             New Home Prices                                                                                                                                       coming available for them to do so.
                                             Q1-00 to Q1-12
                       750,000                                                                          500,000
                                                                                                                                                       Following a steep drop in small
                                                                                                                        California Median Price (SA)
 East Bay Median Price (SA)




                       625,000
                                                                                                                                                       business credit in 2009, small business
                                                                                                                                                       loan guarantees have begun to
                       500,000                                                                          375,000

                                                                                                                                                       rebound. In 2011, both 504 Certified        RESIDENTIAL
                                                                                                                                                                                                   REAL ESTATE
                       375,000
                                                                                                                                                       Development Loans and 7(a) loan
                       250,000                                                                          250,000
                                      Q1-00           Q1-03          Q1-06       Q1-09          Q1-12                                                  guarantees reached near 2008 levels.
                                                    Alameda County
                                                    California
                                                                               Contra Costa County
                                                                                                                                                       504 loans are provided by nonprofit         After a transient rebound in 2009,
                                             Source: DataQuick
                                                                                                                                                       Certified Development Companies             single-family home prices in the East
                                                                                                                                                       created to promote community                Bay have slowly been on the decline
                                             Existing Single-Family Home Sales                                                                         economic development. These loans           leading up to the present. The median
                                             Q1-00 to Q1-12
                          12,000                                                                      140,000                                          generally allow small businesses            price in Alameda County is $365,700,
                                                                                                      120,000
                                                                                                                                                       to pay just 10% of the total cost of        a 6.0% drop from Q1-11. The median
                                                                                                                    California Sales (SA)




                          10,000
 East Bay Sales (SA)




                                                                                                      100,000
                                                                                                                                                       a project up front. 7(a) loans offer        price in Contra Costa County has
                               8,000
                                                                                                      80,000
                                                                                                                                                       financing for businesses with special       remained approximately flat in the same
                               6,000
                                                                                                      60,000
                                                                                                                                                       requirements, such as those seeking         period, at $265,500. Home prices in
                               4,000
                                         Q1-00        Q1-03        Q1-06        Q1-09         Q1-12
                                                                                                      40,000
                                                                                                                                                       to provide employee stock. These            the state of California have remained
                                                          East Bay              California
                                                                                                                                                       loan programs were implemented by           flat as well, at $250,400. However, it is
                                             Source: DataQuick
                                                                                                                                                       the Small Business Administration           important to point out that the surge in
                                                                                                                                                       to help promote local job growth,           2009 and 2010 was driven primarily by
                                              Mortgage Defaults
                                                                                                                                                       business expansion, and investment in       government intervention into the market
                                              Q1-02 to Q1-12
                               10,000                                                               150,000
                                                                                                                                                       communities, and often, especially in       in the form of homebuyer tax credits,
                                                                                                                                                                                                   low interest rates, and a lending push
                                                                                                                 California Defaults (SA)




                                   8,000
  East Bay Defaults (SA)




                                                                                                    100,000
                                                                                                                                                       the case of 7(a) loans, offer a second
                                   6,000
                                                                                                                                                       chance for businesses unable to acquire     by the FHA.
                                   4,000
                                                                                                    50,000
                                                                                                                                                       financing through other institutions.
                                   2,000                                                                                                                                                           It isn’t surprising to see home prices ebb
                                                                                                                                                       Much of the recovery process will
                                         0                                                          0                                                                                              as these policies are pulled back, but it
                                         Q1-02        Q3-04        Q1-07        Q3-09         Q1-12
                                                                                                                                                       be tied to the availability of small
                                                          East Bay               California                                                                                                        is also important to keep in mind that
                                              Source: DataQuick                                                                                        business credit. During the uncertainty
                                                                                                                                                                                                   home prices are stabilizing and have
                                                                                                                                                       of the recession and facing increased
                                                                                                                                                                                                   not returned to their low points reached
                                                                                                                                                       regulatory capital requirements for
                                             Foreclosures                                                                                                                                          during the recession. Given the relative
                                             Q1-02 to Q1-12                                                                                            large financial institutions, some major
                               6,000                                                                    80,000                                                                                     affordability of housing in the East
                                                                                                                                                       banks reduced commercial loans,
                                                                                                                 California Foreclosures (SA)
  East Bay Foreclosures (SA)




                               4,500                                                                    60,000                                                                                     Bay as well as the gradual rebound in
                                                                                                                                                       and thus 504 and 7(a) loans filled an
                               3,000                                                                    40,000
                                                                                                                                                                                                   labor markets and income, in addition
                                                                                                                                                       essential void in providing credit to
                                                                                                                                                                                                   to the fact that interest rates remain
                               1,500                                                                    20,000                                         small businesses. It is a great sign that
                                                                                                                                                                                                   near historic lows, demand for housing
                                     0                                                                  0                                              those loans are back to where they
                                      Q1-02          Q3-04         Q1-07        Q3-09          Q1-12                                                                                               and thus home prices should begin to
                                                                                                                                                       were pre-recession.
                                                          East Bay
                                             Source: DataQuick
                                                                                 California
                                                                                                                                                                                                   increase gradually as we approach the
                                                                                                                                                                                                   end of the year.


12 | Economic 2012
     OUTLOOK
                                                                                                RECENT TRENDS
New home prices have followed a              are down 25.0% from Q1-11, a steep
similar trend. After a relative peak         decline even compared to the 30.0%
of $557,000 in Q3-10, prices have            decline in the state over the same
dropped in Alameda County to                 period. Though there were slightly
$446,200, and only after a steep             over 2,550 foreclosures in the East
increase from $398,600 in Q4-11, the         Bay in Q1-12, this was nearly a post-
lowest value since Q3-09. In Contra          recession low for the region, outdone
Costa County, the median price has           only by Q4-11, which had 2,554
fallen to levels of the early-2000s,         foreclosures.
at $338,000. It is now very much a
homebuyer’s market in the East Bay.          Housing is becoming more affordable
                                             in the East Bay, but over 1/3 of
Although home sales receded as               residents still pay more than 35% of
these incentive programs expired,            their income toward housing costs.
single-family home sales have                This is high in absolute terms and can
remained relatively stable in the            have a negative impact on migration
short term. Sales in the East Bay in         to the region, though a smaller
Q1-12 were 2.0% higher than a year           proportion of residents of the East
prior, compared with 3.5% growth             Bay spend more than 35% of income
in the state. For the past two years,        on housing than the proportion of
sales in the East Bay have remained          residents of California at large. This
well below their pre-housing-                phenomenon is not specific to the
bubble minimum of 7,168 in Q2-01.            East Bay: throughout California, the
Increased affordability, low interest        average wage is relatively higher than     Households with Housing Costs
rates, and an improving economy              most other states. However, much of        over 35% of Income (%)
should help to drive demand for              this additional earning power is lost                Alameda       Contra Costa
                                                                                         Year                                       California
household formation in the future and        on a higher cost of living in the state.              County         County

give rise to increasing sales volumes.       Bringing down the cost of housing           2006        41.1             43.2              41.6
                                             through streamlining permitting             2007        32.3             34.9              32.8
Mortgage defaults are slowly ebbing
                                             processes, planning, and other pre-
from their recession peaks, but they                                                     2008        42.4             44.3              43.6
                                             development processes and lowering
remain high in historical terms. In                                                      2009        38.6             40.8              42
                                             costs for builders and developers will
Q1-12, defaults in the East Bay were                                                     2010        38.2             36.8              40.9
                                             be a key part of increasing California’s
over 5.5 times their levels in mid-
                                             competitiveness moving forward.            Source: U.S. Census American Community Survey
2003. Alternatively, total defaults for
the year 2011 were down 15.1% from           While building permits on multi-
2010. This is on pace with the state,        family units have climbed out of
which saw a 15.3% drop in defaults           their post-recession lows of 2009,         Demand for housing and
year over year. The negative effects of      planned construction has been
the housing bubble burst appear to           tentative and mostly flat through          thus home prices should
be waning with almost two years of           2011. Construction in cities like          begin to increase gradually
consistent decline. They likely will still   Dublin and Fremont is on the rise,
impact the region for some time, but         but construction in Oakland and            as we approach the end of
clearly the worst is behind us.              Berkeley is still very slow. This is
                                                                                        the year.
Foreclosures in the East Bay have            mostly a cyclical phenomenon given
followed much the same pattern as            that California still does not have
mortgage defaults. In a promising            enough housing. Despite the recent
sign, foreclosures dropped                   boom in construction, California
consistently throughout 2011, and            still maintains one of the lowest
increased by only 10 in Q1-12. They          rental and ownership vacancy rates
                                                                                                                 OUTLOOK 2012
                                                                                                                             Economic
                                                                                                                                        |13
RECENT TRENDS
                                                                                                 in the nation. As the cyclical effects   Single-family unit permits in 2011
                                                                                                 of the Great Recession subside, these    declined to 1,293, just above their low
                                                                                                 fundamental supply and demand issues     of 1,225 in 2008. Moreover, permits
                                                                                                 will eventually give way to demand for   have been trending slightly downward
                                                                                                 new construction. 2012 is expected       in recent quarters. Permits in Q4-11
                                                                                                 to remain roughly flat, but new          were at approximately 90% their total
                                                                                                 construction should begin to pick up     of Q4-10. Housing demand continues
                                                                                                 steam in 2013 and beyond.                to shift toward existing multi-family
                                                                                                                                          properties. Increased affordability in


                                                                                                 Multi-Family Building Permits by City
                                                                                                  City          2005    2006      2007    2008       2009      2010       2011

                                                                                                  Alameda        2       4         2        0         0          0         0

                                                                                                  Albany         0       50        3        0         0          4         3

                                                                                                  Antioch        0       40        0        0         8          0         0

                                                                                                  Berkeley      193     127       156      394       174        16         38

                                                                                                  Brentwood      82     100        0        0         0          0         0

                                                                                                  Clayton        0       0         0        0         0          0         0

                                                                                                  Concord        0      144        0        0         0          0         0

                                                                                                  Dublin        804     774        80       2         19        116        543

                                                                                                  El Cerrito     0       0         0        0         0          0          0

                                                                                                  Emeryville    156     401       127      125        0          0          5

                                    Apartment Rental Rates                                        Fremont       394      97       217      110        76        215        379
                                    Bay Area Comparison, Q1-00 to Q4-11
                            2,200                                                                 Hayward        61      78        0        0         0          0          0
 Dollars Per Unit Monthly




                            2,000
                                                                                                  Hercules       0       0         5        0         0         96          0
                            1,800

                            1,600                                                                 Lafayette      0       0         0        0         0          0          2
                            1,400

                            1,200
                                                                                                  Livermore     184      45        49       8         16        17         42
                            1,000                                                                 Martinez       0       0         0        0         0          0          0
                                  Q1-00         Q1-03            Q1-06        Q1-09      Q1-12

                                                        Oakland               San Jose            Newark         0       2         0        0         0          0          0
                                                        San Francisco
                                    Source: Property and Portfolio Research
                                                                                                  Oakland       1076    2137      741      642       190        468        249

                                                                                                  Oakley         96      0        262      54         0         44          0

                                Apartment Vacancy Rates                                           Orinda         0       0         0        0         0          0          0
                                Bay Area Comparison, Q1-00 to Q4-11
                                                                                                  Piedmont       0       0         0        0         0          0          0
                            8

                            7                                                                     Pinole         2       6         0        0         0          0          0
 Vacancy Rate




                            6
                                                                                                  Pittsburg      24     103       330      133        0         111         0
                            5

                            4                                                                     Pleasant
                                                                                                                147      0         0        0         0          0          0
                                                                                                  Hill
                            3
                            Q1-00            Q1-03             Q1-06          Q1-09      Q1-12    Pleasanton     2       41        0        0         0          0          0
                                                     Oakland              San Jose
                                                     San Francisco                                Richmond       91      38        76      50         40        49          0
                                Source: Property and Portfolio Research
                                                                                                  San
                                                                                                                 0       4         8        2         51         0          0
                                                                                                  Leandro

                                                                                                  San Pablo     102     134        8        8         0         11          0

                                                                                                  San Ramon      0       0         0        0         0         39          0

                                                                                                  Walnut
                                                                                                                 45     376        52      91         6          0         52
                                                                                                  Creek

                                                                                                  East Bay      3,461   4,701     2,116   1,619      580       1,186      1,313

                                                                                                 Source: CIRB

14 | Economic 2012
     OUTLOOK
                                                                                       RECENT TRENDS
the East Bay relative to San Francisco    Apartment rentals in the East Bay
and the South Bay should also spur        continue to be attractive compared to
some additional population growth in      other regions in the Bay Area. Partly,
coming years, as Bay Area residents       the surge in defaults and foreclosures
seek to maximize their housing dollar.    have pushed many households from
This should also help to motivate new     ownership into rental housing, and
residential construction beginning in     we’ve seen the apartment market
earnest in 2013.                          tighten in the East Bay as a result. In



Single-Family Building Permits by City
 City          2005     2006      2007    2008       2009       2010       2011

 Alameda       151      108       109       2         3          16         24

 Albany         5        4         6        1         0          1          3

 Antioch       349      180       163      116        119       108        146

 Berkeley       12       12        13      15          4         2          4

 Brentwood     1413     475       357      37         87        167        104

 Clayton        0        0         0        0          0         2          6

 Concord       110       66       101      54         58         0          2

 Dublin        171      163        38      139        122       228        276

 El Cerrito     7        6         5        3          6         2          0

 Emeryville     0        27        12       2          0         0          1

 Fremont       157      155       188      171        221       100        127      New construction should
 Hayward       113      277       260      146        206       276        218

 Hercules      328       11        4        4          1         0          0
                                                                                    begin to pick up steam in
 Lafayette      0        0         0       14         17         11         7       2013 and beyond.
 Livermore     263      111       146      62         93         78         59

 Martinez       25       11        32      19          5         2          3

 Newark         2        3         6        1          0         0          0

 Oakland       199      217       223      126        94        140         40

 Oakley        530      607       291      163        210       166         77

 Orinda         0        0         0       16          7         12         5

 Piedmont       1        3         1        1          4         2          0

 Pinole         6        34        4        0          5         0          0

 Pittsburg     310      156       229      42         154        67        130

 Pleasant
                32       3         6        1          0         2          6
 Hill

 Pleasanton    216      137        45      29         14         46         43

 Richmond      199       67        31      28          7         70         1

 San
                16       72        18       6          3         7          4
 Leandro

 San Pablo      17       73        42      20          1         2          1

 San Ramon      46       27        76       3          0         0          0

 Walnut
                60       37        17       4          3         3          6
 Creek

 East Bay      4,738   3,042      2,423   1,225      1,444      1,510     1,293

Source: CIRB
                                                                                                     Economic
                                                                                                OUTLOOK 2012    |15
RECENT TRENDS
                                                                                                        Q4-11, the vacancy rate in Oakland          fixed at approximately $22/sq. ft.
                                                                                                        fell below 6% for the first time since      since the end of 2009, while rates in
                                                                                                        2008. Overall, the vacancy rate has         San Francisco have risen by 16.9%,
                                                                                                        fallen by 1.5% in two years. This           and rates in San Jose by 7.1%, over
                                     Office Property Vacancy Rates
                                                                                                        matches the trend elsewhere in the          the same period.
                                     Bay Area Comparison, Q1-00 to Q4-11
                            20
                                                                                                        Bay Area. In San Francisco and San
                                                                                                        Jose, vacancy rates fell even faster in     Generally, there is little subregional
                            15
                                                                                                                                                    variation quarter over quarter in
Vacancy Rate




                                                                                                        those two years, by 2.2% and 2.1%,
                            10
                                                                                                        respectively. Despite a rise in average     office property vacancy throughout
                                5
                                                                                                        rates of approximately $81 from the         the Bay Area. As office property
                                0
                                                                                                        end of 2010, rents in the East Bay are      vacancy increases in San Francisco
                                 Q1-00             Q1-03             Q1-06       Q1-09          Q1-12

                                                           Oakland               San Jose
                                                                                                        only approximately $121 higher than         and the South Bay, vacancy increases
                                                           San Francisco
                                     Source: Property and Portfolio Research
                                                                                                        at the end of year 2000. Whereas the        in the East Bay as well. But this is
                                                                                                        average rate in San Francisco has risen     not always the case. When rental
                                                                                                        17.5% in two years, and 15.3% in San        rates increase in San Francisco and
                                       Office Property Rental Rates
                                       Bay Area Comparison, Q1-00 to Q4-11
                                                                                                        Jose, the rate has risen by only 9.3% in    San Jose disproportionately to the
                                60.0
                                                                                                        the East Bay over the same period. It       East Bay, some companies vacate the
 Dollars/Sq. Ft. Yearly




                                50.0
                                                                                                        is still prime season to rent in the East   former and move to the East Bay.
                                40.0
                                                                                                        Bay despite the tightening conditions.      For instance, as rates increased in
                                30.0
                                                                                                                                                    2007 elsewhere but remained flat in
                                20.0
                                     Q1-00           Q1-03            Q1-06       Q1-09         Q1-12
                                                                                                                                                    the East Bay, net absorption turned
                                                             Oakland              San Jose
                                                                                                                                                    negative in the former but spiked up
                                                                                                        COMMERCIAL
                                                             San Francisco
                                       Source: Property and Portfolio Research
                                                                                                                                                    briefly in Oakland. With rates rising
                                                                                                        REAL ESTATE                                 in San Francisco and San Jose, the
                                                                                                                                                    East Bay may receive a windfall of
                                           Retail Property Net Absorption
                                           Bay Area Comparison, Q1-00 to Q4-11
                                                                                                        Office property vacancy rates tend to       new occupancies from companies
 Square Feet (000s), Smoothed




                                1,000

                                    500                                                                 follow the same trajectory throughout       moving from other regions of the Bay.
                                       0
                                                                                                        the Bay Area, with one caveat: the East
                                                                                                                                                    Following a spike in the first quarter
                                    -500
                                                                                                        Bay’s peaks and troughs tend to be
                                                                                                                                                    of 2011, planned construction of
                                -1,000
                                                                                                        less extreme than in San Francisco or
                                                                                                                                                    office property has recently begun
                                       Q1-00           Q1-03            Q1-06        Q1-09      Q1-12   Silicon Valley. East Bay office property
                                                              Oakland                San Jose                                                       to break out of the virtual standstill
                                                              San Francisco                             also generally has a lower vacancy rate
                                           Source: Property and Portfolio Research                                                                  of 2009 and 2010. Permit values
                                                                                                        than San Francisco or San Jose. Since
                                                                                                                                                    are moving closer to pre-housing-
                                                                                                        Q4-10, the East Bay has seen vacancy
                                                                                                                                                    bubble levels of 2003 and 2004.
                                                                                                        rates drop to 12.1% from 12.9%, while
                                                                                                                                                    Outside of Q1-11, the market of the
                                                                                                        San Jose’s rates have dropped more
East Bay office property                                                                                steeply, down to 13.2% from 15.5%.
                                                                                                                                                    last three years has borne none of
                                                                                                                                                    the steep peaks and valleys of the
                                                                                                        San Francisco has also outpaced the
also generally has a lower                                                                                                                          2000s, but much of that stability
                                                                                                        local market, dropping to 11.5% from
vacancy rate than San                                                                                                                               reflects an industry-wide hesitancy
                                                                                                        14.3%. Oakland had an especially
                                                                                                                                                    to start new construction. There has
                                                                                                        strong year, in which only the
Francisco or San Jose.                                                                                  westside saw an increase in vacancies.
                                                                                                                                                    been little volatility in recent years
                                                                                                                                                    mainly because there has been no
                                                                                                        Vacancies are still somewhat high in
                                                                                                                                                    real seasonal construction cycle at
                                                                                                        recent historical terms, but they are on
                                                                                                                                                    all. With unemployment remaining
                                                                                                        track to decrease in the coming year.
                                                                                                                                                    high, Beacon Economics expects most
                                                                                                        Like residential rentals, office rental     nonresidential construction activity
                                                                                                        rates in the East Bay continue to           to be concentrated in alterations and
                                                                                                        beat those of its neighboring regions.      additions to existing space rather than
                                                                                                        Oakland rates have remained nearly          on putting up new structures.
16 | Economic 2012
     OUTLOOK
                                                                                                                                                        RECENT TRENDS
Subregional Vacancy Rates
                                                  Office Property                     Retail Property

 Submarket                                Q4-11         Q4-10       Chg (%)   Q4-11         Q410        Chg (%)

 Alameda                                  14.6           11.8         2.8      7.6           6.6          1
                                                                                                                                                   Retail Property Vacancy Rates
 Albany/Kensington                         2.1            3          -0.9      3.8           3.2          0.6                                      Bay Area Comparison, Q1-00 to Q4-11
                                                                                                                                              6
 Antioch/Pittsburg                          9            9.4         -0.4      6.4            7          -0.6




                                                                                                                  Vacancy Rate
 Berkeley                                  7.2           7.6         -0.4      4.4           4.7         -0.3                                 4


 Bishop Ranch                              2.9           5.7         -2.8      9.2           2.1          7.1                                 2


 Brentwood                                14.2           7.1          7.1      6.1           4.7          1.4                                 0
                                                                                                                                                  Q1-00             Q1-03             Q1-06           Q1-09         Q1-12
 Concord                                  15.8           17.7        -1.9      6.4           7.4          -1                                                                Oakland                  San Jose
                                                                                                                                                                            San Francisco
 Danville/Alamo                            8.5           7.6          0.9      4.9           4.9          0                                        Source: Property and Portfolio Research


 Dublin                                   16.6           22.4        -5.8      7.7           10.3        -2.6

 E Hayward/Castro Valley                   3.5            8          -4.5      9.3           9.4         -0.1                                          Retail Property Rental Rates
                                                                                                                                                       Bay Area Comparison, Q1-00 to Q4-11
 El Cerrito                                2.1           2.9         -0.8      3.4           3.8         -0.4                                     35




                                                                                                                   Dollars/Sq. Ft. Yearly
 Emeryville                                8.8           12.9        -4.1      4.1           9.2         -5.1
                                                                                                                                                  30

 Fremont East of 880                      10.5           12.1        -1.6      5.3           5.5         -0.2
                                                                                                                                                  25
 Fremont West of 880                      21.2           13.1         8.1      3.5           3.5          0
                                                                                                                                                  20
 Hacienda Business Park                   19.2           19.1         0.1      6.8           5.7          1.1                                      Q1-00              Q1-03            Q1-06           Q1-09        Q1-12

                                                                                                                                                                              Oakland                 San Jose
 Lafayette/Moraga/Orinda                   7.5           6.6          0.9      3.3           3.4         -0.1                                                                 San Francisco
                                                                                                                                                       Source: Property and Portfolio Research
 Livermore                                17.4           12.9         4.5      7.7           8.7          -1

 Martinez/Pacheco                          8.4           7.1          1.3      3.1           1.7          1.4
                                                                                                                                                             Retail Property Net Absorption
 Metrowide                                12.1           12.9        -0.8       5            5.5         -0.5      Square Feet (000s), Smoothed              Bay Area Comparison, Q1-00 to Q4-11
                                                                                                                                                  1,000
 N Hayward/Castro Valley                  24.9           25.2        -0.3      7.4           5.8          1.6
                                                                                                                                                       500

 Newark                                   31.3           28.7         2.6      4.8           8.1         -3.3                                            0

 Oakland-Airport                          17.1           17.3        -0.2      4.4           4.3          0.1                                      -500

 Oakland-Downtown                         10.6           11.7        -1.1      7.4           5.4          2                                       -1,000

                                                                                                                                                          Q1-00          Q1-03              Q1-06       Q1-09       Q1-12
 Oakland-North                             5.2           6.6         -1.4      2.9           3.1         -0.2                                                                   Oakland                 San Jose
                                                                                                                                                                                San Francisco
 Oakland-Port/Jack London                 22.4           23.3        -0.9      6.2            9          -2.8                                                Source: Property and Portfolio Research


 Oakland-South                             8.9           9.3         -0.4      3.9            4          -0.1

 Oakland-West                              8.6           6.1          2.5       3            12.4        -9.4

 Pinole/Hercules/El Sobran                 3.7           9.3         -5.6      4.1           3.6          0.5

 Pleasant Hill                            10.8           9.5          1.3      3.8           2.5          1.3
                                                                                                                  Like residential rentals,
 Pleasanton-North                         10.7           21.8        -11.1     0.2           0.3         -0.1     office rental rates in the
 Pleasanton-South                         10.6           16.1        -5.5      7.8           11.6        -3.8
                                                                                                                  East Bay continue to beat
 Richmond/San Pablo                       10.7           8.3          2.4      4.5           5.5          -1

 San Leandro East of 880                   5.2           5.8         -0.6      2.9           3.7         -0.8     those of its neighboring
 San Leandro West of 880                  13.8           10           3.8      3.1           3.9         -0.8     regions.
 San Ramon-Other                           8.4           7.9          0.5      3.2           5.2          -2

 Union City                                8.6           15.3        -6.7      4.2           2.5          1.7

 W Hayward/Castro Valley                   4.6           5.4         -0.8      2.6           2.7         -0.1

 Walnut Creek-BART/DT                     18.1           16.6         1.5      3.2           4.4         -1.2

 Walnut Creek-Shadelands                  21.8           20.3         1.5      3.4           3.4          0

Source: Property and Portfolio Research
                                                                                                                                                                                   OUTLOOK 2012
                                                                                                                                                                                                    Economic
                                                                                                                                                                                                                   |17
RECENT TRENDS
                                                                                                       Since 2003, the vacancy rate of retail      Q2-04 saw a comparable spike,
                                                                                                       property in the East Bay has closely        but values quickly dropped back to
                                                                                                       followed that of San Jose. The rates of     average and stayed there. 2012 leaves
                                                                                                       both metros are near relative highs,        room for growth, though, as permit
                                          Industrial Property Vacancy Rates                            at 5.0% and 5.6%, respectively.             values remain below their recent
                                          Bay Area Comparison, Q1-00 to Q4-11
                                     10                                                                Meanwhile, the rate of San Francisco        historical averages.
                                      8                                                                is near a relative low, at 3.2%. It will
                                                                                                                                                   Though industrial property vacancy
 Vacancy Rate




                                      6                                                                be tough for the East Bay to match
                                      4
                                                                                                       that number, but alternatively, the         rates in the East Bay tend to follow
                                      2
                                                                                                       rate in the East Bay’s retail real estate   those of San Francisco and the South
                                      0
                                      Q1-00            Q1-03            Q1-06       Q1-09      Q1-12   market has been declining steadily          Bay, rates are generally higher in
                                                               Oakland
                                                               San Francisco
                                                                                    San Jose
                                                                                                       since Q3-10, dropping a full percent        the East Bay. This gap has also been
                                          Source: Property and Portfolio Research
                                                                                                       in that period.                             increasing in recent quarters. Vacancy
                                                                                                                                                   in Oakland has grown to 8.6%,
                                          Industrial Property Rental Rates
                                                                                                       Retail rental rates in the Bay Area         versus only 5.3% in San Francisco
                                          Bay Area Comparison, Q1-00 to Q4-11                          have been increasingly diverging            and 6.2% in San Jose. In addition,
 Triple Net Dollars/Sq. Ft. Yearly




                                     20

                                                                                                       across regions since 2009, to the           rates dropped more slowly in Oakland
                                     15
                                                                                                       degree that property in the East Bay is     than in other regions in 2011: 0.5%
                                     10                                                                running $4.51 cheaper per square foot       versus 0.8% and a full 1.0% in San
                                                                                                       than property in San Jose, and $8.60        Francisco and San Jose, respectively.
                                      5
                                      Q1-00            Q1-03            Q1-06       Q1-09      Q1-12   cheaper per square foot than property
                                                               Oakland              San Jose
                                                                                                       in San Jose. Rates in Oakland in Q4-        That said, the East Bay continues to
                                                               San Francisco
                                          Source: Property and Portfolio Research
                                                                                                       11 were virtually identical to rates in     offer the most affordable industrial
                                                                                                       Q4-10 ($20.78 versus $20.76), but           property among the three regions.
                                                                                                       they had dropped 10.3% from rates           The annual cost per square foot has
                                                                                                       in Q4-09. These discounts could             risen by only $0.47 since Q1-00
                                                                                                       provide the needed incentive to lure        to $6.55 per square foot triple net,
The East Bay continues to                                                                                                                          versus $9.98 in San Francisco and
                                                                                                       businesses into the East Bay on a
offer the most affordable                                                                              permanent basis.                            $7.39 in San Jose.

industrial property                                                                                    Net absorption in the East Bay has          In all but two quarters since Q1-09,
                                                                                                       closely matched that of its neighboring     occupancy dropped in Oakland,
                                                                                                       regions over time. Following a rough        often steeply. Those losses began
                                                                                                       patch of plummeting occupancy near          to taper off at the end of 2010,
                                                                                                       the end of the recession, occupancy         and net absorption began to turn
                                                                                                       has generally increased throughout          positive throughout 2011, with a net
                                                                                                       the Bay Area, and most of all in the        increase in occupancy of 133,000
                                                                                                       East Bay. Oakland has not seen a            square feet in Q4-11. Industrial
                                                                                                       quarter of negative net absorption          property occupancy has been much
                                                                                                       since Q3-10. At the same time,              more volatile in Oakland than in
                                                                                                       volatility has decreased substantially      San Francisco or San Jose, though
                                                                                                       since the end of the recession in all       the market has become much more
                                                                                                       three regions.                              stable since the beginning of 2010.
                                                                                                                                                   Given the relative affordability of
                                                                                                       In Q3-11, retail building permit value      industrial property in the East Bay,
                                                                                                       shot up to levels not seen since early      there appears to be room to bring
                                                                                                       2006. More likely than not, this is an      net absorption much further into the
                                                                                                       aberration rather than a harbinger of       positive in the near future.
                                                                                                       more robust construction in retail.


18 | Economic 2012
     OUTLOOK
                                                                 LONG-RUN CONSIDERATIONS
With exceptions in Q2-08 and
Q1-10, when permit values briefly
                                          EDUCATION
spiked, industrial permit values have     After dropping significantly from
remained low for the past decade.         five years prior, graduation rates
The permit values of Q4-11, $2.0          are on a recent uptick: 2.6% in
million, were at the third lowest level   Alameda County and 4.1% in Contra
in the past 12 years.                     Costa County. Even so, 19.1% of
                                          Alameda County youths do not
Hotel building permits remain
                                          graduate high school. This is the                                           East Bay Graduation Rates
low as well, but in keeping with
                                          lowest graduation rate in the Bay                                     90
                                                                                                                      By County, 2006 to 2010
normal values. Q3-11 saw a break
                                          Area, with San Francisco County
in a prolonged drought of planned




                                                                                      Graduation Rate
                                          slightly ahead at 82.1%. In Contra
construction when permit values                                                                                 85
                                          Costa County, graduation rates are
reached $3.2 million, the first new
                                          slightly higher at roughly 85%, but
money for hotel construction since                                                                              80
                                          they are also recovering from several
Q3-08. It remains to be seen whether                                                                                 2006           2007             2008             2009               2010
                                          years of decline. By comparison, the                                                      Alameda County            Contra Costa County
this reflects a resurgence in hotel
                                          graduation rate for South Bay high                                          Source: CA Department of Education

construction as it had in both late
                                          school students is approximately 85%,
2002 and late 2005.
                                          while San Mateo and Marin County                                            Bay Area Graduation Rates

In the relative absence of planned        students are further ahead, at 86.1%                                        By County, 2006 to 2010
                                                                                                                95

new construction in the East Bay,         and 94%, respectively.




                                                                                      Graduation Rate
                                                                                                                90
non-residential alterations have
                                          The percentage of East Bay graduates
remained strong and on the upswing                                                                              85
                                          having completed a course load
since early 2010. As of Q4-11, permit
                                          necessary for enrollment at a UC or                                   80
values remain well above their average                                                                               2006           2007             2008             2009               2010
                                          CSU campus remained approximately                                                       Marin County                      San Mateo County
since year 2000: $176.2 million                                                                                                   San Francisco County              Santa Clara County
                                          unchanged from five years prior. Yet,                                       Source: US Census American Community Survey

versus $151.80 million, respectively.
                                          far more than half of graduates in the
The alterations market dipped
                                          East Bay still must take supplemental
steeply amidst the recession, but                                                                                     East Bay Graduates UC/CSU Eligible
                                          coursework after graduation to qualify                                      By County, 2006 to 2010
remained buoyant as plans shifted                                                                               50
                                          for enrollment at the state universities.
                                                                                      Percentage of Graduates




from new construction to retailoring
                                          We have seen an increase in                                           45
existing property.
                                          preparedness over the past two years,
                                                                                                                40
As the cyclical issues begin to abate     but the demands of the new economy
and the East Bay economy continues        will require that the local K-12 system                               35

to grow in the coming year, it provides   gets even more of our residents ready                                      2006           2007

                                                                                                                                    Alameda County
                                                                                                                                                     2008             2009

                                                                                                                                                              Contra Costa County
                                                                                                                                                                                         2010




some opportunity for policymakers to      for college—a task that isn’t easy in                                       Source: CA Department of Education


pay greater attention to many of the      today’s environment of weakened
structural issues that impact economic    government budgets, but one that is
growth and the quality of life for        no less critical.
residents. With the future looking
                                          Achievement in mathematics is an
bright for the East Bay, now is the
                                          area of concern for the East Bay.
perfect time to tackle many of these
                                          Nearly 30% of students tested for
challenges to ensure that as many
                                          Algebra I comprehension scored
residents as possible benefit from the
                                          below basic level, with another
better times that lie ahead.
                                          14% scoring far below basic
                                          level. In neighboring regions, only
                                          San Francisco County had lower
                                          performance, with 29% of students
                                                                                                                                                OUTLOOK 2012
                                                                                                                                                              Economic
                                                                                                                                                                                 |19
LONG-RUN CONSIDERATIONS
                                                     Algebra 1 Testing Results by School District, 2011
                                                     Percentage of Scores at Test Benchmarks

                                                                                                       At or Above           Below   Far Below   Total Number
                                                      Location                 Advanced   Proficient                 Basic
                                                                                                        Proficient           Basic     Basic     of Test Scores

                                                      West Contra Costa            14         24            38         31      21        11           2331

                                                      Oakland                      16         26            42         30      18        10           3213
Algebra 1 Testing Results, 2011
                                                      Berkeley                     27         28            55         20      11        5            543
Percentage of Scores at Test Benchmarks
                                                      San Francisco                21         29            50         26      16        8            3832
                           Alameda    Contra Costa
 Achievement
                            County      County        San Jose                     25         29            54         25      15        7            2497

 Advanced                      13          11         California                   18         28            46         29      16        8           437697
 Proficient                    21          23
                                                     Source: Ca Department of Education
 At or Above Proficient        35          34

 Basic                         22          22        scoring below basic level, and 16% of                       high-wage, high-skill jobs that are
 Below Basic                   29          29        students scoring far below basic level.                     forecast to lead the labor markets
 Far Below Basic               14          15        In the South Bay, 25% of students                           into the future.
 Total Number of Test
                                                     scored below basic level, and 12%
                             23845       19186                                                                   Achievement in elementary school
 Scores                                              scored far below basic level, while
Source: Ca Department of Education                   20% of students scored at advanced                          English-Language Arts is another
                                                     level, compared to 13% of students                          area of concern. In both Alameda
                                                     in Alameda County and 11% of                                and Contra Costa Counties, 53% of
                                                     students in Contra Costa County. At                         students tested at or above proficiency,
                                                     the district level, 38% of students                         compared to 56% in San Mateo
                                                     in the West Contra Costa Unified                            County, 59% in Santa Clara County,
                                                     School District, which encompasses                          and 69% in Marin County. The
                                                     Richmond, and 42% of students in                            situation is very severe in some of the
                                                     Oakland scored at or above proficient,                      East Bay’s school districts. Just 11% of
                                                     relative to 46% of students across                          3rd graders in the West Contra Costa
3rd Grade English-Language Arts                      the state and 50% of students in San                        Unified School District and just 18%
Testing Results, 2011                                Francisco. The East Bay must work to                        of 3rd graders in Oakland scored
                            Alameda   Contra Costa   close this gap in the coming years in                       at or above proficient, compared to
 Achievement
                             County     County
                                                     order to maintain a solid growth path.                      32% of 3rd graders in the state and
 Advanced                      23          23                                                                    39% of 3rd graders in San Francisco.
                                                     As we strive to increase educational
 Proficient                    30          30
                                                     attainment at the college level,                            Overall, the East Bay has less catching
 At or Above Proficient        53          53
                                                     ensuring K-12 students exit high-                           up to do in elementary school English-
 Basic                         26          26        school with stronger mathematics                            Language Arts than in high school
 Below Basic                   14          14        skills will help to bolster the economy                     mathematics, but some school districts
 Far Below Basic                7          7         in areas where growth is desirable:                         in the region are far behind others.

 Total Number of Test
                             15686       12241
 Scores
                                                     3rd Grade English-Language Arts Testing Results, 2011
Source: Ca Department of Education
                                                                                                       At or Above           Below   Far Below   Total Number
                                                      Location                Advanced    Proficient                 Basic
                                                                                                        Proficient           Basic     Basic     of Test Scores

                                                      West Contra Costa            2          9            11         15      42        32           3535

                                                      Oakland                      4         14            18         20      39        23           3798

                                                      Berkeley                    21         22            43         16      25        16            820

                                                      San Francisco               18         21            39         18      28        15           5658

                                                      San Jose                    13         23            36         21      30        14           4496

                                                      California                  10         22            32         24      30        14          738406

                                                     Source: Ca Department of Education

20 | Economic 2012
     OUTLOOK
                                                                                       LONG-RUN CONSIDERATIONS
In the East Bay, nearly 40% of all                          Bay and three times that of San
residents over the age of 25 have                           Francisco. The Bay Area also has an
at least a bachelor’s degree. This                          especially high concentration of highly
compares with 30.1% of Californians                         educated residents. While the East
and 28.1% of Americans. As the East                         Bay lags some of its neighbors, the
Bay has moved away from industries                          region continues to outperform the
heavily employing lower-skilled labor                       broader state and nation in terms of
toward high-tech industry, it will                          educational attainment.
remain essential to have a highly-
educated population to meet demand                          At the other end of the educational
for highly-skilled labor and ensure                         spectrum, since the onset of the
that those positions are not filled by                      Great Recession, the percentage of
workers imported from other areas.                          3-to-4-year-olds enrolled in East Bay
                                                            preschools dropped to 56.5% in 2010.
An existing supply of highly-educated                       Partly, this has been influenced by a
residents will help to speed up growth                      deteriorating local labor market. As
in high-tech and encourage new                              folks lost jobs, many opted to care for
businesses to choose the East Bay over                      their children in-house rather than
traditional hot spots like San Jose or                      sending them off to a pre-school.
San Francisco. The presence of several                      As the economy heals, pre-school
great universities should help, but it                      enrollment is expected to rise again.
will be key to retain these graduates                       However, given the correlation
in the local economy and lure native                        between early childhood education


Education Attainment by Region, 2010
 Education
                            East Bay        San Francisco     South Bay   California    United States
 Attainment

 8th Grade or Less             5.9               6.1             6.4        10.5             6.1

 8th to 12th Grade             7.1               6.4             7.2         8.8             8.3

 HS Diploma/GED                40.3             32.9             33.4        43             49.8

 Associate's Degree            7.1               6.3              7          7.6             7.6

 Bachelor's Degree             24.3             29.4             25.9       19.1            17.7

 Master's Degree               10.4             11.8             14.5        7.3             7.3

 Professional Degree           2.7               4.5             2.8         2.3             1.9

 Doctorate                     2.2               2.6             2.9         1.4             1.2

Source: U.S. Census American Community Survey




East Bay residents back home after                          and educational attainment and given
completing school elsewhere.                                the shift towards technology-oriented
                                                            sectors in the East Bay, it will be
At the same time, the East Bay stacks
                                                            important to future growth that these
up very well against neighboring
                                                            rates of enrollment do begin to rise.
regions in the proportion of residents
                                                            This is even more pressing given that
with professional degrees, doctorates,
                                                            the rates of enrollment in neighboring
and bachelor’s degrees. Granted,
                                                            regions and the state did not decrease
the East Bay has a population
                                                            at all. California in 2010 was where
approximately twice that of the South
                                                                                                             Economic
                                                                                                        OUTLOOK 2012    |21
LONG-RUN CONSIDERATIONS
                                                                                                           East Bay Educational Attainment by Ethnic Group, 2010 (by percentage)
                                                                                                                                       White      Black or   Hispanic or            American       Native                    Two or
                                                                                                           Educational              Alone (not     African    Latino (of    Asian   Indian or    Hawaiian       Some          More
                                                                                                           Attainment               Hispanic or   American    any race)              Alaskan     or Pacific   Other Race     Races
                                                                                                                                      Latino)                                         Native      Islander

                                                                                                           Less than HS Diploma         4.8          11.6       32.9        13.8      24.7         12.6          34.5            10.8

                                                                                                           HS Diploma/GED               17.3         22.8       28.3         16       22.5         31.2          32.2            18.4

                                                                                                           Some College/                29.4         43.2       23.5        19.3       33          38.8          21.8            32.9
                                                                                                           Associate's

                                                                                                           Bachelor's or higher         48.5         22.5       15.3        50.9      19.7         17.4          11.5            37.9

                                                                                                           Source: U.S. Census American Community Survey



                                          East Bay Preschool Enrollment
                                          2007 to 2010
                                                                                                           it was four years prior, at 50%                                 THE IMPACT OF
                                                                                                           enrollment. San Francisco enrollment
                                    62
                                                                                                                                                                           EDUCATION ON
 Pct of 3-to-4-year-olds Enrolled




                                                                                                           also remained flat at approximately
                                    60                                                                     62%. South Bay enrollment increased                             EMPLOYMENT AND
                                    58
                                                                                                           substantially, from 55.1% to 60%.
                                                                                                                                                                           INCOME
                                                                                                           Yet, even as graduation rates have
                                                                                                                                                                           In the Bay Area, the impact of education
                                    56                                                                     dropped and proficiency scores are
                                         2007                  2008                2009             2010                                                                   on both employment and earnings is linear
                                          Source: US Census American Community Survey                      lagging, state aid to education in the
                                                                                                                                                                           and significant. The more education
                                                                                                           East Bay has dropped substantially.
                                                                                                                                                                           Bay Area residents have, the more they
                                                                                                           By 2010, state aid had decreased 23%
                                          Preschool Enrollment                                                                                                             earn, and the more likely they are to
                                          2007 to 2010                                                     from its peak in 2008. As the region
                                                                                                                                                                           be employed. The median earnings of
 Pct of 3-to-4-year-olds Enrolled




                                    65
                                                                                                           faces an increasing need to send more
                                                                                                                                                                           residents with bachelor’s degrees are
                                    60
                                                                                                           of its students to college and beyond,
                                                                                                                                                                           nearly twice those of residents with only
                                                                                                           the drop in state support introduces a
                                    55
                                                                                                                                                                           high school diplomas or equivalencies
                                                                                                           big new obstacle in that pursuit.
                                    50                                                                                                                                     and nearly three times those of residents
                                         2007                  2008

                                                               San Francisco
                                                                                   2009

                                                                                        South Bay
                                                                                                    2010
                                                                                                           Meanwhile, within the East Bay,                                 lacking diplomas or equivalencies. The
                                                               California
                                          Source: US Census American Community Survey                      educational attainment among                                    unemployment rate for residents with
                                                                                                           residents varies substantially by                               less than a diploma or equivalency was
                                                                                                           ethnic group. Less than 5% of white                             more than double that of residents with a
                                           State Aid for East Bay Education
                                           School Districts and Ofcs of Education, 2006 to 2010            residents over age 25 lack a high                               bachelor’s degree or higher. Completing
                                    1.2
                                                                                                           school diploma, versus 32.9% of                                 high school is likely to increase one’s
                                                                                                           Hispanic residents. The majority of                             earnings by approximately 33%. Better
 Billions of Dollars




                                    1.1

                                                                                                           Asian residents possess a bachelor’s                            education means more prosperity and
                                    1.0                                                                    degree or higher, which cannot be said                          a better chance of finding jobs for
                                                                                                           of any other ethnic group in the East                           residents of the East Bay.
                                    0.9                                                                    Bay. Over 65% of black residents have
                                          2006          2007              2008            2009      2010
                                           Source: CADOE, School Fiscal Services Division                  taken at least some college classes, but                        Income and Unemployment by
                                                                                                           the percentage of black residents with                          Educational Attainment, 2010
                                                                                                                                                                           San Francisco-Oakland-Fremont
                                                                                                           a bachelor’s degree or higher, 22.5%,
                                                                                                                                                                                                      Median      Unemployment
                                                                                                           lags behind that of white and Asian                              Attainment               Earnings         Rate
                                                                                                           residents by more than half. As shown                            Less than high            20,261            14.3
                                                                                                                                                                            school graduate
                                                                                                           below, these disparities in educational
                                                                                                                                                                            High school
                                                                                                           attainment have a significant effect on                          graduate (or GED)
                                                                                                                                                                                                      30,524            12.8

                                                                                                           employment rates and incomes among                               Some college or           40,399            10.9
                                                                                                                                                                            associate's degree
                                                                                                           members of different races and ethnic
                                                                                                                                                                            Bachelor's degree         60,466               6.5
                                                                                                           groups in the region.
                                                                                                                                                                            Graduate or               82,007            N/A
                                                                                                                                                                            professional degree

                                                                                                                                                                           Source: U.S. Census American Community Survey

22 | Economic 2012
     OUTLOOK
                                                                                                             LONG-RUN CONSIDERATIONS
EMPLOYMENT AND                                                          Given that there is a large variance
                                                                        in unemployment rates across racial/
INCOME                                                                  ethnic groups, it is unsurprising that
                                                                        there is also a large gap in household
Examining unemployment rates among
                                                                        income levels across racial/ethnic
ethnic groups over time, the impact of
                                                                        groups throughout the Bay Area
education is apparent. Residents that
                                                                        and the state. The median white
identify as black or Hispanic consistently
                                                                        and Asian households in Alameda
have more difficulty finding work than
                                                                        County consistently earn double (or
residents that identify as white or Asian.

Unemployment by Ethnic Group*
                                           East Bay                         San Francisco                       California
 Ethnicity                       2010      2006       Chg (%)     2010       2006       Chg (%)      2010       2006        Chg (%)

 White Alone                     9.6        4.8         4.8        7.8        4.4         3.4          11        5.3          5.7

 Hisp./Latino (any race)         14.7       7.8         6.9       11.1        4.7         6.4        14.9        7.8          7.1

 Black or Afr. American          19.9      13.4         6.4       14.4        11          3.4        18.5       11.6          6.9

 Asian                           9.7        5.5         4.2         9         6.1         2.9         9.9        5.5          4.4

 Some Other Race                 14.8       7.8         7         13.6        5.3         8.3         14.7       7.7          7

 Two or More Races               16.5       9.4         7         11.3        9.2         2.1         16.8      10.3          6.5

Source: U.S. Census American Community Survey          * Data unavailable for Am. Indian & Nat. Hawaiian/Pacific Islander groups



Moreover, weak labor markets have                                       more) the income of the median black
an especially large impact on already                                   household, and at least 25% more
high unemployment rates among the                                       than that of the median Hispanic
black and Hispanic populations in the                                   household. Moreover, this gap has
East Bay. The unemployment rate rose                                    increased since 2006. In Contra Costa
by 6.9 percentage points among the                                      County, the median black household
Hispanic population between 2006                                        earns 36% less—and the median
and 2010, but by only 4.8 percentage                                    Hispanic household 32% less—than
points among the white population in                                    the income of the median white
the same period. Nearly half of white                                   household. On the other hand, the
residents in the East Bay possess                                       income of the median black household
bachelor’s degrees, versus only 15.3%                                   is rising at an average of 3.6% year-
of Hispanic residents. When job                                         to-year. As a result, the income gap
vacancies are scarce, hiring teams are                                  between white and black households
more likely to seek out job seekers                                     has fallen by nearly 10 percentage
with college degrees first.                                             points since 2006.


Medium Household Incomeby Ethnic Group ($)
                        Alameda County      Contra Costa County   San Francisco County    Santa Clara County           California
 Ethnicity              2010      2006        2010       2006        2010       2006        2010        2006        2010       2006

 Total population       67,169    64,424     73,721      74,241     71,745     65,497      85,002      80,838      57,708      56,645

 Asian alone            79,963    76,459     91,653      83,689     60,914     55,072      106,373     94,989      71,988      70,067

 White alone            82,029    74,927     82,271      83,266     91,064     82,177      92,229      87,780      66,638      65,310

 Hispanic/Latino (any   52,265    52,139     55,659      58,150     56,861     49,561      49,996      52,831      45,185      43,805
 race)

 Black or Afr.          38,188    36,357     52,635      45,545     29,409     31,080      52,972      51,020      42,441      40,709
 American


Source: U.S. Census American Community Survey
                                                                                                                                             Economic
                                                                                                                                        OUTLOOK 2012    |23
LONG-RUN CONSIDERATIONS
                     Similarly, in San Francisco County,                                   At the same time, unemployment rates
                     Asian and white households earn                                       in the East Bay remain very unequally
                     double or more the income of black                                    distributed across age groups. The
                     households, though the gap is smaller                                 unemployment rate among 20-to-
                     between Asian and white households                                    24 age group is consistently double
                     and Hispanic households, at 7.1%.                                     that of 25-44 year-olds, yet only half
                     The gap is greatest in Silicon Valley,                                that of 16-19 year-olds. No matter
                     where Asian and white households                                      the strength or weakness of the job
                     earn 84% or more the income of                                        market in the East Bay, young people
                     Hispanic households, and 74% or                                       looking for work have relatively
                     more the income of black households.                                  more difficulty finding it. During the
                     Clearly, the income gap is much more                                  recession, unemployment grew to over
                     than an East Bay issue, but it is no                                  40% in 2010 for 16-19 year-olds, who
                     less critical that the issue be                                       continue to maintain the highest levels
                     addressed locally.                                                    of unemployment. However, the older
                                                                                           generation has also seen a significant

                     Unemployment by Age Group
                                             East Bay                                 San Francisco              California
                      Age          2010          2006      Chg (%)            2010      2006    Chg (%)   2010    2006   Chg (%)

                      16-19         40.3         22.6       17.6              29.5       18.9    10.7     36.6    22.6        14

                      20-24         20.4         12.5        7.9              14.7       7.4      7.3      19     10.4        8.6

                      25-44        10.9          5.9         4.9               7.5       4.9      2.6     11.6    5.8         5.8

                      45-54         9.5          4.8         4.8               9.2       4.6      4.6     10.4    4.8         5.6

                      55-64         9.8          3.4         6.4               8.7       4.1      4.6     10.3    4.2         6.1

                      65-74        10.1          4.1              6            8.5       4.7      3.8     10.2    4.6         5.6

                      75+           6.4          7.9         -1.5              7.2       2.9      4.4      8.9    4.4         4.5

                     Source: U.S. Census American Community Survey




                     East Bay Distribution by Household                                    increase in unemployment. Although
                     Income                                                                rates remain at or around 10%,
                                     Alameda County        Contra Costa County             residents between 55 and 74 have
                                                  Change                     Change
                      income       2010   2006     (%)     2010       2006    (%)          seen the percentage of unemployed
                      Under
                      25,000
                                   19.7   19.8     -0.1    14.6       14.6     0           increase by more than double.
                      25,000 to    18.5   19.6     -1.1    19.1       18.5    0.6
                      49,999                                                               In Alameda County, incomes seem to
                      50,000 to
                      74,999
                                   16.5   17.2     -0.7    17.2       17.3    -0.1         be distributed consistently over time,
                      75,000 to
                      99,999
                                   12.2   12.9     -0.7    12.6       14.6     -2          until one examines the highest income
                      100,000 to   16.5   17.1     -0.6     17        17.6    -0.6
                                                                                           earners. Though the percentage
                      149,999

                      150,000
                                                                                           of households earning less than
                                   16.6   13.4     3.2     19.7       17.5    2.2
                      and Over
                                                                                           $25,000 and less than $50,000 both
                     Source: U.S. Census American Community Survey                         decreased from five years prior, the
                                                                                           percentage of households earning
                                                                                           more than $150,000 rose significantly,
                                                                                           from 13.4% to 16.6%. Overall, the
                                                                                           “middle-class” (households earning
24 | Economic 2012
     OUTLOOK
                                                                                                   LONG-RUN CONSIDERATIONS
between $50,000 and $100,000)                                     rose approximately 9%. This is a                                                      Consumer Price Index
                                                                                                                                                        San Francisco MSA, 2006 to 2010
shrank slightly between 2006 and                                  serious issue for a city like Richmond,                                       1.10

2010, but this is not necessarily a bad                           where the proportion of households                                            1.08

thing as the percentage of Alameda                                earning under $25,000 grew by 3.1




                                                                                                                                CPI (Indexed)
                                                                                                                                                1.06

residents earning less than $50,000                               percentage points over five years, to                                         1.04

also fell, while the percentage of                                26.6% of the population, or Oakland,
                                                                                                                                                1.02
residents earning over $100,000 grew                              where households earning under
                                                                                                                                                1.00
by 2.6 percentage points. The story                               $25,000 constitute almost 30% of                                                     2006          2007           2008            2009           2010
                                                                                                                                                        Source: U.S. Bureau of Labor Statistics
                                                                  the population.

Distribution of Household Income
                        Berkeley                       Richmond                 Oakland                  San Francisco                                  California                         United States
                                 Change                       Change                       Change                  Change                                           Change                                 Change
 Income         2010     2006     (%)           2010   2006    (%)       2010   2006        (%)     2010    2006    (%)           2010                   2006        (%)            2010          2006      (%)

 Under           25.7    27.8      -2.1         26.6   23.5       3.1    29.6   29.3        0.3     22      21.9    0.1             21.6                  21.3          0.3         24.9          25.3       -0.4
 25,000

 25,000 to       18.9    21.5      -2.6         25.6   27.1       -1.5   20.9   24.2        -3.3    16.1     18     -1.9            22.3                  23.1         -0.8          25           26          -1
 49,999

 50,000 to       13.8    13.9      -0.1         17.4   16.1       1.3    17     16.6        0.4     13.1    15.6    -2.5            17.5                  18.3         -0.8         18.3          19         -0.7
 74,999

 75,000 to       11.1     9.6       1.5         10.8   16.6       -5.8   10.6   10.4        0.2     11.7     12     -0.3            12.3                  12.7         -0.4         11.8          11.8         0
 99,999

 100,000 to      12.3    13.2      -0.9         11.6   10.5       1.1    10.8   11.5        -0.7    16.7    14.8    1.9             14.3                      14        0.3         11.8          10.9        0.9
 149,999

 150,000         18.1    13.9       4.2          8      6.2       1.8    11.1    8.2        2.9     20.4    17.7    2.7             12.1                  10.6          1.5          8.1           7          1.1
 and Over

Source: U.S. Census American Community Survey




is similar in Contra Costa County,                                                                                          Income Inequality (GINI Index)
where the percentage of lower-income                              The Gini index in which 1.00 is
                                                                                       2                                            Year                 Contra Costa          Alameda County              California
                                                                                                                                                           County
and middle-class residents remained                               perfect income inequality and 0.00                                2006                       0.453                   0.45                  0.466
roughly flat (falling slightly for the                            is perfect income equality, paints a                              2007                       0.451                  0.458                  0.469
middle-class), while the upper income                             slightly different picture of the East                            2008                       0.456                  0.455                  0.473
categories saw an increase in the                                 Bay. Income inequality has remained                               2009                       0.456                  0.449                  0.467
share of residents between 2006                                   relatively steady from five years prior,                          2010                       0.445                  0.459                  0.471
and 2010.                                                         with a slight increase in Alameda
                                                                                                                            Source: U.S. Census American Community Survey
Communities in the East Bay have                                  County’s inequality (0.009) largely
seen some of the biggest growth                                   offset by a slight decrease in Contra
among top income earners. The                                     Costa County’s inequality (-0.008). At
proportion of households earning                                  the same time, the inequality in both
$150,000 or more grew by 4.2                                      counties remains consistently lower
percentage points in Berkeley over five                           than that of California. Though the
years, and by 2.9 percentage points in                            region has not made much progress in
Oakland, versus 2.7 percentage points                             reducing income inequality over the                       2
                                                                                                                                A region’s Gini index measures the percent
in San Francisco, 1.5 percentage                                  past five years (understandably given                     concentration of total income of that region among
                                                                                                                            each percentage of the population, compared to
points in California, and 1.1                                     the severe labor market downturn),
                                                                                                                            income perfectly distributed among the population.
percentage points across the United                               this issue is less pronounced than in                     For instance, a region in which the bottom 80% of
States. Over the same period of time,                             the state overall.                                        income earners possess 20% of the income will have
                                                                                                                            a higher Gini index than a region in which the bottom
the cost of living in the Bay Area,
                                                                                                                            80% of income earners possess 80% of the income.
as measured by the Consumer Price
Index for the San Francisco MSA,


                                                                                                                                                                              OUTLOOK 2012
                                                                                                                                                                                            Economic
                                                                                                                                                                                                             |25
LONG-RUN CONSIDERATIONS
                                                       Percentage of East Bay Population at Each Income Level by Ethnic Group
                                                                                             White                Hispanic or Latino       Black or Afr. American
                                                                                                        2 year                    2 year                  2 year
                                                        Income ($)                 2010     2008       change    2010     2008   change    2010   2008   change

                                                        Under 25,000               13.5     13.2         0.3     19.1     18.4     0.7     33.4   33.5     -0.1

                                                        25,000 to 49,999           16.5     15.6         0.9     27.9     25.9     2.0     24.3   23.9     0.4

                                                        50,000 to 74,999           15.9     14.9         1.0      20      20.2    -0.2     16.8   14.9     1.9

                                                        75,000 to 99,999           12.6     13.3        -0.7     12.7     13.5    -0.8     8.5    10.5     -2.0

                                                        100,000 to 149,999          19      19.9        -0.9     12.7     13.4    -0.7     9.8    11.5     -1.7

                                                        150,000 and Over           22.5      23         -0.5     7.6       8.6    -1.0     7.3     5.6     1.7

                                                       Source: U.S. Census American Community Survey



                                                       Percentage of East Bay Population at Each Income Level by Ethnic Group (cont.)
                                                                                             Asian                Some Other Race           Two or More Races
                                                                                                        2 year                    2 year                  2 year
                                                        Income ($)                 2010     2008       change    2010     2008   change    2010   2008   change

                                                        Under 25,000                16        15         1.0     20.6     19.2     1.4     18.1   19.6     -1.5

                                                        25,000 to 49,999           12.5      12.5        0.0      27       26      1.0     23.3   15.8     7.5

                                                        50,000 to 74,999           16.6      16.1        0.5      22      22.2    -0.2     15.8   19.4     -3.6

                                                        75,000 to 99,999           13.6      12.7        0.9     10.8     14.7    -3.9     15.6   14.7     0.9

                                                        100,000 to 149,999         19.1      21.7       -2.6      15      11.3     3.7     13.1   18.1     -5.0

                                                        150,000 and Over           22.2       22         0.2     4.6       6.7    -2.1     14.1   12.4     1.7

                                                       Source: U.S. Census American Community Survey
Percentage of East Bay Population
Below Poverty Level

 Year
            Total           Under      18 to    Over
                                                       At the same time, the percentage of
                                                       East Bay residents living in poverty
                                                                                                                       HEALTH INSURANCE
          Population         18         64       65
                                                       has increased. Poverty level in 2006                            AND SOCIAL SERVICES
 2006          9.8           12.3       9.4     6.5
                                                       was defined as earning less than
 2007          10.1          13.2       9.5     7.1
                                                       $10,294 in a year, and in 2010, less                            The rates of residents without health
 2008           10           12.9       9.1     8.9    than $11,139 in a year. At its relative                         insurance in the East Bay remain
 2009          10.2          13.5       9.8      6     peak in 2010, more than 15% of                                  high, though that is true of the rest
                                                       youths and 8% of seniors were living                            of the state. Over 12% of East Bay
 2010          11.7          15.3      11.1      8
                                                       below the poverty level. Granted,                               residents lack health insurance, versus
Source: U.S. Census American Community Survey
                                                       these numbers are better than those of                          11.3% of San Francisco residents,
                                                       neighboring regions. In San Francisco,                          12% of South Bay residents, and
                                                       18.5% of youths and 8.7% of seniors                             18.5% of Californians. At the same
                                                       were living in poverty, compared to                             time, the East Bay, like much of the
                                                       19.9% and 8.7%, respectively, in                                rest of the state, exhibits significant
                                                       the South Bay, and 22% and 9.7%,                                disparities in coverage between
                                                       respectively, in the state of California.                       ethnic groups. For instance, 22.8%
                                                       But even in the East Bay, considering                           of Hispanic residents in the East Bay
                                                       how high these numbers have come                                lack health insurance, compared to
                                                       relative to earlier levels, this could put                      just over 7% of white residents. This
                                                       pressure on already strained budgets.                           is generally in line with the rest of the
                                                                                                                       Bay Area. In San Francisco, 24.6%
                                                                                                                       of Hispanic residents lack health
                                                                                                                       insurance, versus 22.4% in the South
26 | Economic 2012
     OUTLOOK
                                                                                           LONG-RUN CONSIDERATIONS
Percentage of Population Without                                     annually relative to 2006 had grown
Health Insurance, 2010                                               in Contra Costa County by 134.4%,
 Ethnicity
                  East
                  Bay
                               San
                            Francisco
                                           South
                                            Bay       California     and in Alameda County by 77.7%.
 Total            12.2        11.3          12          18.5         By comparison, the number of
 Population
                                                                     applications approved annually had
 Asian Alone      0.8         10.1          9.7         14.8
                                                                     grown by 55.2% in San Francisco
 White Alone      7.1          6.3          6.5         10.5
 (not Hisp./                                                         County, by 74.4% in Santa Clara
 Latino)

 Black or Afr.    12.9        11.4         12.7         15.7
                                                                     County, and by 98.0% in the state.
 American
 Alone                                                               Moreover, the number of applications                                Free School Meals
                                                                                                                                         East Bay, 2006 to 2011
 Hispanic or      22.8        24.6         22.4         29.2         approved annually dropped by 4.4%                            25.0
 Latino (any
 race)                                                               in San Francisco County and by 8.6%




                                                                                                               Meals (Millions)
                                                                                                                                  22.5
Source: U.S. Census American Community Survey
                                                                     in Santa Clara County, versus just a
                                                                     0.7% drop in Alameda County and
                                                                                                                                  20.0
                                                                     3.1% uptick in Contra Costa County.
Bay. 10.5% of white residents in
San Francisco lack health insurance,                                 Throughout the Great Recession, and                          17.5
                                                                                                                                             2006      2007        2008       2009         2010        2011

versus 6.5% of white residents in                                    even after, as municipal budgets in
                                                                                                                                         Source: CA Department of Education, Nutrition Services Division



the South Bay. This is much like the                                 the East Bay tightened and residents
rest of the state, in which 24.6% of                                 struggled to find work, the number of
Hispanic residents and 15.7% of black                                free school meals served to East Bay
residents lack health insurance, versus                              students rose consistently and steeply,   22.8% of Hispanic
only 6.3% of white residents.                                        from 18.0 million in 2006 to 24.4
                                                                     million in 2011, a 35% increase. The
                                                                                                               residents in the East Bay
CalFresh Applications Approved                                       growth in free school meals served        lack health insurance,
over Time                                                            San Francisco and the South Bay
        Alameda    Contra         San       Santa                    was also steep, but not to the same       compared to just over 7%
 Year    County    Costa       Francisco     Clara      California

                                                                                                               of white residents. This is
                   County       County      County
                                                                     degree. In 2011, San Francisco served
 2006    18,579     8,756       16,518       14,833      619,395

 2007    20,354    10,642       17,636       16,638      673,580
                                                                     10.4 million free meals, a 22.8%
 2008    24,642    14,324       19,939       19,947      834,449     rise from 2006, while the South Bay       generally in line with the
 2009    30,028    17,975       23,037       25,744     1,035,012
                                                                     served 16.8 million free meals, a
 2010    33,260    19,902       26,846       28,307     1,131,895                                              rest of the Bay Area.
                                                                     23% rise from 2006. In the face of
 2011    33,011    20,522       25,638       25,883     1,226,110
                                                                     the most difficult economic climate
Source: CA Department of Social Services
                                                                     in decades, more disadvantaged
                                                                     students were able to take advantage
One of the most severe impacts of                                    of the program, easing the burden on
the Great Recession was the vast                                     struggling families in the community.
increase in need for food assistance                                 As the East Bay economy continues
benefits throughout the state,                                       to improve in 2012, it remains to
including the East Bay. The number                                   be seen whether the number of free
of applications approved each year                                   school meals served will continue to
for CalFresh, California’s branch                                    grow, as well, but the expansion of
of the U.S. Supplemental Nutrition                                   the program no doubt has helped to
Assistance Program, increased yearly                                 take some of the pressure off East Bay
from 2006 to 2011, with the increase                                 families as the economy
in applications approved in Contra                                   gradually recovers.
Costa County in 2011 offsetting the
decrease in applications approved                                    On the other hand, accessible child
in Alameda County. By 2011, the                                      care continues to be out of reach for
number of applications approved                                      many East Bay families. Despite a

                                                                                                                                                                   OUTLOOK 2012
                                                                                                                                                                                   Economic
                                                                                                                                                                                                     |27
LONG-RUN CONSIDERATIONS
                                                                                                    temporary spike in the number of          East Bay parents. As the labor market
                                                                                                    licensed child care slots available in    improves in 2012 and the focus moves
                                                                                                    2004, the total number of available       away from strictly employment and
                                                                                                    slots rose only 1.7% in 10 years. For     cyclical concerns, the time is right
                             East Bay Child Care
                             Licensed Slots Available, 2000 to 2010                                 perspective, in Alameda County            to dig into many of these areas that
                   93,000
                                                                                                    in 2010, there were an estimated          put limits on the quality of life for
                                                                                                    202,000 children under 5, but only        individuals in our community and
 Available Slots




                   90,500
                                                                                                    54,260 licensed child care slots          ultimately impede economic growth
                                                                                                    available countywide. Likewise, the       from reaching its true potential.
                                                                                                    cost of licensed child care continues
                   88,000                                                                           to be prohibitive. The average cost of
                            2000        2002         2004        2006          2008          2010
                             Source: CA Child Care Research & Referral Network                      child care for an infant at a licensed
                                                                                                    child care center is approximately
                                                                                                                                              SHIFTING
                             East Bay Child Care
                                                                                                    $12,950 per year, while the cost of       DEMOGRAPHICS
                             Average Annual Cost, 2009                                              the comparatively more affordable
                   15,000                                                                                                                     The changes in proportional size
                                                                                                    family child care is itself over
                   12,500                                                                                                                     between ethnic groups in the East Bay
                                                                                                    $8,500 per year.
 Annual Cost ($)




                   10,000
                                                                                                                                              have been pronounced and consistent.
                    7,500

                                                                                                    The labor market in the East              The number of Hispanic residents has
                    5,000

                    2,500                                                                           Bay is recovering, and household          risen sharply over the past five years,
                       0
                                     Child Care Center            Family Child Care Home            employment is quickly nearing pre-        especially considering that Hispanics
                                          Cost for Infants           Cost for Preschoolers
                                                                                                    recession levels, but the question        already comprised 21.7% of the East
                             Source: CA Child Care Research & Referral Network


                                                                                                    remains whether many residents will       Bay population in 2006. By 2011,
                                                                                                    reap meaningful benefits from this        that proportion had risen to 24.1%.
                                                                                                    economic growth. It is likely that        The percentage of Asian residents
                                                                                                    even as the unemployment rate falls,      has risen from approximately 18.6%
                                                                                                    the rate among young people will          of the total population to 19.8%.
The total population of                                                                             remain high, and young people will        Meanwhile, the number of white
                                                                                                    continue to have difficulty finding       residents has dropped by 31,240, from
the East Bay is slowly                                                                                                                        approximately 45.0% of the total
                                                                                                    work. Although the income gap closed
increasing, but that growth                                                                         slightly in Contra Costa County over      population to approximately 41.9%.
                                                                                                    the past five years, it opened slightly   The total population of the East Bay
has come almost entirely                                                                                                                      is slowly increasing, but that growth
                                                                                                    in Alameda County. As incomes begin
from the Hispanic and                                                                               to rise after the most recent cyclical    has come almost entirely from the
                                                                                                    downturn, the income gap between          Hispanic and Asian population. Only
Asian population.                                                                                   White and Asian residents and Black       5.0% of the total population growth
                                                                                                    and Hispanic residents will likely        since 2006 has come from other
                                                                                                    persist. These are indicators—along       ethnic groups.
                                                                                                    with the disparity in educational
                                                                                                                                              As the East Bay population has
                                                                                                    outcomes—that the East Bay Outlook
                                                                                                                                              become more ethnically diverse in
                                                                                                    will continue to track closely.
                                                                                                                                              recent years, it has also gotten older.
                                                                                                    As the economy has deteriorated,          In 2006, East Bay residents 55 and
                                                                                                    poverty in the East Bay has grown—        over comprised 21.9% of the total
                                                                                                    especially among young people—and         population. Five years later, that
                                                                                                    so has the need for food assistance       had risen to 23.6%. In that same
                                                                                                    benefits. Many residents, especially      period of time, every other age group
                                                                                                    Hispanic residents, still lack health     shrank except residents aged 15-24,
                                                                                                    insurance. Licensed child care is still   which was unchanged at 13.3% of
                                                                                                    too costly and too scarce for many        the population. The population of
28 | Economic 2012
     OUTLOOK
                                                                                                                          LONG-RUN CONSIDERATIONS
East Bay Population by Ethnic Group
                      (%)                  (%)              (%)              (%)                 (%)     Pacific   (%)    American   (%)
 Year    White      Change      Hispanic   chg    Asian     chg    Black     chg     Multirace   chg    Islander   chg     Indian    chg       Total

 2006   1,143,822               552,902          471,674           276,129            71,783            14,972             11,410            2,542,692

 2007   1,137,255    -0.6       569,253     3    482,467    2.3    275,409   -0.3     71,916     0.2    15,456      3.2    11,811     3.5    2,563,567

 2008   1,130,633    -0.6       585,752    2.9   493,136    2.2    274,685   -0.3     72,062     0.2    15,936      3.1    12,203     3.3    2,584,407                                     Domestic Migration
 2009   1,123,961    -0.6       602,425    2.8   503,686    2.1    273,959   -0.3     72,211     0.2    16,415      3      12,597     3.2    2,605,254                                     Bay Area, Q1-06 to Q2-11

 2010   1,117,215    -0.6       619,288    2.8   514,103    2.1    273,211   -0.3     72,372     0.2    16,895      2.9    12,980     3      2,626,064                            2,000




                                                                                                                                                         Net Domestic Migration
 2011   1,112,582    -0.4       638,954    3.2   525,506    2.2    272,166   -0.4     72,795     0.6    17,463      3.4    13,429     3.5    2,652,895                            1,000


Source: CA Department of Finance                                                                                                                                                      0


                                                                                                                                                                                  -1,000


East Bay Population by Age Group by Percentage of Total Population                                                                                                                -2,000
                                                                                                                                                                                          Q1-06     Q1-07         Q1-08           Q1-09        Q1-10        Q1-11
                                                                                                                                    65 and
 Year      0 to 14    Chg         15 to 24       Chg       25 to 44     Chg         45 to 54     Chg      55 to 64        Chg        Over       Chg                                                             East Bay                  San Francisco
                                                                                                                                                                                                                South Bay
                                                                                                                                                                                           Sources: CA Department of Finance
 2006       20.4                    13.3                    29.1                     15.3                    10.9                    11

 2007       19.7       -0.7         13.7         0.3        28.6        -0.5         15.5        0.2         11.4         0.5        11.2       0.2

 2008       19.7            0       13.7          0         28.1        -0.5         15.5         0          11.7         0.3        11.4       0.2                                        Foreign Immigration
                                                                                                                                                                                           Bay Area, Q1-06 to Q2-11
                                                                                                                                                                                  4,800
 2009       19.8       0.1          12.7         -0.9       29.3         1.2         15.4        -0.2        11.4         -0.3       11.4       0.1                                                                                                       2,400
                                                                                                                                                                                  4,600




                                                                                                                                                         East & South Bays
 2010       19.4       -0.4         13.3         0.5        28.7        -0.6         15.1        -0.3        11.9         0.5        11.7       0.3




                                                                                                                                                                                                                                                                  San Francisco
                                                                                                                                                                                  4,400                                                                   2,300

                                                                                                                                                                                  4,200
Source: U.S. Census American Community Survey
                                                                                                                                                                                                                                                          2,200
                                                                                                                                                                                  4,000

                                                                                                                                                                                  3,800
                                                                                                                                                                                                                                                          2,100
residents approaching retirement age                                           the high-wage jobs that could not                                                                      Q1-06       Q1-07       Q1-08       Q1-09     Q1-10       Q1-11


or in retirement is growing, which is                                          be filled locally. Raising educational
                                                                                                                                                                                                          East Bay
                                                                                                                                                                                                          San Francisco
                                                                                                                                                                                                                                     South Bay


                                                                                                                                                                                           Sources: CA Department of Finance
cause for some concern. Economic                                               attainment amongst the younger
growth in the East Bay will likely                                             population will help to drive more
depend on a steady influx of new                                               locals into these positions, thereby
residents, as more East Bay natives                                            increasing the overall quality of life.
will likely be leaving the workforce
than entering it.                                                              Foreign immigration has steadily
                                                                               declined since early 2007, though
                                                                                                                                                         Economic growth in the
In fact, net domestic migration                                                it remains strongly positive quarter                                      East Bay will likely depend
remained positive each quarter                                                 over quarter. Moreover, the numbers
since Q3-06. The same cannot be                                                in the East Bay have exceeded those                                       on a steady influx of new
said of San Francisco or the South                                             of the South Bay and San Francisco                                        residents.
Bay, where net domestic migration                                              every quarter since Q1-09. Even
dropped below zero at the turn of                                              in Q2-11, which had the lowest net
2009. Domestic migration in San                                                foreign immigration in recent years,
Francisco caught up to the East Bay                                            over 3,900 foreigners relocated to
in 2010, but the South Bay continues                                           the East Bay. With several thousand
to trail the East Bay, though the gap                                          new foreign immigrants coming to
has largely closed. Moreover, from                                             the East Bay each quarter, the ethnic
Q2-10 to Q2-11, net migration in the                                           diversification of the region is likely to
East Bay increased by at least 36.5%                                           continue at a rapid pace for years to
from the preceding quarter. Perhaps                                            come. With it will come a much more
because of the affordability of the                                            diverse labor force than in the past.
East Bay compared to the rest of the                                           Key for the East Bay will be to attract
Bay Area, even in difficult economic                                           a consistent population of young,
times like years 2008-2009, net                                                highly-educated individuals among
domestic migration stays strongly                                              this group in addition to expanding
positive. However, it is also a result                                         the local educational base.
of importing skilled workers to take

                                                                                                                                                                                                                      OUTLOOK 2012
                                                                                                                                                                                                                                     Economic
                                                                                                                                                                                                                                                          |29
LONG-RUN CONSIDERATIONS
                                                                  LINGERING                                                         recession. Oakland’s deficit rose
                                                                                                                                    to $380.4 million in 2008 from
                                                                  RECESSION EFFECTS                                                 $106.3 million in 2006. The deficit
                                                                                                                                    subsided somewhat to $84.3 million
                                                                  Year over year, the lingering recession
                                                                                                                                    in 2010, but only after the city had
                                                                  has encouraged cities in the East Bay
                                                                                                                                    cut spending by over 30% from 2008
                                                                  to take on fewer projects requiring
                                                                                                                                    levels. Richmond had a surplus of
                                                                  long-term debt. The reduction in
                                                                                                                                    $18.2 million in 2006, but faced a
                                                                  revenues experienced during the
                                                                                                                                    deficit of $56.2 million in 2009. In
                                                                  downturn necessitated reductions
                                                                                                                                    total, cities in the East Bay were
                                                                  in expenditures as well. Between
                                                                                                                                    operating at a $36.3 million surplus in
                                                                  2006 and 2010, Oakland’s long-term
                                                                                                                                    2006 but were operating at a $129.9
                                                                  debt dropped each year for a total
                                                                                                                                    million combined deficit by 2010,
                                                                  decrease of 13.6%. Even so, the city

Even as the East Bay                                              East Bay Long-Term Debt Obligations ($ Millions)
economy grows in the near                                           Year            Oakland       Brentwood               Richmond            Fremont        Berkeley             East Bay

future, many cities may be                                          2006              2,189             190                  182                144               75               3,321

                                                                    2007              2,169             239                  167                138               72               3,340
forced to maintain their
                                                                    2008              2,010             215                  174                131               69               3,108
budget cuts to make up
                                                                    2009              1,942             199                  156                140               75               3,001
for the heavy deficits they
                                                                    2010              1,891             191                  157                128               71               2,913
faced in the recession.
                                                                  Source: CA State Controller



                                                                  carried a staggering $1.89 billion in                             and only after gaining ground from
                                                                  debt in 2010, approximately 65% of                                a $402.9 million combined deficit in
                                                                  the municipal long-term debt in the                               2008. Even as the East Bay economy
                                                                  East Bay overall. Meanwhile, other                                grows in the near future, many cities
                                                                  cities in the region joined Oakland                               may be forced to maintain their
                                                                  in trimming their long-term debt;                                 budget cuts to make up for the heavy
                                                                  obligations in all East Bay cities                                deficits they faced in the recession.
                                                                  dropped by 12.3% since 2006.
                                                                                                                                    The dissolution of municipal
                                                                  Even then, budget deficits                                        redevelopment agencies in 2012 will
                                                                  throughout the East Bay grew as                                   put an added strain on East Bay city
                                                                  yearly expenditures rose during the                               budgets in the coming years. The city

East Bay Budget Shortfalls ($ Millions)
                               2006                              2007                               2008                               2009                                2010

 Location     Revenue     Expenditures   Surplus   Revenue   Expenditures   Surplus    Revenue   Expenditures   Surplus   Revenue   Expenditures   Surplus   Revenue   Expenditures   Surplus

 Oakland       1101.3         1207.6     -106.3    1190.5       1420.7      -230.2      1382.4      1762.8      -380.4     1085.2      1297.4      -212.2    1140.3       1224.5       -84.3

 Brentwood      114.2          90.4       23.8      122.5       117.4         5.1       108.7       111.1        -2.5      152.8       156.6        -3.8      122.1        93.2        28.9

 Richmond       177.8         159.7       18.2      175.5       192.6        -17.2      257.8       262.1        -4.3       205        261.2        -56.2     360.2        370         -9.8

 Fremont        169.9         164.9        5         199        195.3         3.7       225.7       232.6        -6.8      286.4       277.4          9       189.1       210.8        -21.7

 Berkeley       289.1         278.5       10.6      294.7       279.7        15.1       289.2       279.3         9.9      300.1        288         12.1      302.9       289.5        13.5

 East Bay       3562          3525.6      36.3     3757.4       3955.2      -197.7      4074.5      4477.4      -402.9     3805.7      4083.1      -277.5    3826.8       3956.7      -129.9


Source: CA State Controller



30 | Economic 2012
     OUTLOOK
                                                                                                 CONCLUSION
of Oakland had marked $26,327,622
to be used for redevelopment in fiscal
                                           CONCLUSION
year 2011-2012, and $26,845,899            A better year for economic growth in       These are concerns for the rest of
to be used for redevelopment in            2012 will bring much-needed relief         the Bay Area and the state, as well,
fiscal year 2012-2013. The projects        to the residents and firms throughout      but in a region like the East Bay
authorized with those dollars would        the East Bay. As more residents are        that thrives on the diversity of its
pay for the salaries of 159 full-time      able to return to work and more            population, continuing to be a leading
employees in each fiscal year. After       firms provide local jobs, the resulting    voice in addressing the concerns will
redevelopment agencies in California       growth in prosperity will spill over       produce that much more of a benefit
were dissolved, the city of Oakland        to the overall quality of life of the      as economic growth improves the
faced a shortfall of over $8 million       East Bay populace. Continued strong        community’s overall quality of life.
for the remainder of FY 2011-2012,         investment in the region’s specialized
and over $20 million for FY 2012-          industries will provide an essential
2013. To meet the shortfall, the city      base for long-term economic growth.
proposed eliminating or freezing 124       The low cost of residential and
positions, as well as other citywide       commercial real estate relative to the
measures including a 40% reduction         rest of the Bay Area will ensure that
to the city’s art grants program and a     the East Bay remains a top choice for
reduction by 40% of annual subsidies       new business and long-term residents.
to non-profits managed by the Office
of Parks and Recreation.                   Yet, even as economic growth in the
                                           coming years will improve overall
Thus, although the economic recovery       quality of life in the region, it is
in the East Bay is well underway,          important not to overlook some of
local government budgets are not           the long-term issues that inhibit some
out of the woods yet. Revenues are         residents from taking full advantage
expected to begin increasing modestly,     of this growth. As in other regions
but expenditures and debt levels           of the Bay, young people in the East
still remain high. Government jobs         Bay have much more difficulty finding
have yet to turn the corner, but the       work than individuals in any other
worst is largely behind us. Still, tight   age group, whether the labor market
budgets will make addressing some          is weak or strong. The same is true of
of these long-term structural issues       black and Hispanic residents, relative
challenging, but as we transition away     to non-Hispanic white or Asian
from the lingering effects of the Great    residents, and the vast differences
Recession, it will become increasingly     in household incomes across those
important to ensure that the East Bay      ethnic groups reflect that. At the heart
is equipped for growth in the future.      of these employment and income
                                           gaps is an education gap, in which
                                           the educational attainment of black
                                           and Hispanic residents is lower on
                                           average than that of non-Hispanic
                                           white or Asian residents. The best
                                           way to tackle the employment and
                                           income disparities will be to tackle
                                           the educational disparity first.




                                                                                                              Economic
                                                                                                       OUTLOOK 2012      |31
                                       About Beacon Economics


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