California Finds Public-Works Spending No Unemployment Cure-All

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Jan. 19 (Bloomberg) -- An hour’s drive through California’s Riverside County takes in neighborhoods of deserted homes, boarded-up businesses, busy unemployment offices -- and crews working on millions of dollars in new public projects.

Only four years ago, Riverside and nearby San Bernardino, often called the Inland Empire, were California’s economic powerhouse, accounting for more than a fifth of the state’s new jobs. Today, unemployment reigns in the sprawling region east of Los Angeles. The 9.5 percent jobless rate in the two counties matches Detroit’s as the highest of any major metropolitan area in the U.S.

Riverside also has almost $1 billion worth of public-works projects underway or planned, from widening roads to building a new jail. The county illustrates both the promise and the limitations of the spending President-elect Barack Obama proposes to pull the U.S. economy out of a recession that may become the longest since the Great Depression.

“What infrastructure spending can do is bolster employment in a group of industries, like construction, with workers who are ready to go,” said Brad Kemp, director of regional research at Beacon Economics in Los Angeles. “What it can’t do is stop the unemployment rate from rising currently because there are a lot of forces coming at consumers, who are holding back on spending.”

While Riverside’s investments put thousands to work, unemployment in the Inland Empire may still soar to 12 percent in the next year or two, said Kemp and John Husing, founder of Redlands, California-based consulting firm Economics & Politics Inc.

“Riverside County is an extreme example of a lot of the economic excesses from the recent boom,” said public economics professor Gregory Hess of Claremont McKenna College in Claremont, California. “It hasn’t hit rock bottom yet, which suggests that either the county is doing something right or there is more bad news to come.”

Obama is working with Congress to quickly enact a plan that would include spending on roads, bridges and public buildings aimed at creating or saving as many as 4 million jobs. The package will cost $850 billion and include about $300 billion in tax cuts, said Obama’s incoming chief of staff, Rahm Emanuel.

Riverside County didn’t set out to create jobs through public projects, which were needed in any case to accommodate a rapidly growing population that’s now 2.09 million, said Bill Luna, the county’s chief executive. Still, it became clear that such spending, if pushed through years sooner than originally planned, could help offset rising unemployment, said Roy Wilson, immediate past chairman of the board of supervisors.

“Creating one job is making a difference,” said Leroy Mathews, project superintendent on a new $12 million fire station and training center in the unincorporated Thousand Palms area, which employs 30 to 40 construction workers a day. “I just don’t know how much.”

The county’s largest project, a new $300 million jail in the unincorporated Whitewater area, will take up to two years to build and create as many as 4,500 jobs, officials said. It’s being paid for in cash after the county sold investors its share of future revenue from the 1998 tobacco-industry settlement, Luna said.

“Infrastructure investments are absolutely the best way to respond,” said Husing, who has studied the Inland Empire for 44 years. Even so, “it will take some time for money to change hands and for people to add jobs outside construction.”

“There’s a hell of a lot of pain going on here, and it’s going to get a lot worse,” he said.

For each worker employed on a public project, there are many like Derrick Russell, 44, of Riverside, a manual laborer who used to do construction and warehouse work and has been without a job since April.

“I can understand being out of work for two weeks, but for months?” said Russell, who can count 10 friends who are also unemployed. He has signed up with 10 temporary employment agencies and calls every day, “but there’s no work,” he said.

With an abundance of land stretching from Orange County to the Arizona border, Riverside County has for decades lured homeowners seeking affordable properties and companies looking for distribution points to handle imported goods.

The region’s strengths in construction and trade suddenly became weaknesses in 2007 after the U.S. housing market collapsed and the volume of Asian imports through the ports of Los Angeles and Long Beach stopped climbing after reaching record levels the previous year.

About 800,000 fewer 20-foot containers came through Los Angeles and Long Beach in 2008 than the previous year, or the equivalent of 400,000 truckloads of cargo. That’s hurt demand for logistics jobs countywide.

Meanwhile, the median price paid for all homes in the county has dropped 38 percent to $220,000 in a single year, according to San Diego-based MDA Dataquick. Foreclosures accounted for 70 percent of all existing home sales in November, the firm said.

The Inland Empire lost 17,400 construction jobs in the 12 months ended in November and gained only a net 100 transportation and warehousing positions, according to state figures. Unemployment for the month climbed to 9.5 percent from 6.3 percent a year before. Deutsche Post AG’s unprofitable DHL Express overnight-delivery unit and National R.V. Holdings Inc., maker of Tradewinds recreational vehicles, are among the companies that have left or gone out of business.

“Layoffs have hit us extremely hard, and it’s been devastating to our population,” said Tom Freeman, a spokesman for the Riverside County Economic Development Agency. “The county of Riverside can only do so much to stimulate job creation. We need federal stimulus to kick in, and we need the private sector to recover as quickly as possible.”

In the unincorporated Eastvale area, deserted homes with brown lawns sit less than a mile (1.61 kilometers) from an empty Disney’s Character Warehouse and closing Circuit City store.

Twelve hundred people a day jam the county’s four federally funded employment centers looking for work, with as many as 100 people competing for a single minimum-wage job.

The centers expect to serve about 35,000 people this year, or 60 percent more than in 2008, said Felicia Flournoy, director of Riverside’s Workforce Development Centers. They’ve now partnered with local unions to retrain unemployed construction workers for jobs on infrastructure projects, she said.

So far, those efforts have bypassed many jobless people outside construction-related fields, such as Lelia Aguirre, a former professional caregiver and Hughes Aircraft Co. inspector.

Aguirre, 57, says she’s sent out 1,000 resumes since October 2007 and landed just four stints: one in an assembly plant lasting three weeks and another cutting fruit for two hours.

“Lord have mercy,” she said during a visit to one job center in December. “It’s bad.”

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