Disaster Aid May Help Bump California Out of Recession
AMERICA's costliest urban disaster - the Jan. 17 earthquake that severely damaged freeways, homes, apartments, and businesses here -
is being followed by a kind of economic aftershock.
As a result of nearly $15 billion in federal and state assistance, as well as insurance outlays, the Golden State may exit earlier than expected from its worst recession this century.
Projected job losses, business slowdowns, and stalled tourism and movie production, initially led economists to predict that quake damage would hinder the slow ascent California was making toward recovery.
But by one estimate, a new rebuilding phase is expected to generate 45,000 jobs within a year in Los Angeles. Nearly $9.5 billion in federal money, $1.9 billion in state funds, and from $3 billion to $3.5 billion in insurance payments are expected to significantly bolster local building and repair companies, suppliers, and retailers.
``Far from derailing the recovery, it looks like the quake will accelerate it,'' says Jack Kyser, chief economist for the Los Angeles Economic Development Corporation (LAEDC). ``We are already seeing upsurges in construction and housing. Businesses and residents alike are moving quickly ahead with plans to do what they need to do.''
Time lost in movie and TV production has been kept to a minimum, and hotel space has been restricted by the influx of insurance and disaster personnel. The inflow of money and repair-related jobs is expected to increase sales of everything from home appliances to artwork to sports and electronic equipment lost in the quake.
The lessons learned from the aftermath of San Francisco's 1989 Loma Prieta quake have helped to mitigate losses. In Los Angeles, there has been faster disaster assistance, as well as damage-control for the state's $53 billion tourism industry.
``State and local officials have moved quickly to counter the same kinds of media images that made San Francisco look worse than it was,'' Mr. Kyser says. ``That has forestalled a possible disaster.''
The business forecasting unit at the University of California, Los Angeles (UCLA), last week announced that February's statewide job data revealed virtually no dropoff in employment. Director Larry Kimbell had initially estimated nearly 29,000 jobs lost over that period.
``We could be talking the end of the recession,'' Mr. Kimbell says. ``If February didn't show the hit [in jobs], we could be talking positive gains from here on out.'' But colleague Nancy Bolton cautions that the new economic stimulus will be short-lived, perhaps 18 months, after which no net gains or losses will be associated with the quake.
``There will be diversions of company funds that might have gone into new facilities just to fix old ones,'' she says. ``And people who are laid off temporarily may ... leave the state. But overall, we see no major changes.''
The UCLA study estimates total state earthquake losses at $13.5 billion; the state finance department puts the damage at $13 billion to $20 billion. After the quake, Gov. Pete Wilson put the figure at $30 billion.
The UCLA study estimates that 30,000 housing units are uninhabitable and about 1,000 nonresidential buildings rendered unusable - a total of about $4.2 billion. Extensive damage to freeways, bridges, and roads are estimated at about $2 billion to $3 billion. The bulk of the damage (about $6.2 billion) is attributed to private and public buildings that need repair, and to losses of equipment, inventory, and personal possessions.
In analyzing how California will fare in the aftermath of the earthquake, the forecasting unit at UCLA looked at relief efforts after Hurricane Andrew devastated the Dade County metropolitan area in Florida in August 1992. Though some national economists hold that $19 billion in relief funds - mostly from private insurance money - helped propel the area out of recession, UCLA researchers disagree.
``One of our great surprises is that we found rather little economic benefit to the area compared to the apparent stimulus it got,'' Ms. Bolton says. Total damage in Florida was estimated at $23 billion. Insured losses there were $15 billion (with another $3 billion in Louisiana, which also incurred damage).
One difference, the report says, may be that more local businesses and factories produce needed reconstruction materials, replacement parts, and consumer items in L.A. than in the Dade County area. The study also states that ``many people [in Florida] took their insurance money and left the state ... [or] work crews were brought in from neighboring states.''
Kyser of the LAECD says analysis of both disasters should look more at the long term. Both regions will register bigger economic boosts further down the line. ``I think this [assitance and insurance] money will have a trickle-down effect well into 1995 and beyond,'' he says.
Real estate and housing construction - spurred by low interest rates and a recovering United States economy - are helping California stay resilient, says Steve Levy, director of the Palo Alto-based Center for the Continuing Study of the California Economy.
``It's too soon to say a turnaround is taking place,'' Mr. Levy says. ``But the California economy is not declining anymore.''
One wild-card, he says, is residential construction. ``There is anecdotal evidence right now that this could explode,'' he says.