South Bay Economic Adjustment Strategy - Economic Roundtable

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Employment in Transportation Industries, Los Angeles County, 1983-1996 ..... planning can also be a vehicle for expanding the range of industries attracted ... substandard schools as well as high crime rates, gang activity, and poor air quality.
South Bay Economic Adjustment strategy Economic Roundtable Beltramo & Associates Kosmont & Associates, Inc. UCLA Department of Geography USC Department of Geography

Prepared for

The South Bay Communities and Community Development Commission, County of Los Angeles

South Bay Economic Adjustment Strategy

Apri/1998

Preparedfor the South Bay communities under a grant from the United StatesDepartmentof DefenseOffice of EconomicAdjustment to the Community Development Commission of Los Angeles County

PROJECT TEAM

Economic Roundtable Mark Drayse, Ph.D. industry, job and payroll analysis Daniel Flaming, Ph.D. competitive assessmentand strategy Beltramo and Associates Michael Beltramo, Ph.D. defensecontractdata base Kosmont &Associates, Inc. Tom Jirovsky and FrankTaplin market and site analysis, development strategies UCLA Department of Geography David Rigby, Ph.D. input-output modeling USC Department of Geography John Wilson, Ph.D. GIS Mapping

The Economic Roundtableis a non-profitpublic strategy research organization 213-892-8104 315 W. 9th s.. # 1209, Los Angeles, CA 90015 http://home.eanhlink.net/-economicn

Acknowledgements The authors of this report would like to gratefully acknowledge the information and assistancethey received from the following individuals.

South Bay Association of Chambers of Commerce, 1997 Officers John Kirk, President John Parsons, Past President

Winton Churchill, Chair, Aerospace and Military Affairs Shirley McCarty, Chair, Economic Development

Report Reviewers Adi Arieli, Northrop Grumman Andrea Greer, TRW James Hansen, City of EI Segundo Allan MacKenzie, Mar Ventures Shirley McCarty, SBACC Edwin Peura, Hawthorne Chamber of Commerce Stanley Rosen, Hughes Space and Communications

Jacki Bacharach, J. Bacharach & Assoc. Christy Gronseth, TRW Dee Hardison, South Bay Cities Council of Govemments William Maikisch, USAF SMC John McTaggart, Rancho Palos Verdes Patrick Quinlan, PDQ GeoDemographics

South Bay Cities Council of Governments James Vernon Brown, City of Inglewood Michael Calzada, City of Inglewood James Hansen, City of EI Segundo Kathy Tsuboi Ikari, City of Gardena Jesse Lewis, City of Inglewood Brian Sunshine, City ofTorrance

Patricia Bluman, City of Torrance Lance Burkholder, City of Carson Michael Goodson, City of Hawthome Dee Hardison, Mayor, City ofTorrance Aaron Jones, City of Redondo Bezach Shally Lin, City of Hawthorne

City of Los Angeles Daniel Cartagena, Councilman Svorinich's Office

Job Training, Technology Transfer and Economic Development Organziations Joe Aro, South Bay Economic Development Partnership AI Jicha, South Bay Science Foundation Andrew Munoz, South Bay PIC

Joan Carvell, California Manufacturing Technology Center Russell Lefevre, South Bay Science Foundation Jan Vogel, South Bay PIC

High Technology Companies Peter Beardsley, Lockheed Martin Andrea Greer, TRWCharles Henning, SAIC Douglas Holker, The Aerospace Corporation Robert Krumpe, Logistics Specialties Rick Randall, Aerojet

Winton Churchill, Legato Systems Thomas Hohman, Nichols Research Constance Koehler, Northrop Grumman Ernest Linneman, AlliedSignal Aerospace Stanley Rosen, Hughes Space & Communications

International Trade and Real Estate Development Organizations Tim Bruinsma, Fulbright & Jaworski Alan MacKenzie, Mar Ventures Jennifer Soto Perque, California Trade & Commerce Tricia Snow, Export-Import Bank

W. Guy Fox, Global Transportation Services Bryant Mills, Cal State University Dominguez Hills Alan Schwartz, Sam Levy Investments Jay Winter, Foreign Trade Association

United States Government Doane Liu, Office of Congresswoman Jane Harmon

William Maikisch, U.S.A.F. Space and Missile Systems Center

Community Development Commission of Los Angeles County Mary Nemick

Robert Swayze

TABLE OF CONTENTS

EXECUTIVE SUMMARY

i

1.

INTRODUCTION

1

2. 2.1 2.2

7 7

2.2.a 2.2.b 2.2.c 2.2.d 2.2.e 2.2.f 2.3

DEFENSE ANALySiS Introduction A Retrospective and Prospective Look at Department of Defense Spending in the South Bay Statistical data A historical perspective Subcontractor impacts and opportunities Defense in the South Bay's future South Bay role in the space industry Help from local government.. Impact of Declining Aerospace Production on the South Bay Economy

7 7 10 19 20 22 25 25

3. 3.1 3.2 3.3 3.3.a 3.3.b 3.3.c 3.3.d 3.3.e 3.4 3.5 3.5.a 3.5.b 3.5.c 3.6

INDUSTRY EMPLOYMENT TRENDS 1983-1996 Introduction Trends in Total Employment... Trends in Manufacturing Employment Aerospace and durable manufacturing Non-durable manufacturing Trends in transportation and wholesale trade employment Trends in retail, finance, and service employment.. The changing employment structure of Los Angeles County, 1983-1996 South Bay Industry Employment and Payroll. Industry Employmentand Payroll. Manufacturing Transportation and wholesale trade Retail, finance, and services Functional Specialization of South Bay Cities and Communities

33 33 34 36 36 37 42 44 48 51 52 52 53 54 57

4. 4.1 4.1.a 4.2 4.2.a 4.2.b 4.3 4.4 4.4.a 4.4.b 4.5 4.5.a

INPUT-OUTPUT STUDY OF THE SOUTH BAY ECONOMy Introduction Multipliers Output and employment multipliers Output multipliers Employment multipliers Taxation Impacts Trade Impacts Imports Exports Key Industry Studies Aerospace

59 59 60 61 61 65 70 77 77 79 80 80

5. 5.1

SOUTH BAY ANCHOR INDUSTRIES Introduction

89 89

Table of Contents (continued) 5.2 5.2.a 5.2.b 5.2.c 5.2.d 5.2.e 5.2.f 5.3 5.3.a 5.3.b 5.3.c 5.4 5.4.a 5.4.b

South Bay Industries: Employment and Payroll Employment. Employmentconcentration Average payroll per worker Payroll share Industries grouped by employment concentration and payroll. Employmenttrends South Bay Anchor Industries High technology International trade Entertainmentand multimedia Linked industries Determination of linked industries Summary of linked industries

89 90 90 94 96 96 100 108 112 119 124 127 127 127

6. 6.1 6.2 6.3 6.3.a 6.3.b 6.3.c 6.3.d 6.3.e 6.3.f 6.3.g 6.3.h 6.3.i 6.3.j 6.4 6.4.a 6.4.b 6.4.c

REDEVELOPMENT OF INDUSTRIAL SITES FOR TARGET INDUSTRIES Overview General Comments on Site Strategies Strategies for Target Sites Carson: Dominguez Technology Center EI Segundo: Morgan Stanley Property Gardena: Artesia/Normandie Industrial Property Hawthorne: Northrop Grumman Property Inglewood: Hollywood Park Property Inglewood: International Business Park Los Angeles: Harbor Gateway Plaza Los Angeles: LAX Century Blvd. Corridor Redondo Beach: SCE Redondo Generating Station Torrance: AlliedSignal Property Real Estate Market Overview Introduction Office market Industrial market

135 135 136 146 146 147 148 149 151 153 154 155 158 160 162 162 164 171

7. 7.1 7.1.a 7.1.b 7.2 7.2.a 7.2.b 7.2.c 7.3 7.3.a 7.3.b 7.3.c 7.4 7.4.a 7.4.b 7.5

COMPETITIVE STANDINGAND PROSPECTS South Bay Competitive Assessment Strengths of the South Bay business environment Weaknesses of the South Bay business environment.. Growth Issues and Prospects High technology International trade Entertainmentand multimedia Institutions for Public-Private Cooperation Overview South Bay Economic Development Partnership South Bay Cities Council of Governments Technology Transfer Programs California Manufacturing Technology Center South Bay Science Foundation Infrastructure

181 181 181 182 183 183 191 199 200 200 201 201 203 203 204 206

Table of Contents (continued) 7.5.a 7.5.b 7.6 7.6.a 7.6.b 7.6.c 7.7 7.8

Transportation Broadband communications Workforce Laid-off workers Skills of unemployed aerospace workers Worker retraining resources Public Education Resources for Air Force Families living in San Pedro South Bay Strategic Information

206 207 208 208 209 211 215 217

8. 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13

ACTION PLAN Findings that Underpinthe Action Plan Overview Private-Public Policy-Level Forum Anchor Industry Strategies Expanding the South Bay Subcontractor Base Infrastructure Development Site Re-Use Worker Training Educational Resources for Air Force Families South Bay Strategic Information South Bay Marketing Initiatives Technology Transfer and Commercialization Organizational Structure for Funded Components

221 221 225 226 228 230 231 232 234 234 235 236 237 239

APPENDiX

Volume II

LIST OF TABLES, FIGURES AND MAPS TABLES 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Summary of Output Multipliers South Bay Industries with Highest Output Effects and Multipliers Summary of Output Multipliers South Bay Industries with Highest Employment Effects and Multipliers South Bay Industries, Indirect Business Taxes South Bay Industries Generating the Highest Indirect Business Taxes South Bay Industries, Value of Imports South Bay Industries with the Greatest Value of Imports South Bay Industry Exports South Bay Industries, Value of Exports South Bay Aerospace Industry, Output Multipliers South Bay Aerospace Industry, Employment Multipliers South Bay, Estimated 1996 Employment by Industry Proposed Anchor Industries for South Bay Strategy Motion Picture Industry Employment in Los Angeles County Subregions Employment and Output in Industries Linked to South Bay Anchor Industries Office Market Trends, Los Angeles County and South Bay Office Market Trends by Subarea, Los Angeles County and South Bay Industrial Market Trends, L.A. County and South Bay Industrial Market Trends by Subarea, Los Angeles County and South Bay Laid-Off Aerospace Workers by Occupation Residing in the South Bay

62 65 66 70 71 73 76 77 79 81 84 85 103 110 125 128 165 167 173 174 210

FIGURES 1 2 3 4 5 6 7 8 9 10 11 12

U.S. Aerospace Industry Sales, 1981-1995 000 Contract Awards in L.A. County and South Bay 000 R&D vs. Procurement Outlays, United States, 1987-1996 Number Firms Receiving 000 Contracts, Los Angeles County and South Bay, 1987-96 000 Contracts to South Bay Firms, 1987-1996 000 Contracts to South Bay Cities, 1987-1996 Major 000 Contractors, United States, 1992-1995 Major NASA Contractors, United States, 1992-1995 Space Industry Employment, South Bay, 1993-1997 South Bay Aerospace, Job Loss, 1987-1996 South Bay Aerospace, Payroll Loss, 1987-1996 South Bay Aerospace, Business Taxes Generated, 1987-1996

8 9 11 12 13 14 17 18 24 26 27 28

LIST OF TABLES, FIGURES AND MAPS CONTINUED 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

Total Employment, Los Angeles County, 1983-1996 Manufacturing Employment, Los Angeles County, 1983-1996 Aerospace Employment, Los Angeles County, 1983-1996 Employment in Selected Durable Manufacturing Industries, Los Angeles County, 1983-1996 Employment in Selected Non-Durable Manufacturing Industries Employment in Transportation Industries, Los Angeles County, 1983-1996 Employment in Wholesale Trade, Los Angeles County, 1983-1996 Employment in Selected Retail Trade Industries, Los Angeles County, 1983-1996 Employment in Finance, Insurance, and Real Estate, Los Angeles County, 1983-1996 Employment in Selected Service Industries, Los Angeles County, 1983-1996 Employment by Major Industry Sectors, Los Angeles County, 1983-1996 Functional Specialization of South Bay Cities and Communities Output Multipliers, South Bay Industries Employment MUltipliers, South Bay Industries Business Taxes per Dollar of Output, South Bay Industries Total Annual Output, South Bay Industries Total Business Taxes, South Bay Industries Value of Imports, South Bay Industries Value of Exports, South Bay Industries South Bay Industries, Value of Imports and Exports Industry Employment, South Bay Industries with High Employment Concentration, South Bay Industries with Low Employment Concentration, South Bay Average Annual Payroll, South Bay Total Industry Payroll, South Bay '" South Bay Manufacturing, Transportation, and Wholesale Trade Industries, Employment Concentration and Payroll South Bay Retail, Financial, and Service Industries, Employment Concentration and Payroll Job Change in L.A. County Industries, Number of Jobs Gained or Lost, 1992-1996 Job Change in L.A. County Industries, Percent Change, 1992-1996 Estimated Employment, South Bay Manufacturing Industries, 1996 Estimated Employment Change, South Bay Manufacturing Industries, 1992-1996 Estimated Employment, South Bay Transportation, Trade, Finance, and Service Industries, 1996 Estimated Employment Change, South Bay Transportation, Trade, Finance, and Service Industries, 1992-1996 South Bay Anchor Industries, Employment Change and Concentration South Bay High Technology Industries, Employment Concentration and Payroll Major Concentrations of High Technology Employment in the South Bay

35 38 39 40 41 43 45 46 47 49 50 58 63 67 72 74 75 78 82 83 91 92 93 95 97 98 99 101 102 104 105 106 107 112 114 115

LIST OF TABLES, FIGURES AND MAPS CONTINUED 49 50 51 52 53 54

55 56 57 58 59 60 61 62 63 64 65 66 67 68

Functional Specialization of South Bay Cities and Communities in High Technology South Bay Transportation and Trade Industries, Employment Concentration and Payroll Major Concentrations of Transportation and Trade Employment in the South Bay Functional Specialization of South Bay Cities and Communities in Transportation and Trade Multimedia Firms in Los Angeles County, 1995 Los Angeles County and South Bay Office Inventory, 1992-1996 South Bay Office Inventory, 1996 Los Angeles County and South Bay Office Vacancy, 1992-1996 South Bay Office Vacancy Rates, 1992-1996 Los Angeles County and South Bay Industrial Inventory, 1992-1996 South Bay Industrial Inventory, 1996 Los Angeles County and South Bay Industrial Vacancy, 1992-1996 South Bay Industrial Vacancy Rates, 1992-1996 LAX Passenger Traffic, 1986-1996 LAX Cargo, 1986-1996 Overview of Job Losses, South Bay Residents, 1994-1995 Occupations of Aerospace Layoffs, South Bay, 1994-1995 South Bay Share of Los Angeles County Layoffs, 1994-1995 Determinants for Blueprint and Process Planning Organizational Structure to Implement Funded Components of South Bay Economic Adjustment Strategy

115

120 121 121 126 166 168 169 170 172 175 176 177 194 195 212 213 214 218 240

MAPS 1

2 3 4 5 6 7 8 9

South Bay Study Area South Bay Aerospace Industries South Bay Computer, Electronic, and Instrument Industries South Bay High Technology Services South Bay Transportation Industries South Bay Wholesale (Durable Goods) Industries South Bay Machinery Industries South Bay Financial Services Residences of The Aerospace Corporation Workers in Los Angeles and Orange Counties, 1997

3

116 117 118 122 123 130 131 1995

Executive Summary

Purpose The South Bay Economic Adjustment Strategy has been prepared to help elected officials, public sector staff, business leaders, and citizens take coordinated, effective action to recover jobs lost because of defense cutbacks. The strategy has been prepared under a grant from the Office of Economic Adjustment in the Department of Defense that was administered by Los Angeles County's Community Development Commission. The South Bay Association of Chambers of Commerce and South Bay Cities Council of Governments have participated continuously in this project, providing information, access to knowledgeable individuals in business and government, and critiques of project data and strategy recommendations. The most salient fact about the South Bay economy is the importance of high technology manufacturing and services. The area's high technology sector is a tapestry of industries linked to space systems, aeronautical services, and aviation; its output includes research and development services as well as production of electronic and aerospace hardware and software. Despite ongoing decline in defense procurement the South Bay remains the heart of Los Angeles County's aerospace, defense and high technology industrial complex and is a national center of aerospace, electronics, and communications. This report provides a body of analysis and strategy recommendations for supporting existing and emerging industries with innovative partnerships between the private and public sectors and carefully targeted public sector investments. The South Bay economy has been seriously damaged by defense cutbacks and in the absence of effective economic development strategies the risk is real that a critical mass of high technology talent will exit the region and opportunities for growth and diversity in the economy will be lost.

Communities Included in the South Bay Defense Adjustment Analysis The geographic scope of the South Bay, as defined for this analysis, includes the following cities and communities: Alondra Park, Carson, EI Segundo, Gardena, Harbor Gateway, Hawthorne, Hermosa Beach, Inglewood, Lawndale, Lennox, Lomita, Manhattan Beach, Palos Verdes Estates, Rancho Palos Verdes, Redondo Beach, Rolling Hills Estates, Rolling Hills, San Pedro, Torrance, West Carson, Westchester/Playa del Rey, and WilmingtonlHarbor City.

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Defense Industry Findings The national market for major aerospace products has declined sharply during the last decade. Only space and civil aircraft sales have not fallen substantially since 1987. The South Bay has been hit extraordinarily hard by defense budget cutbacks resulting from the end of the Cold War; however, the future forecast for the South Bay is guardedly optimistic. Department of Defense (DoD) policies have contributed to disproportionate losses of defense jobs in the Los Angeles region. DoD encouraged consolidation of the defense industrial base by allowing consolidation costs to be charged to defense contracts. This provided a strong incentive for firms to consolidate and position themselves to dominate their markets. As these firms consolidated they often did so around newer production facilities in other regions created as a result of DoD's dual-source procurement policy. The Space and Missile Systems Center (SMC) located at the Los Angeles Air Force Base in El Segundo has a growing budget, spending over $5 billion a year to plan and procure space systems for the Air Force. The presence of SMC is clearly an asset for South Bay defense-linked industries, although most prime contract funds go to firms headquartered in other regions. From 1993 through 1997 SMC and and its technical arm, The Aerospace Corporation, lost more than 2,000 jobs. If declining government oversight of defense procurement causes continuing attrition at SMC, the loss of a critical mass of employees might make it feasible to move SMC's work out of the Los Angeles region. The South Bay faces strong competition from other regions for production of satellites, but the market niche it has retained supports a highly skilled labor force that is paid high salaries. Growth at TRW and Hughes has offset losses at SMC and The Aerospace Corporation. From 1993 through 1997, the combined employment of these four anchor organizations in the South Bay space sector grew by over 3,000 workers. Pressures in the defense market are driving prime contractors toward fewer suppliers, dramatically reducing the number of subcontractors, although the overall percentage of revenues subcontracted has remained roughly constant. The greatest opportunities for increasing local subcontracts are at the third tier level, that is at the level of suppliers to direct subcontractors. The proposed acquisition ofNorthrop Grumman by Lockheed Martin and completed acquisition of Hughes' defense segment by Raytheon (over 2,000 lay-offs planned in the county, and 1,100 in El Segundo) are not favorable developments for the South Bay. Raytheon's planned lay-offs will reverse modest gains achieved by the South Bay's aircraft sector since 1995. An aerospace industry analyst commented, "the merger with Lockheed will take its toll on Northrop. The eater gets healthy, the eatee gets tom to shreds." Recently announced plans by Boeing to lay-off 6,200 workers in Southern California offer further evidence of the difficulty of competing for and retaining aerospace jobs.

Executive Summary

iii

The South Bay aerospace industry has an employment multiplier of2.65. For every worker in the aerospace sector, another 1.65 workers are employed elsewhere in the South Bay. The business taxes generated directly by aerospace industry in the South Bay declined from $109.0 million in 1987 to $56.8 million in 1996 (constant 1996 dollars). Decline of production and employment in the aerospace industry has resulted in the loss of billions of dollars of payroll from the South Bay economy. Between 1987 and 1996, the total payroll of the South Bay aerospace industry declined from $4.65 billion to $2.09 billion (constant 1996 dollars). The payroll generated in firms supplying inputs to the aerospace industry, as well as the payroll generated in firms in which jobs were supported by the expenditures of aerospace workers, declined from a total of $4.90 billion in 1987 to $2.20 billion in 1996. Thus the total payroll generated directly and indirectly by aerospace production in the South Bay declined from $9.55 billion to $4.30 billion, a loss of $5.25 billion annually.

Technology Commercialization The aerospace industry accounts for more than a quarter of all of the nation's research and development expenditures, and a significant share of these R&D investments have been made in the South Bay. There is a clear public interest in transferring useable intellectual property produced by defense research to commercial applications. Many South Bay high technology firms have noteworthy opportunities to commercialize technologies they have developed, at the same time there are significant organizational and financial barriers that may prevent commercialization. The public sector needs to provide intelligent, attentive support for commercialization projects. The South Bay has significant opportunities for large-scale technology commercialization through space-based communication and information systems. This can and is occurring through purely commercial projects such as Hughes DirecTV as well as through use of defense-related space systems for commercial purposes. Areas in which there is overlap between defense-linked space and communications projects and commercial opportunities include global positioning and communications satellites, data and voice communications systems, and launch systems, including the expendable evolving launch vehicle and the space plane. A major initiative by AlliedSignal in Torrance to manufacture turbogenerators for ultra-low-emission, low-cost generation of electrical power at businesses, factories, and remote locations is now underway. Strengths of this project include knowledge of the market they are entering, a carefully developed product that offers advantages in cost savings and environmental benefits, and willingness to invest significant corporate resources to bring the product to market.

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Northrop Grumman has been the beneficiary of the largest publicly funded defense conversion project in Southern California, and quite possibly the United States. Since September 1992, it has received over $50 million in federal and local transportation funds to design and build six prototypes of the Advanced Technology Transit Bus at the company's South Bay facilities. The jury is still out on whether this bus will successfully emerge from its defense industry womb to become a commercial product that creates jobs and improves the lives of bus riders in this region and elsewhere. Barriers to technology commercialization vary from project to project but frequently include: reluctance to be distracted from core defense work; institutional memories of overconfidence and subsequent failure in past commercialization efforts; insularity from best practices in other industries; lack of familiarity with commercial markets; failure to recognize that marketing is as difficult, and requires as much creativity, as the technical side of commercialization; expectation of predictable return and continuous cash-flow (as provided by DoD), rather than willingness to make investments based on calculated risks and wait for large, but deferred, returns; lack of investment capital; fmancial structures that require too much early return; and high overhead within defense companies and reluctance to spin-off new entrepreneurial companies with lower overhead and greater flexibility.

Findings from Input-Output Modeling To investigate the importance of key South Bay industries in providing jobs and revenue for the region, an input-output model of Los Angeles County's economy was modified to represent the South Bay's industry structure. Using this model ofthe South Bay economy it is possible to identify the total employment, output and tax revenue effects that result from growth or decline in specific industries. The number of jobs created per million dollars of investment in the South Bay is highest in business services, hotels, retail trade, and consulting and research. The first three of these industries pay low average salaries. The number ofjobs created per million dollars of investment is lowest in petroleum products, utilities, real estate, and aerospace. All of these except real estate pay high average salaries. The industries generating the largest dollar volumes of indirect business taxes in the South Bay economy are real estate ($603.7 million), petroleum products ($474.5 million), retail trade ($456.4 million), air transportation ($356.8 million), and wholesale trade ($252.2 million). It should be noted that taxes paid by the real estate industry are part of the facilities cost paid by all industries occupying rented or leased space. Imports into the South Bay economy are largest in the petroleum products ($3.26 billion), aircraft, missiles, and space vehicles ($1.69 billion), scientific instruments ($1.34 billion), and air transportation ($1.19 billion) industries. In sum these four industries are responsible for about 54% of the region's imports.

Executive Summary

v

In terms of total dollar volume, the key export sectors for the South Bay were scientific instruments ($4.04 billion), aircraft, missiles and space vehicles ($3.30 billion), air transportation ($3.23 billion), petroleum products ($2.43 billion), and real estate ($1.08 billion). These five sectors accounted for about 57% of the region's total exports.

Proposed Anchor Industries Based on an analysis of the South Bay's industry structure and the employment and payroll characteristics of South Bay industries the following industries are recommended as anchor industries for targeted business attraction and retention programs : HIGH TECHNOLOGY Aerospace Computers, Electronics, Instruments High Technology Services Satellite Communications TRANSPORTATION AND TRADE Water Transportation Air Transportation Transportation Services Wholesale Trade (Durable Goods) ENTERTAINMENT AND MULTIMEDIA Motion Pictures Multimedia Each of the proposed anchor industries pays average to above-average wages and salaries, meeting criterion for job quality. Also, the anchor industries are highly concentrated in the South Bay (high technology and international trade) or the Los Angeles area (entertainment and multimedia). Recommended linked industries to be retained and attracted in conjunction with anchor industries are: Metals and Machinery industries including manufacturers of aluminum castings, airframe fasteners, aircraft forgings, and machine shops; and Financial Services industries including banking, credit agencies, and insurance carriers.

Real Estate and Site Re-Use Findings One key to the South Bay's future is to remain a high-value-added location where high productivity together with an appealing quality of life justify paying higher land and labor costs. One of the complaints most frequent heard from expanding and relocating

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companies about Los Angeles County concerns the lack of modem, master-planned office and industrial parks. The lack of a sufficient number of such facilities puts the South Bay at a competitive disadvantage with Orange County, the Inland Empire, and the west San Fernando Valley. Huge growth of the South Bay industrial and office inventory in the last 30 years, together with housing and retail, has left few significant undeveloped parcels. Most new office and industrial development is actually infill redevelopment of older sites. Infill development occurs in an environment that is rarely subject to master planning with strong site layout, landscaping, service facilities and similar amenities. Infill development can be attractive and successful, but only with strict planning guidelines. Large-scale master planning makes expansion easier for growing firms. Master planning can also be a vehicle for expanding the range of industries attracted to a property -development controls allow different types of operations to co-exist, and they also can attract firms to formerly less desirable locations. Property-specific master planning efforts will often be appropriate, preferably with cooperation of owners. In the absence of such action, developers will build the product that can obtain financing most easily, and cities may not control the process until it is too late for changes. The South Bay is one of the most depressed office markets in the region, suffering from heavy dependence on aerospace. With approximately 22 million square feet of rentable space, the South Bay office market comprises about 15 percent of the Los Angeles County inventory. There was been little new construction from 1992 to 1996 as vacancy remained above 20 percent and rents relatively low. However, as the economy has recovered, vacancy has edged downward, with the lowest vacancy rates found in EI Segundo and Torrance. The outlook for continuing absorption of most vacant space is strong, although some available space is poorly configured for smaller companies that now dominate the rental market. Further increases in rental rates are necessary to spark significant new construction. With approximately 165 million square feet of space, the South Bay industrial real estate market comprises approximately 21 percent of the Los Angeles County inventory. With little new construction and healthy demand, overall vacancy rates have declined from above 12 percent to below eight percent. Much of the current inventory is considered obsolete: it lacks the high ceilings, landscaped settings, truck docks and other features that users want. This factor and the low vacancy rates are already resulting in new construction. Positive trends in trade activity and construction of the Alameda Corridor also suggest a strong outlook for the industrial market. Impediments include a shortage of master-planned industrial park sites.

Executive Summary

vii

South Bay Competitive Assessment Overview Major employers see the South Bay is seen as a high-end business environment and a generally desirable place to do business. Strengths identified by employers include a large pool of skilled and experienced workers, universities that provide needed training, a good work ethic, a strong supplier base, large investments in industrial facilities, presence of the Air Force Base and Aerospace Corporation, transportation infrastructure, and attractive neighborhoods with a high level of public services. Weaknesses include lack of affordable housing, traffic congestion, long commutes from areas where housing is affordable, and perceptions that affordable communities have substandard schools as well as high crime rates, gang activity, and poor air quality.

International Trade The South Bay is at the center of the region's transportation logistics hub. Virtually every national retailer has a distribution center in the region. A key requirement of transportation logistics and a strength the South Bay is the capability to maintain and coordinate a high level of communication with each component of the goods movement network, including the manufacturer or wholesaler, legal and financial entities, ocean or air shippers, customs officials, truckers, warehouses, rail roads, and the buyer. All of these are in close physical proximity in the South Bay. The Los Angeles Region in general, and the South Bay even more so, have a shortage of banks with strong international capabilities. Active financiers who understand international trade are very important for completing and managing international transactions, which of necessity entail bridging at least two currencies and legal systems with instruments such as letters of credit and sales contracts.

Entertainment and Multimedia Historically, trade expands around crossroads -- in the case of the South Bay this might be where bandwidth offered by satellites joins content produced by the entertainment industry. The proposed Dreamworks Studios in Playa Vista and Manhattan Beach Studios will give the South Bay two important centers in the regional entertainment sector and could stimulate new start-ups. The South Bay commercial satellite industry as well as its nascent entertainment industry both stand to benefit from closer ties through which companies learn how to work together in ways that reduce each other's risk and increase each other's audience. Institutions for Private-Public Cooperation In interviews with community leaders and aerospace representatives a parallel insularity was noted: aerospace companies are not aware of the kinds and combinations of economic development tools that could be used to assist them, and a lack of outreach from local government was noted by nearly all large aerospace firms. It is important for the

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South Bay's future that city, county, state and federal policy makers build direct communication with their counterparts in high technology firms and respond credibly to mutually compatible goals with an eye toward building long-term trust. The South Bay Cities Council of Governments and South Bay Economic Development Partnership are promising forums for addressing subregional issues. The Council of Governments can be the South Bay's cornerstone institution for creating, sustaining and implementing a long-term strategic vision of how the region should manage adversities, uncertainties, and opportunities for recovering from defense cutbacks.

Infrastructure The South Bay is highly reliant on surface streets for traffic movement, and there is significant congestion on some key arteries, which should be the major focus of transportation system improvement strategies. The South Bay does not have a welldeveloped infrastructure for broad-band information transfer and communications. For computer users, absence of broad-band capabilities means long intervals spent waiting while information is up-loaded or down-loaded at relatively slow rates of speed now permitted by copper telephone wires. Workforce

The South Bay provides the place of work for approximately 37% of the county's aerospace workforce. Restructuring and shrinkage of the aerospace industry during this decade has had its most severe impacts on production workers because procurement of manufactured defense products has declined much more rapidly than research and development activities. Occupations such as assemblers, machine operators, and mechanics have declined by a significantly larger percent than managers, engineers and computer scientists. The bad news, however, is that those managers, engineers and scientists who were laid-off had much more difficulty finding new jobs in their fields than production workers.

ACTION PLAN Ten areas of action are recommended for implementing the South Bay Economic Adjustment Strategy: 1. Establish a forum of policy-level local, state, congressional and corporate officials that meets monthly or quarterly and works together to build private-public consensus and act on common interests. 2. Promote growth of anchor industries by: creating university internships in international trade; assembling highly competitive export packages that include both manufactured products and services; strengthening international banking services; developing training programs for demand occupations in multimedia industries; and providing business

Executive Summary

ix

outreach services to link multimedia companies with available business assistance and economic development programs. 3. Expand the South Bay subcontractor base by promoting participation of small and medium size firms in the California Manufacturing Technology Center's aerospace supplier technical assistance program; promote contact between different tiers of aerospace contractors; encourage more South Bay businesses to participate in the Small Business Innovation Research program; and utilize information and contacts available through South Bay technical trade associations. 4. Address infrastructure needs through a fmancial, technical and organizational strategy for building broad-band communication infrastructure to serve the South Bay, and city coordination to prioritize street improvement needs, share information about improvement plans, and advocate jointly for funding to meet highest priorities. 5. Support high-end re-use of available sites by adopting narrowly-targeted tax incentives for high-benefit industries; expedite new development by adopting mechanisms to avoid individual project-level mitigation negotiations wherever possible; search for major sites that can be master planned for office and industrial projects; create a task force of city planners and local developers to examine obstacles to successful re-use of key sites; and use local funds and additional grants for site-specific master planning for sites that have regional significance. 6. Support worker retraining by making it possible to access information on 2,000 training programs, costs and placement outcomes for each program through the internet. 7. Improve educational opportunities for children of Air Force families through support and assistance from South Bay school districts and/or support for a charter school that provides high quality education for children in the San Pedro area. 8. Create reliable South Bay data sources by training city staff who oversee collection of business license data in proper industry classification procedures, and use this information together with other data sources to monitor implementation of this strategy and identify new opportunities for economic development. 9. Initiate marketing and outreach efforts to strengthen ties with aerospace prime contractors headquartered in other regions, bring space communications systems and motion picture production companies together, bring second and third tier contractors together, and promote participation of South Bay firms in export training programs. 10. Promote growth in high technology industries by opening access to aerospace patents; recruiting and screening entrepreneurs to commercialize promising technologies; provide technical assistance and financing for start-up companies; and facilitating site expansion, development and worker training by existing high technology companies.

Chapter 1

Introduction

Purpose The South Bay Economic Adjustment Strategy has been prepared as an information and teaching tool to assist elected officials, public sector staff, business leaders, and other stakeholders in undertaking coordinated, effective programs to recover jobs lost because of defense cutbacks. The strategy has been prepared under a grant from the Office of Economic Adjustment in the Department of Defense that was administered by the Los Angeles County Community Development Commission. The South Bay Association of Chambers of Commerce and South Bay Cities Council of Governments have participated continuously in this project, providing information, access to knowledgeable individuals in business and government, and critiques of project data and strategy recommendations. This planning grant was awarded because during the first half of this decade, Los Angeles County weathered its worst economic slump since the 1930's, and is still host to fewer jobs than it had in 1990. The cessation of the Cold War triggered a withering restructuring of aerospace and related industries across the region. Los Angeles County lost 123,700 (over half) of its defense-oriented jobs between 1988 and 1996. The dramatic decline in defense dollars and jobs triggered one of the most abrupt economic reversals ever visited upon a major American metropolitan area. These impacts have been felt acutely in the South Bay, which has the highest concentration of aerospace and high technology employment in the county. The most salient fact about the South Bay employment structure is the importance of high technology manufacturing and services. Yet despite ongoing decline in defense procurement, the South Bay remains the heart of Los Angeles County's aerospace, defense and high technology industrial complex, and one of the nation's most significant high technology and defense production centers. In particular, the South Bay is a premier aerospace, communications, and electronics complex. The area hosts a huge port complex and international airport with more exports and imports moving through the Los Angeles customs district than any other in the nation. The South Bay is ripe for revitalization. It has sites available for redevelopment, and is well-positioned in a number of emerging industries including entertainment, international trade and space systems, all benefiting from aerospace and related high technology expertise.

2

South Bay Economic Adjustment Strategy

Intended Uses This report provides a body of analysis and strategy recommendations for supporting existing and emerging industries with innovative partnerships between the private and public sectors and carefully targeted public sector investments. The South Bay economy has been seriously damaged by defense cutbacks and in the absence of effective economic development strategies the risk is real that a critical mass of high technology talent will exit the region and opportunities for growth and diversity in the economy will be lost. There is a compelling need to build public sector competence to assess public economic benefits that will accrue from providing different types of support to different industries, and to work effectively with businesses to maximize those benefits. This capability needs to be developed from the ground up, beginning with understanding the local industrial base, its competitive strengths, possible connections with new markets, the types of support needed by different industries, and proceeding to examine whether the public balance sheet will benefit in terms ofjobs and revenue if this support is provided. There is a corresponding need for businesses to see their own priorities in the context of interests shared by broader industry groups as well as to understand where those priorities correspond with public sector needs. All entities with a long-term stake in the South Bay, whether public or private, share an interest in understanding economic conditions and opportunities for growth, building trust and skills for cooperation between the private and public sectors, and using limited public resources to best advantage in supporting economic growth. Toward this end, we hope this report will support a fresh and lasting dialogue between concerned, competent and reasonable public sector officials and their counterparts in the private sector. Intended uses of this report include: • • • • •

Documenting existing conditions Providing data for follow-up grant applications Supporting subregional dialogue between policy makers and the business community Providing the foundation for a subregional economic development strategy Providing the foundation for developing improved information about subregional economic conditions

Cities and Communities Included in South Bay Defense Adjustment Analysis The geographic scope of the South Bay, as defined for this analysis, is shown by Map 1. It includes the following cities and communities:

Map 1

South Bay Study Area

1•

N

/\I

o

Site Locations Congested Roadways Primary Streets City Boundaries

4

South Bay Economic Adjustment Strategy

Cities: Carson E1Segundo Gardena Hawthorne Hermosa Beach Inglewood Lawndale Lomita

Manhattan Beach Palos Verdes Estates Rancho Palos Verdes Redondo Beach Rolling Hills Estates Rolling Hills Torrance

City of Los Angeles communities: Harbor Gateway WestchesterlPlaya del Rey

San Pedro Wilmington/Harbor City

County of Los Angeles unincorporated communities: Alondra Park West Carson

Lennox

Overview ofReport Decline in defense spending, areas of remaining defense strength, and impacts of a reduced defense market on South Bay employment and payroll are discussed in the next chapter. Industry employment changes between 1983 and 1996 are discussed in Chapter 3, providing a regional context for changes in the South Bay economy, with particular attention to job loss in aerospace and durable manufacturing industries and employment growth in business services and motion pictures. A detailed analysis of South Bay industries follows, using data on industry employment, employment concentration, and industry payrolls. An input-output study of the South Bay economy is provided in Chapter 4. This analysis looks at production linkages among South Bay industries and shows the direct, indirect, and induced employment and output generated by growth in key industries. Information from Chapters 2 through 4 about employment concentration, employment change, payroll levels, and industry multipliers is integrated in Chapter 5 to identify anchor industries for South Bay economic development initiatives. Estimates of employ-

Introduction

5

ment changes in South Bay industries from 1992 to 1996 are presented and information on employment concentrations and functional specialization of industries in each South Bay community is shown. This chapter concludes by identifying key economic development issues for anchor industries. A study of development opportunities and constraints at ten major South Bay sites is presented in Chapter 6, with an analysis of market opportunities, an assessment of needs for city involvement in influencing development at each site, and specific strategy recommendations for achieving the best possible land uses. This chapter concludes with a discussion of real estate market trends in the South Bay.

An overview of the South Bay's competitive standing is presented in Chapter 7, examining key issues in the business environment, growth prospects for target industry groups, institutions for private-public cooperation, technology transfer, infrastructure, work force, educational resources, and strategic information. Specific action steps and a recommended organizational structure for implementing the South Bay Economic Adjustment Strategy are presented in Chapter 8. The Appendix is a companion volume to this report and provides additional detailed information related to many of the analyses carried out for this study.

6

South Bay Economic Adjustment Strategy

Chapter 2

Defense Analysis 2.1

Introduction

In this part ofthe South Bay Defense Adjustment Strategy, we analyze the decline of defense spending and its impact on the South Bay economy. First, trends in defense spending in the South Bay are examined and future prospects of the defense industry are assessed. This is followed by an assessment of the impact of aerospace job losses on employment, payroll, and taxes in the South Bay. A discussion of the Department of Defense database used for this analysis and caveats regarding conclusions that can be drawn from published data on defense contracts is provided in the "Methodological Note" in the Appendix.

2.2

A Retrospective and Prospective Look at Department of Defense Spending in the South Bay

2.2.a Statistical Data During much of the Cold War, Southern California was the headquarters of many of the nation's leading defense firms, including Northrop, Douglas, Lockheed, Hughes, TRW, Rockwell, and Litton, among others. Other strong firms such as General Dynamics and Ford Aerospace also had a substantial presence in the area. Most of these firms have now merged or left the area, reflecting the general decline of aerospace and defense business in this region. The national market for major aerospace products such as military aircraft and missiles has declined sharply during the last decade, as shown in Figure 1. Only space and civil aircraft sales have not fallen substantially since 1987. Over the past decade Los Angeles County firms have received between about 7.5 and 10 percent of all Department of Defense (DoD) outlays. Interestingly, the county began and ended the period at about 9 percent. In 1987 the South Bay led the rest of Los Angeles County in defense contract awards; it received $4.05 billion, or 31.5 percent, of the county total. South Bay receipts from defense prime contracts bottomed out in 1994 with less than 15 percent of the Los Angeles County total. However, in 1995 and 1996 the South Bay rebounded to capture 27 and 21 percent, respectively, as shown in Figure 2. The South Bay has been hit extraordinarily hard by defense budget cutbacks resulting from the end of the Cold War and historical changes in the balance of global power. Although these changes have caused extreme economic dislocal tions, the future forecast for the South Bay is

Figure 1

u.s. AEROSPACE INDUSTRY SALES 1981-1995 (billions of 1987 dollars)

50.0 - . . - - - - - - - - - - - - - - - - - - - - - - - - - - , -+-Military Aircraft -Space --~-'-CivilAircraft

45.0

-

Electronics $ Systems

-Missiles

40.0

35.0 .-

~

30.0

------1-

.2

:0 ......

~

25.0

T""

~ '-" rJ)

Q)

m Cf)

20.0

15.0

10.0

5.0

-

/

~-~-

-

-" .....

_~ ...........

- - -...._ - - - - - - - - - _ .

0.0 1981 1982 19831984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Source: Aerospace Industries Association of America, "Aerospace Facts and Figures 1996-97"

Figure 2

DoD PRIME CONTRACT AWARDS IN LA COUNTY AND SOUTH BAY 1987-1996

14.0 ~--------------------.....,

12.0

-J--------------=~-~---

- - - - - - - - - - - - - _ . _.... -

10.0

en c::

8.0

.Q

~LACounty

:c

~South

CO

(J) (J)

;A.

.---:O::;~:----\-------------

Bay

6.0

4.0

_

2.0

0.0 -'-1987

....J

1988

1989

1990

1991

1992

Source: US Department of Defense, Directorate for Information

1993

1994

1995

1996

10

South Bay Economic Adjustment Strategy

guardedly optimistic, based upon the emergence of civil aviation from the 1990 recession and other reasons explained below. DoD spending for systems acquisition has declined 43 percent in real dollar terms during the past ten years. But research and development spending increased as a portion of the total from about 29 percent to 42 percent, as shown in Figure 3. Furthermore, "Other Procurement," which includes communications and electronics, has increased from less than one-quarter to more than one-third of procurement spending. Research and development, communications, and electronics are areas where the South Bay is particularly strong. These spending trends are not likely to change significantly in the foreseeable future. The number of South Bay firms receiving DoD contract awards has declined from over 300 to about 250, as shown in Figure 4. But a very few firms have reaped the lion's share of defense contracts. During the last decade TRW, Aerospace Corporation, and Hughes Electronics received over two-thirds of DoD prime contract awards made to firms within the South Bay, as shown in Figure 5. This concentration of funding is also reflected in the geographical distribution of DoD funding within the South Bay. El Segundo, Redondo Beach, Hawthorne, and Torrance firms received 90 percent of DoD funds awarded in the South Bay during the past decade, as shown in Figure 6. Although subcontractor-specific data are not available, it is probable that the decline of subcontracts in the South Bay mirrors the decline in the number of firms receiving DoD contracts. Subcontractors supplying subsystems and components during the production phase are often awarded prime contracts to provide spare parts during the operational phase of a weapon system. Thus, although the full value of South Bay business originating from DoD contract awards is not reflected by the available data, it is likely that most of the local firms doing defense business are identified. Assuming that to be the case, it is clear that the number of firms doing defense business has declined in the South Bay.

2.2.b A Historical Perspective The incentive structure for the defense market has evolved since World War II. This evolution can be divided into three phases, the third of which is only now beginning to crystallize. During each phase, rewards for defense companies have been based upon very different criteria. These changes have led to geographic winners and losers and have caused formerly successful companies to find themselves struggling for survival. The first phase began with the advent of the Cold War and the threat posed by the Soviet Union as an enemy with quantitative superiority and a growing technical capability. This caused DoD to acquire weapon systems that often had revolutionary capabilities compared with their predecessors. The idea was to deter an enemy with superior numbers by confronting it with advanced technical capabilities. To achieve this level of performance growth, successful defense firms assembled impressive scientific and engineering

Figure 3

000 R&D vs. PROCUREMENT OUTLAYS United States 1987-1996

120.0

-r------------------------, ...... Procurement

-"R&D 100.0

+-----'~

80.0 .

60.0

40.0

20.0

O.O..loooo-------.....,...-----------.....,...-.--J 1987

1988

1989

1990

1991

Source: US Department of Defense, Directorate for Information

1992

1993

1994

1995

1996

Figure 4

NUMBER OF FIRMS RECEIVING 000 CONTRACTS

LA County and South Bay, 1987-1996

- r - - - - - - - - - - - - - - - - - - -......

1,800

1,600

..... LA County --- South Bay 1,400

1,200

1,000

800

----

----~-

600

400

200

~--~

--~

-- - - -

0~-...,.._-------------

1987

1988

1989

1990

1991

1992

Source: US Department of Defense, Directorate for Information

1993

1994

_1

1995

1996

Figure 5

000 CONTRACTS TO SOUTH BAY FIRMS 1987-1996 4.5 • All Other Firms [J Rockwell

4.0

Intl Corp

i!J Allied Signal Inc

3.5

8 Atlantic Richfield Co B Chevron USA Inc

([!J

Northrop Grumman Corp

[J Aerospace Corporation

en 2.5 c:: .2 :0 - 01 m a..

Transportation Services

1 .0



Apparel and Textiles



Lumber and Wood

0.6

0.4

0.2

Low

Employment Concentration

High

Source: Derived from California Employment Development Department, 1992 Industrial and Commercial Employer (ICE) data

Figure 39

SOUTH BAY RETAIL, FINANCIAL, AND SERVICE INDUSTRIES Employment Concentration and Payroll High

"\

~ecurity and Commodity

rokers 1.8

1.6 •

.4

Investment

Legal services.

Insuran~



Nondeppsitory Institutions

1.2 Health

>< Q)

High Technology Services



Auto Dealers and Service Stations

Eng. And Mgmt. Services • •

"'0

c:

Amusement and Recreation... 1.otMiSC. Repair

. 0

10 00

Banks. Real



Motion Pictures

Estat~ 0.8 ~ •

• Auto Services Furniture Stores

Misc. Ret~~ Food Stores Personal servi# Business service"'l Apparel Stores 0.4

.Building Materials and Garden Supplies nera~erchandiseStores

Hotels and Other Lodging



Eating and Drinking Places

0.2

1'\

Low

Employment Concentration

Source: Derived from California Employment Development Department, (ICE) data

1992

High

Industrial and Commercial Employer

100

South Bay Economic Adjustment Strategy

furniture, lumber and wood, and stone, clay, and glass products. The South Bay economy is specialized in higher-wage manufacturing, trade and transportation industries rather than these lower-wage industries. A different picture with respect to the retail, financial, and service industries is shown in Figure 39. Of the 25 industries shown, only high technology services stands out as combining a high payroll with high employment concentration in the South Bay. The South Bay has a low concentration of higher wage industries in this group, including finance and insurance industries, legal services, and health services. On the other hand, the region has above average concentrations of employment in low wage industries such as eating and drinking places, hotels, building material and garden supply stores, and automobile services. One industry that combines low wages and a very low employment concentration in the South Bay is motion pictures. Although this is a high wage industry in Los Angeles County (average annual payroll = $54,200), in the South Bay workers in this industry earned only $20,200. This is because most South Bay employment in this industry is found in movie theaters and video stores, rather than motion picture production and support companies. Given the dramatic growth of the Los Angeles motion picture industry in recent years, the South Bay may experience growth in motion picture production.

5.2./ Employment Trends Recent employment change is an important factor to consider in targeting industries for economic development. Industries with declining employment are only considered for the final list of anchor industries if (1) they have a high employment concentration in the South Bay, indicating regional specialization, and (2) they pay average to above average wages and salaries. Also, it is important to recognize industries that are growing rapidly in the broader Los Angeles regional economy, but are not well represented in the South Bay economy. Firms in these industries may be candidates for attraction to the South Bay if appropriate production, labor, and infrastructure conditions are met. Employment change between 1992 and 1996 in major industry groups in Los Angeles County is shown in Figures 40 and 41. Most recent employment growth in Los Angeles County has occurred in two industry groups: business services and motion pictures. These industry groups added 112,000 jobs between 1992 and 1996. The 47,500 workers added in the motion pictures industry represented a 53 percent employment increase between 1992 and 1996, while the 64,500 workers added in the business services represented a 28 percent employment increase.

Figure 40

JOB CHANGE IN LA COUNTY INDUSTRIES Number of Jobs Gained or Lost, 1992-1996

Business S rvices • • • • • • • • • • • • Motion Pictures •

Eating and Drinking Places Automotive Oealers and Service

' •

• Transportation Services

I Water Transportation I

Food Stores

I

Miscellaneous Retail

I Personal Services Hotels and Other Lodging Places Wholesale· Nondurables I

I Motor Vehicles I

Amusement and Recreation Services

Health Services. ALL INDUSTRIES. Wholesale - Durables • Real Estate. Metals. Engineering and Management Services Computers, Electronics, _ lnstrurnents Trucking and Warehousing _ Printing and Publishing _ Insurance • • • • Depository Institutions • • • • •

J

Aeros~a~ce~~~~~~~~~~~~~~ -60,000

-40,000

-20,000

o

20,000

40,000

60,000

Source: California Employment Development Department, Labor Market Information Division

80,000

Figure 41 JOB CHANGE IN LA COUNTY INDUSTRIES Percent Change, 1992-96

1------------.iiiiiiii.iiiiiiiiiiiiiiiiiiiiiiii.iiiiiiiiiiiii.iiiiiiiii.IiM~o~t~io Pictures • • • • • • • • • • Business Services • • • • Water Transportation _

Automotive Dealers and Service



Transportation Services



Eating and Drinking Places

• Personal Services • Food Stores

I

Miscellaneous Retail

Hotels and Other Lodging Places Wholesale - Nondurables ALL INDUSTRIES Amusement and Recreation Services I Health Services I Wholesale· Durables • Motor Vehicles _ Engineering and Management Services Metals_ Real Estate • • • Trucking and Warehousing • • • • • Printing and PUblishing • • • • • Computers, Electronics, • • • • • Instruments, D pository Institutions • • • • • • •

Insurance • • • • • • • •

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Source: California Employment Development Department, Labor Market Information Division

50%

60%

Table 13

SOUTH BAY Estimated 1996 Employment by Industry Estimated Percent Change

Industry

SIC 25 27 28 29 30 34 357 365 366 367 371 372 376 381 42 44 45 47 48 50 51 52-59 60-67 70-72 73 737 78 80 87

Furniture and Fixtures Printing and Publishing Chemicals Petroleum Products Rubber and Plastics Fabricated Metal Products Industrial Machinery* Computer and Office Equipment Electrical Equipment** Household Audio & Video Equip. Communications Equipment Electronic Components & Access. Motor Vehicles and Equipment Aircraft and Parts Guided Missiles & Space Vehicles Search and Navigation Equipment Trucking and Warehousing Water Transportation Air Transportation Transportation Services Communications Wholesale Trade -- Durables Wholesale Trade -- Nondurables Retail Trade Finance, Insurance, Real Estate Hotels and Personal Services Business Services Computer & Data Processing Servo Motion Pictures Health Services Engineering & Management Servo

Estimated

1996 Employment 1992 Employment Concentration 1992-1996 Employment 2,483 6,207 3,764 4,048 2,843 6,944 5,123 5,011 3,977 908 1,243 5,332 923 21,666 2,915 33,900 5,840 5,745 38,304 7,497 4,899 21,954 8,738 77,547 17,222 10,490 28,917 5,236 1,208 29,636 12,970

0.78 0.86 1.28 3.59 0.82 1.08 1.05 3.57 1.21 1.16 2.85 2.11 0.51 1.58 1.90 5.63 0.96 5.10 6.47 2.78 0.90 1.22 0.56 1.03 0.53 1.10 0.85 1.43 0.13 0.75 1.00

0% -14% 16% -23% -5% -10% -4% -11% -6% 6% 40% -5% -4% -35% -56% -31% -13% 13% 26% 11% -5% -3% 0% 0% -15% 1% 28% 20% 53% -1% 6%

*SIC 35 except SIC 357 **SIC 36 except SIC 366 and SIC 367

Suorce: Derived from California Employment Department, Labor Market Information Division

2,500 5,300 4,400 3,100 2,700 6,200 4,900 4,500 3,800 1,000 1,700 5,100 900 14,100 1,300 23,400 5,100 6,500 48,300 8,300 4,700 21,300 8,700 77,500 14,600 10,600 37,000 6,300 1,800 29,300 13,700

Figure 42

ESTIMATED EMPLOYMENT CHANGE

South Bay Manufacturing Industries, 1992-96

















Communica ons Equipme t

Chemicals



Household Audio and Video Equipment

Furniture and Fixtures. Industrial Machinery • Motor Vehicles and. Equipment Rubber and Plastics • Electronic components. and Accessories Electrical Equipment. Aircraft and Parts _ Fabricated Metal Products _ Computer and Office _ Equipment Printing and Publishing • • • Petroleum Products Search and Navigation • • • • • • • Equipment Guided issiles, Space • • • • • • • • • • • Vehic s, and Parts

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Percent Change 1992-96

Source: Derived from California Employment Development Department, Labor Market Information Division

Figure 43

ESTIMATED EMPLOYMENT South Bay Manufacturing Industries, 1996 Search and Navigation Equipment

23,3 1

Aircraft and Parts

Fabricated Metal Products

Printing and Publishing Electronic Components and Accessories Industrial Machinery Computer and Office Equipment Chemicals

Electrical Equipment Guided Missiles, Space Vehicles, and Parts Petroleum Products

Rubber and Plastics

Furniture and Fixtures

Communications Equipment Household Audio and Video Equipment Motor Vehicles and Equipment

Source: Derived from California Employment Development Department, Labor Market Information Division

Figure 44 ESTIMATED EMPLOYMENT South Bay Transportation, Trade, Finance, and Service Industries, 1996

Retail Trade

77,547

Air Transportation

Business Services

Health Services Wholesale Trade Durables Finance, Insurance, Real Estate Engineering and Management Services Hotels and Personal Services Wholesale Trade -Nondurables Transportation Services

Water Transportation Computer and Data Processing Services Trucking and Warehousing Communications

Motion Pictures

Source: Derived from California Employment Development Department, Labor Market Information Division

Figure 45

ESTIMATED EMPLOYMENT CHANGE South Bay Transportation, Trade, Finance,

and Service Industries, 1992-96

Motion

ictures

Business Ser\iices

Air Transportation Computer and Data Processing Services _

Water Transportation

_

Transportation Services

Engineering and . . Management Services

I

Hotels and Personal , Services

Wholesale Trade -Nondurables Retail Trade

Health Services

I

Wholesale Trade -- • Durables Communications.

Trucking and Ware ousing _ I

:

-10%

0%

Finance, Insurance, Real Estate

-20%

10%

20%

30%

40%

50%

60%

Percent Change 1992-96

Source: Derived from California Employment Development Department, Labor Market Information Division

108

South Bay Economic Adjustment Strategy

Most job loss between 1992 and 1996 occurred in the aerospace, banking, and insurance industries. Together these industries eliminated 88,200 jobs over the four-year

period. Employment in the aerospace industries declined by 54,000 jobs, a 35 percent decline between 1992 and 1996. Mergers and restructuring in the banking and insurance industries resulted in the loss of 18,300 and 15,900 jobs respectively in Los Angeles County. These losses represented a 21 percent employment decline in the banking industry, and a 22 percent employment decline in the insurance industry. Estimated percent change in South Bay employment between 1992 and 1996 is shown in Table 13, as well as estimated 1996 employment in South Bay industries (which is also shown in Figure 42). Only three manufacturing industries registered employment growth: communications equipment (SIC 366), chemicals (SIC 28), and household audio and video equipment. South Bay manufacturing industries are ranked by estimated 1996 employment in Figure 43. The search and navigation industry employed 23,400 workers, followed by the aircraft and parts industry with 19,900 workers. Despite significant job loss in aerospace, these industries remain the major manufacturing employers in the South Bay. Other leading employers include fabricated metal products (6,300 workers), printing and publishing (5,300 workers), electronic components (5,100 workers), and industrial machinery (4,900 workers). Estimated employment change between 1992 and 1996, and estimated 1996 employment in South Bay transportation, trade, finance, and service industries is shown in Figures 44 and 45. The fastest growing industries include motion pictures, business services, air transportation, computer and data processing services, water transportation, transportation services, and engineering and management services. Thus the most robust sectors of the South Bay economy, based on recent job growth, are international trade, high technology services, and entertainment.

5.3

South Bay Anchor Industries

Each of the proposed anchor industries pays average to above average wages and salaries, meeting criterion for job quality. Also, the anchor industries are highly concentrated in the South Bay (high technology and international trade) or Los Angeles County (entertainment and electronic media). Based on our analysis of the South Bay's industry structure and the employment and payroll characteristics of South Bay industries, we recommend that the ten anchor industries be targeted business attraction and retention programs. Strengths of these ten industries are summarized in Table 14. Employment change and employment concentration in the anchor industries is plotted in Figure 46. Industries in the upper right quadrant combine a high employment

South Bay Anchor Industries

109

concentration in the South Bay with significant job growth in recent years. This group includes air transportation, water transportation, transportation services, and high technology services. Industries in the upper left quadrant are highly concentrated in the South, but have experienced job loss in recent years. This includes the defense-linked aerospace and computers, electronics, and instruments industries. The one industry in the lower right quadrant, motion pictures, is a fast-growing industries with a limited presence in the South Bay. The different employment characteristics of the anchor industries suggest that different strategies may be required to promote industry growth in each sector. The restructuring aerospace industries should be assisted in efforts to enter new (commercial) markets, and to build on core strengths, such as research and development and satellite communication systems. The international trade sector, based on the transportation industries, will see continued growth into the next century. This suggests that the South Bay should pursue policies to link the expansion of international trade with local economic development, and to manage the negative externalities of growth (such as the noise and pollution created by flights into and out of LAX). Lastly, the South Bay should work to attract firms in the motion picture and multimedia industries, the fastest growing sector in the Los Angeles economy. The remainder of this chapter discusses the following factors for each anchor industry sector: • •

Employment and payroll characteristics Regional concentration

Chapter 7 discusses growth issues and prospects in the anchor industry sectors. Specific recommendations for action steps are presented in Chapter 8.

5.3.a High Technology Despite the ongoing restructuring of the regional aerospace industry, the South Bay remains a national center of the aerospace industry. As discussed in Chapter 2, the South Bay retains important concentrations in research and development and the production and maintenance of satellites. Average earnings in the high technology industries are relatively high, and the South Bay should work to maintain and increase its employment and production base in this core sector of its economy. The following anchor industries are included in the high technology sector: 1.

Aerospace Aircraft and parts (SIC 372) Spacecraft and parts (part SIC 376)

X

X

X

X

high salaries, high employment concentration, high employment multiplier high salaries, high employment concentration, high employment multiplier high salaries, high employment concentration, high employment multiplier, growing industry high salaries, high employment concentration, high employment multiplier, growing industry

Aerospace aircraft (372) space vehicles (376) search & navigation equip. (381)

Instruments (38 except 381)

Water Transportation (44)

Air Transportation (45)

·· ·

·· ··

X

high salaries, high employment concentration, high employment multiplier

high

Electronic Equipment computers (357) electrical equip. (36 ex. 366,367) communications eq. (366) electronics (367)

medium

Strengths

Industry

Average Payroll low

medium

X

X

X

X

X

high

Employment Concentration declining

X

X

X

X

space

X

X

growing

aircraft

stable

Growth Trajectory in 1997 low

Table 14 PROPOSED ANCHOR INDUSTRIES FOR SOUTH BAY STRATEGY (linked industries that are part of industry networks are identified seperately)

medium

Employment Multiplier

X

X

X

X

X

high

Important Emerging Industry

high employment concentration, high employment multiplier, growing industry high salaries, emerging industry high salaries, high employment concentration high salaries, high employment concentration, growing industry growing industry, high employment multiplier high salaries, growing industry

Communications (48) • cable and other pay television services (484)

Wholesale-Durable Goods (50)

Business Services (73) • computer programming and data processing (737)

Motion Pictures (78) • motion picture production (781)

Engineering and Management Services (87) • research and testing services (873)

Strengths

Transportation Services (47) • freight transportation arrangement (473)

Industry

X

medium

X

X

X

X

high

Average Payroll

X

low

X

X

medium

X

X

X

high

Employment Concentration

"I

declining

X

stable

X

X

X

?

X

growing

Growth Trajectory in 1997

X

low

X

X

X

medium

Employment Multiplier

X

X

high

X

X

Important Emerging Industry

Figure 46

SOUTH BAY ANCHOR INDUSTRIES

Employment Change and Concentration

High



Air Transportation

• water Transportation



Aerospace

c:

o

+::



~

Computers, Electronics, Instrument

~ c: o

Fabricated Metal Products• • ••

c:

o

c: Q)

0

-40

-20·Jf



Transportation Services



High Technology Services

Wholesale Trade (Durable Goods)

20

40

Industrial Machinery

E ~ c. E w

Motion Pictures

Low

Declining

Employment Change (%)



Growing

Source: Derived from California Employment Development Department, Labor Market Information Division

South Bay Anchor Industries

113

Search and navigation equipment (SIC 381) Satellites and ground support systems (part SIC 381, 366, 48) 2.

Computers, Electronics, and Instruments Computers and office equipment (SIC 357) Communications equipment (SIC 366) Electronic components (SIC 367) Measuring and controlling devices (SIC 382) Medical instruments (SIC 384)

3.

High Technology Services Computer and data processing services (SIC 737) Research and testing services (SIC 873)

Employment and Payroll Employment concentration and annual payroll per worker for the South Bay high technology anchor industries are plotted in Figure 47. On the payroll index axis, 1.00 equals the average annual payroll per worker of $29,800 in Los Angeles County in 1992. Of the ten 3-digit SIC high technology industries shown in Figure 46, seven pay wages and salaries that are well above average annual earnings for all workers in Los Angeles County. Each of these high-wage industries is strongly represented in the South Bay, based on employment concentration. Only the measuring and controlling devices and medical instruments industries are underrepresented in the region. Three high technology industries gained employment over the 1992-1996 period: computer and data processing services, engineering and management services (which includes research and testing services), and communications equipment. We estimate that close to 1,100 jobs were added in computer and data processing services. On the other hand, the search and navigation equipment industry lost an estimated 10,500 jobs in the South Bay, the aircraft and parts industry lost 7,600 jobs, and the missiles, spacecraft, and parts industry lost 1,600 jobs. Despite this job loss, the South Bay retains a strong presence in high technology. The regional high technology sector is becoming more specialized in high technology services, communications, and satellites, which has helped to compensate for jobs lost in the aerospace industry.

Regional Concentration ofHigh Technology Employment Figures 48 and 49 show major locations of high technology employment in the South Bay, and communities that have high employment concentrations in the high

Figure 47

SOUTH BAY HIGH TECHNOLOGY INDUSTRIES Employment Concentration and Payroll High

......

" ''''

Computers .....

1.80 Missiles and Space Vehicles

160

Aircraft an Parts • • Data Processing and Computer Se rvices

Search an Navigation Equipmen

~esearch and Testing . ~ommunications Equipme

1.40

•..



1.20

>< Q)

Measuring and Controlling Devices

"0

£

e>C1l

0. 0

Medical Instruments



1. 0

Electronic Components

10 00

a. 0.80

0.60

0.40

0.20

~ ~~

Low

Employment Concentration

High

Source: Derived from California Employment Development Department, Labor Market Information Division

South Bay Anchor Industries

115

Figure 48 MAJOR CONCENTRATIONS OF HIGH TECHNOLOGY

ANCHOR INDUSTRY EMPLOYMENT IN THE SOUTH BAY (shading represents at least 500 workers)

City or Community

SIC

372

Aerospace SIC SIC

376

381

Computers, Electronics, Instruments SIC SIC SIC SIC SIC

High Technology Services SIC SIC

357

737

366

367

382

384

873

Carson EISegundo Gardena Hawthorne Manhattan Beach Redondo Beach Torrance West Carson Westchester

Figure 49 FUNCTIONAL SPECIALIZATION OF SOUTH BAY CITIES AND COMMUNITIES IN HIGH TECHNOLOGY ANCHOR INDUSTRIES (shading represents location quotient >= 1.30)

City or Community

Carson EISegundo Gardena Harbor Gateway Hawthorne Inglewood Manhattan Beach Redondo Beach Torrance West Carson Westchester

Computers, Electronics, Instruments SIC SIC SIC SIC SIC

High Technology Services SIC SIC

357

737

366

367

382

384

873

Map 2

South Bay Aerospace Companies Number of Employees • < 10 - I l'LUA DKL 11ft

7

r----i"-tt-.......rr::=~~--n

• • • • t •

N

/'\L D

0 _

~

1

1

2I Miles

10 - 50 50 -100 100- 500 >500

Site Locations Congested Roadways Primary Streets City Boundaries

Map 3

South Bay Computer, Electronic

and Instrument Companies Number of Employees • < 10

• • • • 1•

N

IV

.L...-o

1

i""""R_0

2 Miles !

10 - 50 50 -100 100-500 >500

Site Locations Congested Roadways Primary Streets City Boundaries --l

Map4

South Bay High Technology Service Companies Number of Employees

• < 10 • 10 - 50 .50-100 • 100-500 • >500

1•

N

1\1

o

1

0

e-w-

1

2 Miles !

Site Locations Congested Roadways Primary Streets City Boundaries

South Bay Anchor Industries

119

technology industries. Maps 2, 3, and 4 show the location of South Bay establishments in the three high technology anchor industry groups.

5.3.b International Trade The international trade sector includes the transportation and wholesale trade industries. Recent growth in the transportation industries in particular is related to the expansion of the Pacific Rim economies, and increased trade through the San Pedro ports and the international airport (LAX) (see the discussion in Chapter 8 on growth issues and prospects in the international trade sector). The international trade sector includes the following anchor industries: 1.

Water Transportation Deep Sea Freight Transportation (SIC 441) Water Transportation Services (SIC 449)

2.

Air Transportation Scheduled Airlines (SIC 451) Airports, Flying Fields, and Services (SIC 45x)

3.

Transportation Services Freight Transportation Arrangement (SIC 472) Passenger Transportation Arrangement (SIC 478)

4.

Wholesale Trade - Durable Goods Motor Vehicles and Parts (SIC 501) Professional and Commercial Equipment (SIC 504) Electrical Goods (SIC 506)

Employment and Payroll Employment concentration and annual payroll per worker for the South Bay transportation and trade industries are plotted in Figure 50. Most transportation and trade industries are located in the upper-right quadrant, indicating high-wage industries that are strongly concentrated in the South Bay. Of the 11 industries shown, only two pay belowaverage wages and salaries (passenger transportation arrangement and airports, flying fields, and services). We estimate that between 1992 and 1996, 10,000 jobs were added in the air transportation industry, 800 jobs were added in transportation services, and 800 jobs were added in water transportation. Approximately 700 jobs were lost in the wholesale (durable goods) industries.

Figure 50

SOUTH BAY TRANSPORTATION AND TRADE INDUSTRIES Employment Concentration and Payroll High Water Transportation • Services

1.80

Deep Sea Foreign Transportation of Freight

1.60 Professional and Commercial .01IIII Equipment (Wholesale) "'I11III ~ 1.40 •





~otor Vehicles and Equip. (Wholesale)

Machinery (Wholesale!.

Electrical Goods ~. (Wholesale)

1.20 Misc. Durable Goods (Wholesale)

x

Q.)

Air Transp rtation (Schedule

Freight Transport tion ~rrangement

"0

c:::

"0 .... >m



0.0

1. 0

a..

0.80



Airports, Flying Fields,. and Services

1000

Passenger Transportation Arrangement

0.60

0.40

0.20

n nn

Low

Employment Concentration

High

Source: Derived from California Employment Development Department, Labor Market Information Division

South Bay Anchor Industries

121

Regional Concentration ofEmployment

Figures 51 and 52 show the major centers of transportation and wholesale trade employment in the South Bay, and communities with high employment concentrations in these industries. Maps 5 and 6 show South Bay firms in these industries.

Figure 51 MAJOR CONCENTRATIONS OF TRANSPORTATION AND TRADE EMPLOYMENT IN THE SOUTH BAY (shaded areas represent at least 500 workers) Water Transp. City or Community Carson EISegundo Harbor Gateway Redondo Beach Torrance Westchester Wilmington/ Harbor City

Air

Transp.

SIC

SIC

SIC

SIC

441

449

451

458

Transp. Services SIC 472

SIC 473

Figure 52 FUNCTIONAL SPECIALIZATION OF SOUTH BAY CITIES AND COMMUNITIES IN TRANSPORTATION AND TRADE (shaded areas represent location quotient >= 1.30) Water Transp. City or Community Carson EISegundo Gardena Harbor Gateway Hawthorne Manhattan Beach Redondo Beach San Pedro Torrance Westchester Wilmington/ Harbor City

Air Transp.

SIC

SIC

SIC

SIC

441

449

451

458

Map 5

South Bay Transportation Companies Number of Employees

• < 10 • 10 - 50 .50-100 • 100-500 • >500 1•

N o

1\1 D

Site Locations Congested Roadways Primary Streets City Boundaries

Map 6

South Bay Wholesale - Durable Goods Companies Number of Employees • < 10

• • • •

1•

N

IV

D

10 - 50 50 -100 100-500 >500

Site Locations Congested Roadways Primary Streets City Boundaries

124

South Bay Economic Adjustment Strategy

5.3.c Entertainment and Multimedia The entertainment and multimedia industries are the fastest growing industries in Los Angeles County, replacing aerospace as the most dynamic growth sector in the regional economy. The high regional concentration of specialized workers and production companies in the entertainment and multimedia industries will result in continued growth in the Los Angeles region. (Growth issues and prospects in these industries are discussed in Chapter 8). The motion picture industry is the core industry in the entertainment and multimedia sector and includes the following anchor industries: 1.

Motion Pictures Motion Picture Production and Services (SIC 781) Motion Picture Distribution and Services (SIC 782)

The emerging multimedia industry does not have a separate industry designation. Most multimedia firms can be classified in the computer and data processing services (SIC 737, which we have included in the high technology services group described above), and motion pictures industries. This highlights the marriage of high technology and entertainment that is at the heart of Southern California's multimedia industry.

Employment and Payroll

The South Bay has relatively few employees in the motion pictures industry. This will change with the opening of Manhattan Beach Studios and the proposed Dreamworks complex in Playa Vista. In Los Angeles County, the motion pictures industry paid an average annual salary of $54,200, which was 82 percent higher than the county average. The June-July 1997 average employment in the Los Angeles County motion pictures industry was 145,300, representing an increase of 5,550 jobs since June-July 1996.

Regional Concentration

Employment in the motion picture industry as of 1992 in each Los Angeles County subregion is shown in table 15. Over 93 percent of motion pictures employment was in the Westside-Hollywood districts and the San Fernando Valley. (Note that the definition of the South Bay used in this table is slightly different than the definition used for the Economic Adjustment Strategy, accounting for the discrepancy in South Bay motion pictures employment).

South Bay Anchor Industries

125

Table 15 MOTION PICTURE INDUSTRY EMPLOYMENT IN LOS ANGELES COUNTY SUBREGIONS, 1992

Subregion

Employment

Percent ofLA County Motion Pictures Employment

WESTSIDEIHOLLYWOODI MID-CITY/DOWNTOWN

28,915

43.3%

SAN FERNANDO VALLEY

33,056

50.0%

896

1.3%

SOUTHEAST LOS ANGELES

1,991

3.0%

SAN GABRIEL VALLEY

1,478

2.2%

SOUTH BAY

The geographic distribution of multimedia firms in Los Angeles County subregions in 1995 is shown in Figure 53. Of the 260 Los Angeles County multimedia firms identified in Samsel and Fort's Multimedia Directory, 95 firms (37 percent) were located in the Westside (concentrated in Santa Monica, Culver City, and Westwood); 44 firms (17 percent) were located in Burbank and surrounding communities in the east San Fernando Valley; 38 firms (15 percent) were found in Hollywood; 32 firms (12 percent) were found in the west San Fernando Valley; and 23 firms (9 percent) were located in the South Bay. As the center of gravity of the entertainment and multimedia industries shifts to the westside of Los Angeles County, the South Bay is in a good position to promote start-ups and attract existing firms in the industry.

Figure 53 MULTIMEDIA FIRMS IN LOS ANGELES COUNTY

Number of Firms by Area in 1995

100

-r--""l'V""'---------..,...----------------.

90

70

60 50

40 30

20 10

o

Source: Samsel and Fort, The Multimedia Directory (1995)

South Bay Anchor Industries

127

5.4 Linked Industries 5.4.a Determination ofLinked Industries Indirect employment and output are the most important factors for identifying linked industries to be included in the economic adjustment strategy. This is because linked industries have direct transactions with anchor industries, and linked industries with high levels of transactions may find it advantageous to be located near the anchor industry. Induced employment and output is more diffuse, representing economic activity stimulated by purchases by employees in anchor industries. Most key industry linkages are already captured within the anchor industries. There are strong linkages in the aerospace and high technology sector between aerospace, electronics, and instruments. Also, there are strong linkages in the transportation and international trade sector between water and air transportation, transportation services, and wholesale trade. These linkages are described in detail in Chapter 4. Inter-industry linkages are summarized in Table 16, and a description of output and employment generated by anchor industries in linked industries is provided in the Appendix. Table 16 shows estimated employment and output generated in linked industries by the South Bay's production in each of anchor industry. In using this table the reader should bear in mind that industries generate internal indirect employment and output. This occurs, for example, when an aerospace company buys aircraft structural components and navigation equipment from other aerospace companies, or when a motion picture company buys production services from other motion picture companies.

5.4.b Summary ofLinked Industries The following two industry groups emerge as important industries linked to the anchor industries: Metals and Machinery

The metals and machinery industries are major providers of inputs to aerospace firms. This industry group includes manufacturers of aluminum castings (in SIC 336), airframe fasteners (in SIC 345), aircraft forgings (in SIC 346), and machine shops (in SIC 359). Based on the South Bay input-output model, the metals industries contributed $48.3 million of inputs to the aerospace industry, and the machinery industry contributed $50.7 million of inputs. Together the metals and machinery industries produced 5 percent of the total value of indirect inputs into the aerospace industry in 1992. Geographic locations of machinery plants in the South Bay are shown in Map 7.

6% 3%

421 $15.6

18% 13%

Credit Agencies

Wholesale Trade

3% 4%

182 $12.1

2% 3%

1,443 $188.3

2,455 $91.2

2,593 $172.7

471 $64.1

10% 4%

10% 8%

2% 3%

23% 13%

6% 9%

Air Transportation

13% 5,750 10"k $274.8

208 $22.3

14% 10%

17 $2.4

856 $57.6

623 9% $144.2 24%

Banking

2,917 $194.3

2% 3%

5% 8%

13% 24%

7% 5%

22% 15%

396 $55.4

2% 3%

8% 47 14% $7.8

125 $22.3

2% 3%

3% 3%

3% 2%

Water Transportation

472 $31.4

Communications

Transportation services

Air Transportation

2,064 $137.5

1,657 $284.2

Scientific Instruments

443 $57.8

3% 5%

541 $99.4

Transportation Equip. Ex. Autos

Water Transportation

11% 21%

2,337 $415.9

15% 27%

1,369 $248.7

Electronic Equipment

3% 3%

690 $50.7

8% 14%

699 $132

24 $2.6

2% 2%

Machinery & Computer Equip.

30 $2.5

3% 3%

702 $57.8

468 $48.3

27 $2.1

3% 3%

Instruments (except search and navigation)

679 $52.0

3% 3%

4% 3%

289 $23.8

351 $26.9

• electronics

• comm. eq.

Aerospace • aircraft • space vI. • search & nav. eq.

Fabricated Metal

Printing

Construction

LINKED INDUSTRIES

Electronic Eq. • computers • electrical eq.

86 $9.2

54 $3.6

34 $4.6

376 $27.8

$11.2

86

4% 6%

3% 2%

2% 3%

18% 18%

4% 7%

Transportation Services • freight trans. arr.

54 $3.6

161 $20.6

156 $12.0

WholesaleDurable Goods

3% 2%

8% 11%

191 $20.5

$n.1

1,157

238 $32.2

362 $29.9

8% 366 6% $27.9

Con'munications • cable & pay tv services

ANCHOR INDUSTRIES

3%

2%

9% 9%

4%

2%

3% 4%

3% 3%

$6.5

98

33 $4.3

72 $13.4

51 $4.6

5% 5%

2% 3%

4% 10%

3% 3%

Business services • computer prog. & data proc.

Motion Pictures • motion picture prod.

EMPLOYMENT AND OUTPUT ($ MILLIONS) CREATED IN LINKED INDUSTRIES AS A RESULT OF PRODUCTION IN ANCHOR INDUSTRIES

Table 16 EMPLOYMENT AND OUTPUT IN INDUSTRIES LINKED TO SOUTH BAY ANCHOR INDUSTRIES

44 $2.9

2% 3%

Engineering & Manage.serv. • engineering • researcMest • rngmnt. cnslt.

9,216 $935

TOTAL Indirect Employ. Indirect Output

.62 .37 1.06 .39 2.68 1.76

100% 100%

4% 2%

.58 .30 1.03 .36 2.61 1.66

21,343 100% $2,033 100%

5% 2%

3% 1%

598 $21.6

957 $41.6

3% 3%

17% 7%

4% 1%

2% 3%

620 $50.9

3,650 $141.8

876 $29.2

509 $59.8

Aerospace o aircraft o space vI. o search & nav. eq.

$94

990

60 $2.6

30 $2.4

161 $6.4

25 $3.0

.50 .30 .98 .40 2.48 1.70

100% 100%

6% 3%

3% 3%

16% 7%

3% 3%

Instruments (except search and navigation)

17% 8%

19% 8%

5% 6%

1.23 .46 1.45 .40 3.68 1.86

6,848 100% $594 100%

1,173 $49.3

1,278 $49.5

322 $37.8

Water Transportation

4% 2%

17% 9%

3% 4%

.69 .45 1.10 .53 2.79 1.99

25,322 100% $2,182 100%

923 $39.5

4,196 $194.7

750 $87.9

Air Transportation

7% 4%

6% 6%

21% 10%

6% 9%

4% 8°/0,

.36 .36 .89 .76 2.25 2.12

2,075 100% $155 100%

148 $6.3

120 $9.9

427 $15.8

122 $14.3

$11.7

n

Transportation services o freight trans. arr.

4% 2%

3% 1%

.40 .29 .91 .44 2.31 1.73

1,924 100% $186 100%

78 $3.4

50 $1.8

3% 2%

34% 39%

658 $72.8 49 $4.0

13% 5%

4% 5%

241 $9.8

81 $9.5

Communications o cable & pay tv services

ANCHOR INDUSTRIES

7% 5%

4% 5%

36% 19%

4% 2%

5% 8%

.38 .38 .90 .86 2.29 2.25

12,486 100% 100% $833

913 $39.2

525 $43.1

4,493 $159.3

502 $16.8

577 $67.7

WholesaleDurable Goods

.21 .25 .79 .78 2.00 2.02

1,885 100% $142 100%

4% 2%

8% 4%

154 $5.6 81 $3.4

3% 3%

49% 38%

5% 7%

46 $3.8

919 $54.6

89 $10.4

Business services o computer prog. & data proc.

8% 3%

2% 3%

.29 .37 .84 1.25 2.13 2.62

1,482 100% $151 100%

1,092 74% $120.8 80%

113 $4.9

36 $4.2

Motion Pictures o motion picture prod.

1,834 $103

454 $20.6

59 $4.8

.69 .64 1.10 .64 2.80 2.27

100% 100%

25% 20%

3% 5%

45% 30%

3% 2%

46 $1.5 826 $30.6

4% 8% 66 $7.7

Engineering & Manage. Serv. o engineering o researchltest o rngmnt. cnslt.

Notes: 1. Each cell contains four numbers which correspond to the following measures of indirect impacts of anchor industries on employment and output in linked industries: a. The number of jobs in the linked industry created by transactions originating in the anchor industry. b. The linked industry's percent of all jobs created by transactions originating in the anchor industry. c. The value (in $ millions) of output in the linked industry created by transactions originating in the anchor industry. d. The linked industry's percent of all output created by transactions originating in the anchor industry. 2. The employment and output values for South Bay anchor industries are derived from EOO's 1992 I.C.E. data. The employment and output shown for linked industries in the table above are proportionate shares of total indirect employment and output generated in linked industries in Los Angeles County. Actual employment and output in the South Bay may be higher or lower based on the competitive strength of linked industries located the South Bay. 3. Oirect employment and output represent economic activity in the anchor industry; indirect employment and output represent economic activity in linked industries resulting from transactions originating in anchor industries; induced employment and output represent economic activity generated as workers in anchor industries spend their earnings; and total employment and output represent the total of direct, indirect and induced employment and output.

MULTIPLIERS Indirect Employ. Indirect Output Induced Employ Induced Output Total Employ. Total Output

360 $15.5

Consulting Research

Private Education

Legal Services

3% 2%

13% 5%

1,190 $46.4

Business Services

273 $22.5

3% 0.9%

241 $8.0

Hotels and Lodging Places

Motion Pictures

2% 3%

electronics

o

210 $24.7

corrvn. eq.

o

Real Estate

Insurance Carriers

LINKED INDUSTRIES

Electronic Eq. o computers o electrical eq.

· I

Map 7

South Bay Machine Industry Companies Numberof Employees • < 10 • 10 - 50 • 50 -100 • 100-500 • >500 1• Site Locations Congested Roadways 1\1 Primary Streets City Boundaries

N

o

\~--.J.L--:'..J,L---JM"'''';''''':'''--4JlII-

__*D--~~CD

_-t-"t"II'

• 0

o o

Map 8

South Bay Financial Companies Number of Employees • < 10

• • • •

1•

N

/'\I

'D

1

10 - 50 50 -100 100-500 >500

Site Locations Congested Roadways Primary Streets City Boundaries

132

South Bay Economic Adjustment Strategy

Financial Services: Banking, Credit, and Insurance

The financial services sector has important linkages with the international trade sector, including the transportation and wholesale trade industries. The banking industry accounted for 6 percent of indirect inputs into transportation services, 4 percent of indirect inputs into the water transportation industry, and 3 percent of indirect inputs into the wholesale trade (durable goods) industries. Credit agencies provided 3 and 4 percent of inputs respectively to the water transportation and air transportation industries. Finally, insurance carriers provided 8 percent of indirect inputs to the transportation services industry. As shown in Figure 38 above, the financial services industries are weakly represented in the South Bay. Given the linkages between the financial and international trade sectors, the South Bay may be positioned to boost the presence of financial services in the region. Geographic locations of financial services firms in the South Bay are shown in Map 8.

Summary ofFindings •

The South Bay has a high degree of specialization in aerospace and related high technology industries, as well as transportation and trade. On the other hand, the South Bay is under represented in financial and legal services, and two of the fastest growing industries in Los Angeles County, motion pictures and apparel and textiles.



South Bay aerospace industries paid their workers a total annual payroll of $2.88 billion, 18 percent of the total South Bay payroll. Workers in the South Bay computers, electronics, and instruments industries earned $581 million, 4 percent of total South Bay payroll. High technology services paid $547 million in payroll, 4 percent of total South Bay payroll. Altogether, the high technology sector accounted for over one-quarter of the total South Bay payroll in 1992.



Transportation and trade industries also accounted for a significant share of South Bay payroll. The air transportation industry had an annual payroll of $1.53 billion, 10 percent of total South Bay payroll. The water transportation industry paid its workers a total of $315 million, 2 percent of South Bay payroll. Workers in the transportation services earned $231 million, 2 percent of South Bay payroll. The wholesale trade industries together accounted for a total payroll of $1.16 billion, 7 percent of South Bay payroll.

South Bay Anchor Industries

133



The region has above average concentrations of employment in low wage industries such as eating and drinking places, hotels, building material and garden supply stores, and automobile services.



It is estimated that only three South Bay manufacturing industries registered employment growth between 1992 and 1996: communications equipment (SIC 366), chemicals (SIC 28), and household audio and video equipment.



It is estimated that in 1996 the South Bay's search and navigation industry employed 23,400 workers, followed by the aircraft and parts industry with 19,900 workers. Despite significant job loss in aerospace, these industries remain the major manufacturing employers in the South Bay. Other leading employers include fabricated metal products (6,300 workers), printing and publishing (5,300 workers), electronic components (5,100 workers), and industrial machinery (4,900 workers).



The fastest growing South Bay industries include motion pictures, business services, air transportation, computer and data processing services, water transportation, transportation services, and engineering and management services. The most robust sectors of the South Bay economy, based on recent job growth, are international trade, high technology services, and entertainment.



South Bay industries combining high employment concentration with significant job growth in recent years include air transportation, water transportation, transportation services, and high technology services.



Industries that are highly concentrated in the South Bay but have experienced job loss in recent years include the defense-linked aerospace and computers, electronics, and instruments industries.



Recommended anchor industries for South Bay economic development initiatives are: Aerospace, Computers, Electronics, Scientific Instruments, High Technology Services, Satellite Communications, Water Transportation, Air Transportation, Transportation Services, Wholesale Trade, Motion Pictures, and Multimedia.



Recommended linked industries to be retained and attracted in conjunction with anchor industries are: Metals and Machinery industries including manufacturers of aluminum castings, airframe fasteners, aircraft forgings, and machine shops; and Financial Services industries including banking, credit agencies, and insurance carriers.

134

South Bay Economic Adjustment Strategy

Chapter 6

Re-Use of Industrial Sites for Target Industries

6.1

Overview

Declining aerospace production and employment in the South Bay created a large inventory of vacant and under-utilized real estate. Yet because the South Bay is largely built-out, options for re-use of surplus or obsolete sites are constrained by neighboring land uses. To help cities analyze possibilities for recycling sites and opportunities to improve development prospects, timing and outcome, Kosmont & Associates undertook a study of ten major South Bay sites to identify market opportunities and needs for city involvement in influencing future development. The need for such analysis is reflected in the draft South Bay Subregional Strategy, approved by the South Bay Cities Association in 1993, which stated "many parts of the South Bay have difficulty competing with new industrial and R&D development in outlying areas where sizable parcels are available, land prices are generally lower, and infrastructure and public services are perceived to be newer and better." Re-use of obsolete or underutilized real estate assets to attract targeted industry clusters is an important element of the South Bay Economic Adjustment Strategy. In preparing this chapter, Kosmont & Associates, Inc. (KA) completed the following tasks: 1.

Prepared a broad overview of South Bay office and industrial real estate trends,

2.

Identified ten office/industrial target sites for more detailed analysis,

3.

Developed a profile of each target site,

4.

Developed a baseline scenario for each site,

5.

Examined other economic development efforts in Southern California, and

6.

Prepared regional and site-specific development strategies for South Bay sites.

Working with local city officials and real estate professionals, the consultant team considered over 20 potential sites and selected ten target sites for a comprehensive review of their development potential. These sites were selected based on the following criteria: 1.

A broad geographic mix,

136

South Bay Economic Adjustment Strategy

2.

Strategic importance to the South Bay region near major transportation corridors,

3.

Minimum lfl-acre sites to provide significant development opportunity,

4.

Locations that might be attractive to the targeted industries and whose development would be compatible with adjacent land uses, and

5.

Properties that are available or are likely to be available for re-use or occupancy by office or industrial users.

These ten sites are not intended to represent a comprehensive list of available development sites, but rather a representative cross sample. The strategic issues related to these sites can be applied to many other sites within each South Bay city. The strategies outlined in this section are part of a process that included meeting with local city officials and interested property owners to discuss findings and site-specific recommendations. List ofTarget Sites

The ten study sites are: 1. 2. 3.

4. 5. 6. 7. 8. 9. 10.

Carson: Dominguez Technology Center El Segundo: Morgan Stanley Property Gardena: ArtesiaINormandie Industrial Property Hawthorne: Northrop Grumman Property Inglewood: Hollywood Park Property Inglewood: International Business Park Los Angeles: Harbor Gateway Plaza Los Angeles: LAX Century Boulevard Corridor Redondo Beach: Redondo Generating Station Torrance: AlliedSignal Property

Profiles of the sites, together with the site-specific market overview and maps, are in the Appendix.

6.2 General Comments on Site Strategies Recent trends in the South Bay real estate market have shaped the specific site recommendations. In general, these suggest a more activist role for local governments in attracting growing industries. While KA believes there are significant roles for each local government, an effective economic development strategy must include regional leadership,

Re-Use of Industrial Sites for Target Industries

137

such as the South Bay Cities Council of Governments (SBCOG) and South Bay Association of Chambers of Commerce.

Needfor High Quality Office and Industrial Parks One of the most frequent complaints heard from expanding and relocating companies about Los Angeles County concerns the lack of modem, master-planned office and industrial parks. The lack of a sufficient number of such facilities puts the South Bay at a competitive disadvantage with Orange County, the Inland Empire, and the west San Fernando Valley. •

Huge growth of the South Bay industrial and office inventory in the last 30 years, together with housing and retail, has left few significant undeveloped parcels. Most new office and industrial development is actually infill re-use of older sites. There are some exceptions, notably Dominguez Technology Center in Carson.



Infill development occurs in an environment that is rarely subject to master planning with strong site layout, landscaping, service facilities and similar amenities. Infill development can be attractive and successful, but only with strict planning guidelines.



Quality business parks also attract smaller, fast growing firms in technology fields: a key goal of any economic development strategy. Such firms need quality work environments to help attract new talent. Given their short term leases and limited capital for facilities, master planned business parks provide small companies a quality work environment on a cost effective basis.

Needfor Master Planning Large-scale master planning makes expansion easier for growing finns. Master planning can also be a vehicle for expanding the range of industries attracted to a property -development controls allow different types of operations to co-exist, and they also can attract firms to formerly less desirable locations. •

Property-specific master planning efforts will often be appropriate, preferably with cooperation of owners. In the absence of such action, developers will build the product that can obtain financing most easily, and cities may not control the process until changes are too late. In the current market, freight/distribution uses are the most financially expedient land uses. The issue is not all freight/distribution uses versus no freight/distribution, but rather where to direct it so that quality parcels remain available for other manufacturing, office and R&D uses. An additional threat in some cases is fiscal zoning, as prime development parcels appropriate for quality office development go to retail land uses that generate higher fiscal revenue.

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South Bay Economic Adjustment Strategy



In the real estate downturn of the early 1990s, these development pressures have not been as obvious. However, they will likely become more pronounced in affecting local business location decisions.



Following a path of better on-site planning won't guarantee that the target industries will locate to a site, but it is a cost-effective way for cities to encourage this.

Financial Strategies A review of business taxes for five typical target industries (both anchor industries and linked industries) is presented in the Appendix. Typical company characteristics are assumed for multimedia, electronics manufacturing, import/export, business services, and legal services firms. The comparison includes data for nine South Bay communities, as well as several other Southern California cities that have recently experienced strong job growth. The fmdings indicate that: •

The South Bay communities have a wide range of business license tax rates. Los Angeles is notably high for certain office-occupying firms. In general, EI Segundo, Hawthorne, Inglewood, and Los Angeles are also relatively high for all the industries compared to the other South Bay communities in the comparison. The high rate may not always appear so (some of the relatively high rates are less than 2/lOths of 1 percent). However, many competitive cities elsewhere charge even less, and some of these cities compound this advantage with lower real estate costs and lower utility taxes.



Utility user taxes also vary in the South Bay, from zero in Carson to 10% or more in Hawthorne, Inglewood and Los Angeles.



A review of specified development impact/exaction fees did not uncover notably high development fees. In practice, traffic fees are likely to be relatively high, but determined through the environmental review process, rather than specified up front (traffic fees for the Harbor Gateway industrial project will total approximately $3.00 per square foot).

Based on these findings, recommended steps are as follows: •

The South Bay communities with relatively high business and utility taxes seek to selectively reduce them for certain target industries to help spur growth. Uniformly reducing rates may not be fiscally feasible, but tax incentives tied to new job creation can effectively help to lure companies to the region and are especially effective when combined with programs such as permit expediting. Los Angeles is currently conducting a review of its tax rates and should consider geographicallybased reforms as well. Burbank is one city that successfully created an incentive

Re-Use of Industrial Sites for Target Industries

139

zone to help expand its business base; when sufficient job growth was achieved, it disbanded the program. •

Any tax incentives should be directed narrowly to select target industries with highwage jobs, and possibly to smaller firms within those industries, to help build clusters of newer, fast-growing firms.



Traffic fees on new construction are generally deemed necessary to pay for the traffic impacts that the projects create. South Bay communities could expedite new development by adopting mechanisms to avoid individual project-level mitigation negotiations wherever possible. These can include standardized, city-wide traffic fees, master EIRs for clustered developments, using the master planning process to determine fees for a large development in advance, and similar means.

Site Strategies



While none of the target sites is perfect for a high-end office/industrial environment, some have potential to move in this direction.



The South Bay economic development community should also initiate a search for other major sites that can be master planned for office and industrial projects. Larger parcels are preferable, but clusters of parcels with at least 25 acres in nearby locations can also form a basis for developing competitive new facilities.



In planning for such sites, a city may have to use its zoning powers to create a higher standard than most industrial zoning typically requires, and/or instigate specific plans. Property owners are often reluctant to give up rights to build a full range of industrial space, although large master planned developments can achieve rent and land price premiums. However, most zoning modifications as envisioned in this concept should fall within legally permissible local powers.



Although many of the proposed site-specific strategies may ultimately not be implemented at the target sites, the principles suggested can be applied to other sites, especially as additional defense-related sites are likely to become available for reuse.



In most cases, South Bay cities appear to be working closely with major property owners on current planning issues and applications. But the cities do not seem notably visionary in their long-term planning. Even if a particularly aggressive plan for an area never materializes, it can become part of the planning dialogue and affect the actual development outcome.

140 •

South Bay Economic Adjustment Strategy It is important to provide for warehouse/distribution uses at some locations. Growth in international trade will likely continue to drive demand for this space. In some limited cases, freight-related facilities can achieve the highest prices (a cargo facility recently sold near LAX for a reported $86 per square foot). However, a mix of industrial uses will provide the best real estate basis for diversified growth.

Role ofRegional Government •

The SBCOG should create a task force of public planning officials and local developers to examine the obstacles to successful recycling of key sites.



The SBCOG should seek out additional EDA grants for several site-specific master planning efforts identified in the report.



Because these sites are significant enough in size and location to be major employment centers that can benefit the entire region, KA suggests that the SBCOG split the planning costs with each local government. SBCOG and local governments can also seek matching funds from property owners.

Successful Economic Development Implementation There are several examples of how other Southern California communities have utilized similar strategies to achieve higher quality office and industrial developments: •

In Anaheim, a section of a 2-million square foot Rockwell facility (subsequently owned by Boeing) became available for infill development. A multi-disciplinary team reviewed market, civil engineering, fmancing, real estate entitlement and other issues in detail, and proposed several development alternatives based on the findings. The site was subsequently sold after competitive bidding, and development is underway. The project is receiving approximately $1.3 million in EDA funds for infrastructure development.



In Pico Rivera, Northrop Grumman is seeking re-use of its B-2 bomber facility following termination of the program in 2000. The site encompasses approximately 200 acres and includes 3.6 million square feet of building area. Northrop Grumman proposed a comprehensive master plan for the site following extensive review. Initially, Northrop Grumman proposed re-use primarily with warehouse/distribution facilities. The City insisted on manufacturing/assembly uses, so that fiscal and economic impacts of the new development would be closer to the B-2 facilities. A development plan with a mix of uses is now being pursued.



In Santa Fe Springs, City staff approached Thrifty Oil Co. to recycle its 265-acre oil storage facility into a new industrial park. The site is now a major master-planned

Re-Use of Industrial Sites for Target Industries

141

industrial park in the Mid-Cities area. A nearby 230-acre oil field owned by Unocal Corp. is also slated for development. This demonstrates the importance of proactive city involvement in attracting new industry. •

In Fullerton, a Hughes facility is now in the predevelopment stages for re-use, with over 1 million square feet of office and retail development as well as residential uses. The project follows a joint City- and owner-sponsored review of development options in 1995, during which a multi-disciplinary Urban Land Institute panel comprehensively examined a wide range of re-use options.



In Huntington Beach, the McDonnell Centre Business Park is being developed around existing McDonnell Douglas facilities. Currently, 70 acres are available for new development, in contiguous sites from 2 to 30 acres (see attached advertisement).



The Irvine Spectrum, developed by the Irvine Co., provides an example of how master planning can help attract growing firms. The Spectrum has approximately 20 million square feet of building space, housing approximately 2,400 companies of which 40% are technology firms. The project has extensive levels of landscaping, amenities such as a golf course, and a major retail center that provides restaurants and services for local employees. In the mid-1980s, the Irvine Co. began a threepronged strategy to attract tenants: it built incubator industrial space for small startup firms, solicited US Fortune 500 firms, and approached major international firms. The staple product offering has been 'Flex Tech' space: buildings of 30,000 to 60,000 square feet built in standard bay depths, with tilt-up construction, suitable for office or mixed officellight industrial uses. The buildings are built in clusters so that companies can easily expand to nearby buildings, which are connected by pedestrian paths (see attached advertisements).

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South Bay Economic Adjustment Strategy

2 - 70 Acres FOR SALE I BUILD-TO-SUIT

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IRVINE-AN EMERGING WORLD CLASS HIGH TECHNOLOGY COMMUNITY High-Tech Revolution on The Irvine Ranch Nearly 30 years ago , lrvine s Master Plan was created, envisioning a co mmu nity where residents would work close to thei r hom es. The city would be built around a new camp us of the Universit y of California , and two major

em ployme nt centers - Irvine Business Cente r and Irvine Spectrum - would be created at the cuys western and eastern bound arie s Resid ent s would live in th e middle , with abundant open space on the citys nonhern and southe rn ends. Planners believed busine sses would be attracted by th e research un iversit y, the d ynami c mar ket locati on of O range Co unty and the qu ality of life in lrvm cs villages Today, th at vision has becom e a reality, in large measur e becau se of the dramatic growth of the 5,00 0-acre Irvine .Spectru m , whic h is hom e to more than 2 ,200 co m pan ies. The se com panies, which are largely clustered in the growing fields of biom edicine, medi cal devices, computers and software , pro vide empl oyment for more than 44 ,000 of our neighb ors. In only the last 10 years, th e Irvine Spectrum has become th e techno logy h ub of So u thern Califo rnia and put itself on the map as a quality envir onment for worldclass Fortune 500 bu sinesses, as well as excit ing start-ups. MIT dem ograph er and econ om ist David Birch has identified Irvine as an "Entrrprcnrurial H oI Spot ," a place whe re jo b gro \\1h am on g entre p reneu rial, rngh -tech compan ies is robu st enough to nu rtu re and sustain continuing job base expansion. Stephe n Levy, director of th e Center for the Co nt inuing Study or the California Econ omy says , "O range County is the high -tech mform au on age cente r of Southe rn California , and its an cn gme for the state." (S,'" - /l I~h. 1,"t h J""''' I'''.~'' 21

rvine residents periodically receive "PlanningAhead," a newsletter that explores issues that impact our master planned community. This edition takes a look atthe remarkable growth of technology inthe heart The Irvine Ranch. The story begins with the phenomenon of Southern California's Technology Coast and how its evolution is providing economic strength and employment opportunities to Irvine and its residents.

Re-Use of Industrial Sites for Target Industries

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Today, Irvine has a 2.7 percent uncrnployment rate, compared with 3.6 percent for Orange County and 6.1 percent for California. Our city of 127 ,000 residents has more than 16 5,000 peopl e working \\u hin its borders. A 1996 study by Claritas shows the median annual household income for Irvine residents at $61 ,900 , compa red with 547 ,500 in Silicon Valley. More than half of Irvi ne adults hold a bachelors degree, compared wi th Unemployment Rate 32.5 percent in the Silicon Valley This high-tech revolution didn 't happen by accident. It came abo ut as part of a th ough tful, sophisticated Master Plan that created a p ow erfu l sy ne rgy between ed ucation , emp loyme nt an d qua lity living The r ol e of the Uni versity of Ca hlo rrua . Irvine in the cuys success should not be minimized . The National Research Council ranks UCI in the top 30 of all universities nationwide, and eleventh among public universities. u.s. News c.~ \\ hrld Report ranks it ninth . More than $ 150 million in research grants poured into the university in 1996 , and its current co nt ributio n to the local econo my exceeds $1 billion a year. UCI creates the skilled workforce needed by lrvines high-tech industries. More than half of UCls 54 ,000 alumni have remained in Orange County, boosting economic growth as em ployees and entrepreneurs. The fact that UCi grads heavily recrui ted by other nat ional companies choose to stay in the community wh ere they received their education endo rses both the qualit y of life and th e emp loyme nt op po rt u nit ies Irvine offers. The Irvin e Master Plan created the framework for lrvincs success. The plan anticipated and assured housing, retail and supporung infrastructure would be available m an orderly,comprehensive fashion to serve the residents of this thrivi ng community

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By contrast, one of the honest high-tech areas today, Silicon Valley, is creating huge numbers of good , high-payin g jobs (its unemploym ent rate is the lowest in California), but is struggling because of a lack of housing. Its business leaders recently organized a task force to add ress the problem, concluding, "The lack of affordable and accessible housing continues to be a chronic concern to Santa Clara Valley residents and emp loyers. It threatens not only the areas overall quality of life, but its econom ic vi ability as well. The need for affordable housing in Santa Clara Valley is, in pan , a by-product of the Valleys economic success. Job growt h has far outpaced new housing construction, leading to too many new workers chasing too few available homes." DRIVING IRVINE SPECTRUM'S GROWTH AVQ. ANMlAL

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2

146

6.3

South Bay Economic Adjustment Strategy

Strategies for Target Sites

6.3.a Carson: Dominguez Technology Center Property Overview: This large master-planned development includes up to 370 acres, sited in the City of Carson and unincorporated Los Angeles County, and owned by the Carson Co. and the Watson Land Company. The sites are mostly vacant and fully entitled for most types of light industrial and office development.

How can the city or county become more involved? •

With its master planning, entitlements in place, proposed amenities, sophisticated marketing, and strong current City support, the project does not require substantial additional local involvement.



There may be an opportunity to increase development standards in the ultimate phases of the project even more, toward higher-end campus style development. The City of Carson could help the developers explore options and strategies for this.



Both the city and county should ensure that their economic development and approval processes are fully supportive ofthis major South Bay project.

Potential City Planning/Entitlement Actions: •

By industrial park standards, the quality of planning at the Technology Center appears high and provisions are in place to ensure long-term maintenance of these standards. The TRW project is a good start for higher-end development at the project.



However, the city and developers may want to take steps to create even higher-end officelR&D development in future phases on the western portion. This would be contingent on a future shift in demand toward higher-priced product. The city may want to discuss how to plan for and accommodate such a scenario with the developers. Discussion issues can include market scenarios, development goals and standards, and changes, if any, in entitlement agreements.



As development becomes more common at the Technology Center, both the city (which contracts out some permit processing) and the County should review their permit approval and inspection processes in order to remove bottlenecks, and determine whether the County has adequate resources to quickly process permits.

Re-Use of Industrial Sites for Target Industries

147



Both jurisdictions could track and benchmark each new approval, with the goal of reducing processing time on subsequent submittals. Demonstrable quick approval processing is a powerful economic development tool; a contingent guarantee from a locality is even better.



The city and developers should consider an industrial "incubator" for new firms needing highly flexible space (1,000 square feet or more of expandable and contractible space on a month-to-month basis). For example, the Irvine Co. built 800,000 square feet of such space at the Irvine Spectrum. Some of the occupants grew to become major tenants elsewhere in the development. One of the best economic development strategies is to attract small, rapidly expanding companies and provide adequate space as they grow.



One similar potential use needing further investigation is a foreign trade-oriented complex that draws on proximity to the Ports. This could occupy an industrial incubator-type space that offers small occupancies (from 1,000 to 10,000 square feet), could provide foreign trade services (customs processors, translators, etc.), and could lie within one of the development's foreign trade zone parcels.

Potential City/County Economic Development/Policy Actions: •

Both the city and county, together with the project developers, should review their economic development efforts to make sure that all the target anchor industries are being reached, and that the unique South Bay advantages of the Technology Center are being adequately represented in all of their marketing collateral and media. Joint marketing efforts may be appropriate.



The city's tax structure (with low business license taxes and no utility user taxes) is already a strong economic development tool.

6.3.b EI Segundo: Morgan Stanley Property Property Overview: This site, formerly owned by Chevron, consists of two adjacent parcels totaling over 21 acres. It is being actively marketed for development under a build-to-suit arrangement. The property appears headed toward at least partial office development, which certain target industry operations could occupy.

148

South Bay Economic Adjustment Strategy

How can the city become more involved? •

The main additional roles the City of EI Segundo can play are to expedite final entitlement processing, and actively encourage occupancy by target industries.



More aggressively, the city could seek ways to reduce occupancy costs for target industries. Aggressive city involvement might also expedite development of the property, if current deal negotiations do not succeed.

Potential CityPlanning/Entitlement Actions: •

Reportedly, the city is being very supportive in initial entitlement efforts for the site. The city has taken steps to improve its reputation among developers in terms of project approvals, and this project could be a good "demonstration" attempt to affirm these changes.

Potential City Economic Development/Policy Actions: •

EI Segundo in the past has implemented incentive programs to attract new businesses. These served to effectively reduce its business taxes, which are relatively high for the South Bay. If the city wants to benefit regional economic growth by helping the target industries, it could craft incentives (in the form of tax rebates) for selected target industries appropriate for the site and similar sites in the city.

6.3.c Gardena: Artesia/Normandie Industrial Property Property Overview: This 17-plus acre site consists of several parcels under multiple ownership. It is burdened by an apparently unfunded oil leakage problem. However, it is a potential site for a quality business park development.

How can the city become more involved? •

City efforts should focus on resolution of the toxic problem, master planning of the site and "marketing" of the site to potential developers and purchasers.

Re-Use of Industrial Sites for Target Industries

149

Potential City Planning/Entitlement Actions:



Development won't proceed until the toxic problem is resolved. The city should procure documentation on the site from the state and, if necessary, procure an estimate of remediation costs. With further information, the city can lobby all possible political and administrative channels to direct external funding to cleanup of the site as well as assisting in securing funding from responsible parties.



However, pre-development activity can proceed in the meantime. Master planning concepts should be explored with property owners to establish a higher quality project than piecemeal development might achieve.



The city can investigate financial options related to coordinated development of the parcels. The city can also sponsor developer requests for proposals to generate attention for the site.



To achieve implementation of a new master plan, and to provide more precision in zoning if necessary, a specific plan may be appropriate.



The site could be appropriate for an industrial "incubator" for new firms needing highly flexible space (1,000 square feet or more of expandable and contractible space on a month-to-month basis).

Potential City Economic Development/Policy Actions:



The city should determine the feasibility of creating a redevelopment project area around the site. Tax increment could help finance infrastructure requirements.



Foreign Trade Zone status, through association with the Long Beach or Los Angeles port zones, would likely help attract a few industrial users. The ongoing cost of the program should be evaluated when development is better known.

6.3.d Hawthorne: Northrop Grumman Property Property Overview:

This 57-acre property has substantial but specialized office and industrial improvements, and excellent transportation access. It is adjacent to the Hawthorne Airport.

150

South Bay Economic Adjustment Strategy

How can the city become more involved? •

This large property is in sale negotiations at present for purchase by a developer. It has very substantial but possibly obsolete building improvements. Whether to recycle, adaptively re-use or simply re-occupy is the key issue facing the buyer and the city. The city needs to become actively involved in discussions with the seller and/or buyer to help shape the outcome.



The site faces some development constraints, but its size and location may present an opportunity for a quality industrial park project. Potential may exist for serving more target industries than if a new developer proceeds with freight-related use before examining all options.

Potential City Planning/Entitlement Actions: •

Difficult development constraints affect ongoing use of the property. The property would benefit from a comprehensive examination .of re-use and re-occupancy options that takes into account market, planning, financial, physical plant, environmental and regional economic factors. We do not believe that the city by nature is well-equipped to carry out such a review, nor that the buyer or seller would take all public-sector concerns into account. A multi-disciplinary team of outside professionals is recommended for such a review. Waiting for developer submittals to shape the discussion will be too late.



The goal of such a review is to determine if a master-planned project serving multiple industries, with or without current buildings, is feasible. A key development question should be answered before proceeding with the obvious freight-related use: are manufacturing, studio-related and even office space uses feasible at the property?



As an incentive for seller/developer participation, public funding, if available from EDA, for example, could partly pay for a review on a matching basis



In the face of strong immediate demand from freight forwarders seeking modem space, the city may try to leverage early development with ultimate use of the site: for example, allow freight forwarding initially, and restrict uses to manufacturing later, ensuring consistent high development standards with master planning and CC&Rs.



Basic entitlements are in place, but any re-use will require a number of discretionary actions, and early involvement by the city will expedite any planning or entitlement changes that are necessary.

Re-Use of Industrial Sites for Target Industries •

151

To achieve implementation of a new master plan, and to provide more precision in zoning if necessary, a specific plan and/or development agreement is recommended.

Potential City Economic Development/Policy Actions: •

The city should determine the feasibility of expanding its current redevelopment project area onto the site and implement the expansion if warranted. Lack of new tax increment may make an expansion financially inappropriate.



Foreign Trade Zone status, through association with the Long Beach or Los Angeles port zones, would likely help attract a few industrial users. The ongoing cost of the program should be evaluated when development is better known.



The property, in our opinion, would benefit from more aggressive economic development outreach by the city to outside parties. This effort might be shared with support ofthe developer.

6.3.e Inglewood: Hollywood Park Property Property Overview: This large property of 378 acres, centered around a horse racing track, has strong development potential. Retail and sports projects are under consideration, but industrial park development is also possible.

How can the city become more involved? •

The city is already actively involved in helping Hollywood Park pursue development options and has funded some related efforts. The property owner is sophisticated and motivated to develop it. The two biggest factors affecting the outcome of the property (selection for a NFL stadium and long-term operation of the horse track) are largely beyond the city's control.



There are no imminent actions that appear critical for the city.



However, the city could add to its efforts by encouraging the developer to consider visionary future alternatives for the property, beyond the options now considered realistic.



The city can also put in place a better master planning framework so that any incremental development activity is consistent with future business park development.

152



South Bay Economic Adjustment Strategy

The city can probably make additional economic development efforts.

Potential City Planning/Entitlement Actions: •

Inglewood sites suffer from poor perceptions in the development/brokerage communities and have trouble attracting new development. Nevertheless, the site is an enormous potential development opportunity: up to 400 acres in a central Los Angeles County location. Aggressive visions should not be ignored.



At a minimum, the city and owner should consider preliminary conceptual planning that provides for new development in the event that horse racing and related facilities ever cease operation. The purpose of such planning to make sure that incremental development beforehand would be fully compatible with later development. If the site is ultimately developed in a piecemeal fashion, it will lose the advantages of comprehensive master planning. Overall planning is even more important. It is also critical now that the Forum may be a redevelopment or re-use site.



More aggressively, high-quality business park development should be pursued for the site, either with or without stadium development on the remainder. Stadium development of any kind would be an important development catalyst for the site and would not preclude industrial or office development.



At a minimum, the site appears very appropriate for freight and distribution-related uses, subject to sufficient off-site road infrastructure. The site's potential to capture this market, which is not appropriate for many other South Bay sites, is a strong building block.



However, high planning and on-site amenities may make light manufacturing, studio uses, or even some office development feasible in a master-planned environment of this scale.



Entitlements and zoning for industrial development probably will be necessary. The city may want to use additional specific plans and/or development agreements to ensure implementation and zoning flexibility.

Potential City Economic Development/Policy Actions: •

For sports development, the city has proposed subsidies (although voters were not supportive) and actively courted teams and developers. It needs to pursue industrial development with equal effort, albeit not necessarily with subsidy incentives.

Re-Use of Industrial Sites for Target Industries •

153

If the state allows new Enterprise Zone designations, seeking the designation for this area would help attract manufacturers and should be sought depending on the outcome of planning efforts. Likewise, foreign trade zone status should be sought if cost-effective for appropriate import-export firms. The city should also continue trying to procure a Federal enterprise zone designation.

6. 3f Inglewood: International Business Park Property Overview: This 44-acre, multi-block property is zoned for an industrial park. The site is now occupied mostly by blighted residential development, but it is eligible for acquisition and demolition funding because of its location in an aircraft noise abatement corridor.

How can the city become more involved? •

If this project is to happen, the city must serve as its facilitator.



The city can put mechanisms in place to allow any incremental development to pay for later infrastructure development.

Potential City Planning/Entitlement Actions: •

Because of development economics, building on the site will likely be incremental, and this will limit planning options.



A specific plan is in place and indicates some conceptual development schemes. Based on size and surrounding land uses, the site appears best suited for pricesensitive distribution uses, and extensive amenities will not be necessary. But the planning should probably provide for better access control and internal streets.



The city should continue its strategy of creating industrial development on surrounding parcels; this will improve the market for industrial facilities on the site.



The city can proceed with the project, subject to fmancing issues (see below), by contracting with a developer to assemble a portion of the site for initial development. Without eventual development, the housing on the site will become progressively more blighted.

154

South Bay Economic Adjustment Strategy

Potential City Economic Development/Policy Actions: •

The land is worth an estimated $10 million if cleared for industrial development, and total costs to acquire, relocate residents and clear the land are in excess of $60 million, according to the city. Because of this big gap, the project needs outside subsidy to go forward.



Up to several million dollars annually in FAAlLAX use conversion funds might potentially be allocated to the site; the city can investigate securitizing this income stream to allow a large initial investment in the site.



An assessment or Mello-Roos district would allow initial development to pay a fair share of later costs for internal infrastructure.



The city should pursue expanding its current redevelopment project area onto the site if operational and legal benefits warrant it; tax increment alone likely will not.

6.3.g Los Angeles: Harbor Gateway Plaza Property Overview: This site, owned by Boeing, will have 116 acres available for industrial development in a variety of lot configurations. Parcels will be available in 1998.

How can the city become more involved? •

Development of the project is underway and the city's planning role is limited. It can explore options with the owner to increase the likelihood of attracting nonwarehouse/non-distribution users.



It can also focus economic development efforts to direct prospective occupants to the project.



More aggressively, the city can seek ways to reduce business costs for occupants there.

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155

Potential City Planning/Entitlement Actions:



The project is planned and development is underway. The general plan does not appear particularly amenity-laden, and the project will likely attract warehouse/distribution uses above others. The city may wish to discuss with Boeing whether a section of the project can be developed with higher amenities, internalized layout, etc. and marketed specifically to manufacturing/assembly users.



Los Angeles continues to face poor perception of its permit processing and especially its inspection processes. This project is an opportunity to help reverse that image, perhaps through benchmarking each new approval, with the goal of reducing processing time on subsequent submittals. Demonstrable quick approval processing is a powerful economic development tool; a contingent guarantee from a locality is even better.

Potential City Economic Development/Policy Actions:



This is a major new industrial park for the City of Los Angeles; all appropriate business representatives of the LA's Business Team should be familiar with the site and able to market it.



The city and Boeing should be prepared to expand the adjacent foreign trade zone onto the site, based on occupant needs.



Business and electric taxes are higher in Los Angeles than in other South Bay cities. This will be an impediment to attracting manufacturing and assembly operations. The city is now reviewing tax rates on a citywide basis; if an experimental incentive program is possible as part of the process, this would make an excellent site to demonstrate how the city can attract new manufacturing facilities.

6.3.h Los Angeles: LAX Century Blvd. Corridor Property Overview:

This developed office and hotel corridor near LAX, with 10 million square feet of building area, suffers from extremely high vacancy and somewhat obsolete office

156

South Bay Economic Adjustment Strategy

inventories. The City of Los Angeles recently approved a property-based business improvement district for the area (Gateway to LA). Potential expansion of LAX will also greatly impact this area. How can the city become more involved?



The city has already supported establishment of the Gateway to LA propertybased business assessment district, which is a key owner-generated improvement effort. The city still needs to provide support on planning issues, be receptive to creative alternative uses, and to bring the area's benefits to the attention of potential occupants.



Most aggressively, the city can seek ways to reduce business taxes for occupants of the space.



It will be to the city's benefit, as well as the private sector's, to plan expansion of LAX in a manner that enhances the Century Boulevard commercial corridor. City leadership, the Department of Planning, and the Department of Airports should meet with property owners to address these issues.

Potential City Planning/Entitlement Actions:



Initially, Gateway to LA will be concentrating on planning-related efforts such as the LAX expansion plan and on marketing the area.



The LAX expansion, if any of the alternatives materialize, could spearhead a resurgence of the corridor because of secondary demand for office space. But the corridor still needs upgrading to become a long-term business asset for the South Bay. Furthermore, it is a key visibility site for the City of Los Angeles, which can help its overall image by improving the streetscape here.



LAX expansion plans will benefit the area by keeping substantial passenger traffic on Century Boulevard, but directing freight-related traffic elsewhere. Such an outcome is possible and should be integrated into LAX expansion schemes.



A critical need on the corridor is retail/restaurant amenities for office occupants. Gateway to LA's resources are minimal, and the city could proactively contribute by reviewing how to creatively encourage retail facilities. For example, issues such as a retail overlay zone with reduced parking requirements, permitting kiosk retail at curbside, temporary or very low-cost stand-alone retail structures,

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157

expedited conditional use permits, and outlawing "predator" temporary lunch trucks are a few of many issues that the city could examine in proposing a strategy to facilitate retail on the corridor. •

The city might also start a dialogue with property owners about more visionary alternative re-uses of vacant office space. Specialized retailers needing full floors, indoor recreational-related users, and conversion of office to R&D incubator space are all seemingly improbable for the LAX corridor, but the corridor needs greater diversity of uses to be a long-term business destination, and a thorough review of specific physical, market and cost constraints may point to some opportunities. Although the above examples are not among target industries of this report, they could intensify occupancy in the corridor, thus indirectly helping target industries.



One potential use needing further investigation is a foreign trade-oriented complex that draws on proximity to LAX. There may be a need for an officebased facility (for example, smaller versions of one of LA's World Trade Centers) providing foreign trade services (customs processors, translators, bookkeepers, etc.) and services of trade agencies.



The city can also take the initiative in creating new streetscaping that will better position the corridor visually; this could be coordinated with a retail strategy.

Potential City Economic Development/Policy Actions: •

On the LAX corridor, many target industries will be subject to the Professions and Occupations business tax rate, the city's highest, which is also higher than in other South Bay cities. The city's telephone tax is also the highest, along with Hawthorne and Inglewood, and it will be an impediment to attracting cable and data firms that have high telephone usage. The city is now reviewing tax rates on a citywide basis. It should consider some or all of the following to help businesses grow in the LAX corridor: a business tax/utility tax incentive zone, business tax/utility tax job credits, telephone tax reductions for certain firms, and small business tax credits. To maintain competitiveness, the city must also reduce its Professions and Occupations rate as it applies to almost all firms of nonlicensed professionals.



Hotels on the corridor, which also suffer from mediocre occupancy rates, are seeking to recapture some of the incremental increase in city transient occupancy taxes they generate, in order to upgrade the corridor. This would also help attract target industries.

158 •

South Bay Economic Adjustment Strategy Despite the tax obstacles, the LAX corridor remains a potential business attraction advantage for some firms because of low rents, large amounts of contiguous space and proximity to LAX. As such, all appropriate business representatives of the LA's Business Team should be familiar with the corridor and ways to market it. The LA Visitor and Convention Bureau has improved its services for the area.

6.3. i Redondo Beach: Redondo Generating Station Property Overview:

Southern California Edison (SCE) has sold this 50-acre power plant facility. The City of Redondo Beach is seeking eventual termination of power plant activity at the site, contrary to the efforts of SCE. Depending upon the ultimate use of the power plant, a residual portion of the site may become available for re-use, or the entire site may become available. How can the city become more involved?



Strong city cooperation is essential to any re-use of the property. City intervention, through lobbying efforts and the like, may even help make substantial re-use possible.



Should substantial re-use become possible, city efforts can keep any planning scheme from becoming solely high-end residential and recreational, and instead provide for attractive office space appropriate for some of the target industries.

Potential City Planning/Entitlement Actions: •

It is uncertain whether economic and regulatory factors will make the site available for development. As with other large potential development sites, we recommend that the city start proposing and reviewing conceptual development schemes before third parties shape the debate.



All re-use schemes can take advantage of the opportunity to create a fairly urban pedestrian setting with many on-site amenities. This would be a unique type of new project for the South Bay, and probably create an inherent market advantage.

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159



Land economics at the moment seem to favor residential in favor of nonresidential uses, because Redondo Beach has a very upscale housing market. In most urban settings, office and retail parcels are more valuable (partly because of higher income streams, and partly because of higher densities). Therefore the city should investigate a wide range of development options that can adjust to changing land values: all office and retail, or fully mixed use, or all residential.



While the city will probably prefer to reinforce nearby visitor-serving land uses (marina, hotel, restaurant, etc.), and to complement nearby housing, it should not overlook the opportunity to create a prestigious, mostly office setting that could substantially change its economy. The site would be appropriate for a range of office uses, including corporate headquarters, high-end research facilities, "boutique" urban-style offices (such as those found in downtown Santa Monica), or open loft-style offices.



With regard to office space, the city could use zoning restrictions as an economic development tool. Creating a core concentration of firms in a fast-growing industry can attract other such firms, but such a concentration is hard to establish. The city might establish office zoning that allows occupancy just by multimedia or other software firms, for example. Such a strategy should be considered when and if office space is closer to being marketed. Any such strategy would also require flexibility over time to protect property owners and accommodate economic changes.



If the power plant were to terminate operation, the entire SCE right-of-way along Herondo St. and Anita St. would become available for development. Schematic planning should include these parcels in the master planning for the plant site.



To achieve implementation of a new master plan, and to provide more precision in zoning if necessary, a specific plan and/or development agreement is recommended.

Potential City Economic Development/Policy Actions:



It appears that a funding gap is likely between the buyer's purchase price and the (lower) development value of the site. As soon as more buyer information is known, the city needs to start examining financial options and mechanisms to write down land costs, as necessary, in the event of re-use. They may include redevelopment project designation, RECLAIM credits, state coastal development grants, use of property, sales and utility tax increment, EDA grants, and other sources. Thorough familiarity with these options will facilitate development.

160 •

South Bay Economic Adjustment Strategy If the power plant continues operation in its current location, approximately 20 acres of surplus property now occupied by unused oil tanks may still be available for development. Development of this need not be detrimental to eventual complete re-use, if that should occur, provided the city can ensure termination of any interim detrimental uses. For example, if the 20 acres are developed with industrial space on a ten-year leasehold with non-renewal provisions, the property could convert to a more compatible land use after lease expiration. This would require unusual project financing (probably tied to land ownership), but should be investigated.

6.3j Torrance: AlliedSignal Property Property Overview:

This 84-acre site is largely occupied by AlliedSignal facilities. There are additional parcels that may be suitable for new development if AlliedSignal vacates, and existing buildings may be re-occupied or re-developed. One vacant, nine acre parcel has been sold to an auto parts manufacturer. How can the city become more involved?



The city has an opportunity to direct ultimate usage to higher-intensity, higher benefit land uses such as office and R&D. At a minimum, the overall quality of industrial development could be improved.



The city may also assist in seeking financing mechanisms for re-use.

Potential City Planning/Entitlement Actions:



To achieve implementation of a new master plan, and to provide more precision in zoning if necessary, a specific plan and/or development agreement is recommended.



Allied Signal has reportedly considered a range of master planning alternatives, although it hasn't yet submitted any applications to the city. We recommend the city take the initiative of re-planning the site with the cooperation of AlliedSignal, and share some of the expense, so that broad economic and planning concerns influence development. Otherwise, the city may find itself reacting to narrowly

Re-Use of Industrial Sites for Target Industries

161

focused developer proposals. Furthermore, uncoordinated parcelization of the site might continue without overall planning. •

The property would benefit from a comprehensive examination of development and re-occupancy options that takes into account market, planning, financial, physical plant, environmental and regional economic factors. A multi-disciplinary team of outside professionals is recommended for such a review. . Issues to consider include: •

Extensive re-use of the site might allow for a cost-effective new business park: removal of some buildings, re-use of others, new internal streets, extensive landscaping, pedestrian zones, amenities such as a fitness center and support retail, are features that might enable such as transformation.



The goal of a site review should be to determine if a master-planned project could feasibly serve a higher-end office and R&D market, or is more suited to manufacturing or other industrial uses.



As an incentive for AlliedSignal participation, city public funding, or EDA funding if available, could partly pay for a review on a matching basis.



The site has similarities to the Boeing/Rockwell site in Anaheim, for which a similar study was completed, and the property is now being redeveloped by Koll Real Estate Corporation.



Master planning need not jeopardize Allied Signal's occupancy, but rezoning for future occupancies may be advisable to prevent incremental re-use that obstructs master planning.



Either with extensive new development or using existing buildings, the site could be appropriate for an industrial "incubator" for new firms needing highly flexible space (1,000 square feet or more of expandable and contractible space on a month-to-month basis). For example, the Irvine Company built 800,000 square feet of such space at the Irvine Spectrum. Some of the occupants grew to become major tenants elsewhere in the development.

162

South Bay Economic Adjustment Strategy

Potential City Economic Development/Policy Actions:



There will be some re-use obstacles, given the current real estate market: renovating office space may be too expensive for current rent yields, surface parking capacity may not support additional development, and office vacancies currently do not support substantial new construction. Detailed analysis of the site needs to incorporate market and development concerns, but also allows for changes in the market and for increased value that could be created by adding amenities, new infrastructure, and infill development to the site.

6.4 Real Estate Market Overview 6.4.a Introduction The following review of existing market data illustrates trends in the South Bay office and industrial real estate markets during the last five years. KA also sought subjective opinions from the brokerage and development communities and among city agency staff. The overall objective of this analysis is to determine the size and characteristics of the existing office and industrial markets, recent trends, and potential development opportunities as they relate to economic strategies identified by the Economic Roundtable and other members of the study team. Study Area

The official study area for the analysis includes the entirety of 15 South Bay cities, portions of the City of Los Angeles, and portions of unincorporated Los Angeles County. The cities included in their entirety are: • • • • • • • •

Carson El Segundo Gardena Hawthorne Hermosa Beach Inglewood Lawndale Lomita

• • • • • • •

Manhattan Beach Palos Verdes Estates Rancho Palos Verdes Redondo Beach Rolling Hills Rolling Hills Estates Torrance

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163

These areas of the City of Los Angeles are in the official study area: • •

Harbor Gateway San Pedro

• •

Westchester/Playa del Rey Wilmington/Harbor City

Three small unincorporated County areas are also included: • •

Alondra Park Lennox



West Carson

Readily available real estate data does not correspond precisely with the official study area. The most notable exception is that industrial data includes Compton and the LOS ANGELES County area of Rancho Dominguez, which are not part of the delineated study area. The analysis excludes real estate data for Long Beach and its environs, which is usually included in the South Bay market data, but is not part of the study area. Background Data

The South Bay economy and jobs base is described extensively elsewhere in the study. The number of South Bay jobs in selected industries (as identified by Economic Roundtable) that typically occupy office and industrial space are generally consistent with the measured South Bay inventories of such space. Notable job concentrations in the South Bay include aerospace and defense firms, which occupy a vast range of office and industrial space throughout the area. International trade firms are the second economic anchor of the South Bay, which includes three major trade generators: the Los Angeles International Airport, the ports of Los Angeles and Long Beach, and the Alameda trucking and rail corridor. The most significant impact of this sector on real estate is from Asian-based car manufacturers, which occupy millions of square feet of office and industrial space in Torrance and nearby. However, non-automotive trade-related firms in every goods sector, as well as other auto-affiliated firms, create demand for warehouse/distribution and assembly facilities. Freight operators are among the largest tenants and owners of industrial space. The South Bay economy is reasonably diversified, with numerous industries, both affiliated with and independent of the aerospace and trade sectors. These include manufacturers in most durable and non-durable segments, and a wide range of business service, research and engineering, and financial service providers. The South Bay is also notable for its oil refinery facilities, but these are not included in the competitive inventory. Because of this study's focus on the office and industrial markets, this overview does not incorporate demographic data on study area residents.

164

South Bay Economic Adjustment Strategy

6.4.b Office Market Total Inventory



The South Bay, excluding Long Beach, has approximately 22 million square feet of rentable class A and class B office space. (All subsequent square feet figures will refer to rentable square feet). This is currently 14.8%, or slightly less than one-sixth of the 156 million square feet of office space in LOS ANGELES County.



The figure has declined slightly in recent years, as small amounts of new construction have occurred elsewhere in the County, with little in the South Bay.



The figures include speculative, multi-tenant buildings of 20,000 square feet or more.



Separate, older figures from CB Commercial show a competitive inventory of over 200 buildings, or an average of approximately 110,000 square feet per building.



The CB Commercial figures also show that less than a quarter of its inventory was completed prior to the 1980s, over 70% was completed in the 1980s, and the remainder in the 1990s.



The age of the inventory is generally newer than LOS ANGELES County's inventory as a whole; the South Bay has a lower percentage of buildings erected prior to the 1980s. However, some submarkets of LA County that compete with EI Segundo, such as the Tri-Cities area, have a newer inventory of space.



See Table 17 for office market data from 1992 through 1996.

Subarea Inventories



The EI Segundo area has the largest concentration of office space, with 9.5 million square feet or approximately 44% of the total. The space is distributed throughout the city with notable concentrations on the Rosecrans, Sepulveda, EI Segundo Blvd. and Imperial Highway corridors.

Other key office corridors include the Cen~ Blvd. corridor (the LAX area has approximately 4.2 million square feet), the 190 St. corridor in Torrance and Carson, and the central Torrance area.

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165

Table 17 Office Market Trends LA County and South Bay Year Ending: Total Office Space (000 SF) South Bay Study Area *

Los Angeles County Vacant Office Space (000 SF) South Bay Study Area *

Los Angeles County

1992

22,400 151,756

1994

1995

1996

21,792 22,025 152,968 150,756

21,657 149,776

21,818 156,147

1993

4,660 29,556

5,546 30,095

5,108 29,316

5,561 27,761

5,290 27,540

20.8% 19.5%

25.2% 19.7%

23.4% 19.4%

25.7% 18.5%

24.2% 17.6%

(254) 1,632

(887) (229)

95 508

(541) 1,019

168 2,577

(375) 1,212

(233) (2,212)

(135) (980)

161 6,371

886 539

(438) (779)

453 (1,555)

(271) (221)

14.4% 18.4% n.a.

14.5% 17.4% 18.7%

14.5% 20.0% -53.1%

14.0% 19.2% 6.5%

Percent Vacant

South Bay Study Area * Los Angeles County Net Absorption (000 SF)

South Bay Study Area * Los Angeles County Net Change in Total Inventory (000 SF) South Bay Study Area *

Los Angeles County Net Change in Vacant Inventory (000 SF) South Bay Study Area *

Los Angeles County South Bay Study Area as % of County

Percent of County Total Inventory Percent of County Vacant Space Percent of County Net Absorption

14.8% 15.8% -15.6%

* Includes all Grubb & Ellis market areas in the South Bay except for Long Beach Downtown and Suburban.

Data source: Grubb & Ellis Company

166

South Bay Economic Adjustment Strategy

Figure 54 LA County and South Bay Office Square Feet 1996

21,818,000

I • South Bay

I

I

LA County Total ;



Other communities in the South Bay, including the beach cities , the Palos Verdes communities, the Harbor/Wilmington areas, and the Hawthorne/ Gardena areas , have much smaller concentrations and amounts of office space which are included in the overall totals .



Among the subareas in the South Bay, the LAX area inventory is generally the oldest.



Table 18 provides detailed subarea office data from 1992 through 1996.

Market Activity : Vacancy Rates



South Bay office vacancy rates increased substantially in 1993 to 25.2%.



Vacanc y rates declined slightly to 24.2% in 1996. Further decreases have been reported for 1997, with a reported third quarter vacancy rate of 23.1%. Class A vacanc y is substantially lower.

These are substantially higher than County rates as a whole, which reached a high of 19.7% in 1993 and have since declined to 17.6%. The South Bay is one of the most depressed office markets in the region. In the last several years , certain other submarkets have benefited from very strong job growth in entertainment, while the

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167

Table18 Office Market Trends by Subarea LA County and South Bay (1,OOO's of squarefeet) Year-End 1996 los Angeles Airport/Century Boulevard EI segundo/Manhattan Beach Torrance Freeway Torrance central

Rentable Vacant Space Space 4,198 1.600 1,915 9.446 3.296 930 3,257 520

Carson South Bay Study Area Total

1.621 21,818

los Angeles County Total

Percent Vacant 38.1% 20.3% 28.2% 16.0%

Net Space Absorbed (24) (47)

Effective Rent $0.85 $1.55 $1.40 $1.40

106 101

325

20.0%

156.147

5.290 27,540

24.2% 17.6%

2.577

$1.53

Study Area as Percent of County Total Year-End 1995 Los Angeles Airport/Century Boulevard EI Segundo/Manhattan Beach Torrance Freeway

14.0%

19.2%

137.5%

6.5%

84.3%

4.195 9,295 3,291

1,599

38.1% 20.8%

(70)

1.933

$0.85 $1.50

Torrance Central Carson

3,255 1,621

South Bay Study Area Total Los Angeles County Total Study Area as Percent of County Total

1.070 629

32.5% 19.3% 20.4%

32 168

330 5,561 27,761

25.7% 18.5%

1.019

$1.47

14.5%

20.0%

138.5%

-53.1%

87.1%

4.200 9.407

Torrance Freeway

3.288 3,277

Study Area as Percent of County Total

1.620 21.792 150,756

1,561

EI Segundo/Manhattan Beach Torrance Freeway Torrance Central Carson South Bay Study Area Total los Angeles County Total Study Area as Percent of County Total

$1.05 $1.28

Asking Rent Range Low High $0.75 $1.30

1.700 761

37.2% 18.1%

70 (5)

$0.95

$2.10

23.1%

130

$0.99

700

21.4%

(55)

386

23.8% 23.4% 19.4%

$1.00 $0.80 $0.75

$1.80 $2.00 $1.80

5.108 29.316 17.4%

120.5%

30 95 508 18.7%

4.202 9,638

1,705

40.6%

(200)

1.934

20.1%

(537)

$1.15

$2.00

3.288

900

27.4%

(60)

$1.80

3.277 1.620 22.025

596 411

18.2% 25.4%

53 (143)

$1.25 $1.00 $0.85

$2.05 $1.85

5.546 30.095 18.4%

25.2% 19.7%

$0.85 $0.50

$3.60

128.0%

14.5%

Year-End 1993 Los Angeles Airport/Century Boulevard

$1.35 $1.40

80 45 (541)

21,657 149,776

los Angeles Airport/Century Boulevard EI Segundo/Manhattan Beach

South Bay Study Area Total Los Angeles County Total

$1.29

(330) (266)

Year-End 1994

Torrance Central Carson

$1.00

$0.50

150.0% 60.0% Asking Rent Range Low

152.968 14.4%

(887) (229) 387.3%

Year-End 1992

$2.10 $3.50

$1.00

High $1.50

$2.05

170.0% 56.9% Asking Rent Range Low High $1.00 $1.70

Los Angeles Airport/Century Boulevard

4,200

1.503

35.8%

(88)

EI segundo/Manhattan Beach

9,885

1.397

14.1%

(132)

$1.15

Torrance Freeway

3,370

843

25.0%

25

$1.35

$1.85

Torrance central

3.275 1,670

649

19.8%

(61)

268

16.0%

$2.15 $1.90

22,400

4,660

20.8%

2 (254)

$1.10 $0.90 $0.90

151.756 14.8%

29.556 15.8%

19.5% 106.8%

1,632 -15.6%

$0.90 100.0%

$2.25 $3.95 57.0%

Carson South Bay Study Area Total Los Angeles County Total StUdy Area as Percent of County Total Data Source: Grubb & Ellis Company

$2.25

168

South Bay Economic Adjustment Strategy

Figure 55 South Bay Office Inventory 1996

Carson 7%

Los Angeles A irport/Century Boulevard 19%

Torrance Freeway 15% EI Segundo/ Manhattan Beach 44%

South Bay has suffered from heavy depen dence on aerospace. Recent office activity has come from a range of computer, telecommunications, and other non-aerospace firms. •

Certain subareas are much worse off; the LAX area has by far the highest vacancy rate at 38.1%. Excluding the LAX area, vacancy is under 21%.



Over recent years , the El Segundo area and central Torrance have had the lowest vacancy rates .

Market Activity: Net Absorption and Rents •

Net absorption, as measured conservatively by Grubb & Ellis, has averaged approximately a negat ive 300 ,000 annually over the last five years, compared to over 900 ,000 square feet in the County as a whole (or over 1.2 million square feet excluding the South Bay) .

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169

Figure 56 LA County and South Bay Office Vacancy 1992 - 1996 30.0%

-r--------------------,

25.0%

Sca

20.0%

Q:

, _South Bay LA County Total

>- 15.0% u

!I _

c ca ca 10.0%

u

>

5.0% 0.0%

1992

1993

1994

1995

1996



Looking farther back, net absorption averaged a positive 260,000 annually over the past eleven years, according to Grubb & Ellis.



In effect, in the past five years about a third of the positive absorption from the previous six years has been lost.



While absorption activity in the late 1980s was much more robust, the South Bay still exhibited disproportionately low absorption relative to its proportion of County-wide office space.



The negative absorption trends have been highly detrimental for office landlords and developers, affecting both rents and new development activity.



Both 1996 and 1994 had modest but positive net absorption.



Effective rents vary widely in the South Bay and are highest in El Segundo and lowest in the LAX area. Effective rents are $1.29 per square feet per month in the South Bay as a whole.

170

South Bay Economic Adjustment Strategy

Figure 57 South Bay Office Vacancy Rates 1992· 1996 45.0% 40.0% __ Los Angeles Airport! Century Blvd.

35.0%

S C'CI

30.0%

0:::

I

Beach

25.0%

~

u

c

-x- EI Segundol Manhattan _

Torrance Freeway

20.0%

C'CI

u

__ Torrance Central

C'CI

>

I

. -- Careon

10.0% 5.0% 0.0% 1992



1993

1994

1995

1996

These rents are much lower than overall effective rents in West Los Angeles ($2.05 per square feet) and the San Fernando Valley ($1.80 per square feet).

Market Outlook •

The outlook appears strong for absorption of existing office space over the next several years, provided the regional economy continues at least moderate growth: • • • •



rents are much lower than the key West Los Angeles and San Fernando markets the area has many attractive office projects, with good access to residential, retail and other co-locating factors a large variety of space configurations are available, including large contiguous spaces a favorable local tax structure in most South Bay communities is attractive to companies

The outlook for significant new office construction in the South Bay is quite poor until the vacancy in existing space declines: • a typical rule of thumb is that office rents must exceed approximately $1.80 under current construction costs to make new construction profitable, and South Bay rents are currently far below this

Re-Use of Industrial Sites for Target Industries • •

• •



171

high vacancy rates will make it difficult to dramatically increase rents for some time the Playa Vista development and other new construction on the West Side and elsewhere in the County will provide competition for tenants willing to pay rents for new construction renovation of older or ill-configured buildings is more likely occasional non-speculative buildings for corporate users with specific requirements may be exceptions

Some new office construction will likely- occur under current trends, based on the following factors: • major current tenants may want to build new space in particular locations or to provide specific configurations • Los Angeles County in general has a small amount of the office space currently most in demand: smaller floorplates and/or "campus" style layouts. Some tenants will pay rent premiums for new space delivering such configurations.

6.4.c Industrial Market Total Inventory



The South Bay excluding Long Beach has approximately 165 million square feet of industrial space. This is currently 21.2% or over one-fifth of the 778 million square feet of industrial space in Los Angeles County.



This space includes warehouse/distribution space, manufacturing space, and R & D space (which may be either type of industrial space with a large proportion of space, typically 50% to 70%) finished as office space. The figures include speculative and owner-occupied buildings of 10,000 square feet or more (size may vary by area).



The figure has declined slightly in recent years, as new construction has occurred elsewhere in the county, with almost none in the South Bay.

172

South Bay Economic Adjustment Strategy Figure 58 LA County and South Bay Industrial Square Feet 1996

164,807,000

.South Bay LA County Total





Separate, older figures from CB Commercial show a competitive inventory of over 2,500 industrial buildings, or an average of 66,000 square feet per building.



The CB Commercial figures also indicate that the industrial inventory is relatively old. Tremendous development took place in the 1950s through the 1970s, with a decline in the 1980s and little since.

See Table 19 for industrial market data from 1992 through 1996, and Table 20 for detailed subarea industrial data from 1992 through 1996.

Subar ea Inventories



The Carson/Dominquez Hills area (including Compton and unincorporated Rancho Dominguez) has the largest concentration of industrial space, with over 83 million square feet or 50% of the total. This dominance is likely to grow given the large inventory of vacant land still remaining in the Dominguez Technology Center.



Other industrial space is distrib uted throughout the South Bay, with relatively little in the beach cities and the Harbor area .



Among the subareas in the South Bay, the Carson inventory is generally the newest. Torrance is also relati vely new.

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173

Table 19 Industrial Market Trends LA County and South Bay 1992

1993

1994

1995

1996

164,739 743,669

164,739 751,154

164,739 769,439

164,807 774,947

164,807 778,177

South Bay Study Area * Los Angeles County Percent Vacant

21,280 92,025

20,627 95,010

19,496 97,456

13,981 68,391

13,208 55,939

South Bay Study Area * Los Angeles County Gross Activity (OOO.SF)

12.9% 12.4%

12.5% 12.6%

11.8% 12.7%

8.5% 8.8%

8.0% 7.2%

South Bay Study Area * Los Angeles County Net Change in Total Inventory (000 SF)

6,850 38,421

7,843 39,284

10,030 42,916

10,240 42,261

10,215 44,062

South Bay Study Area * Los Angeles County Net Change in Vacant Inventory (000 SF)

0 7,485

0 18,285

68 5,508

0 3,230

South Bay Study Area * Los Angeles County South Bay Study Area as .o/e of County

(653) 2,985

(1,131) 2,446

(5,515) (29,065)

(773) (12,452)

21.9% 21.7% 20.0%

21.4% 20.0% 23.4%

21.3% 20.4% 24.2%

21.2% 23.6% 23.2%

Year Ending: Total Industrial Space (000 SF) South Bay Study Area * Los Angeles County Vacant Industrial Space (000 SF)

Percent of County Total Inventory Percent of County Vacant Space Percent of County Gross Activity

22.2% 23.1% 17.8%

* Includes all Grubb & Ellis market areas in the South Bay except for Long Beach/Paramcunt

Source: Grubb & Ellis Company

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South Bay Economic Adjustment Strategy

Table 20 Industrial Market Trends by Subarea LA County and South Bay (1,000'. of Square Feet) Year-End 1996

Los Angeles AirportiEI Segundo Torrance/Harbor City Hawthorne/Gardena Carson/ComptontRancho Dominguez Wilmington/Harbor South Bay Study Area Total Los Angeles County Total Study Area as Percent of County Total Year-End 1995 Los Angeles AirportlEI Segundo Torrance/Harbor City Hawthorne/Gardena Carson/Compton/Rancho Dominguez Wilmington/Harbor South Bay Study Area Total Los Angeles County Total Study Area as Percent of County Total Year-End 1994 Los Angeles AirportlEI Segundo Torrance/Harbor City Hawthome/Gardena Carson/Compton/Rancho Dominguez Wilmington/Harbor South Bay Study Area Total Los Angeles County Total Study Area as Percent of County Total Year-End 1993 Los Angeles AirportlEI Segundo Torrance/Harbor City Hawthome/Gardena Carson/Compton/Rancho Dominguez Wilmington/Harbor South Bay Study Area Total Los Angeles County Total Study Area as Percent of County Total Year-End 1992 Los Angeles AirportlEI Segundo Torrance/Harbor City Hawthome/Gardena Carson/Compton/Rancho Dominguez Wilmington/Harbor South Bay Study Area Total Los Angeles County Total Study Area as Percent of County Total Data Source: Grubb & Ellis Company

Total Industrial Space

Vacant Industrial Space

Percent Vacant

Gross Activity

Effective Rent

19,674 29,561 26,892 83,241 5,439 164,807 778,177 21.2%

1,130 2,190 1,090 8,700 98 13,208 55,939 23.6%

5.7% 7.4% 4.1% 10.5% 1.8% 8.0% 7.2% 111.5%

641 1,986 900 6,536 152 10,215 44,062 23.2%

$0.45 $0.37 $0.29 $0.32 $0.25 $0.33 $0.34 97.1%

19,674 29,561 26,892 83,241 5,439 164,807 774,947 21.3%

1,430 2,085 1,384 8,731 351 13,981 92,025 15.2%

7.3% 7.1% 5.1% 10.5% 6.5% 8.5% 11.9% 71.4%

675 1,850 730 6,925 60 10,240 38,421 26.7%

$0.45 $0.35 $0.29 $0.30 $0.26 $0.31 $0.33 93.9% Asking Rent Range Low High

19,675 29,492 26,892 83,241 5,439 164,739 769,439 21.4%

1,978 3,460 2,112 11,485 461 19,496 97,456 20.0%

10.1% 11.7% 7.9% 13.8% 8.5% 11.8% 12.7% 93.4%

950 1,500 990 6,500 90 10,030 42,916 23.4%

$0.25 $0.15 $0.15 $0.22 $0.17 $0.15 $0.12 125.0%

$0.85 $0.55 $0.40 $0.59 $0.29 $0.85 $1.25 68.0%

Asking Rent Range Low High

19,675 29,492 26,892 83,241 5,439 164,739 751,154 21.9%

1,356 3,199 2,303 13,274 495 20,627 95,010 21.7%

6.9% 10.8% 8.6% 15.9% 9.1% 12.5% 12.6% 99.0%

550 1,043 600 5,500 150 7,843 39,284 20.0%

$0.35 $0.25 $0.23 $0.23 $0.23 $0.23 $0.10 230.0°"

$0.85 $0.50 $0.39 $0.55 $0.34 $0.85 $1.50 56.7%

Asking Rent Range Low High

19,675 29,492 26,892 83,241 5,439 164,739 743,669 22.2%

1,365 3,970 2,100 13,260 585 21,280 92,025 23.1%

6.9% 13.5% 7.8% 15.9% 10.8% 12.9% 12.4% 104.4%

930 650 375 4,770 125 6,850 38,421 17.8%

$0.25 $0.30 $0.26 $0.23 $0.25 $0.23 $0.20 115.0%

$1.15 $0.90 $0.42 $0.65 $0.36 $1.15 $1.15 100.0%

Re-Use of Industrial Sites for Target Industries

175

Figure 59

South Bay Industrial Inventory 1996 Wilmington/ Harbor 3%

--y-o-

Los Angeles Airport! EISegundo 12% Torrance! Harbor City 18%

Carson/Compton / Rancho Dom inguez 51% Hawthome! Gardena 16%

Market Activity: Vacancy Rates



South Bay industrial vacancy rates declined significantly in the last two years to 8.0% in 1996, from 12.9% in 1992. This is the lowest vacancy rate in seven years. Vacanc y has continued to decline markedly in 1997, with a reported third quarter rate ofjust 6.0%.



These are quite close to County vacancy rates as a whole, which have also declined substantially in recent years. County rates are the lowest in 11 years.



Vacancy is higher in the Carson/Compton/Dominguez area.



Vacancy is extremely low in the Harbor/Wilmington area.

Market Activity: Gross Activity and Rents



Gross Activity in the industrial market, as measured by Grubb & Ellis, has averaged approximately 9 million annually over the last five years , a healthy

176

South Bay Economic Adjustment Strategy

Figure 60 LA County andSouth BayIndustrial Vacancy 1992 - 1996

14.0% ,..-

---.,

12.0%

S ~

10.0% 8.0%

I_SOUth Bay

>..

u

c C'lI e

6.0%

>

4.0%

1 __

.

LA County Total.

C'lI

2.0% 0.0% 1992

1993

1994

1995

1996

portion of the average of approximately 41 million square feet in Los Angeles County as a whole. •

In the past five years, approximately 8.1 million square feet of vacant space has been absorbed, and another 37 million square feet has been involved in lease or sale activity. In 1997, absorption rates have reportedly increased.



The strong activity led to slightly increased effective rents (up to $0.33 per square feet per month in 1996 from $0.31 the prior year).



Rents are highest in the LAX/EI Segundo area, and far lower Harbor/Wilmington area.

III

the

Market Outlook



The outlook appears very strong for existing industrial space, provided the regional economy continues at least moderate growth: • vacancy is declining to low levels • continued growth of freight-related activity at LAX and the Ports is likely

Re-Use of Industrial Sites for Target Industries

177

Figure 61

South Bay Industrial Vacancy Rates 1992 ·1996 18.0% ..,.....-

---,

16.0%._--....... i __ Los Angeles

I

i

AirportlEI Segundo :

i -x- Torrance/Harbor

s

iI

~

City

\ _ ~awthome/Garden

~

;

8.0%

(,)

I

1--------'

~

6.0%

~ Carson/Compton/ Rancho Dominguez -0-

Wilmington/ Harbor

4.0% 2.0% 0.0% -'-------, 1992

• •

1993

---,1994

--+-_ _---'

1995

1996

eventually, the Alameda corridor project is expected to boost freight activity in adjacent portions of the South Bay, such as Carson somewhat limited opportunities for new construction help existing buildings



Much of the older existing space is becoming obsolete as new users seek features like truck docks, high ceilings, sprinklers, and secured and landscaped grounds. They also often more parking that smaller facilities provide. This will fuel demand for new inventory and recycling of some existing space.



This demand may become quite strong, but new construction will commence subject to limitations: • land asking prices in some areas are too high for feasible industrial construction and/or vacant sites have environmental mitigation problems, and landowners are typically slow to reduce prices in lieu of holding land • some communities resist new industrial construction on many sites because of low perceived fiscal benefits, or perceived undesirable impacts of industrial land use • Watson Land Co. and Carson Cos. properties in the Dominguez Technology Center are exceptions to these limitations, with new development expected and underway now. Other major projects under development include properties in the City of Los Angeles near 190th St.

178

South Bay Economic Adjustment Strategy

Summary ofInformation about Recycling South Bay Industrial Sites •

One of the most frequent complaints heard from expanding and relocating companies about Los Angeles County concerns the lack of modem, master-planned office and industrial parks. The lack of a sufficient number of such facilities puts the South Bay at a competitive disadvantage with Orange County, the Inland Empire, and the west San Fernando Valley.



Huge growth of the South Bay industrial and office inventory in the last 30 years, together with housing and retail, has left few significant undeveloped parcels. Most new office and industrial development is actually infill redevelopment of older sites. There are some exceptions, notably Dominguez Technology Center in Carson.



Infill development occurs in an environment that is rarely subject to master planning with strong site layout, landscaping, service facilities and similar amenities. Infill development can be attractive and successful, but only with strict planning guidelines.



Large-scale master planning makes expansion easier for growing firms, Master planning can also be a vehicle for expanding the range of industries attracted to a property -development controls allow different types of operations to co-exist, and they also can attract firms to formerly less desirable locations. Property-specific master planning efforts will often be appropriate, preferably with cooperation of owners. In the absence of such action, developers will build the product that can obtain financing most easily, and cities may not control the process until changes are too late.



South Bay cities should create a task force of public planning officials and local developers to examine the obstacles to successful redevelopment of key sites, and seek out additional EDA grants for several site-specific master planning efforts identified in this report.



The age of the South Bay office inventory is generally newer than Los Angeles County's as a whole; the South Bay has a lower percentage of buildings erected prior to the 1980's. However, some submarkets of the county that compete with EI Segundo, such as the Tri-Cities area, have a newer inventory of space.



The South Bay is one of the most depressed office markets in the region. In the last several years, certain other submarkets have benefited from very strong job growth in entertainment, while the South Bay has suffered from heavy dependence on aerospace.



The market outlook appears strong for absorption of existing office space over the next several years, provided the regional economy continues at least moderate growth. South Bay rents are much lower than the key West Los Angeles and San Fernando markets,

Re-Use of Industrial Sites for Target Industries

179

and the area has many attractive office projects, with good access to residential, retail and other co-locating factors. •

The outlook for significant new office construction in the South Bay is quite poor until the vacancy in existing space declines.



The South Bay's share of the region's industrial space has declined slightly in recent years, as new construction has occurred elsewhere in the County, with almost none in the South Bay.



South Bay industrial vacancy rates quite close to the county vacancy rates as a whole, which have also declined substantially in recent years.



The outlook appears very strong for existing industrial space, provided the regional economy continues at least moderate growth.



Much of the older existing space is becoming obsolete as new users seek features like truck docks, high ceilings, sprinklers, and secured and landscaped grounds. They also offer more parking that smaller facilities provide. This will fuel demand for new inventory and recycling of some existing space.

180

South Bay Economic Adjustment Strategy

Chapter 7

Competitive Standing and Prospects

This chapter provides an overview of the South Bay's competitive standing in key areas of business environment, growth prospects for target industry groups, institutions for private-public cooperation, technology transfer, infrastructure, work force, educational resources, and strategic information.

South Bay Competitive Assessment

7.1 7.l.a

Strengths ofthe South Bay Business Environment

The South Bay is seen as a high-end business environment, a generally desirable place to do business. Furthermore the physical proximity of the Space and Missile Systems Center allows regular interaction between commercial research organizations such as TRW, Nichols Research and SAlC, and their government client. Strengths identified by major South Bay employers in interviews conducted for this study include: • • • • • • • • • • •

large pool of skilled and experienced workers educational programs at universities that compliments workforce needs good work ethic strong supplier base large investments in industrial facilities presence of the Air Force Base presence of the Aerospace Corporation transportation infrastructure -- air and sea ports, freeways attractive, stable neighborhoods with a high level of public services excellent weather beaches

Many of these strengths are captured in a full-page advertisement placed by TRW to recruit electronics, avionics and electro-optic engineers: "TRW Space and Technology Division is headquartered in Southern California's beautiful South Bay. Here you'll have the opportunity to work with the brightest minds in the industry on anyone of a number of the most fascinating projects on the planet -- or off it. All in a stimulating campus-like setting just

182

South Bay Economic Adjustment Strategy steps from the beach and a short drive to the mountains. And you're right in the middle of more ways to enjoy a weekend than you could ever imagine." I

Aerospace representatives report that they have to sell the community as well as the employer when they try to recruit talented professionals. The same engineer who reads TRWs ad may also receive recruiting calls from electronics companies in Seattle and hear competing claims of more affordable housing, bountiful lakes and forests, and commercial electronics research purportedly more cutting-edge than defense work. A recent report discussing TRW's South Bay operations stated: "High costs are a problem, especially in recruiting younger talent . . . Dispersion of the company's defense-related operations from Los Angeles appears to have been driven in part by employee desire to live elsewhere. ,,2

7.l.b Weaknesses ofthe South Bay Business Environment Competitive weaknesses of the South Bay, cited by the same major high technology employers include: • • • • • •

high cost of housing that results in many workers with families buying elsewhere and having long commutes perceptions that schools are not as good as those in other regions perceptions that crime rates and gang activity are higher than in other regions traffic congestion poor air quality high automobile insurance

Major aerospace companies as well as the Space and Missile Systems Center report successes in recruiting professional staff directly out of colleges and universities. However, when employees reach their mid-twenties to mid-thirties and want to start families and buy their own homes, they often find they cannot afford a house in the South Bay. The search for affordable housing may well take workers as far away as the Chino Hills or Santa Clarita Valley, resulting in very long commute times and struggles with traffic congestion. Furthermore, many mid-income communities in the Los Angeles region are perceived as having schools that are substandard, high crime rates and gang activity, and poor air quality. From the perspective of business costs, some companies have high overhead resulting from environmental compliance issues and virtually all companies report that real estate and labor costs are high compared to other regions. Important reasons for companies to pay these costs are that the South Bay has a large pool of skilled workers, including engineers and programmers, and specialized suppliers that can not be found in many other lAviationWeek & SpaceTechnology, December9,1996, p. 93. 2Michael Oden,Ann Markusen, Dan Flaming, and Mark Drayse, "Post ColdWar Frontiers: DefenseDownsizing and Conversion in Los Angeles," Centerfor Urban Policy Research, Rutgers, 1996, p. 53.

Competitive Standing and Prospects

183

regions. Businesses and workers combine to create a critical mass that provides mutual locational advantages. A consequence of business cutbacks and employment reductions in areas such as missile and aircraft development and production is that this critical mass can dissipate, eliminating the competitive strengths that offset locational disincentives created by high business costs. One key to the South Bay's future is to remain a high-value-added location where high productivity together with an appealing quality of life justify paying higher land and labor costs.

7.2 Growth Issues and Prospects The South Bay's ability to remain a location for high value added, high wage industries may depend on the success of strategies designed to improve public-private cooperation and facilitate growth of the South Bay's anchor industries. The South Bay needs to build upon existing strengths in high technology and international trade, as well as tap into regional growth industries such as entertainment and multimedia. Growth issues and prospects for these industry sectors in the South Bay are discussed below.

7.2.a High Technology High technology has been a strength of the South Bay economy since the early growth of the aircraft industry in the 1930's. Technological innovations, wars and economic cycles have reshaped aerospace industries at the core of the region's high technology in each of the following decades, with dramatic restructuring since the mid-1980's. As discussed in Chapters 2 and 3, this has involved mass layoffs, plant closures, production relocation, and mergers and acquisitions that have left only a few major defense firms, each of them now headquartered outside the Los Angeles region. Despite defense industry restructuring, the South Bay remains one of the most important centers of U.S. aerospace, and is becoming increasingly specialized in the production and maintenance of satellite systems. The South Bay high technology base of 1997 is a tapestry of industries linked to space systems, aeronautical services and aviation; its output includes research and development services as well as production of electronic and aerospace hardware (and software). Core firms include small and medium size software developers that are increasingly connected with space systems and the multimedia industry, research and testing firms such as Aerospace Corporation and TRW that are integral to the region's defenselinked industrial base, and commercial satellite developers and producers, with Hughes Telecommunications and Space as the industry leader. These industries still are highly concentrated in the South Bay, and pay relatively high wages. Large high technology employers, including Alliedsignal, Hughes and TRW report productivity and sales per employee have increased and continue to grow. At the same time, the proposed acquisition of Northrop Grumman by Lockheed Martin and completed

184

South Bay Economic Adjustment Strategy

acquisition of Hughes' defense segment by Raytheon (over 2,000 lay-offs planned in the county, and 1,100 in El Segundo) are not favorable developments for the South Bay. Raytheon's planned lay-offs will wipe-out modest gains achieved by the South Bay aircraft sector since 1995. An aerospace industry analyst commented, "the merger with Lockheed will take its toll on Northrop. The eater gets healthy, the eatee gets tom to shreds." The viability, growth or decline, and locational decisions of these large employers have direct and resounding impacts on the quality of life of South Bay wage earners, the level of local retail sales, and the tax revenues received by local government. TRW reports that 65% of its 10,000 Los Angeles based employees live in the South Bay, and data from the Aerospace Corporation indicates comparable local concentration (see Map 9). After losing an estimated 39,000 aerospace jobs in the South Bay between 1988 and 1994, this industry sector is consolidating around remaining areas of strength, with encouraging growth in some areas. Employment at TRW increased by 2,000 in 1997, and by 1,000 in each of the preceding two years, after bottoming out in 1994. Employment at Hughes increased more modestly, from 5,625 in 1993 to 7,879 in 1997. Aerospace Corporation employment declined by 1,300 since 1993, and AlliedSignal plans to hold employment constant at its current size of 3,000 with any expansion in production capacity to be achieved through suppliers. Employment at Northrop Grumman's South Bay facilities has stabilized and grown slightly in the past two years. In announcing the planned merger with Lockheed Martin, Northrop Grumman indicated there would not be immediate layoffs. Lockheed Martin's proposed (and currently stalled due to Department of Defense opposition) acquisition of Northrop Grumman would create the world's largest military manufacturer. Lockheed Martin is known for vertically integrating production and services within the company structure, going to external suppliers only when they do not have the necessary capacity internally. To the extent that Northrop Grumman's South Bay facilities represent Lockheed Martin's strongest capabilities for performing specific kinds of work, that work would likely remain in, or be brought to, the South Bay if the consolidation goes through. The South Bay is likely to retain existing military aircraft work and may be a growth site for commercial work. However, given that Lockheed Martin's overall center of gravity is elsewhere, with management in Maryland and production heavily centered in Texas, the South Bay probably will not play a significant role in new military aircraft programs if the consolidation occurs. Northrop Grumman would be Lockheed's sixteenth acquisition in sixteen years, and given the pattern of past acquisitions it would be two to three years before organizational changes resulting from the acquisition were complete. Boeing's subcontracting strategy differs from Lockheed Martin's in that they favor using the lowest price supplier, given comparable quality and reliability capabilities. This may benefit South Bay aerospace suppliers who are able to compete on the basis of high quality, flexible manufacturing, and cost. Recently announced plans by Boeing to lay-off 6,200 workers in Southern California offer sobering evidence of the difficulty of competing for and retaining aerospace jobs.

Map 9

Residences of Aerospace Corporation Workers in 1997 Southern LA and Orange Counties

Aerospace Corporation

Number of Employees per Zipcode ~~ 1-5 111111: 6 - 10 ~ 11 - 20 21-80 . . 81-151

==

oi

5

10

15

20 Miles !

186

South Bay Economic Adjustment Strategy

Technology Commercialization

The aerospace industry accounts for more than a quarter of all of the nation's research and development expenditures.' and a significant share of these R&D investments have been made in the South Bay. There is a clear public interest in transferring useable intellectual property produced by defense research to commercial applications. A significant amount of diversification away from defense markets has already occurred. Hughes Electronics now earns nearly two-thirds of its revenue outside the defense market. It has produced 45 percent of all commercial communications satellites ever launched, more than twice as many as its nearest competitor and is a world leader in wireless communications technology and services. TRW receives 30 percent of its revenue from nondefense sources, much of it from NASA, and may enter the wireless communications market. The Aerospace Corporation, which serves as a Library of Congress for U.S. space programs, is gradually expanding into nondefense work, including its Law and Technology Center which performs research for law enforcement agencies. NORTHROP GRUMMAN'S ADVANCED TECHNOLOGY TRANSIT BUS

Northrop Grumman is perhaps the most reluctant of all United States defense prime contractor to commercialize the numerous technologies with commercial potential it has developed. An unfortunate consequence of this rigidity appears to be that the company now finds itself with an inadequate share of the defense market to remain competitive as a prime contractor and no footholds in new markets. Despite aversion to moving outside its core aircraft/defense market, Northrop Grumman has been the beneficiary of the largest publicly funded defense conversion project in Southern California, and quite possibly the United States. Since September 1992, it has received over $50 million in federal and local transportation funds to design and build six prototypes of the Advanced Technology Transit Bus (ATTB) at the company's South Bay facilities. Defining elements of the ATTB project have included: •

Aerospace technologies that were successfully transferred to a commercial ground transportation application, including composite materials for a light, strong bus body, all-electric drive train and electronic controls;



A skilled technical team that successfully engineered and fabricated a completely redesigned transit bus;



Shrewd contract negotiators and project managers who took de facto control of the project and used relatively small amounts of corporate resources (reportedly $1.5

3U.S. Department of Commerce, International Trade Administration, "U.S IndustrialOutlook 1994," p. 20-1, 1994.

Competitive Standing and Prospects

187

million) to carry out key computer simulation tasks, thereby laying claim to ownership of most commercially valuable intellectual property from the project; •

Strong support for the project from Los Angeles county and city political leaders, including a large proposed package of economic development incentives to open a bus manufacturing facility in the Los Angeles area and a declaration of intent to make a major, multi-year purchase of ATIB buses;



Corporate management that gave notice it did not intend to take the lead in manufacturing the bus at the ribbon cutting ceremony when the first prototype was rolled out; and



Efforts that are underway as this report goes to press to find a commercial bus manufacturer that will agree to play the lead role in manufacturing the ATTB.

The jury is still out on whether the ATIB will successfully emerge from its defense industry womb to become a commercial product that improves the lives of bus riders in this region and elsewhere. It is encouraging that Los Angeles area officials have identified a locally purchased product that can benefit from aerospace technology and provided sustained support for technology transfer efforts. It remains to be seen whether the ATIB program can link intellectual property it has garnered with the equity and marketing strategies of a major bus manufacturer. Public leaders in the region are challenged to act carefully on their interests in local job creation and improved public transit by providing judicious support for the ATIB program as it attempts to leave a command-and-control defense environment and find a foothold in a market-driven commercial environment. Some of the lessons about technology commercialization that can be drawn from this program are that in addition to having a technology that offers competitive advantages in a real market, successful initiatives require: •

A company committed to commercialization that has the resources and market knowledge to aggressively and competently champion commercial success; and



Equally competent public sector participation built on long-range planning, independent analysis of costs and benefits, safeguards to ensure equitable public return on public investments, and an understanding of conflicting objectives as well as opportunities for synergy that are inherent in public-private partnerships.

ALLIEDSIGNAL'S TURBOGENERATOR POWER SYSTEM

A major initiative by AlliedSignal in Torrance to manufacture turbogenerators for ultra-low-emission, low-cost generation of electrical power at businesses, factories, and remote locations is now underway. Strengths of this project include knowledge of the

188

South Bay Economic Adjustment Strategy

market they are entering, a carefully developed product that offers advantages in cost savings and environmental benefits, and willingness to invest significant corporate resources

to bring theproduct to market. AlliedSignal Power Systems has been formed as a wholly owned subsidiary of AlliedSignal to produce and market a low-emission, low cost turbogenerator for producing electricity. This commercial program builds on expenditures of over $30 million by the U.S. government and private industry, including AlliedSignal, to develop recuperated combustion turbines to produce electricity for military and automotive use. The turbogenerator design is based on mass production concepts of AlliedSignal's turbocharger business, making it possible for AlliedSignal to use its existing turbocharger factory line in Torrance to produce the core unit for the turbocharger. Strengths of this technology include: • • • • • • • • •

high power density (about one-third the size of a comparable diesel genset) minimal noise ultra-low emissions excellent partial load performance high reliability and minimal service requirements variable alternating current output ease of installation and servicing fuel flexibility low cost Prime commercial markets for the turbogenerator include:

• • • • •

off-grid applications for stand alone power (e.g., in remote sites) on-grid applications for peak shaving, load following or base load service emergency back-up and maintenance of an uninterruptible power supply prime mover for pumps, air conditioners, or other equipment power source for hybrid electric automobiles

AlliedSignal has made a major commitment of corporate resources to this project and sees the potential for very large commercial growth. For South Bay communities the economic benefits from commercial success of the turbogenerator might well be comparable to award of a large defense prime contract to the area. AlliedSignal is currently field testing the first generation of turbogenerators and plans to market approximately 500 units by the end of 1998. The initial units will be produced in Torrance using existing production lines for turbochargers, with high-volume production beginning in 1999, either in Torrance or at a green field plant location outside the South Bay. The City of Torrance could support commercialization of this technology and help keep high-volume production in the South Bay by:

Competitive Standing and Prospects

189



Supporting local purchases, including by the public sector, for applications where it is cost- and performance-competitive;



Supporting AlliedSignal in undertaking further improvements of the turbogenerator related to automotive applications and incorporation of ceramic technologies;



Providing economic development tools and streamlined permit processmg for establishment of a high-volume production facility in Torrance.

COMMERCIAL SPACE SYSTEMS

The South Bay has significant opportunities for large-scale technology commercialization through space-based communication and information systems. This can and is occurring through purely commercial projects such as Hughes DirecTV as well as through use of defense-related space systems for commercial purposes. Areas in which there is overlap between defense-linked space and communications projects and commercial opportunities include: • • •

Global positioning satellites and communications Data and voice communications Launch systems, including the expendable evolving launch vehicle and the space plane

Space systems such as those just listed that are developed through the Space and Missile Systems Center and Aerospace Corporation contribute to the portfolio of technological assets that have potential commercial significance for the South Bay. It is important that the Space and Missile Systems Center retain a strong role in defming new systems and developing space communications strategy for the Air Force. Specifically, the South Bay should support institutionalizing the role of SMC as the national center of planning and analysis for military space programs. Together with initiatives undertaken by Hughes and TRW this can strengthen the Los Angeles region's role as the space planning and thinking center for the United States.

TECHNOLOGY COMMERCIALIZATION OPPORTUNITIES AND BARRIERS

At an intermediate level between large, expensive satellite systems and high tech start-ups, many South Bay prime contractors have important opportunities to commercialize technologies they have developed, including: • • •

computer and communications technology - Aerospace Corporation fuel cells - AlliedSignal follow-on generations of space communications hardware and services - Hughes

190 • • • • • •

South Bay Economic Adjustment Strategy computer modeling for law enforcement - Nichols ceramic brakes - Northrop mobile medical triage unit - Northrop gallium arsenide computer chips - TRW monolithic microwave integrated circuits - TRW data compression technology - SAlC

Barriers to commercialization vary from project to project but frequent problems include: • • • • • •

• • •

reluctance to be distracted from core defense work institutional memories of over-confidence and subsequent failure m past commercialization efforts insularity from best practices in other industries lack of familiarity with commercial markets failure to recognize that marketing is as difficult, and requires as much creativity, as the technical side of commercialization expectation of predictable return and continuous cash-flow (as provided by DoD), rather than willingness to make investments based on calculated risks and wait for large, but deferred, returns lack of investment capital financial structures that require too much early return high overhead within defense companies and reluctance to spin-off new entrepreneurial companies with lower overhead and greater flexibility

Most of the potentially commercializable technologies listed above require a level of financial support well beyond what is available in most city economic development programs. But it is important for the South Bay's future that the region provide intelligent, attentive support for efforts to commercialize promising technologies. Contributions the public sector can make to commercialization efforts include: •

Financial assistance in the form ofloans, grants, or tax-exempt bond fmancing.



Active assistance in helping obtain favorable, reliable, long-term rulings concerning environmental or other regulations that affect projects, either by opening a market for the new technology or raising barriers to introduction of the technology.



Creation of consortiums of government entities that pool their buying power to create a start-up market for beneficial new products. The Fuel Cell Buyers Consortium formed by the South Coast Air Quality Management District, Los Angeles County MTA, and the city and county of Los Angeles is an example of this strategy.

Competitive Standing and Prospects

191

7.2.b International Trade Overview

The international trade sector includes the transportation and wholesale trade industries as well as specialized legal, fmancial and consulting services. The South Bay incorporates two of the most important nodes in the entire Pacific Rim economy: Los Angeles International Airport (LAX) and the San Pedro Port (the ports of Los Angeles and Long Beach). U.S. Customs figures show that "a staggering 78 percent of trade passing through Los Angeles is Asia-related.'>4 The increasingly global orientation of the regional economy is also seen in the development of certain durable wholesale trade industries such as motor vehicles, which is centered on Japanese automobile manufacturers' office complexes in Torrance, Carson, and Gardena. The increasing globalization of economic activity in the Pacific Rim since the 1970's is a product of two inter-connected processes. First, the newly-industrializing nations of East Asia, including China, Indonesia, Malaysia, South Korea, Taiwan, and Thailand, have concentrated on developing export industries in order to penetrate the rich North American market. This process has been abetted by transnational corporations that have shifted operations overseas to take advantage of low production costs, especially low wages. Most of their exports enter the United States through Los Angeles County. Second, American manufacturers and other firms that export products and services to the growing economies of East Asia send most of their commodities through Los Angeles. These two processes have contributed to steady growth in international trade activities, including air and water transportation, transportation services, and wholesale trade. Despite the current Asian economic downturn, long-term growth of East Asia and the probable emergence of China as an economic giant can be expected to produce corresponding growth in the South Bay's international trade sector.

Volume and Loeational Strengths

Los Angeles International Airport is the fourth busiest passenger airport (58 million) and the second busiest cargo airport (1.9 million tons, 41% of which are international in origin or destination) in the world. Nearly 100 airlines moved 58 million passengers and 1.9 million tons of cargo in 1996. The Ports of Long Beach and Los Angeles rank first and second as the busiest container ports in the nation, with a total of 159 docks. Worldwide, the two ports, combined, are surpassed only by Hong Kong and Singapore. In 1996 the two ports processed 99.7 million tons of cargo, 61 percent of which was foreign.

"Jason Booth. "Asia's Troubles Threaten L.A.." Los Angeles Business Journal. November 3, 1997. p.1.

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South Bay Economic Adjustment Strategy

The Los Angeles Customs District is the largest international trade center in the U.S. The value of two-way trade in 1996 reached $170.1 billion, 12 percent of the U.S. total and a 51 percent increase over the past five years. Imported goods accounted for $101.2 billion of this volume, and exported goods $68.9 billion. An estimated $29.3 billion of service exports and $19.7 billion in service imports were also transacted in 1996. The total value of Los Angeles international trade in 1996 is estimated to be $219 billion. The international trade outlook for 1997 is for 5 to 6 percent growth. The break-out of origin and destination of passengers and cargo for Los Angeles sea ports in 1995 and airport in 1996 was as follows:







Port of Long Beach • foreign imports • foreign exports • domestic goods

15,995,000 tons 17,494,000 tons 19,739,000 tons

Port of Los Angeles • foreign imports • foreign exports • domestic goods

13,550,000 tons 13,865,000 tons 19,063,000 tons

Los Angeles International Airport 43,942,028 • domestic passengers international passengers 14,032,531 • 1,111,765 tons • domestic cargo 783,989 tons • foreign cargo

In addition to its highly developed transportation infrastructure of highways, roads, railways, seaports and airports, the sheer size of the Los Angeles region, with a population of 14.5 million people helps make it a trade center. Businesses and consumers in the region create a huge local market for the same goods and services that are imported and exported. This leverages the cost effectiveness of distribution facilities located in the region. Companies importing goods into the United States prefer to have their cargo unloaded at the first port of call to minimize the possibility that goods will be affected by changes in tariffs or import quotas occurring while they are in transit. The size of the Los Angeles market makes it the first port of call for many ships, increasing the likelihood that other cargo also on those ships will be off-loaded in Los Angeles for distribution to other points in the United States. Similarly, approximately 70% of air cargo is transported on passenger flights, and the high volume of passenger traffic into Los Angeles makes it an easily accessible destination and distribution hub for air cargo.' 5 1nformation in this section on international trade is from a report by Recon Research Corporation, "The Los AngelesInternational Trade Link: 1996 Performance and Future Prospects," prepared for the Los Angeles Area Chamber of Commerce, May 1, 1997.

Competitive Standing and Prospects

193

Los Angeles International Airport

Recent growth in passenger and cargo traffic at Los Angeles International Airport (LAX) is expected to continue into the next century, fueled largely by international trade and Los Angeles' position as a gateway to and from Asia. Figure 62 shows 44 percent growth in LAX passenger traffic between 1986 and 1996. Domestic passenger traffic increased 28 percent between 1992 and 1996, reflecting a resurgence in travel due to the improving economy. International passenger traffic has grown more steadily over a longer period oftime, increasing 130 percent between 1986 and 1996. Freight cargo traffic boomed at LAX between 1986 and 1996 (Figure 63). Total freight moving through the airport grew 90 percent. Domestic freight traffic increased 69 percent, international freight 127 percent. International freight cargo and passenger traffic more than doubled, out pacing the growth in domestic cargo and passenger travel by a wide margm. Largely due to international trade and travel, LAX activity is expected to grow considerably in the next few decades. A recent report described projected growth at LAX, and the strain this will place on the airport's capacity: "Looming shortfalls -- 29 passenger gates and 82 acres of cargo area by the year 2010 --are due to the dramatic growth in international traffic. By 2010 LAX will need to serve 74 million annual passengers -- a 45 percent increase over the present- with international travel accounting for nearly 60 percent of growth. Air cargo is projected to double to 2.6 million tons by 2010, with international freight generating 68 percent of the increase.?" As a first step in meeting the expected growth in freight cargo and passenger traffic, LAX is developing a Master Plan for expansion. The LAX Master Plan is currently in the environmental assessment phase. Public scoping meetings were held in the summer of 1997 to obtain comments and questions from public agencies, cities, and concerned individuals regarding the Master Plan. A draft Environmental Impact ReportlEnvironmental Impact Statement is planned for release in April 1998. Cities and communities surrounding LAX have expressed concern over the planned expansion of LAX. At one of the scoping hearings held in July 1997, the supervisor of the Lennox school district expressed concern over increased noise and pollution, and was opposed to any plan that would increase these levels or extend the airport east of Aviation Blvd. A representative of the City of EI Segundo noted existing problems regarding airport noise, local air quality, and traffic congestion, and expressed concern over plans to expand

6Steven P. Erie et. al. (1994). International Trade and Job Creation in Southern California: Evaluating Los Angeles/Long Beach Port, Rail & Airport Development Projects. Claremont, California: The Claremont Graduate School.; p. x.

Figure 62

LAX PASSENGER TRAFFIC 1986-1996 60,000,000 ; - - - - - - - - - - - - - - - - - - - - - - - - - ,

50,000,000

40,000,000

30,000,000

-'Domestic ..... International 20,000,000

~Total

10,000,000

o~------------------------' 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Source: City of Los Angeles Department of Airports

Figure 63

LAX CARGO 1986-1996 (figures in tons) 2,000,000 ~---------------------.

1,800,000

+--~~-

~Domestic

---International 1,600,000

~Total

1,400,000

1,200,000

1,000,000 .

800,000

600,000

400,000

200,000

O'O"----------------

----l

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Source: City of Los Angeles Department of Airports

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the airport to the south. The mayors of Huntington Beach and Manhattan Beach expressed the same concerns. South Bay cities face a continuing challenge to balance airport needs to accommodate increases in passenger and freight traffic against the concerns of surrounding communities about noise levels, air pollution, and traffic congestion. Products and Trading Partners

The leading individual products traded through the Los Angeles region are computers ($15.1 billion in 1996) and integrated circuits ($11.4 billion), followed by motor vehicles ($10 billion) and office machine parts ($6.7 billion). Looking at international trade by major product categories, the value of 1996 imports and exports in millions of dollars, ranked by total value of trade, were as follows: Product Category

Imports

Exports

electrical machinery machinery and parts vehicles and parts (except aircraft & spacecraft) apparel and accessories food, beverages and tobacco optic and photographic products chemical products toys, games and sports equipment aircraft, spacecraft and parts

$23,790.8 22,797.2 11,160.9 10,717.8 4,269.7 3,584.2 1,708.1 4,475.5 531.0

$15,376.0 14,164.6 3,374.5 1,038.7 5,226.7 4,236.1 4,794.8 1,147.1 4,944.7

Electrical machinery and aircraft and spacecraft are the first and fourth largest categories of exports from the region, both of which have significant production bases in the South Bay. International trade through the Los Angeles Customs District is overwhelmingly with Pacific Rim countries; 78 percent of the dollar value is with Asian nations. The fifteen largest trade partners and the total value of two-way trade in billions of dollars in 1996 were as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Japan People's Republic of China Taiwan South Korea Singapore Malaysia Hong Kong Australia Thailand Philippines Germany United Kingdom

$45.6 21.2 13.7 12.7 10.5 9.6 6.6 5.6 5.5 4.1 4.0 3.9

Competitive Standing and Prospects

13. 14.

15.

Indonesia Italy Netherlands other countries Total

197

3.7 2.1

2.0 ---l2.1 $170.1

Transportation Services and ExportDevelopment transportation services A group of South Bay professionals involved in foreign trade services met as part of this study to provide information about needs and opportunities in the international trade sector.' One of the trends they noted is for freight forwarders to be more collaborative with shippers and provide a full range of logistics and services to get the cargo to its destination. A full service logistics company provides a single point of contact for the company shipping goods and provides or arranges freight forwarding, warehousing, trucking, customs brokering, and rail transportation. Los Angeles has become a huge transportation logistics hub. Virtually every national retailer has a distribution center in the region. A key requirement of transportation logistics and a strength of the South Bay is the capability to maintain and coordinate a high level of communication with each component of the goods movement network, including the manufacturer or wholesaler, legal and financial entities, ocean or air shippers, customs officials, truckers, warehouses, railroads, and the buyer. All of these are in close physical proximity in the South Bay. The airport moves goods that have higher value and require much quicker response times than the sea ports. With ocean freight there is time to use computer links to arrange needed services, but air freight requires quick action and physical presence of agents to present documentation and solve problems. Freight service providers need to be located within fifteen minutes of the airport. Freight service representatives indicated that there is a need in the South Bay for additional office space with good airport access.

training Transportation industry representatives also reported a need for two kinds of traderelated training in the South Bay. The first is to establish a seminar network for educating small manufacturers about opportunities and procedures for exporting their products. These training services are available through the Export Bank and the California Trade and Commerce Agency. The second need is to train new workers in the "nuts and bolts" 7This meeting was organized by Alan Schwartz of Sam Levy Investments and included Tim Bruinsma of Fulbright & Jaworski, Guy Fox of Global Transportation Services, Bryant Mills of California State University at Dominguez Hills School of Management, Jennifer Soto Perque of the California Trade and Commerce Agency, Tricia Snow of the Export-Import Bank, and Jay Winter of the Foreign Trade Association.

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South Bay Economic Adjustment Strategy

procedures of customs brokering. This training could be provided through internship programs at transportation services companies that offer part-time work for international studies students at one or more of the region's universities (California State University at Dominguez Hills has indicated interest in establishing such a program). The primary requirements for this field of work are that people need to be detail oriented, customer oriented, and able to pick things up quickly. Fluency in foreign languages is an additional asset. This entry-level training would complement the more advanced training that is already provided by the Foreign Trade Association for people seeking to become licensed customs brokers. financial services

The Los Angeles Region in general, and the South Bay even more so, have a shortage of banks with strong international capabilities. Active financiers who understand international trade are very important for completing and managing international transactions, which of necessity entail bridging at least two currencies and legal systems with instruments such as letters of credit and sales contracts. A significant amount of trade in the Los Angeles region is with developing countries such as China, Singapore, Malaysia, Thailand, the Philippines, and Indonesia, which in many cases have legal and financial systems less mature and stable than in developed countries. To be competent in international financing a bank needs a large flow of transactions to acquire and maintain expertise needed to understand and efficiently manage cross-border transactions. The South Bay would benefit from having a world-class financial services institution capable of working with small as well as large businesses involved in international trade. leveraging service exports offmanufactured exports

Manufactured exports such as communications goods provide leverage for exporting services because many developing countries need services in marketing, fmance and management areas as much or even more than they need manufactured products. One of the untapped opportunities in the South Bay is creation of international joint ventures to create export packages that include high technology equipment or services, fmancial services, marketing consulting, and management consulting. One area in which joint ventures could be created is to fulfill trade offset requirements associated with the export of aerospace products. Defense manufacturers who sell high-value capital goods to foreign governments are typically required to generate export opportunities for that company equivalent to a negotiated percentage of the value of the sale. This may take the form of helping that country export specific commodities or services to help that country develop export capabilities. Often these offset obligations entail work outside the aerospace company's scope of expertise or business interest. Capacity building services needed by developing countries include high technology training, development of fmancial institutions, development of marketing capabilities, and transportation logistics. In many of these areas highly competitive services are available

Competitive Standing and Prospects

199

from the South Bay or the larger Los Angeles region. By creating a clearinghouse mechanism for communicating business offset opportunities to legal, financial and business service companies it might well be possible for the South Bay to expand exports of services from the region.

7.2.c Entertainment and Electronic Media Entertainment and electronic media are the fastest growing industry groups in Los Angeles County. The entertainment and electronic media industries are undergoing explosive growth for several reasons, including: •

Growing domestic and foreign demand for motion pictures and television programs;



Growing demand for advertising and marketing services by companies facing increased competitive pressures in a changing global economy; and



Growing demand for multimedia products in motion pictures, commercials, and business and scientific applications.

While these industries are concentrated in the Westside - Hollywood - Burbank tangent, the South Bay has an opportunity to leverage its considerable assets to attract the Los Angeles region's major growth industry. The South Bay stands to benefit from continued growth in the entertainment/multimedia industries, given its proximity to the Westside concentration of multimedia firms. The proposed Dreamworks Studios in Playa Vista and Roy Disney's Manhattan Beach Studios will give the South Bay two important centers in the regional entertainment sector and could stimulate new start-ups. The typical multimedia job is a skilled, high-wage job paying approximately $50,000 per year. A critical barrier to growth in the industry is labor supply. The multimedia industry requires workers who combine skills in computer and software technology with artistic and conceptual abilities. Major occupations include producers, creative and technical directors, programmers, computer animators, graphic designers, sound designers, and interactive writers. In 1995, 9 percent of Los Angeles County multimedia firms were located in the South Bay. The Santa Monica-South Bay region is developing a concentration in digital artists and producers, while the Burbank area is specializing in animation and entertainment crafts.s Production is project-based, with teams of specialized firms and freelancers working together for the duration of a project. As a result, firms in the industry are locationally concentrated to facilitate business contacts, project development, hiring, and use of Joel Kotkin (1997) Southern California in the Information Age. Pepperdine University Institute for Public Policy and La Jolla Institute

8

200

South Bay Economic Adjustment Strategy

specialized services. The industry is very entrepreneurial with many firms starting as homebased businesses. A recent study found that 50 percent of California multimedia firms employed fewer than ten people.

Interface between Space Communications and Entertainment Historically, trade expands around crossroads -- where two highways cross, a railroad meets a port, or perhaps in the case of the South Bay, where bandwidth offered by satellites is joined with information and entertainment provided by content producers. Despite the potential synergies between these two industries, however, there is little contact between them and little mutual awareness of how they can benefit from each other. Communication between two different cultures, such as aerospace and entertainment, is not a natural process. It occurs through personal connections that bridge the cultures. The communications infrastructure being built by Hughes will survive based on providing content that people want, and at lower cost and/or higher quality than competing transmission systems. Content producers such as movie and television studios have not wanted to get too far out in front of available transmission technology because their investment is at risk if they can not get their product to the largest possible audience. This creates a lag between infrastructure capabilities and available content that is risky for the infrastructure builders who depend on having transmission content that is attractive to customers. The South Bay commercial satellite industry as well as its nascent entertainment industry both stand to benefit from closer ties through which companies learn how to work together in ways that reduce each other's risk and increase each other's audience.

7.3

Institutions for Private-Public Cooperation

7.3.a Overview There is limited official contact and less social contact between high technology companies and local cities, and consequently often little awareness of how they can help each other. In interviews with community leaders and aerospace representatives a parallel insularity was noted: aerospace companies are not aware of the kinds and combinations of economic development tools that could be used to assist them, and a lack of outreach from local government was noted by nearly all large aerospace firms. One industry analyst commented that in the late 1980's and early 1990's many aerospace executives felt a sense of bitterness about California's seeming lack of appreciation for their industry, and that when they visited other regions it was refreshing to be welcomed and courted by high-level public officials. Recent examples of this insularity include Northrop Grumman's movement of its headquarters to another city, influenced in part by strained relations with its former host city,

Competitive Standing and Prospects

201

and absence of contact with Hughes after the acquisition of its defense sector by Raytheon to explore options for retaining their headquarters site.

7.3.b South Bay Economic Development Partnership The South Bay Economic Development Partnership is in its early formative stage, but has built a broad base of business and city participation, and appears on its way to becoming a valuable information clearinghouse for marketing the South Bay, making public sector resources accessible to employers, and building business coalitions to address policy issues. The partnership has created four standing committees to address issues of: 1. Marketing -- an organizational identity program as well as South Bay promotion 2. Public Policy 3. Business Assistance -- outreach program for companies in growth industries, identification of business assistance needs, and collaboration with COG to obtain key economic data 4. International Trade -- production of a video in multiple languages to promote international trade, facilitate outreach to consular officials in the Los Angeles region, and support for creation of an international trade education center

7.3.c South Bay Cities Council ofGovernments In the past, mobilization of the larger South Bay business community and political leadership in support of aerospace has largely been around near-term "horse race" issues such as retaining the Los Angeles Air Force Base, rather than around long-term strategic objectives. The South Bay Cities Council of Governments has made important progress in becoming organized and operational. Because its foundation rests on legally mandated, permanent public institutions (cities) whose decisions are regularly put to the test of the ballot box, the COG can be the South Bay's cornerstone institution for creating, sustaining and implementing a long-term strategic vision of how the region should manage adversities, uncertainties and conflicting alternatives that have emerged from defense cutbacks and a weakened industrial base. Relationships between defense companies and cities grow, or fail to grow, based on discrete assessments by company and city representatives of the potential benefit of these relationships, as well as the level of initiative and organizational support they have for acting on their assessments. In contrast, relationships between defense companies and federal clients of necessity must be strong and successful if the company is to survive. To sell companies on the value of local private-public collaboration they need concrete examples of

202

South Bay Economic Adjustment Strategy

what can be achieved. City resources to assist large high technology companies are more modest than those of federal clients, but still significant. They include: • • • • • •

job training streamlined permit approval economic development assistance and incentives assistance in solving public safety, traffic circulation and site expansion problems support in obtaining environmental compliance standards that are rational, have long-term stability, and can be implemented efficiently validation of requests to state government for a coherent, straight-forward legal environment around labor relations, workers compensation insurance, and the basic tax structure

The South Bay COG has an important role to play in weighing public interests served by the South Bay's high technology industrial base, assessing costs and benefits of alternative industrial development strategies, and providing institutional continuity for supporting the long-term economic and quality of life interests of South Bay residents.

Private-Public Forum It is important for the South Bay's future that city, county, state and federal policy makers build direct communication with their counterparts in high technology firms and respond credibly to mutually compatible goals with an eye toward building long-term trust. These contacts need to be at a high level to be meaningful, and they must be productive to be worth the time of people who are in positions to make decisions. Ideally, this communication will lead to community responsibility agreements between South Bay communities and target industry employers in which it becomes understood that the public sector will provide all reasonable assistance to create a strong, efficient, competitive business environment, and companies will cooperate with the community in carrying out feasible, reasonable strategies to preserve and increase local jobs.

The public sector's role needs to include carrying out the conventional business of government in ways that increase efficiency, reduce risks and offer predictability. There is also a need to explore innovative forms of support that are desired by industry and will strengthen the public balance sheet. This dialogue between public sector officials and their business counterparts could occur through a regular forum of monthly or quarterly meetings.

Competitive Standing and Prospects

203

7.4 Technology Transfer Programs 7.4.a California Manufacturing Technology Center The California Manufacturing Technology Center (CMTC) located in Hawthorne is a valuable and effective resource for helping South Bay manufacturers strengthen their competitive capabilities, stay in business and grow. It is a nonprofit organization established in 1992 with support from the National Institute of Technical Standards to serve as a statewide extension service for small and medium size manufacturers. CMTC offers companies up to eight hours of free technical assistance for "quick fixes" on a company's current production line or answers to process or production questions. Beyond its free assistance, CMTC offers in-depth manufacturing assessment and strategic implementation services to examine a firm's operations "from the shop floor to the executive suite." These assessments cost between $2,000 and $10,000 and take 3 to 4 weeks to carry out. CMTC also offers assistance on an hourly basis to deal with a wide variety of manufacturing problems. Starting with a careful diagnostic to isolate the main competitive problems facing their client companies, CMTC draws on in-house and outside expertise to tailor an action plan for each company. A study by the General Accounting Office of manufacturing extension services such as CMTC across the U.S. found a majority of firms reporting that the assistance had a positive impact on workplace technology, product quality, customer satisfaction, teamwork, worker productivity, and profits. This service is particularly important for small and medium size manufacturers because they have a productivity growth rate only 70 percent as rapid as large manufacturers and only 30 percent are still in business after six years. It is significant for the South Bay that CMTC has been selected as the national prime contractor to build an aerospace supplier network down to the fourth tier, helping aerospace suppliers build capabilities for:

• • • • •

Material management systems (just-in-time, lean manufacturing) Quality systems (DI-9000, ISO-9000, QS-9000, AS-9000) Activity based costing Process integration (electronic data interchange, technical data exchange, and integrated production techniques) Manufacturing processes (reduced lead time, capacity planning)

The purpose of this national program is to meet the needs of aerospace prime contractors by: building flexibility into suppliers' systems; increasing suppliers' current operational capacity; accelerating development of second, third and fourth tier suppliers with lean manufacturing capabilities; developing a cadre of preferred suppliers for faster responses; and setting up processes for supplier communication within the entire product

204

South Bay Economic Adjustment Strategy

supply chain. This program represents a strategic opportunity for increasing the share of aerospace prime contracts that go to South Bay subcontractors, and conversely, if the South Bay fails to achieve a high level of participation in this program by local firms it may have the effect of diverting subcontracts to firms in other regions. Compliance with quality systems and the capacity to provide activity based costing (i.e., produce work when it is needed and be paid for work when it is done) are driving factors for prime contractors in selecting subcontractors. For many small and medium size companies this means they have to struggle with two difficult changes at the same time. First, they have to be re-certified as meeting the latest and highest quality standards applicable to their field of work. And second, they have to reduce costs and become much more flexible about starting and stopping work to meet supply requirements of the prime contractor that may call for a high level of output one month and nothing the next. Those firms that successfully make these changes have the opportunity to gain standing as preferred aerospace suppliers. CMTC's "Supplier Advantage" program is designed to help subcontractors become competitive in an aerospace market that requires high quality, variable production levels, and low costs. Actions that the South Bay can take to help subcontractors benefit from this program include: •

Support participation of prime contractors such as AlliedSignal, Hughes and TRW on the Prime Council that will oversee the program.



Publicize the Supplier Advantage Program to subcontractors and encourage them to participate in it.



Inform subcontractors about the necessity of meeting higher quality standards and incorporating lean manufacturing and activity based costing to be competitive as aerospace suppliers, and the value of getting help from the Supplier Advantage Program to develop these competitive strengths.

7.4.b South Bay Science Foundation The South Bay Science Foundation is a nonprofit organization formed in 1993 in response to recommendations from the South Bay Jobs Task Force for creating an environment that attracts, retains, and grows high technology entrepreneurs in the South Bay. The four goals of the Foundation are:

1.

To establish a Business Innovation Center for high technology start-up businesses providing them with business and financial services that will enable them to grow and succeed as financially sound business enterprises.

Competitive Standing and Prospects

205

2.

To establish a Science Center for emerging high technology businesses that have outgrown the Innovation Center or desire to locate in a Science Center providing collateral services that will encourage their continued growth and financial success.

3.

To establish a technology transfer program for technologies generated by government, industry, universities, and national laboratories to be licensed to entrepreneurial businesses for commercial applications.

4.

To establish capital resources with emphasis on the needs of start-ups and early stage businesses including tenants ofthe Innovation Center and Science Center.

The third and fourth goals dealing with technology transfer and financing are particularly important for the South Bay economic adjustment strategy because they offer a vehicle for capitalizing dormant intellectual property held by South Bay high technology companies that has been created by large national investments in aerospace research and development. A major planned function of the Foundation is to facilitate transfer of technologies suitable for profitable development to teams of entrepreneurs as the basis for starting-up companies or expanding existing small businesses. The Foundation plans to act as a conduit in arranging licensing agreements between owners of technology and entrepreneurs. South Bay Science Foundation representatives have explored arrangements with Hughes and Northrop Grumman to obtain access to their patents, estimated to number 4,000 to 5,000 at each company, and are discussing similar arrangements with The Aerospace Corporation and TRW. The Foundation plans to organize teams to assess the commercial potential of patents and intellectual property. It also plans to help small businesses create management teams capable of functioning effectively in bringing technology to the market place. The Foundation plans to provide its services at below-market-rates or for a percentage of gross annual sales if the business is successful. Its plans call for providing assistance through three critical development stages: 1.

Conception and Development -- The technology or product are in early development and the design and plan for the company is formulated.

2.

Model Development -- The product is developed and tested, both in-house and in field tests with select customers.

3.

Commercialization -- The product is introduced to the market and build-up for volume production begins.

The Foundation faces several challenges in bringing commercial life to the large body of dormant aerospace technology in the South Bay. One is to sift through 10,000 or more patents to identify those with commercial promise. Another is to find strong champions who will invest themselves in successfully commercializing the innovations.

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South Bay Economic Adjustment Strategy

Representatives of the Foundation have indicated interest in dealing with these challenges by: 1.

Establishing a pool of high technology venture capital funds that can be used to support both technical assistance for start-up businesses and loans or grants to those businesses for the early stages of commercialization.

2.

Negotiating a standard royalty agreement with participating aerospace prime contractors to avoid the need to individually negotiate the rights to use each patent.

3.

Advertising the availability of these resources to current and retired aerospace technologists and managers, informing them of procedures for applying for support to commercialize promising intellectual property which they may know of and want to develop.

4.

Concurrently screening patents held by aerospace prime contractors and seeking technical and management teams to assume responsibility for commercial development.

5.

Providing rigorous technical and managerial screening for applicants seeking commercialization support, and ongoing technical support for applicants selected for funding.

7.5

Infrastructure

7.5.a Transportation The South Bay is highly reliant on surface streets for traffic movement, and there is significant congestion on some key arteries, which should be the major focus of transportation system improvement strategies." A recent survey of South Bay cities conducted by The Planning Center found that the highest transportation system improvement priorities include: (l) aggressive efforts to resurface streets and generally sustain their utility, (2) improved quality and readability of signage, and (3) median improvements. The report's authors noted a tendency to focus on highly localized improvements which can relieve immediate traffic congestion problems. Key recommendations from this study include:

~his discussion of transportation issues is based on The Planning Center's recent report prepared for the South Bay Cities Council of Governments, ''Transportation Barriers to Economic Competitiveness and Park-N-Ride Program Report," September 25, 1997. Congested roadways are shown on each of the eight maps of the South Bay study area included in this report.

Competitive Standing and Prospects

207

1.

Coordination of all aspects of transportation system improvement among South Bay cities to support integrated improvement of inter-city transportation corridors, as well as strengthen the region's position in competing for external funding.

2.

Monitor the park-n-ride program to ensure that improvements in arterial flow, bus service and the Green Line are complemented by increasingly effective management of travel demand.

3.

Gradually correct at-grade crossing barriers within the subregion.

Several cities indicated interest in increasing the level of telecommuting to reduce the number of commute trips to South Bay work sites. Barriers to telecommuting include: •

Lack of bandwidth in the South Bay telephone system to support high speed use of the Internet; and



Resistance of large aerospace employers with highly structured work environments to having employees work in unsupervised settings.

7.5.b Broad-Band Communication The South Bay does not have a well-developed infrastructure for broad-band information transfer and communications. For computer users, absence of broad-band capabilities means long intervals spent waiting while information is up-loaded or downloaded at relatively slow rates of speed permitted by copper telephone wires. For high technology businesses involved in frequent relays of computerized information this is a significant limitation. Plans for installation oftelephone system fiber-optic cables to provide broad-band communication capabilities have not materialized in the South Bay due to altered telephone company priorities for infrastructure investments. This has been attributed to failure of the Los Angeles region to provide coherent incentives for utilities to make these investments as well as fragmentation of the region between different telephone service providers. At least six cities in Los Angeles County (all outside the South Bay) are addressing this problem through their own fast track programs to install fiber-optic networks. These programs have been undertaken after the cities learned that the 1996 Telecommunications Act allows them to generate revenue by getting into the telecommunications business. According to a recent article in the Los Angeles Business Journal.!" these cities (Burbank, Culver City, Glendale, Los Angeles, Pasadena and Santa Monica) are responding the 10 This discussion draws on an article in the January 12, 1998 edition of the Los Angeles Business Journal entitled, "Cities Get Wired to Lure Business."

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South Bay Economic Adjustment Strategy

economic development significance of fiber-optic networks for attracting high-paying jobs, the ever-increasing need of businesses to transmit large amounts of digital information, and a dramatic decrease in the cost of hooking up to a fiber-optic network. Strategies being followed by these six cities range from building their own networks and leasing out excess space to teaming up with private-sector partners or granting rights-ofway to private telecommunications providers. Glendale is reportedly the farthest along in installing a fiber-optic system. Last summer Glendale sent out requests for proposals to gauge interest in a public-private partnership to build a network. Four companies responded and the city is in the process of deciding whether to proceed. There may be an additional option for the South Bay to use satellites to provide broad band communications capabilities. Hughes' DirecPC (based in Germantown, Maryland) could provide this service. The technical and financial options for providing broad band communications to South Bay businesses are complex and require a more extensive analysis than can be provided in this report. It appears clear, however, that this is a significant unmet need for broad band communication infrastructure in the South Bay and that it may well be financially and technically feasible for the subregion to create this infrastructure through the initiatives (preferably coordinated) of local cities.

7.6 Workforce 7.6.a Laid-Off Workers The fundamental impact of defense cutbacks is that some of the most productive workers in the region have lost the opportunity to contribute to the economy, and are instead unemployed or underemployed. The most recent data from the Employment Development Department (EDD) shows that by 1995 Los Angeles County lost 53%, or 114,800, of the aerospace jobs it had in 1988, with approximately 800 of those jobs being regained in 1996. The most recent study of what has happened to these displaced workers found that 39% have retired, left the state or remain unemployed. Another 27% have some employment earnings but have not found permanent, secure jobs, and when they did work earned roughly 14% less than in their former jobs. I I There is an important public interest in capitalizing on the social investment and economic productivity linked to skills of durable manufacturing workers in high technology sectors. As discussed at the beginning of this chapter, availability of an educated labor force 11 1996 RAND study entitled, Life After Cutbacks: Tracking California's Aerospace Workers. Cited in Oden, Michael, et ai, Post Cold War Frontiers: Defense Downsizing and Conversion in Los Angeles, p. 90. Project on Regional and Industrial Economics, Rutgers, 1996.

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is among the most important factors influencing employer site selection decisions. Success in retaining a skilled workforce will be a key factor in determining the future course of the South Bay economy. The South Bay is the place of work for approximately 37% of the county's aerospace workforce, with many engineering and computer professionals as well as large numbers of production workers also making their homes in the South Bay. Restructuring and shrinkage of the aerospace industry during this decade has had its most severe impacts on production workers because procurement of manufactured defense products has declined much more rapidly than research and development activities. Occupations such as assemblers, machine operators, and mechanics have declined by a significantly larger percent than managers, engineers and computer scientists. The bad news, however, is that those managers, engineers and scientists who were laid-off had much more difficulty fmding new jobs in their fields than production workers. Data regarding the place of residence of aerospace job seekers suggests that a smaller percentage of aerospace workers residing in the South Bay lost their jobs than in the county overall, but that many of those who were laid-off have experienced long-term unemployment or under-employment. In fiscal year 1994-95 there were roughly 3 laid-off aerospace workers for every job opening listed with the Employment Development Department utilizing aerospace-linked skills. Overall, job openings were scarcest for the most skilled workers: over 4 laid-off mechanics, first-line supervisors and natural scientists for every listed job opening, and 5 engineers and 6 managers for every listed opening. 12

7.6.b Skills ofUnemployed Aerospace Workers The aerospace industry has been remarkably effective in linking highly-trained engineers, scientists and technicians (30% of the work force) with high school-educated production workers to create high-value-added jobs that provide a high standard of living for "ordinary" workers. No comparable employment opportunities can be found in the Los Angeles region for many workers who lost their jobs because of aerospace downsizing. Workforce reductions are a dynamic process, reflecting both overall reductions in work force size caused by defense cutbacks and changes in the type of and number of workers needed as companies learn how to be more productive, with job losses partially offset by a rebounding market for commercial aircraft and a growing market for space systems. Table 21 below shows the percentage of laid-off workers residing in the South Bay who are in each major job family, compared to the county-wide percents for 1994 to 12An Economic Roundtable analysis of regional aerospace lay-ofts in the 1994-1995 fiscal year is provided in Part D: "Displaced Aerospace/Defense Worker Strategies," in the Southeast Los Angeles County Defense Adjustment Strategy prepared for the SELAC Economic Development Alliance under the auspices of the Community Development Commission of Los Angeles County.

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1995, with a higher percent of laid-off South Bay residents coming from engineering, computer, mathematical and systems analysis occupations than in the county overall, and a lower percent coming from hand work occupations.

Table 21 Laid-OffAerospace Worl