Title	Economic Forecast 2001 - Biz leaders strike upbeat note
Date:	1/1/2001
Author:	Henry Dubroff, Gretchen Macchiarella, and Laura Polland
Source:	Pacific Coast Business Times

For more information on the Pacific Coast Business Times please visit their website at www.pacbiztimes.com

Maybe it's the weather. Or the water.

Or the fact that the region took so darn long for our region to emerge from its early 1990s doldrums.

For whatever reason, businesspeople across the Tri-Counties are not signing on to the doom and gloom scenarios of some pundits.

From Paso Robles to Thousand Oaks, they're anticipating a good year for most companies in 2001 - and a more civilized pace for growth than the frenzied rush that Y2K sometimes brought.

To give some perspective on what the new year will bring, our staff interviewed more than a dozen economists, entrepreneurs and business leaders from across the region. Their views were in rare alignment on the fact that many of the issues that led to tough times a decade ago are behind us. Instead, it appears the Tri-Counties likely will fare better than the U.S. or the state economy in the year ahead. Here's a closer look:

Bill Watkins, director of University of California, Santa Barbara Economic Forecast Project

"Our growth rates are going to be down from this year, but 2001 will still be a good year," said Watkins who is tempering his optimism with the thought that most of the problems are likely to come from outside the growing region. "Most of the things we need to watch are external, such as oil prices, but other unknowns, the election for example, have settled down pretty nicely."

Homeowners likely will be happy with Watkins forecasting "real estate prices throughout the Tri-Counties will increase, although the increase will probably be slowest in Santa Maria and Orcutt. But even there, the new homes being built are bigger than existing housing stock and that has real appeal to buyers. Home price will increase at a faster pace than growth in the economy as a whole. Job growth also will continue."

The dot-com economy is an area of concern, Watkins said. "To the extent that housing prices in the Silicon Valley are a bubble and that demand in our region is driven by people coming in from up north, you could see some softening. But in Ventura County, particularly East Ventura County, job growth is driven by biotech and that has been recession-proof, so far," he added.

For tourism, the first thing that's likely to happen in a slower economy is that people from L.A. will substitute vacations in the tri-county area for trips to Hawaii. But in the last recession "there certainly was a downturn in the tourism sector," Watkins said.

In the event of a recession, Watkins said that western Ventura County looks a little more vulnerable than East County. Santa Barbara's South Coast is harder to pin down because it has lost so much of its aerospace and its tech industry is pretty diverse. North Santa Barbara County and San Luis Obispo County will be much more variable both up and down.

"The bottom line - we think it's going to be a pretty darn good year," he said.

William "Tom" Thomas, president and CEO of Pacific Capital Bancorp, Santa Barbara

The head of the region's biggest banking company is looking for an upbeat year. "We're looking for things to be quite solid even though the UCLA business school forecasts a 60 percent chance of recession. Things continue to look good in the tri-county region, said Thomas. "Ventura and northern Santa Barbara County are stronger than the city of Santa Barbara as a whole. They're growing faster than Santa Barbara will ever be able to grow, but the region as a whole looks stronger than the state or national economy."

As for his company's Santa Barbara Bank & Trust unit, a regional bellwether, Thomas said: "We're planning for double-digit loan growth, good fee income growth and good deposit growth. While things may slow down based on our recent history, they are still growing. We think it will be a good year for the area and for our organization."

Kay Wilson-Bolton, president of the Ventura County Coastal Association of Realtors

The SOAR Initiative that is so pervasive in Ventura County and is changing the rules for development, Wilson-Bolton said. The problems that the housing crunch creates flow outside of simple housing prices. "We can attract good employers if we don't have housing opportunities," she said.

Wilson-Bolton said the Realtors association will be one of the partners in Ventura County who will be calling on groups to start coming together to discuss the problem and find community solutions. "We have to decided what kind of growth we want," she said. "Do we want to house only the people who already live here and their babies, or do we want to house everyone who wants to live here? Obviously there is a balance somewhere in the middle." Chief Economist for the California Association of Realtors Leslie Appleton-Young is coming down to speak at a conference in January, which Wilson-Bolton's group is co-sponsoring with the Ventura County Economic Development Association.

"It's going to be a strong market but a slower rate of appreciation and that is a good thing," Wilson-Bolton said of Ventura County. She expects continued appreciation at a slower rate than past years. Next year will likely be closer to 8 percent or 10 percent, down from the 15 percent mark in the past year. Wilson-Bolton said she is glad to see the slowing because, "We don't want to be a Silicon Valley."

Jerry Pelton, managing director of CB Richard Ellis, Ventura Office

"From an industrial standpoint we are looking at the first and second quarter to be strong, and beyond [that] I really don't know," Pelton said. "If there is a drop in the economy I really don't know how that will affect the industrial market." But for now there has been strong absorption and low vacancy rates across the county fueled by a migration from the San Fernando Valley.

The office building market is in a more vulnerable position with a lot of square footage in the pike for 2001. "In Ventura County, especially East County, there is a substantial amount of building," Pelton said, which puts those holding in peril if there is a sudden drop in the technology markets. On the plus side, slowing demand could temper rental rates that have been climbing over the past few years. "We've had some good absorption in 2000 but in 2001 we need to be real careful that with all the product coming online."

The retail market does not face the spec building peril of office space because most building is done with retailer backing. "Until such time as the [retail] users reel in, it is going to stay high," Pelton said. He does not see slowing in that market until 2002 or 2003.

"Overall, we will be fine. We just won't see as vibrant of a commercial market as we have the past few years," Pelton said.

Jim Lokey, president of Mid-State Bank, Arroyo Grande

"Our sense is that in general we are going to see a moderation in the overall economy. We don't see anything on the horizon that would indicate a recession," Lokey said. He foresees only moderate change in interest rates; a drop of only 25 to 50 basis points is likely.

Consumer confidence is possible to slip as the "wealth effect" kicks in, Lokey said. As stocks come down from the stratosphere and people see the drop in their net worth there may be a bit more skittishness. "I think we may also see a shift in terms of where people are investing their money -- coming out of the market and going into CDs and funds," Lokey said. All this saving might put the kibosh on consumer spending and debt that has kept the economy flying so high the last year.

The banking industry is likely to do well as an old standby for investors looking for a tried and true. "People are going to do a little better job of balancing their portfolio," Lokey said, possibly eschewing the more exciting tech stocks that have not proved their merit.

The drop in technology buying is not that surprising, according to Lokey, because many people and businesses made major technology upgrades in anticipation of Y2K. "I think that technology got a big boost from people buying technology sooner than they might have," Lokey said. On the other hand, all of the new technology really boosted productivity in many sectors, helping to keep inflation in check. For next year, Lokey said, "I think there comes a time when you can no longer have those exponential productivity gains; it has to level off."

Jim VanDerhyden, president of the Home Builders Association of the Central Coast

"The coalitions that have been formed are trying to bring a public awareness that there is a need for all kinds of housing," VanDerhyden said. That awareness has been growing over the last year through those groups and public concern. "I don't think the politicians can talk around the issue anymore. It's time for politicians to actually become leaders because this is a crisis."

VanDerhyden said he recognizes the strain of demand in a desirable place to live, but feels that we can strike some kind of balance for Santa Barbara and San Luis Obispo counties. The issue in the South Coast is a real lack of developable land. "The consensus is that most people don't want the Gaviota Coast to be developed. The Lompoc and Santa Maria valleys are going to get the brunt," he said. That scenario raises questions about traffic, and VanDerhyden said traffic is one of the biggest causes of a town feeling crowded. He suggested that an increase in public transportation might help ease congestion when destiny is raised.

Diana Wilson, executive strategist at Impossible Inc., Santa Barbara, and executive director of the 2001 Central Coast Venture Forum

"Right now we're just emerging from the election question mark jitters. That has created a little bit more histrionics in tandem with the dot-com fallout. But I believe we'll see healthy growth," Wilson said.

"There will be new, exciting business and technology, but we're going to be more particular in the companies we invest in … valuations will become more reasonable," in 2001, Wilson said. "It's a positive reaction. It's the culmination of a number of negative unsettling events, and people are overreacting as to what it will bring."

"Overall, I'm pretty bullish. Good businesses with a solid strategy will go forward. We're having a shakeout consolidation. [2000] was kind of like a big Mardi Gras. Now it's like we're fasting during Lent. It was inevitable - if we weren't doing this, I'd be concerned."

Bob Duggan, chairman and CEO of Computer Motion, Goleta

"The actions taken by Mr. Greenspan in spring of 2000 took the steam out of the stock market and significantly reduced discretionary spending. It impacted not only marginal spending on good and services, but corporations' ability to raise money, and impacted the spending plans of the backbone of the American economy, [which is] small business. It has had an impact on the economy and will continue to for at least another year or so," Duggan said.

In 2001, "I don't see a recession - negative quarter to quarter growth - but I see a slowing down from its all time modern record pace," he said.

Duggan is confident about the health care sector in the next year. "The health care industry is recession-resistant. There will continue to be strong demand in health care for medical tools and devices, especially for intelligent tools and devices, which impact the efficiency of health care delivery," he said, characterizing his company as retaining "very good promise for 2001 and beyond."

Eric Schweffler, accountant with Barbich, Longcrier, Hooper & King, San Luis Obispo

Schweffler sees plenty of room for growth, despite some changing fundamentals in the investment business. "In both San Luis in the Santa Maria Valley we expect solid growth next year," he said, adding, "The biggest difference is that angel investors will be more discriminating. There was a bit of a gold rush mentality and now there is more disciplined investment in the year to come and fallout from companies that were funded with less discipline that might otherwise be the case."

Schweffler also sees relatively little spillover of the so-called wealth effect into our economy. "In the past, stock options have driven purchases like luxury cars, Jacuzzis, etc. and we may see a slowdown in other places although not as much of that has happened here."

Meanwhile, Schweffler said, out of town tech giants continue to prospect the region. "On the up side, we do see venture capital funds looking at our region and we see some mature Silicon Valley companies coming into San Luis Obispo County and the Santa Maria area. In a tech slump, I think that trend could continue as companies look for ways to build new facilities but also cut their costs."

David Garth, president and CEO of the San Luis Obispo Chamber of Commerce

Garth is squarely in the slower growth camp, but he sees a number of bright spots. "Real estate prices will stay very strong. Demand for housing so far outstrips the supply that even in mild recession would not make much difference," he said. "The reason that we'll keep growing is that our primary economic engine at Cal Poly is going to be solid and growing. High tech garage industries - people who just need a garage and a good idea but not necessarily venture capital - are doing great. There's a short supply of hotel room. Very few are being built. If there is a downturn in state economy not bad if it is a slight softening.

Dennis Cagan, chairman and CEO of Santa Barbara Technology Group, Santa Barbara

"I'm very optimistic. I don't see much on the horizon boding ill for the tri-county area. We tend to be isolated within the range of what happens nationally. We have a more moderate swing, economically," with less spectacular highs, but also less dramatic lows, Cagan said.

"We won't see the dramatic success of tech companies we saw last year, but we're going to see good evidence of technology advancement and value," he said.

"There'll be huge amounts of money flowing in [to the Tri-Counties] from government and private enterprise," Cagan said. "I've been to San Luis Obispo recently [and] the possibilities up there are fantastic. There's a lot going on in Ventura," he continued, noting the Nobel Prize winners and the California NanoSystems Institute at UCSB as indicators in Santa Barbara. "We're in a solid position, ready to jump into new opportunities."

"After mid-January when the economy stabilizes, I strongly believe 2001 is the year it's really going to be clear that technology will be the economic driver for the tri-county area," Cagan said. "A major part of the growth of the Tri-Counties will come from technology enterprises in 2001. I don't think it will be concentrated in one area - not all optical communications, or anything. We have a critical mass of smart, interesting people in [Santa Barbara]. There are too many people thinking of moving here, thinking of starting businesses, there's too much excitement and too much opportunity going on for anything to drag it down.

"I predict the demise of easy money. Simply being lucky isn't good enough. But if you're a little bit lucky, a little bit smart and work a little bit," a company can succeed, he said. "At the SB Technology Group, we're expecting even better ideas, and at reasonable prices and reasonable expectations we can fill."

Martin Shum, president and CEO of Aprisa (thecubicle.com), Westlake Village

"If you look at the past year, 2000 has been pretty interesting in the technology market. Early in the year, there was a huge infusion of cash into e-commerce. By the end of the year, most of the e-commerce companies were collapsing. The market overreacted to the promise of e-commerce, so the correction is good," Shum said.

"A lot of e-commerce companies don't have enough differentiation. It's easy to set up a Web site, and you can buy things there, but with most of the site it's just not clear what value they provide. I think in the e-commerce market we'll begin to see real players coming through. They'll deliver not just convenience, but real value add.

"They talk about clicks and mortar or clicks and bricks, a combination of traditional and Internet models. We've seen some of these already - Barnes and Noble has their site, even Ralph Lauren has a Web site. But I believe it needs to be more than that - the two plus something else. They need to add significant value," he continued. "It will be interesting to see the development and maturing of the e-commerce industry. I think we'll see that next year."

"There has been a lot of attention given to optical networking and wireless networking. I think we'll see consolidation in that space. It's been way over-funded. We'll see some drop out and some winners" emerge, Shum said.

"I believe we'll see the applications of Web technology and the Internet [evolve] into more productivity tools - not just transaction but service and products," he said.

David Uhler, Bartlett, Pringle & Wolf in Santa Barbara

"I think that in the first half of the next year the markets are going to stay about where they are, maybe decline a little. A lot of companies' year-end numbers aren't as good as they expected them to be," Uhler said.

"By about Q3 [the third quarter], you'll see the new wireless applications and optical networks that are hot in development now - you'll see that stuff rolling out really fast. That'll make the Internet faster and more efficient," he said. "By the end of Q3 or the start of Q4, the market will start to rebound, even go up. There will be a new evolution of Internet companies which can do business more efficiently because the backbone will be there."

"The Tri-Counties are poised to take advantage of the next generation of the Internet," he said, mentioning optical networking companies Occam and Agility, among others. "We'll see companies like Cadence or Cisco who acquired companies and were able to keep the Santa Barbara offices. We'll probably see more big names come into Santa Barbara and the Tri-Counties and acquire a small or medium sized company and keep an office here."

"If one or a couple companies could venture a public offering in the next six months to a year it would give Santa Barbara and the Tri-Counties a shot in the arm by creating wealth, like Software.com did."