The State Of The City

On Thursday this week, there will be a State of The City luncheon. I wish they would hold an event in the evening that those of us working during the day could attend, maybe next year.

Last year, our Mayor told us the city had $11 million in reserves but we learned they were calculating reserves in a very unusual way. Their concept of reserves was assets minus liabilities but most accountants consider this equity and since equity is not very liquid, few accountants would refer to this as reserves. Most think of reserves as cash or very liquid assets. Most of us who read the headlines last year believed they were referring to reserves in the traditional sense. The primary problem with the State of The City address last year was their audit wasn’t released until 6 months later and the statements by the mayor were unverifiable. This will be the case again this year.

I have decided to release a response to the State of The City this year. I know this is usually done after the fact but since I won’t be able to attend I will have to rely on press accounts. Since there are no financial statements available to the public for evidence, it doesn’t really matter much about the details our mayor will be announcing.

Here is my response to the upcoming State of The City address:

Many have asked why Marion Ashley and his fellow supervisors are so focused on bringing warehouses to the Pass. Why would they work so hard to industrialize a part of our community against the wishes of so many of the Pass residents? Why would they approve a zoning change that is counter to their own adopted general plan? A plan that cost a lot of tax payer money and took years to develop. A plan approved by the same Supervisors who are working so hard to change. A plan that is a contract between our government and its people. Why would they support an out of town developer over a large vocal majority of residents from the surrounding communities? Why might they ignore the findings of Supervisor Ashley’s handpicked Gateway review committee which agreed to a recommendation to reject a zoning change after only two meetings? To get a better idea of what motivates their behavior, all you have to do is look at April’s “State of the Region” event, presented by the region’s economic consultant.

The “State of the Region” was an event presented by Dr. John Husing’s company, Economics & Politics Inc. Husing is the primary economic consultant for almost every local government in the Inland Empire and, in some cases, has been for decades. I was not at the presentation but I spoke to someone who was and I think I have a better understanding of what is motivating our supervisors’ action. I reviewed the power point Husing presented and posted on his Economics & Politics Inc. website. I found it to be very similar to a presentation he made before the Beaumont City Council last year. He even left in a slide of an attractive young couple in bathing suits where in his presentation he makes reference to sex for a few laughs. It seemed many in the audience in Beaumont were more uncomfortable than entertained by Husing’s humor. The data in the presentation has been moderately updated from the Beaumont presentation but the charts and the message were pretty much the same.

Husing highlighted an 8% increase in the number of people in poverty in the IE over the last few years. He recommends the region focus on health care services, manufacturing, and logistics (warehousing and distribution) to lift people out of poverty. Husing believes the low skilled, low paying jobs requiring a minimum education level in the manufacturing and logistics industries are the jobs many unemployed, unskilled workers on welfare demand. Following Dr. Husing’s advice for decades, the City of Beaumont has focused their growth strategy on building a bedroom community. A community in which most new homeowners commute to work outside the Pass, many commuting outside the Inland Empire to Orange and Los Angeles counties. These new Beaumont residents have to drive to Moreno Valley and Redlands for shopping, dining and entertainment.

Steve Ruffner from KB Homes spoke after Husing. He talked about the future of the IE housing market and KB’s strategy for the future. He explained that housing in the IE is developed and priced based on proximity to the I-10. The amount commuters are willing to pay for a home is inversely related to the distance of their commute. Many workers can’t afford the minimum price for single family homes where they work and they are willing to drive some distance in order not to live in an apartment or condominium. The lower the home price, the further they are willing to drive.

KB plans to begin developing smaller homes on smaller lots in order to provide homes at prices commuters are willing to pay. KB Homes no longer plans to sell 3,000 square foot homes in the $400,000 - $500,000 range. Their smaller homes will sell in the low $200s and probably advertise prices starting in the $190s, just to get buyers to take a look. Ruffner also told the audience that KB Homes is planning to return to the old way of developing, without Mello-Roos. Since current interest rates on the Mello-Roos bonds are higher than current home mortgage rates home buyers will be able to qualify for higher priced homes when their monthly payments don’t include Mello-Roos payments. Developers are recognizing they can provide more value to their buyers and earn higher profit margins when homes are fully financed at the lower home mortgage interest rates. Mello-Roos are a burden for homeowners and, since the IE real estate market is still a buyers’ market, KB Homes recognizes Mello-Roos is no longer the attractive development strategy to home developers it used to be. Now if only Beaumont’s council and staff will see the light. The council’s recent decision to work with developers to leverage another $75,000,000 in new Mello-Roos fees on future homebuyers indicates they don’t get it.

Over the last 20 years, Beaumont has been promoting master plan communities with large homes and larger lots to attract the commuters and their higher incomes. The 30,000 new residents who bought in to the brand Beaumont was selling, were willing to pay a premium, Mello-Roos fees. We saw the planned communities and believed the City’s sales pitch that we could expect an outdoor Victoria Gardens type retail center, movie theaters, popular stores such as Costco and Trader Joes; and dining options besides fast food. Most of us have been in Beaumont between 7-10 years and we are still waiting. If lower priced smaller homes are in Beaumont’s future, and there’s no significant economic development other than fast food restaurants, dollar stores, auto parts stores, and warehouses it is unlikely many of us who bought into Beaumont’s promises and their sales pitch before the housing crisis, will ever recoup our losses.

In a recent gathering of the Beaumont-Cherry Valley Rotary Club, the City of Beaumont’s Community Development Analyst, Kyle Warsinski, proclaimed “If Beaumont builds it, they will come.” We need to ask ourselves who will come. And, who do we want to come.

If we continue to overburden new homeowners with high Mello-Roos fees in order to build the Potrero Interchange to support a logistic industry while ignoring the I-10 interchanges that are unable to adequately serve the 30,000 new residents already here, who will come? Warehouse developers and fewer homebuyers.

If our county supervisors ignore their General Plan, and help land speculators rezone rural residential property for industrial use, who will come? Land speculators looking to turn a quick profit.

If the only job opportunities developed in the area are in warehouses, auto part stores, dollar stores and fast food, who will come? Families unable to ever afford to own a single family home in Beaumont.

Warsinski tells us we need more residents before his economic development department can attract the Costco, Trader Joes, Krikorian, and dining alternatives to fast food. Dr. Husing tells us the only way to pull our people out of poverty and off welfare is with lower skilled, lower paying jobs. Husing advises his clients that manufacturing, health services, and warehousing, are the growth industries in our future. Our County Supervisors and City Councils are courting land speculators and industrial developers who are only interested in our cheap land; proximity to the I-10; and an impoverished and desperate local labor force. I believe our elected leaders, who are following Husing’s low hanging fruit strategy, are lazy; they are taking the easy way out. If this continues, in 5 to 10 years Beaumont will consist primarily of smaller homes, warehouses, dollar stores, auto part stores and fast food restaurants. Forget about what this will do to property values, is this the kind of community we will be proud of?

Beaumont’s bedroom community growth strategy has attracted commuters who, on average, have higher paying jobs then what’s available in the Pass. Many were attracted to the large homes on larger lots that they are unable to afford near their workplaces. They are willing to drive some distance in order to own a single family residences and leave their apartments and condominiums behind. This may have been a good strategy for Beaumont in the 90’s when the town was stagnant and near bankrupt but we need a new strategy.

The Beaumont City Council Members, the majority who have been on the council for more than 14 Years (Berg 21, Fox 14 and DeForge 15), tell us we are a thriving, financially stable city with millions of dollars in reserve. They spend hundreds of thousands of dollars on summer concerts each year, something a financially desperate city wouldn’t. This tells me Beaumont is stable enough that we don’t need to burden new home buyers with millions in Mello-Roos fees, financed at higher rates and requiring higher payments than a traditional mortgage structure. If the city is as well off as they tell us, the Council should be proud of what they have built and begin being selective and only work with developers willing to invest their own capital in our community. We know KB Homes is willing to, I’m sure they aren’t alone. Instead the Council just approved another $75 million in Mello-Roos fees for our future neighbors.

We need to start a new chapter in Beaumont’s development cycle. We should start by only working with home developers who recognize Mello-Roos discourage future customers and suppress home values for everyone, including Beaumont residents who have already bought into existing developments. We need developers who will build a product and a brand that promotes Beaumont as the vision most of us moved here for. A vision of a healthy and safe community offering families an alternative to hours of daily commuting. If they decide not to build here under these conditions, what’s the worst that can happen? The supply of vacant homes might dry up, our property values will increase and the city’s property tax revenues will grow.

Do we really need more houses right now? Shouldn’t we improve the infrastructure for those of us here already paying the Mello-Roos fees which pay for infrastructure improvements? If developers, work with Beaumont to build a Mello-Roos free development zone, the demand for our homes and their new homes will go up, along with home values. If we did this, who will come? Homebuyers willing to pay more for a home when they don’t have to commute a couple hours every

What would happen if we worked with our school district to provide the programs that many of us are taking our kids to Calimesa and Yucaipa for? What if we built a higher education facility that focused on health care training, computer and technical skills while at the same time offering the college classes our kids can’t get from the overcrowded community colleges? Who will come? Families interested in building a future for their kids.

I believe we can follow the county and city General Plans but focus on attracting manufacturing and health care services, leaving warehouses for areas already zoned for industry in other communities who welcome them? Who do you think will come? Employers with jobs for our unemployed workers paying enough income to qualify to purchase a home in Beaumont.

I believe instead of building infrastructure for logistics, we should focus on upgrading our tech infrastructure. What if we were to use our City’s resources to bring fiber optic service to the entire city, specifically the areas of old Beaumont without access to FIOS, which is already available in the new developments? What if we were to develop a public Wi-Fi throughout the city? Who will come? Business needing larger bandwidth and tech companies which Dr. Husing has convinced our Supervisors and City Council members aren’t interested in moving to Beaumont.

If you want to see what can happen to the economy of a city that truly embraced technology and invested in their technical infrastructure, check out The city of Chattanooga, TN turned their economy around in a matter of a few years.

What if we used the existing Mello-Roos revenue, as the law intended, to bring needed infrastructure upgrades to meet the demands of the new residents in the developments that are paying the Mello-Roos fees? What if we updated the I-10 interchanges we all use daily, Oak Valley and Cherry Valley, instead of an interchange on Highway 60 specifically developed for logistics and increased truck traffic? Who will come? More homebuyers, raising housing demand and home values.

I think we can support our County Supervisors plan to reduce the number of families in poverty by focusing on the health services, manufacturing and warehouse industries but we should demand they honor their contract with us, the General Plan. There is plenty of land zoned throughout the County for warehouses, we don’t need to accept them in the middle of our residential areas.

We don’t have to abandon the vision of Beaumont that attracted most of us here. Our City Council should demand the county stick to their plan as well as honor its own General Plan. Our community leaders - the City Councils, school boards and water boards – should stop looking for reasons to avoid doing what’s in their constituents’ best interest, even if their staffs, many who live outside of Beaumont, are advising them that massive warehouses don’t affect their day-to-day operations. They need to think for themselves, use their influence as a governing board and demand the County to only authorize warehouses in the areas zoned for industry?

Beaumont’s city council, following the advice of their consultants, have been lazy and greedy, taking the easy way out, focusing on the warehouse developers and their easy money. We need leaders who will work to bring the better jobs and tell the warehouse developers to find areas already zoned for warehouses and build in the communities who welcome their industry. We need leaders who embrace health services, manufacturing and the other industries that provide employment opportunities to Beaumont families that will enable them to be able to afford purchasing a home here.

Continuing to use Mello-Roos to finance the growth and development of our city and focusing on warehouses and other logistics development is lazy; it is time for a new strategy and focus.  Once we understand what is motivating our County Supervisors, and our City Council, only then can we begin to make a case for a new direction, a new chapter, and if necessary, new leaders.