Capital News & Notes
For Clients & Friends of The Gualco Group, Inc.
IN THIS ISSUE – “Wiped Out With A Stroke Of A Pen”
STATE BUDGET LOOKING GOOD
- Tax Revenues Exceed Estimates as State Budget Nears for 2018-19
- Visual Guide to California Tax & Revenue System
JUNE PRIMARY & BEYOND
- Poll Shows Newsom Leading, GOP Challenger Cox in 2nd
- Big Donors Jump Into Gov’s Race, Back Villargairosa
- Suddenly Suspenseful – Who Finishes Second in the June Governor’s Primary?
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- 100,000 CA Teens Pre-Registered to Vote
- Ballot Initiative Qualifies to Create 3 Californias
DELTA TUNNELS
- Governor Appeals to SoCal Water District to Build Delta Tunnels…
- …And They Pick Up Their Shovels
OIL & CARBON & JOBS
- Governor’s Critics Call for Oil Drilling Freeze
- Why Green Groups Are Split on Subsidizing Carbon Capture Technology
- “More Silicon Valley Than Rust Belt”: New American Economy
Capital News & Notes (CN&N) harvests California legislative and regulatory insights from dozens of media and official sources for the past week, tailored to your business and advocacy interests. Please feel free to forward.
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FOR THE WEEK ENDING April 13, 2018
READ ALL ABOUT IT!!
Tax Revenues Exceed Estimates as State Budget Nears for 2018-19
California’s total revenues of $8.02 billion for March were higher than estimates in the governor’s 2018-19 proposed budget by 6.0 percent, and above 2017-18 Budget Act projections by 10.8 percent, State Controller Betty T. Yee reported.
For the fiscal year overall, the “big three” sources of General Fund revenue–personal income tax (PIT), retail sales and use tax, and corporation tax–are beating estimates in the enacted budget. For the first nine months of the 2017-18 fiscal year, total revenues of $89.10 billion are 3.4 percent higher than expected in the January budget proposal and 6.4 percent above the enacted budget’s assumptions.
For March, PIT receipts of $4.22 billion were 6.2 percent higher than the 2017-18 Budget Act’s projections, but 4.2 percent lower than anticipated in the proposed budget. For the fiscal year, PIT receipts are $3.17 billion higher than expected in the 2017-18 Budget Act.
Corporation taxes for March of $1.31 billion were $549.2 million, or 72.4 percent, higher than forecasted in the governor’s proposed budget. This variance is largely because receipts were about $530 million more than anticipated. For the fiscal year to date, total corporation tax receipts are 32.5 percent above assumptions in the 2017-18 Budget Act.
Sales tax receipts of $2.06 billion for March were $10.4 million lower than anticipated in the governor’s budget proposal unveiled in January. For the fiscal year, sales tax receipts are $410.1 million higher than the enacted budget’s expectations.
https://www.sco.ca.gov/eo_pressrel_19145.html
Visual Guide to California Tax & Revenue System
A handy booklet from the Legislative Analyst, as prepared for the Legislature:
http://lao.ca.gov/reports/2018/3805/ca-tax-system-041218.pdf
Poll Shows Newsom Leading, GOP Challenger Cox in 2nd
Results of the phone poll of 1,704 adult residents, including 867 likely voters, conducted March 25 to April 3 come as the primary election campaign to succeed Gov. Jerry Brown enters its final two months.
Lt. Gov. Gavin Newsom maintained the lead in the PPIC poll, with backing from 26 percent of the likely voters surveyed. Republican John Cox again followed in second place with 15 percent while former Los Angeles Mayor Antonio Villaraigosa, a Democrat, came in third place with 13 percent.
While Newsom has a strong lead against Cox, this nonetheless is the second PPIC survey in a row showing the Republican overtaking Villaraigosa. The former mayor first fell behind in a survey taken March 4 to March 13. Back in January, Villaraigosa was second behind Newsom, 21 percent to 23 percent.
Other major candidates are significantly behind the leader in the latest poll: Republican candidate Travis Allen had the backing of 10 percent of likely voters surveyed. Democrat John Chiang drew 7 percent and Democrat Delaine Eastin captured 6 percent.
It’s significant that a large portion of likely voters — 22 percent — say they remain undecided in the gubernatorial race, indicating this is still a fluid contest.
Cox’s showing in the PPIC poll is another bit of good news for state Republicans in recent days. GOP candidates are set to advance to June runoffs in special elections for two state Assembly seats in the Los Angeles area.
The large number of Democrats challenging GOP congressional incumbents in Orange County and elsewhere could also provide other Republicans a path to the general election by diluting the Democratic vote.
Still, the Nov. 6 general election is when everything is on the line and California’s recent history as a solid blue state is not likely to be easily overturned.
Registered Republicans make up just 25.4 percent of state voters and Democrats 44.6 percent, according to the latest numbers released early this year by the Secretary of State’s office.
Voters who chose not to select a party preference make up 25 percent of the statewide voter rolls.
https://www.scpr.org/news/2018/04/11/82232/republican-gubernatorial-candidate-again-outpolls/
Poll:
http://www.ppic.org/press-release/majorities-concerned-school-shootings-oppose-arming-teachers/
Big Donors Jump Into Gov’s Race, Back Villargairosa
The California governor’s race is heating up just weeks before vote-by-mail ballots go out for the June 5 primary, with two giant donations the first sign that the big money is starting to move.
Netflix CEO Reed Hastings gave $7 million on Wednesday to an independent expenditure committee run by the California Charter Schools Association — in support of former Los Angeles Mayor Antonio Villaraigosa. Billionaire philanthropist Eli Broad chipped in another $1.5 million on Thursday.
“It’s the first major outside expenditure that you’re seeing,” says Rob Pyers with the California Target Book, which tracks political races in the state.
Although the maximum individual donation that can be made directly to a gubernatorial campaign this election cycle is $29,200, there are no such limits for independent expenditure committees.
“A donor can write a $7 million check to an outside group, and so long as they don’t coordinate with the campaign, they’re permitted to spend the money however they want, essentially,“ Pyers says. “So, that makes up a huge difference in media buys and mailings and things like that.”
The Charter Schools Association declined comment about the donations, choosing instead to issue a brief statement praising Villaraigosa.
The only other outside spending in the race so far has come in small chunks — from the California Nurses Association for Lt. Gov. Gavin Newsom, and from the Asian American Small Business PAC against Newsom.
But more money will surely flow in the coming weeks, on multiple fronts.
Newsom, who consistently leads both public and private polls, has the support of nearly every influential union in the state — including the California Teachers Association, Service Employees International Union, and California Nurses Association.
His latest boost came Thursday with an endorsement from the California Labor Federation, which represents both public and private sector unions.
The Charter Schools Association, meanwhile, is joining forces with another outside group backing Villaraigosa run by a former top aide to President Obama, Bill Burton. Former Assembly Speaker John Pérez, Villaraigosa’s cousin, is also involved in the Burton group’s effort.
Newsom and Villaraigosa are both Democrats.
Polls show Villaraigosa in the pack of candidates — including Republicans — vying for second place, behind Newsom. The top two June primary finishers, regardless of political party, advance to the November election.
Besides the polls, Newsom has raised the most money — more than $23 million so far spread across two campaign accounts.
Democratic state Treasurer John Chiang and Villaraigosa are a tier below Newsom in fundraising, along with Republican San Diego businessman John Cox, who’s ponied up $4 million from his personal fortune. GOP Assemblyman Travis Allen and former state schools chief Delaine Eastin lag behind in both polls and fundraising.
Newsom has “had a bit of a head start, and he’s had a sizeable money advantage over his opponents,“ Pyers says. “But as you can see with the outside expenditures, that can be wiped out with a stroke of a pen.“
The unions are expected to fund independent expenditures in support of Newsom — and also work to boost a Republican candidate in hopes of blocking Villaraigosa from joining Newsom in the November general election.
Villaraigosa’s backers, meanwhile, will seek to ensure he advances to the November election by propping him up and attacking his rivals.
Chiang, Cox, and Republican interests will surely be active as well.
http://www.capradio.org/113030
Suddenly Suspenseful – Who Finishes Second in the June Governor’s Primary?
CalMatters Commentary
Eight weeks out, the June 5 primary election’s biggest uncertainty is whether Lt. Gov. Gavin Newsom will have an unobstructed pathway to becoming California’s next governor or will have to fight for it.
All candidates, regardless of party, will appear on the ballot and the top two vote-getters will advance to the November election.
And even though eight weeks sounds like a lot of time for the candidates to make their pitches, voting by Californians overseas has already begun and on May 7, residents can begin mailing their ballots. So there’s really only one month of campaigning before Californians begin to make their choices.
Democrat Newsom is so confident of placing first – a confidence bolstered by recent polling – that he’s decided to skip any remaining debates or joint appearances with his rivals. Why take a chance that something might pop up in such an event that would be damaging?
Newsom and his backers, especially those in the unions, are hoping, of course, that one of his two Republican rivals places second. That would give the former San Francisco mayor a virtually certain victory in November, given the state’s lopsided pro-Democratic electorate.
In fact, Republican John Cox, a wealthy San Diego businessman and philanthropist, pulled into second place in a Public Policy Institute of California poll last month, displacing Democrat Antonio Villaraigosa, the former mayor of Los Angeles.
For months, Newsom had been stalled in PPIC”s periodic polling, while Villaraigosa had been closing the gap, with a January PPIC poll finding the two in a virtual tie. Suddenly, however, Villaraigosa slipped into third place in March while Newsom’s standing shot upward.
The reasons for the change are unclear, since there seemingly hadn’t been any needle-moving events in the two months since the previous PPIC poll, other than a state Democratic Party convention dominated by pro-Newsom and anti-Villaraigosa liberal activists.
Villarigosa, who has positioned himself a few clicks to the right of Newsom and is anathema to unions, took the poll findings stoically.
“This is a top-two election and we have to get in the runoff,” he told a meeting with CALmatters journalists on the day the poll was released. “I’ve got some work to do and I’ll keep on working.”
While facing a token Republican, presumably Cox, would make Newsom an overwhelming favorite to win it all in November, a duel with Villaraigosa would have different chemistry and a much less certain outcome.
It would be a regional conflict between two former big city mayors with not only ideological differences but ethnic overtones. PPIC’s polling shows strong support for Villaraigosa among Latinos, for instance, while whites favor Newsom.
The third major Democrat in the race, John Chiang, is Asian, and his support, if he fails to make the cut on June 5, would be up for grabs.
While the identity of the finalists for governor is the biggest June 5 unknown, it’s not the only one.
Democrats are making a big push to capture several Republican-held congressional seats, centered on Southern California districts that voted for Hillary Clinton over Donald Trump in 2016, but there are so many Democrats running in some of the targeted districts that the top-two system could generate two Republican finalists, thwarting Democratic hopes.
Having alternative Republican candidates in those districts is a ploy, apparently encouraged by GOP leaders, that has Democratic strategists worried because the outcomes of those races could determine whether their party can recapture control of Congress this year.
https://calmatters.org/articles/commentary/will-newsom-skate-into-governorship-or-have-a-fight/
100,000 CA Teens Pre-Registered to Vote
California’s effort to get 16- and 17-year-olds to pre-register to vote has now enlisted 100,000 teenagers, according to information released on Friday by Secretary of State Alex Padilla.
“This is a big milestone,” Padilla said. “I’m optimistic it’s going to translate into action at the ballot box.”
The program, which began in the fall of 2016, automatically activates the teen’s registration at age 18. State officials reported that more than 10% of the total number of pre-registrations have come in just the last few weeks.
Padilla said there’s been a noticeable uptick in teenagers signing up following the mass shooting at a Parkland, Fla., high school in February and last month’s nationwide protests over gun violence.
“The impact of recent events is undeniable,” Padilla said. “It’s absolutely served as a motivator for young people to pay more attention.”
About 43% of the pre-registrations were California teenagers who chose to be unaffiliated, non-party voters. About 38% chose the Democratic Party and just 10% chose to be ultimately registered as a Republican.
The state’s chief elections officer announced the new milestone for teenager pre-registration at the same time he unveiled a new state website designed to connect high school students with civic engagement opportunities, including mock elections and student poll worker programs.
Ballot Initiative Qualifies to Create 3 Californias
Venture capitalist Tim Draper, who authored and chaired the initiative dubbed “CAL 3” says he’s received 600,000 signatures — well beyond the 365,880 needed to qualify the initiative for the November ballot. He said in a statement Thursday the signatures will be submitted to election officials next week.
“This is an unprecedented show of support on behalf of every corner of California to create three state governments that emphasize representation, responsiveness, reliability and regional identity,” wrote Draper.
The initiative proposes a central state consisting of Los Angeles, Ventura, Santa Barbara, San Luis Obispo, Monterey and San Benito counties; a southern state made up of Orange, Riverside, San Bernardino, San Diego, Imperial, Kern, Kings, Fresno, Tulare, Inyo, Madera and Mono counties; and the 40 remaining counties grouped into a northern state. The states’ names would be determined by its residents.
Even if the initiative makes the ballot and Californians vote to split the state, Congress would still need to vote on the change.
“The unanimous support for CAL 3 from all 58 of California’s counties to reach this unprecedented milestone in the legislative process is the signal that across California, we are united behind CAL 3 to create a brighter future for everyone,” Draper said.
Draper says he’s holding a press conference today at 4:30 p.m. at his investment firm in San Mateo to discuss CAL 3.
http://sacramento.cbslocal.com/2018/04/12/split-california-ballot-voting/
Governor Appeals to SoCal Water District to Build Delta Tunnels…
Gov. Jerry Brown, in a last-minute bid to forge ahead with one of his legacy projects, urged Southern California’s big water agency Monday to support a plan to build the two Delta tunnels simultaneously.
Brown sent a letter to the Metropolitan Water District of Southern California supporting the ambitious $16.7 billion effort to build both Delta tunnels together. In the letter, the governor essentially backed away from a plan, supported by his administration just a few weeks ago, to explore building the two tunnels in phases to address funding shortfalls.
Just 24 hours before the water district decides the fate of the tunnels, Brown said building the controversial project in stages actually could bring problems of its own.
“Staging its construction may seem plausible, but it will actually risk serious delay in permitting and jeopardize the entire project,” he wrote. “Overall costs would, of course, rise. That is why I urge the Board to support the full project — without delay.”
The tunnels project, known officially as California WaterFix, is supposed to shore up water deliveries through the Delta and would be paid for by south-of-Delta water agencies.
The project has a $5 billion to $6 billion deficit because most San Joaquin Valley agricultural water districts, leery of the cost, have declined to participate. That prompted Brown’s administration to back a plan delaying the second tunnel until funding is available.
http://www.sacbee.com/latest-news/article208400884.html#storylink=cpy
…And They Pick Up Their Shovels
The Metropolitan Water District of Southern California voted to shoulder most of the cost of revamping the system that delivers water from the Sacramento-San Joaquin delta to the Southland, committing nearly $11 billion to building two massive tunnels.
The approval, by a surprisingly strong margin, pushes ahead a controversial infrastructure project that has dominated discussions of how to halt the delta’s steep ecological decline — a decline that has threatened water deliveries to Los Angeles and other parts of the state’s most populous region.
A top priority of Gov. Jerry Brown’s administration, the tunnels project has been in the planning stages for more than a decade.
The MWD vote does not assure that it will be built. The project has yet to obtain key permits and faces years of legal challenges by opponents who consider it a costly diversion from more-sustainable water development projects such as recycling and storm water capture.
But it helps clear the path for an overhaul that MWD’s influential staff has insisted is vital to sustaining deliveries that make up roughly a third of the Southland’s water supply.
The vote capped months of back and forth over tunnel financing, which emerged as a make-or-break issue for one of the most ambitious water projects proposed in California in decades.
The original funding plan fell apart last year when the big San Joaquin Valley agricultural districts, which were supposed to pick up nearly half of the proposed $17-billion bill to construct two 35-mile water tunnels under the delta, backed out.
Ultimately two options emerged: Build a cheaper, one-tunnel version that would be financed by MWD and the mostly urban districts that get delta water deliveries from the State Water Project. Or have MWD pay for roughly two-thirds of the twin tunnel project, with other districts supplying the rest.
The funding debate inevitably reflected the conflicts over California’s water use and the environment.
The project — known as California WaterFix — is fundamentally an attempt to maintain a robust level of deliveries to San Joaquin Valley agribusiness and Southern California cities. Those deliveries have been subject to growing limits triggered by the harmful effects of water exports on the delta environment.
By modifying the way some supplies are routed through the delta, the tunnels are designed to lessen those impacts and thus avert further export restrictions. Proponents also say the tunnels will make a key part of the state’s water system less vulnerable to earthquakes and rising sea levels.
Opponents — primarily delta interests and major environmental groups — argue that the twin tunnels would inevitably be used to rob the delta of more fresh water. The answer to the delta’s problems is to reduce exports and develop more local supplies, they say.
Agriculture’s unwillingness to help pay for a project that it arguably needs more than urban districts — which have more diverse water sources — highlighted the degree to which the state’s fruit-and-vegetable garden depends on federal water projects that provide cheap supplies subsidized by taxpayers.
The conflicts were evident in the fractious board debate leading up to Tuesday’s vote.
Delegations from Los Angeles and the San Diego County Water Authority, both of which are working to reduce reliance on imported supplies and develop more local sources, led the fight against MWD taking on most of the two-tunnel bill.
An $11-billion tunnel bill was financially risky, they argued. Since an MWD analysis concluded that two tunnels wouldn’t send any more water to the Southland than one tunnel, they also insisted that Southern California shouldn’t have to foot the bill for the extra capacity.
“We don’t sit here today to tax our members for the entire state of California,” Los Angeles delegate Lorraine Paskett said. “I can’t support a vote that will put our ratepayers at risk.”
MWD has projected that investing roughly $11 billion in the tunnels would raise residential rates by $60 a year. Opponents contend the increase could be far greater.
The board’s twin-tunnel proponents, led by the Municipal Water District of Orange County, argued that building the full project would give water managers more flexibility in running delta operations, provide greater capacity to divert water during high flows and ultimately do a better job of sustaining delta deliveries that the Southland can’t do without.
They also predicted that MWD could recoup its extra investment by selling tunnel supplies to growers once the project was finished.
“I believe ag will be there,” said board Chairman Randy Record, who represents parts of Riverside County and voted for two-tunnel financing. “We don’t think ultimately we’ll have to pay for all of it.”
Although board members had predicted a close vote, the motion to fund both tunnels passed 61% to 39%. MWD weights member agency votes according to the assessed property values of their service areas. The two agencies with the largest votes, the city of Los Angeles and the San Diego authority, voted no, along with Santa Monica and San Fernando.
The vote authorizes MWD to fund roughly two-thirds of the full tunnel project, or $10.8 billion. But it doesn’t irrevocably bind the board, which could pull back if permitting issues force changes in the project.
“There are things that we don’t know how they’ll turn out,” Record said. “But I really believe … it’s appropriate for Met to send a signal that we believe in the value of this project, that we’re willing to move forward to do what we can to make that happen.”
http://www.latimes.com/local/lanow/la-me-delta-tunnel-mwd-20180410-story.html#nws=mcnewsletter
Governor’s Critics Call for Oil Drilling Freeze
Critics of Gov. Jerry Brown are pressuring him to take a stronger stance on an issue that has come to define his legacy – climate change and the environment.
Consumer and health care groups launched a campaign Wednesday, “Brown’s Last Chance,” calling on him to freeze all new oil and gas drilling in California, and phase out current production.
“We’re here to tell the governor that climate leadership means … standing with us and stopping oil drilling,” said Jamie Court, president of Consumer Watchdog, which is leading the campaign with a broader coalition that includes the California Nurses Association and the California-based Courage Campaign.
“Fossil fuels are the No. 1 driver of climate change and we have to address them. Please be part of the solution,” Court said at a press conference at the Inglewood Oil Field near Baldwin Hills in Southern California, one of the largest oil fields in the U.S.
Environmental activists and residents who live near oil and gas production facilities also called on Brown to halt all oil and gas drilling.
The campaign contrasts with Brown’s reputation as a national leader in advancing policies that address climate change. He championed California’s cap-and-trade program, and he’s opposing a Trump administration proposal to open more oil-drilling platforms along the state’s coast.
Hernandez said she got involved in the campaign because her health was affected. Calling the living conditions a “ticking time bomb,” she said migraines were among her health problems and as a result, she had to miss school.
The campaign is urging Brown to meet with coalition members ahead of the Global Climate Action Summit in San Francisco in September. It has funded newspaper advertisements and billboards across the state, from Los Angeles to San Francisco to Sacramento, calling Brown out by name. They are urging oil fields to be replaced by grounds for wind and solar production, or even housing.
“Governor Brown, if dirty oil has us ‘on the road to hell,’ turn us around,” one of the billboards reads.
“Dear Governor Brown, is dirty oil the future you will leave our children?” reads another.
In response, Brown spokesman Evan Westrup said in a statement that “Threatening to sabotage a climate summit aimed at mobilizing world leaders to push beyond the Paris Agreement is a curious way to fight climate change.”
http://www.sacbee.com/news/politics-government/capitol-alert/article208586479.html#storylink=cpy
Why Green Groups Are Split on Subsidizing Carbon Capture Technology
Environmentalists are divided over a provision in the recently approved U.S. budget that increases tax credits for projects that capture and store CO2. Critics say new subsidies for “enhanced oil recovery” included in the budget bill would simply encourage companies to pump more oil.
https://e360.yale.edu/features/why-green-groups-are-split-on-subsidizing-carbon-capture-technology
“More Silicon Valley Than Rust Belt”: New American Economy
Wall Street Journal excerpt, April 6
ELKHART, Ind.—The self-proclaimed RV capital of the world gives a glimpse of what the American economy looks like when operating at full tilt.
Elkhart has unique economic conditions—its good fortune is tied to a central role in the revival of the recreational-vehicle market, where neither automation nor foreign competition is a threat. But as the U.S. turns the page on a decade of postcrisis underemployment, the region points to a future of labor shortages and fights over workers.
Some job perks sound more Silicon Valley than Rust Belt. LCI industries, an RV parts maker, employs four “dream managers,” counselors who help workers plan vacations or handle family problems. “We want people to have a deeper purpose,” said one manager, John Ferguson, a former minister.
Another company, which makes shelves, advertises a free health clinic to lure new hires.
Chasing scarce workers has fueled inflation elsewhere. Median home prices have risen about 6.5% annually over the past two years, said Gary Decker, former president of Elkhart County’s board of Realtors, about twice as fast as in past recoveries.
High-school students around here skip college for factory jobs that offer great pay and benefits. For-hire signs sprout like roadside weeds. And workers are so flush that car dealers can’t keep new pickups on the lot.
At the same time, the strains are showing. Employers can’t hang on to employees, and house prices are zooming. The worker shortage prompted a local Kentucky Fried Chicken restaurant to offer $150 signing bonuses. A McDonald’s failed to open for lunch last fall because managers couldn’t corral enough hands at $8 an hour to serve the lines waiting at the door.
The Elkhart metro region operates like an oil economy—a Kuwait in the cornfields—said Enrico Moretti, a University of California, Berkeley, economist. The RV industry sets wages and standards to a level few competitors can match, making diversification difficult.
No place in the U.S. has seen a labor-market turnaround like this metropolitan region of 110,000 workers, a mix of blue-collar whites, Mexican immigrants and Amish. “It’s like 1955,” said Michael Hicks, a Ball State University economist. “If you show up and have minimal literacy skills, you can find a job here.”
The jobless rate in the Elkhart region plunged from 20% in March 2009, worst in the U.S., to just over 2% in January, half the national average. The local unemployment rate is actually closer to zero: some 9,500 jobs have no takers. Each day, about 25,000 workers commute into Elkhart city, population 50,000. A county economic development agency is hunting for job candidates across Appalachia and as far as Puerto Rico.
The local jobs rebound is the largest among 403 metro areas analyzed for The Wall Street Journal by Moody’s Analytics. As the national unemployment rate drops toward 4%, the Elkhart region has been at that level or below for 34 consecutive months. The rest of the U.S. might never match Elkhart’s sizzling pace, but the region could show what lies ahead.
Average weekly wages overall were up 6.3% in the third quarter of 2017 from a year earlier, the Labor Department said, compared with a 0.6% decline nationally over the same period. In Elkhart’s RV industry, which employs 12% of local workers, average annual salaries in 2016 rose 17% to $68,000. Pay is still going up.
Elkhart city, located at the junction of the St. Joseph and Elkhart rivers, is booming in a conservative Midwestern way, said Arvis Dawson, a former Elkhart city council member: “People here make enough money to buy a Cadillac, but they buy Chevys.”
At Zeigler Ford, he dealership usually stocks a half-dozen Ford Expeditions, which sell for as much as $85,000, and Lincoln Navigators that top out at $95,000. In February, the pricey SUVs were sold out. The Ford dealer, which usually stocks 20 to 30 top-end F-150 pickups, had three on the lot.
“All the high-line series have taken off,” said Mike Simmons, a sales manager. The tight labor market has created problems in his own office, which is short a full-time worker. The dealership is making do with three part-timers.
Jayco Factory 44 looks like a giant woodworking shop, punctuated with the rat-tat-tat of staple guns firing and the buzz of electric saws. The site, which produces $475,000 Entegra motor homes, belongs to Thor Industries Inc.
Thor buys steel chassis, and Jayco workers build the RV housing. Workers push the 45-foot-long motor homes by hand along a rail system. The vehicles move from station to station, where specialists assemble various parts by hand: cabinets, wiring, walls and roofs.
Amish ride their bicycles for the 5 a.m. start of the workday and head home to farms by 1 p.m. Thor, the region’s largest employer, takes extraordinary steps to locate workers. The company seeks prospects in Youngstown, Ohio, and other Midwestern cities with higher unemployment. It also hires county jail inmates in work-release programs.
Looking ahead, the company invites eighth-grade students to visit its plants, and sends finished RVs to tour area grade schools.
The RV industry sets wages at levels others find hard to match: Eight of Elkhart’s 10 largest employers make RVs or RV parts. Workers are paid based on units produced. At full production, that translates to as much as $90,000 a year for assembly workers at RV plants and $100,000 for foremen.
The work is tough. The posting for an assembly job at LCI industries says the work “requires walking, bending, kneeling, stooping, crouching, crawling and climbing all day,” plus lifting “items over 50 pounds.”
Older workers gravitate to less demanding jobs at other RV firms that make parts and where the base pay is around $15 to $20 an hour.
Lamont Blackwell, the manager of a local McDonald’s restaurant, said he used to work at LCI for more money. “I have thought about going back, but I can’t keep up,” he said. “I’m 40 years old, and my body is breaking down.
Employees job-hop frequently in this workers’ market. Turnover in the RV industry is roughly 100%, according to local manufacturers. Bonuses of $500 to $1,000 are commonly offered to new hires if they stay 90 days.
When bad times hit, they hit hard. In 2009, RV sales fell by half, and so did RV employment. Organizers canceled the Elkhart RV show, the first time in more than 50 years.
Jose Chiquito, a Goshen College sophomore, said his father and five of his siblings had moved to Elkhart over the years from the Mexican state of Aguascalientes for RV jobs. During the recession, three returned home.
Signs of decline during the recession were stark. Mr. Collins, of Cleer Vision Windows, employed about 40 people in 2009 and wasn’t hiring any more. Even so, he said, day after day, another 40 or so people lined up in his lobby and out the door, to fill out applications.
The Independent, a British newspaper, declared Elkhart “Joblessville, USA.” Elkhart school district enrollment fell by 1,000, about 7%, when families left town to find jobs, especially those from Mexico, whose population had grown from just 2% of the Elkhart City’s population in 1990 to 24% by 2010.
Many who stayed in Elkhart lost their homes. More than a third of home sales in 2010 were foreclosures, said Mr. Decker, the real-estate broker.
When President Barack Obama put together an $800 billion stimulus plan in 2009, he traveled twice to Elkhart to illustrate the recession’s despair. “We were the worst in the country,” said Jason Lippert, chief executive of LCI Industries.
Slowly at first, Elkhart’s economy improved. The stimulus plan helped, although some projects flopped. Three companies set up shop, got pledges of more than $50 million in government funding and produced just two working electric vehicles before folding.
Starting around 2012, the RV industry—and, by extension, Elkhart—started to rebound sharply, largely because of the improved U.S. economy, say economists and RV industry executives. RV shipments last year tripled to 500,000 motor homes and trailers from 2009, the Recreational Vehicle Industry Association said.
Shelley Moore, an Elkhart urban planner, said the city has been in a “race against the clock” to build a more diverse and sustainable economy. The pursuit is complicated by the RV industry’s success.
Jobs are so easy to get that fewer in the region are enrolling in college, a risky bet against another downturn. Elkhart ranks 335th of 380 metro areas in percentage residents with a college degree, the Brookings Institution found.
Enrollment in the Elkhart branch of Ivy Tech Community College has fallen by nearly half since the recession. “We’re up against a great economy,” said Kyle Hannon, executive director of the local campus. “It’s kind of weird.”
But even in good times, memories of the last recession—and fears about the next one—shape business and personal decisions in Elkhart.
Residents squirrel away money, not sure whether to trust the boom. That makes sense, according to Mr. Hicks, the Ball State economist. In the next recession, he said, “they will be clobbered.”
Few RV makers want to invest in factory automation, given the industry’s past peaks and valleys. Without large capital spending, “we are highly variable,” said Robert Martin, Thor’s CEO. “We can ramp down if things get really bad.”
There are almost no places to rent in and around Elkhart, but few builders will risk erecting homes or apartments that will sit empty in what has been a boom-and-bust economy.
“There are a lot of people with the money here to put up housing,” said Mr. Lippert, the RV parts maker. But with nine years of economic recovery, he said, many say, “What if it ends next year?”
Matt Stump, who builds RVs at Jayco, said he returned to Elkhart in January after living with his family in Peoria, Ill., for 15 years where he worked at Caterpillar . He couldn’t find a rental to house his family, so he stays at a bed-and-breakfast and, on weekends, makes the 4 1/2 hour drive to Peoria.
The housing shortage has sparked “something we haven’t seen in our careers here,” said Mr. Decker, the real-estate broker. “Multiple offers.”