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Inside the Plan to Fix San Diego's Hourglass Economy

The city’s new economic development plan seeks to deal with one of the regional economy’s most persistent issues: the lack of a sizable middle class.

San Diego suffers from an hourglass economy.

That is, its employment base includes a few high-wage workers at the top, and a lot of low-wage workers at the bottom, and not too many middle-income workers in between.

It’s one of the regional economy’s most persistent issues, and solving it is at the heart of what could soon be the city’s first economic development strategy in a decade.

San Diego’s new planning director Bill Fulton, who also oversees the city’s economic development functions, along with Russ Gibbon, the city’s business development manager, presented the new plan last week to the City Council’s rules and economic development committee.

The committee decided the strategy was ready for a period of outreach, including a public workshop, with feedback implemented into the plan before the committee forwards it to the full Council. The committee could revisit a revised plan in early February.

The city’s last strategy was written in 2000, adopted the following year and ran through 2004.

That means in the time since the city last outlined its economic development goals, the tech bubble crashed, Sept. 11 happened, a housing bubble inflated, the Great Recession came and our slow recovery started hobbling along.

(In fairness, the city adopted a new general plan, an outline for future planning decisions, in 2008, which included an economic prosperity element. Though focused on land use concerns, it included similar objectives, like creating a diversified economy with self-sufficient wages for all San Diegans.)

The new plan, Economic Development Strategy 2014-2016, began with a draft written in late 2011 that has since been amended to reflect recommendations from a city auditor’s report on the economic development program, feedback from the independent budget analyst and guidance from the City Council.

It calls the hourglass economy the city’s biggest economic problem — it accelerated between 2007 and 2011 and is more pronounced here than it is nationally — and sets three objectives aimed at providing a spectrum of job opportunities.

Fulton said at last week’s forum on neighborhood growth that those objectives are directly connected.

“One of the things that the economic development strategy is going to focus on is how we make sure those sectors of the economy such as manufacturing, which is closely tied to (research and development), can be nurtured to improve, to reduce that hourglass,” he said.

“I see that as fundamentally connected to the conversation around neighborhoods such as (Encanto), because if people in those neighborhoods don’t have money in their pocket, then those neighborhoods will not be revitalized.”

The three objectives: growing the economy’s “base sectors,” increasing middle-income jobs and increasing neighborhood business activity. Here’s how it hopes to achieve them.

Grow the economy by focusing on “economic base sectors.”

Economic base sectors are ones that produce goods and services sold outside the region. Because they’re consumed by people who don’t already live here, they bring new money into the economy to recirculate once it’s here.

San Diego is home to four economic base sectors: manufacturing and innovation, international trade and logistics, military installations and tourism.

The manufacturing and innovation sector produces $15 billion annually to the region’s $186 billion economy, according to a study from the National University System for Policy Research. The plan’s objectives for the sector: increase jobs in manufacturing and production – especially those linked to local research – the taxable sales of manufacturing plants and employment in high-tech companies (especially downtown).

It offers 12 specific ways to reach those goals. One is to track property in the city used for industrial purposes that’s converted into a residential or commercial use, and report those changes to the City Council every year. Another is to make unused, city-owned industrial land available for purchase by manufacturing companies.

Another suggestion is to amend the municipal code so manufacturing-related development isn’t subject to the affordable housing fee, a charge on new commercial development the city uses to help build subsidized housing.

The strategy goes through that same process for each of the base sectors. Here are a few other specific actions the report recommends. Some are more specific than others.

• Maintain a binational affairs office in Tijuana to coordinate cross-border commerce.

• Exempt wholesale distributors from the affordable housing fee.

• Prioritize capital improvement funds to be used at the Otay Mesa Port of Entry.

• Encourage the Navy to bring alternative energy-related projects to San Diego, especially relating to San Diego-produced biofuel projects.

• Establish a system to measure successful investment of tourism and marketing district funds.

• Find ways to increase wages for tourism workers.

• Build, expand and maintain publicly owned attractions like the convention center, cruise ship terminal and city beaches.

• Grow middle-income jobs, especially in those all-important base sectors.

Increase neighborhood business activity, especially in underserved neighborhoods.

Where the strategy’s emphasis on base sectors focuses on growing the economy by bringing in money from outside San Diego, its portion on neighborhood business focuses on the city’s local business districts. And it tries to focus those efforts on older, neglected neighborhoods.

“Not only do (neighborhood retail businesses) provide goods and services conveniently on a neighborhood scale, but they can help retain money in the local economy that flows into the region through base industries,” according to the draft strategy.

That is, large corporate retailers export money out of the region to their national offices; small business owners live in their community and spend their profits here.

It also says strengthening older commercial corridors, especially those between Adams Avenue and Imperial Avenue, could revitalize the surrounding neighborhoods.

Here’s a sampling of specific policy recommendations to boost local businesses.

• Develop a replacement program for redevelopment by partnering with private corporations, philanthropies and lending institutions (this could be entirely new, or it could refer to a similar initiative by Civic San Diego, the city’s former redevelopment agency, that’s yet to be approved by the City Council).

• Change existing business improvement districts, where local businesses pay membership rates to make community improvements, into property-based improvement districts, which include property owners, and which collect funds through property tax bills. The strategy says this would improve management of the districts.

• Find ways to loosen the regulatory burden on locally owned small businesses.

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