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Obama's economic recipe
San Diego Union Tribune, United States - 3 hours ago

http://www.signonsandiego.com/news/business/20081109-9999-1b9obama.html

How could the president-elect's plans affect San Diego County?
By Dean Calbreath
UNION-TRIBUNE STAFF WRITER

November 9, 2008

As Barack Obama prepares to enter the White House, he faces the daunting task of – in the words of his chief economic adviser, Austan Goolsbee – “preventing the biggest financial crisis in possibly the last century from turning into the next Great Depression.”


Associated Press
and file photos
Since December, the United States has lost 1.2 million jobs. The Dow Jones industrial average has lost more than a third of its value. The growth rate in the gross domestic product has – except for a short-lived, government-funded jolt in the middle of the year – been largely negative. And even the most optimistic economists say the economy will not hit bottom until the middle of next year.

Besides pushing middle-class tax cuts intended to spur the economy by loosening more money for consumer spending, Obama's chief proposal for ending the crisis – as outlined during his campaign – is to use tax incentives and multibillion-dollar stimulus packages to keep U.S. industries humming.

Of course, it's always hard to determine what a president will do based on the promises he made on the campaign trail. Even if his intentions are pure, a president can often be hamstrung by the legislative process or the economic realities of how much a program will cost.



Advertisement“Big parts of Obama's agenda were drafted relatively early in the campaign, before the economic crisis hit its crescendo and before the government was forced to extend its $700 billion bailout to Wall Street,” said Bill Bold, senior vice president for governmental affairs at Qualcomm. “Obama and his advisers are now operating under a new fiscal reality, and a lot of their plans will need to be adapted to that reality.”
Obama acknowledged the urgent need for an economic stimulus package at his first news conference as president-elect Friday. If a plan is not approved this month in a lame-duck session of Congress, Obama said “it will be the first thing I get done as president of the United States.”

There is little question that Obama and the Democratic majorities on Capitol Hill will inject billions of dollars into the economy to keep the recession from dramatically worsening. One of their main focuses will be job creation – using government policies and programs to spur new life in such fields as heavy construction, defense, telecommunications, high technology, biotechnology and green technology.

Because each of those industries has a major presence in San Diego County, the effect on the local economy could be significant.




CONSTRUCTION: Fund $25 billion for road and bridge maintenance and school repairs
Construction. Because of the ailing housing market, construction has been at the epicenter of San Diego County's rising unemployment rate. Since building projects peaked in June 2006, 15,100 construction jobs have been lost. Although the vast majority of those job losses were related to home building, 1,100 were involved in heavy construction, including work on roads, office buildings, warehouses, and water and sewage systems.

Obama's plan – which, with the help of his allies in Congress, might be launched even before he gets into office – includes a $25 billion “jobs and growth fund” for road and bridge maintenance and school repairs, as well as $25 billion to help state and local governments fund health, education and housing programs.

The San Diego Regional Chamber of Commerce and the San Diego Association of Governments are compiling a wish list of programs they would like to see funded, focusing on projects on which construction can begin within 90 to 120 days of funding. They have met with Rep. Bob Filner, D-Chula Vista, to relay their request to Capitol Hill.

“We want to make sure that San Diego is well-positioned to get these projects, which could generate economic activity, generate jobs and improve our infrastructure,” said Ruben Barrales, president of the chamber. “These are not make-work projects. They're things that need to be done.”




DEFENSE: Increase size of military
Defense. Obama plans to increase the size of the military by 65,000 soldiers and 27,000 Marines, with the goal of allowing the troops to spend more time with their families between their tours of duty.

“Bringing the troops home and keeping them here longer would be good for San Diego,” said Kelly Cunningham, economist with the San Diego Institute for Policy Research. “When Marines are shipped out, whatever payroll they're receiving, they're not spending it in San Diego. Sometimes, their families leave the area to live more cheaply with their own families elsewhere. Bringing them home would be good for their morale and good for the economy.”

In addition to troop increases, Obama said he wants greater investment in advanced technologies, including unmanned aerial vehicles, or UAVs, and electronic warfare programs.

Cunningham said that will be good news to San Diego military technology companies such as Science Applications International Corp. as well as UAV developers such as Northrop Grumman and General Atomics Aeronautical Systems. This year, Northrop Grumman said it plans to add 1,700 workers to its UAV production line in San Diego.

On the other hand, Obama has pledged to “develop a strategy for determining when contracting makes sense, rather than continually handing off governmental jobs to well-connected companies.” Although that could end up saving the government money, it could also make it harder for companies to land federal contracts.

TELECOMMUNICATIONS: Expand broadband technology throughout United States
Telecommunications: Obama wants to expand broadband technology throughout the United States through more efficient use of the nation's wireless spectrum, promotion of next-generation systems, tax incentives and reform of the Universal Service Fund, a government program aimed at expanding communications services, funded by fees assessed to long-distance carriers.

Assuming that the plans go forward, the goal would be to generate jobs, to improve telecom services in rural and low-income communities and to modernize health and education services with the most up-to-date technologies.

That could be a boon to San Diego telecom companies such as Qualcomm, which is one of the global leaders in wireless broadband technologies, and Qualcomm-spinoff Leap Wireless, which has been launching wireless broadband services in selected cities across the country.

“These are ideas and concepts that really resonate with Qualcomm and that we support,” said Qualcomm lobbyist Bold. “As we've pointed out to (Obama) and some of his staff in Washington, wireless broadband is uniquely positioned to reach some of the hardest-to-reach communities.”


HIGH TECH: Keep the R&D tax credit
High technology: Obama has pledged to double federal funding for basic research, fund more science and math education, and make the federal tax credit for research and development permanent.

“The emphasis on R&D and education is very positive for our industry,” said Kevin Carroll, who heads the local chapter of the AeA, formerly the American Electronics Association. “Extending the R&D tax credit has been a real priority for the entire industry.”

Currently, the R&D tax credit has to be renewed each year by Congress. Gaps in the timing of the renewal – as well as the uncertainty regarding whether the credit will be renewed at all – can wreak havoc with the planning and earnings of research-heavy companies.

For instance, ViaSat, a satellite communications firm in Carlsbad, spent more than $32 million on R&D during its most recent fiscal year, the equivalent of 13 percent of its revenue. When the R&D tax credit expired at the end of last year, it resulted in a dip of several cents per share in the company's quarterly earnings, said Mark Dankberg, the company's chairman.

Dankberg said ViaSat pays an effective tax rate of 27 percent when the R&D tax credit is in effect, compared with 35 percent without the tax credit. “Overall, we believe that the benefits of the tax credit for us are quite worthwhile,” he said.




BIOTECH: Increase funding for research
Biotechnology: Obama's economic program includes pledges to bolster federal funding for biotech research and to advance stem cell research. Although the pledges are vague, he has a track record of supporting biotech projects. For instance, as a state legislator in Illinois, he introduced a bill to allow embryonic stem cell research, in contrast to the Bush administration, which has largely blocked federal funding for such research.

“I'm feeling very positive about some of the things we've seen and heard about Obama's plans to increase funding for basic research,” said Joe Panetta, executive director of San Diego's Biocom, an association representing the local biotech industry.

Panetta said a number of local biotech firms depend on federal funds for research, largely distributed through the National Institutes of Health. Federal support of stem cell research would also aid the Burnham, Scripps and Salk research institutes.

Although California has enacted its own $3 billion stem cell research program, under current federal regulations, embryonic research must be conducted separately from federally funded research.

“That's an incredible nightmare in logistics and operations,” Panetta said. “It would be great to see the rules loosening.”

Mike Havrilla, stock analyst with ETF Innovators, said Obama's health care plans – which emphasize preventive screening – could also help create more business for diagnostic and lab service firms, such as locally based Sequenom and Genoptix.




GREEN TECHNOLOGY: Create jobs in alternative energy
Green technology. Obama's goal is to create 5 million jobs over the next 10 years by investing $15 billion per year to develop plug-in hybrid cars, weatherized homes, solar and wind power, and natural gas pipelines. His goal is to ensure that 10 percent of the nation's energy comes from renewable sources by 2012 and 25 percent by 2025.

“Obama's plans are very positive,” said Rod Schrock, who heads D-Rock Investment Services in Encinitas, a hedge fund that invests in renewable-energy projects. “They're pretty consistent with what's going on with energy in Japan and Europe.”

San Diego County is becoming a center for solar-technology development, thanks to such firms as Kyocera International in Kearny Mesa, Envision Solar in La Jolla and Clean Power Systems near Scripps Ranch. Because of the worldwide demand for solar energy, Kyocera is doubling solar-panel production at its plant in Tijuana. Obama's push for renewables could create even more demand.

Obama's desire to use investments or tax breaks for green technology, high tech, construction or the defense industry is likely to encounter head winds as the economy contracts and the government is pushed to spend more money on the ailing financial sector.

In his news conference Friday, Obama stressed that he does “not underestimate the enormity of the tasks that lie ahead.” But he also added that “the one thing that I can say with certainty is that we're going to see a stimulus package passed” and that “we are going to have to focus on jobs.”

With San Diego's unemployment rate hovering above 6 percent, that kind of stimulus program would be welcomed here.



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Dean Calbreath: [phone]; [e-mail]