Long Beach’s John Keisler on Post-COVID Economic Opportunities

John, as the Director of Economic Development for the City of Long Beach, please share the toll COVID-19 and State Shelter-in-Place Orders have had on Long Beach’s economy. 

This has been a really different type of economic crisis for us, because of how sudden it was and continues to be. We’ve never been in a situation where, because of the health orders, we had to lock down entire sectors of the economy. As a result, within a six-week period, we saw our unemployment numbers go from about 4.5 percent—a historic low for us—to what we estimate to be about 25 percent today. We've never seen lows that low or highs that high. 

We have also seen an estimated 60,000 unemployment insurance claims. That has a very interesting dynamic in the short-term for a couple of reasons; (a) unemployment insurance payments are approximately $450 per week from the State (EDD) and $600 from the Federal government through the CARES Act to supplement, (b) about $1,050 per week for those claims, which is about $62 million per week for all 60,000 claims.

All of the sudden, we have $62 million per week in State and Federal monies flowing into households for displaced workers. Some of the workers—if they make $42,000 a year, break even. Those who made more are making less, and those who made less than that, which is the majority of the workers in the sectors that were most impacted, are actually making more money per week. It’s a really interesting phenomenon right now, because we have so many people at home, small businesses that aren’t making money, and a large displaced workforce restricted in terms of their activity.

And the City’s immediate response?

Our City Council passed a massive Economic Relief Package that involved 25 individual initiatives, including tenant protections and eviction moratoriums that protect renters from eviction, but also provides for the deferment of rent payments. That has impacted landlords who own property or owe debt service to the lenders who have to make their payments, so we’re working through those issues. It also includes worker protections and supplemental sick leave protections that allow for a stopgap between what the Federal and Local government offer for employees, particularly in hospitality and janitorial facilities that have been impacted by COVID-19.

As a City, we’ve also been helping to secure as much Federal stimulus, State stimulus, and outside capital for each of the households. We’re trying to help people make money when the sources of capital have shifted. We’ve really tried to refocus the City organization on how we can keep money flowing into these households during the lockdown phase with the idea that the transition phase, as we’re able to slowly reopen, will require very different solutions.

Consumer and spending behavior changed significantly, so business as we know it has also transformed in such a short period of time. 

When we last interviewed you in 2018, Long Beach had just adopted a ten-year Blueprint for Economic Development, a plan that aims “to take advantage of Long Beach’s historic core competencies,” building stuff and moving stuff, “to position the City for a new economy of global logistics, global manufacturing, and online retail.” Has COVID-19 called that Blueprint plan into question?

The mission of the Blueprint for Economic Development (Blueprint) is to create economic opportunities for workers, investors, and entrepreneurs. The three ways people make money are primarily by working for someone, working for themselves, or investing in projects, equities, or real estate. That mission has not changed at all, but where the capital and economic opportunities come from has changed dramatically.

In this lockdown phase, help in technical assistance, marketing, communication, and business support programs has primarily come from government. Government is the primary provider of capital for the vast majority of workers who have been displaced, which is about 25 percent of our overall labor force. Creating economic opportunity for workers, investors, and entrepreneurs still requires a different strategy, but it’s the same mission today as it was before.

For business assistance, small business loan programs, access to capital programs, technical assistance, business planning, transitioning businesses online, and digital inclusion have been consistent with our mission. The trends that we saw coming five years ago laid the groundwork for the Blueprint. Premonitions about high-tech infrastructure and the need to connect every business, household, and worker in the City regardless of their geographic background.

If anything, our ten-year plan for economic development has been accelerated to a five-year plan. The ‘haves’ and ‘have-nots’ have been laid bare, and it’s more acute than we thought. Businesses that had an online platform for ordering, inventory, transactions, and delivery were able to stay open, continue to generate revenue, and retain employees. We found that the businesses that didn’t have an omnichannel, online strategy, or connectivity couldn’t interact with their customers or supply chain and they couldn’t apply for the Government grants, loans, or even unemployment insurance benefits. Whether you’re a worker or a business, you apply for SBA, PPP, EDA, or EDD programs and benefits online.

We kept City Hall open, and our team is working more than they’ve ever worked, but the real challenge for us internally has been digital connectivity and inclusion. The haves and have-nots have grown further apart because we do still have disparities with almost one-third of our population not online. If you read the Blueprint, it’s been accelerated but the strategies are actually dead-on in terms of what we recommended a couple of years ago. 

It clearly appears that the pandemic has called into question the reliability of global supply chains. Address the impacts of disrupted supply chains on the Blueprint’s priorities for expansion of local opportunities for “work, investment, and entrepreneurship.”

I don’t think the global supply chain is going away. In fact, we need to harden the infrastructure, automate it, and make more investments in the global supply chain when it comes to education, automation, and security. We know, as a Nation and economy that is tied to other Countries, we need to be more global in our thinking about healthcare, whether it’s testing, contact tracing, or preventative activities; we’re all in this together from a global perspective.

I do think there’s going to be questions about certain supply chains. We’re realizing that there are some products or services that have to do with National Security that we have capacities to control from beginning to end, but I also believe we’ve learned that something that happens in rural China affects our economy in a major way, so we need to be, for economic reasons, more collaborative and ultimately more strategic in ensuring the health, wellbeing, as well as Military security of the entire world.

TPR recently published an interview of Jodie Lesh, Chief Transformation Officer at Kaiser Permanente, who noted that they are seeking more secure logistic supplies for their essential medical work. Is their concern likely to impact what is going out and coming into the Port of Long Beach in 2021?

Price! It’s not that we don’t have the ability to make it or that those hospitals don’t have the ability to buy it domestically, it’s what they want to pay for it. When the supplier and consumer business model changes, it’s a result of price. Let’s take California as an example, the reason that our high-value manufacturing continues to stay in the area is because the high-value employees who design, patent, and develop it stay here. They go where the talent is.

The high-value, University talent that’s produced regionally on an annual basis comes through this incredible education system that we invest in; it’s high-cost, high-reward. That means that the price we pay for that talent, the cost of living, and even the taxes we pay to support that higher education system, is more expensive. Low-cost production is going to continue to chase low-cost labor. Companies that need to save money or reduce the cost of production are going to continue to chase the lowest price, highest-quality product.

For the healthcare system, there are many different players. Whether it’s the supply chain, materials, goods, or services that support the larger hospital system, or insurers that actually pay for the stuff, they’ve got to price what that security is worth to them. As we’ve seen, these pandemics are high-intensity, low-frequency events, and this is basically insurance to hedge against it by paying a premium.

So, the number one thing you’ll see change in are our Ports is price. We could go into a protectionist stance around certain types of goods or services that we need to maintain locally for National Security, and that will come from the experts at the Federal agencies like the CDC. 

Another important contributor to Long Beach’s economy & fiscal vitality is travel and tourism—which because of COVID 19 has cratered impacting the City’s transient occupancy tax (TOT) revenues. TPR, this month, interviewed LA Department of Convention and Tourism Executive Director Doane Liu, who shared the gut-wrenching impacts of COVID-19 on the City of Los Angeles’ budget. Has Long Beach been similarly impacted?

Hospitality is a major part of West Coast waterfront cities like Long Beach, LA, San Diego, San Francisco, or Anaheim. Some cities rely on it more for their revenue base than others. As an example, Long Beach has a pretty diversified revenue mix when it comes to a big City. We have oil production, a Port, an Airport, some in-house utilities, Transient Occupancy Tax (TOT), and sales tax.

Hospitality was a major part of our economy from an employment standpoint, with well over 20,000 jobs just in hospitality-related businesses like hotels, restaurants, event spaces, and attractions that drive visitors to come to the City for either business or leisure.

For Long Beach, business-related travel to the Convention Center is the largest draw. Then, Carnival Cruise Line, which has their busiest terminal in the Country, here in Long Beach, had four ships and is now increasing the size and quality of the ships they’re bringing through. Then, the Queen Mary and the Aquarium of the Pacific, each have over a million visitors per year. There’s a mix of business-related and leisure-related visitors that impact that. 

When COVID required us to shut down the major events at the Convention Center, that was a major impact for us specifically in Long Beach; less on the leisure side, more on business, because that’s almost 2 million visitors. We’d been trending between 76 and 80 percent hotel occupancy, particularly in the Downtown Tourism and Business Improvement Area, and it dropped from that historic high to 10 percent. Many hotels have reported that they’re around 10 and dreaming of just getting up to 30 percent for the year. When we look at our TOT, that revenue would drop from over $30 million a year to quite possibly $10 million a year if we don’t reach Stage 4 of the Governor’s Resilience Roadmap by Fall or the end of the calendar year.

We have a lot of challenges as a City from an employment standpoint. When you look at the numbers right now, we believe that 25 percent of the potentially 60,000 unemployment claims is just in hospitality. The only bright side is that the supplemental Federal benefits for unemployment insurance, plus the State benefit is about $1,050 per week, which, at least for the short-term lockdown phase, could last 30 weeks. Our hope is, as horrible as it is, that hospitality workers who aren’t working right now, are receiving a higher average weekly paycheck than they would working.

Remember, many hospitality sector jobs in this area have a medium salary per year of around $25,000. Making as much as $42,000 a year through the unemployment insurance benefits, when the weekly $600 Federal supplemental benefit is included, means that they’re making more money right now. That’s just the short-term solution, we’ve got to figure out a way to slowly reopen in a safe way.

Given Metro has just finished work on the new A Line (Blue), which runs from downtown LA to Long Beach, elaborate on the value of transit-oriented developments and investments that promise improved regional connectivity to Long Beach. 

Transit-oriented development is the key to our future as a region. With 78 percent of our residential workforce traveling outside of the City every day, primarily between LA and Orange County.

We think transit is part of our economy for residents and workers who choose to live here and make more money by chasing higher salaries in the region. This region is an economic super-region, and there’s an opportunity for Long Beach residents because we’re right in between LA and Orange County. Between those two Counties, there’s such an incredible range and diversity of economic opportunity across sectors, and transit is at the center. 

When we were talking about high-tech infrastructure, which is the fastest mode of transit to transact goods, we saw that even locked down, some companies flourished. I spoke with a local CEO of a large tech company and he said it had been amazing, his entire company of over 400 people, who used to come into work each day, were collaborating using Microsoft Teams, and that their productivity and efficiency had been incredible. A lot of them are doing design and code work and are comfortable using that kind of platform to interact, but my point being that transit, whether of people or information, is right in our wheelhouse.

Physical transportation. Everyone is aware of what we’re learning from New York City, about how these viruses spread more rapidly in contained areas and shared infrastructure. If individuals are in a contained area for a long period of time, dilution will not occur like it would outdoors or in a private vehicle. This is going to be a major learning process for our friends at Metro, as well as in the City.

I will say, unequivocally, that this a regional economy that brings people in from around the region to work every day. We need more public transportation that's clean, open, and can deal with these kinds of issues. The A Line had $350 million worth of track replacement between Downtown LA and here, and we even kept the express buses from the construction period. Mayor Garcia is working on the Metro Board with his colleagues, and they’ve done a great job advocating for investments that support economic development and mobility.

We believe in it, and we’re already in plans for the recovery period, to establish enhanced infrastructure financing districts to augment public right-of-way and public transportation. That will provide the type of asset that will allow for more dense development along Long Beach Boulevard and the A Line. We’re looking at how we can leverage tax increment financing through the establishment of EIFDs (Enhanced Infrastructure Financing Districts) for both TOD (transit oriented development)  along Central Long Beach, as well as downtown technology and entertainment innovation district, the hospital and healthcare innovation district, and an advanced manufacturing district around the Airport.

When you talk about transportation, some of the companies we see coming into Long Beach, like Virgin Orbit, Rocket Lab, Relativity, Spin Launch, and other great new companies are doing a tremendous job advancing transportation innovation. We’re extremely excited about it and we see challenges, but it’s a major part of the future. 

TPR also recently spoke with Martin Muoto about South LA opportunity zone funded investments. He was hopeful that such impact investments would continue to drive recovery in disadvantaged communities. Share what the possible benefits and role of impact investing opportunities are for Long Beach. 

There are two groups that are working on Opportunity Zone investments in the City; our Real Estate development group and Business Development group. There are certain Opportunity Zone investment funds looking at either real estate or business expansion investment, and we’re looking for a third hybrid. 

One of the more exciting projects we’re working on right now, with a particular venture capital fund, wants to offload some of its capital gains into a hybrid of both real estate and business incubation, so they can accomplish both and hedge against some of the risks associated with either. 

Opportunity Zone projects are relatively new, so the deals that are now starting to pop up involve a qualified fund, have investors in certain profiles, and have expectations for a turn on costs. If it’s a business or real estate deal, you also have to have a developer, somebody who knows the operating environment of that city, neighborhood, or zone. These are still highly analyzed business deals, and they’re complex because they involve even more potential tax benefits if done right.

You also need to have on-the-ground regulators at the City level that understand, in terms of the real estate development timeline in Southern California. We have one of the longer and more complicated environments for entitlement and development. There’s a concern about the timing that is required to make the deal happen with that window. 

It’s really a number of different entities that come together to make one deal work, and we’ve been introducing those partners to each other (i.e. property owners, real estate developers, qualified fund managers, great accountants, and the City as regulator, etc.). We have a couple of funds that have formed locally, and typically they’re somebody who owns large property holdings within the zone and wants to develop it, so they’re seeking investors. They know they control the land, so they can build quickly.

In some cases, we have funds that have formed around the investor’s side, groups that have access to capital and are looking at certain types of investments. They need the City’s assistance, not only to identify opportunity sites, but also to make introductions with property owners who might be interested in a deal. We’ve been doing a lot of that work over the last few months. We did find that we’re getting traction on a couple of projects that could be transformative for the City.

Lastly, what in the way of possible Federal and State economic assistance would be most prized by the City of Long Beach?

Our economic philosophy at the local level is that access to capital and capital investment, like a short-term massive infusion of capital, is needed particularly during the lockdown phase at the household level, individual worker level, or microbusiness employer level.

If you imagine a pyramid, our philosophy says that investing short-term stimulus at the base of the pyramid will actually result in those dollars being transacted quickly. At the base of the pyramid, you have people that have to pay rent to landlords, so landlords can pay the mortgage to their lenders. You get money into the hands of the workers who have to buy food and other services from locally-serving businesses, and that immediately gets transacted into those local businesses, which gets retransacted either to the supply chain, lenders, landlords, etc.

We believe that there will be at least five or six transactions of those dollars, eventually trickling up to tenants, landlords, lenders, banks, and back to the Federal Government. That’s the virtue of the cycle, and by getting it into the hands of workers, investors, and entrepreneurs, we believe it will turn over and create a cycle and momentum of economic transactions. It will help keep people employed, businesses open, and eventually find its way back up to the Government or into other investments.

To get there, we’re going to need the Federal Government to backstop the unemployment insurance trust. That’s absolutely non-sustainable right now simply based on the fact that, in Long Beach alone, it’s $52 million a week. Now, multiply that by almost 4 million claims Statewide, and you’re talking about billions of dollars a week. The unemployment insurance trust is big, but nothing is big enough to sustain that effort, so we’re going to need a backstop there to make sure that it stays viable. 

Another area that we need help with from Federal and State Governments is that there’s a lot of protections for tenants right now. That’s a good thing, but the challenge that we have is that many of our landlords or property owners are actually small business owners. It’s no surprise that in Southern California there are a lot of small business owners that are in the business of real estate, ownership, management, commercial, or residential. We’re looking for payment deferrals and tenant protections, and we’re going to need help creating revolving loan funds, guarantees, and credit advancements at the local level.

The State can play a huge role in providing backstops to revolving loan funds, and credit enhancements for small businesses, as well as small property owners, creating a virtuous cycle where dollars will be transacted from tenants to landlords to lenders and make its way through the economy. Those are the major areas we’re looking at right now. It’s really about backstopping some of these support programs that are working right now to keep capital flowing into our cities.