Galveston Economic Report
David Stanowski Publisher
Galveston Community Recovery Committee
by David Stanowski
12 February 2009
We have been given the task of developing a vision for our City that will transform it into the place that we always wanted it to be, but I think that we also need to look at a much more realistic scenario. I am very concerned that the people from FEMA, who are directing our Committee, are being too rigid with their scripted process to allow us to explore this second option. They have stated that they are not here to dispense money, all that they can do is to help us find funding sources; but what if they are unsuccessful in doing so?
I recently published an article entitled "The Case For a Super Bear Market" that laid out the case that we are in the early stages of a Bear Market in stocks and an economic Depression that will rival the conditions of the 1920's and 1930's. For those who do not want to rely on my analysis, I direct them to the recent meeting of the Global Economic Forum in Davos, Switzerland.
The GEF brought together some of the leading economic and financial analysts from around the world. One of their comments was that about 40% of the world's wealth has already been destroyed (the losses are estimated to be any where from $30-50 Trillion), and that "things are getting worse"!! One of their conclusions was, "Business will be very different"; which is exactly my point. It isn't realistic or prudent to be designing a recovery for the economy that existed in 2005 and 2006 when we are probably much closer to 1930 and 1931!
Therefore, I think that the approach we are currently using has two fatal flaws. First, it assumes that if we design the "ideal Galveston" somebody else is going to pay for it. I think that that is far less likely than many people think. Yes, we will receive money from the State and Federal governments, but will it be sufficient to fund a wish list?
So far, Galveston has been unable to even get the State to pay for the rebuilding of UTMB, and we don't know whether that will ever happen. Apparently, there are many reasons that people in other areas of the State see a much smaller UTMB, and a move of many of its functions to other locations as desirable. If we are unlikely to get this long-established local institution back to where it was, what does that say about the probability of funding for new projects?
"USA Today" just published an article stating that New Orleans has been unable to get FEMA to fund many of the projects it needs just to get it up and running after Katrina, let alone its "wish list". Since Katrina had a much higher national profile than Ike, and a real outpouring of sympathy and concern, this does not bode well for our chances to get our "Blue Sky" projects funded.
Finally, getting federal money in a time of a global financial meltdown is going to be much more difficult than in years past. Galveston is not seen as important to the rest of the country. We do not have any large or critical industries like auto makers or major commercial or investment banks, and we have been told that we have a sub-par lobbying effort. Those who think that the money is going to flow in from the heavens (Washington), because of the new administration, will probably be very disappointed.
The second flaw is designing a plan based on a return to the 2005-2006 economy. For example, some retail analysts believe that this country is going to lose 30% of its existing retail stores this year. With the tremendous destruction of wealth taking place, coupled with accelerating unemployment, it doesn't take much imagination to see tourism declining by 30% or more, too! In addition, these same forces will likely lower the demand for vacation homes dramatically. There is no doubt that tourism will remain an important part of the local economic mix, but it may need to be supplemented by business sectors that focus more on the "necessities of life" rather than "leisure activities".
FEMA's current approach is acceptable, if we also consider a Plan B which would focus on what we should do if the City has to fend for itself. Such a plan would consider our best course of action if the City of Galveston had to pay for most projects itself, and included a business strategy for the new "Age of Frugality" that we are entering.
For example, we could design the whole plan based on building the Ike Dike, but what if we don't get federal funds; is the City or County going to sell bonds to pay for it ourselves? If not, then what does a plan look like without the Dike?
The Blue Sky Plan might also include attracting expensive boutiques to the Strand. Plan B might counter with stores that sold practical low-priced goods that most locals can afford.
Obviously, no one can be sure what our economy will be like in the next 2-5 years, but I don't know of any data suggesting that a recovery is going to happen any time soon. All that we can go on is the evidence at hand unless we choose to fall back on wishful thinking.
I wasn't sure how to raise this issue, so I decided to write this letter that could be posted on the official Committee web sites, and made part of the record. I believe that these two critical issues need to be considered in our discussions and deliberations. Feel free to distribute this to the members of the Committee.
The difference between fantasy and reality is something called money!
Thank you for your leadership.
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