NOVA in the News

Sacramento Bee
January 26, 2009

Tech slump's ripples hit both capital, Capitol

In better times in Silicon Valley, a job offer like this would have been dismissed as a joke: two months' work, walking door to door for the Census Bureau, at a mere $22 an hour. But nobody so much as snickered when census official Jim Kamenelis made a recruiting pitch recently at a workshop for 100 unemployed technology professionals here. More than half had already taken the bureau's entrance exam, according to a show of hands, and Kamenelis was mobbed during the break.
"When you haven't worked for several months ... you take what's in front of you," said Jerry Childers, 47, an unemployed chemical engineer who has taken the exam.
The recession has finally caught up with Silicon Valley and much of the Bay Area. That's bad news for everyone. The state treasury is suffering because Silicon Valley residents, their stock portfolios shriveling, aren't producing their usual healthy jolt of income tax dollars. That's contributing significantly to California's $40 billion deficit. Sacramento is hurting because it's being starved of the eastward migration – of people, jobs and wealth – that occurs when the Bay Area is healthy. And the economy as a whole is feeling it because the Bay Area's troubles demonstrate just how broad and deep the recession is. The economy here escaped the worst of the housing market crash – but not the more recent slump in consumer spending. That's hitting the tech sector hard. Last spring, Greg Makowski's Los Altos home was still worth enough to let him refinance and pull out $8,000 in equity, "as a buffer in case I got laid off." Good thing: A few weeks later, the 46-year-old software product manager got laid off for the first time ever. He's one of 52,300 people who have lost jobs in the Bay Area in the past year, boosting unemployment to 7.8 percent in San Jose and 7.7 percent in the East Bay. Only the San Francisco-San Mateo market remains comparatively healthy, with unemployment at 6.1 percent but growing.
"It's finally trickling down to all of us in the high-tech business," said J.J. Martin, 61, of Los Gatos, who just lost her job as corporate communications manager at hard-drive maker Seagate Technology.

List reads like a who's who
Of course, the boom and bust cycle is nothing new here, and the latest slump is a far cry from the dot-com collapse of 2001, which wiped out 200,000 jobs and sent unemployment to 8.9 percent in San Jose. But the current recession has brought plenty of pessimism. Job seekers say employers' caution has turned to panic since the stock market tanked in September. Layoffs have accelerated. "This happens to be the tip of the iceberg," said Jim Mukerjee, an unemployed tech marketingexecutive from Danville. "(In 2001), we didn't have the housing crisis and the financial crisis. ... Now the whole world has collapsed." Mukerjee was among 100 gathered at Sunnyvale's City Hall for a recent workshop conducted by ProMatch, a government-funded job-placement service for tech workers. ProMatch is busy these days. Attendance at workshops has spiked, and there's a waiting list of 125 people who can't get in, said co-facilitator Connie Brock. The list is likely to grow. The layoffs these days read like a who's who of high tech: National Semiconductor, Sun Microsystems, Applied Materials and, for the first time, Google. State records show Intel Corp. laid off 200 workers at its 6,000-employee Folsom research park last year, and it continues to struggle. The chip maker recently posted a 90 percent decline in fourth-quarter profits and a 23 percent drop in sales. Hewlett-Packard Co., the other big tech employer in Sacramento, has fared better so far. Still, state records show it let 70 workers go at its Roseville campus last year, bringing employment to less than 3,500. As it integrates its acquisition of EDS Corp., it plans to lay off 24,600 workers worldwide over three years, which could affect Roseville and EDS operations in Sacramento, Rancho Cordova and Folsom.

Layoffs add to budget crisis
In a sense, ongoing corporate restructuring has lessened the shock of the recession. Companies have been shedding jobs for several years, due to outsourcing and consolidation. "The companies have laid off so much, they've been running lean and mean," said Patti Wilson, who runs a placement firm for tech worker. Another buffer: The region was somewhat insulated from the real estate debacle. Homebuilding wasn't so rampant here, so fewer construction workers have been laid off. Because incomes are so high, subprime lending was less popular, and researcher RealtyTrac says Bay Area foreclosure rates are below the state average. Housing prices have fallen but haven't completely collapsed. In recent months, though, as the economy has evolved from a real estate crash to an overall downturn, the effect has bled into the Bay Area. Tech exports have tailed off. Venture capital has slowed. "Starting in late summer, just about everything went bad at once – the foreign customers stopped buying, and the U.S. recession got worse," said Stephen Levy of Palo Alto's Center for Continuing Study of the California Economy. "Silicon Valley was last to the recession, but we're there now." That has deepened the state's fiscal crisis. The state's tax structure leans heavily on high-income Californians and their stock market gains, which can be notoriously volatile. Capital gains tax payments are expected to fall by $13 billion over two years, accounting for almost one-third of the projected $40 billion deficit, according to the Governor's Office. Experts say much of that is the result of dwindling stock portfolios, particularly in the valley.

'Bay Area spigot' dries up
The softening Bay Area economy also is curtailing the flow of people and businesses to Sacramento. Over the years, some of the Bay Area's best-known companies – Intel, HP, Apple – have put major operations in Sacramento as a means of
cutting costs. Lesser-known tech companies have followed, with some – like InsWeb Corp. and Galil Motion Control – relocating completely. But lately, the move east has hit some bumps. Santa Clara biotech firm Affymetrix Inc. closed its West Sacramento plant. Hayward solar-energy company OptiSolar laid off half its work force at McClellan Park. And fewer Bay Area companies are calling on Sacramento. The volume of inquiries from Bay Area companies has "fallen off the edge of the world"
the past six months, said Barbara Hayes, executive director of the Sacramento Area Commerce and Trade Organization, which recruits companies to the region.
A similar trend is happening with people. During the late 1990s boom, 17 percent of all transplants to Sacramento came from the Bay Area, many seeking a lower cost of living. But with their own housing market softening, fewer Bay Area residents are looking east. That will likely prolong the slump in Sacramento's real estate market.
"We know that the Bay Area spigot virtually turned off as we headed into the downturn," said Andrew LePage, analyst at housing market researcher MDA DataQuick.

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