Sun Belt States Hit Hardest by Economic Crisis

We first heard the term decades ago: The “Sun Belt” was just starting a run of phenomenal growth — and no wonder. It conjured a sunny state of mind as well as a balmy place on the map.

Everybody, it seemed, wanted a spot in the sun.

Industries such as aerospace, defense and oil set up shop across America’s southernmost tier, capitalizing on the low involvement of labor unions and the proximity of military bases that paid handsomely, and reliably, for their products and services.

Later, San Jose, Calif., and Austin, Texas, developed into high-tech nerve centers; Houston grew into a hub for the oil industry; Nashville became a mecca for music recording and production; Charlotte, N.C., transformed itself into a center for low-cost banking and finance; and then there were the new Dixie Detroits, places like Canton, Miss., Georgetown, Ky., and Spartanburg, S.C., that began rolling out Titans, Camrys and BMWs.

Meanwhile, other warm-weather havens offered their own variants of the Sun Belt dream — as Fountains of Youth for 60-and-up duffers, as Magic Kingdoms for fun-seekers, as Cape Canaverals for middle-aged northerners looking to launch their second acts.

Air conditioning, bug spray and drainage canals that transformed marshes into golf-course subdivisions — these innovations, plus the availability of flat, low-taxed land attracted migrants from Brooklyn and Cleveland, Havana and Mexico City to locales once dismissed as too hot, too swampy, too dry, too backwater-ish.

“We Give Years to Your Life and Life to Your Years!” That was the sort of slogan you’d hear from developers pitching the promise that a new start in the Sun Belt might even, in the best of circumstances, extend one’s time on Earth.

In this way, for a generation or more, the Sun Belt thrived like no other region in America — a growth so steady it felt as though the boom would never end. But now it has, replaced by a bust that has left some swaths of the region suffering as severely as anywhere in the current recession.

What brought the dark clouds to the Sun Belt, and are they here to stay?

Interviews with economists and demographers across the region, and data from The Associated Press Economic Stress Index, a month-by-month analysis of foreclosure, bankruptcy and unemployment rates in more than 3,000 U.S. counties, suggest that the answers are not all encouraging.

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Some cities — Las Vegas, Phoenix, Fort Myers are good examples — hitched their floats to housing bubbles and got caught up in development that depended largely on, well, development itself, rather than sustainable, scalable, productive industry, economic analysts say.

It’s in these places where the economic meltdown “will likely find its fullest bloom,” Richard Florida, the urbanist and author, wrote recently in an Atlantic Monthly article titled “How the Crash Will Reshape America.”

AP Stress Index figures, which calculate the economic impact of the recession on a scale of 1 to 100, illustrate how the downturn has played out in some of these communities:

—In Maricopa County, home to Phoenix, the Stress Index more than doubled from 5.12 at the beginning of the recession in December 2007 to 12.67 in March 2009, worsened by a foreclosure rate that nearly tripled.

—Mounting foreclosures in Las Vegas’ Clark County drove up its Stress Index score from 10.5 at the start of the recession to 19.3 in March 2009.

—In Lee County, home to Fort Myers, unemployment has doubled and foreclosures have soared 75 percent since the recession began, lifting its Stress Index from 10.5 to 19.98.

The boom in parts of the Sun Belt was, Florida wrote in the Atlantic, a “giant Ponzi scheme” — a growth machine that banked on wishful thinking, on the hope that an unending stream of new arrivals would forever inject their money into construction and real estate.

But as often is the case with such schemes, there comes a day when the engine sputters, gasps, and conks out. A day when the faithful stop turning up.

In the Sun Belt’s newer, shallow-rooted communities, the roadkill is most evident: Where once there were “boomburbs,” there now stand “ghostdivisions.” Where property-flipping was once almost a middle-class sport, joblessness and “For Sale by Owner” signs reign.

The fallout is traceable in other ways, too. Nevada — the only state with a lower proportion of native residents than Florida — has seen net migration plunge 61 percent in two years; Arizona, 55 percent.

Were it not for immigrants, many of them from Latin America, and for fertility, the Sunshine State would actually have lost population last year — an “astounding development in the Florida experience,” says Bill Frey, a senior fellow and demographer at the Brookings Institution in Washington, D.C.

He said the end of steady movement of people into the Sun Belt is part of a broader trend of curtailed migration during this downturn. “The merry-go-round has stopped, in terms of people moving from place to place.”

Does this mean we’ve witnessed the Rise and Fall of the Sun Belt? Will those who swept into these Miracle-Gro states get swept out just as quickly, leaving behind a sprawl of hollow houses, cul-de-sac moonscapes and mosquito-infested pools — the stucco ghettos of the 21st century?

Or will the latest downturn merely force the Sun Belt to reinvent itself again?

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The housing bubble in many places revealed an obsolescent model of economic life, in which cheap real estate encouraged low-density sprawl and created a work force “stuck in place, anchored by houses that cannot be profitably sold,” Florida wrote in his March article.

These places, he says, include older, factory towns across the northern Rust Belt but also countless communities in the Sun Belt whose prosperity was built on “fictitious wealth.”

What to do? Scrap policies that encourage homebuying, he suggests, and give incentives to more mobile renters who can go where the jobs are.

In the digital age, he says, industries will likely cluster in “mega-regions” of multiple cities and their surrounding suburban rings (e.g., the Boston-New York-Washington corridor). These areas will surge, lifted by the brainpower of educated professionals and creative thinkers that turn out “products and services faster than talented people in other places can.”

In short: Those that can draw talented, young people with high-quality, higher education will reap the spoils.

There is some evidence to suggest an imbalance in American educational achievement across regions. According to research by two Harvard economists, Edward Glaeser and Christopher Berry, educational attainment is no longer as evenly spread across America as it was in the ’70s.

Places such as San Francisco, Boston and Seattle now turn out two to three times the college graduates of, say, Akron or Buffalo. When examining postgraduate achievement, the researchers found even greater disparities.

If locales that boast premium universities will be able to more quickly pick themselves off the mat, a question arises. In the Sun Belt’s “sand cities,” their expansion now halted, where will the tax money come from to pay for college upgrades?

Parts of Arizona, Nevada and the Los Angeles exurb of Riverside overbuilt and overstretched, said Anthony Sanders, a professor of finance and economics at Arizona State University.

Like Looney Toons characters who, suspended in mid-air, look down to behold they’ve run off a cliff, officials are scrambling to reverse course — either by scrapping government services they’d promised or, at the very least, by hiking taxes to pay for services created in expectation of bigger suburbs, exurbs.

Phoenix is in this fix. Shocked by a 33 percent plunge in home values between October 2007 and October 2008 alone, the city is running a $200 million budget deficit, a shortfall that’s only expected to grow. (It has petitioned the federal government for funds.)

California has an even wider hole in its battered canoe.

That state “went on a spending spree that was incredible,” said Sanders. Now, at a time when many resident retirees are in no mood, or shape, for tax increases, “they’re having to raise taxes or cut back services, both of which are making moving to California a lot less desirable than it has been in previous decades.”

Other Sun Belt states are making similar “mistakes,” Sanders said, adding: “Unless we lower the tax burden, making it simpler for businesses to do more operations, and freeing up the ability to attract workers, the economy here is not going to come back.”

The challenges don’t end there.

Even before the Crash of ’08, the Sun Belt was being buffeted by outmigration of factory jobs abroad. In the Carolinas, for example, industries that linked up the economy, society and culture for more than a century — furniture making, tobacco and textiles — had been gutted by a decade of decline.

And although the overall expansion of the Sun Belt’s economy has been dramatic, the distribution of the region’s prosperity has been uneven; of the 25 metropolitan areas with the lowest per capita income in 1990, 23 were in the Sun Belt.

That has to change, said Warren Brown, a demographer at the University of Georgia, although he noted that the Sun Belt’s unbridled growth in the ’80s and ’90s was “unsustainable, bound to cool off,” and not just because of bursting housing or migration bubbles.

The limits of natural resources were poised to put the brakes on development in the Land of Sunny Dreams anyway, he said. Two biggies: oil and water.

“Long before we run out of land, we’ll be running out of water,” he said. “Water is a major issue right now.”

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Doomsaying pundits have played the Sun Belt dirge before.

In 1981, for example, Time magazine declared Florida, a “Paradise Lost.” The state then embarked on an epic boom, in which the Miami-Fort Lauderdale-West Palm Beach corridor ballooned into the seventh-largest metro area in America.

Granted, today’s news from the Sunshine State is hardly cheery: It ranks near the top in foreclosures and near the bottom in high-school graduation rates. There’s a water crisis, an insurance crisis, a budget crisis.

So why do some experts caution that talk of Florida’s demise — and the Sun Belt’s — is exaggerated?

Among other things, Frey, the Brookings demographer, notes that outmigration from metro Miami actually fell last year, and in years to come “we’re going to have large numbers of immigrants in the United States who are going to help us in all kinds of ways,” he says.

Stan Smith, a professor of economics and director of the Bureau of Economic and Business Research at the University of Florida, says tourism, the “momentum” of decades of population growth, and already extensive networks of personal connections will again draw more migrants to Florida.

Frozen credit won’t last, he says. Real estate price declines — as much as 70 percent in some Sun Belt counties — will encourage buyers. And with home heating costs in the “Frost Belt” only expected to rise, Smith says, the attraction of warm weather to retiring Baby Boomers can’t be overestimated.

Florida is one of only nine states without an income tax. Couple that with the fact that its taxes on corporations and financial transactions have many exemptions, he says, and “the effects of the positive factors will continue to outweigh the negative.”

Recovery will take time, though, and few economists see any significant growth in the Sun Belt before 2010. Steve Malanga, a senior fellow at the Manhattan Institute in New York City, agrees that states that have piled up surplus housing “are not going to solve it in this budget cycle or the next budget cycle. It’s going to be with them for five, six, seven years, no doubt about it.”

And yet, to say all areas across the Sun Belt are in for long-term decline is simplistic, he says. Scanning the most recent employment maps put out by the Bureau of Labor Statistics reveals “a ‘belt’ in the middle of the country — Texas is part of it — that is doing quite well.” (The AP Stress Map backs up that finding, revealing a swath of comparatively unscathed counties starting in North Dakota, stretching through South Dakota, Nebraska and Kansas and ending in Oklahoma and Texas.)

Out of the nation’s 100 fastest-growing counties, the majority were in Texas (19), Georgia (14), North Carolina (11) or Utah (nine), according to U.S. Census figures last year. Raleigh-Cary, N.C., and Austin-Round Rock, Texas, were the nation’s fastest-growing metro areas, registering growth rates of 4.3 percent and 3.8 percent, respectively. Both high-tech centers, the two metros are also sites of major college campuses that helped cushion them.

Dallas-Fort Worth and Houston registered the biggest numerical gains, the census figures show. Phoenix and Atlanta ranked third and fourth in growth, respectively, followed by Los Angeles, despite the housing slump.

“Obviously, the best situation is a state that hasn’t had a residential meltdown, still has a low-cost advantage, and has a weather advantage,” Malanga says. High-tax states, such as California, are going to take longer to rebound.

And yet, Sun Belt states will have to offer more than tax incentives to reel in companies in the new, global economy, says Keith Schwer, executive director of the Center for Business and Economic Research at the University of Nevada.

Quality health care, quality recreation, quality education — companies and individuals consider the caliber of amenities before relocating. Cosmetic fixes don’t help, he says. “You can’t hide your warts.”

Does all of this mean the Sun Belt will have to reinvent itself to grow again?

Rethink may be a better term.

As an example, Caron St. John, director of the Spiro Institute for Entrepreneurship at Clemson University in South Carolina, says Sun Belt states now rationing funds ought to consider returning to “First Principles” — that is, channeling what little money they have toward elementary and high schools rather than higher education.

“Elementary and high school children — we can’t scar their lives because of a budget crisis. That has to be the first priority.”

The question is whether the Sun Belt will show the rest of the nation how to retool schools, save water and energy, and better plan its suburbs and exurbs in an era of less.

“By necessity, we’re already being forced to address these issues,” says Schwer, of the University of Nevada. “This crisis is an opportunity, more than anything else, to reset things, to put some balance back into our lives.”

5/31/2009 5:00 PM TODD LEWAN AP National Writer ORLANDO, Fla.