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Weaning a community's economy from its reliance on military spending need not be all that painful--as the experience of Long Beach, California, makes plain. That city's experience also demonstrates the need for a strong public sector to plan and manage that conversion process.


Baseless Concerns

As the Pentagon prepares to ask for more base closings, the experience of Long Beach and other communities with shuttered facilities should be cause for encouragement. The key lesson: Stop whining and come up with plans for growth in the civilian sector.

By James Kitfield
National Journal, April 12, 1997

LONG BEACH, Calif.--Once the Cold War was over, the Pentagon began tightening its belt. Scores of military hardware contracts were scrapped or drastically cut back. Military bases that for generations had made scores of American cities and towns virtually recession-proof were suddenly shut down.

No other city in America was hit harder by the Defense Department drawdown than this coastal city. Sharply reduced orders for the military aircraft assembled at a nearby Douglas Aircraft Co. plant cost the community 30,000 high-paying jobs from 1990-94. With the closing of the Long Beach Naval Station in 1991 and the Naval Shipyard four years later, nearly 26,000 more local jobs evaporated, forever altering Long Beach's image as a cozy Navy town.

``Every city in the nation has been forced to adapt to change, but few as fast as Long Beach,'' Mayor Beverly O'Neill said in an interview. ``We faced a crisis.'' In just five years, the city lost nearly $1.7 billion in wages and contracts and $4 billion in economic activity. Only four states, local officials say, have lost more in the current drawdown than the city of Long Beach alone.

Compounding Long Beach's problems were California's deep recession of the early 1990s and the spillover from the 1992 riots in neighboring Los Angeles. A steady flow of immigrants from Asia and Latin America, many of them unskilled, have settled here, creating social and economic strains. The city received another blow in 1992, when the Walt Disney Co. scrapped a shoreline development plan and gave the city back the keys to the Queen Mary, a local landmark that has never clicked as a tourist attraction and is now said to need a $40 million renovation.

Progress on converting the Naval Station to civilian uses was slowed by a legal action stemming from concerns about the destruction of historically valued buildings. And although the local Harbor Commission voted unanimously last month to proceed with a 145-acre, $200 million cargo terminal on a waterfront site at the former Naval Station, congressional and local opposition to leasing the facility to the China Ocean Shipping Co. (a Chinese-owned container shipping line that has operated out of Long Beach for 15 years) has held up that project as well.

Still, the early stages of Long Beach's response to the Pentagon's cuts have been successful. Ocean Blvd., which is lined with lush palm trees and gleaming office towers and hotels, hardly evokes fears of urban decay. Tourists stroll at water's edge among the shops and restaurants of upscale Shoreline Village and beside the downtown marina. Nearby is Long Beach Arena, new home of an International Hockey League team.

Next door is the massive Convention Center, which underwent a $100 million facelift in the early 1990s and a centerpiece of the ``new'' Long Beach. Just to the west, crews are hard at work on the partially built Aquarium of the Pacific, a $150 million gamble that city officials hope will anchor a revitalized Queensway Bay waterfront, a development modeled after Baltimore's successful Inner Harbor.

To help jump-start the town's efforts, the Pentagon's Office of Economic Adjustment chipped in $2.5 million to help pay for a blueprint for converting its naval installations for civilian use. The city has made plans to replace a naval hospital with a retail center, and is already well on its way to converting the naval housing area to a high school, federal Job Corps center, research facility and transitional housing area and training center for the homeless.

With these and other investments--a total package of $3.5 billion in public and private funds--nearly in place, the town hopes by early next century to have replaced its nearly 60,000 lost defense-related paychecks with 85,000 new jobs.

Long Beach's rebound may hold important lessons for other communities whose bases and defense plants appear on the Pentagon's hit list. After a military facility is targeted for closing, local politicians have rarely failed to lament that their town is doomed to become an overgrown ruin. In general, though, communities that have had the most difficulty adjusting to cutbacks and closings, many authorities say, are in rural areas.

``Much as with real estate, the three most important factors in economic redevelopment are location, location, location,'' Paul Dempsey, director of the Pentagon's Base Closure and Community Reinvestment Office, said in an interview. Long Beach's experience is all the more notable because it appears to be the rule rather than the exception. (For a report on the experiences of a Tennessee city, see box, this page.)

OFFSETTING

In the post-Cold War drawdown, California has been the hardest hit of all states, with 21 closed bases and the loss of 82,000 military and civilian personnel and hundreds of thousands of defense industry jobs. Authoritative studies on the state's recent history, however, seem to belie the myth that military base closings are certain to have a lasting and devastating impact on host communities.

According to a series of 1996 studies by RAND, a research center based in Santa Monica, Calif., many communities in that state most directly affected by base closings and defense industry layoffs have eventually seen rises in population, private-sector employment, retail sales, housing values and school enrollments.

``Given the political dynamic, we found that a lot of the models used to estimate the impact of base closures and industry layoffs were biased,'' said Kevin McCarthy, RAND's coordinator for California research. He notes that many of the ``gloom-and- doom'' studies were commissioned by the communities themselves in an effort to save bases. ``They typically overestimated the economic impact by two to three times, while failing to consider a number of offsetting factors.''

The offsetting factors, he said, include young military personnel who lived on the bases and shopped at base exchanges and commissaries, thus contributing surprisingly little to local economies. A number of military spouses also worked in some communities, freeing up jobs when bases closed. Military retirees who clustered around some major bases also kept their roots in the local area, shifting their combined buying power to local retailers when the bases closed.

According to other, broader studies, the drawdown's long- term effects may be relatively minor. A December 1996 Congressional Budget Office (CBO) report estimated that the four recent rounds of base closings will result in the loss of approximately 226,000 jobs nationwide (over 12 years), constituting only about 0.2 per cent of the nation's total employment level as of August 1996.

If, as expected, the Defense Department asks next month for another round of base closings, President Clinton will probably ask Congress to reconvene the Commission on Base Realignment and Closure (BRAC). In the previous closings--in 1988, 1991, 1993 and 1995--similar commissions (created because it's all but impossible politically for Congress to agree on which bases are expendable) recommended the shutting down of 97 of the 500-odd major installations in the United States, and the realignment of many others.

Even after all those closings, the Pentagon still has more bases than it needs. ``There is a general perception that we have not taken enough infrastructure out of the system,'' Edward L. Warner III, assistant secretary of Defense for strategy and requirements, said in a recent interview with defense reporters.

``We definitely need another BRAC round, because cuts in basing infrastructure are lagging badly,'' said Erik Pages, a vice president of Business Executives for National Security, an independent watchdog group in Washington. Given the success of communities in rebounding from earlier base closures, he says, ``I don't think you'll hear any more rhetoric like [what we heard from] the mayor of Charleston, saying this is like dropping a nuclear bomb on his city.''

THE PATH OF RECOVERY

Equating the loss of a base to a death in the family, many experts say that places that are targeted for base closings essentially have to get on with life. ``Because we've now had . . . a large number of base closures, I think communities like Long Beach went through the denial phase a lot faster, and got on with plans for reusing the facilities,'' the Pentagon's Dempsey said. ``In the earlier rounds, we saw decisions by a number of communities to fight the closure with all their energy, and that really slowed the process of recovery down. The quicker they get over denial, the better.''

For Long Beach, the challenge was to reinvent itself. ``We suddenly found ourselves in trouble and totally without the normal economic engines that we relied on in the past,'' Mayor O'Neill said. ``We really hadn't been a proactive city that had to rely on its own ingenuity. We'd been more reactive, relying on the strong Navy presence, a booming aerospace industry and oil,'' she continued. ``Suddenly those underpinnings were gone, and as a city we had to sit down and decide what we wanted to be when we grew up.''

Long Beach came up with an ambitious plan. It decided it wanted to be a destination for southern California tourists, a beneficiary of the ever-expanding trade with the Pacific Rim and a regional center for high-technology industries.

Mayor O'Neill then led a delegation to Washington to enlist federal support. ``We did not go to Washington to call them names or bemoan our loss, but to say we needed a handshake rather than a handout,'' said O'Neill, who met with California's congressional delegation, and with President Clinton and senior officials from several federal departments and agencies. ``We had our plan, and we spoke with a united voice, which was very important. We told them our direction and goals, and then asked that they help us with prompt responses to our requests and applications for loans.''

According to Long Beach officials, the federal help amounted to vital seed money. Assistance included a $40 million loan from the Housing and Urban Development Department; $30 million from the Interior Department for modifications of former naval facilities; and a $6.1 million grant from Labor for retraining shipyard workers. In his fiscal 1997 budget request, the President included a separate $400 million loan guarantee for a high-capacity transportation link with the national railroad system.

Altogether, as of last August, Washington had parceled out nearly $660 million in similar assistance to communities and workers affected by base closings, according to the CBO.

``We preach until we're blue in the face that communities affected by base closures need to form a broad-based organization that speaks with one voice and that we can support directly, and that their reuse plans should be market-driven. Not every community can be the next Silicon Valley or bio-tech center of the world,'' Dempsey said. ``Long Beach pulled people together and made that realistic assessment. Now they're well on their way in transitioning from a ticky-tacky Navy town full of bars and tattoo parlors, to becoming something different altogether.''

``What we've learned in this process,'' said Long Beach city manager James C. Hankla, ``is the need to go overboard in giving everyone an opportunity to come forward with their favored options, give them fair consideration and then move on. And I can't overestimate the importance of having a plan in this process. If we were just proceeding from crisis to crisis, it would get pretty doggone depressing around here. As it is, our vision gives us a spiritual lift and tells us we're on course, even when things are going slow. So I think we're coming back, and we will be stronger in the future because we'll no longer be subject to the whims of Washington.''

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