sacramento Business Review Economic Forecast

Transcription

1 sacrameto Busiess Review Volume 1 Issue Ecoomic Forecast

2 Message from the Dea MISSION To educate cosumers o the ecoomic ad fiacial health of the Sacrameto regio CFA INSTITUTE CFA Istitute is the global, ot-for-profit associatio of ivestmet professioals that awards the CFA ad CIPM desigatios. Our membership cosists of more tha 90,000 members ad 135 societies worldwide. Our missio is to lead the ivestmet professio globally by settig the highest stadards of ethics, educatio, ad professioal excellece SACRAMENTO STATE COLLEGE OF BUSINESS ADMINISTRATION The College of Busiess Admiistratio at Califoria State Uiversity, Sacrameto is the Capital regio s educatioal istitutio of diversity that provides a strog foudatio i busiess kowledge, skills, ad values through collaboratio amog faculty, staff, ad studets i order to erich their respective commuities. INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING The missio of the Istitute for Busiess Research ad Cosultig (IBRC) i the College of Busiess Admiistratio (CBA) at Califoria State Uiversity, Sacrameto is to satisfy research ad busiess cosultig eeds of the greater Sacrameto regio. The IBRC provides sophisticated expertise ad iovative busiess solutios to cliets i areas such as busiess forecastig, ecoomic impact studies, fiacial feasibility aalysis, busiess process improvemet, marketig, product developmet ad pricig, etrepreeurship, strategic maagemet, ad busiess pla developmet DESIGNER Carrie Deis, Carrie Deis Desig PRINTER Kare Lelad-Dolce, Copelad Pritig SACRAMENTO STATE COLLEGE OF BUSINESS ADMINISTRATION CONTACT INFORMATION (916) Dear Frieds, I am delighted to share the iaugural issue of the Sacrameto Busiess Review with you. Our effort is fuded ad sposored by the CFA Istitute ad produced by the Istitute for Busiess Research ad Cosultig i the College of Busiess Admiistratio at Sacrameto State. You will fid the Sacrameto Busiess Review the most thoughtful, itellectually sophisticated, ad comprehesive aalysis of the Sacrameto ecoomy. I this issue, we ot oly report i detail o emergig treds but also make bold predictios for I the curret ecoomic dowtur ad worst fiacial market performace sice the Great Depressio, you will fid the Sacrameto Busiess Review your best guide to the ecoomy, various sectors ad idustries i the regio, real estate market, the eergy outlook, capital markets icludig the stock market, corporate performace i Sacrameto, ad employmet. We will be providig periodic updates as our commitmet to deliver the very best ecoomic ad fiacial research to the regio. I ivite your feedback. Please do ot hesitate to let me kow how we may improve future issues or if you wish to be a supportig sposor. Warm regards, Sajay Varshey, Ph.D., CFA Dea, College of Busiess Admiistratio Sajay Varshey is Professor of Fiace ad Dea of the College of Busiess Admiistratio at Califoria State Uiversity, Sacrameto. He previously served as the Dea of the Busiess School at State Uiversity of New York i Utica for five years. At age 31 he became oe of the yougest deas i the coutry to lead a busiess school. His prior experiece icludes workig at Uiversity of Sa Fracisco, Citigroup, Arthur Aderso, ad as a portfolio maager. He eared a udergraduate degree i Accoutig ad Fiacial Maagemet from Bombay Uiversity, a Master s degree i Ecoomics from the Uiversity of Ciciati, ad a Ph.D. i Fiace from Louisiaa State Uiversity i Bato Rouge. He also holds the Chartered Fiacial Aalyst (CFA) desigatio. Dr. Varshey serves as the chief ecoomist for the Sacrameto Busiess Review. (916) cba@csus.edu Sacrameto Busiess Review is preseted by The Istitute for Busiess Research ad Cosultig 2 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

3 Cotets Ecoomic Overview...6 Real Estate...16 Eergy...26 Capital Markets...38 About the Authors...49 Sposors...51 page 26 page 6 SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy

4 The Istitute for Busiess Research ad Cosultig 2009 New for Providig creative solutios to Sacrameto s busiess problems. The missio of the Istitute for Busiess Research ad Cosultig (IBRC) i the College of Busiess Admiistratio (CBA) at Califoria State Uiversity, Sacrameto is to satisfy research ad busiess cosultig eeds of the greater Sacrameto regio. The IBRC provides sophisticated expertise ad iovative busiess solutios to cliets i the private sector, ot-for-profit sector, ad the govermet/public sector. Cosult with us for your research ad cosultig eeds: Busiess Valuatio, Icorporatio, Fiacig Fiacial Plaig ad Forecastig Ecoomic Impact Studies Busiess Process Improvemet Strategic Plaig Market Plaig, Survey, ad Research Busiess ad Product Developmet Market Aalysis ad Pricig Competitive ad Feasibility Aalyses Tax ad Estate Plaig Leadership Traiig ad Developmet Successio Plaig Improvig Employee Productivity Ehacig Retur o Ivestmet (ROI) For more iformatio about the IBRC ad its cosultig services, please call (916) , IBRC@csus.edu or visit The Istitute for Busiess Research ad Cosultig Deliverig success, growth, ad profits to Sacrameto busiess ad govermet oe cliet at a time. The IBRC proudly presets the Sacrameto Busiess Review the most comprehesive ecoomic ad fiacial report o the Sacrameto regio. INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

5 MBA Brigig the world closer to you... As part of the curriculum, the 15-moth program takes our studets o iteratioal tours for a deeper uderstadig of global busiess. The focus is o emergig markets such as Chia, Idia, Sigapore, Dubai, Turkey, Brazil ad Russia, amog others. I additio the program offers: Sprig 2009 classes to be held at Itel ad Fall 2009 classes at Visio Service Pla (VSP) Friday/Saturday Edorsed Our schedule desiged to meet your eeds by the Sacrameto busiess commuity program has received the AACSB Accredited Hallmark of Excellece For more iformatio about the MBA for Executives Program please call (916) , emba@csus.edu or visit SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy

6 Sacrameto s Key Idustry Sectors: Treds ad Forecasts 6 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

7 Just like may other places i the U.S., the Sacrameto Metropolita Area is facig the highest uemploymet rate sice Bria Leu, CFA, Associate, DCA Capital Parters Yag Su, Ph.D., Professor, College of Busiess Admiistratio, Sacrameto State While Sacrameto is well-kow as a hub for govermet services withi Califoria, the Sacrameto Regio, as a major metropolita area, has a diverse base of employers ad idustries. I this paper, we examie the primary sectors that make up the regio s employmet base ad the treds i employmet by each sector over the last two decades. Although employmet by ature is subject to seasoal swigs, the uemploymet rate i the regio has rise steadily to 8.1% i the most recet moth (November 2008), up from 5.6% just a year ago. Give the uprecedeted ecoomic slowdow ad our overall egative outlook, we believe the uemploymet rate i 2009 will likely settle aroud 10% as the local ecoomy loses approximately 14,500 et wage ad salary jobs i the first quarter of 2009, led by weakess i the Retail, Costructio ad Fiacial sectors. Partially offsettig this job loss, the Educatio, Healthcare ad Techology ad Busiess Services sectors are expected to cotiue to show resiliet, albeit tempered, employmet growth through this ext year. Overall Sacrameto Employmet: Treds ad Forecasts Just like may other places i the U.S., the Sacrameto Metropolita Area (hereafter Sacrameto) is facig the highest uemploymet rate sice The most recet Sacrameto uemploymet rate was 8.1% for November 2008, just below the uadjusted Califoria rate of 8.3%. The uadjusted U.S. uemploymet rate for November 2008 was 6.5% (6.7% seasoally adjusted), which represeted a loss of 533,000 i ofarm payrolls. Sacrameto, which has historically fared better tha the state i terms of uemploymet, has oly recetly (2006) reached the uemploymet rate levels of Califoria (see Figure 1). Give the uprecedeted curret ecoomic slowdow, we expect the Sacrameto uemploymet rate will reach 10% i 2009, with the Califoria uemploymet rate likely reachig orth of 10% before the ed of Sacrameto displays similar seasoal treds to those observed across most of the coutry. The uadjusted Sacrameto was likely i its ow local recessio as early as 2Q07. We would be lookig closer to the ed of 2009 or early 2010 for a local recovery ad job growth to retur. uemploymet rate spikes i Jauary ad February due to the ed of most seasoal retail jobs ad various weather-limited jobs ad the spikes agai aroud Jue whe studets eter the workforce lookig for summer jobs. Sacrameto has experieced a steady growth i populatio ad the correspodig civilia labor force over the last two decades. Give the recet sharp declie i the regioal cost of home owership, we expect to see this steady growth of populatio to cotiue, though the aual growth rate may slow dow temporarily i 2009 util the local job market recovers. SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 7

8 Sacrameto s Key Idustry Sectors: Treds ad Forecasts Figure 1 Uemploymet Rates (Not Seasoally Adjusted) 12.0% 10.0% Califoria Sacrameto Sacrameto Califoria Forecasts Sacrameto Sacrameto Forecasts Forecasts 8.0% 6.0% 4.0% 2.0% 0.0% Ja-90 Ja-91 Ja-92 Ja-93 Ja-94 Ja-95 Ja-96 Ja-97 Ja-98 Ja-99 Ja-00 Ja-01 Ja-02 Ja-03 Ja-04 Ja-05 Ja-06 Ja-07 Ja-08 Uemploymet Rate Ja-09 Figure 2 Sacrameto Total Wage ad Salary Employmet 950,000 Actual Data Actual Data Forecasts Forecasts 900,000 Number Employed 850, , , , , ,000 Loss of about 14,500 jobs 550,000 Ja-90 Ja-91 Ja-92 Ja-93 Ja-94 Ja-95 Ja-96 Ja-97 Ja-98 Ja-99 Ja-00 Ja-01 Ja-02 Ja-03 Ja-04 Ja-05 Ja-06 Ja-07 Ja-08 Ja-09 Sacrameto s total wage ad salary employmet figure has declied to 903,500 i November 2008, dow from 916,200 a year ago. We expect to witess a loss of approximately 14,500 jobs i the first quarter of 2009, though we expect a modest recovery towards the ed of the year (see Figure 2). We believe these dowward treds have log sice maifested themselves i the regio s taxable sales. After years of relatively steady growth, taxable sales for the Sacrameto regio have declied from the 2006 peak level (see Figure 3). While oly data through 3rd quarter of 2007 is curretly available, we expect 2008 data to show a marked declie i taxable sales dow to approximately $32.7 billio, a 1.2% decrease from I 2009, we expect the retail eviromet to remai particularly challegig ad taxable sales to agai declie by about % over 2008, drive primarily by depressed cosumer spedig ad a icrease i savigs levels. We ote that our forecasts are geerally cosistet with other Sacrameto State forecasts, i particular the Sacrameto Forecast Project maitaied by Arthur N. Jese, Emeritus Professor of Marketig at Sacrameto State. 8 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

9 Figure 3 Sacrameto Total Taxable Sales (all outlets) Taxables Sales ($B) E 2009E Y/Y Chage: +7.1% +13.2% % +2.7% +5.9% +9.4% +6.7% +1.2% -2.0% -1.2% - 1.7% Source: Board of Equalizatio, Authors estimates While this U.S. recessio officially bega i December 2007, we believe the Sacrameto regio felt the ecoomic effects earlier give the regio s large exposure to housig price declies, ad the collapse i costructio ad i real-estate related fiacig activities. Usig uemploymet ad taxable sales as a gauge, Sacrameto was likely i its ow local recessio as early as 2Q07. Give our egative outlook, we would be lookig closer to the ed of 2009 or early 2010 for a local recovery ad job growth to retur, but we also believe there is a greater risk that a recovery occurs later tha this rather tha earlier. Breakig Dow the Sacrameto Market Sacrameto becomig icreasigly private service-orieted As Califoria s capital, Sacrameto ot surprisigly has a large govermet presece i the local ecoomy. Figure 4 shows the pricipal compoets of the huma capital iput for Sacrameto, broke out betwee Goods Productio, Farmig ad Service. The basic structure of our local ecoomy has remaied relatively stable over the last two decades, with the private service sector makig the largest gais as a percetage of the Sacrameto ecoomy (61% i 2008 vs. 56% i 1990). Govermet jobs have actually declied as a percetage of the overall market as the regio has diversified ito other sectors. Compared to the rest of the state, Sacrameto is more weighted to the service sector (vs. the productio of goods) ad, as expected, to govermet services i particular (26% for Sacrameto vs. 16% for CA). The basic structure of our local ecoomy has remaied relatively stable over the last two decades, with the private service sector makig the largest gais as a percetage of the Sacrameto ecoomy... Costructio plays a importat role i the local ecoomy A closer look at the goods producig sectors of the Sacrameto ecoomy highlights aother key differece betwee the Califoria ad Sacrameto ecoomies Costructio. Ulike the state as a whole, Sacrameto has less farm-related ad more costructio-related activities (see Figure 5). Costructio, which displays seasoal treds ot ulike the farmig sector, has become the largest productio iput i Sacrameto sice 2000 ad hit its peak i Curretly, costructio cotributes to 56% of Sacrameto s goods productio iput. We view this larger exposure to real estate as oe reaso the regio was hit particularly hard by the housig collapse, partially offset by the larger exposure to the relatively stable govermet sector. SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 9

10 Figure 4 Pricipal Compoets ad Service Subsectors: Sacrameto vs. Califoria Employmet Goods Producig 13% Farm 2% Sac 1990 Service Providig 86% Private Service 56% Gov't 29% Goods Producig 12% Farm 1% Sac 2008 Service Providig 87% Private Service 61% Gov't 26% CA 2008 Goods Producig 11% Service Providig Private Services 66% 83% Farm 6% Govermet 16% Figure 5 Goods Producig Sectors: Sacrameto vs. Califoria CA Goods Producig Sac Goods Producig Total Farm 9% Natural Resources ad Miig 1% Maufacturig 33% Total Farm 48% Maufacturig 34% Costructio 56% Costructio 19% Natural Resources ad Miig 0% Private service sector mix mirrors broader Califoria The private service sector represets all the ogovermet service providers i the ecoomy ad is the largest labor compoet i Sacrameto. Figure 6 shows that the mai subsectors that make up the private service sector of Sacrameto are very similar to that of Califoria. While Retail is the largest subsector, other major sectors i the regioal ecoomy iclude Professioal ad Busiess Services, Healthcare, Leisure/Hospitality ad Fiacial Services. The compoets of the Professioal ad Busiess Services subsector are show i Figure 8. The largest labor iput withi this subsector comes from Admiistratio ad Support Services, which iclude Employmet Services, Ivestigatio ad Security Services, ad Services to Buildigs ad Dwelligs. Waste Maagemet ad Remediatio Services oly cotribute a small portio of the overall labor base. The Professioal, Scietific, ad Techical Services sector, which icludes research ad developmet i the high-techology idustry, has grow at a steady rate ad has become a sigificat part of the local ecoomy. Healthcare is a major subsector regioally with about 87,000 employees ad some of the larger local employers, icludig Sutter Health, Health Net ad Visio Service Pla. 10 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

11 Figure 6 Private Service Sector Compoets: Califoria vs. Sacrameto Other Services 5% Leisure ad Hospitality 15% Educatio ad Health Services 17% Professioal ad Busiess Services 22% CA Private Services Retail, Trasportatio ad Utilities 28% Fiacial Activities 9% Iformatio 4% Educatio ad Health Services 18% Leisure ad Hospitality 15% Professioal ad Busiess Services 20% Sac Private Services Fiacial Activities 11% Other Services 5% Retail, Trasportatio ad Utilities 27% Iformatio 4% Figure 7 Compoets of the Retail Subsector i Sacrameto Sportig Goods,Hobby, Book ad Music Stores 4% Geeral Merchadise Stores 10% Other Retailers 15% Wholesale 19% Clothig ad Clothig Accessories Stores 5% Residual-Specialty Food Stores 2% Health ad Persoal Care Stores 4% Grocery Stores 12% Food ad Beverage Stores 14% Motor Vehicle ad Parts Dealer 10% Buildig Material ad Garde Equipmet Stores 5% Figure 8 Compoets of Professioal/Busiess, Educatio, ad Health Services i Sacrameto Professioal ad Busiess Services Educatio ad Health Services Admi. ad Support, ad Waste Services 45% Professioal, Scietific ad Techical Services 41% Educatio Services 11% Maagemet of Compaies ad Eterprises 14% Health Care ad Social Assistace 89% SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 11

12 Figure 9 Compoets of Govermet Services: Califoria vs. Sacrameto CA Govermet Services Federal 10% Sac Govermet Services Federal Govermet 5% Local 70% State 20% Local Govermet 48% State Govermet 47% As previously metioed, Govermet is a importat cotributor to Sacrameto s ecoomy. It hires about 26% of the total employmet ad geerates approximately 20% of the ecoomic output (GDP). Compared to the broader state of Califoria, Sacrameto has a larger presece of state govermet services, as expected, ad relatively less federal govermet labor (just 5%, dow from 16% i 1990) see Figure 9. Give the ecoomic slowdow ad our overall egative outlook, we believe the uemploymet rate i 2009 will likely settle aroud 10% as the local ecoomy loses approximately 14,500 et wage ad salary jobs i the first quarter of 2009, led by weakess i the Retail, Costructio ad Fiacial sectors. Partially offsettig this job loss, the Educatio, Healthcare, Techology ad Professioal Busiess Services sectors are expected to cotiue to show resiliet, albeit tempered, employmet growth through this ext year. Sector-by-Sector Outlook Ulike the techology bubble ad dot-com crash, the curret recessio ad credit crisis have had widespread effects across early every sector. Ideed, we expect few sectors to weather this storm without some degree of job loss. O balace, we expect a et 14,500 jobs to be lost i 2009, primarily i the seasoally weak first quarter. Modest gais i Techology ad Busiess Services ad Healthcare are expected to be more tha offset by declies i Costructio, Retail ad Fiacial Services (see Figures). Govermet Govermet employmet, as a major piece of the local ecoomy, has steadily grow over the last four years. While we expect federal fiscal stimulus spedig to reach uprecedeted levels i 2009, we believe the outlook for local ad state govermets spedig to be less optimistic, largely costraied by decliig reveue sources lower 12 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

13 retail sales, lower property tax, ad lower icome tax. We expect to see a mior job loss i the govermet sector because atural attritio may ot be immediately replaced. That said, we believe this sector will be oe of the more resiliet i terms of job loss, with employmet levels largely holdig steady through Figure 10 Govermet weather the ecoomic storm ad maage a growig labor force. Service sectors such as legal, accoutig, ad admiistrative services are expected to geerally fare better tha their retail, fiacial ad leisure service couterparts because we expect relatively robust demad for these types of professioal services, despite the fiacial dowtur. Groupig together the high-tech maufacturig, research ad scietific services, ad professioal ad busiess services, we expect to see a modest 0.5% year-over-year job growth i the techology ad busiess services sector i Number Employed 240, , ,000 Ja-01 Ja-02 Ja-03 Ja-04 Techology ad Busiess Services As oe of the few sectors growig through this dowtur, the Techology ad busiess services sector will likely fare better tha the ecoomy o average i That said, we believe the sector is ot immue to the broader ecoomic eviromet. The Sacrameto Area Regioal Techology Alliace (SARTA) idex, which aims to measure the health of the regioal techology ecoomy, bega to declie i the first quarter of 2008 ad is further evidece that the techology sector is feelig the effects of the slowdow. We expect the local techology sector to come uder cotiued pressure as cash-costraied compaies ad cliets reig i expasio ad purchasig plas i Ja-05 Ja-06 Ja-07 Ja-08 Ja-09 However, we view the professioal services sector as oe of a few bright spots regioally that will be able to effectively Figure 11 Techology ad Busiess Services Healthcare ad Educatio Services Thus far, the healthcare sector has prove itself to be rather o-cyclical. A growig populatio combied with a agig demographic provides a degree of support for cotiued demad growth i the healthcare idustry. While we believe that, give the ecoomic eviromet, hospital cesus will be dow as may elective procedures are put off ad job losses will likely evetually affect isurace erollmet, we expect the healthcare sector to grow i We also expect educatio services to cotiue to be resiliet despite the dowtur. Overall, we are forecastig about a 3% year-over-year growth of employmet i healthcare ad educatio services i Number Employed Figure 12 Healthcare ad Educatio Services 110, ,000 90,000 80,000 70,000 Ja-01 Ja-02 Ja-03 Ja-04 Ja-05 Ja-06 Ja-07 Ja-08 Ja-09 Number Employed 130, , , ,000 Ja-01 Ja-02 Ja-03 Ja-04 Ja-05 Ja-06 Ja-07 Ja-08 Ja-09 Retail Approximately oe i every te jobs i the Sacrameto regio is i the retail sector. Startig i the sprig of 2007, the year-over-year chage i the umber of retail jobs has tured egative, with a declie of 4.2% i November 2008 versus this time last year. SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 13

14 Figure 13 Retail Figure 14 Recet High-profile Retail Bakruptcies Number Employed 110,000 Holiday spikes 105, ,000 95,000 90,000 85,000 Ja-01 Ja-02 Ja-03 Ja-04 Ja-05 Ja-06 Ja-07 Ja-08 Ja-09 Compay # of Sacrameto Area Stores Total Stores (est.) Mervy's Circuit City 5 1,500 KB Toys Lies N' Thigs Shoe Pavillio 2 64 Sharper Image Source: Compay data ad filigs We expect regioal retail employmet treds to cotiue to be pressured by a uprecedeted ecoomic dowtur ad lack of cosumer cofidece ad credit. The December 2008 readig of the Cosumer Cofidece Idex of 38 was the all-time low sice its iceptio i November retail sales were dow 1.8%, accordig to the U.S. Commerce Departmet, led by the auto sector which was dow 2.8%. We also believe retail bakruptcies have yet to fully work through the employmet figures. Over the past twelve moths sice November 2007, 304 U.S. retail compaies have filed for bakruptcy, a 50% icrease over the previous year period ad we expect additioal retailers to seek bakruptcy protectio or store closigs as the effects of the cosumer spedig slowdow ad dismal holiday sales make their way through to compay balace sheets ad compaies ratioalize away uderperformig stores ad coserve cash. Eve some of the more recet high-profile retail bakruptcies (see Figure 14) have yet to result i actual store closigs yet due to holiday period liquidatios. Housig price declies ad stock market ucertaities have placed a eormous dowward pressure o cosumer wealth. While gas prices have moderated sigificatly, the oce available home-equity lie of credit that helped fuel cosumer spedig durig the housig boom has all but evaporated. We believe that the recet dowward tred i the retail labor force will cotiue at a 3% to 5% year-over-year declie i Fiacial Services The fiacial services labor force has declied about 9% from its peak i early While isurace carriers have largely held steady thus far through this fiacial crisis, the credit itermediatio ad real estate-related subsectors have see the worst losses. We expect 2009 to remai particularly challegig for the fiacial services sector as baks cosolidate ad adjust to the ew credit eviromet, cosumer borrowig remais muted, ad real estate market activity remais depressed. We expect about a 3% year-over-year declie i this sector s labor force through most of the year. Number Employed 70,000 65,000 60,000 55,000 50,000 Figure 15 Fiacial Services Ja- 01 Ja- 02 Ja- 03 Ja- 04 Ja- 05 Ja- 06 Ja- 07 Ja- 08 Ja- 09 Leisure ad Hospitality Services The leisure ad hospitality services sector has boomed i Sacrameto over the last decade, as the populatio has grow ad cosumer spedig has flourished. I the summer of 2008, however, the sector saw year-over-year declies i employmet as restaurats experieced a perfect storm high fuel ad trasportatio prices, risig food costs ad retreatig cosumer spedig. While fuel ad food costs have moderated i late 2008, the average local cosumer still remais straied by the recet housig price collapse, the stock market crash, risig uemploymet 14 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

15 ad tighteig credit. We expect a 1% to 2% year-over-year declie i the first half of 2009 ad a moderate recovery i the secod half of 2009 as more optimistic cosumers begi returig to restaurats. Figure 16 Leisure ad Hospitality Services improvig, we believe foreclosures ad high vacacy rates will cotiue to place dowward pressure o the overall residetial ad commercial real estate recovery. Farm Number Employed 85,000 75,000 65,000 Ja-01 Ja-02 Ja-03 Ja-04 Ja-05 Ja-06 Ja-07 Ja-08 Ja-09 Overall, we expect farm employmet i 2009 to remai roughly i lie with 2008 levels ad to demostrate the seasoality typical of agriculture labor. At just over 10,000 durig peak seasos, farm labor makes up a relatively small proportio of the broader regioal ecoomy. Figure 18 Farm Costructio As we previously metioed, costructio is a large ad importat sector of the local ecoomy. Costructio employmet peaked i the summer of 2005, roughly correspodig to the peak of housig prices, ad has treded sharply dowwards sice, losig over 15,500 jobs sice Local specialty trade cotractors have bee hit especially hard, as the pace of ew costructio work has slowed sigificatly. We expect those cotractors who were frugal durig the boom years ad who have a large exposure to maiteace/retrofit work to fare better tha the peer group. I 2009, we expect little material improvemet i the costructio sector. We expect a loss of aother 6,000 to 7,000 costructio-related jobs i early 2009 before a slight uplift i the seasoally strog summer moths. While there are sigs that the Sacrameto housig ivetory levels are Number Employed 80,000 70,000 60,000 50,000 Ja- 01 Figure 17 Costructio Ja- 02 Ja- 03 Ja- 04 Ja- 05 Ja- 06 Ja- 07 Ja- 08 Ja- 09 Number Employed 10,500 8,500 6,500 4,500 Ja- 01 Data Sources Ja- 02 Ja- 03 Ja- 04 Ja- 05 Ja- 06 Ja- 07 Ja- 08 Ja- 09 The quatitative aalysis is based o the Sacrameto Metropolita Statistical Area mothly employmet data published by the Labor Market Iformatio Divisio i the Employmet Developmet Departmet of the State of Califoria (available at edd.ca.gov). As of our publishig date, the most recet mothly uemploymet rate readig was for November The Sacrameto-Arde Arcade-Roseville Metropolita Statistical Area (MSA) icludes the couties of Sacrameto, El Dorado, Yolo, ad Placer (Yuba ad Sutter couties were excluded from this aalysis). Sice our model explicitly accouts for seasoality throughout the year, the uemploymet rate figures i this paper are uadjusted figures. SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 15

16 16 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

17 Marc Ross, CFA, Real Estate Ivestmet Broker, CB Richard Ellis Sudhir K. Thakur, Ph.D., Professor, College of Busiess Admiistratio, Sacrameto State What bega a few years ago as a correctio to a iflated residetial market has ow become a idustrywide ifirmity trascedig all sectors of real estate. Everyoe i the regio has bee touched i oe way or aother. Cosumers have see their shoppig ad diig optios reduced with the flurry of restaurat closigs ad surge of retailers declarig bakruptcy. Real estate owers of all property types have watched their balace sheets suffer. Maagemet compaies have had to focus much more of their attetio o teat retetio as fewer teats are out lookig for space ad competitio for those that are has itesified (ofte eve withi their ow buildig as the amout of sublease space rises). Odds are eve the casual observer kows someoe who has lost their home, with over 19,000 regioal residetial foreclosures this past year ad early 29,000 sice the begiig of The compositio of our ecoomy has dramatically chaged as well. As the egie of regioal growth for may years, employmet i the real estate idustry peaked as a proportio of all employmet i By the ed of coicidig with the peak of the residetial market - 26% of all jobs i the regio were real estate related. Sice that time the real estate sector has steadily lost jobs ad ow represets oly 22% of overall employmet. SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 17

18 Percet Figure 1 Real Estate Employmet as a Percetage of Sacrameto Total Employmet Bear markets are difficult to stomach, but for the log-term ivestor, they provide immese opportuity. Give the breadth of this real estate dowtur ad the cocomitat ecoomic weakess, it is easy to get overwhelmed with pessimism. However, for those ivestors waitig o the sidelies with capital to deploy, we aticipate the ext 12 to 18 moths will provide abudat, excellet logterm ivestmet opportuities at very attractive prices. Let s ot forget that strog populatio growth, relative affordability, quality schools, job diversities, cultural sophisticatio, edless recreatioal activities, ad proximity to several world-reowed destiatios cotiue to make Sacrameto s log-term outlook very bright! Source: Departmet of Fiace, Califoria Whe will the correctio ed ad the healig begi? While eve the most optimistic real estate experts are hesitat to predict ay meaigful recovery i 2009, we believe it will likely brig us to or ear the bottom of the cycle. Whether we reach the bottom soo ad how log we remai there is primarily depedat o two thigs: 1) the depth ad duratio of the curret ecoomic recessio, ad 2) the retur of a fuctioig credit market. If local employers cotiue to shed jobs ad the ledig eviromet remais i its curret paralysis, prices ad trasactio volume will cotiue to declie, likely ito Coversely, if the recessio is short-lived ad the credit markets retur to ormalcy, we expect to see a bottomig out of pricig by year-ed. O balace, we believe the Sacrameto real estate market is further alog i the cycle tha may other markets, havig already icurred a sigificat correctio i pricig. Further, the large presece of state govermet will temper the regioal impact of the ecoomic recessio, as it has i previous dowturs, providig for some relative stability. We believe the Sacrameto real estate market is further alog i the cycle tha may other markets INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE Retail While all sectors of commercial real estate are facig a headwid today, the retail sector is particularly challeged due to its relatively high depedece o a healthy residetial market. With home equity dimiishig ad ew residetial costructio at a stadstill, most atioal retailers have postpoed or pulled out of ew developmet deals. Also, ew frachisees ad other would-be mom & pop retailers do ot have the capital to start a busiess or expad. As a result, several otable projects have bee put o hold this year icludig the partially built Elk Grove Promeade, a 1.1 millio square foot ope-air mall, ad The Ladig, a 439,700 square foot retail ad theater complex scheduled to replace the drive-i movie theater just west of Racho Cordova. Owers of existig complexes are also feelig pressure. With bakruptcy filigs of small retail busiesses o the rise ad fewer teats lookig for space, teat retetio has become a priority for ladlords. To retai teats, ladlords

19 Figure 2 Retail Vacacy vs. Net Absorptio Sacrameto MSA Vacacy Net Absorptio 1,350, % Net Absorptio 1,150, , , , , % 7.00% 6.00% 5.00% 4.00% 3.00% % Vacacy Net Absorptio: The chage i occupied square feet from oe period to the ext. 150,000-50, % 1.00% 0.00% Source: CBRE are offerig icreasig icetives o reewals ad, i some cases, are eve reegotiatig existig leases - agreeig to more favorable terms for their teats. With abudat competitio for ew creditworthy teats, ladlords are offerig geerous teat improvemet allowaces (i multiples of what were offered just a few years ago) ad aggressive cocessios (i some cases up to a year of free ret). The regio has see its share of otable casualties this past year, icludig: Mervys filed bakruptcy, forcig the closure of all 9 stores i the regio Starbucks aouced the closig of 600 stores atioally, icludig 5 i the regio, with rumors of aother roud of cuts Lies & Thigs filed bakruptcy ad is closig all 4 stores i the regio Shoe Pavilio filed bakruptcy, forcig the closure of both stores i the regio High-profile restaurat closigs: Meltig Pot (Rockli), 55 Degrees (Dowtow), Masque Ristorate (El Dorado Hills), Rusty Duck (Natomas), Fis Market & Grill (Midtow & Davis), Macaroi Grill (Arde-Arcade), Elk Grove Brewery (Elk Grove), Islads (Elk Grove) Fourtee car dealerships have closed - some with multiple frachises. Greater Sacrameto s ew-car frachises have closed at two-ad-a-half times the atioal average do ot have the fiacial wherewithal to keep their doors ope. However, despite the daily poudig of egative ews i the media, there remai bright spots. As cosumers focus more o ecessities, the value-orieted retailers are beefitig with strog sales ad may are expadig locally (Goodwill, Big Lots, Ross, Wico, Dollar Tree, 99 Cets). Drug stores Rite Aid, Walgree s, ad CVS cotiue to expad i the regio. BevMo, Autozoe, ad several fast food restaurats are also still actively lookig for ew locatios. Further, Fresh & Easy, a U.K. based eighborhood grocer, is aggressively expadig i the regio with approximately 20 store sites idetified. The first wave of stores is expected to ope ext sprig ad they are cotiuig to search for more sites. Overall we thik the retail sector will largely remai weak util the residetial market rebouds. Figure 3 Retail Growth Area Askig Rets 4th Quarter, 2008 Sacrameto MSA $/SF/Moth $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 Additioally, we aticipate more bakruptcy aoucemets ad store closigs durig the first quarter of 2009 as retailers, hopig the holiday shoppig seaso will save them, realize they $0.00 Natomas Lagua/Elk Grove Roseville/Rockli Folsom/El Dorado Source: CBRE SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 19

20 Office The State of Califoria s large ad active local presece is oce agai buoyig the Sacrameto office market durig a ecoomic slowdow. While a sigificat declie i the private sector has caused overall leasig activity to fall early 30% i 2008, the govermet sector has remaied very active. The state curretly lists 44 active requiremets totalig 1.1 millio square feet of space, roughly a quarter of which will represet growth i state-leased space. However, it is ukow at this time what impacts the state s much publicized budget problems may have o these requiremets. The most active private sector leasig activity is i the health care, egieerig ad software related techology idustries. The most commo leasig activity today is lease reewals. With the scarcity of teats seekig ew space, teat retetio has become a icreasig priority for ladlords. Whe possible, ladlords are reewig leases with existig teats well before their leases expire, offerig greater cocessios icludig loger periods of free ret ad rightto-cacel-early clauses. Feelig more ucertai about the future, teats are favorig shorter lease terms (12 24 moths) so that they ca reevaluate where the ecoomy The most active private sector leasig activity is i the health care, egieerig ad software related techology idustries. ad their busiesses are goig before makig log-term commitmets. Sice the mortgage meltdow ad esuig ecoomic crisis bega just over a year ago, may compaies related to the fiacial ad real estate sectors have dowsized or left the market altogether. This has created a surge of office space i which the teat has vacated but cotiues to pay ret, called sublease or shadow space. Over the past year, roughly 775,000 square feet of shadow space has bee created, though it is ot icluded i vacacy calculatios sice the teat cotiues to pay ret. With slower tha average leasig activity this year, much of the shadow space beig offered for sublease remais empty ad is covertig to vacacy as those leases expire. This turover of shadow space, alog with sigificat speculative developmet ad a large umber of teats cotractig caused vacacy to icrease from 13% to over 16% sice the begiig of the year. Despite a icrease i vacacy, cocessios, ad competitio for teats, ladlords remai reluctat to reduce retal rates. However, we see rets softeig ext year, alog with a cotiued icrease i vacacy ad heighteed competitio to attract ad retai teats. Figure 4 Office Vacacy Rate vs. Askig Lease Rates Sacrameto MSA 16.00% 14.00% Vacacy Lease Rate $2.00 $1.80 % Vacacy 12.00% 10.00% 8.00% $1.60 $1.40 $1.20 $1.00 $/SF/Moth 6.00% $0.80 Source: CBRE 20 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

21 Figure 5 Office Vacacy vs. Net Absorptio Sacrameto MSA 600,000 Net Absorptio Vacacy 18.00% Net Absorptio: The chage i occupied square feet from oe period to the ext. Net Absorptio (square feet) 500, , , , , , % 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% % Vacacy Source: CBRE Idustrial While Sacrameto is kow to have a resiliet idustrial market, recet moths have prove it is ot etirely immue to a strugglig ecoomy. After a relatively strog first half of the year, the regio experieced over 250,000 square feet of egative et absorptio durig the third quarter, the first time i over six years et absorptio i Sacrameto was egative. The vacacy rate moved up 0.3% durig 2008, though it remais fairly low at 8.4%. The availability rate, perhaps a more meaigful measure of market health i that it also takes ito accout sublease space, is curretly at 10.7%. The amout of sublease space, which cotiues to grow, is givig teats more bargaiig power as sublessors become more aggressive i their attempt to fill space. Iterestigly, askig lease rates are ot fallig, a idicatio that may ladlords are reluctat to lock i lower retal rates log-term. Istead, they are choosig to attract teats by offerig cocessios such as free ret ad/or a geerous teat improvemet allowace. That beig said, short-term leases, i the moth rage, ca be made below the askig rate. May teats, ervous about the ecoomy ad therefore reluctat to commit to a log-term reewal/lease, seem to favor this. Figure 6 Idustrial Vacacy vs. Net Absorptio Sacrameto MSA Net Absorptio Vacacy 900, % Net Absorptio: The chage i occupied square feet from oe period to the ext. Net Absorptio (square feet) 700, , , , , % 8.40% 8.30% 8.20% 8.10% 8.00% 7.90% 7.80% % Vacacy -300, % Source: CBRE SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 21

22 Figure 7 Idustrial Average Askig Lease Rets Sacrameto MSA R & D Light A & B Warehouse $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08 Source: CBRE Whe the market does improve, there will ot be much competitio from ew buildigs. With a shortage of etitled or idustrial zoed lad, risig fees, more difficulty i obtaiig fiacig, ad modest ret growth projectios ear-term, it is becomig icreasigly difficult to fiacially justify Whe the market does improve, there will ot be much competitio from ew buildigs. ew costructio. While early 300,000 square feet of idustrial space was completed last quarter, the developmet pipelie is virtually empty for the foreseeable future. We expect more of the same i 2009, with flat retal rate growth, a slight icrease i vacacy, ad virtually o ew costructio. Figure 8 Idustrial Costructio Activity Sacrameto MSA Square Feet (1,000 s) 1, Uder Costructio Completed 1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08 Source: CBRE 22 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

23 Figure 9 Ivestmets Dollar Volume/Sales through October 2008 (all property types) Sacrameto MSA $5 $4 Billios $3 $2 $1 $ Note: Mothly, 12-moth trailig, reported close YTD Source: CBRE Ivestmets The regioal real estate ivestmet market is curretly i a trasitioal period, with prooucedly slower movig trasactios, lower trasactio volume, ad geeral dowward pressure o pricig. Cocered with ucertaities at every level of the ecoomy, commercial real estate buyers have become more cautious ad are gravitatig towards what they historically kow to be safe well-located, primarily sigle-teat ivestmets with creditworthy log-term leases. Viewed as havig more risk, multi-teat properties with short or mid-term leases (shorter tha 10 years), particularly i peripheral areas, are havig more difficulty sellig as buyers require icreasigly higher rates of retur. Value-added commercial properties are also havig difficulty clearig the market uless discouted to reflect the challeged leasig fudametals ad the difficulties associated with obtaiig ew fiacig for these types of properties. The multi-housig market, by compariso, is experiecig fairly solid retal fudametals. May sigle-family home owers/residets, displaced by the wave of foreclosures, have moved ito apartmets. However, geeral ecoomic ucertaities have also caused a flight to quality i the multi-housig ivestmet market, with a distict buyer preferece for ewer, stabilized class A or class B value-add properties i quality locatios. Rates of retur for these ivestmets have remaied fairly stable with oly a slight Figure 10 Ivestmets Cap Rate (%)/Sales through October 2008 (all property types) Sacrameto Regio 9.0% U.S. Average Market Average 8.0% 7.0% 6.0% 5.0% YTD Source: CBRE SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 23

24 drift upwards. Sales activity for older class C properties has slowed cosiderably as oly those sellers with extraordiary motivatio have dropped pricig to the poit ecessary to clear the market. Required rates of retur for these lower quality assets have fluxed upward much more aggressively. Addig to the slowdow i trasactioal time frames ad trasactio volume is the added scrutiy placed o buyers by leders, both commercial ad multi-housig alike. Leders are requirig larger dow paymets while ledig optios have become fewer. Those leder optios that remai have tighteed uderwritig stadards, thereby reducig leverage thresholds. As buyers commit more capital, more attetio is beig focused o uderlyig fudametals ad more cosideratio is placed o every step i a trasactio. There is a sese amog the buyig public that a bottom has ot yet bee reached, causig some pause i buyer activity. However, opportuistic buyers, may of whom sat o the sidelies durig the recet boom, have begu to emerge oce agai a sigal pricig has become more appealig ad that a reewal of trasactio activity may ot be far away. We see the regioal market stayig i a wait-ad-see mode util early ext year, whe we believe a icrease i the availability of capital (oce the debt market settles), coupled with a retur of value-added purchasers (as opportuistic buys become more pletiful), will foster a icrease i the umber of trasactios. The log-term ivestmet fudametals of the Sacrameto regio remai very strog. Residetial As we prepare to eter our fourth year i housig dowtur there remais o immiet recovery o the horizo. The fledglig residetial market, iitially drive dow almost exclusively by the implosio of fuy moey fiacig, ow faces a ecoomic recessio, potetially extedig the days of high foreclosure rates ad delayig a recovery due to icreasig uemploymet ad fiacial hardship. The media sale price i the Sacrameto regio has bee o a steady declie sice the ed of 2005, fallig early 46% through October. While there are homes that have dropped i value by that amout (ad more), this statistic is also iflueced by a chage i the type of homes beig sold. Progressively more iexpesive homes, drive largely by REOs, are domiatig the sales market. I late 2005, ow cosidered to be the peak of the market, REOs represeted just 0.2% of all sales i the regio. Durig the past three years the umber of REOs has grow to become the drivig force i sales activity today, represetig over half of all sales. Oe glimmer of good ews is that sales activity is up. After bottomig out i the first quarter of this year, sales o both a mothly ad year-over-year basis have bee slowly but steadily risig. This upward tred of sales activity after a Figure 11 Residetial Media Sale Price (all homes) vs. REOs as a % of Sales Sacrameto MSA Media Sale Price REOs as a % of Sales 450, % 400, , , % 50.0% 250, % REO (Real Estate Owed) property which is i the possessio of the leder as a result of foreclosure. 200, , ,000 50, % 20.0% 10.0% 0.0% Source: MDA DataQuick 24 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

25 Figure 12 Residetial Total Sales (all homes) Sacrameto MSA Total Home Sales YOY Homes Sales Total Home Sales 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1, ,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 YOY Home Sales Source: MDA DataQuick prologed slump is typically the first sig of a impedig recovery. Could this mea the market is stabilizig? It certaily suggests that pricig has become attractive eough to lure more ivestors ad etry-level home buyers off the sidelies. However, the moderate reewal i activity is cofied mostly to the lowest price segmet ad does ot represet broad market stabilizatio across all price segmets. Further, we still face a elevated foreclosure rate. What bega as a wave of foreclosures caused by the fallout of bad sub-prime loas is ow also beig fueled by risig uemploymet. Chages to the state s formal foreclosure process ad leder efforts to modify loas have resulted i a drop i foreclosures durig the 4th quarter. However, we believe these efforts are largely delayig the ievitable ad, with cotiued job losses, we will see the tred of risig foreclosures resume i early While a recovery is at least a year (or two) away, it is likely we will reach or approach the bottom of the dowtur by the ed of The local residetial market is further alog i the cycle tha most the rest of the coutry, havig already icurred a sigificat correctio i pricig. As such, we expect the Sacrameto regio to be oe of the first markets to recover. However, whether we reach the bottom soo ad how log we remai there is depedet o how quickly the credit markets thaw ad the depth ad duratio of the curret ecoomic recessio. Oe thig is for certai, everyoe will be watchig closely as a healthy residetial market is a key precursor for the rest of the real estate sectors to recover. Figure 13 Residetial Mothly Foreclosures (Based o Number of Trustees Deeds Filed) Sacrameto MSA 3,000 2,500 2,000 1,500 1, Source: MDA DataQuick SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 25

26 2009 Eergy Outlook: Greebacks May Be the Most Valuable Commodity for Gree Eergy Firms 26 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

27 Despite strog support from the icomig Obama admiistratio, the clea-eergy idustry may face serious challeges throughout the upcomig year. I recet years, the clea-eergy idustry has beefited from: i) dramatic fossil-fuel price icreases, ii) growig cocers related to global warmig ad eergy security, iii) govermet subsidies, ad iv) access to abudat debt ad equity capital. With the Sacrameto regio strivig to become a hub for clea-eergy techology ( cleatech ), the success of this edeavor will require cotiued mometum i Despite strog support from the icomig Obama admiistratio, the clea-eergy idustry may face serious challeges throughout the upcomig year. Lessaccommodative debt ad equity markets will make it more difficult for capital-itesive cleatech firms to access fudig sources. At the same time, pressures to switch to costlier alteratives may subside uless fossil-fuel prices retur toward their July 2008 highs. We do ot foresee such a pricig sceario ufoldig durig While we have little doubt that clea techologies will become more prevalet i the years ahead, the key questio is whether some of the regio s clea-eergy firms will have the capital to survive util the. Joatha E. Lederer, CFA, Presidet, Lederer Private Wealth Maagemet, LLC Dever H. Travis, Ph.D., CFA, Professor, College of Busiess Admiistratio, Sacrameto State SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 27

28 2009 Eergy Outlook: Greebacks May Be the Most Valuable Commodity for Gree Eergy Firms Recet History Eergy price movemets were aythig but dull i The first half of the year was marked by dramatic oil, gas, ad coal price icreases due to the combiatio of strog emergig-market demad expectatios, U.S. dollar depreciatio (most commodities are priced i dollars) ad ample buyig by mometum ivestors. Durig this period, may alterative-eergy firms beefited sice their evirometally friedly techologies (relative to those of fossil fuels) were becomig more competitive from a cost stadpoit. I July, however, eergy prices reversed course as global ecoomic growth showed sigs of slowig ad the U.S. dollar stregtheed agaist other major currecies. Oce eergy prices bega to declie, mometum ivestors started pullig their moey out. Ad whe the credit markets seized up i September, eergy prices fell precipitously due to cocers about a severe global recessio (see Figure 1). Clea-eergy firms were ot isulated from these evets. The combiatio of highly costraied credit markets ad lower eergy prices adversely impacted publicly traded cleatech stocks. I particular, the Solar ad Reewable Electricity PurePlay Idices, 1 created ad tracked by Sacrameto-based Camio Eergy, both fell by more tha 50% durig the secod half of 2008 (see Figure 2). Figure Price Chages: Oil, Natural Gas, ad Coal Oil Natural Gas Coal 300 Oil, atural gas, ad coal prices fell 73%, 57%, ad 59%, respectively, from their July 2008 highs. 250 Relative Value Coal: +6% Natural Gas: -22% Oil: -59% 0 Ja-08 Feb-08 Mar-08 Apr-08 May-08 Ju-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Source: U.S. Eergy Iformatio Admiistratio Figure 1 shows the relative price chages for rollig oe-moth oil, atural gas, ad coal futures durig INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

29 Figure Performace: Cleatech Stock Idices Solar Reewable Electricity S&P Cleatech stocks experieced major declies sice the summer, as the credit crisis itesified ad eergy prices fell. Relative Value S&P 500: -37% Reewable Electricity: -62% Solar: -72% 0 Ja-08 Feb-08 Mar-08 Apr-08 May-08 Ju-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Source: Camio Eergy Figure 2 shows the relative price chages for Camio Eergy s Solar ad Reewable Electricity PurePlay Idices durig Key Factors i 2009 I our opiio, the key determiats of the clea-eergy idustry s ear-term success are: i) the pace of a global ecoomic recovery ad ii) the restoratio of fuctioig capital markets. We believe the global ecoomy will eed to exhibit sigs of recovery durig 2009 for clea-eergy compaies to avoid sigificat headwids. A recovery would icrease global eergy demad ad would almost certaily drive fossil-fuel prices higher, thereby resurrectig the strog push for alteratives. I additio, a ecoomic recovery would erich govermet tax coffers, reducig potetial pressures to cut subsidies for reewables. A solid recovery i 2009 will udoubtedly deped o the health of the capital markets. Ad we believe both the debt ad equity markets will eed to improve cosiderably for may cleatech firms to remai fiacially viable durig the year ahead. Give the capital-itesiveess of this relatively ascet idustry, the ability to access fiacial resources is imperative. Fossil-Fuel Price Outlook It is our view that the pace of a potetial ecoomic recovery will have the greatest ifluece o fossil-fuel prices durig Not oly have developed ecoomies aroud the world recetly etered ito recessios, but may emergig ecoomies have also bee impacted give their reliace o exports to the developed world. These ecoomies would eed to exhibit sigs of dramatically reversig course for global eergy demad to stregthe ad push fossil-fuel prices higher. Throughout the year ahead, we thik odds of eergy prices approachig their 2008 highs are extremely low i light of the worst global credit crisis sice the Great Depressio. Developed-Market Demad Despite relatively healthy ecoomic growth i OECD 2 coutries this decade, eergy cosumptio i these developed ecoomies has grow oly at a miimal pace (see Figure 3). Now, with the Uited States, Europea Uio ad most developed Asia ecoomies havig etered recessios, we caot evisio a plausible sceario where eergy demad from developed ecoomies would icrease cosiderably durig SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 29

30 Figure 3 OECD Ecoomic Growth ad Eergy Cosumptio Growth Rate 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 3.9% GDP 3.7% 3.6% Oil Natural Gas Coal 6.4% 6.2% 5.2% 5.3% Despite healthy ecoomic growth i recet years, OECD eergy cosumptio icreased at a tepid pace. With the global ecoomy ow havig etered a recessio, we caot plausibly forecast strog developed-market demad i % 0.0% -1.0% Source: OECD, U.S. Eergy Iformatio Admiistratio Figure 3 shows OECD gross domestic product (GDP) growth ad aual rates of chages i OECD oil, atural gas, ad coal cosumptio. Furthermore, i the midst of the global credit crisis, our thesis is that may developed ecoomies will udergo a legthy ad sizable deleveragig process, where umerous busiesses ad cosumers will be forced to repair their balace sheets that had become bloated with debt i recet years. This deleveragig is expected to costrai eergy demad throughout May busiesses had already started scalig back cosumptio earlier this year whe eergy prices were risig. Though fossil-fuel prices have sice falle, we thik it is ulikely that may busiesses will have the willigess ad/or fiacial capacity to ramp up spedig durig the upcomig year give the recessioary ecoomy, tighter credit coditios ad depressed stock markets. Figure 4 shows how idustrial productio i the Uited States, Europe ad Japa has declied i recet moths due to the credit crisis ad subsequet ecoomic slowdow. Cosiderig that idustrial producers are heavy eergy users, the demad is likely to remai suppressed util a robust global recovery begis to take shape. We do ot foresee this sceario occurrig util late 2009 (at the earliest). Besides busiesses, may cosumers livig i developed ecoomies are likely to cotiue curbig their eergy usage durig Though oil ad gas prices have falle more tha 70% sice July 2008, it remais difficult to predict a sizable pick-up i cosumer demad give the recessioary ecoomy coupled with more limited access to credit. Emergig-Market Demad The primary driver behid this decade s eergy-price appreciatio has bee demad from emergig markets, most otably Chia ad Idia (see Figure 5). Ecoomic growth i these coutries has bee tremedous ad has spurred sizable ifrastructure projects to support larger, more-mobile middle classes. Accordig to the U.S. Eergy Iformatio Admiistratio, Chia is the world s leadig coal cosumer, burig early three times as much coal as the Uited States (the world s umber two cosumer of coal). More tha half of Chia s coal cosumptio is for idustrial use, as the coutry has become the world s leadig producer of steel ad pig iro, 3 much of which is used for Chia s ifrastructure developmet. A sizable percetage of Chia s voracious eergy demad has ultimately bee fuded by trade surpluses with developed ecoomies, icludig the Uited States. 30 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

31 Figure Idustrial Productio: Year/Year Chage U.S. Europe Japa 5% Idustrial productio has dropped precipitously sice this summer s credit crisis. 0% Y/Y Chage -5% -10% -15% Ja-08 Feb-08 Mar-08 Apr-08 May-08 Ju-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Sources: U.S. Federal Reserve, Eurostat, Japa Miistry of Ecoomy, Trade & Idustry Figure 5 Chidia Eergy Cosumptio Growth: % Chia Idia Rest of World 6.8% 5.3% 3.6% 1.2% 1.1% Coal Oil Sources: U.S. Eergy Iformatio Admiistratio Figure 5 shows the compoud aual growth rate (CAGR) of coal ad oil cosumptio from 2000 to SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 31

32 Though for a time it appeared that othig could slow Chiese commodity demad, sigs have emerged that growth i the Middle Kigdom has subsided. With a global ecoomic slowdow ad credit crisis o the heels of the Beijig Olympics, Chia s export growth has begu to moderate as its developed-market tradig parters have scaled back. Chiese idustrial productio has already started to wae, 4 ad we believe the ed result will be a slower rate of eergy cosumptio util the global ecoomy ca stage a healthy recovery. Eergy demad is also slowig i may other emergig ecoomies. A lot of these coutries possess abudat atural resources ad had beefited from risig commodity prices, which icreased trade surpluses with developed-market tradig parters. However, with virtually all commodity prices havig falle drastically sice July 2008, may emergig ecoomies have started to suffer fiacially. Most will almost certaily be forced to curb their eergy usage i Global Eergy Supplies I light of lower projected global demad for oil, atural gas ad coal, we do ot believe that ay of these commodities will face otable supply shortages durig the upcomig year. While there are always potetial supply shocks due to geopolitical coflicts ad atural disasters, we do ot foresee major supply-side risks uless demad were to ramp up rapidly i As oted earlier, this sceario is ulikely. Costraied Capital Markets With fossil-fuel prices havig declied i recet moths, clea-eergy sources have become less competitive from a cost stadpoit. Though govermet subsidies ad cocers about the eviromet ad eergy security should still spur demad for reewable eergy, we thik the pace of this demad will deteriorate util the global ecoomy ca stage a healthy recovery. Cosiderig the competitive headwids (from ow-lessexpesive fossil fuels) that may cleatech firms are likely to face durig 2009, havig access to sufficiet fiacial 32 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE resources is imperative for weatherig the dowtur. A umber of clea-eergy compaies could face sigificat fiacig hurdles durig the moths ahead uless the capital markets become more accommodative. Credit Markets With fossil-fuel prices havig declied i recet moths, clea-eergy sources have become less competitive from a cost stadpoit. Give the sizable costs that are ofte required to develop clea-eergy ifrastructure, may projects require substatial capital. As such, clea-eergy firms frequetly rely o debt fiacig for a large portio of their capital eeds. However, i the midst of the curret credit crisis, accessig debt has become highly prohibitive, if ot impossible, for most cleatech firms. Eve relatively well-capitalized alterative eergy firms have bee impacted by the creditmarket problems. exco, a Califoria-based subsidiary of a Frech eergy coglomerate, recetly closed the first ad oly wid-power project sice the credit crisis bega. Facilitatig the fudig for the project was a difficult process though. Mark Tholke, exco s Southwest Regioal Director, said that debt costs for Shiloh II, a Solao Couty wid farm that will sell power to PG&E, worseed materially sice the summer. 5 The subsequetly greater debt-service obligatios (because of higher iterest rates) required the reewable-eergy developer to ivest a lot more equity ito the project. Muicipal utilities such as SMUD, which ca borrow o a taxexempt basis, have ot bee immue from the global credit problems either. Jim Tracy, SMUD s Chief Fiacial Officer, oted how the A-rated utility was able to issue isured bods i Jue 2008 at 4.4%. By late November 2008, SMUD s cost for bods (of similar maturity) had rise to early 6%. 6 Sice debt service is a large compoet of SMUD s solar ad wid power projects, higher debt-service obligatios have made SMUD s reewable eergy efforts much more costly. That said, Tracy otes that SMUD has ot abadoed its goal of sourcig 23% of its eergy from reewables by 2011, up from 12% i For smaller electric cooperatives ad public power systems that have bee approved to issue federal tax credit bods kow as Clea Reewable Eergy Bods (CREBs), credit spreads have also wideed cosiderably. I particular,

33 Figure 6 VC Fudig to the Cleatech Idustry: 2000-Q $3,200 $2,800 VC Fudig (i millios) $2,400 $2,000 $1,600 $1,200 $800 $400 $ Q (YTD) Q (YTD) Sources: PricewaterhouseCoopers, Natioal Veture Capital Associatio, Thomso Reuters the rate o 10-year CREBs i July 2007 was less tha 6%, represetig oly a 100 basis-poit (1.00%) spread to the 10-year U.S. Treasury, which yielded roughly 5% at the time. O December 31, 2008, 10-year CREBs were priced at a 267 basis-poit spread (2.67%) to the equivalet Treasury. 8 Equity Fiacig With affordable credit difficult to obtai, there is a greater emphasis o raisig equity capital to fud clea-eergy edeavors. However, give the sizable stock-market declies sice the summer, it is ow more prohibitive for publicly traded firms to raise ew equity. The stock-market volatility has also created a more ucertai eviromet for privateequity ad veture-capital (VC) ivestors. For publicly traded clea-eergy firms with low stock prices, issuig additioal shares is more dilutive to existig shareholders ad rus the ear-certai risk of drivig the stock price dow further. Ad the ability to eve float additioal shares assumes that equity ivestors are willig ad able to provide fudig somethig ot may appear eager to do i this ivestmet climate. Perhaps more importatly, the depressed equity markets could temporarily drive away private fudig to the cleatech idustry. As Figure 6 shows, VC fudig to the cleatech idustry had bee icreasig expoetially i recet years, whe the capital markets were healthy ad eergy prices were risig. Today, with cleatech iitial public offerigs comig to a halt ad acquisitio fudig tougher to access, exit strategies for private ivestors have become more ucertai. These factors may explai why private-equity ad VC fudig (i aggregate) to cleatech compaies fell 24% i the third quarter of 2008 (relative to Q levels). 9 Sice eergyprice declies ad the credit crisis did ot itesify util the ed of the third quarter, it would ot be surprisig to observe eve lower private fudig levels durig upcomig quarters. Capital-market losses are also likely to reduce ivestors ability (ot just willigess) to provide ew fudig to VC ad private-equity firms that ivest i cleatech. With large istitutios such as CalPERS experiecig sizable portfolio losses i recet moths, 10 their capacity to allocate ew moey toward alterative ivestmets will almost certaily be dimiished. The Lag Effect Though we believe the pace of ew VC ad private-equity fudig to cleatech will slow sigificatly i the moths ahead, may clea-eergy firms with existig capital commitmets should fid themselves i a better positio to weather the dowtur. Dr. Barbara Grat, Maagig Director at America River Vetures, a Roseville-based VC firm that specializes i cleatech, otes that veture fudig teds to work with a lag effect because VC firms typically commit capital via several istallmets over time (as opposed to a SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 33

34 lump sum upfrot). Therefore, ewer cleatech compaies facig short-term, idustry-related hurdles should still be able to deped o existig fiacial commitmets from their VC parters. Ia Westberg, Sacrameto-based Regioal Maager of the Veture Pipelie Group at law firm DLA Piper, believes cleatech compaies that are meetig their fiacial goals should ot be at risk of losig their pre-existig fudig commitmets. Westberg idicates that, eve i today s climate, startup firms with promisig ew techologies ad strog maagemet teams will have access to equity fudig from VC firms. 11 America River Vetures Dr. Grat adds that cleatech firms o the demad side, which icludes those compaies specializig i eergy efficiecy, are expected to fare better i the curret eviromet because they are less capitalitesive ad deliver ivestmet returs over a shorter time frame. O the other had, supply-side reewable eergy firms ted to etail greater capital commitmets ad loger ivestmet horizos. Thus, their ability to obtai additioal equity fiacig i the ear future could be i questio. 12 Govermet s Role Despite a global recessio ad lower fossil-fuel prices, govermet support for clea eergy has thus far remaied steadfast, arguably providig the best hope that cleatech mometum will cotiue durig Barack Obama s recet presidetial victory should prove beeficial to the cleatech idustry, as the cadidate has promised to ivest $150 billio i clea eergy durig the ext 10 years. 13 Though the icomig Presidet has yet to specify how this pla would be implemeted, may are optimistic a Gree New Deal would help fud a broad rage of clea techologies. At the state level, Califoria has set precedets with respect to reewable eergy. I November 2008, Goveror Arold Schwarzeegger ordered state power compaies to obtai oe-third of their electricity from reewables by This madate followed a 2006 bill to substatially reduce Califoria s greehouse gas emissios by Will Thigs Be Differet This Time? While the widespread govermet backig of cleatech is certaily ecouragig, we remai cocered that the urgecy to commit sigificat govermet resources to gree eergy could subside i the ear future. With federal ad state budget deficits ballooig due to the recessio, govermet support of cleatech could wae if fossil-fuel prices remai ear curret levels. Followig the 1970s oil supply shocks, lawmakers created a bevy of reewable-eergy icetives, but these icetives evetually disappeared i the early 1980s after eergy prices fell dramatically. Moreover, state govermets have had a propesity to relax reewableeergy madates if targets are ot beig achieved. 15 It remais to be see whether thigs will be differet this time. Cleatech propoets poit to recet federal legislatio as a idicator that elected officials are ow more determied to take proactive steps to address climate chage ad eergy security. As part of October s fiacial-rescue package, Cogress provided $17 billio i cleatech tax icetives, extedig productio ad ivestmet tax credits for wid (by oe year), geothermal (by two years) ad solar eergy (by eight years). 16 The fact that Cogress passed these measures alog with a $700 billio spedig bill may idicate that thigs will be differet this time aroud. Local Cleatech Firms Accordig to Gary Simo, Chairma of Sacrameto-based icubator CleaStart, there are 98 cleatech compaies i the greater Sacrameto regio that employ approximately 2,000 workers (i aggregate). 17 Four of these firms are publicly traded: Pacific Ethaol, Solar Power, Ic., Premier Power Reewable Eergy, Ic. ad Blue Poit Eergy (listed as Chapeau, Ic.). The aforemetioed compaies illustrate some of the issues that may clea eergy firms are presetly facig. Each is relatively ew, capital-itesive, ad caot sufficietly fud ivestmet activities with cash from operatios. They must therefore rely heavily o debt ad equity fiacig. I light of the credit crisis, accessig debt fiacig will be early impossible for these local firms uless the ledig eviromet improves. Ad sice each has experieced substatial stock-price depreciatio i 2008 (see Figure 7), oe will likely be able to float additioal shares to raise ew equity. Pacific Ethaol Pacific Ethaol, headquartered i Sacrameto, has bee adversely impacted by both cor ad oil prices durig 2008 ad will likely eed additioal capital soo. The compay, which bured through more tha $200 millio of cash (from operatios ad ivestig activities combied) durig the past year, is obligated to repay creditors early $40 millio i early 34 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

35 Figure Local Cleatech Stock Performace Pacific Ethaol Solar Power Ic. Premier Power Blue Poit Eergy Relative Value $140 $120 $100 $80 $60 $40 Premier Power: -10% (sice goig public i September) $20 $0 Ja-08 Feb-08 Mar-08 Apr-08 May-08 Ju-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Solar Power, Ic.: -88% Pacific Ethaol: -95% Blue Poit Eergy: -98% Stock-Price Source: Yahoo! Fiace Figure 7 shows the relative value of $100 ivested i each of the Sacrameto regio s publicly traded cleatech stocks durig For Premier Power Reewable Eergy, the value preseted captures the time sice the compay wet public i September Table 1 The Sacrameto Regio s Publicly Traded Cleatech Firms: Recet Fiacial Performace Compay Trailig 12-moth Reveues Trailig 12-moth Cash Used: Operatios Trailig 12-moth Cash Used: Ivestmet Cash & Marketable Securities 1 Short-term Debt Obligatios 2 Pacific Ethaol 3 $713,879,000 ($42,670,000) ($165,976,000) $21,431,000 $47,907,000 Needs to restructure debt obligatios to avoid defaultig o early $40 millio due i Q Solar Power, Ic. 3 $40,232,000 ($8,367,000) ($925,000) $3,342,000 $346,000 Will eed to improve operatig margis to avoid potetial liquidity costraits i 2009 Premier Power Reewable Eergy 3 $30,600,194 ($388,839) ($368,868) $5,446,853 $1,316,720 Should have ample liquidity through 2009, thaks to $5.7 millio private placemet i September 2008 Blue Poit Eergy 4 $730,123 ($13,591,719) ($1,340,497) $2,417,020 $2,301,376 Filed for Chapter 11 bakruptcy o October 31, ) Cash & Marketable Securities do ot iclude restricted cash held by Solar Power, Ic. 2) Short-term Debt Obligatios cosist of debt scheduled to mature withi 12 moths. 3) Balace sheet figures ad trailig 12-moth reveue ad cash flow figures are as of September 30, ) Balace sheet figures ad trailig 12-moth reveue ad cash flow figures for Blue Poit Eergy are as of March 31, SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 35

36 2009. As of September 30, 2008, the compay had oly $21 millio of cash ad marketable securities o its balace sheet (refer to Table 1). Uless Pacific Ethaol is able to reegotiate its debt repaymet terms, there is a strog possibility the compay will be forced to eter ito bakruptcy sice access to ew equity capital is curretly limited. Solar Power, Ic. Roseville-based Solar Power, Ic., a maufacturer, supplier ad istaller of photovoltaic solar-power solutios, may also be faced with capital costraits i The compay spet more tha $9 millio of cash durig the past year ad had oly $3.3 millio remaiig o its balace sheet (as of September 30, 2008). Though the compay early tripled its top-lie reveues through the first ie moths of 2008 (relative to the first ie moths of 2007), it geerated a greater operatig loss. Uless Solar Power, Ic. ca icrease its operatig margis ad/or raise additioal capital by mid-2009, the compay could experiece liquidity problems. Premier Power Reewable Eergy Coclusio For the Sacrameto regio to achieve its goal of becomig a cleatech hub, it will have to avigate some serious short-term challeges. There is a strog possibility that a umber of local firms will ot have the fiacial capacity to survive I additio, certai firms may be purchased durig a cosolidatio wave, where better-capitalized players acquire smaller cleatech etities. Such merger-ad-acquisitio activity would preset the risk of local cleatech jobs leavig the regio. However, if the regio ca overcome these earterm idustry obstacles, the future should be bright. We have little doubt that clea eergy will become more prevalet over time, as fiite fossil fuels get depleted ad emergig clea techologies become more cost-effective. Therefore, it would behoove local policymakers to follow the lead of federal ad state officials ad cocer themselves with climate chage, esurig that the greater Sacrameto regio s busiess climate provides a friedly eviromet for the cleatech idustry. Premier Power Reewable Eergy, Ic., based i El Dorado Hills, desigs, egieers ad istalls photovoltaic systems i the Uited States ad Spai. We believe the compay is presetly i the best fiacial shape (relative to the other publicly traded, local cleatech firms) due to a $7 millio private placemet i September Though the compay used more tha $2 millio of cash from operatios durig the first ie moths of 2008, it still had $5.4 millio of cash o its balace sheet as of September 30, Moreover, the compay has few existig debt obligatios. Blue Poit Eergy Blue Poit Eergy, the El Dorado Hills-based eergy maagemet compay, filed for Chapter 11 bakruptcy o October 31, 2008, due its iability to access additioal capital. 36 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

37 2009 Eergy Outlook: Greebacks May Be the Most Valuable Commodity for Gree Eergy Firms Refereces 1 Iformatio about Camio Eergy s PurePlay Idices ca be accessed at 2 OECD is the Orgaizatio for Ecoomic Co-operatio ad Developmet, whose membership cosists of 30 developed-market coutries. 3 Eergy Iformatio Admiistratio, Iteratioal Eergy Outlook 2008, (Jue 2008). 4 Chia s idustrial productio has falle to 5.4% (November 2008) from 12.8% (August 2008). Ecoomic ad Fiacial Idicators, The Ecoomist, 20 December 2008, p. 109, ad 18 October 2008, p M. Tholke, telephoe iterview, November J. Tracy, iterview held at SMUD headquarters, Sacrameto, Califoria, November SMUD, 2007 Status Report o Reewable Eergy at SMUD (May 10, 2007), p Uited States Treasury, Clea Reewable Eergy Bod Rates, =CREBS, (December 2008). 9 Clea Eergy Ivestmet Falls Sharply, Fiacial Times, 10 November CalPERS experieced a 21% declie i assets uder maagemet sice Jue 30, Calpers Sells Stock Amid Rout to Raise Cash for Obligatios, The Wall Street Joural, 25 October I. Westberg, iterview held at DLA Piper office, Sacrameto, Califoria, November B. Grat, Ph.D., iterview held at America River Vetures office, Roseville, Califoria, November Barack Obama, New Eergy for America, my.barackobama.com/page/cotet/ eweergy (November 2008). 14 Gree Treds i Califoria: Coolig Off, The Ecoomist, 22 November Alterative Eergy Suddely Faces Headwids, The New York Times, 21 October Highlights of $700 Billio Market Rescue Bill, The Wall Street Joural, 3 October G. Simo, telephoe iterview, November SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 37

38 Capital Markets Review: The Global Markets ad Their Impact o Sacrameto 38 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

39 Our forecast calls for cotiued high volatility i the equity ad credit markets through The tumultuous evets of 2008 have affected early every asset class i virtually every part of the global capital markets. Sacrameto ivestors ad employers have also bee sigificatly impacted as aggregate fiacial asset values are dow roughly 40% this year. We look at the chai of evets that led to the crisis we ow face ad assess curret risks ad opportuities withi the equity ad credit markets. We also itroduce a ew employmet-weighted idex of major publicly-traded compaies i the Sacrameto area. Our forecast calls for cotiued high volatility i the equity ad credit markets through We believe a bottom will be made withi the ext year as the lagged effects of aggressive policy respose will override the fear ad chaos curretly drivig market price movemets. We favor large cap domestic equities, emergig market equities, high-quality muicipal, corporate ad global sovereig debt i this eviromet. We also believe that our ew Sac-CFA idex will outperform the broader markets as we emerge from the recessio. Jaso Bell, CFA, Vice Presidet ad Ivestmet Maager, Wells Fargo Private Bak Hao Li, Ph.D., CFA, Professor, College of Busiess Admiistratio, Sacrameto State SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 39

40 Capital Markets Review: The Global Markets ad Their Impact o Sacrameto Equity Market Review ad Aalysis A perfect storm of evets has caused ear record declies ad uprecedeted volatility i the equity markets, leavig ivestors rattled ad fearful about the future. The burstig of the housig bubble ad resultig credit ad bakig crises have bee exacerbated by massive deleveragig ad the oset of a large global recessio. Fears of a fiacial Armageddo ad a resultig global ice age are rampat, but are a ulikely outcome. Though plety of ear-term risks remai, there are buddig idicatios that the markets are i a mature state of the bottomig process. The Fed s itervetios have bee methodically removig risk ad while the ext bull market will take some time to materialize, the worst of the bear may ideed be past. Moey i the Bak? The magitude of the global capital destructio resultig from the U.S. housig bubble is staggerig: over $700B dollars has bee purged from the bakig system s balace sheets ad by a recet IMF estimate, there is aother $400B left to be writte off. Baks have raised over $500B i emergecy ivestmet capital, but they will eed to raise more to shore up their balace sheets as additioal writedows occur. Erodig asset values withi the capital markets have caused baks to raise ledig stadards drastically, resultig i the cotractio of credit to cash-strapped cosumers. Accordig to the most recet Federal Reserve Seior Loa Officer Survey, ledig stadards are amogst the tightest o record. Figure 1: Baks Willig to Make Cosumer Loas Net % Mothly Data 8/31/66 1/31/2009 (Log Scale) Source: Ned Davis Research Group 40 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

41 Figure 2: Discretioary Cosumer Spedig Mothly Data 3/31/93 11/30/2008 (Log Scale) Source: Ned Davis Research Group This dyamic will cotiue for some time as residetial housig ivetories cotiue to rise, forcig baks to protect their respective balace sheets. Most of the fallout from the first trache of subprime borrowers has passed, but the ext worrisome domio to fall is the $100B of Alt- A borrowers who face their first mortgage resets i 2009 ad If recet history is a guide, more housig supply will eter the market, further depressig prices, reducig homeower equity ad reiforcig this vicious cycle. The compoud effects of shrikig home prices, reduced fiacial asset values, lower persoal icome growth ad icreasig uemploymet have take their toll. O a year over year basis, cosumer et worth is dow early 18% i Q4 of 2008, which is oe of the most rapid ad drastic declies o record. U.S. cosumers have pushed cofidece idicators to recessioary levels ad domestic spedig is cotractig sharply. O the positive side, there have bee uprecedeted moetary ad fiscal policy resposes to these recet evets. While the fial implicatios of the govermet s efforts are still ukow, the Fed has reduced real iterest rates (i.e., et iterest rates after accoutig for the effects of iflatio) to their lowest levels i 28 years. Creative ijectios of liquidity have preveted a ecoomic collapse, ad have started to re-liquefy the commercial paper markets, a critical step i stabilizatio. Equity Markets Outlook The key to a sustaied recovery i the global equity markets is the stabilizatio of the bakig system ad a retur of ivestor cofidece. The curret cycle of fear has pushed the markets ito deeply oversold territory, regardless of asset quality. Iexpesive valuatio ad massive policy respose will ultimately trump the paic-drive sell-off i the markets, allowig a resumptio of ormalcy as risk appetites icrease agai. Our expectatio is for stability to start to emerge i the broad equity markets i the latter half of 2009 as ivestors start dow the path to recovery. SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 41

42 Uited States U.S. equities were the first to eter the bear market ad will be the first to exit as the Fed s accommodative stace will keep exports competitive ad borrowig costs low. However, the markets will be choppy i the ext year, ad ivestors would be wise to seek areas of the market that have access to capital, pricig power ad stable reveue streams i a slowig global ecoomy. Large cap stocks have a advatage i a risk-averse eviromet as they geerally have more globally diversified reveue streams ad are usually deemed lower credit risks relative to their small cap brethre. Small cap stocks have declied slightly less tha large cap stocks this year but that may reverse the loger the credit cruch persists. Small caps geerally have a greater reliace o domestic reveue ad ted to have more limited access to capital i time of ecoomic stress. Eurozoe The relative advatage that the Eurozoe log held over U.S. markets is over for the time beig. Icreased eergy costs, a expesive currecy ad restrictive moetary policy have squeezed the growth out of the tradig regio. Germay, the ecoomic egie of cotietal Europe, is ow facig weakeig domestic cosumptio ad slowig export markets. The Eurozoe still has the potetial for higher logerterm GDP growth rates tha the U.S., largely due to the fact that they ru a curret accout surplus, as opposed to America s curret accout deficit. However, the ECB s delay i cuttig iterest rates will result i the Eurozoe laggig the rest of the world s ecoomic recovery by at least twelve moths. As such, a uderweight stace is warrated i these markets. Emergig Markets Emergig Markets sidestepped the U.S. housig cotagio durig the first half of 2008, but corrected sharply as global recessio fears raced through the equity markets. May emergig ecoomies, which beefitted from the oce red-hot global commodity demad, are ow sufferig due the resultig collapse i commodity prices Volatility i bod prices has bee higher this year tha the previous te years... ad the stregtheig dollar. Our view is that these price declies will be trasitory as the loger-term demographic ad supply/demad forces remai uchaged. Though slowig, ifrastructure capital expeditures i these coutries are still relatively robust as urbaizatio ad strog persoal icome growth treds also cotiue to drive the majority of demad. Log term fudametals remai itact ad the Emergig Markets should resume their leadership tred as the crisis subsides. Credit Markets Review ad Aalysis Volatility i bod prices has bee higher this year tha the previous te years, as a cosistet stream of bad ews ad oce-deemed impossible evets has cotiually destabilized the broad debt markets. Paiful but ecessary policy resposes have kept the credit markets o life support eve though the major participats have bee iexorably chaged. The price of credit remais high ad its availability scarce, but the fudametal pieces of the puzzle are beig assembled to lead ivestors back to a more ormal eviromet. What Were the Odds? Early 2008 saw the collapse of the $330B auctio-rate securities market ad failure amogst muicipal bod isurers, which drove muicipal bod prices dow to 20 year lows. High yield ad mortgage spreads spiked to te year highs i March as Bear Stears imploded, caught i a catastrophic liquidity squeeze. The govermet s backstop of JP Morga (ad the remats of Bear) quelled fears ad spreads started to arrow as ivestors hoped the worst had passed, but escalatig problems i the credit markets pummeled bak balace sheets, further reducig liquidity ad pushig the price of bak debt to ear-fatal levels i the third quarter. The ru o Idymac Bak served oly as a precursor to the dramatic chai of evets that resulted i the failures of Faie Mae ad Freddie Mac. The esuig bakruptcy of Lehma Brothers further exacerbated the fiacial market paic ad hasteed the climactic 42 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

43 Figure 3: Cosumer Price Idex (year-to-year chage) Mothly Data 1/31/85 10/31/2008 (Log Scale) Source: Ned Davis Research Group demise of AIG, ad Washigto Mutual, the mergers of both Wachovia ad Merrill Lych as well as a crisis of cofidece for may isurace compaies ad Citigroup. The sigificace of the failures withi the bakig system caot be overstated. Faie Mae ad Freddie Mac served as a cetral clearighouse i the global mortgagebacked securities market for more tha three decades ad curretly guaratee or ow more tha $5 trillio i mortgages ad related securities. AIG, prior to its mercurial death-spiral, boasted a $1 trillio balace sheet ad had sigificat ivolvemet i early every corer of the world s fiaces. A dizzyig myriad of Federal programs ad related acroyms have emerged as regulators have respoded to the seemigly edless stream of challeges: TARP, CPFF, PDCF, TAF, TALF, ad TSLF amogst others. Alarmigly, these programs have take the size of the Fed s balace sheet from $1 trillio to $2 trillio dollars, doublig it withi a spa of three moths. While the facilities have helped provide some degree of short term stability, there has bee little metio or uderstadig of their loger-term implicatios. Regardless, the govermet s itervetios have bee ecessary to prevet the utter collapse of sigificat portios of the capital markets. I ay resultig sceario, the collateral damage from the failures of so may key players i the global bakig system will be deep ad log-lastig. Credit Markets Outlook 2008 has witessed some of the most volatile times i the credit markets sice the Great Depressio. More ad more, the govermet has bee removig marketwide risk withi the bakig system, pavig the way for damaged istitutios to begi the healig process ad the cycle of credit extesio to begi agai. I the comig quarters, we expect deflatioary pressures to trump SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 43

44 Figure 4: Moody s Baa Corporate Bod Yield Mothly Data 4/30/03 12/11/2008 (Log Scale) Source: Ned Davis Research Group headlie iflatio ad allow a coordiated cetral bak approach of looser moetary policy. I the short term, iflatio expectatios will cotiue to ease, puttig dowward pressure o log yields ad requirig cetral baks to keep short rates low, esurig a positivelysloped yield curve. As credit risk is trasferred from the bakig system to the govermet, spreads will cotiue to cotract ad ormalize agai. The 28 year low i real iterest rates has created a disicetive to save (ad a icetive to sped/ivest) so the deleveragig cycle will evetually wid dow ad demad for busiess ad cosumer loas should retur. Timig this cyclical shift from deleveragig to releveragig will be particularly difficult, ad a cautious approach to ivestig cash assets is warrated. Treasuries The fall s seismic evets have led to the most severe crisis of cofidece see i a geeratio as failures of some of the world s largest fiacial istitutios set ivestors rushig to the safety of U.S.-backed debt istrumets. December 9th marked oe of the peaks of the paic as demad for short term Treasury bills pushed the price so high that they actually traded with a egative yield. The propesity for egative ews is still high ad Treasury yields remai stubborly low as ivestors are loath to hold ay istrumet associated with risk. Govermet debt remais overbought ad holds little value from a ivestmet stadpoit. 44 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

45 Corporate High quality corporate debt has bee the atithesis to the U.S. govermet debt markets. Yield spreads i the broader corporate debt markets have skyrocketed as paicked ivestors have idiscrimiately sold off ay debt that was ot guarateed by the full faith ad credit of the U.S. govermet. As a result, excellet value ca be foud withi the corporate debt markets, particularly outside the fiacial sector where balace sheets are geerally healthy, boastig plety of cash ad low debt levels. Though plas are beig formulated for the govermet to relieve baks of some of their o-performig assets, spreads o fiacial sector Cautio is advised for those lookig at debt of fiacial istitutios, as the fial implicatios of the crisis have yet to reveal themselves ad price volatility will remai elevated. debt remai rightfully high as a tremedous amout of ucertaity remais withi the bakig system. Cautio is advised for those lookig at debt of fiacial istitutios, as the fial implicatios of the crisis have yet to reveal themselves ad price volatility will remai elevated. Muicipal The combiatio of muicipal bod isurers credit ratig dowgrades ad a massive dose of risk-aversio has caused sigificat dowdrafts i muicipal bod prices. Tremedous value still remais alog the etire curve as muicipal bods, which ormally trade at 80% of a comparable Treasury istrumet, are still tradig Table 1: Sac-CFA Idex Costituets No. Compay Symbol Local $ Reveue YTD Retur Ecoomic Sector % of Idex Employmet (millios)* (%)** Pael A: Icorporated Locally 1 GeCorp Ic. GY 1, Idustrials 4.6% 2 The McClathy Co MNI 1,550 2, Cosumer Discretioary 4.2% 3 SureWest SURW Telecommuicatio Services 2.2% 4 Volcao Corp VOLC Health Care 1.4% 5 Waste Coectios WCN Idustrials 0.6% 6 America River Bak AMRB Fiacials 0.2% 7 ThermoGesis Corp KOOL 83 a Health Care 0.2% 8 IsWeb Corp INSW Iformatio Techology 0.2% 9 Uify Corp UNFY Iformatio Techology 0.1% 10 Pacific Ethaol PEIX Eergy 0.1% Pael B: Icorporated Elsewhere 11 Itel Corp INTC 7,000 38, Iformatio Techology 18.8% 12 Hewlett-Packard HPQ 5, , Iformatio Techology 14.3% 13 AT&T Califoria T 4, , Telecommuicatio Services 13.0% 14 Target TGT 3,482 63, Cosumer Discretioary 9.4% 15 Wells Fargo & Co WFC 3,167 53, Fiacials 8.5% 16 Safeway SWY 2,289 42, Cosumer Staples 6.2% 17 Pacific Gas & Electric PCG 2,206 13, Utilities 5.9% 18 Uio Pacific Railroad UNP 1,370 16, Idustrials 3.7% 19 Frakli Templeto BEN 1,200 6, Fiacials 3.2% 20 DST Output DST 1,200 2, Iformatio Techology 3.2% *12 moth trailig reveues as of 09/30/08. ** Returs through 11/30/2008. SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 45

46 at yield rages from 105% to 120% of govermet debt. The etire muicipal debt curve cotiues to remai above the Treasury curve, idicatig the flight to quality premium remais high for govermet debt. Though a high degree of cocer curretly ceters o the Califoria muicipal debt market, we believe the probability of log-term pricipal loss is exceedigly low. Eve i the case of the coutry s largest muicipal bakruptcy o record, Orage Couty, all pricipal ad iterest paymets were evetually made to bodholders. High Yield Not surprisigly, spreads o high yield debt have wideed alog with every other debt istrumet ot guarateed by the U.S. govermet. The cyclical buyig Historically, it has bee most profitable to gai exposure to this segmet of the fixed icome asset class subsequet to fiacial crises. opportuity is earig for high-yield debt as spreads have reached over 1800 basis poits, a level ot see i the past twety years. Historically, it has bee most profitable to gai exposure to this segmet of the fixed icome asset class subsequet to fiacial crises. Global Diverget priorities betwee cetral baks have created a sigificat differetial i global bechmark rates ad a opportuity for ivestors to profit from alterative moetary policy philosophies. Traditioally, the Fed has led easig ad tighteig cycles ad has take a growth-first iflatio-secod approach, whereas the BoE ad ECB have bee slower to adjust policy rates ad have utilized a iflatio-first growth-secod strategy. As a result, high-grade global bods are attractive at these levels. Figure 5: YTD Retur: Sac-CFA Idex vs. DJIA, S&P 500 Sac-CFA DJIA S&P /31/07 1/31/08 3/2/08 4/2/08 5/3/08 6/3/08 7/4/08 8/4/08 9/4/08 10/5/08 11/5/ INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

47 Impact o Sacrameto s Publicly- Traded Firms Virtually all of Sacrameto s publicly-traded compaies have bee swept up i the curret tumult. To measure the impact of the fiacial markets o our regioal busiesses, we have created the Sac-CFA Idex, a employmet-weighted idex of publicly-traded compaies that are either icorporated locally or are icorporated elsewhere, but are major employers i our regio. Oly compaies listed o the New York Stock Exchage or NASDAQ were icluded, due to ifrequet tradig patters of compaies listed o the OTC Bulleti Board or Pik Sheets. Prices have bee adjusted for stock splits ad divideds ad are weighted by each compay s local employmet level to calculate the daily idex value. Recet Performace As of 11/30/08, the DJIA ad S&P 500 have lost 33.4% ad 38.9% respectively. As the top five employers represet 64% of the idex, the performace of the Sac-CFA idex is heavily iflueced by its techology, discretioary ad fiacial costituets. Not surprisigly, the idex geerally trades i lie with the major averages ad has lost 33.9% this year, uderperformig the DJIA by.5% ad outperformig the S&P 500 by 5.1%. Virtually all of Sacrameto s publicly-traded compaies have bee swept up i the curret tumult. Most major equity idexes, regardless of market capitalizatio, style ad geography are dow betwee 30% ad 40% this year. It is iterestig to ote that the Sac-CFA idex has some distict leaders ad laggards relative to those idexes as the rage of returs amogst the twety costituets is +30% to -90%. The employmet-weighted idex is domiated by the techology (semicoductors ad computer hardware), cosumer discretioary (retail ad publishig) ad fiacial sectors (bakig ad asset maagemet). Relative to the S&P 500, the Sac-CFA Idex is uderweight i the more stable sectors such as idustrials, cosumer staples ad healthcare. Figure 6: Sector Compariso Sac-CFA S&P % 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Cosumer Discretioary Cosumer Staples Eergy Fiacials Health Care Idustrials Iformatio Techology Materials Telecom. Services Utilities SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 47

48 Due to its compositio, the 2009 outlook for the Sac-CFA Idex is relatively bright. Sources: Iteratioal Strategy ad Ivestmet, Bloomberg, BCA Research, Wells Fargo Private Bak, Wells Capital Maagemet, Ned Davis Research, Iteratioal Moetary Fud, Moody s, Wall Street Joural, CFA Istitute, Thomso/ Reuters, Sacrameto Busiess Joural, Yahoo Fiace. All charts from Ned Davis Research are reproduced with permissio. Outlook for Idex Performace Due to its compositio, the 2009 outlook for the Sac-CFA Idex is relatively bright. Stock prices i the techology ad cosumer discretioary sectors ted to reflect improvig ecoomic chages sooer tha other sectors i the market. This characteristic should act as a tailwid for Sacrameto as the world makes its way through the recessio. Techology compaies ted to have low debt levels ad usually hold up well durig ecoomic dowturs. Also, a major compoet of the idex s discretioary sector is Target, which should fare well as cosumers shift their prefereces from luxury goods to more value-focused expeditures. Target s advatage should cotiue as a ew age of thrift becomes more accepted by battered America cosumers. Sacrameto s fiacial employers should fid stock price stability as the credit markets ormalize ad the equity market puts i its fial bottom i INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

49 Sacrameto Busiess Review Authors Jaso Bell, CFA Jaso Bell is a Vice Presidet ad Ivestmet Maager for Wells Fargo Private Bak. He is a Chartered Fiacial Aalyst ad holds a busiess degree from the Uiversity of the Pacific, as well as a MBA from the Uiversity of Califoria at Davis. He has previously served as Presidet of the CFA Society of Sacrameto. Joatha Lederer, CFA Joatha Lederer is the Presidet of Lederer Private Wealth Maagemet, a Sacrameto-based registered ivestmet advisory firm. Joatha graduated with his MBA from the Uiversity of Michiga s Ross School of Busiess. He received his BA from the Uiversity of Califoria, Berkeley. Joatha has bee a CFA charter holder sice 2003 ad is curretly the CFA Society of Sacrameto Treasurer. Bria Leu, CFA Bria Leu joied DCA Parters i 2007 ad supports the Firm s ivestmet bakig busiess ad private equity ivestmet effort through DCA Capital. Prior to joiig DCA, he was a member of the Equity Research team at Deutsche Bak Securities. Mr. Leu was previously a ivestmet aalyst at Bayes Capital, a log-short hedge fud ad earlier bega his career at AT&T withi Corporate Fiace. Mr. Leu eared his MBA from NYU ad holds a Ecoomics degree from Duke Uiversity. Hao Li, Ph.D., CFA Hao Li is a assistat professor of fiace i the College of Busiess Admiistratio, Califoria State Uiversity, Sacrameto. He has a Ph.D. i Fiace ad MS i Fiacial Mathematics, both from the Uiversity of Warwick i Eglad. His expertise is i the areas of fiacial markets ad market microstructure. Hao is a Chartered Fiacial Aalyst (CFA) ad serves as the Secretary of the Board of Directors of the CFA Society of Sacrameto. SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 49

50 Sacrameto Busiess Review Authors Marc Ross, CFA Marc Ross is a real estate ivestmet broker at CB Richard Ellis, specializig i the sale of multi-family properties i the greater Sacrameto regio. Marc graduated with his MBA i Real Estate ad Fiace from the Uiversity at Califoria, Davis i 2001 ad has bee a CFA charter holder sice He received his BA i ecoomics ad busiess admiistratio from Rhodes College i Memphis, Teessee. Yag Su, Ph.D. Yag Su is a Assistat Professor i the College of Busiess Admiistratio at Sacrameto State. I additio to his Ph.D. i Idustrial Egieerig from Arizoa State Uiversity, he has a Six-Sigma Black Belt. His expertise is i the areas of Supply Chai Maagemet, Global Operatios Strategy, Lea ad Six-Sigma, Techology Maagemet, Maagerial Ecoomics, Operatios Research, ad Applied Statistics. Sudhir Thakur, Ph.D. Sudhir Thakur received a doctorate degree from the Ohio State Uiversity (2004). He is curretly a Assistat Professor i the College of Busiess Admiistratio at Sacrameto State. His research iterests are i the areas of: regioal ecoomic systems, locatio ad lad use, techological chage ad regioal developmet, geographical iformatio systems ad spatial statistics. Dever H. Travis, Ph.D., CFA Dr. Dever Travis is a Assistat Professor of Fiace i the College of Busiess Admiistratio at Sacrameto State. He holds a Ph.D. i Fiace ad a MS i Ecoomics from the Uiversity of Ketucky. His expertise is i fixed icome ad derivative securities. He sits o the Board of the CFA Society of Sacrameto. 50 INSTITUTE FOR BUSINESS RESEARCH AND CONSULTING SACRAMENTO STATE

51 Sacrameto Busiess Review Supportig Sposors The College of Busiess Admiistratio at Califoria State Uiversity, Sacrameto is the Capital regio s educatioal istitutio of diversity that provides a strog foudatio i busiess kowledge, skills, ad values through collaboratio amog faculty, staff, ad studets i order to erich their respective commuities. Visit for more iformatio. CFA Istitute is the global associatio for ivestmet professioals. It admiisters the CFA ad CIPM curriculum ad exam programs worldwide; publishes research; coducts professioal developmet programs; ad sets volutary, ethicsbased professioal ad performace-reportig stadards for the ivestmet idustry. CFA Istitute has more tha 99,000 members, who iclude the world s 86,000 CFA charterholders, i 134 coutries ad territories, as well as 136 affiliated professioal societies i 57 coutries ad territories. More iformatio may be foud at Sice 2001, DCA Parters has eared its reputatio as oe of the atio s fiest middle market ivestmet bakig ad strategic advisory firms, deliverig exceptioal results for cliets i a wide variety of idustry sectors. Headquartered i Roseville, CA, DCA works primarily with compaies i the broader Norther ad Cetral Califoria regios, as well as certai adjacet uderserved markets across the wester U.S. The firm also advises ad ivests i compaies outside this targeted geography where the firm possess particular idustry expertise. DCA specializes i providig promisig private ad public compaies with both buy-side ad sell-side merger ad acquisitios advisory services, as well as fiacial advisory, restructurig, ad turaroud maagemet services. Through the firm s affiliated private equity fud, DCA Capital Parters, the firm also makes direct ivestmets i promisig middle-market growth busiesses i DCA s defied areas of focus. Fouded i 1991, the CFA Society of Sacrameto operates as a member Society of CFA Istitute. Our membership cosists of over 160 regioal ivestmet professioals ad academics ad our missio is to utilize our collective ivestmet kowledge, expertise ad global etwork i order to fuctio as a valuable resource to our members ad to beefit our regioal commuity. For more iformatio, please visit us at CB Richard Ellis, the world s largest real estate compay, is proud to have served the Sacrameto Area sice Our local market area cosists of offices i Sacrameto, Roseville, Stockto, Freso ad Reo. Our offices house over 120 sales professioals ad offer a full rage of real estate services icludig; brokerage, asset services, mortgage bakig, valuatio services, project maagemet ad lease admiistratio. We support our sales professioals with stateof-the-art techology, the latest GIS mappig capabilities, superior iformatio ad graphic desig services, ad a ihouse productio ceter. The Private Bak provides wealth maagemet solutios to high-et-worth cliets, through access to a complete rage of wealth maagemet solutios ad services, icludig private bakig, trust ad estate services ad ivestmet maagemet. Isurace services are available through Wells Fargo Ivestmets, LLC. Through The Private Bak, you have full access to customized solutios, attetive service ad all of the resources available through Wells Fargo & Compay. For more tha 150 years, Wells Fargo has helped idividuals ad geeratios of families build, maage, preserve ad trasitio wealth. The Private Bak cotiues this traditio by developig ad implemetig wealth maagemet plas tailored to your uique eeds. Lederer Private Wealth Maagemet, LLC (Lederer PWM) is a idepedet registered ivestmet advisory firm headquartered i Sacrameto. Lederer PWM provides customized wealth maagemet services to high et worth households ad retiremet plas o a discretioary, fee-oly basis. More iformatio about the firm may be foud at SACRAMENTO BUSINESS REVIEW emergig treds i sacrameto s ecoomy 51

52 The Istitute for Busiess Research ad Cosultig 2009 New for Providig creative solutios to Sacrameto s busiess problems. Cosult with us for your research ad cosultig eeds: Busiess Valuatio, Icorporatio, Fiacig Fiacial Plaig ad Forecastig Ecoomic Impact Studies Busiess Process Improvemet Strategic Plaig Market Plaig, Survey, ad Research Busiess ad Product Developmet Market Aalysis ad Pricig Competitive ad Feasibility Aalyses Tax ad Estate Plaig Leadership Traiig ad Developmet Successio Plaig Improvig Employee Productivity Ehacig Retur o Ivestmet (ROI) For more iformatio about the IBRC ad its cosultig services, please call (916) , IBRC@csus.edu or visit The Istitute for Busiess Research ad Cosultig Deliverig success, growth, ad profits to Sacrameto busiess ad govermet oe cliet at a time J Street Sacrameto, CA No-Profit Org. U.S. Postage PAID Permit #47 Sacrameto, CA