Big Valley

How the Central Valley became the ‘Appalachia of the West.’ Now, new threats loom for economy

Pockmarked with drab storefronts, modest skyscrapers and vacant lots, the downtown core of the San Joaquin Valley’s largest city offers little to inspire confidence in its future.

Except for the stylish brick-and-glass headquarters of Bitwise Industries, where a block-long mural advertises Bitwise as the “mothership of technological education, collaboration and innovation in Fresno.”

Bitwise is Fresno’s rock star, a promising young software company that wants to build nothing less than a full-fledged tech industry in the heart of the chronically-depressed Valley.

“We can do extraordinary things in Fresno,” said co-founder Jake Soberal, a native who returned to his hometown after earning his law degree in Southern California. “There isn’t any reason why we can’t transform the economy in a decade.”

It might take longer than that.

Throughout its history, the San Joaquin Valley — the vast middle of California, home to 4.3 million residents and the greatest agricultural bounty on earth — has defied quick or easy fixes.

In good times and bad, it has trailed the rest of California on practically every socioeconomic measure the experts can quantify: unemployment, poverty, educational achievement, health. While unemployment in California was 4.1 percent in August, it was 6.6 percent in Fresno. The Visalia area was at 9.2 percent, one of the highest in the nation.

“There has been some recovery ... but it feels like there’s unfinished business in the Valley,” said Veronica Garibay, co-founder of the Leadership Counsel for Justice & Accountability. “Almost everything hits the Valley the hardest and we’re always the slowest to recover.”

The Valley’s problems are so deeply ingrained, some community leaders fear they’ve stamped the region with a sense of hopelessness that can discourage bold economic thinking.

“When people refer to us as the ‘Appalachia of the West,’ the ‘Valley of the poor,’ it takes its toll,” said Benjamin Duran, who leads the Central Valley Higher Education Consortium, a nonprofit aimed at improving the region’s workforce skills through education. “For years, for decades, it’s suffered from low self-esteem.”

Now the Valley is about to confront a series of problems that could cripple the region for decades to come.

The recovery could stall out altogether — and the Valley could move backward again. Its inability to diversify its largely rural economic base, even as boom times have reduced unemployment rates, leaves the region acutely vulnerable as the nation faces the prospect of another recession.

Meanwhile, the Valley’s ability to do the one thing it does best — feeding the world — is going to be challenged as never before.

Water shortages, already the scourge of the Valley, are about to get worse. A powerful state law called the Sustainable Groundwater Management Act will curb access to water and shrink agriculture’s footprint in the next two decades. Thousands of acres will be turned into solar-energy farms and other non-agricultural uses. The long-term effect of climate change, meanwhile, will squeeze water supplies even more.

All of which suggests a bleak future for a region that is among America’s poorest. In July, the latest month for which national statistics were available, six of the ten highest metropolitan unemployment rates in the country were found in the Valley, according to the federal Bureau of Labor Statistics. The bureau’s records cover 389 metropolitan areas.

The groundwater law affects affects the whole state but will have its greatest impact in the Valley, where farmers pumped so much groundwater during the drought that the aquifers became seriously depleted and portions of the Valley floor literally sank.

Farmers will have to begin moving toward sustainability in January. They’ll have 20 years to complete the task, but the transition could be excruciating. Forecasters at the Public Policy Institute of California say at least 535,000 acres will be permanently retired. That’s about one-tenth of the irrigated farmland in a place that leads the nation in the production of milk, almonds, table grapes and a cornucopia of other commodities.

BEHIND OUR REPORTING

Why we did this story

What happens when one of the poorest regions in the state is hit with a law that could make it even poorer? We’re about to find out, thanks to the collision between the San Joaquin Valley and California’s Sustainable Groundwater Management Act. It will force farmers to start throttling back the amount of water they pull from the ground.

Although the law has been on the books since 2014, its impact is about to be felt in earnest in January. That’s when the Valley — home to 4 million Californians, rich in agriculture but poor in practically everything else — will begin a painful and perhaps crippling transformation. It’s a story that has to be told.

Click on the arrow in the upper right to read more.

How did we report this story?

This story began last spring, when Sacramento Bee reporter Dale Kasler read a Public Policy Institute of California report on the future of the San Joaquin Valley and California’s groundwater law.

The numbers were eye-popping: The best-case scenario predicted the loss of 535,000 acres of Valley farmland. Kasler began meeting with water policy experts, irrigation district executives and farmers. He met in Sacramento and Fresno with Valley leaders lobbying the Capitol for help.

As he traveled across the Valley, he found no shortage of anxiety: A dairyman in Pixley bemoaned the impact on food supplies; a fruit picker and new mom from Strathmore spoke in Spanish about job insecurity. Business owners in Farmersville, a town ringed by orchards, gestured to their community’s woebegone commercial district and wondered if things will get worse.

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And that’s if things go well; the institute says the law could take out as many as 750,000 acres in the Valley unless farmers can augment their water supplies somehow. If clumped together, that would be enough land to cover all of the agricultural acreage in San Joaquin County, where farming is a $2.5 billion-a-year business.

Some Valley leaders say the problem might be far bigger than even the Public Policy Institute estimates. Jason Phillips, chief executive of the Friant Water Authority, which delivers water to farmers on the Valley’s east side from the federal government’s Central Valley Project, said as many as as 1 million acres could be retired under a worst-case scenario, with a disastrous effect on unemployment.

“We haven’t seen any analysis that takes it to less than 300,000,” he said. “You’re talking about tens of thousands of jobs in the most seriously disadvantaged areas of the state.”

While Phillips and other Valley leaders are trying to bring new water supplies to the region and minimize the land retirement, Gov. Gavin Newsom’s administration is developing aid packages to help Valley cope with the fallout.

“We’re really trying to figure out how to support that broader economic transition,” said Wade Crowfoot, secretary of the Natural Resources Agency.

‘It’s all agriculture’

The potential impact weighs heavily on places like Farmersville (population 11,000), a Tulare County city where the morning rush hour is dominated by farmworkers heading out to the nearby orchards.

“It’s all agriculture,” said Rosa Vasquez, the city’s mayor pro tem and owner of the La Mejor del Valle grocery store. “You name it, we have walnuts, peaches, grapes, oranges.”

But little else. Farmersville, as the name implies, depends heavily on agriculture. It’s the kind of town where progress is measured in small doses, as when Sam’s Foods, the only full-line grocer in Farmersville, opened earlier this year.

“We need more business for the city to grow,” Vasquez said. “Everybody struggles, trying to make a living.” It breaks her heart that, when the kids finish high school, they go elsewhere to find opportunities.

The eight blocks of Farmersville Boulevard that make up the city’s main commercial district consists largely of humble merchants such as the Muebleria el Alto furniture store (“Easy Credit,” the window says), Aguila Auto Sales, and Donuts & Burgers. More than a few businesses on the boulevard advertise their services for wiring money to Mexico.

“We have three industries here. Fast food restaurants, heavy on the Mexican, used car lots and convenience store mini-marts,” said Ralph Anderson, who owns a income-tax preparation service on the main strip. “There is no industry here, other than ag.”

His wife Pilar, operates a Spanish-language translation and immigration-services business from the same storefront location.

Anderson said Farmersville has enjoyed fleeting moments of optimism, as when a circuit-board maker opened a factory. It closed years ago. For the most part, the city and its concerns get ignored by the “liberal idiots in Sacramento” who know nothing about farming, he said.

“We’re definitely politically and economically a minority,” he said. “We have no muscle to flex.”

Experts say the Valley’s reliance on agriculture has a tendency to depress the economy. Last year the average Californian made $59,150 a year, according to the Bureau of Labor Statistics. The average wage for farmworkers was $26,240. A UC Davis study of 2016 pay data says average farmworker salaries were even lower, at $16,142.

Farmworkers suffer from low hourly wages and a shortage of full-time work. “It really is the inability to string together a lot of hours,” said Phil Martin, a UC Davis professor emeritus who’s studied farm labor issues. “That seasonality has long been an issue.”

An estimated 12.6 percent of Californians lived in poverty last year, according to U.S. Census data. The poverty rate was higher than California’s in every county in the Valley, and was nearly 20 percent or higher in five of the region’s eight counties. Tulare County had the highest percentage of its population in poverty in the Valley, at 22.3 percent.

The north end of the Valley, thanks in part to the spillover of Bay Area residents seeking a cheaper cost of living, has generally done better than the south Valley. The warehouse and logistics industries have boomed, led by five Amazon warehouses opened in recent years in San Joaquin and Stanislaus counties. Amazon also has opened a warehouse in Fresno, as did cosmetics company Ulta Beauty.

The south Valley is another story. Dependence on agriculture is higher; unemployment and poverty are more severe. To make matters worse, the groundwater shortages are far more acute in the south Valley, putting even more pressure on the region’s farm economy as the state law takes hold in the coming years, said economist Jeff Michael of the University of the Pacific.

The Valley suffers on multiple levels. Its pollution is so bad, it has its own page on the U.S. Environmental Protection Agency’s website, which says the region has “some of the nation’s worst air quality, high rates of childhood asthma, and contaminated drinking water.”

Thousands of Valley residents drink water tainted with arsenic, nitrates and other dangerous chemicals. The Legislature in July enacted SB 200 to dedicate $130 million a year on cleaning up contaminated water systems.

The help won’t come soon enough in places like Plainview, a small Tulare County farm community full of ramshackle homes. Some of Plainview’s groundwater contains unsafe levels of nitrates — largely the result of fertilizer use — and nearly one in five households has had to rely on bottled water for the past five years.

“We’ve got one well that’s good, and two that are not,” said Cruz Rivera, general manager of Plainview Mutual Water Co. Water is delivered in five-gallon jugs by Culligan, with costs covered by the state.

Rivera is hoping to secure $2 million from the state to drill a new well, but is afraid of being overlooked. “We’re a small, rural community,” he said. “We get forgotten.”

The Valley’s overall socioeconomic problems are getting more attention from Sacramento. The governor has made a point of pledging to help the region share in California’s prosperity. Discussing the state’s bullet-train project during his first state of the state address in February, Newsom described it as a long-overdue effort to boost the Valley’s fortunes.

“The people of the Central Valley ... have suffered too many years of neglect from policymakers here in Sacramento. They deserve better,” he said.

Yet the high-speed rail project so far has been less of an economic catalyst than a symbol of how difficult it is to bring change to the Valley.

Although it’s created thousands of construction jobs, the project is plagued with significant cost overruns and delays. It will be years before the initial segment, linking Merced with Bakersfield, is completed. What’s more, Newsom expressed doubt about whether the rail line will ever extend beyond the Valley and connect with the Bay Area and Southern California. That statement helped spark a funding dispute with the Trump administration, putting billions of federal dollars for the project at risk.

The suggestion that the rail line might be cut short didn’t go over well in the Valley, where high-speed rail was already viewed by many as an out-of-control boondoggle that devours farmland but will deliver few tangible benefits. Now even some of its supporters in the business community are beginning to have doubts about the project’s viability.

“The pessimists have overtaken the optimists in this area,” said Jim Ford, chief executive of Central Valley Community Bank in Fresno.

Is a recession coming?

It’s not as if the recovery has bypassed the Valley. The unemployment rate in the Visalia-Porterville area, for instance, has shrunk by more than half since the worst of the recession, from 19.2 percent to 9.2 percent.

But that still leaves a lot of catching-up to do.

The other day, Jesus Sandoval, 40, was leaving the Tulare County Employment Connection office in Visalia, clutching a flier for a job fair scheduled for the city’s convention center.

A former construction worker, these days he scratches out a living performing occasional farm labor and “selling stuff at swap meets” — old stereo equipment, clothing and whatever else he can find at yard sales. His wife, a restaurant worker, is the main breadwinne, but their income isn’t enough to buy a home even in Visalia, where the median home price is $236,000.

Sandoval’s goal? He’s trying to pull together some financial aid to go to trucking school. But he has no great expectations about Visalia climbing out of its economic rut overnight.

“It’s always been this way,” he said.

In mid-August economists began warning that a global slowdown could occur. Sung Won Sohn, an economic consultant in Southern California, pegged the possibility of a recession starting within a year at 35 percent.

The last recession was especially painful in the Valley. Several Valley cities experienced a surge in speculative housing development, and then a surge in foreclosures when the bubble burst.

Ford said it’s unlikely the next recession will be as bad; there’s been no major housing boom this time.

“We don’t see any big signs of excesses,” he said. “We don’t see real estate prices skyrocketing.”

On the other hand, the resounding economic recovery that much of California has enjoyed would have to be graded as “incomplete” when it comes to the Valley. Ford said that, despite “pockets of improvements,” the Valley is still struggling to create the manufacturing and high-tech jobs it needs.

One key problem is workforce. Employers from other regions say they’re reluctant to bring jobs to the Valley because “they have a hard time finding certain high-qualified or very high-tech types of individuals,” Ford said.

About 83 percent of Californians have at least a high school degree, according to census figures. In most Valley counties, graduation rates are about 5 to 10 percentage points lower.

In Merced County — site of the Valley’s only University of California campus — just 69 percent of residents have a high school diploma.

Opened in 2005 with billions of dollars in state support, UC Merced was touted as a means of raising the Valley’s educational profile. But the school started small and has built itself up gradually. It has graduated a total of 10,420 students, of whom 3,800 still live in the Valley, said university spokesman Kenneth Mashinchi.

“Changing the education levels of a population — that’s a long-term project, it takes generations,” said Michael, director of the University of the Pacific’s Center for Business Policy and Research. “The (Valley) is slowly improving education levels but it’s not closing the gap with other areas. That’s a large problem that stands in the way of building a more modern and diverse economy.”

Some Valley leaders had hoped UC Merced would do for the Valley what Stanford did for the Bay Area, generating a pipeline of inventions that would lead to a gusher of new industries. That hasn’t happened yet, either.

Last year patented technology from UC schools spawned 93 startup companies, according to data compiled by the UC Office of the President. The leader was UC San Diego, a powerhouse in biotech research, with 26 startups.

UC Merced was credited with one — a company called Eirene Technologies that’s developing systems for detecting security threats. The company’s chief executive has moved to the San Diego area but university officials say it could potentially employ workers in the Merced area.

Officials at UC Merced acknowledge that fostering more startup activity in the region has been a slow process. Peter Schuerman, associate vice chancellor for research and economic development, said the university has had to overcome an innate conservatism that can get in the way of risk taking. The Merced campus has created outreach programs to mentor potential entrepreneurs, and is housing dozens of promising businesses in an incubator it built in downtown Merced.

One resident of the incubator is developing a respirator system for premature infants. Another, Sweep Energy, which is developing a WiFi-based system for diagnosing problems with industrial equipment. Its founder, a UC Merced graduate, just hired six students from the campus.

“We’ve got a lot of seeds in the ground,” Schuerman said.

‘Trapped in systemic poverty’

Raquel Garcia — “Rocky” to her friends — survived a hardscrabble upbringing. She spent much of her childhood being shuffled between her parents in Fresno and Caruthers. She sometimes lived in a truck camper and, as a 17-year-old, went to work in a bar cleaning up broken bottles and worse.

A college dropout, she was struggling to save money, thinking she’d go to trade school and become an auto mechanic. Then she heard about Bitwise Industries and its ultra-trendy headquarters building, carved out of an old car dealership located near the auto-body shops, consignment stores and other businesses at the south end of downtown.

Though she barely knew how to operate a laptop, she enrolled in Bitwise’s software coding school and got through the program in 12 weeks. She then landed a job with a tech startup.

Then she hit a major bump. She worked for several months without pay at a struggling startup before finally returning to Bitwise in early 2018, this time as an employee. Now she’s a solutions architect at a Bitwise subsidiary. She works with clients, develops cost estimates for their projects and writes technical documents that spell out in detail what they need done.

“I never thought I could land a job or a career” without college, said Garcia, 26. “Here I am, I have a career in the tech industry.”

The leaders of Bitwise Industries have an almost evangelical zeal about trying to repair Fresno’s chronic economic problems — and overcoming its acceptance of failure.

“We have, for at least 40 years, been OK with the city trapped in systemic poverty,” Soberal said. “That gnawed at us.”

Bitwise is a three-headed economic development monster. It’s a software company, developing code on contract for government agencies and corporate clients. It’s a benevolent landlord, leasing space and providing utilities and other services to young companies in five buildings across central Fresno. And it’s an educator, providing software-code training through a program called Geekwise Academy.

Students pay $250 per six-week session, meeting two nights a week. Many get tuition assistance through grants Bitwise has secured from the state Department of Rehabilitation and philanthropies such as the James Irvine Foundation.

Soberal bristles at the suggestion that the Valley can’t produce tech workers. In six years, Geekwise Academy has trained 4,000 software coders. Roughly 1,000 of its graduates have found information technology jobs, some of them at Bitwise itself and many others in the Fresno area.

FRS_Groundwater_JakeSoberal01 (1).JPG
Jake Soberal is the CEO and co-founder of Bitwise Industries, a technology company that helps educate and enable innovation for high achievers in California’s Central Valley. CRAIG KOHLRUSS ckohlruss@fresnobee.com

“The average student walks in the door making $21,000 a year,” Soberal said. “They walk out making $60,000.”

Bitwise just secured a $27 million investment from a group of Silicon Valley venture capital firms. Some of the new money will be spent on an expansion planned for Bakersfield, where the company hopes to replicate “this eco-system that we’ve created” in Fresno, said Channelle Charest, Bitwise’s vice president for operations.

Carved out of a former car dealership near Fresno’s AAA ballpark, the main Bitwise building has a distinctly Silicon Valley vibe — lots of open spaces, conference rooms with walls that double as white boards, a kitchen and lounge area with a pool table.

On a recent afternoon, ten young coders were sitting around a conference table in a second-floor lobby area, working on a project for Salesforce, the San Francisco tech company. Bitwise co-founder Irma Olguin Jr.’s shih tzu mix, Bruce, scampered about, looking for treats.

Behind the feel-good vibe, however, lies a somewhat grim realization: Building a tech sector in the Valley is difficult. Even for an up-and-coming company like Bitwise.

The address alone is a handicap. Being from Fresno means Bitwise has to work harder to compete for business. Soberal said potential clients have to be sold on using a software company from the Valley.

“We’ve had to scratch and claw,” Soberal said. “There’s a higher degree of grit in getting over that threshold ... because we’re from Fresno.”

Dale Kasler covers climate change, the environment, economics and the convoluted world of California water. He also covers major enterprise stories for McClatchy’s Western newspapers. He joined The Bee in 1996 from the Des Moines Register and graduated from Northwestern University.
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