News

Economic recovery efforts already under way
By Dan Daly, Journal Staff Writer

RAPID CITY -- There was some good news for the Black Hills economy on Friday the 13th.

First of all, if the Pentagon does shut down Ellsworth Air Force Base, the Department of Defense will offer technical and financial assistance as the community makes the transition from military to civilian economy.

Second, local officials have a two-year head start: The Black Hills Vision program has been raising money and laying plans to create a technology corridor in the Black Hills. That shift in emphasis began two years ago, according to Mike Derby, president of Black Hills Vision.

And third, the Black Hills economy has, at least in recent years, been cooking right along - especially real estate.

In Rapid City, the loss of Ellsworth would indeed create a huge hole to fill. According to the Air Force's 2004 Economic Impact Analysis, Ellsworth provides about 5,500 military and civilian jobs and pumps about $278 million into the local economy. (Ellsworth's monthly job reports are lower, in part because they do not include Air Force personnel who are deployed overseas, temporarily assigned to schools or other bases or in transit between assignments.)

When military facilities close or downsize, the Defense Department has its own agency, the Office of Economic Adjustment, or OEA, that provides direct assistance and coordinates other federal programs as well. Its grants provide planning money and short-term assistance programs.

Gov. Mike Rounds met recently in Washington with OEA chief Patrick O'Brien. Rounds was told that the OEA is under-funded - O'Brien had requested a $70 million budget but received only $30 million - so the direct financial assistance could be limited.

Rounds assigned two people on own staff to work on the Ellsworth issue. One will be working to help persuade the BRAC Commission to remove Ellsworth from the list. At the same time, the other staffer will concentrate on finding ways to help the Rapid City economy recover if the base is closed. Also, he said, all state department heads have been asked to find ways to help fill the economic void.

The governor said OEA officials advised that his two-pronged approach - fighting the closure and planning for it at the same time - is the best strategy.

Meanwhile, at the local level, economic developers have been focusing on regional private-sector efforts such as the $3 million Black Hills Vision campaign.

That regional approach will become critical if Ellsworth closes, Jim Doolittle, executive director of Sturgis-based Black Hills Community Economic Development, said.

"Initiatives like Black Hills Vision are going to have more importance," Doolittle said Friday. "Regardless of what happens (at Ellsworth), we need to diversify the economy, and do it regionally."

The local real-estate market, meanwhile, has been strong for more than a decade. Home prices have been rising, builders have been busy and Pennington County's population has been growing by about 1,000 people a year.

Rapid City real-estate appraiser John Haeder has been doing real-estate appraisals in the area since 1978. He has seen the bad: the real-estate meltdown in Gillette, Wyo., during the oil bust of the late 1980s. And he has seen the good: a Rapid City market of the past 15 years. Rapid City had the size and momentum to pass unscathed through the early 1990s deactivation of the 44th Missile Wing.

So which will we see if Ellsworth closes?

"It depends a lot on whether they all pull out at once or if it's done gradually," Haeder said.

A lot also depends on the national economy. If Ellsworth shuts down during a recession, Haeder said, the Rapid City market could be in trouble. And if a private company finds a viable use for the base infrastructure, the market could recover more quickly.

By the Air Force's own estimates, nearly 1,800 active-duty Air Force personnel live off base. Although some are married couples or roommates, that is still a lot of housing units that could be added to the real-estate inventory.

At the end of March, 965 existing single-family homes, condominiums, townhouses and new-construction homes were for sale in the Rapid City area, Haeder said. If the Air Force personnel all move out at once, that could more than double for-sale housing inventory.

Historically, he said, home prices haven't fallen during spikes in the housing inventory. However, it did take much longer to sell a house than during a normal market.

"People don't want to lower their price a lot; they just don't get the property sold as quickly," Haeder said. "We'll absorb it (the extra Air Force inventory). It's just a matter of how much time it takes, when they move out and how the Air Force does it."

Haeder also said that Rapid City might have reached a point where economic momentum might pull it through.

All local real-estate markets tend to have a rhythmic rise and fall over the long term. Several years ago, he was researching the Sioux Falls real-estate market, which he believed was poised for a temporary dip.

The dip never came. Haeder believes that was because Sioux Falls had reached a population threshold that attracted the attention of big-box chains and other national retailers. Home Depot, Barnes & Noble, Kohl's, Olive Garden and other chains flocked to Sioux Falls.

That economic activity seemed to create its own momentum, driving population increases, new construction and rising home prices.

Rapid City in recent years also has attracted the national chains. Kohl's, Lowe's, Borders, Wal-Mart and other retailers have entered that market. Can that momentum pull the Black Hills through a shutdown of Ellsworth Air Force Base?

Only time will tell, Haeder said.

Contact Dan Daly at 394-8421 or at dan.daly@rapidcityjournal.com