It was very much a tale of two cities Friday when Bill Watkins of the UCSB Economic Forecast Project presented his San Luis Obispo County Economic Outlook for 2007.

The two cities are San Luis Obispo and Paso Robles. The contrasts between the two highlight why Watkins expects Paso Robles to become the largest city in the county by 2020 - or even sooner.

Paso Robles is growing in almost all areas of employment except manufacturing, which is falling nationwide, Watkins said.

San Luis Obispo, on the other hand, showed declines in virtually every employment category except service jobs over the past three years, he added.

Paso Robles' nominal median home price to date in 2006 is $452,283, second-lowest in the county behind Oceano ($409,993), while the median in San Luis Obispo is $655,323, third-highest behind the coastal communities of Pismo Beach ($800,793) and Cambria ($752,701).

But Watkins noted that much of what Paso Robles has going for it is the way it has handled its growth.

“Paso Robles, in my mind, is what can be done with growth if you're smart about it,” he told a nearly packed house at the Performing Arts Center at Cal Poly.

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“They have a good downtown that's complementary to the wine industry, and they've put the stuff you don't want to see south of town,” he said.

All that combined makes the city attractive to young families who are fleeing San Luis Obispo and other areas of the county, he said.

As a result, Paso Robles' population grew by almost 3.3 percent in 2005, while San Luis Obispo actually lost population - less than 200 people, but still a loss.

“If San Luis Obispo sees no population growth and Paso Robles grows at 3 percent, Paso Robles will be the county's largest city in 15 years,” he said.

“But if San Luis Obispo continues its population decline and Paso Robles grows at rates closer to historical rates, Paso Robles will be the county's largest city even sooner.”

Watkins also addressed San Luis Obispo County's economy as a whole, noting it is primarily a service economy, with

36.7 percent of jobs in the service industry.

As a result, getting the economy to grow will require a specialized approach.

He said service jobs are broken down into three types:

n “Tradable” jobs can be done anywhere for consumers who live anywhere - for example, writing software programs.

n “Nontradable” jobs are those that are site-specific, such as haircuts - the barber and his customer must be in the same location.

n “Quasitradable” jobs are like those involving Hearst Castle and Cal Poly, where people come to visit or get an education, then leave. Generally, the investment required makes adding or moving them prohibitive.

Economic growth in nontradable jobs requires either an increase in population or an increase in per capita spending on services, Watkins said.

And he noted that the trend in tradable jobs - title searches, accounting, legal and human resources, for example - has been to send them elsewhere.

So the key for an entrepreneur, he said, is to find a way to increase tradable services, such as filling a niche and drawing customers to it.

As an example, he cited Twin Cities Community Hospital, which is trying to make itself the place to go for hip replacement surgery.

Watkins said he couldn't advise anyone what sector to target, but savvy business people can find their niches.

“I have a huge amount of confidence in the entrepreneurs out there,” he said.

Mike Hodgson can be reached at 739-2221 or mhodgson@santa

mariatimes.com.

Nov. 18, 2006