Economic Sensitivity of Los Alamos County to LANL Funding

By LIVIU SIMIL and DAVE JONES

A famous Latin expression, some attributed to Julius Caesar “if you want peace, prepare for war,” which originally comes from “Epitoma Rei Militaris,” by Vegetius (Publius Flavius Vegetius Renatus). The Latin is “Igitur qui desiderat pacem, praeparet bellum,” and remains true more than ever for Los Alamos.

In modern terms it means “prepare for the worst and hope for the best … a common saying in emergency preparedness. One may ask oneself: “what are the bad events that Los Alamos residents might need to prepare for?” The answer is not simple because not only catastrophic singular events may concern its population, but also events moving slowly can, over a period of time, have even greater devastating effects/results.

From the catastrophes side, we have major threats including forest fires, tornadoes, that will be more frequent in the future, flash floods and earthquakes. From man made events, we see a potential in Los Alamos National Laboratory (LANL) of generating devastating events, by its potential for radiochemical contamination, that is minor compared to its potential total shut-down, partial shut down, which was avoided in the last moment during the last government shut down, or a longer term smooth but certain reduction.

Fig. 1 Evolution of Financial data for LANL and New Mexico

Using http://www.lasg.org/LANLecon_impact.pdf data that was covering the period 1940 to 2004 and updating for 2013 with web available information we have learned that LANL’s spending (continuous red line) grew until year 2000 and maintained a steady level of about $2.1 billion until 2010, where it started to decay. In the same period the New Mexico per capita (blue continuous line) is in continuous decay in real terms except for a time interval from 1940-1960 when it remained almost steady. The alarming trend is that of the inflation (pink dashed line) that accumulated at about 300 percent since 1940s and has an annual rate tendency higher than 5 percent, turning the funding trend negative in real terms. In the actual financial environment with the actual LANL’s practices and developments one may see very little chances for LANL’s funding growth in real terms, therefore some preparedness might be welcome.

* We disagree with lasg.org’s author conclusion that the association with the nuclear weapons was bad for New Mexico. Nuclear complex in fact is injecting about $1 billion per year, in jobs in New Mexico, but the education level of the population was incompatible, and the national Laboratories needed to bring people from the entire planet to match their scientific needs. As a result, several very civilized communities like Los Alamos enclave, high hills Albuquerque community, bear Sandia mountains, and few others near military bases and other DOE’s operations have been developed that absorbed more than 1/3 of the spending with workforce.

The rest of 2/3 have been spread in autochthon communities contributing to their welfare. If their data is right, that is another more alarming signal that something else more profound and bad happens in the NM economy that makes its welfare fall so low, and which without the government capital infusion will be even lower. One have also to consider that the government employment represents less than 10% of the population, and other branches of economy have to be developed, in order to assure a sustainability. It has also to worry us, that in case of reduction of government funding that is the equilibrium level the communities will trend to reach as a new economic equilibrium level.

These last cases are our concern because the Los Alamos community is so unprepared to face this. In fact the County was created and developed as a dormitory annex of LANL, and is ruled and developed following the idea that it has to be a good dormitory for LANL, and nothing more. In this respect it will follow smoothly LANL’s development, having implemented in its leadership most of the good and bad leadership habits of LANL such as lack of transparency of its actions, lack of long term planning, exhaustive boards of directors, expensive consulting followed by nothing, etc.

Over time, Los Alamos village, by European standards, called town by US habits, has become home of four categories of people:

  • LANL employees, that are a migratory population;
  • LANL and other retirees, that discovered the unique advantages of living in such a community;
  • People serving the above population mainly grouped under LAC services; and a
  • Very little stand-alone population of independent small business owners, some times confounded by implants and subsidiaries of other big businesses from remote universities (UNM alone has a budget of 2.4 billion for 2013), and other big businesses fighting for the same chunk of money, mainly coming from the government.

LANL, similar to living beings, is an over mature structure, following its downhill path that started more than 10 years ago, first in sync with the US economy, and more recently on its own, having periodic budget cuts. Now its budget is smaller than UNM’s, and there are very few chances for growth, and this is the biggest and primary threat.
Now, for all the residents, the main question remains: “What Los Alamos do we want to see in the future?” A good dormitory in harmony with the LANL’s smaller needs, or a self-sustained town maintaining the unique features implanted by the LANL dormitory, during its period of glory, that made it one of the best communities in US.

We will cite here a very profound question, that some time ago George Cowan asked, but is good for anyone to think about and answer: “What does Los Alamos mean to you and why do you want to get involved to help this community?” Those for which Los Alamos is just a bed and food, and for those serving only these people may pass this question, and stay asleep, with nice dreams about a prosperous future, under a perpetual blue sky.

The rest have to think seriously about this. The recent threat of a Kabuki style government shut down has to be a wake up call because, if an agreement had not been reached, LANL might have had to reduce its operations and that might have affected at least 50 percent of its employees. About 5000 people might have had their income reduced to 50 percent for October, and another 20 percent for November, not mentioning contractors who had been already cut. That would have meant 60 percent pseudo-unemployment in the County.

The present material was accelerated by the course of events everyone may consider unbiased by direct observations as weather aggression:

Fire: Year 2000 a big fire that shocked the community, followed by another fire in 2012 when the community was LUCKY that it had the 2000 fire, because that one was by a factor of 10 faster than the previous one.
Rain: The biggest rain in 2013 with a lot of flooding damage.
Storm: The biggest windblast in 2013 that took the roof off of one school.
Economic: The biggest fund cuts in LANL’s history followed by “voluntary separations.”
Inflation: More than 200 percent at daily basket since 2000, just compare grocery monthly expenses, or the cost of a dozen eggs.
Political: The government shutdown, and sequestration, on the background of the lack of budget on time and continuous run on continuous resolution.

These papers are not meant to scare, they are a plea for preparedness, and they represent a very small part of what the community and any community leader, who cares about the future, has to do in order to make the Los Alamos community stronger and more secure, using the unique local talents available to us.

Business: Lots of High-Tech companies disappeared or are simply in shadows in Los Alamos, while some business people with experience are regrouping and planning to sell cheap real estate in Los Alamos to other out of state, reach people in a moment of fluctuation when a good profit margin may be obtained.
National level: High financial debt, and unbalanced government spending, that will trigger many future debates over the fund cuts, where military and DOE spending rank among the first.

We took these data and made a scenario to see how this change in welfare might affect Los Alamos and its people.

Fig. 1 – Variation of income distribution curve after one month, from a 50 percent LANL cut

In the curve we projected a more drastic reduction of the middle incomes, because the people with critical national security functions are a little bit better paid. The reduction in the number of people is due to the fact that all the employees able to find work elsewhere will leave the town and a 20 percent reduction in population is expected to occur within six months. Unfortunately these are the most creative people.

The reduction in population would affect the landlords, who might encounter delinquent payments, renegotiation of the rent, dissatisfaction and complaints, etc. Immediately all the retail businesses would, likewise, be severely effected.

Disclaimer: When these evaluations were made, we simply ignored the curve of New Mexico per capita evolution, because we considered that the Los Alamos town is insulated in mountains here and will take a while until it fills with the pressure of the surrounding communities’ poverty and follows the decay path toward equilibrium. A longer-term prediction may have many errors, because of the people initiatives.

Fig. 2 The variation of the house value due to income reduction and vacancies

The number of houses remains the same, or slightly reduced, with many of them being empty houses, for rent or sale. Almost no selling might take place, and the value of the investments in the County would drop dramatically. The tax on houses would have to drop and the County budget would not be able to maintain the infrastructure. The number of city employees would also have to drop, and so the County services would have to drop, resulting in resident dissatisfaction. At this point the community would be on the brink of a profound irreversible transformation.

The data below shows that the average value of a house in Los Alamos is between $250,000-300,000, significantly higher than the New Mexico average value, due to better quality and functionality but mainly due to its location in Los Alamos. A failure in housing value would also affect the maintenance jobs in plumbing, roofing, appliance repair, lawn mowing and home improvement such as carpeting, reducing their income by more than 50 percent. These jobs are among the first hit by the housing crisis because the lack of need for further development will make the demand for these jobs be affected first. Without an appropriate maintenance the buildings will degrade, fail in price and will have to be demolished to make the price of terrain grow back. In many cases this variation will make no economic sense and “do nothing” will prove to be the best bad option.

Fig. 3 Home sales in Los Alamos and New Mexico

Fig. 3 presents a very grim picture of the real estate business in Los Alamos, which has a high sensitivity to the LANL budget, and is likely prone to fall by 90 percent in total value, because of the doubling effect of reducing the average value of the houses sold and because the demand would be much lower. Many people who have expensive houses would try to sell their houses and get a loan from the bank to buy a cheaper house, and the banks will end up owning that house through the foreclosure process. Not only the real estate business would be affected by this, and it is important to see how the statistics might look after such an event.

Presently the statistics show that:

  • Median household income significantly above state average;
  • Median house value above state average;
  • Unemployed percentage below state average;
  • Black race population percentage below state average;
  • Hispanic race population percentage significantly below state average;
  • Foreign-born population percentage significantly above state average (0.49 percent of residents moved from foreign countries); and
  • Percentage of population with a bachelor’s degree or higher significantly above state average.

Now as in 1940, the biggest advantage of LANL was isolation in the “land of nowhere,” for the processing of high hazard strategic materials related to the nuclear stockpile. The other technologies LANL has developed in science, space, biotechnologies, electronics, etc. face harsh competition from other research units in the US and LANL is not the leader in these areas. In this case, a LANL impact, similar with what happened in the government shutdown, when all activities not of strategic importance might be shutdown, there would be a significant impact for the entire county and region.

Table 1 – Variation in professional composition of the county

Table 1 shows what might happened if the new elected Congress votes to further reduce the DOE footpring, eliminating all non-competitive science and all non strategic importance jobs. That will generate some instability inside LANL, an active debate on what national security means, some sudden transfers, but finally the reduction of the jobs will have no sex-based difference. Finally the reduction in population will maintain the initial sex ratio. Of LANL’s total personnel, the non-strategically important workforce is about 50 percent, and that may be reduced. If a more drastic reduction than that would be required, that would be done by transferring the younger population and retiring the older ones, and would take more than five years, following a similar path as the Rocky Flats shut down. The table is an estimation for just a 50 percent reduction of Los Alamos Operations, at which point LANL becomes a plutonium trigger factory with some stockpile stewardship duties. This may happen within 2-5 years of a DOE decision, backed by the house, or in about 15 years by gradual reduction, that may be unavoidable if LANL maintains its research portfolio, and the US evolution is determined by its debt.

Table 2 – Financial organizations – Banks with branches in Los Alamos (2011 data)

The banks will be affected in a more complex manner by such an incident because they hold loans for some houses and the foreclosure procedure, unusual in Los Alamos, might become a common practice, and they would suffer some losses. More of the population will start withdrawing their deposits, some for daily necessities, but most of them to move away and buy new homes. The lending process would become more complex in a very volatile situation. Most of the approximately 500 foreigners present in Los Alamos would leave for other destinations, contributing to the population drop, by more than 2000 people.

Table 3: Example of a few businesses that opened branches in Los Alamos

Many of the retail businesses, which are of major importance to the well being of the County, would be affected negatively. Number of grocery stores: two that might reduce to one with competition, off the hill, providing lower cost food. Number of convenience stores (with gas): five, they might shrink to four or have fewer employees, and mainly sell gas.
Number of full-service restaurants: 17, and their number would shrink to 10 or less, due to the fact that the people would opt for saving money instead of eating at their places.

In spite the at the robustness study the community of Los Alamos seems to fail by only 30 percent at a LANL failure of 50 percent the consequences are more complicated, because for some business a 10 percent variation may make a dramatic difference. The community would be affected in a different manner, but the general evolution trend would be towards the average New Mexico communities, and many exceptional features would be lost.

One thing is outstanding in the County and this is the rate of inventions. For a population representing 0.5 percent of the New Mexico population, a total of 484 patent applications were registered from 2008-2013, while all of New Mexico contributed with less than 2,500 patents in this period. Los Alamos represented 20 percent of all of the New Mexico patents.

Top Patent Applicants:

  • Quanxi Jia (25)
  • Pierre-Yves Le Bas (13)
  • Dipen N. Sinha (22)
  • Benjamin P. Warner (10)
  • Gregory Kaduchak (19)
  • Yu Seung Kim (9)
  • Michael D. Ward (16)
  • David L. Thorn (9)
  • Anthony K. Burrell (15)
  • Los Alamos National Security, Llc (9)

Some of the listed inventors are no longer New Mexico residents because they had to leave in order to pursue financial benefit from their patents.

The situation is grim and this situation of a government shutdown could repeat at any time. The next probable time is at the end of this year, which could be accompanied by a US default and global implications on the world economy. An even higher probability would be the possibility of a total closure of LANL, in a DOE effort to reduce its footprint, and passing of all LANL activities to other nuclear laboratories and nuclear plants. It has to be clear for all County residents that the main reason Los Alamos was chosen to host LANL was because the people in command in Washington and New York were afraid of nuclear accident consequences, and a way to limit the losses was to place it in no-where land. Isolation was the greatest quality Los Alamos had to offer, to develop a scary technology, but the times have changed, and it will be harder and harder to argue for the “strategic” importance of Los Alamos, in the future.

Even more dangerous is the gradual shrinking of LANL’s core activities, pushing it into domains where LANL has no excellence and allowing for easy failing under competition. This is taking place under our noses and we are slow to recognize it for what it is. Some of our leaders are still dreaming that a big parking building is what the town needs to assure its economic development. Other leaders responsible for the so called small business development, an organization teaching local inventors “how to shoot elephants in Alaska”, are saying that some hundred other businesses are ready to come into the town, if it will be for free.

The smooth, slow movements in a familiar way are hard for many people to perceive as threats because these are mainly accompanied by the statistical fluctuation that puzzles them, making it easy to ignore the core events.

In our approach we see only a single solution – to develop a community owned infrastructure, with community money, to stimulate and develop inventions of the local inventor, to promote them to national and international markets, and to be part of the team, sharing the profits. There were many attempts to achieve this development in so-called business incubators, Hives, technical ventures initiatives, but most of them failed.

Even the most successful ones one may mention is very hard to consider them successes in real terms, because they are promoted by entities running budgets in billions, and their business development efficiency is less than 1 percent. We have learned these lessons, and we can say that if this approach is not achievable in a community such as Los Alamos, it is not possible anywhere in the US and the US is doomed. It will not find the right resources in real time to prevail in the new global economy.

As a disclaimer, I want to mention, that the sensitivity numbers used in this paper represent our best educated guess, made using common sense. Of course not all may prove true, but also based on common sense we estimate accuracy better than 20 percent. We want to encourage readers to put in their own numbers, based on their judgment and send them to us by e-mail so we might succeed in making a better prediction based on collective guess statistics.

Based on the lessons learned, we propose that Los Alamos County use tax money to fund the economic development of the County, in a similar manner as when they were willing to add a tax levy for UNM, which is a privately own corporation, with a budget higher than LANL. This community enterprise, based on clear and fare rules of participation into invention and profit sharing is the unique alternative that may create the necessary trust and involvement of our inventors, and create the conditions that would help the developed business stay in Los Alamos.

This local community participation is different from private funding, community government funding being an enterprise lead by elected local members and acting for the good and welfare of the community and its inventors. An important part of our observations and lessons learned was published in the Los Alamos Daily Post entitled “A Novel Economic Development Model” (http://www.ladailypost.com/content/column-novel-economic-development-model) and we encourage readers to put together these publications, and think of how we might better organize this effort to make the town independent of LANL’s fluctuations, and by its parallel development, make the town an attractive place to live and raise children for LANL’s future of highly qualified employees.

Fig. 4 – Potential financial data evolution

Based on our studies previously published in part and lessons learned, we can make the following scenario for a serious investment in Idea to Business (I2B) acceleration, via a LAC funded operation, and performed by the organizations of the people of Los Alamos, under members control, that act for community benefit. In the previous material published in the Los Alamos Daily Post, we presented the funding threshold limit that we suggest, that makes the difference between failure and success. We have used this value, supposing that the County will invest it in an I2B sustained operation, and we have predicted a three to four year period of return on investment.

That means that the community has to accept the idea of losing $10 million per year for a four year period, in the worse case scenario. It also means that, through the new organizations the community will develop, it will have permanent control over the operations; by Los Alamos residents expressed via a direct or indirect vote. This is needed because past experience shows that private “nonprofit” organizations, with anonymous owners and founders with the only declared goal “the prosperity of local people” that sounds so strange in the context of the actual economic manners, do not find the necessary trust from the smart people of Los Alamos, who see in their names and actions just big words. The people of Los Alamos are world-class
scientists, and by this I mean that they are smart enough, not to be lured by the name or sight of a company, and look for more before sharing proprietary knowledge with them.

For this scenario we suppose that a 5 percent annual decay rate in LANL’s operations might happen, and that is based on the inflation rate and small decrease in funding. We believe that it is possible that LAC would see a profit from the I2B operation after three years, and the new business development would bring more prosperity to the community. As an effect, the population will grow and the service community will grow, allowing for improving the schools and culture. This will create synergy for LANL that will find an attractive community for its new highly qualified employees, and a place able to effectively develop spin-offs from LANL. Contrary to the previous data presented in Fig. 1, in this case the prosperity in LAC will positively influence our neighbors, increasing their standard of living. In this scenario, in spite of the possibility of LANL having a 25 percent reduction in operations and funding by 2020, the community would have minimized the negative impact.

The decay curve might be wrong, because it does not consider the statistical fluctuation, and the political fluctuation in power, but no matter who will come into power, from the two main parties, and without a major international turmoil with nuclear connotations, the investments in nuclear weaponry will not increase. The decay value of 5 percent per year, may be considered optimistic, because it barely covers the predicted inflation rate. The best case scenario, will be to remain at the actual funding levels for another few years, giving enough time to the LANL management to become aware and do a smart reaction, developing other nuclear programs, other aspects of nuclear power, where LANL is competitive, and might drive to outstanding results.

From the timing point of view, this information probably comes very early for many who are convinced that LANL will continue forever, and who probably do not want to hear and consider this very probable path, that might become more visible in the next few years. But now is the best time to start an undertaking of this magnitude, that will require several years to mature, and not after the event already occurs, because now we have all the resources in place and enough time to act, so when the time comes, we will be prepared.

The paradox of this is that if we act now, the events described here might never occur, because such an action of strengthening the town’s business will implicitly strengthen LANL, creating a buffer of people and resources, and a more attractive place for world class scientists to come and live. To accomplish this, large community involvement is needed, so any participation is welcomed. Our suggestion is for County Council members to break the tradition of paying for outside “expert” studies and to organize an open debate with the people of Los Alamos, in order to map their ideas on how they foresee a self sustainable development and what they propose to be done in order to be successful.

These papers are not meant to scare, they are a plea for preparedness, and they represent a very small part of what the community and any community leader, who cares about the future, has to do in order to make the Los Alamos community stronger and more secure, using the unique local talents available to us.

Editor’s note: Dr. Liviu Popa-Simil is a U.S. citizen born in Romania and president of LAVM LLC, a private research company in nuclear applications, THz imaging, security and computers. Dave Jones is the founder of several businesses and steward of the Hive. Direct comments and questions to liviu_popasimil@yahoo.com.

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