The Gainesville area's economy has continued to grow in the face of poor national conditions, but a perpetually tight labor market and a work force that lacks diversity could create problems for the region's future fiscal health.

An employment base that relies heavily on government jobs has actually protected Gainesville from the country's recent economic woes -- but at the same time, it may be a hindrance if a prolonged fiscal downturn puts a dent in municipal tax revenues, according to a study by Economy.com, a Pennsylvania-based economic research firm.

Gainesville's reliance on government jobs has protected the city from economic woes.

Alachua County's lower-than-average unemployment rates and sluggish population growth could alsodiscourage businesses from moving to the area, said David Givens, an associate economist with Economy.com and author of Gainesville's report.

"Population growth has slowed in the Gainesville area, and that certainly weighs on the labor force growth," Givens said. "A tight labor market might be good for workers, but it's very bad for companies that may want to locate there. That could be a constraint in the future."

The study, commissioned by The New York Times Co., paints a favorable picture for some sectors of the Gainesville area's economy. Its work force is better educated than most -- while 20 percent of U.S. residents have at least a bachelor's degree, 35 percent of Gainesville residents do -- and business costs, such as taxes and employee wages, are lower than the national averages. Both factors are seen as attractive to potential commercial developers.

To arrive at its calculations, Economy.com used figures from the U.S. Bureau of Labor Statistics and Bureau of the Census. The New York Times Co. for several years has commissioned similar studies in metropolitan regions where it has holdings; locally, the company owns The Gainesville Sun.

Based on the study's statistical projections, overall growth -- which includes personal income levels, housing construction and other areas -- in Gainesville/Alachua County will continue from 2001 to 2006, but at a slower rate than the previous five years.

Alachua County's population of 218,000 last year should increase slightly to 221,700 by the end of 2001, the study said. And that slight increase should be the norm for the next five years, as the county's population is expected to go up less than 2 percent each year.

As the baby boomer generation -- those born between 1946 and 1964 -- approaches retirement age, more people are expected to move to Florida. That pattern won't affect the Gainesville area as much, the study said, due to the region's cooler climate and large student population.

Housing situation
Although the demand for rental property will remain strong, the lower population growth rate should impact new home construction. Housing permits in Alachua County totaled 2,728 in 1999 and dropped sharply to 1,973 last year, but were expected to rebound to 2,523 in 2001.

During the next five years, permits should drop to an annual rate of about 1,800 based on population projections, the study said.

For now, housing sales remain strong in the Gainesville area, said Carolyn Quinones, a broker associate with Century 21 Classic Properties in Gainesville.

"Gainesville's real estate market has a cycle," Quinones said. "It's very strong from April to August, and then drops slightly for the rest of the year. It has a lot to do with the transient nature of the community. You have a lot of people coming in to do work in the hospitals or to finish their doctorates."

The interior regions of Gainesville have "filled up nicely" in recent years, Quinones said, as older condominiums and houses have had very favorable resale values.

The city and its surrounding communities should retain a very affordable living environment in the coming years, the study said. Based on recent figures, Gainesville's median home price of $109,000 is about 25 percent less than the U.S. average and 15 percent below Florida's average.

Government workers
As has been reported in previous economic studies on Gainesville, the region has a high concentration of government employees. Traditionally, the public sector can better withstand fluctuations in the economy and rarely resorts to layoffs in response to changes in the market.

It has been a blessing and a crutch for Alachua County, as the region's unemployment rate was the lowest in the state for all of 2000 and lately remains around 2.7 percent.

The low jobless rate and slow population growth may discourage businesses.

Still, government jobs don't encourage as much financial growth as higher-paying private sector positions, and the county is at risk for being over-reliant on municipal jobs, the study said.

The ratio of government jobs has improved in recent years, thanks to expansion in the service sector, particularly health care. Currently, non-farming, municipal jobs account for roughly 33 percent of the work force, compared to nearly 50 percent in the mid-1970s, according to Economy.com's report.

Perhaps more notable is that for the past 20 years, Alachua County's unemployment rate has been an average of 2.6 percentage points below the national rate, the study said. Combined with a slow growth rate in population, that could translate into a paucity of available workers here in the near future.

"When firms do a screening of a potential location, the unemployment rate is one of the criteria," said David Denslow, an economist at the University of Florida. "Gainesville's jobless rate can be considered a problem. If that is the case, then we should be talking more about the area's low business costs and excellent resources, and then it becomes more attractive for new businesses."

Biotechnology boost
Researchers at Economy. com, as well as others in the Gainesville community, agree that one particular field bears close attention as a catalyst for the region's future growth. Biotechnology companies are slowly emerging and gaining recognition, as several million dollars have been invested in a number of firms located at the Sid Martin Biotechnology Development Institute in Alachua.

The institute, started in 1996 by UF's biotechnology department, could produce some of the region's top employers in the future, as long as venture capitalists and other investors continue to pump money into the local companies.

"You have a lot of companies spinning off of the university," said Givens of Economy.com. "That's the way a lot of tech industries have developed in larger metro areas. They start with a good research program, and soon you have professors getting patents for technology."

One of those companies, Nanosphere Inc., is close to obtaining a "good manufacturing practices" certification from the federal Food and Drug Administration. The designation would give Nanosphere the all-important approval to conduct human trials for its products, and if those are successful, the company could snare several potential suitors in the pharmaceutical industry.

The company already lists drugmaker Glaxo-Wellcome and NASA's Johnson Space Center in Houston as investors.

A new procedure
Nanosphere, which started its research in the Sid Martin building in January 2000, is developing a new way to coat drugs used in inhaling procedures, such as asthma medication. By changing the coating of a medication, it can better control the drug's release into the patient's bloodstream and reduce the number of doses needed throughout the day.

Company President and Chief Executive Officer James Talton has a doctorate degree in pharmaceutics from UF. Talton said Nanosphere is in preliminary licensing discussions with two drugmakers, who he declined to identify, regarding the company's products for inhaling formulation and nasal formulation.

"We just received a grant from NIH (National Institutes of Health), and we're slowly trying to get more funding," Talton said. "Once we get certification from the FDA, we would like to start the human clinical trials just after the New Year."

Sheldon Schuster, director of UF's biotechnology program, predicts that the industry should be a major employer in Alachua County within five years. Schuster cited three unidentified companies that currently occupy space at the Sid Martin institute that are on the verge of building their own facilities and expanding operations.

"When we opened the Sid Martin facility nearly six years ago, none of us knew what to expect," Schuster said. "I've seen the most growth in the past year, and I think the industry is just now hitting the explosive phase. The best part is, we didn't have to recruit these companies. We grew them right here."

Joe Coombs can be reached at 338-3102 or joe.coombs@gainesvillesun.com.

See July 22, 2001, issue of Gainesville Sun for original article.