The cost of disaster: California is prepared, but concerns still exist.

DAN Sandel knows what it's like to have a business wiped out by a disaster.

In 1994, the Northridge quake flattened Sandel's building where his manufacturing company, Sandel Medical Industries LLC, assembles medical devices. Debris crushed much of the company's machinery and inventory.

To stay afloat, he had to lay off 160 workers and outsource contracts to other manufacturers. Trailers were rented so his remaining employees had a place to work. "The loss of jobs and frustration of operating from trailers was pure misery," he said.

Experiences like Sandel's are being repeated countless times in the wake of Hurricane Katrina and serve as a cautionary reminder of how a local economy can be dismantled by a natural or man-made disaster.

Along the Gulf Coast, thousands of businesses have been wiped out, with little or no hope of ever starting again. Those that do manage to reopen must regain their customer base as tens of thousands of residents have left--perhaps for good.

Disaster researchers say that California is better prepared than most states to deal with a major catastrophe. "California and Florida are probably the two premier states in emergency and disaster management," said Joanne Nigg, professor of sociology and a member of the Disaster Research Center at the University of Delaware. "They have professional skilled emergency managers at multiple levels of government and they've had lots of practice."

But there are numerous trouble spots.

The L.A. area has lagged in securing several terrorist targets, especially at the ports. Few plans exist to protect the coastline in unlikely event of a tsunami. And first responders from different agencies still cannot communicate with each other.

Apart from a major earthquake, a biological attack is likely to cause the most harm to the local economy. Germ warfare would create a major public health hazard and force massive evacuations or quarantines for weeks at a time. Other scenarios, such as a "dirty bomb" of radioactive material, might have a more localized effect, paralyzing the immediate area but not likely to cripple the county as a whole.

On the quake front, the state is behind on deadlines to ensure that all hospital and school buildings are seismically upgraded. The Northridge quake revealed flaws in joints that were used in steel-framed buildings and have not been addressed. And tens of thousands of "tilt-up" concrete buildings used in mini-malls and light manufacturing facilities face the risk of collapse.

'Dangerously naive'

There are also signs that businesses aren't prepared to deal with lengthy interruptions caused by a disaster. A study released last year by the Partnership for Public Warning and AT&T Corp. found that 35 percent of the 100 companies surveyed had no disaster preparedness or recovery plan in place. More than half of those surveyed had no backup systems in place to ensure operations following a disaster.

"A third of Los Angeles companies don't seem to think they're vulnerable," said Ken Allen, president of the Partnership for Public Warning. "That's a dangerously naive position to take, especially when you consider recent history."

One problem is in viewing the Northridge quake, which caused $15.9 billion in insured losses, as a baseline for disasters. It's now viewed contextually as a relatively small event and hardly in the same league as Katrina.

After Northridge, most businesses in L.A. County were able to reopen in two or three days. And thanks to a quirk in timing, the billions of dollars that flowed in from insurance payments and federal aid for rebuilding provided the necessary kick-start to an economy that had been flat on its back for three years.

L.A. may not be so lucky the next time. Disaster experts predict that the structural damage totals from a major quake striking the Los Angeles basin could equal or surpass Katrina's projected toll. In one scenario modeled earlier this year, a magnitude 7.5 quake on the Puente Hills fault underneath downtown L.A. would result in 18,000 deaths and direct damages exceeding $250 billion.

That doesn't include the tens of billions of dollars in broader economic damage that would result if much of the region was shut down for a week or more. Most businesses would have no power, fuel would be scarce and movement of goods would become more difficult, if not impossible, with freeways damaged and signals out on major surface streets.

"For every day L.A. County is essentially shut down, that's roughly $1.2 billion in economic activity that goes down the drain," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

Toxic clouds

If large numbers of houses were destroyed, insurance money might not cover rebuilding costs. Also, disaster experts and economists say that with median home prices now over $500,000, displaced residents might be forced to move outside the region. Owners of red-tagged homes with heavy mortgage debts could also be forced into foreclosure or bankruptcy.

With industrial space in equally short supply, companies forced out of their buildings would also have a tougher time finding new quarters.

"If there aren't many properties available now, then you're going to see a lot of small businesses not able to remain open," said Nigg. She noted that businesses that own their own damaged buildings would have to hold out for weeks or months until they could obtain SBA loans.

Besides leveling structures not damaged by the quake, the fires could ignite facilities with toxic chemicals prompting mass evacuations. "Dealing with toxic clouds carries a whole new level of risk and would be far more disruptive to the local economy," said Tom Larsen, senior vice president of Eqecat Inc., the disaster consulting subsidiary of ABS Group.

In a big quake, damage to roads and bridges and other key infrastructure components would likely be more widespread and it would take far longer for aid to flow in--as New Orleans showed, perhaps a week or even more.

"Caltrans has retrofitted most of the freeway overpasses, but they've never been tested in a major quake of more than 7.5 in magnitude," Nigg said. "We simply don't know how they will fare."

Banks would be closed. Automated teller machines and credit card machines wouldn't function, further hampering the ability of businesses and residents to get cash or process transactions.

Unlike Northridge, where most properties were rebuilt within five to seven years, many business owners might conclude that rebuilding in California is too expensive and risky.

"That would be a new choice point, whether to stay and rebuild or move elsewhere to a place that's cheaper," said Dan Blake, professor of economics at California State University at Northridge, which itself was largely rebuilt after the 1994 temblor.

If enough companies decide to pull up stakes, that would negate the positive impacts of rebuilding dollars and have long-term implications for jobs, the local tax base and the overall well-being of the economy.

But Kyser said that some of these companies eventually would return. "It's simply too big a market to ignore for very long," he said.

Sandel, who got back on his feet with the help of a $13 million loan from the Small Business Administration, has heeded the warnings. He said he's boosted his insurance coverage for his medical device company, rebuilt the company-owned building with the latest seismic upgrades, and runs periodic drills with his employees.

But he still wonders if he'll be left stranded by a botched government response. "When you see what happened with Katrina, you have to wonder what happened to all those resources," he said. "You need massive amounts of support to make it through something like that."

RELATED ARTICLE: In case of emergency.

D. Wayne Jeffries

Partner

Alschuler Grossman Stein & Kahan LLP 

I don't know that I am fully prepared. I would probably immediately check to see what the structural ability of my building is. Then I would check to see how I can help my co-workers get out safely. We have floor wardens for each floor so I guess they would appear and help. I believe our office has a plan in place for emergencies but I am not familiar with it. I just haven't looked. My wife and I live here and we have discussed a situation like this and decided to just call each other first.

Marcus Pardo

Vice President, Audio

AlphaDogs Inc.

ACTUALLY we just came up with an emergency plan since the power outage. Now we have some sort of plan. We found out that not all our emergency lighting is working, so we are getting that fixed. We had to actually tell the building to install some in the stairwells. I have not really discussed an emergency with my wife, since I haven't lived in an area like Northridge. We have all supplies in hand, like water and flashlights. We also made sure we have batteries. We even have transistor radios. Someone actually initiated the need for CPR in a safety class that we will take.

Jeff Schenkel

Director, Client Services

Uber Advertising and Public

Relations

WE are in a 1928 house in Upland converted to an office. We have evacuation and emergency plans in place and I am confident that the entire staff here understands the procedures. But you never really know until you are forced to implement them. Personally, my reaction at work will be the same as when I am at home--I will shut down the computer, grab important items and leave the building. This is where cell phones come in handy. I would communicate with my family once we are all safely in the parking lot. I'm probably as guilty as anyone else when it comes to organization.

Simon Jones 

Executive Director of Recruitment

Bench International

OUR company is very reliant on IT infrastructure so we have an extensive disaster recovery plan. I also have a personal plan for a disaster. As a longtime resident of Los Angeles, I've learned to be prepared for an earthquake. We also used to live in Kentucky so we had to be prepared for the threat of tornadoes. We have an emergency supply just in case, with water, extra clothes for the kids and us, food, a lantern, and a radio that can be solar-powered. We've had it for a long time but it's even more important when you have small children at home. We have two.

Wendell C. Salvador

Senior Associate

Rothenberg Sawasy Architects

THE first thing to do would be to contact my family and make sure they are all OK. I would probably stay and help injured people and do whatever needs to be done around me. I'll just stay here because that is probably the safest thing to do until we get directions from government agencies and the news. I would have the radio on all the time. To be honest, there is no general emergency procedure in the office that I know about, though everyone is talking about one after Katrina. Several people now have their own emergency kits.

Laura Kennedy

Vice President

Wirt Design Group Inc.

WE would make sure we all have each other's cell phone numbers and that we have one point of contact we can call. We also make sure we have plenty of water, that our medical supplies are up to date, and that there is enough to cover all of us. There are 15 people in our office. We are working with property management, which has never put anything out (for disaster preparedness). We are really working from the inside on this. I like to take a leadership role, so in a circumstance like that, I would be a voice to lead everyone to follow our plan. And we started a sign-in and sign-out area so we know who's actually here and who's not.

--Sarah Filus, Bonnie Lee, Aarthi Sivaraman

RELATED ARTICLE: Doing the math.

FIGURING out how much economic damage results from a major disaster is a tricky business, involving considerable guesswork.

First comes the calculation of how much direct or structural damage the disaster causes. In the case of a major earthquake striking downtown L.A., experts essentially superimpose the amount of shaking energy a quake creates on top of the types of buildings in a given area--often down to the ZIP code--as well as soil types. They then run the results through a computer program that estimates the structural damage totals.

"The calculations are fairly crude and we have not really nailed down the parameters for dealing with large events," said Tom Jordan, director of the Southern California Earthquake Center at the University of Southern California, which developed the model for a quake of up to 7.5 on the Puente Hills Fault beneath downtown L.A.

Once the amount of structural damage is determined, economists then try to gauge the indirect economic impacts: how long businesses are shut down, how difficult it is to move goods throughout the region and how many businesses fail.

While there might be immediate anecdotal reports, it takes months or even years for these impacts to show up in economic data. Local economists say they track several data points, including employment figures, personal income statistics, local sales tax data, business license fees, utility hookups, foreclosures, bankruptcies and even such indirect data as U-Haul moves.

"It's very hard to model this in advance, since each disaster has its own unique characteristics," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

As for the impact of shutting down the L.A. economy--$1.2 billion per day--Kyser said that's a guess derived from the county's total gross domestic product of roughly $400 billion per year and dividing it by the number of business days.

--Howard Fine

Staff reporter Andy Fixmer contributed to this story.

Business Interrupted

Among the problems that were faced by L.A.-area businesses
following the Northridge earthquake.

Employees unable to get to work                         57.5%
Damage to other properties held by business owner       49.2
Few or no customers                                     39.0
Unable to deliver products/services                     23.5
Unable to obtain materials/supplies                     16.3
Couldn't afford to pay employees                         7.7

Source: Disaster Research Center at the University of Delaware