U.S. News

Schwarzenegger: California Fires to Hit Economy


Wildfires continued to burn out of control across Southern California for a third day on Tuesday as 500,000 people fled the San Diego area, and firefighters made a desperate stand to save a mountain town ringed by flames.

More than a dozen fires blazed from the horse country north of Los Angeles to the Mexican border 150 miles (240 km) to the south, torching 1,500 houses and other buildings, blotting out the sun with smoke and raining ash on the streets.
Most of the destroyed homes were in the San Diego area, where three major wildfires burned unchecked and half a million people were ordered to leave in what may be the largest U.S. evacuation since Hurricane Katrina hit the Gulf Coast in 2005.

At least five deaths were reported, three of them elderly evacuees from the San Diego area, and more than three dozen others had been injured, including 18 firefighters.

As the firestorms raged into the evening, Gov. Arnold Schwarzenegger asked President George W. Bush to upgrade California's wildfires to a "major disaster," which would trigger federal help.

Bush already issued a declaration of emergency early Tuesday. But Schwarzenegger told him in a new letter that "this disaster is of such severity and magnitude that effective response is beyond the capability of the state and local governments."

Schwarzenegger earlier told CNBC he foresees a "tremendous economic impact" from the damage inflicted by the wildfires.

Speaking to CNBC's Scott Cohn, the Republican leader estimated that damages and losses to businesses, homes and property, especially about the San Diego area, will likely amount to "hundreds of millions of dollars."

Schwarzenegger on Fires

But the governor reminds listeners that after the last great fire of 2003, "San Diego came back, in a big way."

Schwarzenegger described the huge effort being made by his administration to shelter the thousands of evacuees and furnish them with everything from baby food to ambulances, nurses and doctors.

He is maintaining a dialogue with Federal officials to reconnoiter "things we need from outside the state," such as tankers and heavy trucks.

The California Department of Forestry and Fire Protection offered its latest calculations of the property damage so far -- and the danger remaining:

  • 354,000 acres burned
  • 1224 homes destroyed
  • 102 commercial buildings destroyed
  • 71,000 homes threatened

Qualcomm: Situation 'Chaotic'

Meanwhile, the fires forced wireless technology and chip developer Qualcomm  to close the headquarters where the bulk of its 11,200 employees work, a spokeswoman said.

Chris Carlson

"It's quite chaotic, and we're all in the midst of it," spokeswoman Emily Kilpatrick said from her home. "Everyone is displaced."

She said the San Diego-based company, which developed the CDMA wireless technology widely used in the United States, also closed for several days in 2003 because of forest fires.

The corporate headquarters of Sony Electronics also was closed for the second day.

Sony Electronics, the largest division of Sony's U.S. subsidary, Sony Corporation of America, on Monday closed offices on its Rancho Bernardo campus, located north of downtown San Diego.

"The office is still closed," said spokeswoman Marcy Cohen. "As far as I understand, the buildings are not being threatened, but obviously things are in a touch-and-go situation, and could change at any moment."

Cohen said the roads near Sony's offices have reopened, but it is unclear when the company's approximately 2,000 employees will be able to return to work at that site.

As a precautionary step, Sony has shut down some of its servers at the Southern California site, but the company's email is still up and running, she said.

Insurers Braced

The fires shouldn't cause major losses to home insurers such as Allstate, Nationwide and State Farm, according to a report by Goldman Sachs analyst Thomas Cholnoky.

Southern California Inferno

"Over 900 properties have been destroyed and thousands of others remain threatened," said Neena Smith, catastrophe response analyst at Risk Management Solutions, a company that predicts insured losses.

Cholnoky said that while it was too early to assess insurer losses, it appeared that "non-traditional" companies and markets such as British-based Lloyd's might bear the brunt of the losses.

Lloyd's had no immediate comment. Neither did Nationwide . Allstate and State Farm could not be reached immediately for comment.

Eight of 10 property and casualty insurers' shares were down Tuesday, and the group is underperforming a rally in the other financials.

"Most of the more traditional writers (of home insurance) have explicitly avoided writing any exposures in 'brush' defined areas," Cholnoky said in a research note.

The exception could be where winds have driven fires from these outlying areas closer to San Diego, he said.

Cholnoky said the average cost of homes in the area was about $500,000, meaning that every 100 homes lost would generate $50 million in insurance losses.

Some 250,000 people have now been ordered to evacuate ahead of the flames.

Seven of the 10 most expensive wildfires in U.S. history, as defined by insurance losses, have occurred in California, according to the Insurance Information Institute, a group that provides industry statistics.

The largest, in Oakland and Alameda Counties in 1991, resulted in more than $2.5 billion in insured damages (in 2006 dollars).