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Oregon budget guru dusts off crystal ball
(Oregonian (Portland, OR) (KRT) Via Thomson Dialog NewsEdge) Dec. 30--During the dot-com boom and bust -- and the drawn-out recession that followed -- Tom Potiowsky sat in the hot seat as Oregon's chief economic and budget revenue forecaster.
Now, with the possibility of another recession stirring fears, Potiowsky returns to the hot seat in January, after spending the past 15 months teaching at Portland State University.
As state economist, he'll oversee the analysis of economic trends in Oregon and direct forecasting for tax revenue and budget planning. Last week, Potiowsky shared his views on what the future has in store.
QUESTION: State economist can be a thankless job when you are the bearer of bad news. Why are you going back?
ANSWER: It can at times be a very thankless job. On the other hand, it is a very important job to give the best look at what's happening in the Oregon economy, what's happening to state general fund tax revenues coming in the door. Legislators and the governor have to plan for the future. You've got to give them your best guess what that future is going to look like so they can spend accordingly.
Q. Is forecasting more fun during economic boom times or during downturns?
A. I haven't had that much experience of the boom times. But, yes, upturns allow you to pursue bigger, longer-term forecasting goals and projects -- better than if you are constantly having to put out a fire, which tends to happen during the downturns.
During the last recession, however, we really revamped a lot of the forecasting, and it was because of the extreme situation. It just slaps you in the face. So we made a lot of changes that allowed us to use information more quickly, so that without having to wait till the train runs you over, you can decide you have a dangerous railroad crossing.
Q. What is the most common misconception people have about the state economist's job?
A. People often think that we decide what the budget is going to be. We don't.
The revenue forecast released during the legislative session in a sense sets a ceiling as to how much can be spent. But legislators don't have to spend all that. Legislators can decide to spend less. And we don't make decisions on where that money goes. That's a complete legislative decision, as it should be.
Q. Recession is on the minds of many at the moment. What are the most telling indicators that can provide insights on what the future holds?
A. Recession is an overall downturn across industries. So if you have one industry that's in trouble -- say, like the housing industry -- you need to know to what extent that is spilling over into other industries.
One indicator we should look at very closely now is financial markets. A true credit crunch is when even creditworthy entities are having difficulty getting loans or have to pay much higher interest to do so. There is an important difference between that and banks tightening up on credit standards. If you are creditworthy, you can still get a loan. A credit crunch is when ability to extend loans has been curtailed across the board. And I haven't seen that yet.
I emphasize the word yet. The risk is higher today than it was before.
Q. Do you think home prices are going to actually lose value this year?
A. I would not be surprised if in 2008 we see a couple of year-over-year, negative single-digit declines in this area.
But if you bought a few years ago, that should be only one tear that drops in your beer; you won't be crying in your beer.
Those that just bought, yes, you're going to be a little more upset. You could be crying if you have a subprime mortgage and are betting your appreciation will continue to go up and now your balloon payments are coming due.
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Copyright (c) 2007, The Oregonian, Portland, Ore.
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