Economic Outlook

Due to budget constraints, I was not able to attend the Annual International City Managers Conference this week. Luckily, the Ventura City Manager is there and was gracious enough to share one of the keynote addresses from one of the titans in the economic world, Dr. Alice Rivlin. I believe the theme of her speech is one to consider as we project our city budget fortunes into the future. Here's Rick Cole's post on her presentation:

"Positive, but disappointing growth for years to come"

Dr. Alice Rivlin was the last Director of Management and Budget to have balanced the Federal Budget, so her opinions come highly regarded. The former Vice Chair of the Federal Reserve spoke at this morning's general session of the ICMA conference here in Montreal.

She traced, with the benefits of hindsight, the now familiar sources of the global economic reckoning from outright greed and corruption to the larger problem of "overborrowing and overspending." On that foundation, she discounted the chances of a second dip ("possible, but not very likely") and inflation ("inflation happens when demand is high and the labor market is tight -- we should be so lucky.") But she ruefully acknowledged that "if I'm right, you are going to have continuing tough times" because the prospects are for "positive, but disappointing growth for several years to come."

"It's not going to be good for shopping centers, commercial property and new housing," she predicted, especially in regions (and at the edge of regions) where too much suburban sprawl occurred in the last boom. Consumers are simply tapped out and will need to pay down debt before they can resume spending.

To Rivlin, the greatest threats ahead are "looming Federal budget deficits" that are "the product of making too generous promises combined with uncontrolled per capita costs on medical care." This mismatch between our appetite and our ability to pay for it forces us to continue to borrow from other countries, particularly China and Japan. "We can't go on doing that," she noted dryly. "We're going to have to cut entitlement spending and raise taxes." Both are politically difficult, but necessary for the two parties to compromise on.

Turning attention to local government, she joked, "If you wanted an easy job, you wouldn't have gone into this line of work." Because local government revenues will recover even more slowly than the sluggish economy, there will continue to be a clash between citizen expectations and willingness to pay. The only bright side of this squeeze will be that it will be easier to win political backing for difficult, but overdue, efficiencies. There will simply be "no choice" about making even painful changes.

That certainly resonated with our challenges in Ventura. Having cut $11 million from this year's budget, we will either have to live with reduced services or pay more for years to come. The "recovery" predicted for the end of the year simply won't come strongly or quickly enough. "Living within your means" is not easy. But the alternative of "overborrowing" to finance "overspending" has been spectacularly discredited at both the Federal and State levels. We must and will take a different, more sustainable, route.

Locally, the University of Pacific released their latest economic forecast for the central valley. They forecast an end to the recession late this year, and believe unemployment rates will begin to drop off by the end of next year. Read more about the forecast here.