Economist

Steve Peoples

Nov. 5, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- PROVIDENCE -- The end of the "Great Recession" is in sight, but economic recovery in Rhode Island will lag behind its New England neighbors and the rest of the nation in the coming months, according to Andres Carbacho-Burgos, an economist with Moody's Economy.com.

"Rhode Island, like the rest of the United States, is emerging from the Great Recession," he told a collection of the state's top budget officials Wednesday, describing the Ocean State's struggles as the "second-worst recession in Rhode Island history in terms of proportional job losses." Only 1991 was worse.

The rate of recovery, however, will be the slowest in the post-War era, Carbacho-Burgos said, suggesting that substantial job growth won't arrive until 2011 or 2012. And even then, Rhode Island's declining population probably won't grow substantially.

The negative outlook was not altogether unexpected, but indicates that state budget deficits -- and pressure on lawmakers to cut government programs and raise taxes -- will continue to grow.

"I'm waiting for some good news," said Rosemary Booth Gallogly, the governor's chief budget officer. "It's going to be a challenge, because obviously that will translate into a different revenue forecast when we meet next week."

Budget officials representing the state House of Representatives, Senate and the governor's office have been collecting economic data since Friday as part of the fall Revenue Estimating Conference. Next Tuesday, they will decide the size of the state's bank account for the current and coming fiscal year, which supports government programs such as health care for the elderly, state parks, public education, law enforcement and aid to cities and towns.

The health of the economy has a direct impact on the state's largest revenue streams: sales and income taxes.

The rate of layoffs in Rhode Island has subsided substantially since the spring, Carbacho-Burgos said, noting that new hiring "is still at a bottom" and likely won't pick up for another year or so.

Unemployment will peak at 13.8 percent in the second quarter of 2010, while the national rate will peak at just over 10 percent and the New England rate slightly below that, he said. Currently, Rhode Island has a jobless rate of 13 percent.

"It seems that we've hit a record every month," said Robert J. Langlais, assistant director of market information for the state Department of Labor and Training, who presented employment data following the economic forecast.

Indeed, 74,000 Rhode Islanders are out of work, a record high.

Langlais noted that thousands of residents are exhausting their unemployment insurance payments. Through September, 3,375 Rhode Islanders have used up their benefits, with 700 to 800 people joining them each month.

He predicts, however, that Congress will pass another extension that would provide 20 more weeks of unemployment insurance, bringing the total potential duration to 99 weeks.

Job losses, he explained, are not confined to one sector. Since January 2007, manufacturing is down 9,600 jobs (18.6 percent), construction is down 3,200 (15.6), professional and business services down 5,700 (10 percent), retail trade down 5,400 (10.4 percent), local government down 1,300 (3.5 percent), and state government down 1,400.

The only sector that showed job growth was educational services, which saw 800 new jobs, or 3.5 percent, since January 2007.

"It's not a lot, but it's the only positive gain we're showing," Langlais said.

The numbers would have been worse, according to Carbacho-Burgos, if not for the federal stimulus package. "We believe that has had a substantial effect," he said, noting that spending on public construction projects is likely to take off in the coming months.

He added that Rhode Island's population losses have largely leveled off, but growth will trail the national averages even after economic recovery begins "due to a number of circumstances: high sales-tax burden, high cost of living in general, low housing affordability, other demographic factors."

Already, interest groups have begun to frame the debate that will dominate Smith Hill in the coming legislative session: whether to close growing deficits by raising taxes or cutting spending.

"We've already been cutting, cutting, cutting," said one of the few people watching Wednesday's discussion, Russell Dannecker, fiscal policy analyst for the Poverty Institute at Rhode Island College. He cited a study by State Policy Reports that reports 29 states have proposed tax increases for the coming fiscal year.

Another audience member suggested a spending-side solution.

"We will not have the strong economy that generates the revenues to support government expenditures," said Suzanne Greschner, director of policy and research for the business-backed Rhode Island Public Expenditure Council. "There's some very, very slight optimism, but not until 2012."

Newstex ID: KRTB-0161-39481314