A chat with the smartest guy not in the room

Posted Wednesday, May 4, 2011 in News

A chat with the smartest guy not in the room

Charles Colgan, Muskie School of Public Service.

by Gina Hamilton

AUGUSTA – On Union Street, within view of the Statehouse and Capitol Park, there is a quiet little building that seems to work hard to blend into its surroundings.  It doesn’t have the air of politics or bureaucracy.  And yet, in this building, some of the most important work the state can do gets done.

It is the home to the State Planning Office (SPO).  Governor Paul LePage had on more than one occasion called for its abolishment, but apparently has had a recent change of heart, appointing Darryl Brown to be its head.

Many agencies exist within the Office dealing with state land issues, economic development, working waterfront, and other concerns vital to a state like Maine. It is also the home of many commissions.

One of the most important commissions in the state is the Consensus Economic Forecasting Commission (CEFC), which was created in 1990 after a fairly disastrous projection that reflected the 1980s boom, and didn’t see the 90-91 recession coming.

After both sides of the aisle finished beating each other up, it was agreed to create CEFC to reform the process of revenue forecasting.  It is charged with coming up with a forecast of Maine’s economy.  The commission is not advisory; its figures must be followed by the entire state, practically.  First, the Revenue Forecasting Commission (also housed in the SPO), must use the CEFC numbers to formulate their projections for tax and bond money coming into the state, and then the administration and the legislature must use both sets of numbers to craft a budget.  The era of wishful thinking around the issue of the budget ended with the creation of the CEFC.

In an interview with Charles Colgan, who had served on the Commission since its origination, he said that the CEFC has had a pretty good track record in forecasting the way that Maine’s economy trends.  He acknowledged that the depth of the 2008 recession caught them all by surprise.  “However, we got it a little less wrong than most states,” he said. 

Colgan said that the legislature is dealing with a projected $47 million revenue slowdown.  “They could increase taxes to offset the revenue drop,” he said.  “But they probably won’t.  They’ll try to cut spending instead.”

By law, the CEFC is supposed to have people on the commission who are knowledgeable about economic forecasting, and about the Maine economy. 

The problem is, Charlie Colgan is really the only person in the whole state who qualifies on both counts, and he’s no longer on the CEFC.

Currently on the commission are James A. Clair, from Goold Health Systems, Lawrence Dwight, of Dwight Investment Council, Gradon Haehnel, of Bangor Hydro, Scott Moody, of the Maine Heritage Policy Center, and Eric Stinneford, of Central Maine Power.

Asked about the current makeup of the board, Colgan told the New Maine Times that the energy companies being represented made perfect sense, because they are the only companies that do economic forecasting routinely in Maine.  He was also not surprised at the inclusion of an investment professional, since many of the questions the legislature has had over the years have centered on capital gains forecasting.

“There is no economic model for forecasting capital gains income,” Colgan said.  “By definition, the investments happened in the past.  We can’t predict past behavior.”

But that doesn’t keep the legislature from asking, anyway. 

James Clair, who will serve as chair, is a good choice for the commission, Colgan said.  “He should be able to keep things running smoothly.  I wish there were more people on the commission with backgrounds in forecasting.  But the process is designed to get different perspectives.  There is no inherent reason why the process can’t continue to function.  This group will have to find its way, just as we did.”

The wild card is, of course, Scott Moody of the conservative Maine Heritage Policy Center.  Although Moody has written several white papers on economic policy, Colgan said that to the best of his knowledge, Moody does not have the kind of economic modeling background that is necessary for the job.

“The saving grace may be that the commission must operate by consensus,” Colgan said.  “As chair, and as a member, I often had to sign off on forecasts that I personally didn’t agree with, because we had to reach consensus before the forecast could be released.”

Colgan said that different views are merged together during the process.  “We all learned to respect one another’s views,” he said. 

Colgan said that his last forecast, which was released in April, suggests that Maine is recovering “slowly but painfully”.  That will be the trend for the next couple of years, as Maine’s economy tracks the national economy. 

Colgan expected 1% growth in 2011, expanding more in 2012 and 2013, and finally reaching pre-recession levels in 2014.

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