Trafficking in Economic Forecasts

NEEP delivers latest forecast … this time with a special focus on infrastructure …
Is it because the economy is not in crash mode (we don’t think) that the crowd at the New England Economic Partnership (NEEP) fall 2015 outlook conference was decidedly smaller than in NEEP’s heydey? Or is it because it’s hard to get people to pay attention to regional issues? Especially infrastructure issues? IMG_2524

Whatever the reason, the 50 or so attendees who did gather at the Federal Reserve Bank of Boston a recent crisp mid-October morning heard more evidence that economics is not the dismal science it’s often dissed as.

First, the bottom line: NEEP reported that the regionwide unemployment rate is at 5%—the lowest since it peaked at 8.7% in 2010—and projected it will shrink to just over 4% by 2018, the end of the forecast period.

Still, New England’s slow population growth will keep regional economic growth behind the U.S. average, which is expected to keep chugging along through 2018. With some of America’s oldest populations, New England will rely on in-migrants, especially foreign immigrants, for labor force growth.

Next came NEEP’s state-specific forecasts, which always offer a colorful picture of New England life, as well as this fall’s special NEEP focus on infrastructure.

State of the states

Fairfield University professor emeritus Edward Deak pointed to healthy job growth in Connecticut’s private sector, but less so in government. The total number of jobs in the state will not recover to pre-recession levels until early 2016 at the current rate. The healthcare industry has been under special pressure, leading to mergers and cutbacks.

The only Connecticut labor market area to show job loss was Norwich-New London, in part because of job cuts at Connecticut’s two Indian casinos, which face new competitive pressures form New York, Rhode Island and Massachusetts.

Deak noted some lurking problems are not yet reflected in the forecast—among them, fears that GE will move its headquarters and up to 800 jobs out of state and that jobs at firms such as UBS and ESPN may also leave. In addition, Dodd-Frank financial regulations may reduce tax revenue from the up to 15% of New York City bank workers who live and pay taxes in Connecticut.

Moving to the conference theme, Deak said road congestion is a huge problem in Connecticut (as anyone driving through Hartford knows). The NY-NJ-CT area ranked #1 in total hours of traffic delay, excess fuel consumption and total excess congestion, according to the Texas A&M Transportation Institute. A White House report noted that 41% of Connecticut roads are in poor condition and 35% of its bridges are “deficient or obsolete.”

Deak added that hardly any freight comes into New England by rail, so nearly all goods arrive in New England by truck—and most through Connecticut. The need for dredging, meanwhile, is turning ship traffic away from Bridgeport, New Haven and New London. Where will the money come from to address such issues? Deak worries about sleight-of-hand in Connecticut with transportation funds being raided to cover other spending needs. He predicts new highway tolls may be sold not as traffic-reduction or revenue-raising tools, but rather as part of an effort to cut air pollution that is so bad between Boston and Washington, D.C.

Bridge to nowhere

Ryan Wallace of the University of Southern Maine said Maine has recovered only about two-thirds of the jobs it lost during the Great Recession, and will not recover fully until the middle of 2018. He said the state suffered an unexpected loss of 5,000 jobs across sectors in early 2015. Among the culprits, Maine’s paper industry, once the state’s largest manufacturing sector, is shredding jobs from Bucksport to Jay. The state’s healthcare sector is limping, with financial stress in rural areas and Maine’s decision not to participate in Medicaid expansion under the national Affordable Care Act. And its demography is constrained—Maine is the oldest state in nation by median age.

On the conference theme, Wallace said wind power and power transmission projects could demand specialized labor, but that may require in-migrants. An Icelandic shipping company’s arrival could benefit Portland, the one place in Maine that has seen growth, and, Ryan hopes, radiate out to other parts of the state.

Northeastern University professor Alan Clayton-Matthews noted that Massachusetts has experienced a burst of economic growth reminiscent of the ’90s. The Bay State has seen strong jobs growth in professional and business services and health. And the Massachusetts population is now growing at nearly the same rate as the entire U.S.—one reason for a slightly improved economic outlook.

On infrastructure, Clayton-Matthews said Massachusetts has fixed many bridges, but 43% are considered “functionally obsolete” in terms of current design standards, versus 14% nationally. As for public transportation, more than 70% of Massachusetts Bay Transportation System (MBTA) vehicles are beyond their useful life.

A new place for New Hampshire

New Hampshire has usually led the region in job growth after recessions, said economist Dennis Delay of the New Hampshire Center for Public Policy Studies. Not this time. In a reversal or roles, Massachusetts has actually grown faster than its northern neighbor in jobs and output. New Hampshire just reached the level of employment seen before the Great Recession. Moreover, while some people have always left the Granite State for warmer states like Florida, now many are moving to Massachusetts—the very state from which New Hampshire was gaining people in headier days.

Old habits die hard. The New Hampshire report to NEEP is replete with stories of Massachusetts firms relocating to the Granite State (and some in the other direction) as well as a shout-out to new jobs at the Portsmouth Naval Shipyard, which is technically located in Maine.

On the infrastructure theme, New Hampshire, to its credit, includes water usage—just as crucial a metric as roads when you’re thirsty. The population of New Hampshire nearly doubled between 1970 and 2000, but per-capita water usage declined, as have water-intensive industries in the state.

On the other hand, 54% of New Hampshire’s roads are in poor or mediocre condition, compared with 32% nationally.

Bryant University economist Edinaldo Tebaldi acknowledged that he’s accustomed to bringing NEEP news of Rhode Island’s cellar-dwelling. Same this year. He noted that the Ocean State ranks dead last nationally in the condition of its bridges.

More generally, Tebaldi said that the number of people from Rhode Island who are employed has increased, but many are working in Massachusetts and Connecticut. Rhode Island still has the highest unemployment rate in New England at 5.6% in August 2015. The state shows no population growth and depressed construction. Jobs are coming from leisure and hospitality, Tebaldi said, but they are low-paying.

Independent economist Jeff Carr reported that despite “rightsizing” by IBM, Vermont was the second in New England (after Massachusetts) to complete its jobs recovery and is about 2% past the previous peak. Food manufacturing is one of the few job sectors in Vermont that is both well-paying and adding jobs in significant numbers. Vermont didn’t get hit as hard by the Great Recession in the first place. But employers are having trouble matching the labor force to the jobs that are available.

As for infrastructure, Carr reminded the audience that Tropical Storm Irene destroyed 25 bridges and 1,000 culverts and affected 500 miles of roads in Vermont. Carr joked that visitors to Vermont happened to have “FEMA “written on their backs. Those visitors made a lot of progress on road conditions. In 2009, 34% of Vermont roads were considered to be in very poor condition; that shrank to 13% in 2015. The state’s infrastructure, he conceded, is a testament to the economics of disaster.

Vermont also takes telecommunications into account when assessing infrastructure; high-speed service is available in more than 99% of the state (I pass through that other 1% every time I drive I-89 up to UVM!)

Carr and Wallace also noted noted the “soft infrastructure” challenge of recruiting talented people—and their spouses—to jobs. In some cases, this will pressure employers to allow people to telecommute from the New England places they want to live.

Infrastructure theme

As a conversation about infrastructure took hold, Clayton-Matthews noted that millennials want public transportation, and therefore some increased investment in infrastructure could add substantially to job growth. But the financing and planning eludes easy answers.

Carr noted that transportation revenues get raided to patch general state budgets. Clayton-Matthews said one idea is to tax vehicles for miles traveled. Carr countered that would be regressive for people in rural areas who have to drive everywhere—including Vermonters. Delay said the biggest infrastructure idea in New Hampshire is a train from Boston to Manchester. The question, he said, is why should people in places like Keene and North Conway pay a public subsidy benefiting the I-93 corridor.

Out of the traffic jam

Keynote speaker Massachusetts Secretary of Transportation Stephanie Pollack, ironically, was held up in traffic. So the panel on infrastructure that was supposed to follow her talk preceded her instead.

Federal Reserve Bank of Boston Vice President Robert Triest plugged the recent report on State Highway Funding in New England by the Fed’s New England Public Policy Center. He also discussed the externalities of driving, including congestion, tolls and gas taxes.

Kristina Egan, director of Transportation for Massachusetts hailed the prospect of  interconnected communities, but lamented that “repair is not a vision.”

Moreover, the love affair with the car is changing, she said, noting the tangle of new transit lines in Los Angeles. Millennials and seniors want to live in places that are walkable. To realize that, we need 21st century agencies. And that takes money, especially if we’re going to address climate change as well. One solution, she suggested, may come from sub-regional transit systems such as one in western Massachusetts.

Out of the traffic jam, Pollack described the Commonwealth’s developing vision of transportation that aims to diversify spending across roads, transit, bikes, pedestrians and so on. She added that return on investment can be measure not just in transportation returns, but in improving quality of lie and smoothing business. Pollack also noted equality issues, such as serving off-hour shift changes.

Historically, transportation leaders would compile ideas as a list of “projects.” Pollack said her approach will be to collect ideas from regular people. If you’re a community college, how are people getting to you. The Massachusetts Department of Transportation (MassDOT) will hold “capital conversations” both on the ground and online, where people can make their opinions known to those who work for the department. That’s what will create the universe of “projects,” she said. Criteria include traditional transportation criteria such as mobility and cost-effectiveness, but also equity, environment and safety.

She cited the example of a proposed rail link between Boston’s North and South stations being rejected at the time of the city’s Big Dig, but now back to life. In addition to five-year plans that can be revisited each year, she called more long-range planning—say 25 years. Look at year 2040 and do “backcasting.”

If you look back 25 years from today, she pointed out, there was no Internet, no one talked about climate change and mobile phones were clunky. In 1915, issues were tension between horses and bicycles; in 1920, cars were introduced. That was the disruptive technology.

Pollack added that the DOT is currently spending $3 billion a year. She and Baker want to know if we are spending it right? Pollack noted that private leveraging could double that total. As an example, she said a $3 billion investment in the Green Line may create $10 billion in economic impact. But currently, no private sector dollars are helping pay up for it.

On the roads again

Except for 5% of Greater Boston served by public transit, the rest of New England is focused on roads. When MassDOT was created in 2009, one charge was to calculate the value of the state’s roads and bridges, but that hasn’t been done.

Transportation, like energy, crosses state lines, but responsibility starts and ends at state borders. Highways were helped during terrible last winter by support from other states. But the MBTA was not. Pollack said she hope to never have to close the T as last year, unless it’s a safety issue. She reminded the group that even during the terrible winter, not a single fatality or serious injury due to transportation problems.

Ballantine asks to what extent is transportation seen as a public good that people are willing to support? Pollack said the places that invest the most don’t use transportation money.

Egan said from audience that these countries have already committed to investing in transportation. She also noted that Pollack is trying to address confidence in government, especially after last winter’s transportation nightmares. She suggested we need to talk about transit “service,” not transit “agency.”

John O. Harney is executive editor of The New England Journal of Higher Education.

 

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