Thursday, October 9, 2008

What Does the Credit Crisis Mean to Oregon?

I have spent a fair amount of time blogging about the credit crisis and now I would like to try, as best I can, to trace these effects to our fair state. In general the local effects of the global financial crisis are pretty similar to all states.  The most immediate impact is probably the drying up of the bond market.  This means that municipalities and states that are trying to raise money by selling bonds are not finding any buyers at anything close to reasonable rates.  California recently alerted the federal government that without the ability to raise case, it may run out of money - and soon.  Luckily, apparently Salem has been quite prudent and is weathering this crisis relatively well at the moment, thanks in part to the skillful leadership of Randall Edwards - so pay close attention to the state treasurer race and vote prudently.  

Anyway, without access to bond revenue, state and local governments may not be able to proceed with planned projects (this is also true for other institutions like colleges and universities, I wonder if the U of O has already sold the bonds for the arena project...).  And of course this all filters down, postponing or canceling planned projects further hurts the construction industry.  

Oregon businesses face troubles without access to credit as well, temporary cash needs may go unfulfilled leading to layoffs, etc. In the medium and long term, lack of credit can postpone or scuttle planned investments, hurting future productivity and business growth.  This also filters down - lower employment and lower wages.  A global economic downturn might also depress one of the few bright lights - exports - in the Oregon economy these days.  

Finally, Oregon households are having a hard time now accessing credit and may soon have a harder time finding jobs, getting raises, etc.  

Now for the latest in bad news: The Dow closed lower than 9,000 today, showing just how big is the crisis of confidence on Wall Street. The TED Spread soared to another all time high today showing just how much banks are still worried about each other. And the Treasury is starting to think seriously about buying equity in the banking sector.  This last one is a good thing in my opinion.

The good news?  Is there any?  Well, yes, the mortgage market is looking great.  So go buy a house!


abraham said...

We had an extended Q & A with both of the treasurer candidates in last month's issue. If anyone's interested:

Patrick Emerson said...

Excellent! Thanks Abraham.

Scott said...

I've penned a guest column on BlueOregon (not published yet, don't know if it will be) on a related issue that I haven't seen covered much, either in the blogosphere, or in the major media.

A financial tsunami is about to hit local government in Oregon. Why? The reduction in property tax revenue that local governments can expect due to the reductions in property values. Given that property values in the Metro area are down significantly, expect many homeowners to run screaming into their county assessors offices in a couple of weeks, if the property tax bills don't reflect the decrease.

Increases in assessment are limited to 3% due to BM47 and BM50. There is no corresponding collar on DECREASES though--we haven't seen a significant decline in the housing market in quite a while. If my house value goes up 20%, my taxes go up 3%. But if my house value goes DOWN 20% (and my assessed value is close to market value), then my taxes go down 20%.

What's worse (for government, though good for homeowners) is that if the market recovers, the 3% increase limit starts to apply. There's no high-water-mark provision in the law, allowing assessments to return to a previous value without being subject to the 3% cap.

This will cost local governments PLENTY, if my reading of the statute is correct.

Patrick Emerson said...


That is a very interesting point. When I lived for a time in Colorado a similar thing happened. The TABOR law there limits government revenue increases from year to year. So when, in 2001, the economy and revenues crashed and then the economy quickly recovered but revenues were not allowed to due to TABOR. The result was deep, deep cuts in government programs (including public higher ed where I worked at the time) even though revenue collection was fine - the govt. could not keep it.

So far property values have not tanked too much in Portland, but in Bend and Ashland/Medford it could be bad (add that to the pain of decreased federal timber payments). Something to keep an eye on.