Schaefer calls on former nemesis for economic advice

August 26, 1992|By Marina Sarris | Marina Sarris,Annapolis Bureau

ANNAPOLIS STAFF WRITER JOHN W. FRECE CONTRIBUTED TO THIS ARTICLE. — ANNAPOLIS -- Gov. William Donald Schaefer did not care much for Mahlon R. Straszheim in 1990, when he was one of the first economists to forecast the end of Maryland's economic growth. The governor thought Dr. Straszheim was pessimistic and his report "stupid."

What a difference a recession and seven rounds of state budget cuts can make. Dr. Straszheim is now advising the governor on the state economy.

Mr. Schaefer announced last weekend that he will be consulting with Dr. Straszheim, who chairs the economics department at the University of Maryland in College Park.

The governor praised the professor's "track record" and cited his distance from "the political process" as an asset.

The governor's recent enthusiasm for Dr. Straszheim coincides with his efforts to distance himself from the board that estimates state revenues. Its predictions have repeatedly turned out in error, leading to budget cut after budget cut.

Voters and local politicians are criticizing state officials for failing deal with the budget shortfall once and for all. Maryland currently faces its eighth shortfall in three years. During that time, the state reduced its budget by more than $1 billion, and the legislature raised taxes to help get Maryland out of the red.

In a column he wrote for the Washington Post last month, the governor said, "I have lost all confidence in the existing manner in which revenues are estimated."

The Board of Revenue Estimates predicts the state's economic growth primarily by consulting two national forecasting firms, which, Mr. Schaefer contends, "have been wrong, really wrong, for two years now."

The board is made up of the comptroller, who is elected by voters; the treasurer, who is elected by the legislature; and the budget secretary, who is appointed by Mr. Schaefer.

Comptroller Louis L. Goldstein defended the board's job and complained that politicians are trying to make the board "a scapegoat for the whole nation's financial problems."

Nonetheless, he said he does not interpret the governor's appointment of Dr. Straszheim as a "personal affront."

"No one who was dealt the cards we were dealt could have played a better hand," Mr. Goldstein said. The Board of Revenue Estimates' growth forecast last year was similar to the University of Maryland's economics department, he said.

Dr. Straszheim, 52, of Potomac, declined to comment on the governor's past criticisms of his work or on his current predictions for the state economy.

He and fellow University of Maryland teacher Lorraine Sullivan Monaco were among the first to correctly diagnose the end of Maryland's long period of economic growth in their October 1990 report, "Outlook for the State of Maryland Economy."

Mr. Schaefer criticized the report at the time. "What do we pay these guys for?" he asked. "We don't need them. I could sit down and write a stupid report like that."

In October 1991, Dr. Straszheim predicted that the state budget pTC shortfall would be greater than the estimate being used by government officials. The shortfall continued to grow, leading to more budget cuts, the latest of which took place in July. Based in part on Dr. Straszheim's estimates, the governor now predicts a shortfall of up to $500 million in the fiscal year that began only last month.

"When we started out we were, if not the most pessimistic forecasters, then we were among the most pessimistic forecasters [in 1990]," Dr. Monaco said.

Looking back, she said, "I think that especially the early reports turned out not to be pessimistic enough."

She and Dr. Straszheim have focused primarily on employment trends in Maryland industries, an approach that differs somewhat from other economists and from the analysis of tax revenues.

She said their reports grew out of work done by Inter-Industry Forecasting at the University of Maryland, which is funded by government and business clients who subscribe to its economic forecasting and analysis services.

Page W. Boinest, the governor's acting press secretary, said yesterday that Dr. Straszheim will be developing monthly updates and quarterly reports for Mr. Schaefer. In return, she said, the economics department will receive $2,500 a quarter to cover computer time and other expenses associated with the reports. The money will come from a state grant program designed to help universities identify solutions to government problems.

Dr. Straszheim earned his doctorate at Harvard University in 1966 and joined the University of Maryland faculty in 1971.

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