LANSING – Wall Street’s newest crisis could force the national recession to go on longer and further hurt Michigan’s economy, especially if there are more credit restrictions that could further hurt the automotive industry, state Treasurer Robert Kleine said in an interview Monday. But he said he hoped there would not have to be any revisions to the 2008-09 budget and that officials still hoped the state would finally see some job growth starting in 2010.
There is no question, however, Kleine said, that the ongoing financial crisis is “the worst crisis since the Great Depression.”
The news that Lehman Brothers, which survived the Civil War and the Great Depression but collapsed because of the housing crisis, was filing for Chapter 11 bankruptcy protection and that Merrill Lynch, the largest retail investment firm, was being sold to Bank of America, led to a series of emails between Kleine and Governor Jennifer Granholm as she questioned how the state’s holdings were faring.
Michigan owned no Lehman stock, Kleine said. But otherwise the state’s pension funds have taken a beating, down by as much as $6 billion from their market highs several years ago.
Since the mid-1990s newly hired state workers cannot participate in the pension system, having to participate in defined contribution plans for their retirements.
The state is investing for the long term, Kleine said, though clearly “people are getting rattled,” meaning the Department of Treasury’s investment traders as well as the public.
State officials will have to reassess what the latest turmoil could mean for state revenues in the upcoming year, Kleine said. While revenues for the current fiscal year are running some 6 percent more than projected, the state used very conservative estimates for the 2008-09 fiscal year which starts in 15 days on October 1. Effectively the state assumed no real revenue growth for the next fiscal year, which Kleine hoped would stave off the need for any budget adjustments.
Still, the latest Wall Street crisis likely means an ongoing downturn in the national economy, Kleine said.
“We’ve calculated that we’ve been in a national recession since last December,” Kleine said. “This could make it deeper and longer than we first expected.”
And it could make Michigan’s already struggling economy worse at least for the next year, he said. The state could be especially hurt if more credit restrictions are imposed which would hurt automotive sales, he said.
Forecasters had already anticipated the state would lose jobs in 2008 and 2009, with hopes of some job growth in 2010. Kleine said he hoped that forecast could still hold.
State officials are slated to meet next week with economists at the Research Seminar for Quantitative Economics at the University of Michigan to see if they are anticipating any changes in job forecasts, Kleine said.
This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com
a>>
