OC’s Howard Roth is poised to become the state’s chief economist
RAJIV VYAS
Sometime in December, the state of California will have its new chief economist,and he will be faced with steering the state through a sharp slowdown and a possible recession.
Howard Roth, a Santa Ana resident and the principal economist at the De-partment of Fi-nance in Sacramento, is expected to take over as chief economist at the department in December, when Ted Gibson retires.
“He is being thrown into a frying pan,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. “It is going to be very difficult. He is going to be tested by fire.”
Roth joined the department in September.
“Ted was deciding that he wanted to retire, and the understanding was that I would step in as the chief economist when he did,” Roth said.
Gibson is expected to retire in a few weeks, at which time Roth is designated to take over advising the governor and the Department of Finance on the outlook for the state and national economies. He also will look at key issues such as spending on education, roads, power, and other issues.
The economy Roth will be monitoring is a huge one: more than $1.3 trillion in goods and services are produced annually in the state. The Department of Finance manages $80 billion.
“It is a demanding job in normal times because it is the state’s budget agency,” said Tom Lieser, executive director of UCLA Business Forecasting Project. “And (Roth) is expected to stay on top of trends in revenues and expenditures.”
But these aren’t normal times, and that compounds the difficulty of Roth’s new job.
“He is coming in at a time when California’s economy is coming off a period of extraordinary strength and may be heading into a recession which is creating havoc with the state’s budget,” said Gerd-Ulf Krueger, vice president of market research at Irvine-based real estate investment adviser Institutional Housing Partners.
With the technology meltdown, the state’s economy is struggling, particularly in Northern California. The San Francisco Bay area has been the most affected. Southern California has held up better, but per capita income in Los Angeles, the largest county by population in California, has fallen below the national average.
And the state still has to deal with and resolve the power crisis. Worse still, California is heading for its biggest budget deficit since 1991 and is likely to see a substantial shortfall in its revenue collection this year and next. Analysts are projecting the state to have a deficit of anywhere from $8 billion to $14 billion next year.
“Coming up with a balanced budget will be tough because the revenues are coming in much lower than expected. Either we cut spending or increase taxes,” Roth said.
When California was in a similar situation in 1991, spending was cut and taxes were raised. But the next gubernatorial election was three years off, making it more palatable for then-Gov. Pete Wilson to raise taxes.
“With the election only one year off, this time it will be much more challenging to raise taxes,” Roth said. Most pundits expect Gov. Gray Davis, who will be running for re-election next year, to go for spending cuts rather than higher taxes to balance the budget.
Economic cycles being what they are, Roth’s position is not unprecedented. In fact, Gibson faced much the same set of problems when he took the job in the early ’90s.
Then, California’s economy was a basket case. The end of the Cold War had crushed the aerospace industry, tipping the state into a recession. Earthquakes struck in 1989 and 1994, and riots blazed through Los Angeles in 1992. Yet, from 1995 to 2001, the state’s economy grew by 32%,nine percentage points faster than the national average.
Gibson managed to keep the governor and Legislature abreast of the changes and provide useful forecasts through the tumultuous decade, earning many admirers.
“Ted is the foremost economist in the state and I wish he would have stayed longer,” Roth said. “There are things to learn about state finances and propositions that have been passed by voters.” So how did Roth, who was once the regional economist at Bank of America, get on a track to become the state’s chief economist?
Roth has known Gibson for many years, and when Gibson decided it was time to retire, he started looking for a successor.
“Ted Gibson had casually talked about it to me earlier this year. He wanted to see if I was interested,” Roth said. “He was a little surprised that I was; the job can be a bit thankless at times. But it is a chance to give something back to the community. Plus I had enough of those Southern California commutes.”
Roth was more or less handpicked by Gibson.
“I was certainly sponsored by Ted, but he also had other good economists in mind,” Roth said.
Roth took three trips to Sacramento before he got the final offer. He mainly interviewed with Timothy Gage, director of the Department of Finance, and a few other people in the department. Roth also met with officials in the governor’s office of appointment.
“Ted and I really didn’t interview because we have known each other forever,” Roth said. “I got the final OK in late August, and then I moved (to Sacramento) and stayed in temporary housing.”
His family decided to stay in Santa Ana. His wife is a teacher while his twins,a son and daughter, 14,are freshmen at Master Dei High School.
Roth got his undergraduate degree in engineering from Case Western Reserve in 1969. Fresh out of college in the late ’60s he worked for General Dynamics Corp. in San Diego as a missile engineer. He worked on the pre-design of space shuttle. In the mid-1970s, Roth took an evening master’s of business administration course at San Diego State University, where he got interested in economics. He dropped out of the MBA program to pursue an economics degree full-time. In 1976, he enrolled in the masters program in economics at the University of Michigan and in 1982 he got his doctorate.
“In engineering, you get a lot of math training, and that helps,” Roth said. “Economics has a lot of math these days. The skills sort of matched up.”
“I think he has very strong quantitative skills,” Krueger said. “At the same time he is very good in translating these quantitative skills into knowledge that is understandable by mere mortals, and that has been very useful in his career.”
Krueger added, “He is an excellent economist and his contacts are as good as you can have in this job.” “He has worked in the private sector. That is very important because sometimes Sacramento loses sight of the real world,” Kyser said. “I have every confidence in him.”
His first job as an economist was at the Federal Reserve Bank in Kansas City, in research, where he worked from 1982 to 1988. He then joined Security Pacific National Bank and worked in Los Angeles until 1992 when that bank was acquired by Bank of America. He moved to Bank of America until its was acquired by Nations Bank and its headquarters were moved to Charlotte, N.C. In 1999, he joined an investment bank in San Diego.
“What I need to do now is learn the part of the job that is new to me,” he said. “Understanding the ramifications of all of the voter propositions passed in the last three decades that pertain to government finance is important in doing this job. Unfortunately, we are right in this budget situation so it is difficult to think of anything else right now.”
Roth said that he took a steep salary cut to move from a private investment bank to working for the state.
“It was a sizable salary, but I wasn’t very happy with my previous job,” he said. “We both knew it was not a good fit, so we finally parted on good terms.”
“I plan to work here for another 10 years or so and then retire,” Roth said, noting, “The state government has a good pension plan.”
