Power costs could damage state economy By MICHAEL MOORE Of The Missoulian

MISSOULA – Montana may be in for tougher economic times during the next several years, but the slowing U.S. economy may not be the culprit.

Instead, rising electricity prices will slow the state’s nonfarm income growth by half, from 2.2 percent in 2000 to a projected 1.1 percent in 2001, Paul Polzin, director of the Montana Bureau of Business and Economic Research, told a seminar of nearly 300 people in Missoula on Friday.

“The major cause of a slowdown in Montana is the impact of higher electricity prices,” Polzin said.

Higher prices already have exacted a toll, but the worst may be yet to come. Smurfit-Stone and Louisiana-Pacific mills in Missoula already have faced cutbacks due to high prices, and the Columbia Falls Aluminum Co. has signed a contract to resell power from its BPA contract on the open market.

The plant, which was running at only 50 percent capacity, will shut down for a year, then plans to reopen at the same production level. Although the company will pay its employees’ wages for the next year, only half of those employees are expected to have jobs when the plant reopens in January 2002.

“Those prices will definitely slow growth in 2001,” Polzin said. “The long-term implications of the electricity crisis is murky.”

But no more than the overall prospects for the U.S. economy, which by general agreement has slowed. The question, Polzin said, is by how much growth will slow.

“Right now, the consensus is that we will have a soft landing,” Polzin said.

By that, he means that growth will slow to 3 percent rather than the robust 4-plus percent rates of the past several years. That level of growth has historically been unsustainable, Polzin said. About 3.5 percent growth is considered sustainable.

Polzin said eight interest-rate increases over the past two years have sufficiently slowed the economy, and he praised the Federal Reserve for moving recently to cut rates to nudge the economy back into action. Polzin also said President Bush’s plan for a tax cut could help, but cautioned that if cuts aren’t implemented quickly, while the economy is cycling down, they might instead foster inflation.

“They could be a major fiscal catalyst,” Polzin said. “But if the economy is moving again and they’re implemented, say, in 2002, they could just fuel inflation.”

While Montana’s economy would be damaged by a U.S. recession, it faces other challenges, Polzin said, including: aging industrial plants that are more vulnerable to electricity price increases; further declines in timber supply from the U.S. Forest Service; labor shortages in some areas; and the volatile nature of farm income. Updated: Sat Jan 27 02:44:44 CST 2001 Central Time

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-- Martin Thompson (mthom1927@aol.com), January 27, 2001