SACRAMENTO : State S&L; Regulatory Staff Shortage Contributed to Crisis, Report Says

A report by the Assembly Office of Research sheds new light on California’s botched regulatory role in the savings and loan crisis.

In 1983, a record number of new thrifts were chartered by the California savings and loan commissioner. At the time, state-chartered savings and loans were being touted as “money-making machines” for real estate developers, according to the 45-page report, “Mortgaging the Thrift Industry.”

At the same time, though, the number of regulatory personnel in the commissioner’s office was at its lowest level of the decade--only 42 positions in April of 1983.

True, staff slots nearly tripled in the ensuing four years as the thrift crisis began to unfold. But S&L; growth far outstripped regulatory growth, and by then it was too late. Indeed, from 1984 to 1988, “the ratio of professional staff per $1 billion in state S&L; assets” actually fell more than 30% while the number of troubled institutions exploded.

The report blames this mismatch in staffing on the Legislature. By law, the state Department of Savings and Loan is supported by fees from the institutions it regulates. “As the number of state S&Ls; decrease, so do fee collections and, therefore, the funding for the department’s budget,” the study said.

Consequently, wild fluctuations in the industry’s performance in the past decade have badly undermined the department’s ability to maintain a steady team of professionals.

The problem persists. The commissioner’s office now faces a heavy workload overseeing troubled thrifts, but it is being forced to cut staff 30% because the total number of S&Ls; has declined, according to the study.

“Very soon, all we are going to be left with is a skeleton crew of supervisors who are waiting for retirement,” said Commissioner William J. Crawford.

Forecast Will Set Stage for Budget Wrangling

For economists, length of service is a measure of success; forecasters can only be wrong so often before they get the boot.

By that standard, the Department of Finance’s chief economist, Pauline Sweezey, has done well. The 53-year-old Stanford-trained economist has been crunching and forecasting the state’s economic data for a quarter of a century.

Next month, she will help piece together the most important projection of the year: the May revision of her 1990 economic forecast. Her projections for personal income will set the tone for the state’s $40-billion budget.

Mid-year adjustments to economic forecasts don’t get the attention of January projections, when a gaggle of public and private economic gurus line up to predict the economy’s performance for the coming year. But behind the scenes in the Sacramento budget-wrangling process, these springtime modifications are much more important.

On guard for volatility in projections made earlier in the year, the Legislature is putting off the most costly budget choices until reliable estimates of total tax receipts are more precise. And tax receipt estimates depend on personal income projections, which is where Sweezey comes in.

“A small swing in the forecast can mean a huge amount of money,” said Tim Gage, a consultant to the Assembly Ways and Means Committee.

Last year, an overly optimistic income estimate required an $875-million downward adjustment in projected state revenue, said Gage.

Sweezey’s personal income figure is only one ingredient in the overall revenue forecast. And she’s not infallible.

In the early 1980s, she goofed when she--and most other economists--underestimated the depth of the recession and the ravages of inflation.

But in 1988, she strayed from the pack of forecasters who were predicting a recession. Sweezey predicted modest growth. As it turned out, her only mistake was not being more bullish.

Foreign Trade Offices Extending Their Reach

If the number of proposals for foreign trade offices is any indication, the California Legislature has been touched by the spirit of internationalism.

Assemblywoman Jackie Speier (D-South San Francisco) wants a foreign trade office in Canada. State Sen. Art Torres (D-Los Angeles) is arguing for a state-sponsored outpost in the Philippines, and Assemblyman John Vasconcellos (D-Santa Clara) is proposing that California expand its global reach to Eastern Europe with a new office in Warsaw.

Atty. Gen. John Van de Kamp also jumped on the foreign trade bandwagon with a proposal for a new office somewhere in Eastern Europe.

California began opening foreign trade offices in 1987 with one in Tokyo; a few months later, another was established in London. In 1989, Mexico City and Frankfurt were added, and this year San Francisco businessman Landy Eng was dispatched to Hong Kong to open the Southeast Asian Office of Trade and Investment.

The governor’s office, which decides where trade offices are based, has mixed feelings about legislative proposals to establish new locations.

“I am grateful for the Legislature’s interest in expanding our reach overseas,” said James Robinson, Gov. George Deukmejian’s trade representative. “But foreign trade offices aren’t intended to be political symbols or quasi-embassies for foreign policy.”

Robinson sees the state’s $2- million investment in foreign trade strictly as a deal-brokering role that benefits California business interests. “We are middlemen for California traders and we go where they can and want to do business,” he said.

There also are practical drawbacks to where trade offices are located, according to Jim Phillips, managing partner of California’s European Trade and Investment Office in London.

“We need to be situated in a central hub where we can communicate with various countries,” said Phillips, who is traveling in Budapest this week on a trade mission to Eastern Europe. For example, he said, “the communication is lousy from Hungary to Czechoslovakia.”

Robinson said putting a trade office in Canada makes sense and he expects the governor to take action on one in the next few months.

“Beyond that, we have no plans,” he said.