Breaking Out of a Circle of Scarcity: The Oregon Business Plan's Challenge for the 2010s and Beyond

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Sliding per capita income is leading to low investments in public services. Medicaid and Prison spending are squeezing out investments in education, further driving down personal incomes. Over the next decade the aging baby-boomers and an increasingly diverse population will put more pressure on government revenues. Oregon is trapped in a "circle of scarcity." Breaking out of it is the most important task for Oregon's business, elected and community leaders today.

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Breaking Out of a Circle of Scarcity: The Oregon Business Plan's Challenge for the 2010s and Beyond

  1. 1. Breaking Out of a Circle of Scarcity<br />Oregon Business Plan’s Challenge for the <br />2010s and Beyond<br />Summer 2010<br />
  2. 2. Overview<br />The Circle of Prosperity: The Foundation of the Oregon Business Plan agenda<br />The Circle of Scarcity: The reality of Oregon since 1997<br />Framing the Challenge for the next decade <br />Getting to Work: The OBP agenda for 2010 <br />
  3. 3. The Circle of ProsperityHow it’s supposed to work<br />
  4. 4. The Circle of Prosperity Starts with a Strong Economy: So where Does Oregon Stand?<br />
  5. 5. Oregon prospers in the 1970s, fueled by a strong timber economy<br />Per Capita Income Expressed as a Share of the U.S. Average, 1969-1979<br />Oregon<br />Washington<br />
  6. 6. The 1980s hit the Northwest hard<br />Per Capita Income Expressed as a Share of the U.S. Average, 1969-1988<br />Oregon<br />Washington<br />
  7. 7. During the early to mid-1990s, Northwest economies diversify and outpace US growth<br />Per Capita Income Expressed as a Share of the U.S. Average, 1969-1997<br />Oregon<br />Washington<br />
  8. 8. Since 1997, Oregon’s income has fallen off the US pace<br />Per Capita Income Expressed as a Share of the U.S. Average, 1969-2008<br />Oregon<br />Washington<br />
  9. 9. Per capita incomes in our metro areas lag their peers…<br />Personal income per capita, percentage of the national average, 1969 to 2008<br />Source: BEA; metropolitan counties are Benton,Clackamas, Columbia,<br /> Deschutes, Jackson, Lane, Marion, Multnomah, Polk, Washington, and Yamhill<br />
  10. 10. Non-metro Oregon, once an income leader, has never recovered from the 1980s.<br />Personal income per capita, percentage of the national average, 1969 to 2008<br />Source: BEA; metropolitan counties are Benton,Clackamas, Columbia,<br /> Deschutes, Jackson, Lane, Marion, Multnomah, Polk, Washington, and Yamhill<br />
  11. 11. Washington’s workers brought home an average of $9,400 more than Oregon’s workers in 2008<br />
  12. 12. …unlike the past, a lower share of Oregonians worked in 2008.<br />
  13. 13. Oregon residents earned an average of $1,187 less in investment income in 2008<br />
  14. 14. If Oregonians earned like Washingtonians…<br />
  15. 15. Add it up: Oregon’s fallen off the West Coast pace.<br />Per capita income, 2008 dollars, 1976 to 2009<br />Sources: BEA; Census Bureau<br />
  16. 16. What about public services?<br />What About Public Services?<br />
  17. 17. For 30 years, public sector revenues have remained a roughly constant share of personal income<br />
  18. 18. So, declining incomes leave less revenue for public revenues<br />Source: Urban-Brookings Tax Policy Center<br />
  19. 19. And within a smaller pie, some slices of are growing faster than others<br />
  20. 20. …meaning others have to decline.<br />
  21. 21. Tradeoffs: In the state’s General Fund, the crowding out of education has been pronounced during the past decade… <br />
  22. 22. Three decades in review<br />Oregon’s income per capita income did not keep pace with the US or peer states over the past thirty years.<br />As a share of total personal income, government revenues and expenditures have remained roughly constant for the past thirty years despite many changes in taxes and fees.<br />Because Oregon’s personal income has declined, public spending per capita has declined.<br />Medicaid and corrections spending have grown as a share of personal income; Education spending has declined as share of income.<br />All other public services—police, fire, parks, highways etc.—have remained a roughly constant share of income.<br />
  23. 23. What About the Next Decade?<br />
  24. 24. Demographics add to the challenge Fewer workers to pay for an aging population<br />
  25. 25. Retiring boomers will be replaced by a considerably more diverse population…<br />
  26. 26. Costs of an Aging Population will Hit SoonProjections indicate public employee retirement and Medicaid costs could demand an additional 1.1% point of total personal income.<br />Source: ECONorthwest calculations using data from Mercer, Kaiser Family Foundation, and Health Affairs<br />
  27. 27. Anticipated slow job recovery will curb revenue growth…<br />Change in Oregon employment starting…<br />Sources: U.S. Bureau of Economic Analysis; Oregon Office of Economic Analysis<br />
  28. 28. Oregon’s expected budget deficit 2009-2019<br />
  29. 29. A Preview of Coming Events?<br />General/Lottery Fund Resources and Expenditures (in millions)<br />
  30. 30. The state will have roughly the same amount of tax revenue for 11-13 as it did for 09-11<br />General/Lottery Fund Resources and Expenditures (in millions)<br />
  31. 31. but PERS alone will take up $431 million<br />General/Lottery Fund Resources and Expenditures (in millions)<br />
  32. 32. …even if we could hold human services growth to 10% (it grew by 20% last year)<br />General/Lottery Fund Resources and Expenditures (in millions)<br />
  33. 33. …and public safety spending growth to 6%<br />General/Lottery Fund Resources and Expenditures (in millions)<br />
  34. 34. …and K-12 education spending constant <br />General/Lottery Fund Resources and Expenditures (in millions)<br />
  35. 35. Higher education could see cuts of 54%<br />General/Lottery Fund Resources and Expenditures (in millions)<br />
  36. 36. And now, (with no sales tax), Oregon is ever more reliant on income tax <br />M 66 & 67<br />
  37. 37. Will we circle into a drain?<br />Low investments in education and high income tax rates threaten further erosion of personal income levels<br />The U.S. and Oregon economies appear poised for a slow, jobless recovery.<br />Aging of the Baby Boom generation will increase the age 65+ population by 46% during 2010-2020, putting upward pressure on Medicaid spending.<br />High health inflation will continue, which will drive up the costs of Medicaid and public employee compensation.<br />Legacy costs of a poorly managed/conceived public employee pension system have come due.<br />
  38. 38. How Can Oregon Turn Things Around?<br />
  39. 39. Two Possible Paths Going Forward<br />Replay the debate of the 2000s<br />Refocus the debate<br />“Taxes are inadequate; businesses and wealthy Oregonians pay too little.”<br />vs.<br />“Public employees are underproductive, overcompensated, and protected during economic downturns.”<br />Grow jobs and income <br />Reinvent the state budgeting process and delivery of state services. <br />Reform the tax system to promote stability and provide incentives for high-wage job growth.<br />
  40. 40. Step 1: Grow jobs and incomes<br />
  41. 41. Oregon’s budget deficit on the current trajectory<br />
  42. 42. Oregon’s budget deficit if we return to 97% of U.S. average per capita income<br />
  43. 43. How Can We Grow Jobs and Income?<br />Agree that it is important, in GOOD times, not just bad. <br />Agree that increasing incomes is the best way we can support families, public services and non-profits.<br />Build community culture that respects business and responds to needs. (Attitude of public officials is important). <br />
  44. 44. Grow Income: Welcome High Wage Jobs in Good Times and Bad<br />
  45. 45. Listen to our key industry clusters<br />Most high wage jobs come either directly or indirectly from traded-sector (export) industries.<br />These industries compete on innovation. <br />Traded sector success isn’t random<br />Traded sector companies cluster<br />Similar and related businesses draw advantages from proximity<br />Places specialize<br />
  46. 46. Oregon Industry Clusters<br />High Tech<br />Semiconductors and electronic components<br />Software<br />Bioscience<br />Advanced Manufacturing<br />Metals<br />Machinery<br />Transportation Equipment<br />Wood products<br />Footwear, sports apparel and outdoor gear<br />Natural Resources<br />Forestry and Wood Products<br />Ag<br />Food processing<br />Tourism <br />Clean Technology<br />Solar manufacturing<br />Environmental Technology and Services<br />Electric vehicles<br />Green building and design<br />Wind energy<br />
  47. 47. Listen to all regions of Oregon<br /><ul><li>Two rounds of regional meetings: spring and fall
  48. 48. Astoria, Baker City, Bend, Burns, Clackamas, Corvallis, Eugene, John Day, Klamath Falls, Medford, Pendleton, Salem
  49. 49. Bring business and community leaders together to discuss the facts about Oregon’s economic and budgetary trajectory.
  50. 50. Work with local leaders to understand how Oregon can remove barriers and take advantage of opportunities to create jobs and raise incomes</li></li></ul><li>From this…develop industry specific agendas<br />For exampleForestry and Wood Products - improve federal land practices and increase utilization of biomass energy.High technology – increase number of engineering graduates from Oregon universities.Food processing – meet aggressive energy efficiency goals to enhance global competitivenessBiosciences – improve access to startup capital <br />
  51. 51. And develop cross-cutting initiatives and set priorities among them. <br />Improve public finance and budgeting<br />Strengthen education and workforce development<br />Reduce health care cost and improve quality<br />Enhance transportation infrastructure<br />Strengthen our capacity for economic innovation (research, commercialization, product and process innovation)<br />Ensure reliable, affordable and clean energy <br />Address water and sewer access and price<br />Strengthen business finance and access to capital<br />Ensure the availability of shovel-ready, industrial land. <br />Streamline regulatory and permitting processes<br />
  52. 52. Step 2: Reinvent state budgeting and public service delivery<br />
  53. 53. Reinvent Public Services<br />The Foundation<br />Implementation <br />10-Year forecasts of revenues, expenditures, key client populations, and per unit spending.<br />Outcomes-based budgets<br />Design labs<br />The Oregon Health Policy Commission<br />Oregon Education Investment Board<br />Transparent budgeting<br />Higher education governance<br />Progression through demonstrated proficiency<br />Incentives for perpetual innovation<br />Right size prisons<br />
  54. 54. New Budgets Will Transform Policy Discussions<br />
  55. 55. Remember our budget deficit<br />
  56. 56. Reducing Medicaid spending growth by 2% reduces the 10-year deficit by 1/3<br />
  57. 57. Step 3: Revamp the tax structure to encourage stability and income growth<br />
  58. 58. Revamp the tax structure and encourage income growth<br />Bolster the state savings account by diverting corporate and personal kickers to a reserve fund.<br />Reduce capital gains and income taxes selectively to encourage investment in promising Oregon companies. <br />Adjust the new corporate sales tax that punishes high sales/low margin businesses<br />Seek the opportunity for comprehensive tax reform in the wake of tough 2011 session and unwinding federal timber payments<br />
  59. 59. With no sales tax and average property tax, Oregon relies heavily on income taxes<br />M 66 & 67<br />
  60. 60. Tax Policy-Tweaks and OverhaulsIs it time to address an over-reliance on the income tax?<br />
  61. 61. Tax Policy-Tweaks and Overhauls<br />Tax packages, discussed by the Revenue Restructuring Committee (RRC) and others, increase net revenues between 0.2% and 0.4% of personal income; Stand-alone sales taxes, with no personal income offsets, could add more. <br />

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