circle of scarcity 9.12.11

Breaking Out of a

Circle of Scarcity

The Oregon Business Plan

Questions

• Over the long run, how is Oregon doing at creating and sustaining high wage jobs?

• What is the (two-way) relationship between Oregon’s economic performance and the health of our public services (particularly education)? How has this been playing out in Oregon?

• How do we to turn things around?• Are we making progress?

Strong Economy

Higher Incomes & Lower

Poverty Rate

Lower Tax Rates and/or

More Dollars for Public Services

Good Public Services & Higher

Quality of Life

Lower Costs

Higher Revenues

The Circle of Prosperity: How its supposed to work

Strong Economy

Higher Incomes & Lower

Poverty Rate

Lower Tax Rates and/or

More Dollars for Public Services

Good Public Services & Higher

Quality of Life

Lower Costs

Higher Revenues

So How Are We Doing on Jobs and Incomes?

Per capita income OR, WA v. US Average

Washington

Oregon

US

Per capita income OR, WA v. US Average

Washington

Oregon

US

Per capita income OR, WA v. US Average

Washington

Oregon

US

Per capita income OR, WA v. US Average

Washington

Oregon

US

If Oregon looked more like Washington…

Change in Oregon employment starting…

Sources: U.S. Bureau of Economic Analysis; Oregon Office of Economic Analysis

Job Losses From Recession Are Deep and the Recovery Will Be Slow

Strong Economy

Higher Incomes & Lower

Poverty Rate

Lower Tax Rates and/or

More Dollars for Public Services

Good Public Services & Higher

Quality of Life

Lower Costs

Higher Revenues

So what does this mean for quality public services?

The first thing to know: As a share of total personal income, Oregonians don’t deviate on how much they spend on Government. For the State General Fund, its about 5 cents on every dollar earned (bottom line)

19

77

20

00

19

80

19

90

20

07

0%

5%

10%

15%

18%State & Local Revenue

State & Local Taxes

General/Lottery Fund (State Only)

Revenue (Taxes + Fees) as a Share of Personal Income

Revenue per capita OR v WA and US average

Washington

Oregon

Since our income is declining compared to Washington, so is our investment in Public Services

Change in Oregon employment starting…

Sources: U.S. Bureau of Economic Analysis; Oregon Office of Economic Analysis

Combined with all of the job losses, and the slow recovery, and we have a recipe for...

A “Decade of Deficits” ($3bn/biennium)

Revenues

(bns.

)Expendit

ure

s (b

ns.

)

Recap• Oregonians have significantly lower incomes than the

national average (long-term trend, not related to current recession)

• Job losses are severe and will take years to recover.• The contribution of Oregonians to the public sector

through taxes and fees remains remarkably consistent over time (as a share of total personal income), despite many actual and attempted changes to tax and fee policy.

• Since we have lower incomes than the nation as a whole, we have fewer dollars/capita to spend on services than our peers.

• And the job losses and slow recovery from the recession exacerbate this already unfortunate trend.

• The result is a decade of $3 billion deficits each biennium

• That is just the total pie and says nothing of how we spend our limited resources.

Tradeoffs: Medicaid/Corrections spending is growing as a share of personal income

Medicaid, human services, corrections

So how are we spending out limited dollars?

Medicaid, human services, corrections

Education operations less tuition (all levels)

Tradeoffs: Education spending is shrinking as a share of personal income

The Demographic Tsunami

• All indications are that these spending trends will be exacerbated over the coming decade (s) because of

• An aging population– Demanding more health services– Reducing the number of workers

earning wages and paying taxes• Continued passage of “tough on

crime” ballot measures

The number of Oregonians aged 65+

will increase 46% during 2010-2020.

Or about 60 per day.

And, as they retire, they’ll take their

diplomas and experience with them.

Fewer workers to pay for an aging population

Annual average growth, 2010-2019

P20

Total GF/LF Spending

All of this means fewer dollars for education over the next decade.

Human Services

Public Safety

28% of children under 5 live with a single parent22% live in poverty23% have no English speaking parent

Yet educating our population will not get any easier

And education matters more now than ever

And We Are Already Seeing the Consequences of Neglect

The incoming workforce is LESS educated than the outgoing

Can we turn things around?

Turnaround Plan

FOCUS

Replace the tired debate

• Public sector versus private sector• Business versus unions• More money versus less money

With a new paradigm1. Focus on economic growth.

-It’s the best way we can support families, public services and non-profits.-Agree that it is important, in GOOD times, not just bad.-Build a community culture that respects economic growth.-Advance specific initiatives to improve the business climate and create jobs.

2. Redesign our public services to get more bang for each public buck

Oregon Business Plan Goal

Jobs and the

Economy

Goal: Quality jobs for all Oregonians

Oregon Business Plan Goal

25,000 Jobs/Yea

r

Goal: Quality jobs for all Oregonians

Oregon Business Plan Goal

Per person income

above US average by 2020

Goal: Quality jobs for all Oregonians

Grow Income: Welcome High Wage Jobs in Good Times and Bad

Traded Sector Drives Growth

Traded/Export Sector

Suppliers

Local

Sales to rest of world

Most jobs are here: schools, hospitals, grocery stores, restaurants

But firms in this sector drive the economy

Traded Sector ≠ “Large”

• Large and small is not the appropriate distinction. Both large and small companies sell their products and services outside of Oregon borders (including financial services)– 88% of Oregon businesses that sell

outside our borders are “small” businesses (50 of fewer employees).

Clustering is Critical

• Traded sector success isn’t random – traded sector businesses cluster

• Similar and related businesses draw advantages from proximity

• Places specialize

Oregon Industry Clusters• High Tech

– Semiconductors + electronic components

– Software– Education technology and services– Bioscience

• Advanced Manufacturing– Metals– Machinery – Transportation equipment– Defense– Food Processing– Aviation

• Footwear, sports apparel and outdoor gear

• Natural Resources– Forestry and Wood Products– Agriculture– Nursery products– Tourism

• Clean Technology– Solar manufacturing– Environmental

Technology and Services

– Energy efficiency– Electric vehicles– Green building and

design– Wind energy– Wave energy

• Creative Industries– Film and Video– Design

Four Ps for Prosperity• People: Support for the education &

training of our current & future workforce.

• Place: Working to enhance Oregon’s quality of life and resource utilization.

• Productivity: Ensuring the availability of cost-competitive public and private resources and services.

• Pioneering Innovation: Support for innovative research, business formation, availability of investment capital, and commercialization of research.

• Long-term, outcomes based budgeting

• Education• Healthcare• Tax policy

• Public safety/corrections• Public employee

compensation

1. Redesign public budgeting and public service delivery to reflect future economic, fiscal and demographic realities

Policy Agenda

2. Implement targeted policies to spark economic development and job creation.

Decade of Deficits

Revenues

(bns.

)Expendit

ure

s (b

ns.

)

Annual average growth, 2010-2019

P20

Total GF/LF Spending

Where We’re Headed: Baseline Economy; No Reset

Human Services

Public Safety

Annual average growth, 2010-2019

P20

Total GF/LF Spending

Baseline Economy; Corrections Reset

Human Services

Public Safety

Annual average growth, 2010-2019

P20

Total GF/LF Spending

Baseline Economy; Corrections & Healthcare Reset

Human Services

Public Safety

Annual average growth, 2010-2019

P20

Total GF/LF Spending

Stronger Economy; Corrections & Healthcare Reset

Human Services

Public Safety

Healthcare Redesign

Corrections Redesign

Education Redesign

Education Redesign• Vision and Goal: 40-40-20• Budget across 0-20, rather than in silos• Centered around students and their seamless

experience, rather than institutions• Learning becomes the constant and “seat time”

the variable• High degree of accountability for results, lots of

flexibility for students and educators to achieve them

• More tools to evaluate student progress and learning

• Data systems that track student performance over time and across institutions

Tax System Redesign

Tax Reform• Oregon income and capital gains taxes are

too high and create perverse incentives (particularly because of proximity to WA).

• Oregon’s tax system is extremely volatile (cap gains is MOST VOLATILE type of tax)

• We have no permanent mechanism for savings yet we regularly send “kicker” checks back to taxpayers

• Long term: total overhaul (i.e. create sales tax, lower income/cap gains tax)

• Near term: Savings/Kicker + Cap Gains reform

Targeted Actions to Spark Economic Development and Job

Creation1. Oregon Innovation Plan

2. Improve business finance/access to capital tools

3. Simplify regulations and permitting

4. Industrial land supply

5. Forest thinning + biomass

6. Accelerate energy efficiency efforts

7. Targeted infrastructure projects

8. Workforce training 9. Water withdrawal

on Columbia10. Targeted tax

incentives/changes

Progress

• Governor and legislature have been key partners and shown tremendous bipartisan leadership

• OBP is an umbrella organization-the real work gets done by people and organizations on the ground

• See handout

Learn More: Please Visit

www.oregonbusinessplan.org

.