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

Breaking Out of a

Circle of Scarcity

The Oregon Business Plan

Overview• What is the Oregon Business Plan?

• The Circle of Prosperity: The Foundation of the Oregon Business Plan agenda

• The Circle of Scarcity: The reality of Oregon since 1997

• Framing the Challenge for the next decade

• Getting to Work: The OBP agenda for 2010

What is the Oregon Business Plan?

• A shared vision of Oregon’s economic future and what it takes to get there

• A common agenda for the business community

• A sustained, productive partnership between business and public leaders

Business Plan Framework

Goal+

Vision+

Strategy+

Initiatives

Oregon Business Plan Goal

Jobs and the

Economy

Goal: Quality jobs for all Oregonians


Goal+

Vision+

Strategy+

Initiatives

OBP Vision: Traded Sector Success Through Innovation

• Leading-edge traded sector (export) companies are the engine that grow quality jobs and statewide prosperity.

• Oregon has many companies competing well through innovation in product and process, good R&D, smart marketing, and other practices.

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.

• 88% of Oregon businesses that export are “small” businesses.

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 Cluster Network• 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


Goal+

Vision+

Strategy+

Initiatives

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.

Strong Economy

Higher Per Capita Income & Lower

Poverty Rate

Lower Tax Rates forOur Chosen Level of

Public Services

Good Public Services & Higher

Quality of Life

Lower Costs

Higher Revenues

The Fifth P: Public FinanceAKA “The Circle of Prosperity”


Goal+

Vision+

Strategy+

Initiatives

Progress on some past initiatives

• Reform PERS• Invest in roads and bridges• Establish innovative signature research centers• Boost the number of engineering graduates• Identify shovel-ready industrial land• Support higher K-12 standards• Improve international air access• Simplify and streamline regulation and

permitting• Create a state rainy-day fund

……..but much work remains in these and other areas

2010 Regional Meetings

Leadership Summit: December 13th 2010Oregon Convention Center

• Bring together business, political & community leaders from across Oregon

•Make commitments to act on specific initiatives identified in the Plan

•Identify road blocks

•Celebrate successes

How Are We Doing?

• Private sector health• Public sector health

Strong Economy

Higher Per Capita Income & Lower

Poverty Rate

Lower Tax Rates forOur Chosen Level of

Public Services

Good Public Services & Higher

Quality of Life

Lower Costs

Higher Revenues

The Circle of Prosperity Starts with a Strong Economy

Where Do We Stand?

Per capita income OR, WA v. US Average

Washington

Oregon

US

Non-metro per capita income OR, WA v. US Average

Non-Metro Washington

Non-Metro Oregon

Per capita income Portland, Seattle metros v. US Average

Seattle Metro

Portland Metro

US

If Oregon looked more like Washington…

Price of Government: Revenue & Taxes as a Share of Personal Income

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 per capita OR v WA and US average

Washington

Oregon

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

Medicaid, human services, corrections

Medicaid, human services, corrections

Education operations less tuition (all levels)

Education spending is shrinking as a share of personal income

Average Annual Growth in General Fund, 2000-2011

The Road Ahead

Slow Economic Recovery

1980

1990

No change

2007State forecast

2001

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

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

The incoming workforce is less educated

Legacy costs of a poorly designed and managed public pension system have come due

Costs of an Aging Population will Hit Soon

Source: ECONorthwest calculations using data from Mercer, Kaiser Family Foundation, and Health Affairs

Decade of Deficits

Revenues

(bns.

)Expendit

ure

s (b

ns.

)

In March 2009, we anticipated no revenue growth for 2011-13…

Source: ECONorthwest calculations based on information from Oregon Governor’s office, and Illustrative spending assumptions

2009-11 2011-13 % Change

RESOURCES

General/Lottery 14,442 16,019 11%

Stimulus/Reserves 1,584 0 -100%

Total 16,026 16,019 0%

EXPENDITURES

K-12 SSF 5,982

OUS, CCWD, PreK 1,903

Human Services 4,531

Public Safety 2,523

All Other 965

PERS Increase -

Total Expenditures 15,903

Ending Balance 123

…a sizable increase in PERS costs…


2009-11 2011-13 % Change

RESOURCES



Total 16,026 16,019 0%

EXPENDITURES

K-12 SSF 5,982


Human Services 4,531

Public Safety 2,523

All Other 965

PERS Increase - 368 N/A


Ending Balance 123

…assumed modest healthcare and corrections increases…


2009-11 2011-13 % Change

RESOURCES



Total 16,026 16,019 0%

EXPENDITURES

K-12 SSF 5,982


Human Services 4,531 4,984 10%

Public Safety 2,523 2,674 6%

All Other 965



Ending Balance 123

…and no growth in K-12 or elsewhere.


2009-11 2011-13 % Change

RESOURCES



Total 16,026 16,019 0%

EXPENDITURES

K-12 SSF 5,982 5,982 0%




All Other 965 965 0%



Ending Balance 123

2009-11 2011-13 % Change

RESOURCES



Total 16,026 16,019 0%

EXPENDITURES

K-12 SSF 5,982 5,982 0%

OUS, CCWD, PreK 1,903 1,047 -45%





Total Expenditures 15,903 16,019 1%

Ending Balance 123 0

And that suggested a brutal biennium for post secondary education.


And now, in September, forecasts have dropped and the challenge is far greater.


2009-11 2011-13 % Change

RESOURCES



Total 14,933 15,042 1%

EXPENDITURES

K-12 SSF 5,982 5,982 0%

OUS, CCWD, PreK 1,903 70 -96%




PERS Increase - 368 na

Total Expenditures 15,903 15,042 -5%

Ending Balance -970 0

With no sales tax and recent income tax increases, Oregon income and capital gains taxes are among the

highest in the nation

M 66

Will we circle into a drain?

• Low investments in education and high income tax rates threaten further erosion of personal income levels

• The U.S. and Oregon economies appear poised for a slow, jobless recovery.

• Aging of the Baby Boom generation will increase the age 65+ population by 46% during 2010-2020, putting upward pressure on Medicaid spending.

• High health inflation will continue, which will drive up the costs of Medicaid and public employee compensation.

• Legacy costs of a poorly managed/conceived public employee pension system have come due.

• Jobs agenda to get the economy moving • Redesign public services to support the economy• Revamp the tax system to incent economic growth

How to turn things around: Focus on Jobs and Income

Decade of Deficits

Revenues

(bns.

)Expendit

ure

s (b

ns.

)

Decade of Deficits with Oregon at 97% US Avg. Income

Revenues

Expendit

ure

s

How Can We Grow Jobs and Income?

• Agree that it is important, in GOOD times, not just bad.

• Agree that increasing incomes is the best way we can support families, public services and non-profits.

• Build community culture that respects business and responds to needs. (Attitude of public officials is important).

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

Support Industry Strategies• High Tech

– Semiconductors– Software– Bioscience

• Advanced Manufacturing– Metals– Machinery and

transportation equipment• Footwear, sports apparel and

outdoor gear• Natural Resources

– Forestry and Wood Products

– Ag– Food processing– Tourism

• Clean Technology– Solar manufacturing– Environmental

Technology and Services

– Energy efficiency– Electric vehicles– Green building and

design– Wind energy

• Creative Industries– Film and Video– Design

Support Regional Strategies

Identify statewide policy initiativesDevelop specific actions and set priorities among

them.• Improve tax and budget policy

• Strengthen education and workforce development

• Reduce health care cost and improve quality

• Enhance transportation infrastructure

• Strengthen our capacity for economic innovation

• Ensure reliable, affordable and clean energy

• Strengthen access to capital

• Ensure the availability of shovel-ready industrial land., connected to infrastructure

• Simplify/streamline regulations and permitting

• Preserve/strengthen economic development tools and incentives

Initiatives – The heart of the Business Plan

• Tax and Budget Policy– New budgeting process– Short-term revenue policy– Long-term adjustments. – Employee compensation

• Strengthen education and workforce development• Reduce healthcare costs and improve quality• Transportation infrastructure • Innovation policy• Energy• Industrial lands• Regulatory/permit streamlining• Access to capital• Economic development tools

How we balance the budget over the next decade has critical implications for growing jobs and incomes

We also must pursue tactical actions to spark both near and long term job and income growth.

• Jobs agenda to get the economy moving • Redesign public services to support the economy• Revamp the tax system to incent economic growth


Redesign delivery to reduce cost and maintain service

Raise TaxesReduce / Eliminate

Services

Redesign delivery to reduce cost and maintain service

Raise TaxesReduce / Eliminate Services

Redesign 101: Develop a long range vision

Redesign 201: Calculate the per unit costs of everything (and tie them to results)

Redesign 301: Follow the money, challenge systems to deliver more with less, and drive better outcomes (especially in education)

Education Redesign

REDESIGN EDUCATION

The Charge• Increase students attaining

degrees to meet 40/40/20.• Cut an average 1-year from

time to degree• Increase minimum

standards in reading, writing, and mathematics

• Reduce costs per student by 10 percent or more by accelerating learning, applying new learning tools, and shrinking overhead

Possible Areas for Redesign

• Revamp incentives to reward student achievement, credit, and degree completion

• Create performance-based scholarships

• Redesign financing of special education and ELL

• Incent districts and colleges to consolidate delivery and administration

• Reconsider the state role in student transportation

Healthcare Redesign

REDESIGN HEALTHCARE

The Charge• World class health for each

Oregonian by 2020– Medical care at 10% of GSP– Universal access to healthcare– Healthy and satisfied users– Healthy communities in the

top five or above of World Benchmark of Health


• Design an insurance exchange that gets the incentives right for customers and providers

• Payment reform• New benefit package

designs• Value-based purchasing• Administrative

simplification

Corrections Redesign

REDESIGN CORRECTIONS

The Charge• Identify fiscally sound,

research-based sentencing and corrections policies that protect public safety, hold offenders accountable, and control costs


• Create a modern system of uniform, transparent, and proportional sentencing guideline practices that optimizes prison use

• Selectively adjust M11 sentences

• Expand and enhance home detention and supervision

• Implement incentives and performance goals for counties

REDESIGN LABOR

The Charge• Ensure a high quality

public sector workforce whose compensation is benchmarked to comparable private sector occupations


• Sunset the 6% PERS pickup• Phase-in employee

participation in healthcare costs

• Tactical jobs agenda to get the economy moving • Redesign public services to support the economy• Revamp the tax system to incent economic growth


Tax System Redesign

REDESIGN REVENUE/TAX POLICY

The Charge• Develop a stable revenue

source for education and other critical services, and create an environment for economic growth


• Reduce the capital gains rate

• Put the Rainy Day Fund in the Constitution with a 10% cap to be filled with personal kickers

• Create a higher education stability fund to be filled with corporate and capital gains kickers

• Set aside an ending balance for the Rainy Day Fund

Steering Committee• Associated Oregon Industries• Oregon Business Association• Oregon Business Council• Portland Business Alliance• Oregon Innovation Council• Engineering and Technology Industry Council• Oregon Association of Minority Entrepreneurs• Oregon Business Development Commission• Oregon Board of Higher Education• Oregon Transportation Commission• Regional at-large members

Endorsements (Partial List)

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

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