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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
Business Plan Framework
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
Business Plan Framework
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”
Business Plan Framework
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
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
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…
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 - 368 N/A
Total Expenditures 15,903
Ending Balance 123
…assumed modest healthcare and corrections increases…
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 4,984 10%
Public Safety 2,523 2,674 6%
All Other 965
PERS Increase - 368 N/A
Total Expenditures 15,903
Ending Balance 123
…and no growth in K-12 or elsewhere.
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 5,982 0%
OUS, CCWD, PreK 1,903
Human Services 4,531 4,984 10%
Public Safety 2,523 2,674 6%
All Other 965 965 0%
PERS Increase - 368 N/A
Total Expenditures 15,903
Ending Balance 123
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 5,982 0%
OUS, CCWD, PreK 1,903 1,047 -45%
Human Services 4,531 4,984 10%
Public Safety 2,523 2,674 6%
All Other 965 965 0%
PERS Increase - 368 N/A
Total Expenditures 15,903 16,019 1%
Ending Balance 123 0
And that suggested a brutal biennium for post secondary education.
Source: ECONorthwest calculations based on information from Oregon Governor’s office, and Illustrative spending assumptions
And now, in September, forecasts have dropped and the challenge is far greater.
Source: ECONorthwest calculations based on information from Oregon Governor’s office, and Illustrative spending assumptions
2009-11 2011-13 % Change
RESOURCES
General/Lottery 13,464 15,042 12%
Stimulus/Reserves 1,469 0 -100%
Total 14,933 15,042 1%
EXPENDITURES
K-12 SSF 5,982 5,982 0%
OUS, CCWD, PreK 1,903 70 -96%
Human Services 4,531 4,984 10%
Public Safety 2,523 2,674 6%
All Other 965 965 0%
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
• 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
How to turn things around: Focus on Jobs and Income
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 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
Possible Areas for Redesign
• 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
Possible Areas for Redesign
• 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
Possible Areas for Redesign
• 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
How to turn things around: Focus on Jobs and Income
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
Possible Areas for Redesign
• 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)