Oregon Office of Economic Analysis

Given the importance of the ongoing discussions at the local, state and federal levels regarding timber payments and funding county governments, and the fact I was down in Medford last week for the Southern Oregon Economic Summit, I wanted to provide some updated research and an overview of the issue. I will have much more on the housing outlook from the summit, which was sponsored by both the home builders and realtors, but for now I want to concentrate on the timber payments issues, the regional economy and the outlook. For definitional purposes, I am defining Southern Oregon as Douglas, Jackson and Josephine counties while the Southern Coast is Coos and Curry counties.

First, a quick graphical representation of the changes in the wood products industry over the past 66 years in the state. These industry jobs are primarily the mills and loggers. For a more thorough look at the industry changes please refer to this previous post on the industry’s history or this recent Oregonian article. I will highlight just a couple items. First, the industry used to have 70,000-80,000 jobs that paid about 35% above the state average and was a major economic strength at that time. Following the early 1980s recession, when the industry underwent a major restructuring, the industry regained its level of output but not employment as the retooled mills were much more productive, automated and mechanized, requiring less workers for the same output. Obviously the environmental restrictions put in place in the early 1990s had a major impact on the industry as harvest levels on publicly owned lands declined substantially, however the process of technological improvement continued, resulting in less employment. The Great Recession and housing bust wiped out about one third of the remaining industry jobs however at least some are being added back today, with employment up about 2,000 from the recessionary lows.

While the above is for the state overall, the industry has a clear geographic footprint. In 2012, Southern Oregon and the Southern Coast accounted for 12% of the state’s population, 10% of employment but 31% of the wood products and logging jobs. Historically the local and county governments received a share of the timber harvest revenue however as harvest levels declined so too did this funding source. In its place the federal government instituted timber county payments to help support these local and county governments. As seen in the graph below, which comes from the Oregon Secretary of State’s 2012 county audit report (see PDF page 9) these funds comprised a sizable portion of the counties’ budgets, however these revenues have not been extended by Congress and are now gone, at least for the time being and possibly forever. While the graph illustrates just the BLM revenues, and there are other funding streams, it is representative of the regional impact. For more information on the history of and historical values of these timber-related revenues, see the previous post or Oregonian article linked above.

Another aspect of the timber-related revenues is it did allow for these counties to have lower property taxes. The map below comes from the Oregon Department of Revenue’s FY2012-13 property tax report (see PDF page 13). The numbers represent the effective property tax rate by county for all classes of properties, not just residential. With low property tax rates, and much of the land within these counties being publicly owned (about 61% on the Southern Coast, 51% in Southern Oregon), coupled with tough economic conditions, it makes it difficult to fully fund and provide public services today. That is why local counties have gone to the voters in recent years for different measures or levies. Recently Curry and Josephine county residents voted down public safety levies, however Lane county did pass theirs.

As part of the economic summit in Medford last week there was a panel discussion that included county commissioners from both Jackson and Josephine counties. Cherryl Walker, vice chair of Josephine county, was relatively upbeat and optimistic about their outlook. To paraphrase some of her comments, even with the recent vote, which at that time was little more than 1 day old, it is not like the county is going to give up and not provide services. They will continue to manage through the best they can and find it encouraging that the latest vote was decided by just a couple percentage points as opposed to the previous vote that lost by a wide margin.

In terms of the regional outlook, there are two primary factors our office is looking at: industry structure and population. Oregon has been and will always be to a certain extent a natural resource state. From the wheat out east to the crops in the valley to the fishing on the Columbia River or off the coast to the timber in the south, these industries will remain a fundamental part to the state and regional economies. With that being said, Oregon’s rural economy has been restructuring, and will continue to evolve, with service industries leading growth. When a smaller area loses its traditional economic base, the common refrain one hears from the development community is to become a tourism hub or to try to gain a portion of the growing medical sector as the population ages. Although these are often successful strategies, to be honest, not everywhere can become a hub for either or both of these things.

Industrial transitions are often a painful process and there will be localities that will make the transition better than others. So far, Jackson and Josephine counties are seeing stronger growth in the service industries than their neighboring counties, and therefore, not surprisingly, better overall job growth. Part of their relative strength is due to their institutions of higher education (Southern Oregon University and Rogue Community College) and expanding medical sector. This is not to say everything is perfect, but it does indicate that the fundamentals of growth moving forward are a bit stronger. Furthermore, continued investments in the local workforce via education and training, plus maintaining and upgrading infrastructure are vital for future growth.

In addition to the local industry structure, an important component of economic growth in Oregon is our net in-migration and growing population. At the May 2013 forecast release, Mark and the revenue committees discussed some of the demographic trends and concerns in the state and in particular the more rural areas where the natural increase in the population (births minus deaths) has already turned negative or is about to. These demographic trends are most pronounced along the Southern Coast but also prominent in Southern Oregon. As discussed in more depth previously, all of the population growth in these regions is projected to be due to in-migration.

In terms of migration, Oregon does attract both the young, educated workers but also some retirees or near-retirement age individuals. Overall in the U.S. there has been a many decades long trend in migration away from the northeast and mid-west to the south and west, however along the west coast the migration trends are northward. Oregon receives the vast majority of its net in-migrants from California and also loses population to Washington (and Idaho for that matter). This pattern of California in-migrants is even more pronounced in our southern counties, as seen below (data from the IRS).

One of the items our office has been following is migration patterns and flows over time. With the Great Recession and housing bust, overall migration flows are down as less people are moving given some are trapped in their underwater homes but also given the lack of job opportunities throughout the country (save for the energy states). What hasn’t really changed is the pattern of migration. Most in-migrants, again, come from California but the state overall does receive a little bit from everywhere else in the country. We find it encouraging that the patterns remain even if the flows are down. As the economy continues to recover and job opportunities increase, we expect the number of migrants to increase and drive population growth moving forward, which will further help economic growth.

Given all of the above, the economic outlook for the southern regional economies really does flow directly from these issues. As the economy continues to improve, so too should migration flows which will bring an influx of new residents. The housing recovery is here, which has a more pronounced impact on economic growth in the medium and smaller sized cities, and along with it the demand for wood products. With all this being said the longer term growth is likely to be driven by the service sectors of the economy. On the downside, the aging demographics in the state and the regions will weigh on growth and over time the manufacturing sector has not been a source of net employment gains. Finally, while our office expects state and local governments overall in Oregon to stabilize in 2013, the southern counties are likely to face at least another year of layoffs and cutbacks, particularly in light of the recent votes in Curry and Josephine counties.

I have a plethora of regional economic graphs for both Southern Oregon and the Southern Coast that I plan on posting in the next day or two. Given the length of this post, these will largely be without comment but should provide some more clarity in terms of historical trends and economic performance, including recession comparisons. In the meantime, for more information on these counties, please refer to the Oregon Employment Department’s website (click on the map in the upper right-hand corner).