October 19, 2020

State of the State: Where Do We Stand and Where Are We Headed?

John Tapogna, president and CEO of ECONorthwest presented “State of the State: Where do we stand and where are we headed?” at the 2020 OCF Leaders Gathering on October 19, 2020. John’s advice and wisdom are relied on by leaders in government, business philanthropy. He frequently addresses OCF volunteers and staff and has partnered with OCF on a variety of research efforts. Watch a video of John’s presentation or read a transcript below.

Oregon's "State of the State" by John Tapogna of ECONorthwest.

A lot about American history is tied back to self-determination and individual liberty and self-action. Individuals don't beat pandemics—communities do. I think Oregon is coming out ahead, and I think it’s in no small part because we do have some stronger ties across the state than you might find in other places around the country.

So, let's go ahead and dig in. Here's what the employment outlook looks like.

Going back to 2010 you can see Oregon had a very strong decade, and a good run up, then just a precipitous decline, so unprecedented that we came in from a regulatory perspective and closed the economy in March and April and May in order to save it.

You can see employment levels went back to their levels from middle of 2013 and have rebounded, but those gains that you see here, they're going to be harder to come by as the months proceed. The healthcare sector came back online. Manufacturing professional services etc. rebounded nicely what's left is an awful lot of the leisure and hospitality sector that is still going to have a hard time: your bars, your movie theaters, your museums, sporting events, etc. are really not going to come back at full strength until we have full control of this virus after we've developed and deployed a vaccine.

Here's the unemployment picture.

Roughly, you can see that huge rise in April and May. If you had asked me, and many others back then, anticipation that at this time of the year, we may have still been in the teens on unemployment.

So, some relatively positive news here in terms of just how far that has declined. We're probably in the seven and eight percent range which was at the optimistic end according to the Federal Reserve Board back in June.

Important to say here, those are overall statewide averages for communities of color and especially Black Oregonians those rates are probably in the teens still and an awful lot of young and female workers [are] disproportionately affected by this economic downturn.

This was a big surprise. Three weeks ago or so, the state economist came out and said, from March to September, if we compare those periods to the same periods in earlier years, we had record personal income tax collections, which they attributed to a couple of dynamics. Number one is $2.3 trillion of federal fiscal stimulus has to end up someplace and some of it ended up being personal income tax collections because unemployment insurance is taxable.

You know the other dynamic here is you are beginning to hear of this concept of a K-shaped recovery where higher income workers are less affected by this. They figured out how to do work in with the virus in the background. It is the lower income, especially in that leisure and hospitality sector workers, who have been disproportionally hit by this recession, they are not being income taxpayers. And so consequently the economists at the state were surprised from a general fund perspective—pleasantly surprised—that these tax collections held up as, as well as they did. So, knock on wood, someone's going to take some, you know, Federal action going forward this recovery appears to be on the better end so far. But clearly, you know, another full year of pandemic to work with before we are out of the woods.

 And I'm going to transition to just a little bit of commentary about Oregon Oregon's history with respect and how we are performing in this first eight months or so of this pandemic.

Let's go to this first slide. This is a history lesson. This goes back to the flu of 1918. There’s a lot going on in this chart, so I'll try to help you through it. If we go across the bottom, those are mortality rates per hundred thousand and if we go up the axis, that's the change of employment between 1914 and 1919. So that's how much these economies grew. The green dots are those communities that put in social distancing and mask wearing those non-pharmaceutical interventions. And the red dots are those that didn’t—they kept their bars open their schools open, not a lot of mask wearing, etc.

In 1918 economists found that Seattle, Oakland, Portland and LA tended to grow. They worked better with this virus in the background and ended up that period in better shape than Pittsburgh and Philadelphia and the like.

How are we doing this time? If there were just a couple of slides that I would pay attention to in this gathering, this is, this is one of them. This is mask wearing. Across the United States with the darker pink being the higher the likelihood that if you have five random encounters that you're going to come across five people who are wearing masks.

And you can see that, certainly at a strong in the metropolitan areas in Oregon. But it’s even much stronger in the rural parts of Oregon with the exceptions of Harney and Malheur and maybe Baker County.

Then you see in much of the rest of the of the upper Midwest, or the plains and down into the southeastern part of the United States.

I think this is an important chart to pay attention to when you think about community action and how a community is operating.

Economists and others are all trying to figure out this sort of measures of social capital, the strengths of communities and the networks between the humans in them. I think there's an awful lot of information coming out of this pandemic about how we work together to keep infection death rates low.

This gives you a just a sense from the summer of how things were going with respect across the bottom. This was restaurant revenue for dine in, and then up the access is was a two year trend on infection rates across states see Oregon was sort of in the middle of the pack there but way off on the upper right hand corner, Idaho and Montana. And not only did they have high infection and death rates during the summer, but they have highly elevated rates right now as well. So that is not discouraging smart dine-in, because an awful lot of good restaurants have figured out outdoor spaces and things of that worried socially distance indoor spaces, etc.

But it does show that we have to be careful as we go out of our homes, figuring out how to how to distance and interact with this virus for what is likely to be at least another year before we're completely out of the woods.

The good news here up to this point. This is the mortality rate. Again, remember that one from 1918. Here we are again in Oregon with a mortality rate of 14.2 per hundred thousand people [600 deaths]. There’s only a handful of states below us at this point, Alaska and Hawaii among them. So just as 1918, Oregon is doing very well relative to the rest of the United States. So, let's keep it up.

Now I'm going to sort of turn to looking into the future and an outlook.

This next slide is the one slide is I think about Oregon's future and going forward together with that mask wearing slide, this would be the other one that wide cut out and I would put on corkboard above my desk.

Our natural rate of population growth is going to go negative later this decade for the first time in a century over a century and it already has gone negative in a number of counties, many rural counties across the state, which essentially means that if we want to continue to grow economically and continue to innovate, we’re going to have to continue to be attractive to people who don't live here, to move here and help keep our communities and our economies growing.

We’re just in a very different situation than we were in the 1970s or 1990s. [Governor] Tom McCall in the 70s was saying visit but don’t stay. Demographically were in a very different space and it requires thinking about the economy and population differently going forward. So, let's think about this and think about different aspects and trends that may either be attracting or potentially repelling talent and households and businesses from moving here.

This is a look at the migration demography and population going forward. So, what we have here across the bottom are the share of the population in in counties across the state of Oregon who are Latinx or Hispanic and then the 2022 to 2025 annualized growth rate projected by the state of those counties. Those dark circles are rural counties the lighter blue our urban counties, etc. And what you see here, with one exception, is that, especially in rural Oregon, if there's any expectation of growth, it is in those counties that have a higher share of Hispanic residents, both due to birth rates, but also expected in-migration. The exception down there on the on the bottom closer to the zero on population growth is Malheur County.

So again, this notion of thinking about counties across the state—what makes them welcoming and embracing and a magnet, for people and families, etc.?

Here's our what I would say as heart key competitive advantage and the founder of our company Ed Whitelaw continues to call it the second paycheck, which is we have beautiful natural amenity amenities. So, this is one take from the US Department of Agriculture looking at what makes a nice place to live.

You can see, you know, Oregon scores well here. There are other estimates that that put us I think number four in the country, if you were to estimate what people were willing to give up in wages to live in a place with the natural amenities that we have. And so that always has been part of our secret of how we've grown, is that we are a place that people want to be for those natural amenities. Thankfully, we are not Cleveland or Duluth, Minnesota, or a whole host of those other places in that brown part of the map.

But we do have to be concerned with climate change. We have gotten to the point now where Moody's and other bond municipal bond rating services are starting to bake in climate change risk into their municipal bond ratings. This is just one take that feeds into their estimates of where they see the risk playing out with respect to cyclones sea level rise, extreme rainfall, heat stress and water stress, etc.

A big one for the Pacific Northwest is this extreme rainfall and though in as most of you are becoming familiar with those sort of warm very wet, I think they call them atmospheric river events that we've been…experiencing over the course of the last five or six years.

Senator Mark Hass has seen an awful lot of ECONorthwest presentations over the years and he’s always told me, “John you have way too many graphical slides. Occasionally, you need to throw in a picture.” And so, here’s one from September and that’s what the smoke looked like on the West Coast of the United States on September 14. And I'm sure everybody on this call remembers those eight to 10 days, just unlike anything I have ever remembered living through—just inability to even walk out the front door and walk a couple of blocks, given the unprecedented levels that that scientists couldn't even describe to us the harm that would that would come to us if we walked out and moved around with that smoke.

This is just an estimate from an economists, looking at disasters, from 1942 to 2010, and those impacts. So if you look over to the right of fire count just research showing that if we end up in a posture with repeated and longer fire seasons, it will put a headwind on in-migrations over the course of a decade about 1.3 percentage point reduction in in-migration for regions that had experienced repeated and frequent fires.

Big changes in state local taxation either playing out right now or about to play out—Oregon's got some big text measures they just passed with respect to homelessness services, and is also thinking about a universal pre-K. If everything passes that’s sitting on the ballot this November, Portland would become the city with the largest personal income tax rate in the United States. The key here is if those do come to pass, those have to turn into services that households and businesses are drawn to and so execution and implementation are going to be critical.

Let’s move on to another topic.

Same point on business taxes for the state of Oregon with the implementation of the commercial activities tax. We went from a relatively low taxing state on businesses up to a couple of ticks above average. It is just a very abrupt and quick change in tax policy in the state. Not to say that those moves weren't good ones, but it’s absolutely critical that those tax revenues turn into us strong well delivered services.

We do have the lowest housing prices on the West Coast. So, it’s one is concerned about taxes and things of that nature, nothing eats up more of a household budget than house expenses. The state does currently have a pro housing supply. It’s been considered one of the most ambitious housing reforms in in the United States. If we can execute it and keep housing affordable in the state of Oregon. I think it ends up being a big economic advantage relative to California and Washington.

I'm going to end very quickly with seven questions:

  1. Can we translate our relative success in this pandemic into a stronger recovery?
  2. Do our nation-leading housing and forms translate into lower prices and a competitive advantage?
  3. Can rural Oregon seize on an opening and use remote work and telemedicine to its economic advantage?
  4. Will recent tax increases translate into services, strengthen human capital and attract households and business businesses, especially among communities of color?
  5. Will future US trade postures allow Oregon businesses to sell into a rapidly growing Asian middle class?
  6. How long will it take for Portland's reputation to recover from too many months in the headlines?
  7. Were those really once in a century winds that ignited our fires on Labor Day, or should we expect them more often?