By Dr. Eric Fruits, Oregon Transformation Newsletter
A few months ago, I warned that Intel’s struggles should be a wake-up call for Oregon’s politicians. Rather than waking up, Oregon policymakers keep hitting “snooze” on the alarm, hoping the state’s problems will go away on their own. In the meantime, the world moves on, and the state is sliding deeper into decline.
The facts speak for themselves.
- Since my last article, Intel’s woes have worsened, with the company eliminating about 5,400 jobs since last August.
- Multnomah County has lost 5,100 jobs over the past year.
- The state’s economists say Oregon is in a “growth recession” or “near-stagnation.”
- CNBC reports Oregon is one of the worst states for business.
- Oregon is listed as the fourth-worst place to move to.
- The Oregonian reports, “Oregon’s current fifth graders posted bottom-of-the-barrel math scores that were measurably worse than those in 45 other states.”
To make matters worse, President Trump’s recently passed One Big Beautiful Bill will blow a hole in the state’s budget. Changes to Medicaid and food stamps will cost our state billions we don’t have.
Our elected officials can’t hit snooze anymore.
How Oregon Went from Success Story to Cautionary Tale
Twenty years ago, Oregon was winning. In 2004, outlets such as CBS News and USA Today called Portland one of America’s “most livable” cities. Our economy was so hot that Washington County actually charged Intel a $1,000 “head tax” for hiring too many workers. Today, we rank near the bottom for job growth while Clark County, Washington—right across the river—is booming.
Around this time, “second paycheck” mumbo jumbo popularized among policymakers. That was the idea that the state’s natural beauty (views of Mt. Hood!) and recreational opportunities were so valuable that just living in such an environment amounted to getting a second paycheck.
What changed?
Our politicians treated Oregon’s success like lottery winnings they could draw down without consequences. They forgot that prosperity requires constant work to maintain.
Look at the numbers. In 2004, the Public Employee Retirement System (PERS) had a $2.1 billion shortfall. Today, it’s approaching $30 billion. PERS costs have tripled from 10% to 30% of payroll, crushing state and local budgets across the state. Back then, we spent about 40% of our general fund budget on schools and 25% on “human services” such as the Oregon Health Plan. Today, those numbers have flipped—we spend more on human services than education.
In 2005, Portland launched a 10-year plan to “end” homelessness. Despite spending billions, the problem is worse than ever. Portland’s gone from one police officer for every 550 residents to one for every 800. The city has 200 fewer cops today than it did 20 years ago.
The War on Business Backfires
Instead of asking how to attract good jobs, Oregon’s politicians declared war on employers. They piled on regulations, made permits nearly impossible to get, and raised taxes again and again. They seem to believe businesses are magical money machines that can absorb infinite punishment.
Their attitude is simple: “If you can’t handle our rules and taxes, you just aren’t good at doing business.”
Maybe they’re right. Perhaps they aren’t good at doing business … in Oregon. But what happens when businesses take that advice, leave, and do business elsewhere?
The Exodus is Real
Downtown Portland tells the story. Office buildings are 30% empty. The iconic U.S. Bancorp Tower just sold for $45 million—80% less than it sold for in 2015. Lenders are seizing major properties like the Block 216 tower and the Broadway Tower hotel. Major employers like Wells Fargo, Standard Insurance, and Unitus Community Credit Union have fled downtown or left entirely. When buildings suffer large vacancies or sell for pennies on the dollar, property tax revenues will collapse, hammering city, county, and school budgets.
Small businesses are dying too. Beloved Portland restaurant Higgins recently begged for help to avoid closure. Slow Bar and HOME both shut down, citing declining neighborhoods and crushing costs for everything from insurance to permits.
Even so, one letter writer echoes a far-too-common notion, suggesting that the James Beard Award-winning Higgins owners are bad at business because they “priced themselves out of the Portland market.”
Why Downtown is Dying
Remote work changed everything. The pandemic fundamentally changed the workplace, with many employees—and their employers—adopting work-from-home practices. Despite the downsides of work-from-home, it looks like it’s here to stay. Workers like the convenience: They avoid lengthy commutes and save on childcare expenses. Research suggests employees are willing to take a 5-10% pay cut to take a remote job. Put another way, if employers want workers to return to the office full-time, they’d have to offer a 5-10% pay bump. If you can work anywhere in the world, why would you schlep downtown to sit in an office all day?
For years, the city has made schlepping downtown more and more miserable. There’s an old saying that “getting there is half the fun.” However, with the city’s steady supply of “road diets” and dedicated bike lanes and bus lanes, navigating downtown is anything but fun. Once you’re there, don’t forget to feed the meter because parking enforcement is the city’s most efficient agency. Get out of your car, and you’ll find yourself dodging tents, tarps, feces, panhandlers, and fentanyl zombies. Why take a meeting downtown when you can hop on a Zoom call?
Crime makes everything worse. It seems every Portlander knows someone who’s had their car broken into or stolen. Shopping means waiting for employees to unlock cases for basic items like shampoo and detergent, then having armed guards check your receipt like you’re a criminal.
The Tax Trap
Oregon’s tax burden is driving away the exact people we need most.
If you work in Portland, you’re faced with the county’s Preschool for All personal income tax as well as Metro’s homeless services personal income tax—even if you don’t live in those jurisdictions. Both the county and Metro assess their taxes based on where you live or where you work.
An accountant who lives in Sandy but works in Portland must pay those local income taxes. That accounting firm can save its employees thousands of dollars a year by closing shop in Portland and moving the office out of the region or across the river. They can give their employees a raise without increasing their salaries. Good employers listen to their employees. When the employees say, “We gotta get out of Portland,” it won’t take more than 30 minutes with a spreadsheet to make the economic case. Once they taste the sweet freedom of Clark County, they won’t be coming back.
You’ll see headlines when Intel announces layoffs or Dutch Bros. announces they’re moving their headquarters to Phoenix, Arizona. You don’t see headlines when a consulting firm closes its downtown office and moves to Vancouver. You don’t see headlines when a manufacturing firm considers—and rejects—opening a new plant in Oregon. The headline-grabbing announcements are just the tip of the iceberg. Underneath are thousands of missed opportunities.
The Real Solution
I’d love to be more optimistic, but even a mild optimist gives Pollyanna vibes. No, it’s not “just going to work out.”
It will take serious work, top to bottom, from the state to the counties to the cities to the school districts. Reversing the decline requires admitting our policies have failed and changing course. We need to:
- Reform PERS before it bankrupts state and local governments;
- Get tough on crime and clean up our streets;
- Slash business-killing regulations and taxes;
- Fix our failing schools;
- Stop throwing money at homelessness programs that don’t work; and
- Overhaul our bloated Medicaid system.
Unfortunately, we don’t have serious people in policy positions. We’ve seen a two-decade decline, and no one in power has taken serious steps to reverse it. Instead, we have “blue ribbon” committees, work groups, and task forces that excel at producing PowerPoints, but fail at reversing—or even slowing—the decline.
Time is Running Out
Some might say we just need to hit bottom. That’ll shake things up, and it’ll get better. But, no matter how bad you think things might be now, we haven’t hit bottom. There’s still a long way to go. Things just aren’t bad enough, yet.
Some say if we could just elect better people, then we’d get better policies. Over the past 20 years, every governor we’ve elected has at one point claimed they’d be the “education governor.” Yet every one of them has overseen an erosion in outcomes and achievement. Every Portland mayor since Bud Clark has promised to reduce homelessness. Yet, the problem has worsened. Everyone knows that PERS is a crisis destroying state and local government finances. Yet, Democrats refuse to address the crisis, and Republicans have given up trying.
I hate being such a pessimist, but electing better people is a lost cause. Vic Atiyeh was the last Oregon governor with business experience, but he left office nearly four decades ago. Keith Wilson is the first mayor in memory to have business experience, but he’s floundering under a system and city council that seeks to preserve the status quo. While he has enormous power under the new city charter, in the interest of comity with other electeds, he’s done little to reverse the city’s “doom loop.”
It’s too late to elect a new captain when the ship takes on water. At that point, the best option is to head for the lifeboats and float to the closest island. The people and businesses with options are leaving. It’s not the best thing for Oregon, but it’s the best thing for them. Unfortunately, those taxpayers and job creators are precisely the people we need to bail out the ship. Once they’ve jumped, they aren’t looking back.
In the meantime, we can still enjoy the views of Mt. Hood.
Source: https://oregoncatalyst.com/89845-7-dire-economic-warnings-oregon.html