Understanding the Two Oregons:

Myths, Realities and Confronting Change

A White Paper prepared by Impresa for the

Portland Metropolitan Chamber of Commerce

January, 1999

A deep and widening chasm of mistrust and misunderstanding often separates urban and rural Oregon. The divisions between the two Oregons are not so much rooted in fact as they are in image and legend. The battle is really between two caricatures of urban and rural Oregon, and glosses over or misses entirely many of the complex realities.

To better understand the relationship between urban and rural Oregon, it is helpful to face the myths squarely in the eye, to expose the reality of the current situation, and to explain why the Oregon of today is different than the images that many of us have.

The objective of this paper is to dispel some of the commonly held but incorrect views many have about the differences between the two Oregons. There is no single definitive source or set of mythologies or common beliefs of Oregonians. But anyone with who has been a careful listener to public debate in Oregon will recognize some or all of the positions described in the myths listed below. That is not to say that all, nor even a majority, of Oregonians agree with these propositions, but that these positions would find widespread credence in many discussions.

It helps to begin by defining what we mean by the Two Oregons. While there are many possible dividing lines, we choose a definition that nearly divides the state's population in half. About 45 percent of the state's population lives in the five Oregon counties--Clackamas, Columbia, Multnomah, Washington and Yamhill--that the federal government identifies as part of the Portland-Vancouver Metropolitan Statistical Area. The remaining 55 percent of Oregonians live in the remaining 31 counties. We use these definitions of metropolitan Portland and "the other Oregon," to make the statistical comparisons that follow. We use the terms "metro" to refer to the five Portland counties, and "non-metro" for the balance of the state.

The myths about the differences between Portland and the rest of the state involve the economic, social and financial aspects of life. Let us examine seven of the most common myths, and then consider the realities of the relationship between metro and non-metro Oregon.

JOB GROWTH

The Myth: Since the 1980s, all or nearly all, of the state's job growth has occurred in the Portland metropolitan area. Jobs in rural Oregon have stagnated and declined.

The Reality: Non-metro Oregon has seen substantial job growth in the 1980s and 1990s. The are 250,000 more jobs in non-metro Oregon now than there were in 1979--the peak of the 1970s economic boom. Some 26 of the 31 counties outside the Portland metropolitan area have more jobs now than they did then (Baker, Coos, Morrow, Sherman and Wheeler Counties, are the exceptions). Economic problems in non-metro Oregon don't stem from the lack of overall employment growth, indeed, from 1982 onward, that part of Oregon outside Portland grew faster than the overall US economy. Rather, the problems are two-fold:

POVERTY

The Myth: Poverty in Oregon is an urban problem, most closely associated with minorities living in inner city neighborhoods;

The Reality: Poverty in Oregon is largely a non-metro problem. More than 60 percent of poor Oregonians live outside the Portland metropolitan area. The poverty rate in non-metro Oregon is 14.8 percent. The poverty rate in the metropolitan area is 11.3 percent. Oregonians outside the Portland metropolitan area are 30 percent more likely to live in poverty than their urban counterparts.

CRIME

The Myth: Crime generally, and specific criminal problems, like drugs, gangs and car theft, are largely urban problems. Crime, though not unknown in non-metro areas, is far lower outside the Portland metropolitan area. State prisons are full of Portland area criminals.

The Reality: Crime is somewhat disproportionately concentrated in the metro area, but far less than most people think. Approximately 47 percent of the inmate population of state correctional facilities is from the Portland metropolitan area, only slightly higher than the region's 45 percent share of the state population. Many crimes are more prevalent outside Portland. The Portland area accounts for about 37 percent of the state's reported child abuse cases; Reported child abuse is about 15 percent higher outside the Portland metropolitan area.

DEPENDENCY AND SELF RELIANCE

The Myth: Rural Oregon is populated with hard working, self-sufficient families, who are less likely to take a government hand out than their urban brethren.

The Reality: Non-metro Oregon depends on government payments (welfare, food stamps, unemployment, Medicaid and Medicare) far more than does the Portland area. Government transfer payments—Social Security, Medicare, welfare, unemployment and other payments—account for 20 percent of personal income outside the metropolitan area, but only about 13 percent of Portland area income. With about 45 percent of the state's population, the metro area has only 37 percent of Oregon Health Plan expenditures.

THE SOURCES OF OREGON'S WEALTH

The Myth: Most of Oregon's wealth springs from the land of rural Oregon; the Portland area lives off the wealth created in the rest of the state. Portland's economy prospers in large part because of its role as a transporter, marketer, consumer and financier of the state's resource-based industries.

The Reality: Most of Oregon's wealth now springs from the knowledge-based economy (centered in the metropolitan area) and not the resource-based industries of non-metro Oregon.

The Portland area is not economically dependent on non-metro Oregon industries. Only a tiny fraction of Portland workers are involved in transportation, distribution, wholesaling and marketing of the products of the state's resource-based industries. Oregon State University studies show the largest manufacturing input urban businesses purchased from non-metro Oregon is electricity.

URBAN RURAL REDISTRIBUTION

The Myth: Government redistributes income from hard working, self-reliant types (found mostly in rural Oregon) to the indolent and bureaucrats (found mostly in urban Oregon). Taxes from throughout the state support expensive public services that disproportionately benefit the Portland metropolitan area.

The Reality: Portland taxes support state services throughout the state: The Portland area takes a smaller than proportionate share of most state services, and pays a much larger than proportionate share of state costs. In 1996, personal income tax receipts from the Portland metropolitan area (including the taxes paid by Clark County residents on their Oregon earnings), amounted to 55 percent of state personal income tax receipts. From the biggest item of state expenditure, K-12 education, Portland area schools get 41 percent of the total. Taxes raised in the urban area pay the costs of poor rural school districts throughout the state.

BIASED STATE ECONOMIC POLICIES

The Myth: State economic development policies and investments have favored the Portland metropolitan area over rural Oregon. Big tax breaks for the high tech industry, plus large expenditures of lottery dollars have boosted growth in the Portland metropolitan area; little has been done for rural Oregon and traditional resource-based industries.

The Reality: State economic development and tax policies primarily benefit non-metro Oregon and non-metro industries.

Why is there such a gap between the widespread, if not dominant, myths and the hard and often inconvenient realities of the divide between urban and rural Oregon?

Some of this problem stems from the economic changes that have swept the change, especially over the past two decades. Looking back to the peak of the economy in the late 1970s, we can get a clearer view of the changes that have reshaped Oregon over the past two decades. We all know that Oregon has grown; but the Oregon we have today is not simply a larger version of the state we knew as recently as the 1970s, it's different in important ways.

The economic relationship of Portland and Oregon has changed dramatically in the past two decades. The state's economy has been transformed from one that relies primarily on the natural resource strengths of the state's rural industries, to one that relies primarily on the income generated by knowledge-based industries in the Portland metropolitan area. The primary factor distinguishing Portland's economic growth from that elsewhere in Oregon has not been the number of jobs created; Portland has grown faster than the rest of Oregon, but even the portion of the state outside Portland has grown faster than the nation since 1992. The key economic difference between Portland and the rest of the state has been wage levels—adjusted for inflation, wages have risen significantly in Portland since the 1970s, but, on the whole, have declined everywhere else.

As recently as 1979, most of Oregon's jobs were located outside the metropolitan area. In the early 1980s, Portland area jobs surpassed total employment in the rest of Oregon. Job growth outside of the Portland area has been strong, averaging 3.0 percent from 1982 to 1990, and 2.4 percent from 1990 to 1996. Job growth outside of Portland, in fact, has been faster than nationally. Outside Portland, there are more than 250,000 more jobs now than there were in 1979. But over the same time period, Portland has added more than 350,000 jobs.

Twenty years ago, most of the state's manufacturing jobs and payroll were located outside the Portland metro area. Today, by a slight margin, a majority of the state's manufacturing jobs are located in the Portland metro area: about 128,000 manufacturing jobs in the Portland area vs. 126,000 elsewhere in Oregon. In the late 1970s, forest products was by far the largest industry, employing more than 80,000 workers. The state's nascent high tech industry employed only about 44,000.

Twenty years ago, there was a 12 percent gap in the average pay levels between the Portland area and the rest of the state. The average Portland worker earned about $28,000 per year, compared with $25,000 per year for workers in the rest of the state (dollar amounts expressed in chained 1996 dollars). After adjusting for inflation, the average Portland area worker makes about 12 percent more than in the late 1970s; the average worker outside the Portland area makes 4 percent less.

In the late seventies, there was virtually no difference between average manufacturing wages in Portland and the rest of the state: both made the equivalent of $37,000 in today's dollars. But since 1979, real wages in manufacturing have declined 5 percent outside Portland, while increasing 20 percent in the metro area. The average Portland area manufacturing worker earns more than $9,000 more per year than manufacturing workers in the rest of the state.

Per capita income levels have always been higher in the Portland area than in the rest of the state; but the gap has widened. In 1979, Portland area per capita income was about $3,500 higher than in the rest of the state. By 1996, Portland area per capita income was $6,500 higher than elsewhere. Driven by rising real wages, income growth in the Portland area has outstripped that in the rest of the state.

The most wrenching and divisive change affecting Oregon's economy over the past two decades has been the restructuring and decline of Oregon's wood products industry. After reaching a peak of 81,400 jobs in 1978, wood products employment tumbled to 55,000 with the collapse of the national economy and the housing market in the 1979-82 recession. Oregon's timber industry gradually rebuilt employment up to nearly 70,000 by 1988, only to fall prey to reduced federal timber harvests, driven by spotted owl protection measures and other environmental restrictions. By 1995, the state economist declared that high technology had displaced timber as the state's number one employer. Today about 50,000 Oregonians work in the wood products industry.

Less noticed than job losses, but equally pernicious for local economies, has been the decline in real wages in the timber industry. In the late 1970s, the average wood products worker earned the equivalent of $34,500 (in inflation adjusted 1996 dollars), about 40 percent more than the average worker in the state. Today, the average wood products worker makes about $32,200 (in the same dollars), a decline of $2,300, and only 15 percent more than the average worker in the state.

Twenty years ago, government payments to individuals for social security, medical care, and income support were roughly equal in the Portland area and the rest of Oregon. Transfer payments were 12 percent of Portland area personal income and 14.5 percent of personal income elsewhere in Oregon. Over the past two decades, the role of government payments in the local economy has increased much more rapidly outside the Portland area. Today, government payments account for more than 20 percent of all personal income outside the Portland metro area, but only 12.7 percent of personal income in the metro area.

These sweeping economic changes—coupled with Ballot Measures 5, 47 and 51—have reshaped Oregon's system of public finance. Historically, property taxes had been the single largest source of finances for state and local government. The Measure 5 tax limitation changed that. Prior to Measure 5, 70 percent of the financing for schools came from property taxes decided on locally. Today, 70 percent of the financing for schools comes from the general fund (largely state income taxes) and lottery proceeds; local schools still get property tax revenues, but except for bonds, the amount is fixed in the Constitution. Also, we used to tolerate large disparities in school funding among districts and different parts of the state. As the state assumed a greater responsibility for funding schools, it also moved to more nearly equalize per student funding throughout the state, largely by raising funding levels at historically low-spending schools.

The effect of using income taxes from the general fund to finance schools has always been to take money raised largely in prosperous parts of the state to support spending in rural parts of the state. But as state spending for K-12 education has risen from 30 percent to 70 percent of the total bill (and from $350 million per year in the late 1970s to more than $2 billion), the magnitude of this redistribution has increased dramatically. Today, approximately $275 million dollars of taxes raised in the Portland metropolitan area are used to fund K-12 education in the remainder of the state.

The struggle to understand and make meaning of the changes that have reshaped Oregon in the past two decades is reflected in the disparity between the myths of how we imagine ourselves, and the contrasting reality of our situation. The relationship between urban and rural Oregon is different, more complex, and more difficult than in year's past. Outside the Portland area, the Oregon economy has grown, but not with the robustness or depth found in the metro area; and many communities lag well behind the average. Almost unnoticed, non-metro Oregon has become critically dependent on the Portland metro area to underwrite the costs of vital public services, from K-12 education to medical care, to state police. Metropolitan Portland's economic health has to be more than a condition to be envied; for non-metro Oregon, the Portland area economy is, in effect, the golden goose that pays most of the cost of state government, and also, now, local schools. Absent a healthy Portland metro economy, education and public services will diminish for all Oregonians, and taxes will likely be higher. Similarly, the Portland area has a stake in the economic revival of non-metro Oregon, particularly measures that will enable workers outside the metro area to earn higher real wages.

The current situation isn't in the long term interests of either urban or rural Oregon. Urban Oregon clearly has a stake in the economic improvement of citizens living in the non-metropolitan part of the state. Strategies that encourage the development of more highly paid jobs outside the Portland metropolitan area will be critical. Educational attainment in non-metro Oregon lags behind the urban area, making support for schools a logical strategy for helping develop high skill, high wage jobs. Likewise, non-metro Oregon has no long term interest in extracting a permanent subsidy from the Portland area. The burden of financing services for a lagging non-metro economy saps resources that could otherwise be used to maintain and improve the metro area in the face of the major challenges of growth. In the end, both the urban and the rural parts of the state have a strong mutual interest in strengthening one another's economies and in closing the divide that now separates the Two Oregons.