Oregon’s Fiscal Flow

It’s widely recognized that there are two Oregons: one centered on the Portland metropolitan area and another composed of the state’s smaller cities and rural areas.

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For the past several decades, and especially in the recovery from the 2007-2009 recession, Oregon’s economic growth has been disproportionately fueled by the Portland economy: There have been both more jobs and higher income jobs in Portland. The growing disparity between a healthy urban economy and a struggling rural one was a fault line highlighted by the occupation of the Malheur wildlife refuge earlier this year.

While Oregon may cleave along economic lines, the two Oregons are still inseparably joined at the state treasury. With our reliance on corporate and personal income taxes, Oregon is a state that disproportionately gets tax money from its most economically productive citizens — and regions — and which disproportionately spends its resources in economically struggling communities.

Nowhere is this more clear that when we look at state school spending. Prior to the adoption of Ballot Measure 5 in 1990, Oregon relied primarily on local property taxes to fund K-12 schools. About 70% of school funds came from property taxes, which varied widely from district to district, and which supported widely different levels of per pupil spending.

Since then, the state has shouldered the primary responsibility for supporting schools, and it now provides about 70% of school funds, primarily from a combination of personal and corporate income taxes and lottery funds. When it took over funding, the state also made substantial progress in equalizing levels of school funding among different districts.

In the 2016-2017 school year, the State School Fund will provide about $3.5 billion for local districts for K-12 education. Most of that money comes from taxes and revenues generated by the Portland metropolitan economy. Fully 55% of personal income tax revenues come from the Portland tri-county area, including taxpayers living in Clackamas, Multnomah and Washington counties, plus the personal income taxes Clark County Washington residents pay on wages they earn in Oregon. About 56% of corporate taxes have originated in the tri-county area, and about 50 percent of lottery revenues.

Taken together, these figures suggest that metro Portland generates more $1.9 billlion of the $3.5 billion that goes into the state school fund. Schools in the tri-county area get a much smaller share of the State School Fund. In 2016-17, Clackamas, Multnomah and Washington school districts will receive about $1.36 billion — about 39% of total allocations.

Tri-county school districts get less from the school fund for several reasons, including stronger local property tax bases and the state’s commitment to equalizing school spending. What’s obvious though, is that the Portland metro economy contributes about $550 million more annually to the cost of funding K-12 education statewide than local schools receive from the state school fund.

In addition to being an important statewide commitment to education for all the state’s children, regardless of where they live, this flow of money from Portland to the rest of the state is an important economic stimulus, as education jobs provide income and stability in communities around the state.

The fiscal flow of more than half a billion dollars annually from metro Portland to the rest of the state underscores two key points:

First, rural Oregon has a strong stake in a healthy Portland economy. Without the income (and tax revenues) generated by a thriving Portland economy, the state’s fiscal situation would be dire — and rural schools would be starved for funds. Second, Portland has a direct financial interest in seeing stronger rural economic development. More jobs, and especially higher incomes in rural Oregon would help lessen the burden of paying for K12 education. Perhaps a stronger recognition of the size and sources of this common bond would help lessen the state’s acrimonious urban rural divide.

Joe Cortright is a principal at Impresa.