Toward One Oregon: Rural-Urban Interdependence and the Evolution of a State

Chapter 6. Who Pays, Who Benefits?: An Analysis of Taxes and Expenditures in Oregon

99 Chapter 6 Who Pays, Who Benefits? An Analysis of Taxes and Expenditures in Oregon Joseph Cortright1 Introduction The Portland metropolitan area plays a key role in driving Oregon’s economy. Job and population growth in the metropolitan area have reshaped the region, and the state’s economy, in ways that are obvious to most Oregonians. Less obvious and less well understood is the metro area’s role in funding the public services financed and provided by state government. In examining the fiscal contributions of the Portland metro area to the state budget, this report aims to shed light on the relationships between the state’s largest metropolitan area and the rest of the state in the realm of expenditures for public services. Part I of this chapter describes the methodology used in the analysis and the strengths and limitations of the data and methods. Many, but by no means all, state revenues and expenditures can be characterized as accruing from or benefiting a particular geographic area. This section explains the reliability of data and the important aspects of assumptions needed to undertake this analysis. Part II gives the reader a brief overview of public finance in Oregon, addressing how the state raises revenue and the major purposes to which public funds are allocated. This overview section also identifies which specific categories of expenditure are included in this report. The heart of the analysis can be found in Parts III and IV. Part III analyzes the geographic origin of state revenues. It examines three major taxes and estimates the share of revenues from each that is provided by economic activity in the Portland metropolitan area. Part IV looks at two principal categories of state expenditure—K-12 education and health care—and estimates the share of state spending in each category that flows to the Portland metro- 100 TOWARD ONE OREGON politan area. For each expenditure category, we present a summary fiscal-flow analysis that shows how much revenue is generated in the Portland area, how much is spent, and the net fiscal flow between the metropolitan area and the rest of the state. Part V considers the implications of this analysis. Overall, there is a substantial net flow of resources from the metropolitan area to the remainder of Oregon. It seems apparent that the availability of public services in much of nonmetropolitan Oregon hinges vitally on the economic health of the Portland metropolitan area. Part I. Research Approach State government directly and indirectly provides a variety of public services for Oregon residents. Directly provided services include payment programs and services delivered by state agencies, such as road construction and medical care programs. Indirectly provided services include K-12 education, which is supported by state-shared revenues that are distributed to local areas by the state. These services are financed by a variety of taxes and fees imposed on state residents. A key premise underlying this study is that the tax revenues to pay for public services stem from economic activity. The state’s ability to collect taxes is affected by the health of the economy in different parts of the state. Geographical definitions One of the defining characteristics of any regional economy is the flow of its most vital commodity—labor. The six counties that form the region are closely linked by commuting patterns. Data from the 2000 census show that 97 percent of all those who worked in the metropolitan area were also residents of the region, and a similar portion of the region’s jobs were held by the region’s residents. Technical issues A number of technical issues impede any effort to precisely measure the flow of public funds to various counties in the state. Perhaps the key impediment is that state budgeting and financial reporting systems are designed primarily for other purposes (planning overall expenditures, maintaining managerial control, assuring legal accountability for funds), and not for tracking funds WHO PAYS, WHO BENEFITS? 101 by county. Another obstacle to constructing an internally consistent and integrated picture of revenues and expenditures is the variation in budget periods for different activities. Most taxes, for example, are paid on a calendar -year basis, while most expenditures are made on a fiscal-year basis. Some data on program activities are available quarterly or monthly, while others are only available yearly. In general, we have addressed this problem by constructing annual average revenue and expenditure information that corresponds to...