Northwest economies: Different approaches, same problems for Idaho, Montana, Washington and Oregon

The states of Idaho, Montana, Washington and Oregon have radically different tax systems, but none has been able to escape the nationwide recession, economists said Wednesday.

The Idaho Statesman

All had to face state budget gaps while continuing to provide education, social services and criminal justice programs, speakers at the Pacific Northwest Regional Economic Conference said.

“Each of our tax systems is coming up short,” said Lorrie Jo Brown of the Washington State Department of Revenue.

The most severe problems are in Oregon, although Washington, Idaho and Montana all faced budget shortfalls, Brown said.

Depending on existing tax structures, each state is looking at different solutions.

Idaho

Idaho in 2000 got 49 percent of its state revenue from sales taxes, 45 percent from individual income taxes and 6 percent from corporate taxes.

State official Judith Brown said as recently as January 2002 the state had a small surplus. That prompted members of the nation´s most Republican state legislature to enact a $100 million tax cut.

But Idaho faced a $200 million budget shortfall as the latest legislative session opened, largely because of falling income tax revenues, Brown said.

Over the years, Idaho has responded to budget woes not by raising taxes, but by cutting education spending, she said.

“The state didn´t see education as an engine of economic development,” Brown said.

The state passed some tax increases earlier this year after the longest legislative session in its history, Brown said. That included temporarily raising the sales tax from 5 percent to 6 percent. But the prior tax cut created a “structural deficit” that must still be dealt with, she said.

“The search for a fix is going to go on for awhile,” she said.

Oregon

Oregon in 2000 got 78 percent of state revenues from personal income taxes, 14 percent from various sales taxes and 8 percent from corporate taxes.

Tom Potiowsky of the Oregon Department of Economic Analysis said Oregon has posted the nation´s highest unemployment rate for some time as the high-tech bubble burst. That has produced big deficits because so much of the state budget comes from personal income taxes, he said. The state budget for 2003-2005 is actually slightly less than for 1999-2001, he said.

Legislators are reduced to “crying and seeking psychiatric help,” Potiowsky joked. The state has raised cigarette taxes and opened liquor stores on Sundays to raise revenues.

A proposal for a general sales tax pegged exclusively to help K-12 education is also gaining some favor, he said.

While the sales tax is considered an unstable source of revenue in Washington, it is considered more stable than income tax in Oregon, Potiowsky said.

Montana

The state gets 44 percent of its revenues from individual income taxes, 29 percent from various sales taxes, 19 percent from state property taxes and 8 percent from corporate taxes.

The state´s budget woes are the result of lower income tax revenues, largely because of the stock market´s drop, and rising Medicaid costs, said Douglas Young of Montana State University.

The state responded by raising some taxes, while cutting spending for social programs, higher education and corrections, Young said.

“There is strong support for K-12 education,” Young said.

The lack of a general sales tax creates an unbalanced tax structure in Montana, Young said. Income tax revenues are reduced because a large number of people live in Montana while paying income taxes in another state, he added.

Washington

Washington in 2000 got 69 percent of its state tax revenues from sales taxes, 16 percent from business taxes and 15 percent from state property taxes.

The state´s billion-dollar budget shortfall last year was due in large part to voter initiatives that cut some taxes while requiring smaller class sizes and higher teacher salaries, said John Beck of the Gonzaga University School of Business Administration. There was also pressure from rising prison populations and business downturns, he said.

The state has studied changing its tax structure to seek more stability, Beck said. But lawmakers this year rejected the idea of raising many taxes, he said.

While education funding gets plenty of lip service in Washington, many businesses seem more interested in resolving transportation woes, Beck said. There is a feeling that educated workers can be lured from other states, he said.

http://www.idahostatesman.com/Business/story.asp?ID=40587

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Northwest economy still in a holding pattern

By Stephen H. Dunphy
Seattle Times business columnist

SPOKANE — With many jobs concentrated in the hardest-hit industries and few growing businesses to offset the declines, the Pacific Northwest will lag any recovery that takes shape in the U.S. this year.

Regional economists at the Pacific Northwest Regional Economic Conference here painted a grim picture for Oregon, Washington and Idaho, with only Montana, the smallest state in terms of population, expecting to keep pace with the national recovery.

British Columbia, after growing at almost half Canada’s rate in 2002, expects to do better this year and grow at about the national rate by 2004. Alberta, an energy-rich province, faced some strong economic headwinds last year, but is poised to become one of the fastest-growing areas in North America.

Oregon and Washington appear to be especially hard-hit and may continue to hold the dubious honor of sharing the highest unemployment rates in the country. Oregon has had the highest rate for 18 of the past 21 months.

Another trend that sticks out from the forecasts is how modest growth would be when it does return. For the major states in the Northwest — Washington, Oregon and Idaho — it appears now that the bubble economy of the late 1990s and early 2000s produced growth rates that will be hard to achieve again.

Here is a look at the economic forecasts:

Washington

Washington will continue to jockey with Oregon for the highest unemployment rate in the nation, said Bret Bertolin, state Office of the Forecast Council economist. Not much has changed in the state to point to any improvements.

The state is likely to grow below the national average this year and at less than 2 percent in 2004 and 2005. Aerospace continues to be a drag on the economy, with more than 51,000 jobs lost in the industry since the peak in 1998.

Migration to the state also is slowing, acting as another drag. The pace of new people moving in was a powerful economic stimulus in the 1990s.

One bright spot is exports. "Exports are about back to prerecession levels," Bertolin said. "The weaker dollar is a plus here."

Oregon

Much like Washington, Oregon has a divided economy, with an urban, high-tech core in the Portland area, some diversified manufacturing down the Willamette Valley and a rural eastern part of the state that frequently fares worse than its urban counterpart.

But recent figures show unemployment rates in the urban center to be approaching those of Eastern Oregon, said Tom Potiowsky, Oregon’s chief economist. Rates in the Portland area were about 8.4 percent, compared with 9.9 percent in Eastern Oregon, an unusually narrow spread.

Potiowsky said Oregon’s economy has shifted to high tech over the past decade. In 1990, the lumber and wood-products category was the largest part of the economy, accounting for 7 percent of state output. The high-tech sector was 3.3 percent. By 2000, high tech was more than 28 percent of output, while lumber and wood products had fallen to 2 percent.

Forecasters see growth of less than 1 percent this year, 1.3 percent in 2003 and 2 percent in 2004.

Potiowsky said there are some signs the Asian outbreak of severe acute respiratory syndrome (SARS) is affecting the economy in Oregon. Nike, headquartered in Beaverton, said it is beginning to worry about quality control because its managers cannot get to factory sites in China.

Idaho

After surviving the early part of the recession, Idaho has fallen back with its neighbors and now forecasts are for slow growth over the next three years, well below the 5 percent a year that was common in the 1990s. Mike Ferguson, Idaho’s top economist, said recent layoff notices at large employers such as Micron Technology — it announced a 10 percent cut in its work force in February — have hit the state after some signs of a rebound.

The state originally thought 2002 was flat with a slight decline of 0.3 percent in state output. But the actual decline was 0.7 percent.

Growth for 2003 was originally forecast at 0.9 percent, but has been lowered to 0.1 percent, or almost no growth at all. The rate for the 2004-05 period calls for 1.5 percent growth.

The state, especially its high-tech sector, is "not going to return to anything like what we saw in the 1990s," Ferguson said.

Montana

Montana expects to match the national economy in growth over the next few years, largely because it avoided the recession of the rest of the Northwest.

Paul Polzin, a University of Montana economist, said the state has low exposure to the industries hit hardest in the recession, including telecommunications, dot-coms or aerospace.

It is dominated by resource-based industries, travel and the federal government, he said, all areas that have held up fairly well. Even travel to the state is done mostly by car, limiting the impact of the airline slump.

The state ranked in the top five states nationally in job growth in 2001 and 2002.

British Columbia

Driven largely by stronger demand, British Columbia grew in 2002, but below the Canadian national average, said Carol Frketich, an economist with Canada Housing and Mortgage.

However, the slumping wood-products business continued to suffer during the year. A stronger Canadian dollar probably won’t help.

After output grew at 1.8 percent in 2002, Frketich said forecasts put growth at 2.7 percent this year and 3.5 percent in 2004. The province should grow at about the same rate as the national economy by 2004.

She said the rapid strengthening of the Canadian dollar — it is up about 15 percent this year — has surprised businesses. The stronger Canadian dollar could present some economic challenges to businesses, especially in price-sensitive commodities.

Alberta

They are calling Alberta the "Western Tiger," as its economy continues to show signs of taking off. Bob Fox of Calgary-based Fox Consulting said 2002 was a tough year as energy exports suffered both in quantity and in price.

But growth is expected to accelerate to 3.6 percent this year and could average 3.2 percent over the next five years, driven mostly by the energy sector.

Alberta has substantial employment growth; more than 41,000 new jobs are expected this year and 37,000 next year.

National

A look at the U.S. economy was given by Nariman Behravesh, chief economist with Global Insights, a top Boston-based economic analysis and forecasting company.

Behravesh said a robust recovery of the U.S. economy was delayed about three months by the Iraq conflict, but there should be signs of a recovery by summer or early fall.

Low interest rates, pro-growth fiscal and monetary policies, low inventories and improving consumer confidence should combine to push the economy ahead. It will be uneven, however, among regions and industries.

There are two areas of concern for Behravesh. It’s a "one locomotive world" right now, with almost all global growth dependent on the U.S. recovery. That makes the weakening of the U.S. dollar a concern, although the worry is about a rapid devaluation rather than a slow, steady slide.

Behravesh said the Federal Reserve is unlikely to raise interest rates this year. Rates may increase in 2004, but even then the increases will be gradual.

Stephen H. Dunphy’s columns appear Tuesdays-Fridays and Sundays. Phone: 206-464-2365. Fax: 206-382-8879. E-mail: [email protected]

Copyright © 2003 The Seattle Times Company

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