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Capital Chatter: Economic struggles ahead

State economist says that regional anchor employers, whether in manufacturing or another industry, are crucial.

Though the state budget hole grabbed the most headlines, there were other important takeaways from the state's latest economic and revenue forecasts.

It's a good thing the Legislature didn't spend that extra $1 billion in March.

Unemployment could soon top 20%.

Because of the COVID-19 pandemic, Oregon is facing its worst economic conditions since the Depression.

The state's economy will not yet be in good shape by the time that current federal assistance ends. Still, restaurants, bars and other businesses in the leisure and hospitality industry will recover faster than goods-producing companies, such as manufacturing, construction and logging.

"For Oregon, the big risk for the economy is the firm closures," Oregon senior economist Josh Lehner told me. "The pizza parlors are being hard-hit today and they need assistance. We don't want them to go under. But if the mill goes under, it doesn't matter how much assistance you give the pizza parlor — they're going to be in trouble long-term.

"We've seen in our timber-dependent communities in the last 40 years that when the anchor employer leaves, you see broader struggles."

The lesson: Regional anchor employers, whether in manufacturing or another industry, are crucial.

I talked with Lehner on Thursday to dig into the quarterly forecasts that he and State Economist Mark McMullen delivered the previous day to the Oregon Senate and House Revenue committees, who met via videoconference.

We started with the obvious. We're in a sudden, severe recession. But it is not economy vs. health. The two are intertwined. Even if all restrictions were lifted immediately, people would remain hesitant consumers.

"It's going to take some time, even if we were to get a vaccine [against COVID-19] sooner than expected," Lehner said. "You can't just turn the lights back on, on the economy and expect it to snap back exactly the way it was.

"Some things are going to get broken. We're going to have firms go under. We'll have to have new firms start up to take their place. It's going to be — at minimum — a multi-year process."

Running a business is hard, as he and McMullen point out. Every year 10% of Oregon businesses close, even in good times. During the Great Recession, 14% of businesses shuttered. Lehner expects that rate to go higher this time.

Oregon's official unemployment rate last month was 14.2%, up nearly 11 percentage points from March.

The reality is even worse, because many workers have been unable to contact the state Employment Department to file claims. The official jobless rate also does not include workers who are underemployed or who are so discouraged they have given up looking for work.

During the past nine weeks, 37% percent of workers in the lodging and food services industry filed for unemployment, according to the Employment Department. Their pain reverberates across communities. More than 22% of the workforce in Lincoln County has become unemployed, and about 21% In Clatsop County. In the Bend metro area, nearly 18% of the workforce has filed for unemployment benefits.

By 2025 or so, Lehner said, the leisure and hospitality industry will have recovered and keep growing. "People, once they're able to and they feel safe, they're going to take vacations again. They're going to go out to eat again," he said.

Office-type jobs also will rebound. But logging and other natural resources work, manufacturing and construction will struggle. Construction jobs eventually will come back, but Oregon manufacturing still hasn't recovered from past recessions.

I asked Lehner about what types of government policies would help the economy.

"I think really anything we can do to limit the amount of permanent damage, particularly the number of firms that close, would be really important. It's one thing to see 15%, 20% unemployment but it's going to be something even worse if there's no companies left over to hire them back when the public health situation clears up," Lehner said.

He praised the federal assistance programs but said the economy will not be healthy by July, when much of that aid runs out.

As far as state policy, Lehner suggested filling gaps in federal programs, such as underserved communities and employers who had difficulty obtaining federal assistance.

The current crisis is unprecedented, but the typical method of fighting recessions also comes into play: major government investments with long-term benefits. They could include classic infrastructure investments such as roads and bridges, modern infrastructure like rural broadband or investments in early childhood education and other areas.

As for the current state budget, the projected $1 billion-plus surplus evaporated once state revenues fell off a cliff. The state still has $1.6 billion available in rainy day funds, which will grow to $1.75 billion during the next year unless tapped to pay for schools and state services.

Though Oregon prides itself as not being a sales tax state — at least not officially — we have never been more exposed to lost revenue from consumption taxes. Along with gasoline, lodging and other consumption taxes, the Legislature in recent years added two big ones: the corporate activity tax and the privilege tax on buying new vehicles.

As we wrapped up our conversation, Lehner talked about life as an economic forecaster: "The probability that our forecast will be too pessimistic or too optimistic is about balanced. We're not trying to err on one side or the other."

Sorrow for Mitch: Oregonians are grieving the death of longtime Rep. Mitch Greenlick, D-Portland, who died last Friday at age 85. He had been suffering health issues for some time.

Revolving doors in the (closed) Capitol: Sen. Ginny Burdick, D-Portland, previously confirmed that she would step down as Senate majority leader. On Thursday, she made it official. On Friday, the 18 Senate Democrats will meet remotely to elect her successor.

Sen. Fred Girod, R-Stayton, recently took over as Senate minority leader.

Getting back to work: Because the Capitol is closed as a health precaution, legislators cannot meet there for the routine Legislative Days. Neither has Gov. Kate Brown called the Legislature into special session to deal with the economic, health and other ramifications of the pandemic.

But starting Friday and going for several days, House committees will take turns holding videoconference meetings.

"These are the functional equivalent of Legislative Days given that the Capitol remains closed to the public. These meetings will be held virtually and take invited testimony, focusing on issues related to the pandemic," said Danny Moran, communications director for House Speaker Tina Kotek.

The Senate will hold its committee meetings in early June.

Dick Hughes, who writes the weekly Capital Chatter column, has been covering the Oregon political scene since 1976. Contact him at TheHughesisms@Gmail.com, Facebook.com/Hughesisms, YouTube.com/DickHughes or Twitter.com/DickHughes.