Mark Partridge Swank Chair in Rural-Urban Policy Dept. of Agricultural, Environmental, and Development Economics Helping Ohio Compete: Bringing the 21 st Century to OH’s Local Govts OFBF Rural Advisory Team Presented at: OFBF Rural Advisory Team Plain City, Ohio – March 3, 2011

Overview  1. Current Economic Conditions  2. Ohio is not competitive in the global economy nor is it competitive with other states  3. Emerging approaches to local gov’t and making Ohio competitive. OFBF Rural Advisory Team 2

Ohio growth patterns.  Ohio’s economy lags the nation.  Long-term issue that will persist for years and years if nothing is done!  If Ohio returned to the national average in per-capita income: over $16,000 more income for a family of 4.  We need to produce 75,000 jobs a year, while right now we have been trending at a loss of 60,000 jobs a year since  Private sector investment does not occur with current expectations.  Vicious cycle that limits wealth creation. OFBF Rural Advisory Team 3

4 Economic Conditions  Popular stories for OH’s lagging performance are insufficient.  E.g., manufacturing’s importance to explaining persistent problems is overstated since  What are the trends?

Data—focus on job growth.  Journalists love to report the unemployment rate but it can be quite misleading or even useless. Witness the recent MAJOR drop in U.S. UR.  North Dakota is held up today as strong economy 3.7% UR (2.6% in 2001). Yet, ND’s long-term performance in terms of pop. is the worst in the country.  Ultimately what drives OH’s or ND’s prosperity is job growth. OFBF Rural Advisory Team 5

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Where are we as the economy recovers?  Rural Ohio is faring better than metropolitan Ohio.  Among the 3 C’s, Cleveland is the ‘growth engine’ and Columbus has been the “engine that couldn’t”.  Smaller Ohio Metropolitan areas are showing some signs of life. 9 OFBF Rural Advisory Team

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OFBF Rural Advisory Team 12 Why does Ohio Lag?  Ohio lags Great Lakes Region—i.e., not manufacturing; not climate; not location.  Trade is at most a minor cause—timing is not right  Trade deficits began in early 1980s  NAFTA began in 1994  China became a force after 2000  The recent export surge has greatly benefited agriculture (NY Times, “Export Boom Helps Farms, Not Factories”)

Why does Ohio Lag?  In global economy, small changes in costs/profits sends entrepreneurs, skilled workers, and investment to the most profitable locations  Moral: Ohio needs to focus on what it can control and not blame outsiders for our problems.  What about taxes, education, gov’t? OFBF Rural Advisory Team 13

What can be done in Ohio? OFBF Rural Advisory Team 14

OFBF Rural Advisory Team 15 What can be done in Ohio?  Constraint—no money, tight budgets.  2008 OH state AND local tax burden is 7 th highest in the U.S. (Nat. Tax Found.)  Individual firm tax incentives are not effective (Kraybill and Gabe, 2002; Partridge et al., 2011) and help increase taxes on everyone else including agriculture.  Better policy is not ‘pick winners’ but to give everyone lower taxes to reduce the burden.

What can be done in Ohio?  Our leaders need to be smart and not just copy everyone or follow the latest fads.  Regionalism and effective governance— roughly 200 local gov’ts in Columbus.  Dayton/Montgomery County is a leader.  OH has thousands of local gov’ts with high taxes. Newspapers report that 85% of expenditures is local gov’ts. OFBF Rural Advisory Team 16

What can be done?  Good governance promotes wealth creation and reduces risk premium for business.  Not boring, but important for our state’s health  Better governance to compete in 21 st Century through lower costs.  Better planning.  Cooperate not compete for econ develop. OFBF Rural Advisory Team 17

How to think about local gov’t  Larger or smaller regions?  The plus of small regions is they are close to the people with similar HH tastes. Gov’t is shaped to the desires of the people.  The plus of larger regions is when there are spillovers—links across economies, land use, or transport  The other plus is “economies of scale”  In 1800, small regions made sense, no spillovers and few economies of scale.  In the 21 st Century, small regions are costly and hurts OH’s competitiveness OFBF Rural Advisory Team 18

OFBF Rural Advisory Team 19 What can be done?—cont.  Ohio has significant amounts of government:  Gov’t borders and duties were defined 100+ years ago for a different economy & transport.  Many in Indiana argue that it has too much local gov’t and proposed to eliminate 1,000+ units. Source: Wall Street Journal, Sept. 5, 2007, p. A1 and Indiana Commission on Government Reform, (2007).  “Despite the enormous economic, social, and technological changes that have occurred…, Indiana’s system of local government would still be very recognizable to Hoosiers from the Civil War era…” Indiana Commission on Gov’t Reform, p.42.  Bi-partisan. Whether you prefer low taxes or more ed funding, leads to more resources.

OFBF Rural Advisory Team 20 Within Ohio trends and regions.  A key feature is proximity to the core of one of Ohio’s largest 5 cities or its many urban areas.  Commuting patterns show this pattern.  Growth does not respect county borders  Separating rural & urban Ohio is pointless.  The spillovers imply the need for regional approaches.

OFBF Rural Advisory Team 21 Rural-Urban Commuting by Census Tract, 2000

Other Advice for Ohio Policymakers  Building our entrepreneurial talent and business retention.  Economists view:  Governments can’t pick winners  Economists believe ‘communities’ should build an environment where:  Eventual ‘Winners’ pick your community.  Ohio Gov’ts try to do too much for Economic Development! OFBF Rural Advisory Team 22

Summary  Ohio’s leaders face many challenges  Need to consider addressing the cost of local gov’t to help make OH competitive in the global economy.  Small-box gov’ts make less sense when there is better communication, transport, economic spillovers, and cost savings to providing services at a larger scale. OFBF Rural Advisory Team 23

Advice for Ohio’s Policymakers  Governor Kasich has a strong sense that efficient government goes a long way to economic success? Has he learned from past conservative leaders who did not succeed?  The data says ‘state’ taxes are low, but ‘local’ taxes and revenues are high.  [Not that more liberal Democrats succeeded either.] OFBF Rural Advisory Team 24

OFBF Rural Advisory Team 25 Thank you Presentation will be posted at The Ohio State University; AED Economics; Swank Program: (under presentations)

OFBF Rural Advisory Team Employment Growth—Ohio is a leader in Million $ Facilities

TABLE 1: STATES WITH PROJECTED FY2012 GAPS FY12 Projected ShortfallShortfall as Percent of FY11 Budget Arizona$974 million11.5% California*$25.4 billion29.3% Colorado$988 million13.8% Connecticut$3.7 billion20.8% District of ColumbiaDKna Florida$3.6 billion14.9% Georgia$1.7 billion10.3% Hawaii$410 million8.2% Idaho$300 million12.6% Illinois$15.0 billion44.9% Indiana$270 million2.0% Iowa$294 million5.6% Kansas$492 million8.8% Kentucky*$780 million9.1% Louisiana$1.7 billion22.0% Maine$436 million16.1% Maryland$1.6 billion12.2% Massachusetts$1.8 billion5.7% Michigan$1.8 billion8.6% Minnesota$3.9 billion24.5% Mississippi$634 million14.1% Missouri$1.1 billion14.4% Montana$80 million4.3% Nebraska$314 million9.2% Nevada$1.5 billion45.2% New HampshireDKna New Jersey$10.5 billion37.4% New Mexico$410 million7.6% New York$9.0 billion16.9% North Carolina$3.8 billion20.0% Ohio$3.0 billion11.0% Oklahoma$600 million11.3% Oregon*$1.8 billion25.0% Pennsylvania$4.5 billion17.8% Rhode Island$290 million9.9% South Carolina$877 million17.4% South Dakota$127 million10.9% TennesseeDKNa Texas$13.4 billion31.5% Utah$437 million9.2% Vermont$150 million13.9% Virginia*$2.3 billion14.8% Washington$2.9 billion18.5% West Virginia$155 million4.1% Wisconsin$1.8 billion12.8% States Total$124.7 billion20.0% Note: Kentucky and Virginia have two-year budgets. They closed their FY2012 shortfalls when they enacted their budgets for the FY2011-FY2012 biennium. California’s shortfall includes an $8.2 billion shortfall carried forward from FY2011. Oregon’s shortfall is one half of the state’s total projected shortfall for the biennium. FY12 Budget Shortfalls as a share of FY11 Budgets

STATES WITH PROJECTED FY2012 GAPS FY12 Projected ShortfallShortfall as Percent of FY11 Budget Nebraska$314 million9.2% Nevada$1.5 billion45.2% New HampshireDKna New Jersey$10.5 billion37.4% New Mexico$410 million7.6% New York$9.0 billion16.9% North Carolina$3.8 billion20.0% Ohio$3.0 billion11.0% Oklahoma$600 million11.3% Oregon*$1.8 billion25.0% Pennsylvania$4.5 billion17.8% Rhode Island$290 million9.9% South Carolina$877 million17.4% South Dakota$127 million10.9% TennesseeDKNa Texas$13.4 billion31.5% Utah$437 million9.2% Vermont$150 million13.9% Virginia*$2.3 billion14.8% Washington$2.9 billion18.5% West Virginia$155 million4.1% Wisconsin$1.8 billion12.8% States Total$124.7 billion20.0% Note: Kentucky and Virginia have two-year budgets. They closed their FY2012 shortfalls when they enacted their budgets for the FY2011- FY2012 biennium. California’s shortfall includes an $8.2 billion shortfall carried forward from FY2011. Oregon’s shortfall is one half of the state’s total projected shortfall for the biennium. Source: Center on Budget and Policy Priorities, see notes to slide FY12 Budget Shortfalls as a share of FY11 Budgets--cont

Mid-Year Shortfall Amount Shortfall as Percent of FY11 Budget Arizona$531 million6.3% California*See Note Colorado$257 million3.6% Connecticut$45 million0.3% Kansas$60 million1.1% Louisiana*$108 million1.4% New Mexico$159 million2.9% New York$315 million0.6% Oregon$378 million5.4% Texas$4.3 billion10.1% Washington$1.1 billion7.1% District of Columbia$175 million2.8% Total$7.4 billion4.2% Note: California did not fully address the shortfall that it faced prior to adopting its FY2011 budget (listed in table 1). An $8.2 billion shortfall remains open for FY2011. Louisiana ended FY2010 with a shortfall that must be closed in FY2011. States With FY2011 Mid Year Gaps

OFBF Rural Advisory Team 31 Reference Map