The Future for Timber Counties

Three Oregon State professors consider how rural counties can survive the cuts -- and possible elimination -- of payments that conserve federal forest. Saving rural schools and maintaining fundamental services will require changes at all levels of government.

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Editor’s Note: President Obama’s 2013 budget includes $328 million for rural counties that would face a financial hardship if federal forest payments are not renewed under the Secure Rural Schools Act. Oregon senators are trying to win approval of another extension of the act, which supplements county and school budgets in counties with reduced payments from federal timber lands. 

As an editorial in the Register Guard points out, the President’s budget isn’t likely to pass as is. And, the financial situation in many rural counties is “dire.” According to the Register Guard, some counties are facing bankruptcy if the payments are not extended.

This is a big deal in timber counties. How big? Below is an excerpt from a report prepared by three professors at Oregon State University — Bruce Weber, Paul Lewin and Bruce Sorte. They tell what would happen if these payments are not continued. The full report can be found here

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County governments in Oregon have historically received a large share of general and road fund revenue from Federal forest payments. 

With the decline in Federal timber harvests in the 1990s, the Federal government supplemented the reduced shared timber payments with payments made under the Secure Rural Schools Act. The SRS payments are ending this year. 

In its 2009 report on the implications of scheduled termination of the Secure Rural Schools and Community Self-Determination Act, the Governor’s Task Force on Federal Forest Payments and County Services estimated that, without the SRS payments, one quarter of Oregon’s counties (9 counties) would face losses of more than 25% of discretionary General Fund revenues, and almost one-third of counties (11 counties) would lose more than half of their Road Fund revenues. 

Since 2008, Oregon counties have seen SRS payments under the 2008 reauthorization decline by more than half.  Without new legislation, there will be no SRS payments in FY 2012-13, and projected federal forest-related payments will drop 94 percent from the amounts counties received in 2008.

Without reauthorization of the Secure Rural Schools and Community Self-Determination Act, Oregon faces the prospect of 3,800 to 4,400 fewer jobs, $385 million to $438 million less total output, and $250 million to $300 million less in value added than there would be if SRS funding were at 2007-08 levels.

Some counties already have cut jobs, eliminated services, increased local fees and reduced road repairs and construction in anticipation of the termination of these payments. In counties with financial reserves, the full impacts of termination may not be evident during the next year or so as counties delay spending cuts by spending down reserves. 

The full impact will come as reserves are depleted. However, for other counties – particularly those for whom federal forest revenues represent more than half of their general fund – the impacts will come sooner. 

For some counties, SRS termination threatens their fiscal viability as governmental units.

These estimates of job and income loss and reduced business sales are of the short-run economic impacts related to the reduced spending and re-spending of SRS payments. Without additional funding, there may be more significant longer term negative economic impacts that result from the county not providing the former levels of county services in public health, law enforcement and other services that are important to current and potential businesses and citizens in these counties.

This report also provides estimates only of the economic impacts of reduced funding to county governments with the termination of the SRS payments. SRS payments also go to schools. Indeed, in FY 2007-08, almost $32 million (over 13 percent of the $238 million in SRS payments) went to Oregon schools. Loss of this SRS funding will have additional impacts on the Oregon economy not accounted for in this analysis. 

In its January 2009 Final Report, the Governor’s Task Force on Federal Forest Payments and County Services examined ways that the counties, state and Federal government could respond to cover the shortfalls that would be created by termination of the SRS payments. The Task Force asked “what counties and county taxpayers can do to help themselves” and whether the counties could grow their way out of the shortfalls.

What can counties do for themselves? The Task Force said:

We looked to the local level where the funding losses will occur and assessed the potential for cutting county budgets and raising revenues. We found that many counties have already cut services to bare bones levels. Also, we found that constitutional limitations on property taxes, voter resistance to such taxes and state constraints on other revenue sources make it difficult for counties to respond to this crisis by raising revenues. 

Finally, we found that many of the hard hit counties have low tax rates compared to the statewide average. We concluded that: 

• Counties statewide have significant unused property tax capacity within constitutional limitations; 

•It is reasonable to expect hard hit counties to seek voter approval of property tax increases in the range of ten percent to 30 percent, which will increase overall taxes paid by county taxpayers by just two to five percent; and, 

•Counties should be freed from restrictions in state law that limit or prohibit their ability to enact transient lodging tax and real estate transfer taxes.

These solutions could enable the counties to recover eight percent to 24 percent of their revenue losses. Can counties grow their way out of this? According to the Task Force,

All Oregon counties are saddled by a property tax system that has tied local tax rates to rates in effect more than a decade ago and fails to capture the full value of economic activity and growth. As a consequence, counties cannot grow their way out of these problems in the way that the state rode the wave of economic recovery to a fiscal comeback between 2003 and 2007.

The Task Force concluded that “[m]ultiple responses will be needed from all levels of government – county, state and federal.”

 

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