OREGON STATE UNIVERSITY

End of “Secure Rural Schools” payments will hurt Oregon economy

11/17/2011

CORVALLIS, Ore. – Oregon counties face the loss of about 4,000 jobs, $400 million in business sales and $250 million in income when federal funding for the Secure Rural Schools Act runs out June 30, 2012, according to a new report.

Economists at Oregon State University produced these new economic impact estimates as an update to an earlier OSU report, based on the findings of the 2009 final report of the Governor’s Task Force on Federal Forest Payments and County Services.

In this latest report, the economists note that Oregon counties face a steep drop in revenue that will sooner or later require employee layoffs, a reduction of services, less funding for schools, and long-term economic consequences that may push the overall impact even higher unless they receive significant new funding, or Congress reauthorizes the federal act.

Bruce Weber, an economist who directs the Rural Studies Program at OSU, says the expiration of the Secure Rural Schools (SRS) act will result in a 94 percent drop in projected federal forest payments in 2013 from the amount counties received in 2008.

“Secure Rural Schools act payments to Oregon counties have been phased down over the past four years,” Weber said, “and 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 from prior SRS payments, the full impacts of termination may not be evident next year or the year after as they spend down reserves,” he said. “However, for other counties – particularly those for whom federal forest revenues represent more than half of their general fund – the impacts will come sooner, and SRS termination threatens their fiscal viability as governmental units.”

More than half the land in Oregon is owned by the federal government. For the past 100 years, the federal government has shared revenues from its timber harvests with county government, providing an important revenue source for many counties.

After timber harvests began declining in the early 1990s, shared revenues declined sharply and Congress passed a series of laws that supplemented shared timber revenues, culminating in the Secure Rural Schools and Community Self-Determination Act of 2000.

This act provided payments to counties and schools in 42 states that were based on shared revenues in years with historically high timber harvests.

In Oregon, these payments went to 33 of its 36 counties. Funding tied to U.S. Forest Service lands were earmarked for county roads and schools, while funding tied to Bureau of Land Management lands could be used for general purposes in those counties.

The new report estimates that Oregon counties will receive about $14.8 million from federal timber harvests in 2013 without the Secure Rural Schools funding – a far cry from the $230.2 million counties received in 2008 under the act.

In estimating what impacts the expiration of the Secure Rural Schools act might have, the OSU economists compared projected 2013 federal forest revenues with the amounts counties received in 2008 with payments under the act. They looked at two possible scenarios – one, that counties’ future cuts would be based on current budgetary allocations with 65 percent of the general fund expenditures involving personnel; and second, where all such cuts taken involve personnel. Among the estimates:

  • When 65 percent of the cuts are used for personnel, the loss of jobs for Oregon counties from the elimination of the Secure Rural Schools funding is estimated to be 3,833; at the 100 percent level, it is 4,469;
  • Sales of goods and services by Oregon businesses would be reduced by $385 million to $438 million;
  • The loss of income – wages, rent and other property income – is projected to range from $250 million to $300 million.

“These estimates only represent the short-term economic impacts related to the reduced spending and re-spending of the SRS funds,” Weber said. “There may be more significant longer-term negative impacts on economic activity that result from the counties not providing levels of services in public health, law enforcement and other areas that are important to business, citizens and visitors.”

Weber emphasized that the report does not account for economic impacts from the loss of funding to schools. In 2007-08, nearly $32 million in Secure Rural Schools funding – or more than 13 percent of the overall total of $230 million – went to Oregon schools.

“Obviously, the loss of those funds will have additional impacts,” Weber said.

Although the Secure Rural Schools funding historically has had a disproportionate impact on Oregon’s coastal, southern and eastern counties, it does affect urban regions as well, the OSU economists note. However, urban counties may have more diverse revenue streams to offset the loss of federal funding than their rural counterparts.

The 2011 update was written by Weber, Paul Lewin and Bruce Sorte of OSU. It is available online at the OSU Rural Studies Program website: http://ruralstudies.oregonstate.edu/