In Oregon, state government relies heavily on the economy of the Portland metropolitan area to provide a majority of revenue to finance state services. On average, taxpayers in the metropolitan area pay about 55 percent of the revenue collected in the state general fund. In contrast, the region's residents, who make up about 45 percent of the state's population, consume a proportionately smaller share of most state-financed services than do Oregonians living elsewhere. The result is the Portland metropolitan area is a major net contributor to financing state services that flow disproportionately to other parts of the state.

In the largest area of state expenditure, financial support for K-12 education, we estimate that the Portland area contributes nearly $1.1 billion annually in tax payments and lottery proceeds, and receives slightly more than $815 million in state payments to schools. This produces a net annual outflow from the Portland metropolitan area of $285 million per year which underwrites the cost of schools in other parts of the state.

Far from being exceptional, the geographic pattern of cost and benefit in K-12 education is typical of most state-financed activities. Except in the area of transportation, where the Portland metro area receives in expenditures slightly more than contributes in taxes, the metropolitan area consistently contributes more in tax and other revenues than the region receives in benefits:

The reasons for the consistent disparity between what the metropolitan area contributes and what it receives from state government are generally straightforward. Oregon's progressive income tax, now the largest single source of revenue for state and local government, automatically taps more revenue from the metropolitan area, where average incomes are 32 percent higher than in the rest of the state. And because non-metro Oregon incomes are lower, poverty is higher, and dependency is greater, state payments for unemployment benefits, school aid, medical care and welfare all flow disproportionately to citizens outside the Portland metropolitan area. The full report explores the reasons for fiscal flow disparities that are specific to each program area, including economic and policy factors.

Some may perceive that the prosperity that the Portland area has enjoyed—which underlies the fiscal outflow—is the product of past state investments that have favored the metropolitan area. In fact, while the scale of the outflow from the metropolitan area is higher than it has ever been, the pattern of consistent fiscal flows from the Portland area to the rest of the state is well established. Nearly twenty-years ago, in the late 1970s, state aid to schools produced a net outflow of $30 million annually. The shift to greater reliance on state, rather than local, financing for schools has increased the annual outflow by nearly a factor of ten to $285 million.

Far from being the product of a past bias to develop the Portland area, the pattern of net flows from urban to rural Oregon represents, by far, the state's largest expenditure on behalf of developing rural economies. Collectively, state fiscal policies have the effect of redirecting several hundred million dollars annually from the Portland area to other parts of the state. Without this transfer, public expenditures in much of rural Oregon would have to be much lower, taxes much higher or both. Perhaps without knowing it, residents of non-metro Oregon have developed a huge stake in the continued economic health of the Portland economy.

This report defines the Portland metropolitan area as the five counties in the Oregon portion of the federally-designated Metropolitan Statistical Area: Clackamas, Columbia, Multnomah, Washington and Yamhill. We compare revenues generated and expenditures made in these five counties with taxes and spending in the state's other 31 counties. The estimates contained in this report have been developed from data provided by state agencies responsible for administering various programs. (A detailed summary of the data sources used in the report is contained in the Reference section). The analysis focused on calculating the share of statewide program expenditures or taxes that was connected with different parts of the state. In apportioning the benefits of particular programs among different parts of the state, we have used program-specific data on the location of expenditures or program beneficiaries. It most cases, a direct allocation was possible (State School Funds are apportioned to school districts and expended on behalf of students living in the counties in which those districts are located). In other cases, for example, higher education and corrections, we developed in-direct estimates of benefits based not on the location of expenditure, but on the county from which program participants (students and inmates, respectively) came. The report does not attempt to allocate all revenues and expenditures of state government; the flow of federal funds, expenses for natural resource and regulatory agencies, statewide executive, legislative and judicial offices, and many small programs were not analyzed.

This report has been prepared by Impresa, a Portland-based economic consulting firm specializing economic development strategy, public finance and education policy.