Helping Ohio Compete: Bringing the
st
21 Century to OH’s Local Govts
Presented at:
OFBF Rural Advisory Team
Plain City, Ohio – March 3, 2011
Mark Partridge
Swank Chair in Rural-Urban Policy
Dept. of Agricultural, Environmental, and Development Economics
[email protected]
http://aede.osu.edu/programs/Swank/
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.
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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 2000.
Private sector investment does not occur
with current expectations.
 Vicious
cycle that limits wealth creation.
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Economic Conditions
 Popular stories for OH’s lagging
performance are insufficient.
E.g., manufacturing’s importance to
explaining persistent problems is
overstated since 1990.
 What are the trends?
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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.
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200
190
1970-2009 Nonfarm Employment Growth, US and Great
Lake States: Benchmarked to 1970=100
U.S.
180
Ohio
170
160
Michigan
150
Illinois
140
Indiana
130
Wisconsin
120
110
100
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
80
1970
90
Source: Bureau of Labor Statistics.
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Nonfarm Employment January 2006-August 2010
Benchmarked to January 2006
104
U.S.
102
Ohio
100
Michigan
Illinois
98
Indiana
96
Wisconsin
94
92
90
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
Mar-06
86
Jan-06
88
Source: Bureau of Labor Statistics.
7
60
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
65
Mar-07
70
Jan-07
80
Nov-06
85
Sep-06
Jul-06
May-06
Mar-06
Jan-06
105
Change in Manufacturing Employment benchmarked to Jan. 2006═100
100
95
90
U.S.
Ohio
Michigan
75
Illinois
Indiana
Wisconsin
Source: Bureau of Labor Statistics.
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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.
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8.00
Annual Percent Change in Nonfarm Employment,
January 2006-August 2010
6.00
4.00
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
-2.00
Mar-06
0.00
Jan-06
2.00
-4.00
-6.00
-8.00
-10.00
OH - all counties
metro OH
non metro OH
-12.00
Source: Bureau of Labor Statistics.
Nonmetropolitan is determined by taking Ohio total minus employment in Ohio’s metropolitan areas.
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8.00
6.00
4.00
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
-2.00
Mar-06
0.00
Jan-06
2.00
-4.00
-6.00
-8.00
-10.00
OH - all counties
Cincinnati
Cleveland
Columbus
-12.00
Source: Bureau of Labor Statistics. Employment for metropolitan areas.
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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”)
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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?
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What can be done in Ohio?
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What can be done in Ohio?
 Constraint—no money, tight budgets.
2008 OH state AND local tax burden is
7th 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.
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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.
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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 21st
Century through lower costs.
Better planning.
Cooperate not compete for econ develop.
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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 21st Century, small regions are costly
and hurts OH’s competitiveness
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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.
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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.
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Rural-Urban Commuting by Census Tract, 2000
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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!
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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.
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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.]
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Thank you
Presentation will be posted at The Ohio
State University; AED Economics;
Swank Program:
http://aede.osu.edu/programs/Swank/
(under presentations)
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2008-2010 Employment Growth—Ohio is a leader in
Million $ Facilities
2
%Job Growth 2008-10
0
0
0.00002
0.00004
0.00006
0.00008
0.0001
0.00012
0.00014
0.00016
0.00018
-2
PA
-4
WI
-6
CO
FL
-8
MN
IN
IL
MI
AZ
OH
y = -4.78 + 1956x
t stat=0.26
R² = 0.0014
-10
-12
New Per-Capita Million Dollar Facilities: 2005-2007
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FY12 Budget Shortfalls as a share of FY11 Budgets
Arizona
California*
Colorado
Connecticut
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky*
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
TABLE 1:
STATES WITH PROJECTED FY2012 GAPS
FY12 Projected Shortfall
Shortfall as Percent of FY11 Budget
$974 million
11.5%
$25.4 billion
29.3%
$988 million
13.8%
$3.7 billion
20.8%
DK
na
$3.6 billion
14.9%
$1.7 billion
10.3%
$410 million
8.2%
$300 million
12.6%
$15.0 billion
44.9%
$270 million
2.0%
$294 million
5.6%
$492 million
8.8%
$780 million
9.1%
$1.7 billion
22.0%
$436 million
16.1%
$1.6 billion
12.2%
$1.8 billion
5.7%
$1.8 billion
8.6%
$3.9 billion
24.5%
$634 million
14.1%
$1.1 billion
14.4%
$80 million
4.3%
$314 million
9.2%
FY12 Budget Shortfalls as a share of FY11 Budgets--cont
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon*
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia*
Washington
West Virginia
Wisconsin
States Total
STATES WITH PROJECTED FY2012 GAPS
FY12 Projected Shortfall
Shortfall as Percent of FY11 Budget
$314 million
9.2%
$1.5 billion
45.2%
DK
na
$10.5 billion
37.4%
$410 million
7.6%
$9.0 billion
16.9%
$3.8 billion
20.0%
$3.0 billion
11.0%
$600 million
11.3%
$1.8 billion
25.0%
$4.5 billion
17.8%
$290 million
9.9%
$877 million
17.4%
$127 million
10.9%
DK
Na
$13.4 billion
31.5%
$437 million
9.2%
$150 million
13.9%
$2.3 billion
14.8%
$2.9 billion
18.5%
$155 million
4.1%
$1.8 billion
12.8%
$124.7 billion
20.0%
Note: Kentucky and Virginia have two-year budgets. They closed their FY2012 shortfalls when they enacted their budgets for the FY2011FY2012 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 2011-2013 biennium. Source: Center on Budget and Policy Priorities, see notes to slide
States With FY2011 Mid Year Gaps
Arizona
California*
Colorado
Connecticut
Kansas
Louisiana*
New Mexico
New York
Oregon
Texas
Washington
District of Columbia
Total
Mid-Year Shortfall
Amount
Shortfall as Percent
of FY11 Budget
$531 million
See Note
$257 million
$45 million
$60 million
$108 million
$159 million
$315 million
$378 million
$4.3 billion
$1.1 billion
$175 million
$7.4 billion
6.3%
3.6%
0.3%
1.1%
1.4%
2.9%
0.6%
5.4%
10.1%
7.1%
2.8%
4.2%
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.
Reference Map
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