July 2018

JULY 2018

Inside this issue: Running Gov’t Like a Business Oregon Tech Receives $2 Million Donation

Tariffs Cause Construction Costs to Soar

A few words from Greg A college economics professor told me last month that the Southern Oregon Business Journal is the best business magazine in the state. That’s high praise, and it made me feel good, but there is so much more to do.

The next several months will see improvements that will validate the professor’s early statement. Its hard to be patient in the implementation of significant changes.

The speed of things in 2018 is astounding. Technology and those sleep-deprived, high energy, adrenalin fed enthusiasts of faster and better make sleep seem to be a waste of time. Where there was once a pace of things that schedules could help us through there is now an urgent cry for more help – that doesn’t seem to be available – forcing a greater dependence on automation and robotics. Artificial intelligence sounded like science fiction ten years ago but is now very real. Humans cannot move as fast as the technology we have invented.

We must thank the contributors of journal articles for all that they do. Their energy is addictive. So too is that of our advertisers with their ideas about better service and marketing through media of every kind. The addition of a sponsor category to the ad choices opens a variety of interesting ways to communicate messages to specific and wide audiences. This is another element on the buffet of everyday activities.

Greg The Southern Oregon Business Journal extends sincere thanks to the following companies for their continued presence as important cogs in the wheels of industry in southern Oregon. There are 45,000 businesses in southern Oregon and these are among the leaders on whom we depend.

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A JOURNAL FOR THE ECONOMICALLY CURIOUS, PROFESSIONALLY INSPIRED AND ACUTELY MOTIVATED

Contents Inside This Issue 2. A Few Words

FEATURED ARTICLES

4. Tim Duy’s Fed Watch 5. AGC Cultivating a Marketing Culture 6. KCC Veterans Resource Center 7. Central Oregon Economic Indicators 8. Redmond SnoTemp Cold Storage Opens 10. Population Increase Lowest on Record 16. Ergonomics 21. Oregon’s Real Estate Industry 27. 100 Years—CHI Mercy Health 35. ODF—Oregon Fire Potential

9. New Tariffs Cause Construction Costs to Soar 12. Creativity and Lean Manufacturing 14. OIT Receives $2 Million from Wendt Family 18. Running Gov’t like a Business 24. How Smart are “Smart” Cities?

28. Energy Trust of Oregon—Annual Budget

37. SCORE Oregon Winners

703 Divot Loop Sutherlin, Oregon 97479 www.southernoregonbusiness.com 541-315-6127

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COVER PHOTO Roseburg’s Mercy Medical Center Open Since 1909

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No, A Recession Is Not Likely In The Next Twelve Months. Why Do You Ask? Headlines blared the latest recession warning today, this time from David Rosenberg of Gluskin Sheff & Associates. The culprit will be the Fed:

“Cycles die, and you know how they die?”

Rosenberg told the Inside ETFs Canada conference in Montreal on Thursday. “Because the Fed puts a bullet in its forehead.”

I get this. I buy the story that the Fed is likely to have a large role in causing the next recession. Either via overtightening or failing to loosen quickly enough in response to a negative shock.

And I truly get the frustration of being a business cycle economist in the midst of what will almost certainly be a record-breaking expansion. Imagine a business cycle economist going year after year without a recession to ride. It’s like Tinkerbell without her wings.

But the timeline here is wrong. And timing is everything when it comes to the recession call. Recessions don’t happen out of thin air. Data starts shifting ahead of a recession. Manufacturing activity sags. Housing starts tumble. Jobless claims start rising. You know the drill, and we aren’t seeing any of it yet.

For a recession to start in the next twelve months, the data has to make a hard turn now. Maybe yesterday.

And you would have to believe that turn would be happening in the midst of a substantial fiscal stimulus adding a tailwind to the economy through 2019. I just don’t see it happening.

As far as the Fed is concerned, I don’t think we are seeing evidence that policy is too tight. The flattening yield curve indicates policy is getting tighter, to be sure. But as far as recession calls are concerned, it’s inversion or nothing. And even inversion alone will not definitively do the trick. I think that if the Fed continues to hike rates or sends strong signals of future rate hikes after the yield curve inverts, then you go on recession watch.

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With inflation still tame, however, the Fed may very well flatten the yield curve with two more hikes and then take a step back. To be sure, it will be hard to stand down or even reverse course on the yield curve alone. After all, the yield curve is a long leading indicator. It will be the outlying data. But there is a reasonable chance the Fed will not tempt fate in the absence of a very real inflationary threat.

Let’s say for the sake of argument that I am wrong and the Fed inverts the yield curve in December of this year, keeps hiking, and doesn’t try to reverse course until it is obviously too late. Furthermore, assume the inverted yield curve foreshadows a recession like in past cycles. That means at least a year and maybe two before a recession actually hits.

So the minimum timeline to recession is 18 months, even if everything goes right (or is it wrong?).

Also, we really shouldn’t discount the possibility that the Fed pauses even before a yield curve inversion.

A market disruption from a trade war or external financial crisis that threatens to spill over into Main Street could put the Fed back on the defensive. So the whole story that the Fed will soon kill this expansion is a bit premature.

Bottom Line: The business cycle is not dead. The future holds another recession. But many, many things have to start going wrong in fairly short order to bring about a recession in the next twelve months.

It would probably have to be an extraordinary set of events outside of the typical business cycle dynamics.

A much better bet is to expect this expansion will be a record breaker.

Timothy A. Duy Senior Director, Oregon Economic Forum Professor of Practice Department of Economics University of Oregon Eugene, OR 97403-1285 duy@uoregon.edu

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SnoTemp Cold Storage to Open Refrigerated Warehouse in Redmond

Slated to open early 2019, the 40,000 sq. ft. warehouse will serve Central Oregon’s growing food and beverage industry Redmond, OR – SnoTemp Cold Storage recently announced plans to build a 40,000 sq. ft. temperature controlled warehouse in Redmond, Ore, making this SnoTemp’s third Oregon location. The facility will be located at 790 NE Kingwood Ave. with construction slated to start this summer and an opening date projected for early 2019.

SnoTemp currently operates two facilities along the I-5 corridor in Eugene and Albany and provides critical infrastructure for the Willamette Valley food and beverage manufacturing sector.

“This new location has the potential to significantly decrease supply chain costs for our Central Oregon based customers, providing the cold chain infrastructure they need to continue their growth,” stated SnoTemp’s CEO Jason Lafferty. “We can help these businesses scale. Whether they need one pallet or one thousand pallets stored, we can help.”

The Central Oregon region is home to more than 100 food and beverage manufacturers, many of whom are currently served by SnoTemp’s Eugene location. The Redmond location will offer frozen (-5F), cooler (34F), and dry storage, be OLCC licensed and will be a USDA certified organic warehouse.

SnoTemp provides temperature controlled warehousing services including order fulfillment for finished goods, packaging and raw materials storage with supply chain integration and coordination for dozens of distributors and big-box retailers. Technological solutions include real-time access to online inventory, EDI integration, RF Southern Oregon Business Journal

scanning, and integration with customer business intelligence platforms.

“We are excited that SnoTemp has selected Redmond to develop a sizable cold storage facility to serve the growing food and beverage production industry here in Central Oregon,” noted Redmond Economic Development, Inc.’s Senior Director, Jon Stark. “Their decades of experience serving the Willamette Valley and beyond give us great confidence in their ability to deliver this needed logistical resource.”

About SnoTemp Cold Storage SnoTemp is a third generation, family owned and operated cold storage warehousing company headquartered in Eugene, Oregon. Established in 1957, SnoTemp offers 725,000 sq. ft. of temperature controlled storage between -20 F to +70 F. The company is a critical link between local food manufacturers and consumers. SnoTemp is centrally located along the I-5 corridor with locations in Eugene and Albany, Oregon. Learn more at www.SnoTemp.com.

About Economic Development for Central Oregon (EDCO) EDCO is a non-profit corporation supported by private and public members and stakeholders, whose mission is to create middle-class jobs in Central Oregon by: recruiting new employers to move to the region; helping entrepreneurs start new, scalable businesses; and working with businesses that are already here to grow their operations. For more information, visit www.edcoinfo.com.

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CONSTRUCTION COSTS SOAR IN MAY, OUTPACING CONTRACTORS’ PRICING; NEW TARIFFS THREATEN TO WORSEN COST SQUEEZE, LEAD TO PROJECT DELAYS Association Officials Say the Threat of New Tariffs Has Already Led to Dramatic Increases in the Cost of Many Construction Materials, Warn Prices Will Grow as the New Trade Restrictions Take Effect Construction costs accelerated again in May, with steep increases for a wide range of building and road materials, including many that are subject to tariffs that could drive prices still higher, according to an analysis by the Associated General Contractors of America of new Labor Department data. Association officials say that the construction industry will bear a heavy share of the tariffs’ costs.

“Prices jumped at double-digit annual rates for metals, lumber and plywood, and diesel fuel, while readymixed concrete, asphalt paving and roofing materials also had unusually large increases,” said the association’s chief economist, Ken Simonson. “The cost of all goods used in construction rose 8.8 percent from May 2017 to May 2018, the steepest annual increase in nearly seven years.”

From May 2017 to May 2018, the producer price index jumped by 17.3 percent for aluminum mill shapes, 13.9 percent for lumber and plywood, 13.8 percent for copper and brass mill shapes and 10.5 percent for steel mill products. Other construction inputs that rose sharply in price from May 2017 to May 2018 include diesel fuel, 44.5 percent; asphalt felts and coatings, 8.9 percent; ready-mixed concrete, 6.5 percent; and paving mixtures and blocks, 5.2 percent.

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The U.S. imposed steel and aluminum tariffs on imports from Canada, Mexico and the European Union on May 31. The impact from these tariffs is not reflected yet in the most recent data.

“These increases far outstripped the 4.2 percent rise in the price index for new construction, implying that contractors are facing a severe squeeze on costs for both ongoing and new projects,” Simonson added.

“Moreover, tariffs imposed on steel and aluminum since this data was collected in mid-May are likely to drive contractors’ costs still higher.”

The producer price index for inputs to construction industries, goods—a measure of all materials used in construction projects including items consumed by contractors, such as concrete products—rose 2.2 percent in May alone and 8.8 percent over 12 months. The year-over-year increase was the steepest since July 2011, the economist noted.

Even before they have taken effect, construction officials said the tariffs have triggered a surge of orders that mills say exceeds their current capacity, a situation that threatens to produce construction delays, budget problems and possibly cancellations for future construction projects.

“Considering the impact the mere threat of tariffs have had on materials prices and demand, prices are likely to increase further as the new trade restrictions come online,” said Stephen E. Sandherr, the association’s chief executive officer. “Forcing contractors to pay more for materials and wait longer to receive them will make construction more costly and slower.”

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Oregon’s 2017 Natural Population Increase Was the Lowest on Record

by Felicia Bechtoldt In 2017, Oregon’s population increased by 64,750 to 4,141,100. This marked growth of 1.6 percent over the year, and growth of 8.1 percent since the 2010 Census. Portland State University’s Population Research Center recently released more detailed information on why this population growth has occurred.

There are two main reasons that lead to population change. First, an area increases in population if more births than deaths occur in a given year or vice versa.

Second, population can increase or decrease through net migration. That is, over the year, people either move into or out of an area. A positive value of net migration means more people moving into an area than leaving it, while a negative value of net migration indicates more people leaving an area than moving in.

In 2017, natural increase contributed 7,900 to population growth, which was the lowest since comparable records began in 1960. The low natural increase is

caused by an increase of the number of deaths (36,800), which was the highest since 1960. Since 2011, Oregon had a relatively low natural increase relative to the prior four decades.

Oregon Continues to Attract Migrants A lot of Oregon’s population increase in 2017 was due to net migration, which at 56,800 people was the largest net migration since 1991.

Over the past 20 years, Oregon had an average net migration of 27,800 people per year. The lowest number of net migrants over the last 20 years was 7,000 in 2010. In general, we see net migrants increase as the economy expands and more jobs become available. Notice that prior to the Great Recession, net migration was booming in Oregon. As the recession hit, people became less mobile. This, combined with Oregon experiencing a deeper recession than the nation as a whole, brought net migration to its lowest levels since the 1980s.

Metro Areas Gain Most from Net Migration From 2010 to 2017, Oregon’s net migration gain was 228,400, which made up about threequarters of the population gain. The net migration gain in metro areas of the state was 201,600, which accounted for 88 percent of total net migration gains in the state. Since 90 percent of Oregonians live in a metro area, this gain suggests the share of Oregonians living in metro areas is increasing.

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Growth Expected in the Future Oregon’s Office of Economic Analysis (OEA) forecasts population for the state. While Oregon’s population is 4.1 million, the OEA expects Oregon’s population to be more than 4.6 million in 2026. Between 2016 and 2026, Oregon’s population is expected to increase by 552,550, out of which 88 percent will be attributed to net migration.

While metro areas in Oregon grew 9.0 percent between 2010 and 2017, rural areas grew only 3.9 percent. In some cases, counties saw a decline in population. Declines can occur due to losses through both natural decrease and net migration, or one of the two factors outweighing the other.

Two counties in Oregon lost population between 2010 and 2017: Harney (-0.8%) and Grant (-0.4%). Both counties experienced a natural decrease in population.

Harney County also experienced a decrease in population due to negative net migration.

Sixteen counties in Oregon had a natural decrease in population between 2010 & 2017. In addition to the two counties that lost population, Josephine, Douglas, Coos, Curry, Lincoln, Tillamook, Crook, Baker, Wallowa, Lake, Wheeler, Wasco, Gilliam, and Sherman counties had more deaths than births between 2010 and 2017.

These 16 counties that experienced a natural decrease in population were home to 17 percent of Oregon’s 65-and-over population in 2017. But, these counties only made up 11 percent of Oregon’s entire population.

The average share of the population 65 and over in these 16 counties was 27 percent compared with the 17 percent share for the state as a whole. The disproportionate share of people 65 and over in the 16 counties was a major factor in their natural population decrease.

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As Oregon’s population continues to grow, we see that the majority of this increase comes from positive gains in net migration.

These gains are focused mostly in metro areas and in the northern half of the state. While gains from natural increase and net migration are the norm for 19 counties across the state, the rest of the state has experienced a decline in one or both of these components.

Population Estimates by Age and Sex The Population Research Center at Portland State University prepares annual population estimates for Oregon and its counties by age and sex, and incorporated cities and towns as of July 1 each year. These estimates serve as the official population numbers between each decennial Census, and are used to disburse state revenues to Oregon counties and cities.

To explore and use population estimates data for 2017 and prior years for Oregon and its counties, visit www.pdx.edu/prc/population-reports-estimates.

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Oregon Tech announces $2 million donation from the Wendt Family for new engineering complex in Klamath Falls June 25, 2018, KLAMATH FALLS, OR – The Wendt Family, longtime supporters of the Oregon Institute of Technology (“Oregon Tech”), has made a $2 million gift to the Oregon Tech Foundation toward the construction of the Center for Excellence in Engineering and Technology (CEET), a primary goal of the Campaign for the Future of Oregon Tech.

The Wendt Family is known for their generosity to Oregon Tech, funding numerous initiatives over the years, including student scholarships, athletic endeavors, and the Martha Anne Dow Center for Health Professions.

“The Wendts are ironclad in their support for the Klamath Falls region, and inspiring in their vision to help create a better future for Oregon Tech and its students,” said Dee Thompson, president of the Oregon Tech Foundation.

Oregon Tech president, Dr. Nagi Naganathan, announced the landmark gift May 18 during his investiture as the seventh president of Oregon Tech, for which Nancy Wendt was the Honorary Chair. In attendance to celebrate the occasion were members of the Wendt Family including Nancy Wendt, Mark Wendt and his wife Karen Lynch, and Rod Wendt and his wife Carol.

President Naganathan said during the investiture, “I must recognize Mrs. Nancy Wendt and her late husband Mr. Dick Wendt, who have not only created doors and windows through JELD-WEN, they have opened doors and windows of opportunity for Oregon Tech and our students with their continued generosity. Mrs. Wendt, I know that you and your family never wish to put yourselves in the spotlight, and always give without needing acknowledgement. But I cannot let today pass without my sincerest thank you. This is a transformative investment.”

The gift helps Oregon Tech fulfill the State of Oregon’s matching requirement for receiving the $40 million in bonding authority for the construction of CEET. “Thanks to their generous commitment,” noted President Naganathan, “we are able to accelerate and expand our Campaign for the Future of Oregon Tech. This $4 million foundational campaign will support new programs, new equipment and new technology that will directly benefit student access and outcomes, and excellence in faculty teaching environments.”

Rod Wendt, vice chairman of JELD-WEN, spoke about what motivated his family to make the gift. “What got us excited about the Center for Excellence in Engineering and Technology is the way in which it will lead directly to increased opportunities for students, faculty and industry partners alike. CEET will be a key instrument in Oregon Tech’s mission to create a clear pathway for students from education to professional Southern Oregon Business Journal

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success – and in the process will bring new avenues for partnerships with industry and local organizations. The whole region benefits.”

Oregon Tech president, Dr. Nagi Naganathan thanking Mrs. Nancy Wendt for the generosity of the Wendt Family The CEET will be integrated with a comprehensively renovated Cornett Hall, currently underway, to form the new Engineering Complex at Oregon Tech. “By creating an innovation ecosystem where students, industry and community come together in generating solutions for the future, the Engineering Complex will transform the student experience and prepare graduates for an even higher level of professional success,” added Dr. Naganathan. The total investment in the Engineering Complex is $53.8 million.

Thanks to the Wendt Family’s donation, the Campaign for the Future of Oregon Tech will now be able to increase its focus on funds and programs that offer significant advantages to students university-wide. These include the Student and Faculty Innovation Fund, the Fiscal Literacy Program, the Equipment & Technology Fund, and the Rural Innovation & Entrepreneurial Fund.

“When companies think of innovation,” President Naganathan added, “we want to have the type of footprint that makes them naturally walk toward Oregon Tech. This Wendt Family gift is a game-changer. With their help, Oregon Tech takes a significant step forward in its mission toward becoming ‘industry’s university’, committed to creating an innovation ecosystem that is a surrogate lab for industries.”

About Oregon Tech Founded in Klamath Falls in 1947, the Oregon Institute of Technology is the premier public polytechnic institution in the Pacific Northwest. Oregon Tech has a central, residential campus in Klamath Falls; an urban, industry-focused campus in Portland-Metro (Wilsonville); an Online campus; and offers degrees at Boeing Seattle and at other sites.

Visit www.oit.edu to learn more about Oregon Institute of Technology.

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Focus on Safety: Workstation Ergonomics

By Refresh Leadership on June 28, 2018 in Workplace

June is National Safety Month! Did you know musculoskeletal disorders account for 31% of the total cases for all workers’ injuries?

Whether you work on a construction site or in a traditional office setting, safety at work impacts every worker in one way or another. For employers, safety can affect everything from workers’ compensation costs to productivity. For employees, it impacts work environment, health, and morale.

Sponsored by the National Safety Council, National Safety Month “focuses on reducing leading causes of injury and death at work, on the road, and in our homes and communities.”

Refresh Leadership and Express Employment Professionals takes the safety of our Associates and clients very seriously. Throughout the month of June, we will share informational posters to help start conversations about important safety topics and how to avoid potentially dangerous workplace situations.

Publisher’ note: From the U.S. Department of Labor definitions of some ergonomic related injuries is provided. Employer understanding of these injuries is important for reasons of worker safety but also with respect to the liability of the employer in providing as safe a working environment as possible. Please visit the OSHA website at this address for more information:

https://www.osha.gov/SLTC/ergonomics/

Musculoskeletal disorders (MSDs) affect the muscles, nerves, blood vessels, ligaments and tendons. Workers in many different industries and occupations can be exposed to risk factors at work, such as lifting heavy items, bending, reaching overhead, pushing and pulling heavy loads, working in awkward body postures and performing the same or similar tasks repetitively. Exposure to these known risk factors for MSDs increases a worker's risk of injury.

Work-related MSDs can be prevented. Ergonomics --- fitting a job to a person --- helps lessen muscle fatigue, increases productivity and reduces the number and severity of work-related MSDs. Examples of Musculoskeletal Disorders (MSDs) • • • • • •

Carpal tunnel syndrome Tendinitis Rotator cuff injuries (affects the shoulder) Epicondylitis (affects the elbow) Trigger finger Muscle strains and low back injuries

Impact of MSDs in the Workplace • •

Work related MSDs are among the most frequently reported causes of lost or restricted work time.

According to the Bureau of Labor Statistics (BLS) in 2013, MSD1 cases accounted for 33% of all worker injury and illness cases.

Under the Occupational Safety and Health Act of 1970, employers are responsible for providing safe and healthful workplaces for their employees. OSHA’s role is to ensure these conditions for America’s working men and women by setting and enforcing standards, and providing training, education and assistance. For more information, visit www.osha.gov or call OSHA at 1-800-321-OSHA (6742), TTY 1-877-889-5627.

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RUNNING GOVERNMENT LIKE A BUSINESS

BY CHARLES MAROHN

I often ask audiences at my lectures whether they think city governments should make a profit. I do this because of the reaction, which is immediate and visceral: NO! The overwhelming reaction I get is that city government provides services, and profit should not be a consideration. Many people are appalled by the suggestion.

And, in a way, I understand. We don’t often think of profit as something worthy of a collective pursuit. In many ways, we have more altruistic notions of what our local governments should be, even if that notion is simply to maintain my own road at a price — in dollars and transaction costs — less than what I would be willing to pay to do it myself.

Yet, what is a profit? In accounting terminology, profit is a condition where revenues exceed expenses. That’s it. If you have more money coming in than you have going out, you are making a profit.

RUNNING GOVERNMENT WITH BUSINESS PRINCIPLES As part of my lecture, I explain how Walmart must

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make a profit — they must have more revenue than expenses — if they want to stay in business. (I specifically choose Walmart and not a company like Amazon or Tesla where the capital markets don’t seemingly care about profits, which says more about the capital markets than those company’s prospects).

The requirement of making a profit is true of Walmart, but it’s also true of an orphanage. While the goal of an orphanage isn’t to maximize profit, no matter how much social good an orphanage does, and regardless of how desperately it is needed, if it doesn’t run a profit, if it's revenues don't exceed expenses, it will also go out of business.

Once you accept this hard, cold reality about an orphanage — which is, literally, a place for helping desperate children — then it’s not much of a leap to grasp the fact that cities, too, must run a profit. Your local government must have more revenue than expenses, year after year, or bad things happen.

When people suggest that we should, “run government like a business,” I agree with them in the sense that we should apply business principles to the running 18

of local government. That big-hearted council member who loves parks and wants affordable housing for everyone is a menace to society if they can’t also understand a balance sheet. That no-nonsense council member who just wants to keep city government focused on building roads and providing parking is a disaster if they don’t grasp a P&L statement.

And, worst of all, when that professional staff member recommends the city take on debt, assume some long -term obligation or undertake some massive project despite not having a basic understanding of the financial implications of their advice, they should be run out of town.

This is why it often provides me a great deal of relief when private-sector business people wind up working in government. One of the best examples is Chris Gibbons, the private-sector businessman who ended up as economic development director in Littleton, Colorado when the city lost most of its workforce in a single plant closing.

He knew right away that they couldn’t use traditional methods of chasing smokestacks and paying companies to relocate there to make up that shortfall, but the need to do something productive prompted him and his colleagues to invent what is now known as economic gardening — the most brilliant approach to local job creation I have encountered. I believe it was his private-sector experience that gave him the grounding in financial reality necessary to make this breakthrough.

So, all things being equal, give me someone with private-sector experience who wants to apply business principles to the art of running the city... but know, this, too, has some serious limitations.

RUNNING GOVERNMENT WITH BUSINESS VALUES I had no idea who “mightily credentialed urbanist” Dan Doctoroff was until he was the featured guest on the Freanonomics podcast. That’s okay; even host Stephen J. Dubner suggests he’s not a household name. Still, Doctoroff has been described as a modern -day Robert Moses and, after having listened to the show, it’s clear he is incredibly accomplished.

A businessman recruited by the Bloomberg administration to run a number of complex undertakings for New York City, he had a refreshing perspective on local government.

Yet I found myself deeply disturbed by some of the things he said. Here’s probably the most egregious:

“I believe in something I call the virtuous cycle of the successful city. The object of a city should be to grow — and that is grow the number of residents, grow the number Southern Oregon Business Journal

of jobs, grow the number of visitors. Because the marginal revenue of those additional people is greater than the marginal cost. And then you can take that net profit, if you will, and reinvest it back in quality of life in the city, in an affordable housing, and education, and safety, and social services and when you do that and you improve quality of life, more people come, perpetuating the virtuous cycle.”

Dan Doctoroff on Freakonomics, June 6, 2018 This is where the private sector mentality — running government like a business — seems to hurt more than it helps. And it’s not a modest flaw. This kind of thinking is fatal.

If you’ve been here with Strong Towns for any amount of time, you know the suggestion that, “the object of a city should be to grow,” is deeply flawed.

Despite the suggestion, the marginal revenue is not greater than the marginal cost, not even in New York City. What Doctoroff calls “net profit” we call a sugar high — a short-term bump in cash flow from the new growth while the community takes on an even greater amount of long term liabilities.

We’ve called it a Ponzi scheme. I don’t think there’s a better description.

This is fatal because the goal of a city isn’t to grow; that is sometimes a happy side effect, but it’s not the objective. The goal of a city is to endure. To survive.

To be around tomorrow and the day after and the day after that.

For humans to prosper within a place, that place must first and foremost be stable. In a competition between stability and growth, local governments must choose stability.

Choosing stability over growth is not a natural disposition for private-sector players. In fact, for the most part, choosing stability over growth in the private sector is a path to stagnation and, ultimately, bankruptcy. Companies that play it too conservative will be out-competed by rivals that are less riskadverse. We all benefit from that.

We don’t benefit, however, from cities acting this same way.

Nassim Taleb, the Patron Saint of Strong Towns Thinking, often talks about an ecosystem of restaurants in a community, each one of them pushed to the limits and very fragile, but as a collective, very stable.

Individual restaurants come and go, but there’s always a good place to eat.

Cities are not like restaurants, or even an ecosystem of restaurants. When you own a home or run a 19

business in a specific location, you don’t get to choose between multiple cities; you have the one you have. If it fails, you don’t get to replace it with something else. There aren’t multiple cities competing for the land under your house. If your local government fails, you live in a failure.

If the city you are in goes far into debt, you’re stuck with that, regardless of what urgent need may come along. If your city takes on miles of new road and pipe in an effort to grow, that’s now an obligation you have; it’s on your community’s balance sheet and you will forego other things in the future to meet that obligation or there will be dire consequences.

In the private sector, we need people who are willing to take great risks, to run the chance of failure in a competitive effort to grow. That benefits us all. In the public sector, we need people who are obsessed with stability, who shun risk with the recognition that local government is a platform for people to do good things, that the role of the city isn’t to grow but to provide the stable environment necessary for prosperity to emerge.

If a private sector business fails, the ecosystem of businesses becomes stronger and society becomes more prosperous. If a local government fails, people suffer and society becomes less prosperous. There is no symmetry between those two kinds of failure.

Run your city informed by business principles, just don’t run it with business values.

(Top photo from Wikimedia)

Charles Marohn Charles Marohn the Founder and President of Strong Towns.

He's a Professional Engineer (PE) licensed in the State of Minnesota and a member of the American Institute of Certified Planners (AICP). Marohn has a bachelor's degree in Civil Engineering from the University of Minnesota's Institute of Technology and a Master of Urban and Regional Planning Degree from the University of Minnesota's Humphrey Institute.

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by Dallas Fridley Oregon’s real estate industry isn’t easy to analyze.

Job growth is often complicated by economic and non -economic code changes that shift employers to or from real estate and another industry group. That situation is further complicated by the selfemployment status of real estate agents and brokers.

Real estate industry employment in Oregon is reported by two related sources: 1) the Employment and Wages by Industry (QCEW) series; and 2) the Current Employment Statistics (CES) series. The QCEW series is drawn from unemployment insurance tax reports submitted quarterly by employers subject to Employment Department law; self-employment is excluded. The CES series includes self-employment, which in the case of real estate creates a rather large gap.

Covered and Non-Covered Real Estate Jobs Holding a real estate broker or agent license doesn’t necessarily indicate employment – only the active ones engaged in sales and affiliated with a licensed broker or real estate company are included in the industry’s CES employment. These jobs are essentially

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adjusted into the CES industry series as non-covered employment (not covered by Oregon’s Unemployment Insurance system).

The non-covered real estate broker and agent share of CES employment has changed over time, peaking during the housing bubble in 2007 at nearly 44 percent, falling during the bust and then gradually rising again as the recovery took hold. In 2017, the Employment and Wages series reported close to 21,300 jobs (covered), while the CES series averaged 36,800, producing a gap of about 15,500 or 42 percent.

Economic and non-economic industry code changes complicate over-the-year employment growth, particularly when looking at data over several years.

Real estate lost just over 700 jobs due to economic code changes since 2007. While the industry’s covered employment rose by 1,200 jobs (+6%) since 2007, its economic code changes have been significant. The CES series produced the same 10-year job gain (+1,200) while yielding a much lower 3.4 percent increase.

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Employment and Wages in the Real Estate Industry Group Oregon’s real estate industry encompasses far more activities than just land, home, and commercial property sales. Real estate has eight component industries. Its largest component industry, real estate property managers, averaged nearly 9,600 jobs in 2017 or 45 percent of the real estate group’s covered employment. Offices of real estate agents and brokers averaged close to 3,900 jobs (18.1%), followed by lessors of residential buildings with just over 3,800 (18.0%). The five remaining component industries together represented close to 19 percent of real estate’s covered employment, averaging 4,000 jobs.

Annual pay in the real estate industry, as reported by Employment and Wages, averaged $44,120 in 2017, well below Oregon’s $51,132 all industries average.

Covered payroll in real estate reached nearly $974 million in 2017, an increase of about $270 million since 2007.

Two of real estate’s component industries paid in excess of $70,000 annually: 1) other activities related to real estate paid an average of $76,093 in 2017; and 2) lessors of nonresidential buildings shelled out $72,006. On the low end, wages paid by lessors of other real estate property averaged just $24,303, while mini-warehouse and self-storage unit operators earned slightly more, at $24,916. Offices of real estate agents and brokers surpassed Oregon’s all industries wage, averaging $56,747, while offices of real estate appraisers landed close behind, at $55,163. Real estate property managers ($41,010) and lessors of residential buildings ($36,407) both fell below the real estate industry’s 2017 average wage.

An Older Workforce Earning Less According to the Quarterly Workforce Indicator series (QWI), 30.5 percent of Oregon’s covered real estate industry jobs were held by a worker age 55 or older in

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2017; the all private industry share was around 22 percent. Young workers, under the age of 25, held 7.2 percent of Oregon’s covered real estate jobs compared with 12.5 percent for all private industries. Workers ages 25 to 34 (19.9%), 35 to 44 (21.2%) and 45 to 54 (21.2%) held a relatively similar share of real estate’s jobs.

Monthly earnings (2017-Q1) averaged in excess of $4,000 in three of real estate’s age groups, led by workers in the 45 to 54 category at $4,330. Compared with all private industries, monthly earnings in the 45 to 54 age group were about $1,300 higher. Workers in the 55 to 64 age group averaged $4,303, while workers age 35 to 44 brought home $4,158. Two of real estate’s age cohorts, those ages 22 to 24 and 19 to 21, earned slightly more than their private industry counterparts.

Although wages are lower in real estate, the gender gap remains, with males earning an average monthly wage of $4,419 compared with $3,176 for females, a difference $1,243 or about 28 percent. For all private industries the gender wage gap reached $1,667 or nearly 33 percent. Employment was flipped, with females holding a 53 percent to 47 percent advantage in real estate compared with a 47/53 split for all private industries.

Broker and Agent Earnings - Commissions and Occupational Wages Where to begin? That’s an excellent question with a not so straight forward answer. Real estate commissions may be split in multiple ways. The percentage split is spelled out in agreement between broker and agent, typically reflecting the level of services and support the broker provides, although sale price and volume matter. The agent may be paying a desk fee, there are buyer and seller representatives, there could be a referral involved, and there may be franchise fees. Also, new models of service have emerged with fixed-fee and fee-for-service listing brokerages where an agent earns a salary rather than a commission or a base plus commission arrangement. While it’s possible to narrow down the typical commission paid in a real estate transaction, it’s not possible to say with any certainty how the commission will be split.

Real estate commissions may of course be negotiated

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and depending on your market, a range of 4 percent to 7 percent could be expected, although the level of service offered may vary. How’s that for nebulous?

Since the fee will vary from one brokerage to the next, it pays to negotiate and choose the level of service that meets your particular needs.

According to the Bureau of Labor Statistics, the U.S. median wage for real estate brokers in 2017 reached $56,730, while sales agents earned $45,990. The range is fairly broad, with the lowest 10 percent of real estate brokers earning less than $24,160 and the highest 10 percent more than $151,660. For real estate sales agents, the lowest 10 percent earned less than $23,130 and the highest 10 percent earned more than $109,490.

In Oregon, real estate agents earnings averaged $50,142 in 2017. On an hourly basis, real estate agent wages ranged from $10.80 at the 10th percentile to $42.98 at the 90th percentile, while the median paid $19.44. The Central Oregon area reported the highest median in 2017, at $22.95 hourly, while Portland Tri-County’s 90th percentile wage topped all areas at $46.77.

Oregon real estate brokers earned an average $77,335 in 2017 with Portland-Metro brokers leading all areas at $89,931 and the East Cascades lagging considerably at $48,612. Hourly wages ranged from a low of $12.75 at the 10th percentile to a high of $74.44 at the 90th percentile. The East Cascades area paid just $10.01 at the 10th percentile, while Portland-Metro led all areas, paying $91.40 at the 90th percentile.

Dallas Fridley Regional Economist Gilliam, Hood River, Morrow, Sherman, Umatilla, Wasco, and Wheeler counties dallas.w.fridley@oregon.gov

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How Smart are “Smart” Cities, Really?

Being a smart city should mean something different than a technology fetish The growing appreciation of the importance of cities, especially by leaders in business and science, is much appreciated and long overdue. Many have embraced the “smart city” banner. But what does that mean?

People tend to see cities through the lens of their own profession. CEOs of IT firms say that cities are “a system of systems” and visualize the city as a flow of information to be optimized. Physicists have modeled cities and observed relationships between city scale and activity, treating city residents as atoms and describing cities as conforming to natural “laws.”

In part, these metaphors reflect reality. Information flows and physical systems are an important part of what makes cities work. But cities are also something More — and their residents need to be viewed as

something optimized.

other

than

mindless

atoms

to

be

The prescriptions that flow from partial and incomplete metaphors for understanding cities can lead us in the wrong direction if we’re not careful. The painful lessons of seven decades of highway building in U.S. cities is a case in point. Led by people like New York’s master builder, Robert Moses, we took an engineering view of cities, one in which we needed to optimize our transportation infrastructure to facilitate the flow of automobiles. The massive investments in freeways (and the rewriting of laws and culture on the use of the right of way) made cities safer for long-distance, high-speed—but at the same time produced massive sprawl, decentralization, and longer journeys, and eviscerated many previously robust city neighborhoods.

Robert Moses, the great optimizer.

Credit: Metropolitan Transportation Authority, Flickr

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If we’re really to understand and appreciate cities, especially smart cities, our focus has to be elsewhere: it has to be on people. Cities are about people, and particularly about bringing people together. We are a social species, and cities serve to create the physical venues for interaction that generate innovation, art, culture, and economic activity.

So what does it mean for a city to be smart?

Fundamentally, smart cities have highly skilled, welleducated residents. We know that this matters decisively for city success. We can explain fully 60 percent of the variation in economic performance across large U.S. metropolitan areas by knowing what fraction of the adult population has attained a fouryear college degree. There’s strong evidence that the positive effects of greater education are social — it spills over to all residents, regardless of their individual education.

Educational attainment is a powerful proxy measure of city economic success because having a smart population and workforce is essential to generating the new ideas that cause people and businesses to prosper.

So building a smart city isn’t really about using technology to optimize the efficiency of the city’s physical

sub-systems. There’s no evidence that the relative efficiency of water delivery, power supply, or transportation across cities has anywhere near as strong an effect on their success over time as does education.

It is in this process of creating new ideas that cities excel. They are R&D facilities and incubators, and not just of new businesses, but of art, music, culture, fashion trends, and all manner of social activity. In the process Jane Jacobs so compelling described, by juxtaposing diverse people in close proximity, cities produce the serendipitous interactions that generate what she called new work.

We don’t have an exacting recipe for how this happens. But we do know some of the elements that are essential. They include density, diversity, design, discovery and democracy.

Density. The concentration of people in a particular place. Cities, as Ed Glaeser puts it, are the absence of space between people. The less space, the more people, and the greater the opportunities for interaction. Cities are not formless blobs; what happens in the center—the nucleus—matters, because it is the place that provides key elements of identity and structure and connection for the remainder of the metropolitan area it anchors.

Downtown Miami. Credit: Phillip Pessar, Flickr

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Diversity. We have abundant evidence that a more diverse population—by age, race, national origin, political outlook,and other qualities—helps provide a fertile ground for combining and recombining ideas in novel ways.

Design. We are becoming increasingly aware that how we populate and arrange the physical character of cities matters greatly. The arrangement of buildings, public plazas, streetscapes, and neighborhoods matters profoundly for whether people embrace urban spaces or abandon them. We have a growing appreciation for places that provide interesting variety and are oriented to walking and “hanging out.”

Discovery. Cities are not machines; citizens are not

All of these attributes of cities are susceptible, at least in part, to analysis as “information flows” or “systems of systems.” They may be augmented and improved by better or more widespread information technology.

But it would be a mistake to assume that any of them are capable of being fully captured in these terms, no matter how tempting or familiar the analogy.

Ultimately, when we talk about smart cities, we should keep firmly in mind that they are fundamentally about people; they are about smart people, and creating the opportunity for people to interact. If we continuously validate our plans against this key observation, we can do much to make cities smarter, and help them address important national and global challenges.

atoms. The city is an evolving organism, that is at once host to, and is constantly being reinvented by, its citizen inhabitants. A part of the attraction of cities is their ability to inspire, incubate, and adapt to change.

Cities that work well stimulate the creativity of their inhabitants, and also present them all with new opportunities to learn, discover, and improve.

Democracy. The “mayor as CEO” is a tantalizing analogy for both mayors and CEOs: CEOs are used to wielding unitary, executive authority over their organizations, and many mayors wish they could do the same. But cities are ultimately very decentralized, small “d” democratic entities. Decision-making is highly devolved, and the opportunities for top-down implementation are typically limited. Citizens have voice (through voting) and the opportunity to “exit” by moving, appropriately limiting unilateral edicts from City Hall. Cities also give rise to new ideas, and when they work well, city political systems are permeable to the changing needs and values of their citizens—this is when many important changes bubble up.

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Joe Cortright is President and principal economist of Impresa, a consulting firm specializing in regional economic analysis, innovation and industry clusters. Joe’s work casts a light on the role of knowledge-based industries in shaping regional economies, Joe served for 12 years as the Executive Officer of the Oregon Legislature’s Trade and Economic Development Committee

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Southern Oregon Business Journal comment: The following article is a selection of pages from the 2018 budget of Energy Trust of Oregon. Our intent is to present a starting point for our readers to see some of the recent activities and future intentions of the non-profit organization.

For a complete copy of the 296 page budget you may go to the website at: https://www.energytrust.org/~ Greg Henderson, Publisher greg@southernoregonbusiness.com

Mission and Purpose “Energy Trust is committed to providing comprehensive, sustainable energy efficiency and renewable energy solutions to those we serve.”

As an independent, customer-focused nonprofit, staying true to this mission has earned us valuable credibility with customers, stakeholders and the energy industry. … a resource for customers, providing information, cash incentives and technical assistance to help them invest in energy-saving or renewable energy projects. We coordinate our services with the utilities of our funding customers: Portland General Electric, Pacific Power, NW Natural, Cascade Natural Gas and Avista.

We are organized to serve customers with services in four major market sectors: residential, commercial/ public, industrial/agricultural and renewable energy. Program management contractors, program delivery contractors and other service providers deliver the majority of programs.

Many services are delivered to customers by more than 2,400 independent Oregon and southwest Washington businesses.

Date: December 15,2017 To: Board of Directors From: Michael Colgrove, Executive Director Subject: Approved 2018 Budget and 2018-2019 Action Plan

In developing the Approved budget and action plan, the draft annual goals and activities were presented to and reviewed by the board of directors, OPUC, Conservation Advisory Council, Renewable Energy Advisory Council, affiliated utilities and members of the public.

The Approved annual budget and two-year action plan will guide Energy Trust’s investment of $198.9 million to acquire 58.5 average megawatts and 6.91 million annual therms of the lowest-cost and cleanest energy available to utilities and their customers. This budget will further benefit customers by enhancing program methods and strategies, diversifying participation, and managing change and preparing for the future—three key strategies to meet our 2018 savings and generation goals and contribute to our ambitious 2015-2019 Strategic Plan goals.

Thank you,

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Oregon Department of Forestry Significant Fire Potential Map Explanation What do the colors on the map represent?

The map displays fire business threshold; low (green), medium (blue), high (yellow), very high (orange), and extremely high(red) indicating the potential for significant fires to occur. The map is one of many tools local ODF Fire Managers utilize when making decisions including changing fire danger restrictions, or forest closures.

How is a significant fire defined?

Equating significant fires with fire size has weaknesses. Regardless of size, the significance of a particular fire is dependent upon the fuels in which the fire burns. Fires burning in light fuels can burn large acreage in a short time, but can be controlled in a short time as well. Fuels (or fuel models) differ not only between parts of the state, but within individual units. Cost becomes the equalizing factor throughout the state, and represents the difficulty of suppression. Smaller acreage timber fires are much more significant than large acreage grass fires and that difference is reflected in fire costs. Discussion with ODF Fire Managers indicated a significant fire would be one that requires more resources than a unit currently funds and typically is represented by ODF costs that exceed $25,000.

Fire danger factors that increase exposure to significant fires can be established separately for each fire danger rating area (FDRA) analyzed. NFDRS indices and weather parameters are utilized where meaningful correlations exist and fire business thresholds can be established. Fire business thresholds are determined that result in having a relatively small number of days when a majority of significant fires occur. For example, on 25% of the days when a threshold is passed (ERC=70, for instance), 75% of the significant fires occur. These types of business thresholds have important implications for fire management decisions. There are several

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different fuel models used across the state and each FDRA has different threshold established based on historic climatology and fire history. In some cases it was necessary for an NFDRS indices and a weather parameter to be used. Two FDRA’s use ERC and Min RH to get the best correlation. Each analysis was conducted with local Fire Danger Technical Specialists to ensure the data being utilized was accurate and best reflected local conditions.

What is ERC? Energy Release Component (ERC) is a number related to the available energy within the flaming front of a fire and is a good indicator of fire season severity and the potential for large and/or significant fires to occur. Fuel models represent the burning characteristics of different vegetation types. Fuel model G is often used because it comprises both fine and large dead fuels, as well as woody and herbaceous live fuels. Therefore, ERC in Fuel Model G is a good indicator of seasonal fire trends. However, local analysis should be conducted to determine what fuel model and index best correlate with historical fire occurrence.

What the Significant Fire Potential Map is not: The Significant Fire Potential Map is not a adjective or Fire Danger map. The Fire Danger for each Unit or District is determined locally by Fire Managers is displayed on their individual website such as: http://www.oregon.gov/ODF/FIELD/MED/aboutus.shtml The Significant Fire Potential Map is not a regulated use or Industrial Fire Precaution Level Map. The Forest Closure information is located at the following links: http://www.oregon.gov/ODF/FIRE/precautionlevel.shtml http://egov.oregon.gov/ODF/FIRE/fire.shtml#Forest_Restrictions Closures

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Congratulations to the 102 American Small Business Champions for 2018.

The SCORE Awards winners and ASBC Grand Champions will be announced on September 13, 2018, at the 2018 SCORE Awards Gala at Westfields Marriott in the Washington, D.C. area.

Winners of the Small Business Championship will receive:

Prizes

Three (3) $15,000 Grand Prizes; National Publicity for 102 National Champions; Trip to Championship Training & Networking Celebration and 2018 SCORE Awards • One Full-Year of SCORE Mentoring to Grow Your Business.

• • •

Winners of the Score Awards will receive: Prizes • • • •

National Recognition as one of the best small businesses in America; Trip for 2 to attend the 2018 SCORE Awards near Washington, DC; Potential Spokesperson as SCORE Advocate; Public Relations Package, including a custom video.

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Oregon Winners of 2018 SCORE Competition Pip & Grow Submitted by: Lauren Hughey Business Website: http://www.pipandgrow.com State: Oregon City: Portland https://www.facebook.com/pipandgrow @pipandgrow

Business Description At Pip & Grow, we manufacture the Smitten Sleep System - an eco-friendly, portable bassinet designed to reduce the risk of SIDS. We believe in beautiful, ethically-made baby products.

Mission Pip & Grow strives to keep children safe by creating beautiful, environmentally- and socially responsible products backed by the best available science

How has working with a SCORE mentor helped your business?

Jon is my brain trust. He is my cheerleader. He gives me honest advice, even if it's hard to hear. He connects me to other experts who can help me. He gives me perspective. He helps me identify obstacles and figure out solutions to work around them. He let's me work on my own time but doesn't allow me to get lazy. He keeps me from getting discouraged on this wild ride. Jon keeps me sane!

Please describe the specific ways that your business has been successful and how it will grow in the next year.

2017 was our first full year in business. We learned a lot this year and secured our first significant wholesale orders, as well as honed our DTC outreach strategy. We have shown that if we can reach our target market, they will purchase our product. With a proven product and defined audience, our next big step is to reach more of our market through advertising and earned media to continue to grow. We have estimate requests for more than 10K boxes, a pilot program in place with a company with more than 23K locations worldwide.

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SurvivorEyes Inc. Submitted by: Elizabeth Brambilla Business Website: http://www.survivoreyes.com State: Oregon City: Medford https://www.facebook.com/SurvivorEyes/

Business Description SurvivorEyes is a complete brow style kit, created by a cancer survivor to help those who struggle with hair loss. SurvivorEyes delivers high fashion eye brows that are easy to apply and last all day.

What makes your business one of the best small businesses in your community?

SurvivorEyes provides men & women who struggle with hair loss a boost of self confidence, & support those we serve by making a donation to charity with each sale. Endorsed by some of the biggest names in women's healthcare, SurvivorEyes Inc. is a proud member of the PCPC (Personal Care Products Council). Through this membership, a donation of 500 SurvivorEyes Brow Stencil Kits was made in early 2017 to be included in the beauty kits that are available at the Look Good Feel Better workshops, administered nationally by the American Cancer Society. As a volunteer with Look Good Feel Better in Southern Oregon, I see the benefits that this product provides. In addition, the Alopecia Areata Foundation of North America features the BrowStyle kit in their online shopping "Marketplace". Medical Professionals believe in the healing powers of SurvivorEyes, and feature SurvivorEyes on their waiting room TV newsreel in Breastlink Imaging Centers across the USA. SurvivorEyes is Beauty With a Purpose.

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