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Is Oregon Good for Business?

 

Nothing gets the private sector more riled up than a no-holds-barred discussion about the state's business climate. We take a deep dive into an age-old debate.


Perched on a barstool in his inner Southeast headquarters, restaurant owner John Gorham considers the question: Is Oregon a good place to do business? Gorham bristles with entrepreneurial energy. His eyes blazing, he says, “Yes! Are there some obstacles, some hurdles to overcome? Sure. But I wouldn’t want to live and work anyplace else.”

He ticks off the reasons: Responsive government agencies. Ready and willing workforce. Affordable space (he’s opening his fifth Portland restaurant). Tough but friendly competition. An overall atmosphere of collaboration. A huge foodie market. The perfect combination for a visionary restaurateur, operator of Tasty & Sons, Tasty & Alder, Toro Bravo and Plaza Del Toro.

And, he adds, “I can live and work in the same neighborhood. I can ride my bike to work. I moved to Oregon because I wanted to be here, to make my home and my living here. And it’s happening.”

 "It's not that Oregon is 'anti' business. They are just not doing much to make it pro business."— Joe Maruschak

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Overall, the picture that emerges of Oregon as a place to do business is one that is attracting, retaining and nurturing certain types of businesses — the businesses that represent the future of the state’s economy. These businesses find what they need here, and succeed perhaps in spite of tepid support from local and state agencies and policies that create headaches for business owners.

Is it the best climate for business in the U.S.? Depends on your definition of climate, but certainly, the answer to that one is “no.”

Texas is generally assumed to be the most business-friendly state, mainly because of its low corporate taxes, cheap land and space, and the state’s reputation for boldly courting businesses located elsewhere to move there by offering myriad incentives. California or New York always come in last place in any rankings. Oregon generally lands somewhere in the middle in national surveys.

But most of those “I love Oregon!” subjects interviewed for this article either came here, or, as natives, stayed here because of an intuitive factor that can’t be reduced to a stat: their love for the place. Fueled by romance, they are determined to find a way to make a success of their businesses.

“It’s just good enough for business that, if you want to be in Oregon, you can make a living and stay there,” says marketing consultant Lou Bank, who himself left the state a few years ago to return to his hometown of Chicago after a decade in Portland working for such local companies as Rogue Ales.

And those are the people who are building the foundation for the state’s emerging economy: the ones who intend to put down roots. “When my grandfather decided to leave Montana in 1924, a friend said he should come to Medford because wood was cheap and he could save a lot of money heating his home there,” says Bill Thorndike, chairman and president of Medford Fabrication and a former Port of Portland commissioner. “Using less wood drew people back then. Now it’s the quality of life. We love it here. And the state attracts people of character.”

You need character, because doing business in Oregon isn’t without its challenges. The main complaints aired by critics of the state’s business environment focus on the K-12 education system and the relatively high income and capital gains tax rates — if you want to grow a company to get rich, Oregon might not be the best place. Fees assessed to businesses (at least in part to replace the nonexistent state sales tax) also get a fair share of complaints. Corporate taxes, however, are actually low compared to other states, a deliberate move set up to attract traded-sector companies, businesses that trade outside the region. Oregon’s 3.4% total effective business tax rate is tied with Connecticut for the lowest in the nation, according to a recent study conducted by the accounting firm Ernst & Young for the Council On State Taxation.

A relative dearth of venture funding has long been cited by the entrepreneurial community. But that’s changing as the economic recovery has gathered strength and Oregon’s tech community has grown.

Veteran Oregon venture capitalist Gerry Langeler has been often frustrated by the lack of support in Oregon for startups. But, he says, the environment is getting better. “There’s more money available now, and more optimism about Oregon as a place to start a business,” he says.

The economic profile of the state is shifting away from traditional industries to more knowledge-based ones, and that can work, he says. But, he cautions, Oregon currently strikes a delicate balance, with pluses and minuses. Tip the scales too far in the wrong direction, he warns, and the optimism expressed by many today could be dashed.

“Oregon has challenges as a place to do business,” he says. “Funding for education is abysmal and the graduation rate an embarrassment. The tax structure is a real issue. None of them are fatal by themselves. We are doing a lot of things really well. But it could be a lot better.”

Joe Maruschak — who started his Oregon business career as a Willamette Valley entrepreneur, designing online and computer games — is less sanguine about the state’s business environment. As chief startup officer at the Eugene Regional Accelerator and Innovation Network, or RAIN, he works closely with entrepreneurs  and believes the state doesn’t provide the support they need to be successful.

“My own experience is not that Oregon is hostile or helpful. [It is] just ambivalent. And at a local level, the elected officials don’t really seem to understand economic development well at all,” he says.

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It’s the state’s laissez-faire attitude toward acknowledging and addressing the needs of the business community that really irks Maruschak. “It’s not that Oregon is ‘anti’ business. They are just not doing much to make it pro business. When you are in an environment where other states are trying, it makes Oregon look bad,” he says.

That’s a concern shared by Roger Hinshaw, president of the Oregon region for Bank of America. “Companies have choices when looking at options of where they want to expand and which markets they want to further invest in,” he says. “It pains me every time I learn of instances where Portland was passed over by such companies. At a time when our economy is starting to come back, we should be pulling together as a state and working together to create job growth and opportunities.”

Hinshaw points to the loss of thousands of middle-income jobs around the state over the past decade. Growth is coming at the high- and low- income ends, he says — and that’s not healthy in the long haul.

“For at least a century, middle-income jobs have been the backbone of the U.S. economy,” Hinshaw says. “The question facing the Portland metro area is not whether these trends affect us, because they already have. Rather, we should be asking: How do we create an environment that allows us to retain the quality jobs we have while still being poised to grow the new ones that are emerging in our evolving economy?”

Portland mayoral candidate Ted Wheeler, currently the state’s treasurer, thinks the state needs to rethink its approach toward economic development. “On the whole, Oregon has a healthy business climate,” he says. “But we must do more to ensure all Oregonians participate fully in the economy. There are too many barriers to advanced education and skills training, and too many high-skill, high-wage jobs are going unfilled. An effective economic development strategy must improve both the business climate and economic opportunity for all Oregonians.”

"He sent my assistant a boquet of flowers. Then I got an iPhone with his personal cell phone number on it. I said, 'We're not ready to move.' "— Tim Boyle OB0116 Ore4Biz05

All that said, the state as a place to do business comes highly rated by most who actually do business here. The sense of place, the quality of life, the collaborative nature of the business community — all these appear to outweigh the negatives. Tim Boyle, CEO of Columbia Sportswear and an Oregon native, speaks for many business owners and executives when he says, “I’m from here, I like it here, my employees like it here. We’re very high on this state.”

In 2005 Boyle delivered a famous speech at the Portland Business Alliance lambasting city leaders for creating a hostile business environment. A decade later, he seems decidedly less curmudgeonly, although he still calls out areas for improvement. The Portland area transportation system for moving goods in and out is terrible.  Lots of business fees to deal with. The city and state don’t exactly go out of their way to see what they can do to make conditions more hospitable for businesses.

A few years back, Boyle says he got one of those “offers you can’t refuse” from the mayor of Dallas. “He sent my assistant a bouquet of flowers. Then I got an iPhone with his personal cell phone number on it. He really wanted us to move there. I said, ‘We’re not ready to move.’”

Why not? Boyle articulates the “love of place” factor cited by so many others as critical to his decision to remain in Oregon. “Many places in the world are more welcoming than Oregon,” he says. “We can get a little parochial here. But the people who work here love it here, and that’s a positive.”

At the same time, Columbia Sportswear has opened offices and manufacturing facilities outside the state. Says Boyle: “My shareholders would ask for my head if I built more infrastructure here, at the apex of the worst transportation system in the U.S.”

Columbia Sportswear isn’t the only Oregon company that has chosen to manufacture goods elsewhere, and many still decry the loss of blue-collar manufacturing jobs. But that’s happening nationwide, as China becomes the world’s mass manufacturer. No amount of state incentives would launch an auto plant in Eugene.

Of course, some major manufacturers still exist: Intel. Tektonics. Greenbrier. But their influence is dwindling. Another historic bulwark of the economy — Oregon’s traded-sector — is hanging tough even as it evolves from a largely timber/heavy equipment export cluster into goods and products like agriculture ($3 billion a year for processed foods, wine, beer, etc.) silicon chips and apparel. Timber sales still bring $500 million  into the state annually. Oregon has seen fit to adopt policies considered attractive to the traded-sector (low business taxes, for one) as such companies are considered key to growing jobs and incomes and boosting tax revenue for schools and other public services.

Now take a look at what’s happening within the new economy. In segments such as tech, health care and hospitality, Oregon competes quite handily. In fact, state data shows that hospitality employs almost exactly as many people in Oregon as does manufacturing — a window into the state’s future.

Of course, hospitality jobs generally don’t pay what manufacturing jobs did in their Oregon heyday. But Portland’s national reputation for fine food and drink attracts plenty of restaurant workers, from entrepreneurs to celebrity chefs. It’s a competitive scene but, say many restaurant owners, there seems to be no shortage of demand for new players.

Gorham says government agencies like the OLCC and the Portland Building Department are much more efficient than similar agencies elsewhere. “You can make a plan here for a new restaurant and pretty much count on it happening if you follow the rules,” he says. “And there is absolutely no corruption, no money changing hands to get things done, unlike what goes on in other cities.”

Oregon restaurateurs say they have actually benefited from the state’s high minimum wage. At $9.25, it’s $2 above the federal minimum wage and second only to Washington. That, coupled with President Obama’s health coverage initiative that extends insurance to most workers, gives restaurant owners here an edge as they attempt to attract top talent.

“There’s a shortage nationally of cooks and staff,” Gorham says. “They know they can make more here, so it’s a destination. That creates more stability for the business. It gives you some peace of mind.”

Portland’s Salt & Straw founder, Kim Malek, says she was initially taken aback by the high minimum wage here. “I was pretty panicked at first when I heard how high it was,” says the upscale ice cream shop founder, “but since everyone [in the restaurant business] has to pay it, it’s a level playing field.” Malek also got a shop in Los Angeles and will soon open a second there. But she says she would never consider living there. “I moved here from Seattle specifically to open this business,” she says. “I had lived here before and wanted to move back.”

And more business owners continue to flood into the state. A recent study by a California facilities consulting firm found that Oregon ranks No. 6, just behind Washington (No. 5) and Colorado (No. 4), among states that have benefited the most from California employers who relocated to get away from what is generally considered to be the worst state in the nation to do business.

COZY was one that moved up the coast. Founder Gino Zahnd moved his real estate support business from the Bay Area to Portland in early 2014 and has watched it steadily grow here. “We had a one-person office in Portland when we were back in California,” he says, “but we were having real trouble recruiting people to the Bay Area. When I started giving them the option of California or Oregon, every single one chose Oregon. So eventually we moved the company here. And we love it!”

While some Portland businesses complain about congestion and cost-of-living increases, to Bay Area execs like Zahnd, Portland’s a steal. He has no trouble recruiting people to the city. His mostly young employees can afford to live close to work; they’re paying far less for rent, food and entertainment than in the Bay Area/Silicon Valley, and they love the city’s plethora of networking opportunities.

Zahnd’s experience as a new member of the Portland, tech community could not have been sweeter, he says. “The city welcomed us with open arms. It was like a small Portland party just for Cozy” he says.

Luke Kanies moved Puppet Labs from Nashville to Portland which, he says, “feels like home.” Kanies shrugs off the usual complaints about the business environment (“From my perspective, that stuff’s all irrelevant!”) and says he’s found top-notch investors and employees here.

“Portland offers the relationships I need to be successful,” he says. “When I moved here six years ago, this place felt like an undervalued stock. Now the stock has been discovered. The people I hang out with ask, ‘Can you build a high-growth software company here?’ I tell them, ‘Yes, you can do it.’ You don’t have crazy prices here. The value of capital is much higher than, say, Silicon Valley, and that buys you more time to develop.

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Another key element that Kanies appreciates about the state is the sense of collaboration between government, businesses and individuals to address thorny issues. The region’s commitment to expanding light rail, its commitment to increasing density and preserving outlying areas, its willingness to increase the facilities inventory all represent creative solutions to problems brought on by growth. (That collaboration is going to have to shift its focus soon to K-12 education, or “you can write Oregon off” down the road, he says.)

Is it the best place to grow a software company, to create personal wealth? No, he says. But if one’s goals are to build a business and run it, meanwhile enjoying a certain quality of life, then Portland, and Oregon, work.

As do other parts of the state. Interviews with members of business communities outside of Portland reveal considerable optimism for growth opportunities. Southern Oregon is clearly benefiting from the “discovery” of its bounty in organic foods and fine wines. Eastern Oregon’s bounty of outdoor activities has launched related businesses.

But beyond that, business operators and support organizations in those regions report a strengthening of their infrastructures that has boosted economic activity. The regional airports that serve Medford and Pendleton now offer round-trip flights to Portland and other major cities. Getting in and out of those metropolitan areas had been a barrier to development. Now executives from Medford’s publicly held Lithia Motors can catch a direct flight for meetings in Portland, Seattle or San Francisco in the morning and be home for dinner. Two direct flights a day connect Pendleton and Portland, for as low as $147 round-trip.

Business Oregon, a state agency, has played a role in Pendleton’s recent economic development successes, says Steve Christman, the city’s economic development and airport manager. “They’ve been very supportive. You know, when you’re a small community, any addition to your economic base makes a huge difference. When you get a couple success stories, you can keep feeding them.”

The cheap flights to Portland were made possible by the federal government, which subsidizes the fares as part of its support of “critical” airports located in rural regions. In less than 90 minutes, a business executive can fly to Portland and find connecting flights to anywhere.

In Southern Oregon, collaboration has driven growth. Thorndike says some initiatives, like the renovation of the city’s historic downtown, take years to put together and execute. “But that’s how we get things done outside of Portland,” he says. “We form public-private partnerships. We identify needs and work together to find solutions.”

Consider, for example, the Southern Oregon Regional Solutions team, a unit of the state agency Regional Solutions. The agency was designed to pull together funding to address regional economic priorities. Thorndike, a member of the Southern Oregon unit, says his group has already received funding for four regional projects. Among them: a $350,000 grant to develop a river-rafting project in the Gold Hill section of the Rogue River, and an organic food district built around the Fry Family Farm operation in Talent that will use $450,000 in state money.

Collaboration between Southern Oregon’s towns — Medford, Grants Pass, Rogue River, Ashland, Jacksonville — means they’re willing to pitch in on each other’s projects, knowing their priorities will eventually be addressed, says Brad Hicks, president of Medford’s Chamber of Commerce.

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Meanwhile, another group of Oregon entrepreneurs is poised to launch a “new” industry: legal marijuana sales. Renee Spears, founder of the Marijuana Dream Store in Portland, says Oregon’s making entry to the market quite a bit easier than have other states, such as Colorado and Washington.

Is Oregon the best place to create personal wealth? Perhaps not. But if one's goals are to build a business while enjoying a certain quality of life, then Oregon works.

Spears is a longtime Oregon businesswoman and owns Rose City Mortgage as well as the pot store, which won’t open for business till next year. She says getting a license to sell pot legally isn’t cheap: about $5,000. But the state’s overall fees and taxes on this fledgling industry are less than those charged by Colorado and Washington. “Oregon has done a really great job at avoiding the mistakes made by those states,” she says. Spears adds that Oregon also imposes fewer regulations on financial institutions than do some states, creating a good environment for many types of financial businesses.

One factor that’s tough to assess when considering Oregon’s business climate: the recovery effect. Most companies are doing much better today than during the recession. This could be generating a false sense of optimism among some sources. Will the inevitable next economic downturn decimate the wealth currently being created around the state? Given the nature of the new players that dominate the state’s economy, that’s not likely.

But there are clouds on this optimistically drawn horizon — at least according to some business representatives. A new corporate tax increase set for the 2016 ballot would hit businesses hard, sending a strong antibusiness message, says Portland Business Alliance president and CEO Sandra McDonough.

“We’ve got a lot going for us here in Oregon,” she says. “We certainly don’t want to undermine what we’ve got.” The tax measure, proposed by a group dominated by labor union representatives, is designed to provide funding for schools and other infrastructural needs that most states fund through sales taxes — anathema to Oregonians.

Backers point to the state’s relatively low business taxes and say the increase would be largely paid by companies based elsewhere. But McDonough warns that these businesses provide thousands of Oregonians with jobs and contribute to our strong trade economy. “That is at the top of my list of concerns right now,” she says. “Passage could be devastating to our efforts to expand trade here.”

 "The city welcomed us with open arms. It was like a small Portland party just for COZY."— Gino Zahnd

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Another economic concern for the state: Wages haven’t kept pace with the cost of living, and while the economy’s been generating jobs, workers are falling behind. That, she says, doesn’t make for a healthy business environment.

Yet McDonough isn’t pessimistic about the state’s business climate. Cautionary, maybe. But most of the pistons are firing, and Oregon’s drawing the right people, she believes. “The state attracts all kinds of people who want to live and work here. We attract people with a strong sense of entrepreneurism. We see small businesses growing into big businesses, and when people like Warren Buffett want to invest in iconic Oregon companies, that’s pretty darn cool.”

So there it is: Oregon’s a great place … depending. Or, as Lou Bank says, “It’s just good enough.” It’s not the Oregon of the early-to-mid-20th century, with unlimited open and available spaces, plenty of blue-collar workers earning middle-class wages and cranking out durable goods in factories belching smoke, and men felling trees that were milled by the millions into the lumber that built America’s homes.

But the character of those who founded the lumber companies, built those factories and filled the acres of warehouses — that character can still be found in the new breed of entrepreneurs and executives who start and maintain businesses here. And until there’s a statistic on character, that will remain the unmeasurable quality that drives the state’s economy forward. 

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