Spokane’s economic plan du jour

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Spokane’s future industry clusters:

  1. Retirees and transfer payments
  2. Health care services and health care academics
  3. Government, including education
  4. Manufacturing
  5. Low skill, low wage categories including retail, restaurants, hotels, recreation, trucking, warehousing.
  6. Various small categories including low skilled and high skilled workers.

Categories 1, 2 and 3 will account for 60+% of the local economy. Here’s the number of workers, per category, flipped from horizontal to vertical to present the relative size differences.  Retirees and transfer payments are not shown in the chart but would be in the top 3.

Here is the impact of transfer payments. As you can see, transfer payments are a large component of the local economy. For more information on transfer payments please see “Trend of Transfer Payments into Spokane County“.

Data Data from washington.reaproject.org

Retirees

Previously, many people retired from Southern California and took their large real estate capital gains to low cost Spokane. That source of retirees is diminished due to the housing collapse and its return in the future is not predictable. This is an important driver for health care, housing and service sectors.  Inbound migration may be at reduced levels for a long time.

Clusters

The State adopted an industrial clustering policy where the state selects the industry clusters to be supported in each region. The primary clusters for Spokane are health care, education, and trucking and warehouse operations. Manufacturing has been in a slow national decline for 30 years.

Health care is on a growth streak due to retirees, a doubling in individual use of medical services over the past 30 years, and more recently by expectations of “ObamaCare” leading to an expectation of increased demand for services primarily paid for by someone else.

Risks

The loss of retirees from Southern California produces risks to the area’s current strategy and may be why the 2011’s local economy continues to remain stuck well below 2007 levels. On the plus side, the nation’s overall large “baby boom” approaches retirement years. However, where they choose to settle in their retirement years will have a big impact – and some think relocating as part of retirement may be thing of the past, not of the future.

There is a risk that the health care act might not play out as expected. It is possible that court challenges may limit the growth in the health business sector.

There is a risk that shifting more money into health care services without addressing the exorbitant prices charged and excess consumer demand for health services paid for by other people means less money for the production side of the economy. This is not a sustainable path.

Spokane’s future is based on retirees and health care – but that future has risks. And a big risk is there is no plan B.

Low Wages Are By Design

Greater Spokane says our region’s primary competitive advantage is low wages and low land and housing costs (or stated another way, poverty). Per Greater Spokane, our region’s competitive advantage is low prices. And no one in power wants that to change.

Spokane will be the state’s low wage, low cost housing and low cost land destination. This appears to be by design.

Outside of the key clusters, wages and opportunities will be limited.

The substantial quantity of data collected on this web site, and reviews of all the economic plans going back to the 1980s show that the chronic low wages and limited opportunities are endemic to Spokane. Every one of the plans mentions these problems. These problems remain because not many people want to embrace change – low wages are a feature and are by design.  The area is settling into a future as a comfortable government-funded enclave of government and health care workers, and retirees collecting benefits.

Everything on this website has been mentioned before, often many times, in prior economic studies about Spokane. What I present on this website is not my opinion but is backed by data and numerous studies. This view is shared by business leaders of the past, by various politicians, current and former academic administrators and many more. The data tell this story, not me.

Why?

See the recommendations links at the right of this page. Lots of bad decisions were made in the past.

Hiatus

It’s been an interesting experience to go from wondering why so many businesses disappeared to finding out what really happened. The answer was not at all what was expected.

Unfortunately, no one cares. It’s always been this way in Spokane. As a friend said to us in the 90s, “It’s just a big small town, only bigger.” So true. (Well, at least one other person gets it…)

And nothing will change.

This web site will now be updated primarily for major events or changes.

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Forecast Economic Impacts of the Spokane Medical School

Update: The original economic study has largely imploded. As of 2014, its bogged down in politics and in fighting between the UW and WSU. There is no longer a target date by which the  Spokane med school would open.

 

It is pouring down rain again today so guess I will make some charts.

Data for these charts comes from “America’s Next Great Academic Health Science Center“, part of the economic study to justify a Spokane medical school.  I chose to create some charts in a different form than those that appear within the consultant’s report. The new charts tell a somewhat different and unexpected story than we’ve heard from the promoters.

According to the study, conservative and aggressive models were created for the estimates. It is not clear whether these charts represent the conservative, aggressive or a combination model.  The report section that I could see does not provide the range of potential forecasts.

As will be explained in a moment, local promoters appear to be counting growth that would occur whether there is a medical school here or not. This discovery was unexpected. While there are issues with the economic study, the larger problem is that its conclusions have been presented in a misleading way by local promoters.

Here is the chart from the study showing the overall economic impacts of a health science center (not a medical school per se).

I created a new chart to break out the components of this forecast economic impact. This chart is not available in the study:

The chart above shows the estimated economic impact of the different components of having a health science center in Spokane.  The largest single component is growth of the health care industry (the pink area labeled “Industry g..” but cut off in the legend) and the second is the nursing school growth. These account for half of the total 2030 estimate – and will almost certainly happen with or without the medical school.

The sum total is $1.6 Billion for Eastern Washington by 2030 and over $2 Billion for the state. As will be shown in a moment, much of this growth would occur whether a medical school was here or not.

The study itself is about the proposed economic impacts of the WSU-Spokane Health Science Center, of which the medical school is one part.  Local promoters have focused on the medical school and claim up to $2 billion in economic benefits from the medical school. That is misleading. Much of the growth described in the study will happen regardless of there being a medical school in Spokane.

The next chart is the same information, but in a form that makes this more obvious. Almost all of the economic impact by 2030 comes from the continuing growth of the health care industry (which would almost certainly happen without a medical school here) and WSU Nursing, which would also likely happen without a medical school here. They also include WSU Pharmacy in the total, which is moving to Spokane. The move was approved before the State approved half the funding to start construction on a new health science building that would house a future medical school.

Next, we look at the employment impact forecast.


Same information as the above chart, but in a different form to make this more obvious.

And again, we see the the large component of employment growth is the hospitals and health care industry itself, followed by a more than doubling in WSU Nursing and Pharmacy program employment in the last few years of the 20+ year forecast period.

They assume that a percent of graduates of the program will stay in Eastern Washington and thereby, increase employment and economic impacts. That’s fine. The implied argument is that health care workers would not come to Eastern Washington unless they were trained here. Interesting argument to put in a promotional study …

However, this thinking is flawed in terms of measuring medical school impact: whether or not there was a medical school here, the market will determine the number of health care workers needed in Eastern Washington. Whether they are produced here or not, most of this health care sector job growth and economic impact will occur anyway.  This is apparent from the pink line in the charts, above – it goes straight up from the very beginning, even though the other parts of the plan are still being implemented.

Don’t confuse what I just wrote – I support having the medical school here – but parts of this economic impact study, and specifically, how it has been presented to the public, are misleading. Major components of this growth would occur with or without the medical school.

Let’s state this another way if you do not understand. Demands for health care services drive the number of jobs. If there is no demand, there would be no jobs.   The medical school does not just create thousands of health care worker jobs unless there is market need. There is a market need and we would prefer to have the benefit of producing those workers locally. But ultimately, whether we produce them locally or not does not matter – if there is a market need, those workers will be trained somewhere and they will fill the available jobs. It does not matter if we have the medical school here or not.  Those jobs will occur anyway if the market demands them.

The genuine economic impacts are those of the health science center and WSU-Spokane itself, not the growth of the health care industry overall.

Finally, the statewide impacts.  And once again, the largest single component is growth of the health care industry. The following chart title is incorrect – this chart refers to the employment impact and the vertical scale is the number of jobs created state wide due to the Spokane Riverpoint campus health science program.

Outside of health care industry growth (which I argue will happen whether or not there is a medical school here), almost all of the growth in the other categories is in the last 7 years of the forecast period. The next chart shows the sum total economic impact for Eastern Washington.  As can be seen, about half the forecast impact occurs in the last 7 or 8 years of the 20+ year period – when the growth curve accelerates.

This puts most of the big growth way into the future when:

  • The ability to forecast accurately is the least likely due to it being impossible to make assumptions 14 to 20+ years in the future with any accuracy.
  • No one will look back at the original forecast

It appears the economic impacts of a Spokane medical school will be less than that advertised by promoters.  A reasonable guess is that the actual impact will be less than half of the top line number – which is not a bad result either.

Please read past comments on the art and difficulty of forecasting here.

I could be completely wrong but there is a lot of wiggle room in this economic impact forecast.  It would be better to see and understand the full range of forecasts and assumptions. Unfortunately, local promoters have misled the community about the impact of the medical school. An accurate statement would be that the WSU-Spokane health science center will have many economic impacts on the region, but the impact of the medical school is just one component of that.

The first sentence of this news article: “Jun. 11–A four-year medical school in Spokane would support more than 9,000 new jobs by 2030 and generate $1.6 billion in new economic activity, a new study says.” illustrates the effectiveness of misleading public relations. The statement appears to be completely wrong – and twisted into a lie.

Update: Controversy as UW bad mouths the WSU-Spokane medical school program and fails to recruit sufficient 2nd year students for the WSU-Spokane located  UW-WWAMI medical school program.

Data Tables

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GSI goes to DC, SIRTI could be chopped, and we’ll pour more concrete

Further updates are going to be like these – Twitter-sized and infrequent.

  • (Correction May 2011: The source that provided the information for this item was not correct. As always, if you spot errors on this blog, please leave a comment. Thank you. According to the above, ISR employs about 40 people and is not out of business.) Original incorrect comment: Isothermal Systems Research (aka SprayCool) of Liberty Lake is out of business. At their peak, they employed up to 250 people.
  • GreaterSpokane, Inc (GSI) sent 40+ lobbyists to Washington, DC. Their agenda is to get Federal money for health care, med school, military and pouring concrete. 
  • Med school, Health, med school, ag and energy science, and med school are on the agenda but mentions tech only in terms of seeking a $500,000 Federal grant to keep SIRTI alive…
  • SIRTI is on the state’s chopping block. The Legislature may merge SIRTI with Seattle’s Washington Technology Center.
  • GreaterSpokane posted a blog item where they thought they linked to a web site about the Spokane Waste to Energy web site but instead link to a spoof website. Embarrassing. Again.
  • A proposed electric trolley route for downtown Spokane has apparently been selected:

  • The path serves local power brokers – Cowles, Avista, GU, government, and the health care block. Paid for by everyone except the Kendall Yard’s folks who pay no taxes for 12 years.
  • Pouring concrete to benefit a few smells like a cargo cult. If we pour enough concrete, things are bound to get better! The trolley is effectively a done deal – we are going through the motions of pretending to have public input. Same as the new pedestrian bridge over the railroad. Also a done deal to benefit the downtown core.
  • What is the new South University district? Last year we called this the International District but take a look at the map.
  • Overall Spokane economy sputtering but shows some signs of life. Different parts will have hit bottom at different times.

Relative wage distribution in Spokane County

Notice anything unusual about the wage distribution in Spokane County?

What this chart shows

This chart is an attempt to capture the relative impact of industry wages, by sector. The normal way of looking at sectors is as a count of total employees in each sector, or sometimes as average wages by sector. This chart is a little different.

The data comes from the WorkForceExplorer. The average wage for each sector, from that data source, is multiplied by the percent of the workforce of each sector.  This weights each sector according to income (or if you prefer, weights income according to sector).

Government and health care combined are just over 40% of all wages in Spokane County. (WorkforceExplorer produces a similar chart as the above but sorts the columns and draws them as a horizontal bar chart. Our brain judges relative sizes in the vertical direction better than in the horizontal direction. When the columns are left unsorted, and drawn as vertical columns, the distribution of wage income is apparent.) The government category, as provided by WorkforceExplorer includes public schools and colleges.

Retail trade accounts for two-thirds the number of jobs found in health care and government but wages are very low. When the impact of retail trade is weighted by the low wages the importance of retail wages falls to a low level considering how many people work in retail.

If you squint at the chart for a bit, you can see that Spokane has two large clusters: government and health care. Plus three small clusters: manufacturing, retail trade and finance and insurance. The latter two are not really competitive advantage clusters – every comparable city has similar sized retail and finance industries.

What does it mean?

It means that the next time some one tells you that Spokane has a greatly diversified economy that its okay for you to ask them how much they have been drinking. There are several groups in town that incorrectly claim the local economy is highly diversified. Perhaps they drink too much 🙂

In seriousness, the chart shows that Spokane does not have a diversified economy. Related:  the incoherent cluster strategy that I have described elsewhere on this web site does not include government as a cluster even though it is the largest employer and produces the largest portion of wages.

Another component not shown is that transfer payments, primarily from government, for unemployment, disability, retirement and other benefits programs are not included. These total almost 20% of all local income. There is not an easy way to include this data in the above chart (we do not know how many recipients there are nor how to split out the portion of benefits that would end up being counted in health care).

If we could include the transfer payments, the top three clusters would be government, health care, and transfer payments. This is no way to run an economy.

What it does not mean – this chart does not directly reflect wages in each category. For example, Management shows up as a small column but the average wage in this category is very high – but has relatively few people working in that category.  Health care and government wages, on average, are slightly higher than the overall average (about 10%), but the relative size of the columns in the chart is due to how many people are employed in those categories.

Update: If the medical school is ever built in Spokane, the economy will become even less diverse as the proportion of income due to health care will rise much higher.

Questions

  • Should we have a diversified economy?
  • Do we want to have a diversified economy?
  • How do we develop a diversified economy?
  • What steps need to be undertaken to diversify the economy?
  • Are government policies enhancing diversity or limiting diversity?
  • What new policies are needed to improve diversity of income sources?
  • Is data, such as the above chart useful for decision making?

Related:

Health care sector versus public administration unemployment claims

The following charts are from WorkforceExplorer.com.

The first chart shows initial unemployment claims from the health care sector. This sector is supposed to be the largest “private” sector growth area for jobs in Spokane. Consequently, what this chart shows is surprising:

The next chart shows initial unemployment claims by those in the “Public Administration” sector.  This chart also shows something surprising:

Notice the unusual cyclical nature of unemployment claims?

Something is not right with this – it looks like there is an annual, predictable cycle of layoffs – and the likely rehiring of the same workers a short time later.

In the interim, the laid off workers collect unemployment? What explains this unusual pattern.

 

The trail leading to Spokane’s economic plan for today

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  • 1970s – Spokane Unlimited, a huge achievement leading to the ’74 World’s Fair
  • 1980s – gave way to Spokane Momentum, tasked with increasing higher education and graduate education – and addressing a good use for the then empty land just east of downtown. Led to establishing SIRTI and the Joint Center for Higher Education. The State bought the land for the Riverpoint campus location of SIRTI in 1988, and then opened SIRTI in 1994.
  • 1990s – Focus 21, SIRTI, JCHE set up. 1998 –  JCHE shut down, SIRTI reorganized.
  • 2000s – Gave way to the “Spokane Innovation Zone” which in turn became “The University District”. Main goal today is establishing a health care/health science centric university campus (WSU-Spokane) and get the State to fund and establish a medical school in Spokane.
  • 2005-2009 – the earlier prominence given to high tech vanishes from several economic plans.  Agilent, Vivato Wireless, Itronix, Software Spectrum, ISC/Getronics and other technology companies closed or moved out of the area. Others, like Telect and Keytronics, moved their manufacturing elsewhere or out of the country.
  • The focus today is health care delivery, health care education and health care research and the desire to establish bioscience/biotech related businesses.

Historical info is sparse; I stitched the above together from mentions in various documents. Would be interesting to learn more about the economic planning history.

Washington State Reinforces the Health Care Services Cluster

(Photo is of WSU-Pullman’s Thompson Hall, not of the WSU-Spokane campus. They do look very similar though!)

Thompson Hall

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SPOKANE, Wash. – Washington State University Spokane is now officially designated as the university’s health sciences campus following a proclamation issued Friday by the WSU Board of Regents, meeting in Pullman.

The proclamation establishes the campus’ direction: “…with a focus and commitment to grow graduate and professional education in the biomedical and health sciences, discover new knowledge through fundamental and translational research, and engage with people and communities throughout the region and the state to improve health in order to create a full-fledged research-intensive enterprise that will become America’s next great health science center in Spokane.”

via University Relations – WSU Spokane Designated as Health Sciences Center, Funding Approved for Biomedical Building.

This is part of the State’s top down clustering policy that has defined health care services as the leading industry cluster for Spokane.

And of course, the announcement comes with yet another economic development study!

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