Cuts jeopardize manufacturing plan; A slash in federal funding would hit Oregon hard
BYLINE: Matthew Kish
A huge cut in federal funding could hobble the momentum of the state's burgeoning manufacturing industry. President Bush's proposed budget calls for a 56 percent reduction in the $106 million budget for the Manufacturing Extension Partnership for fiscal year 2008.
Unless Congress acts otherwise, 42 states could lose all federal funding for the program, which is a favorite among small manufacturers and provides business development services. It's unclear at this point how much funding Oregon could lose.
It's unclear, however, how much money Oregon would lose if Congress does not adjust the president's proposal. More than likely states would reapply for funding if the cut passes. Funding would probably not be reduced by 56 percent across the board.
But that's little consolation for local program supporters.
"The timing's absurd to do this," said Pat Murphy, executive director of the Oregon Manufacturing Extension Partnership, the state's arm of the program.
Local manufacturers call it a proven economic development program and question why the federal government would slash funding for something that creates well-paying jobs for a modest investment.
Essentially, Murphy's 21 troops act as business consultants. They work with small manufacturers to streamline practices and implement the lean strategies popularized by Toyota. It has offices in Beaverton, Eugene, Bend and Medford.
Between July 2005 and December 2006, the program helped Oregon manufacturers increase or retain $54.7 million in sales and nearly 900 jobs.
If the cuts go through, business owners worry that Oregon's program will have to raise the rates charged to clients, which could make it too expensive for many small manufacturers. At roughly $1,000 per day, it charges slightly less than other big-name consulting firms.
"In practical terms, it will make them seek richer clients, which will move them away from that small- and even medium-sized client base," said Pete Murray, vice president of operations in the Beaverton office of Skaneateles Falls, N.Y.-based Welch Allyn Medical Products.
But that's exactly what the Bush administration proposes. The president wants the centers to charge more and become self-sufficient. That's a sharp change in direction. The program was designed to work with the federal government, the state and clients each chipping in one-third of the overall budget.
Oregon's program is already cobbled together. It receives roughly $775,000 from the federal government annually. The state has kicked in $250,000 each of the past four years. The remaining portions of the program's $5 million budget comes from client fees and two grants.
Unfortunately, each of the multi-year grants, one for $3 million and one for $3.1 million, expire by the end of the year, putting the program in a bind, even without the loss of federal funding. No opportunities exist to replace the grants, which fund half of the program's employees.
The dire situation prompted Murray to fly to Washington, D.C. last week to testify about the cuts in front of the House Subcommittee on Technology and Innovation, chaired by Oregon Rep. David Wu. In his testimony, Murray spelled out the savings Welch Allyn has achieved after two years working with OMEP.
"The tagline is we've saved nearly $1 million in direct expenses," he said.
The company has also cut inventory by $500,000 and hired nearly 200 workers, bringing total employment to 460. Welch Allyn has only spent $250,000 on the services, giving it a solid return on investment. Murray was so impressed with the program he joined its board of directors last year.
Whether his efforts to restore funding will be successful remains to be seen. The program has been the target of the ax for the past five years, but has managed to avoid deep cuts in most years.
Regardless, Murray and Murphy plan to turn up the heat on Oregon legislators in hopes of getting more state funding.
If all of the efforts are unsuccessful, the program would either have to stretch its staff thinner, take on additional clients or raise fees. Layoffs are also possible.
Local manufacturing officials say the proposed cut comes at a time the state is bucking the national trends in manufacturing employment and could threaten the momentum of the industry. Nationwide, the number of manufacturing jobs declined by nearly 17 percent to 14.3 million between 2000 and 2004, according to the U.S. Census Bureau. In that time, the number of manufacturing jobs in Oregon only decreased 10 percent.
The number of manufacturing jobs in Oregon is expected to grow 3 percent to 205,500 between 2004 and 2014, according to the Oregon Employment Department.
Local manufacturers support the program.
"They're helping us be more competitive without having to raise prices," said Clyde Baker, president of Clackamas-based CRB Manufacturing, which makes metal parts for a variety of industries.
The company started working with OMEP last June and has since cut production time on some products in half, not easy for a company that's been around for 25 years.
While he has yet to figure out what sort of return he's gotten on his $30,000 investment, Baker said it's been a wise expense.
"We're making some huge headway. They've helped us get more of the market."