About John Charles

President and CEO

Let’s Build Some Highways

By John A. Charles, Jr.

Oregon stopped building new highways in 1983 when I-205 was completed. Top planning officials began espousing a philosophy of spending money on rail transit rather than roads. The government also used the power of zoning to crowd more people into urban centers, in the belief that high density would lead to less reliance on cars.

The new strategy failed.

The Portland regional transit agency, TriMet, was given more than $3.6 billion to build a light rail system; yet between 1997 and 2016, TriMet’s market share of all commute trips in Portland fell from 12% to 10%. As a result, traffic congestion has become a major barrier to regional mobility.

Now a bipartisan group of legislators, led by Republican Rich Vial of Wilsonville and Democrat Brian Clem of Salem, has introduced a bill that would jump-start the highway-building process. HB 3231 would authorize cities and counties to jointly form special districts for the purpose of building and operating limited-access public highways.

If built, such highways would likely be financed through loans, with debt service paid off by tolls.

So far HB 3231 has not received a public hearing. It should. Motorists deserve all the highways they are willing to pay for. Let’s give them a chance to vote with their dollars for a better road system.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

Oregon Taxpayers, Not Riders, Pay Most Costs of Public Transit Operations

By John A. Charles, Jr.

In a recent interview with the Portland Business Journal, Chris Rall of Transportation for America argues for increased state support of public transit service. He says that Oregon only covers three percent of the operating costs of transit, while other (unnamed) states pay for 24 percent.

I don’t know the source of Mr. Rall’s claim, but the audited financial statements for the largest transportation districts in Oregon show a very different picture.

In FY 2016 TriMet had total operations revenue of $542,200,000 but only $118,069,000 came from passenger fares. That means TriMet riders received a 78% subsidy from other sources.

At Lane Transit District in Eugene, passenger fares in 2015 were only $7.2 million, while total operating revenue was $60.9 million. Non-riders paid for 88% of operations.

For Cherriots Salem-Keizer transit, public support totaled 94% of all operating revenue in 2015.

Undoubtedly the largest subsidy goes to the Portland-Eugene passenger rail line operated by ODOT. For every one-way ticket sold in 2015, the public paid $120.

Before state legislators approve any more subsidies to transit, they should require that transit operators recover at least 50% of costs from customers. If riders are only willing to pay 10 percent, why should taxpayers have to pick up the rest of the tab?


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

Land Board Votes to Sell Elliott State Forest

By John A. Charles, Jr. 

On February 14 the Oregon State Land Board – comprised of Governor Kate Brown, Treasurer Tobias Read, and Secretary of State Dennis Richardson – voted 2-1 to sell 82,450 acres of the Elliott State Forest to a consortium of private parties led by Lone Rock Timber Management Company. The agreed-upon sale price is $220.8 million; and the net proceeds will be placed in the Oregon Common School Fund (CSF), an endowment for public schools.

This parcel is a small part of the Oregon Common School Trust Land portfolio of 1.5 million acres of lands that must be managed by the Land Board to maximize revenue over the long term for the benefit of public schools.

For many years the Elliott was a money-maker, but environmental litigation steadily reduced timber harvesting to a trickle. For the last three years the Elliott has actually lost money, which prompted the Board in August 2015 to vote unanimously to sell the Elliott and put the proceeds into alternative investments.

As a long-time Board member, Gov. Kate Brown repeatedly voted to sell the forest, but in December 2016 she changed her mind and announced her intent to use state bonding capacity to buy a portion of the Elliott and keep it in public ownership. Treasurer Ted Wheeler and Secretary of State Jeanne Atkins agreed with her conceptually, but no formal vote was taken and both of them have since left the Board.

At the meeting earlier this week, Gov. Brown made a motion to terminate any further negotiations to sell the forest, despite the fact that Lone Rock and its partners had spent at least $500,000 putting together a good-faith offer in response to the Land Board’s sale protocol. Her motion never received a second.

New Treasurer Tobias Read indicated that he was uncomfortable walking away from the offer at the last minute, and that the legal doctrine of “undivided loyalty” to Common School Fund beneficiaries – public schools – compelled him to sell the money-losing forest. Secretary of State Dennis Richardson concurred and the Governor was out-voted.

Cascade Policy Institute has been urging the Land Board to sell the Elliott since 1996, when the forest was valued at roughly $800 million. It was evident to us that over the next several decades, environmental lawyers would treat the Elliott like a legal piñata and file continuous lawsuits to prevent timber harvesting. That is exactly what happened, turning this vibrant forest into a net liability by 2013.

Cascade published a number of technical papers demonstrating that over virtually any time period and under any reasonable set of assumptions, Oregon schools would be better off if the Board simply sold the forest and put the net proceeds into stocks, bonds, and other financial instruments. These papers were ignored by multiple generations of Land Board members, including John Kitzhaber, Ted Kulongoski, Jim Hill, Phil Keisling, Randall Edwards, and Kate Brown.

Many editorial writers are urging the Land Board to “hit the pause button” on this sale, but the fact is the Board has been “pausing” since at least 1995. As timber harvest receipts steadily declined over the next several decades, Oregon wasted more than $3 million trying to negotiate a so-called “Habitat Conservation Plan” with the federal government that would shield Oregon from further litigation. Such an agreement was never reached.

In a report paid for by the Department of State Lands in 2015, experts found that the failure to sell the Elliott in 1995 – as recommended by a Department of Forestry consultant – had cost public schools $1.4 billion in lost earnings over a 20-year period.

Gov. Brown’s last-minute effort to buy back timberland the public already owns was poorly thought out. Most of the media observers – who tend to favor public ownership – have apparently overlooked the fact that any revenue bonds sold by Oregon would have to be paid off by profits generated on-site. Since the Elliott has been steadily losing money under public management, it’s unlikely that anyone would even buy such bonds.

Although selling the Elliott was the right thing to do, we will never know if the public received fair market value because the Land Board refused to take competitive bids. In 2016 the Board established a price of $220.8 million based on multiple appraisals, and no one was allowed to offer a higher amount. Clearly, this was a bizarre way to sell a valuable asset and demonstrates how Kate Brown, Ted Wheeler, and Jeanne Atkins consistently abdicated their fiduciary responsibilities in favor of a political agenda to retain public ownership.

Treasurer Read and Secretary Richardson deserve credit for moving forward with the sale. Neither of them wanted to do it, but they understand that they have an obligation to current and future public school students to add value to the Common School Fund.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

Car Ownership Is Not a Crime

By John A. Charles, Jr.

A bill has been introduced in the state legislature that would impose a $1,000 ownership tax every five years on automobiles more than 20 years old.

Fortunately, leaders of the Republican Party quickly denounced it; and without bipartisan support the bill has no chance of passage. The chair of the House Revenue Committee, Rep. Phil Barnhart of Eugene, has announced that the bill is dead.

The fact that this legislation was even introduced points to a conceptual problem shared by many lawmakers: They think that owning a vehicle is undesirable and should be taxed.

But owning a car imposes no cost on the public; it’s the use of the vehicle that we should be concerned with.

As one legislator told me many years ago, “I own four cars—but I only drive one at a time!”

Since we do need money for improved roads, any transportation tax should focus on road use. One option would be to lower the cost of vehicle registration in exchange for a small increase in the gas tax.

Motorists deserve all the roads they are willing to pay for. Raising the gas tax would give drivers a chance to vote with their tires for a better road system.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

Surprise! Renewable Energy Mandates Are Actually Fossil Fuel Mandates

By John A. Charles, Jr. and Lydia White

The Sierra Club and other environmental groups are objecting to PGE’s plan for new, natural gas-powered generation to help replace the electrical output that will be lost when PGE shuts down the Boardman coal plant in 2020. What these groups should admit is that they are the ones responsible for that decision.

Last March, the Oregon legislature adopted the Oregon “Renewable Portfolio Standard” (RPS), which requires PGE to procure 50% of its retail load from designated renewable energy sources by 2040. This requirement, enacted with few public hearings in the rush of the one-month session, was demanded by environmental groups as a way to burnish the state’s mythical green power credentials.

The RPS is essentially a mandate for more utility-scale wind and solar power. These are known as “intermittent resources” because wind farms don’t generate any power about 68% of the time, while solar goes dead about 71% of the time. Being forced to rely on randomly-failing generators means that utilities must have back-up sources (known as “spinning reserve”) in order to preserve grid reliability.

Electricity cannot be stored like other commodities. As soon as electricity is fed into the grid, it travels at the speed of light through many pathways until it is consumed almost instantaneously by a household, factory, or some other end-user. Supply and demand have to be matched at all times in order to avoid grid failure, or “blackout.”

Right now, wind and solar only account for about 5.69% of Oregon’s electricity supply. As lawmakers keep ratcheting up RPS mandates towards 50%, the need for spinning reserve will go up as well. The only practical fuel is natural gas.

These new gas-fueled plants will be running even when not used, in order to be ready when the windmill blades stop turning or the sun goes down. This will result in wasted fuel and increased air pollution.

If utilities must have spinning reserve, can we predict the need for it? This question was the subject of a paper recently published by the National Bureau of Economic Research (NBER). The researchers found that a 1.0 percentage point increase in the share of fast-reacting fossil generation capacity in a country is associated, on average, with a 0.88 percentage point increase in the long-run share of renewable energy.

In other words: more wind and solar = more fossil fuel use. Oregon legislators rushed through the RPS law so quickly that they forgot about the law of unintended consequences.

PGE and PacifiCorp will both be turning to increased natural gas generation over the next 20 years because they don’t have a choice. Customers want their electricity 100% of the time, not 30% of the time. If environmental groups are offended by the use of more natural gas, they should admit that the 50% RPS requirement was a mistake and ask legislators to repeal it.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. Lydia White is a Research Associate at Cascade. This article originally appeared in the Portland Business Journal on January 12, 2017.

Kate Brown’s Math Problem

By John A. Charles, Jr.

For the past 18 months, the Oregon Land Board has been working to sell the Elliott State Forest. The decision to seek buyers was based on the fact that the Elliott is losing money, and it is supposed to be making money for Oregon schools.

At its December meeting, the Board was presented with a firm offer of $221 million from a private buyer. Instead of accepting the offer, the Board did nothing. Governor Kate Brown said she wants to sell bonds to buy the Elliott so that it remains in public ownership.

The only problem is that the public already owns it. Selling bonds to buy ourselves out makes no sense.

Land Board members have a fiduciary obligation to maximize revenues from the Elliott for the benefit of students. Increasing taxes on the parents of those students to pay off bonds would be a breach of fiduciary trust.

The only way to ensure that taxpayers benefit is to sell the Elliott to private parties and place the proceeds in the Common School Fund, where the investment earnings are shared with school districts.

The two new Land Board members—Treasurer Tobias Read and Secretary of State Dennis Richardson—should work with the Governor to accept the private offer and move on.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

There’s Never Enough Money for Government

By John A. Charles, Jr.

The news from Portland is that despite record levels of revenue, the City Council needs to cut $4 million in spending next year in order to balance the budget.

The news from Salem is that despite record levels of revenue, the Governor needs to close a $1.7 billion dollar budget gap for the next two-year state spending cycle.

It’s not just a coincidence that these messages are the same. Elected officials are almost always poor stewards of public money. No matter how much they receive from property taxes, income taxes, payroll taxes, liquor taxes, garbage taxes, and dozens of other fees and licenses, it’s never enough.

The primary reason is that politicians tend to adopt new programs where the costs are back-loaded. Policies are approved that sound good and don’t seem to cost much in the short-term; but decades out, the costs explode. Public employee pensions are the most painful example of this.

By the time it becomes obvious that we can’t afford the programs, the politicians who approved them are long gone, and the expenses are locked in.

We don’t have a revenue problem in government; we have a spending problem. The top priority at both the Portland City Council and the state legislature should be to reduce or completely eliminate programs before any new taxes are even considered.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

Testimony Before the Oregon State Land Board on the Sale of State Trust Lands

Cascade Policy Institute President and CEO John A. Charles, Jr. presented a version of this testimony before the Oregon State Land Board on December 13, 2016.


Re: December 13 SLB hearing on the possible sale of the Elliott State Forest

Dear Land Board members:

I am writing in advance of the December 13 Land Board hearing to summarize my testimony.

First, you were correct in deciding last year that a sale of the trust lands was necessary to fulfill your fiduciary responsibilities to the Common School Fund (CSF) beneficiaries. The continued requests from public land advocates to retain ownership should be ignored.

Unfortunately, your sale protocol is fatally flawed, for two reasons: (1) the four unnecessary “public benefits” requirements inherently devalue the asset; and (2) you are prohibiting competitive bids. Both of these elements ensure that you will not be able to get the best possible offer for the transfer, which you are required to do as fiduciaries.

Any sale should be made through a straight up, no-string-attached auction of the property. That is the only way you can determine fair market value.

To illustrate how much money you are leaving on the table, we’ve done two sets of calculations. In one scenario, we took the difference between the “official” price tag of $220.8 million and the high appraisal of $262 million ($41.2 million), and calculated the value of that over 50 and 100 year periods.

In another scenario, we assumed that the Land Board took the “maximum revenue” approach by dispensing with appraisals and simply selling the Elliott via competitive bid with no public benefit requirements. For this scenario we picked $350 million as a conservative value for what the winning bid might be, then subtracted the official price of $220.8 and used the difference ($129.2 million) as the starting point.

We used two different assumptions about future return rates – the first being the 7.5% used by Oregon PERS, and the second a more conservative rate of 6.0%. The projections are below.

Elliott State Forest sale

Investment projections of net proceeds under various assumptions

Difference between high appraisal and sale price: $41.2 M
Interest rate 7.5% 7.5% 6.0% 6.0%
Time period 100 years 50 years 100 years 50 years
Present value $41,200,000 $41,200,000 $41,200,000 $41,200,000
Future value $56,982,781,049 $1,532,217,537 $13,979,245,841 $758,910,356
Difference between market price and sale price: $129.2M 7.5% 7.5% 6.0% 6.0%
Time period 100 years 50 years 100 years 50 years
Present value $129,200,000 $129,200,000 $129,200,000 $129,200,000
Future value $178,693,575,522 $4,804,915,187 $43,837,829,190 $2,379,883,932

Notice the stunning difference in earnings between the first 50 years and the second 50 years. This is, of course, the miracle of compounding. The refusal of the Land Board to sell off this land in a traditional auction will likely cost public school students somewhere between $44 billion and $179 billion in lost earnings by 2117, and much more in the centuries beyond that. 

You have a fiduciary responsibility to the CSF beneficiaries to get the best possible price for the timberland. That can only come through a traditional auction. I urge you to set aside the one offer in front of you and direct the DSL staff to design a new, competitive bid sale protocol to be implemented during 2017.

Sincerely,

John A. Charles, Jr.

President & CEO

Cascade Policy Institute

Portland’s Regional Transit Strategy Is Not Working

By John A. Charles, Jr.

The Portland Auditor released the 2016 Annual Community Survey on November 30. The responses show that the share of all commute trips taken by public transit fell 17% during the past year.

This was part of a longer-term decline in transit use. The transit share of all Portland commute trips peaked in 2008 at 15%. Since then it has hovered near 12%, and now rests at 10%.

Taxpayers should be especially concerned about the negative correlation between passenger rail construction and market share. In 1997, when the region had only one light rail line—the Blue line to Gresham—transit market share was 12%.

After extending the Blue line to Hillsboro and adding four new lines plus the WES commuter rail and the Portland Streetcar, transit market share is only 10%.

Travel Mode Share for Weekday Commuting

Portland citywide, 1997-2016

Mode 1997 2000 2004 2008 2010 2012 2014 2015 2016
                   
SOV 71% 69% 72% 65% 62% 61% 63% 60% 61%
Carpool 9% 9% 8% 8% 7% 6% 6% 5% 6%
Transit 12% 14% 13% 15% 12% 12% 11% 12% 10%
Bike 3% 3% 4% 8% 7% 7% 8% 7% 8%
Walk 5% 5% 3% 4% 6% 7% 8% 9% 9%
Other n/a n/a n/a n/a 7% 6% 6% 7% 7%

      Source: Portland Auditor, Annual Community Survey

The numbers cited above are for citywide travel patterns. When broken out by sector, the Auditor found that just 5% of all commuters in Southwest Portland took transit to work in 2016. Despite this lack of interest by commuters, TriMet and Metro are working to gain approval for another light rail line extension from Portland State University through SW Portland to Bridgeport Village. The likely construction cost will be around $2.4 billion.

Unfortunately, there is no empirical basis for thinking that cannibalizing current bus service with costly new trains would have any measurable effect on transit use.

Transit advocates like to claim that we simply need to spend more money to boost ridership, but we’ve already tried that. TriMet’s annual operating budget went up from $212.2 million in 1998 to $542.2 million in 2016. After adjusting for inflation, that’s an increase of 72%. Those increases were on top of construction costs for rail, which cumulatively exceeded $3.6 billion during that era.

It’s time to stop the myth-making and start holding public officials accountable for a plan that isn’t working.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

How Much Is the Elliott State Forest Worth to Oregon Schools? (Don’t Forget the Value of Compounding)

By John A. Charles, Jr.

Advocates of public schools frequently complain about the need for more money, yet many of them are now objecting that the State Land Board is on the verge of selling off the Elliott State Forest, which is an endowment asset for public schools.

The fact is, the Land Board is required by the Oregon Constitution to maximize revenue from the Elliott. The sale has to go forward because timber management is no longer profitable. But the Board should insist on competitive bids, which it is currently prohibiting. The Board should also remove all restrictions on future timber harvesting.

If the Elliott were sold in a competitive auction, it would likely go for $350 million or more. Let’s assume that the proceeds were invested in a manner similar to the PERS fund and had average annual returns of 7.5%, which is the target rate for PERS.

After 50 years, the investment would be worth $13 billion; but after 100 years, it would be worth $487 billion. The huge difference in the two time periods is due to the miracle of compounding.

Do school funding advocates have a better idea for raising $487 billion? If not, they should support an auction sale of the Elliott State Forest.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

1 2 3 27