Moving Beyond Symbolism

By John A. Charles, Jr.

Last week Governor Kate Brown gave a speech to Portland activists promising to secure carbon-pricing legislation in next year’s one-month legislative session. A few days later, she met with Interior Secretary Ryan Zinke and urged him to maintain or expand the Cascade-Siskiyou National Monument in Southern Oregon.

Clearly, the Governor is getting bad advice about environmental priorities. Carbon dioxide is not a pollutant; it’s a beneficial gas that is essential for plant growth. If the Governor continues Oregon’s “war on carbon,” she will impose great costs on the economy with no offsetting benefits.

Similarly, there was no need for the Governor to lobby on behalf of national monument expansion when Oregon already has plenty of federal land in protected status. She should have used her time with Secretary Zinke to argue for improved management of BLM lands in Oregon, including forest thinning and increased timber harvesting. Without active management, all public lands—including parks, wilderness areas and national monuments—will continue to be threatened by Oregon’s top environmental risk: catastrophic wildfires.

Holding photo ops to tell her supporters exactly what they want to hear is not leadership. The Governor needs to get serious about environmental problems.


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

Floor Memo Regarding Bond Funding for the Elliott State Forest

TO: Members of the Oregon Legislature

FM: John Charles for Cascade Policy Institute

RE: SB 5505/Elliott State Forest Bonds

DT: July 5, 2017 

SB 5505 includes bond funding for many worthy projects. Unfortunately, it also includes authorization for the sale of $101 million in Certificates of Participation for the purpose of “buying out” part of the Elliott State Forest (ESF), which we already own.

The State Land Board chose this option in May rather than taking a cash offer of $220.8 million to sell most of the ESF, which is losing money for schools.  While this “feel good” measure appeased many environmental interests, what has never been discussed publicly is the long-term opportunity cost of borrowing $101 million and paying $199 million in debt service over 25 years, instead of investing $220.8 million of new money into the Common School Fund.

The graphic below attempts to do that over a 50-year period, using an average total return rate of 5.58% (the actual rate over the past 10 years). The gap between the blue and red lines is the estimated loss to schools in the annual payouts from the CSF. Note that the gap widens over time and can never be made up. Over the lifetime of the Fund – which is infinity – your approval of the bond sale will result in many billions of dollars lost to Oregon schools.

READ MORE HERE

 

Testimony on SB 847 Regarding Management of Common School Trust Lands

Testimony of John A. Charles, Jr.

President and CEO, Cascade Policy Institute 

Regarding SB 847

June 5, 2017

My name is John Charles and I have been closely following the management of Common School Trust Lands since 1996.

Sadly, the Trust Lands have been steadily losing value as an endowment asset during that entire period. For example, the Elliott State Forest was estimated to be worth over $800 million in 1995; it is currently a liability for the Common School Trust Fund.

The 620,000 acres of rangelands had net operating income of -$1.2 million in 2016.

SB 847 offers a pathway for the disposal of underperforming lands, but it’s difficult to see how a proposed transfer to other public bodies would be compliant with the fiduciary duty that Land Board members have to CSF beneficiaries.

Funds that the legislature might appropriate to “buy out” Trust Lands have to be paid by taxpayers. A large subset of that group will include beneficiaries of the CSF, including public school parents, school board members, public school teachers, and other school employees. Taxing them with debt service on bonds, as is now being proposed by the Governor for the Elliott, would be taking money away from them.

The Trust Land portfolio includes 1,540,000 acres of lands, as displayed in the attached summary from the most recent DSL status report. The estimated return on asset value for 2016 was 0.4%, which is an inflated number due the unknown market value of 767,100 acres of “Mineral and Energy Resource” lands and 13,200 acres of “Special Stewardship Lands.” They have minimal value to the CSF as an endowment asset, and that will not change.

The only way to carry out the fiduciary duty to CSF beneficiaries is to inject new, private capital into the picture. The state should sell the remaining Trust Lands – which could be worth more than $700 million — and invest the net proceeds in the Common School Fund, where annual total returns of 5%-8% could be expected for centuries to come.

[Click Download the PDF to view exhibits]

Testimony Before the Oregon State Land Board Regarding the Potential Sale of the Elliott State Forest

By John A. Charles. Jr.

The decision before you today is simply one of exercising your fiduciary duty. You have an offer on the table of $220.8 million in private funds. If you accept the offer, the money will be deposited in the CSF, where it will immediately begin earning income for schools.

Alternatively, the various public ownership options require: (1) persuading the legislature to approve the sale of $100 million in state bonds so that taxpayers can “buy” an asset they already own; and (2) paying debt service on the bonds. Those costs (presently unknown) will be paid in part by public school parents, teachers, and other CSF beneficiaries. Therefore, debt service has to be subtracted from earnings on the invested $100 million.

Additionally, a new HCP will need to be negotiated. Since DSL has failed to do this for over 15 years, this is a highly speculative “benefit.” It’s also possible that even with a new HCP, timber harvesting would result in continued losses to the CSF.

As the chart below indicates, over a 100-year horizon, the difference between the Lone Rock offer and the public ownership option is roughly $1.08 billion in earnings. There is no plausible scenario in which continued public ownership can make up that loss. As fiduciaries, this is not even a close call: you should take the offer in hand.

CSF Financial Projections for New Revenue Derived from the Elliott State Forest 

Lone Rock Offer vs. Continued Public Ownership

Cumulative CSF Payouts to Schools @4% of Annual Earnings

Assumes total annual return of 5.58% (CSF average for 2000-2015)

  Add timber harvest revenue Subtract cost of debt service payments Cumulative payout to schools – first 10 years Cumulative payout to schools – first 100 years
L. Rock – $220.7 M invested 6/1/17 N/A N/A $99,107,680 $1,956,775,945
Bond sale – $100 M invested 9/1/17

 

Requires new HCP; could also result in annual losses ??? $44,300,595 $874,668,232
Difference ??? (???) ($54,807,085) (1,082,107,713)

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

Oregon Land Board Should Take the Deal

By Lydia White

At a time when Legislators threaten to slash government services to cover a $1.6 billion budget shortfall, Governor Kate Brown and Treasurer Tobias Read plan to make things worse.

Next week, the State Land Board will meet to consider selling 84,000 acres of the Elliott State Forest to Lone Rock Timber Management for $221 million. If the sale is approved, all the money would be invested in the Common School Fund, generating billions of dollars in earnings for K-12 schools.

Governor Brown, who supported the sale in 2015, now wants the state to buy out the Elliott for $100 million by issuing bonds. Taxpayers would pay back the principal and interest for the next 25 years, at a cost of $120 million or more.

But the Land Board has a constitutional obligation to produce revenue for Oregon schools by either managing the Elliott for a profit or selling off dead assets. Forcing taxpayers to buy an asset they already own, plus forgoing $121 million in additional funds from a willing buyer and millions more when factoring in compound interest, would violate the Board’s fiduciary trust.

Fortunately, the Oregon School Boards Association, one beneficiary of the Common School Funds, expressed intent to sue if the Land Board refuses to “fulfill its fiduciary duties.”

The Board has a firm offer of $221 million. They should accept it.


Lydia White is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

Testimony Regarding Senate Bills 432, 602, 608, 612 and 618

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

Regarding Senate Bills 432, 602, 608, 612 and 618

April 6, 2017

Advocates of land-use planning strongly believe that the benefits of planning always outweigh the costs.

But no regulatory system is perfect. Certainly the Oregon program can be improved, if we have the will.

The most obvious problem is that land-use regulation imposes a static vision on a dynamic economy. Oregon demands “urban containment” as the top priority, enforced through urban growth boundaries and rural exclusionary zoning. This has to result in an imbalance between housing supply and demand, leading to rapid price escalation. There is no other logical outcome unless planning advocates have invented a new economic theory that only they understand.

The bills under discussion today may not be the perfect responses to current problems, but surely at least one of them could be used by the Committee as a vehicle for modest reform.

I encourage the Committee to pick one flaw in the Oregon system and address it going forward.

You could focus on the dysfunctional urban growth boundary management process, the punitive “Transportation Planning Rule,” or perhaps farmland preservation requirements that are disconnected from economic reality.

It doesn’t matter which problem you address, but to say that no flaws exist and all reform bills must be killed year after year is not plausible.

Failure to address obvious problems will undermine public confidence in the legislative process. Please use the remaining time in this session to solve at least one problem related to zoning.


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

Selling Bonds to Buy the Elliott State Forest Would Be a Breach of Fiduciary Trust

By John A. Charles, Jr.

State Treasurer Tobias Read has announced that he is now prepared to support a plan being developed by Gov. Kate Brown to sell bonds that would “buy out” the Elliott State Forest from the Common School Trust Land portfolio and keep it in public ownership.

Unfortunately, this would saddle taxpayers with debt service on the bonds, thereby reducing or even eliminating the financial benefits of adding the bond proceeds to the corpus of the Common School Fund. This would be a breach of fiduciary trust on the part of the State Land Board.

Members of the public may not understand that bond sales don’t create “free” money; the face amount must be repaid over some designated period of time, with interest.

For example, if the legislature authorizes the sale of $100 million in general obligation bonds, total principal and interest will likely exceed $150 million over several decades.  All Oregon taxpayers will be legally obligated to pay off that debt.

Another option might be the sale of bonds backed by future earnings on the Oregon Lottery. But lottery revenues are essentially the same as General Fund revenues. Paying debt service on lottery-backed bonds will inevitably take money from public schools.

The Governor’s proposal to have the public buy a forest it already owns is akin to someone losing money in an IRA, then transferring funds into the account from a 401(k) to make up for the loss. If both accounts are owned by the same individual, there is no net gain; the loss is just disguised.

As the state’s elected Treasurer, Tobias Read should know better. The only way to decouple the Elliott State Forest from the Common School Fund is to sell it to private parties with no taxpayer financing involved.

Such an offer is sitting in front of the Board today. The Board should accept the offer of $220.8 million from the Lone Rock Timber consortium, place the net proceeds into the Common School Fund, and let the money begin immediately working for public school students.


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

 

It’s Finally Time to Sell the Elliott State Forest

By John A. Charles, Jr.

At the February 14 meeting of the State Land Board, the Board voted 2-1 to enter into negotiations with a private consortium to sell 82,450 acres of the Elliott State Forest. Gov. Kate Brown, who was on the losing end of the vote, has ordered the Department of State Lands to come back in April with an alternative plan that would allow for continued public ownership.

Not only is the Governor being petulant, but the alternative she favors has been studied repeatedly since 1995. That was the year that the Board released its first “Draft Asset Management Plan.” The Elliott was then valued at $850 million, but annual revenues were dropping due to rising management costs.

The Land Board was told by a consultant that “selling the Elliott State Forest would be the most effective way to maximize Common School Fund revenues.” The Board is required by the Oregon Constitution to make money on the Elliott because it is an endowment asset for public schools.

Sadly, that recommendation was rejected. Instead, state officials spent the next 20 years engaged in fruitless negotiations with federal regulators regarding compliance with the Endangered Species Act. Every time the Board thought an agreement to cut more timber had been reached, it turned out to be a false summit.

Meanwhile, advocacy groups used the Elliott as a legal piñata. They successfully sued the Land Board so many times that the forest stopped generating any revenue by 2013 and actually became a financial liability for Oregon schools.

The costs of this wait-and-see approach were not trivial. According to a report published by the Board in 2014, the Elliott had cost the Common School Fund $1.4 billion in lost earnings since 1995.

Things actually worsened after the report was published. In 2015 the Land Board decided to finally sell the Elliott; but instead of taking competitive bids, the Board established a fixed price. The Board also downzoned the land by imposing multiple limitations on future timber harvesting.

The result was that the Board received a single offer in 2016, for the state-mandated price of $220.8 million. The net result of 22 consecutive years of public ownership was a loss to the Common School Fund of at least $1.62 billion.

Governor Kate Brown now wants to renege on the sale entirely (despite voting for it in 2015) and use state bonding capacity to “buy out” a portion of the Elliott. This is probably the worst idea yet. The public already owns the forest; why would we want to go into debt buying ourselves out?

While the $220.8 million offer now on the table is a far cry from the $850 million we could have received in 1996, it’s better than hanging on to a dead asset. Secretary of State Dennis Richardson and State Treasurer Tobias Read voted to sell the forest, and that was the appropriate decision. Adding $220 million in new revenue to the Common School Fund endowment will generate many billions of dollars for schools over the next century.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. A version of this article originally appeared in the Portland Tribune on March 16, 2017.

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.

Bad Consequences of Public Policies Aren’t Really “Unintended,” Just “Unacknowledged”

By Steve Buckstein

Decades of research and experience tell us that raising the government-imposed minimum wage results in fewer younger and lower-skilled individuals being hired, and in some of them losing jobs they previously held at lower wages.*

Decades of research and experience also tell us that requiring landlords to charge lower rent than market conditions dictate results in fewer housing units being built, making housing shortages worse and raising housing costs in areas not subject to rent controls.**

During last year’s minimum wage debate in Oregon, pointing out the negative consequences was not enough to stop the legislature from imposing significant wage increases. Likewise, this year the legislature may allow local jurisdictions to impose rent controls even though opponents will surely point out the negative consequences of this policy also.

It now seems obvious what is happening. Supporters of minimum wage increases and rent control aren’t blind to their negative consequences; they simply refuse to acknowledge them because the political benefits outweigh the real costs imposed on those forced to endure them.

The harm done by minimum wage increases and rent control is so obvious that we should probably stop saying that their negative consequences are “unintended.”  Rather, we should say that their negative consequences are “unacknowledged” because their supporters refuse to admit that they exist.

* Making Youth Unemployment Worse, Randall Pozdena and Steve Buckstein, Cascade Policy Institute, December 2016

** The Rent Is Too Damn High! — Why Rent Control Won’t Help, Steve Buckstein, Cascade Policy Institute, September 2016


Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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