Kicker Envy 2017

By Steve Buckstein

Individual Oregon income taxpayers may receive kicker refunds when they file their 2017 tax returns based on a percentage of the state income tax they paid in 2016. Based on the May revenue forecast, $408 million could be coming back to taxpayers, with the average refund being $210. A final determination of whether the kicker will “kick” and how big it will be should be announced on August 23.

But even before those potential refunds reduce our 2017 tax liability, some are questioning whose money it is, and others seem envious that the “rich” will get much bigger refunds than the rest of us. So, whether the kicker law is good or bad public policy, let’s think a little about who this money really belongs to. Is it a rebate for overpaying your taxes, or is it somehow “our” money that is better left in government coffers?

How the kicker works 

First, the mechanics of the kicker law: Oregon state government is highly dependent on the personal income tax for its General Fund budget. With a fairly flat tax structure, most wage earners are in the nine percent income tax bracket, while the highest income earners are in the top 9.9 percent bracket. Therefore, state revenue can be quite volatile, going up and down as the economy cycles between boom and bust.

The legislature first passed the kicker law in 1979, and voters added it to the state constitution in 2000. It mandates that state economists estimate what income tax revenue will be over the following two-year budget period. The legislature then must balance the budget by not allocating more money than the estimate. If the estimate is low by two percent or more, then the entire surplus must be returned to taxpayers. The kicker law actually is composed of two parts, dealing with personal income taxes and corporate income taxes differently. In 2012 voters decided that any corporate kickers would be returned to the state general fund to provide additional funding for K-12 public schools.

Some people argue that the way the kicker “kicks” makes little sense. They correctly note that projecting state revenue two years out to within a two percent margin is terribly difficult, and has been done only rarely. Others defend the kicker law as an important brake on runaway government spending, especially since voters have rejected other tax and expenditure limitations at the polls.

Whose money is it? 

Whether the kicker law is good or bad public policy doesn’t change the answer to a more fundamental question: Whose money is it?

Some argue that the kicker money really belongs to the state. After all, they say, it’s in the state’s coffers because individuals paid what the tax law said they owed on their tax returns. As long as any Oregonian has a “need” for that money—be they school children, the elderly, the disabled, etc.—then the money should go to them instead of back to the individuals who earned it.

How much is that latte? 

Of course, this is the Marxist “from each according to his ability, to each according to his need” justification. Taken further, not only would the kicker money remain with the state, but the state could retroactively come after even more of your previous income if, in the wisdom of government officials, anyone still “needed” those funds.

One way to look at this argument is to think about walking into a coffee shop today and ordering a $3 latte. The price is posted on the wall, but the person behind the counter asks you a question before accepting your order. “Did you get a raise last year?” “Yes,” you tell her proudly, “I was very productive last year and my boss gave me a 10 percent raise.” “That’s great,” she replies. “The $3 latte will cost you $3.30.” “Why?” you wonder. “Because your ability allows me to better meet my needs.”

You wouldn’t accept this argument from your barista, and you shouldn’t accept it from your government.

Next, some argue that the kicker “lavishes a windfall on those who don’t need it.” They point to the top one percent of taxpayers with adjusted gross incomes over about $386,000 who would receive more than $4,500 each, while the average taxpayer would only get back $210. What is often unstated in this argument is that those “lucky” top taxpayers paid way more income tax than the rest of us, and they will get back exactly the same percentage of their tax payments as everyone else does.

Envy is a powerful emotion, but it should not trump reason. If we can find a better way to restrain runaway government spending, we should do so. But until that day arrives, the kicker law is one defense against those who argue that some of the money you earned belongs to someone else just because they “need” it.


Oregon Income Tax Calculator: https://smartasset.com/taxes/oregon-tax-calculator


Steve Buckstein is Senior Policy Analyst and Founder of Cascade Policy Institute, Oregon’s free market public policy research organization. An earlier version of this Cascade Commentary was published in November 2007.

 

Overtaxed and Underbuilt

By John A. Charles, Jr.

An Oregon Legislative committee is proposing a massive series of tax increases to pay for various transportation projects.

The proposal calls for higher taxes on vehicle registration, increased gas taxes, a new sales tax on motor vehicle purchases, a statewide employee tax to subsidize transit, and a new bicycle sales tax.

While there are many bad ideas on this list, perhaps the most offensive is the sales tax on vehicle purchases. It is being crafted so that most of the money would be diverted from highway maintenance into something called the “congestion relief and carbon reduction fund.”

Anything that includes “carbon reduction” in the title is guaranteed to be a boondoggle.

Before this proposal goes any further, legislators should consider a bill simply focusing on improving the road system. We all benefit from better roads.

In addition, they should try to charge people based on actual road use, not the mere ownership of vehicles. The gas tax is a good surrogate for this, so it would make sense to increase the gas tax rate while lowering vehicle registration fees. This would be fair to motorists, while still raising the funds needed for road improvements.


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 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.

Oregon Politicians Support Better Roads, Just Not Here

By John A. Charles, Jr.

Recently the Oregon Legislature held a hearing on HB 3231, a bill promoted by Rep. Rich Vial (R-Scholls) that would authorize the formation of special districts for the purpose of constructing and operating limited-access highways.

Opponents made many of the same arguments they’ve been using for decades: new highways threaten farmland; increased driving will undermine Oregon’s “climate change” goals; and we can’t “build our way out of congestion.”

Perhaps the most comical opposition argument was made by Marion County, which sent all three of its Commissioners in a show of force. The Commission Chair concluded his remarks by saying, “We understand progress; we just want that progress to go somewhere else.”

Oregon stopped building new highways in 1983 after I-205 was completed. Elected officials came to believe that our needs for mobility could be met through increased urban densities, massive subsidies for public transit, and various forms of “demand management” to entice or even force people out of their cars.

The new approach didn’t work.

It turns out that manipulating urban form through land-use controls has very little influence on driving. Sure, you can regulate suburbia out of existence through density mandates, as Metro is doing. You can also reduce the parking supply and bring light rail right to someone’s front door.

But no matter how much some people fantasize about using alternatives to cars, it’s not very practical. Midday meetings, post-work errands, childcare obligations, and countless other demands lead people to rationally opt for driving for most trips.

That’s why, after a 20-year spending binge of $3.67 billion for new rail lines, TriMet’s share of daily commuting in Portland actually dropped from 12% in 1997 to 10% in 2016.

Auto-mobility is a wonderful thing, and there is no reason to feel guilty about new roads. For one thing, driving is strongly associated with economic growth. According to ODOT, for every job created in Oregon, we can expect an additional 15,500 miles of auto travel each year. If you’re in favor of new job creation, you have to accept increased driving as a logical consequence.

Moreover, the emissions associated with driving are now so minor that the real concern should be reducing air pollution from congestion. Vehicles sitting in gridlock have per-mile emissions of infinity; getting those vehicles into free-flowing conditions will improve local air quality.

Autos generally have the lowest emission rates when traveling at steady speeds of around 50 MPH. This is also a driving speed that makes most drivers happy, especially at rush hour. The way to accomplish both goals is through the construction of new highways when needed, coupled with the use of variable toll rates (also known as “dynamic pricing”). This could happen under HB 3231.

Across the country, dozens of impressive new highways are being built, many with private financing. Dynamic pricing is being be used to pay off bonds and eliminate congestion. This is the progress that most commuters dream about.

Unfortunately, it probably won’t happen here. Oregon politicians only support progress somewhere else.


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 April 25, 2017.

Proposed Oregon ESA Law Would Offer Students Choices While Breaking Even for Public Schools

By Steve Buckstein

Senate Bill 437, under consideration this legislative session, would offer Oregon K-12 students the flexibility to choose the educational options that best meet their individual needs through a universal Education Savings Account program. ESAs deposit a percentage of the funds that the state otherwise would spend to educate a student in a public school into accounts associated with the student’s family. The family may use the funds for approved educational expenses such as tuition, tutors, online courses, and other services and materials.

The fiscal impact of a universal ESA program for Oregon has been evaluated in an analysis released by Cascade Policy Institute. The fiscal “break even” for state and local school districts would be reached at an annual amount of $6,000 for each participating student with disabilities and/or in a low-income household and $4,500 for all other students. These dollar amounts are proposed in an amendment to the bill.

Of course, fiscal impact should not be the primary measure of this or any well-designed school choice program; but it is a political reality that a fiscal burden should not be imposed on the state at a time that all budgets are under pressure. An ESA program would offer Oregon families as much choice as possible in how their children take advantage of educational opportunities funded by the state. For more about the Educational Opportunity Act: The Power of Choice, visit schoolchoicefororegon.com.


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

Education Savings Accounts Can Help Students Without Hurting Public Schools

By Steve Buckstein

School choice programs allow students to choose schools or other educational resources and pay for them with a portion of the tax funding that otherwise would go to the public school assigned to them by their ZIP code.

While school choice is popular with large segments of the public, opponents often claim specific programs like vouchers or Education Savings Accounts (ESAs) drain funds from the public school system, and so must be rejected.

What opponents overlook is that public funding for K-12 education should actually help educate students, not simply fund specific schools whether or not they meet specific student needs.

The latest and most versatile school choice programs sweeping the country are Education Savings Accounts. ESAs deposit a percentage of the funds that the state otherwise would spend to educate a student in a public school into accounts associated with the student’s family. The family may use the funds for private school tuition or other approved educational expenses such as online learning programs, private tutoring, community college costs, higher education expenses, and other customized learning services and materials. Funds remaining in the account each year after expenses may be “rolled over” for use in subsequent years, even into college.

Here in Oregon, this school choice debate will center upon the latest proposal to offer all K-12 students many more educational options: a universal Education Savings Account program contained in Senate Bill 437. SB 437 is also known as the Educational Opportunity Act: The Power of Choice.

So, will this bill drain funds from public schools, or will it leave them harmless while allowing many students to make different choices? The answers depend on several assumptions which have now been evaluated in a new review and evaluation of a universal ESA program for Oregon.

The amount of the ESA deposits is the biggest driver of fiscal impacts. As introduced, SB 437 would provide participating students with disabilities and in low-income households $8,781 per year (current state funding) in their ESAs. All other participating students would receive $7,903 (90% of current state funding).

As Introduced, based on the assumptions below, the Fiscal Impact on the state and local school districts could be in the range of $200 million annually based on the following assumptions:

■ 90 percent of 61,000 students currently enrolled in non-public education would participate in the program.
■ Seven percent of 563,000 students currently enrolled in public schools would participate.

Based on these assumptions, the program has a fiscal “break even” for state and local school districts combined at an ESA annual amount of $6,000 for each participating student with disabilities and/or in a low-income household and $4,500 for all other students. These are the dollar amounts proposed in the -1 Amendment to the bill.

The Figure below shows the net fiscal impact on state and local budgets across a range of ESA amounts, again based on the assumptions above. 

If fiscal impact were the only measure by which to evaluate this ESA program, the Figure shows that the program is “optimized” at an amount of $3,000 for each participating student with disabilities and/or in a low-income household and $2,250 for all other students. Once fully implemented, the program would save state and local governments $53 million a year.

Figure:

ESA_FIGURE

Of course, fiscal impact is not and should not be the primary measure of this or any well-designed school choice program; but it is a political reality that such a program should not impose a fiscal burden on the state at a time that all budgets are under pressure.

The primary measure of this ESA program should be that it offers Oregon families as much choice as possible in how their children take advantage of educational opportunities funded by the state.

The full report, Education Savings Accounts: Review and Evaluation of a Universal ESA in Oregon, can be found online here.


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

New Report Analyzes Fiscal Impact of Proposed Oregon Educational Opportunity Act

— Education Savings Account (ESA) program awaits Senate action

April 13, 2017

Media Release

FOR IMMEDIATE RELEASE

Media Contact:
Steve Buckstein
503-242-0900
steven@cascadepolicy.org 

PORTLAND, Ore. – Cascade Policy Institute today released a review and evaluation of a universal Education Savings Account (ESA) program for Oregon. Senate Bill 437 would cover all K-12 students and is awaiting a hearing in the Senate Education Committee. SB 437 is also known as the Educational Opportunity Act: The Power of Choice.

ESAs deposit a percentage of the funds that the state otherwise would spend to educate a student in a public school into accounts associated with the student’s family. The family may use the funds for private school tuition or other approved educational expenses such as online learning programs, private tutoring, community college costs, higher education expenses, and other customized learning services and materials. Funds remaining in the account after expenses may be “rolled over” for use in subsequent years, even into college.

Empirical research on private school choice finds evidence that private school choice delivers benefits to participating students—particularly in the area of educational attainment.

Currently, Arizona, Florida, Mississippi, and Tennessee have active ESA programs that are limited to particular groups of students such as those with special needs. Nevada passed a near-universal ESA bill in 2015, but it is yet to be funded. Last week, Arizona lawmakers passed a new ESA bill that will open their state’s ESA program to all Arizona children, phased in over the next few years.

A fiscal analysis of Oregon’s SB 437, as introduced, finds that it would have a net fiscal impact on the state and local school districts of approximately $200 million. This net impact can be reduced—and turned into a net cost saving to state and local governments—by adjusting the annual amount deposited into the ESAs. The program would “break even” at an amount of $6,000 for each participating student with disabilities and/or in a low-income household and $4,500 for all other students. These are the dollar amounts suggested in an Amendment to SB 437.

Cascade founder Steve Buckstein notes, “While vouchers may be considered the rotary telephones of the school choice world, Education Savings Accounts are the smartphones of that world. They offer many more opportunities for families and students, and introduce competitive forces into education finance, which may help keep costs down.”

The full report, Education Savings Accounts: Review and Evaluation of a Universal ESA in Oregon, can be found online here.

Founded in 1991, Cascade Policy Institute is Oregon’s premier policy research center. Cascade’s mission is to explore and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org and schoolchoicefororegon.com.

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Arizona’s Universal Education Savings Account Law: A “Breakthrough” in Education Financing for Students Today

By Kathryn Hickok

Six years ago, Arizona became the first state to pass an Education Savings Account law for some K-12 students. Last week, Arizona lawmakers passed a new ESA bill which expands the program eligibility to include all Arizona children, phased in over the next few years.

The Heritage Foundation’s education policy fellow Lindsay Burke explains:

Education savings accounts represent a breakthrough in public education financing. Instead of sending funding directly to district schools, and then assigning children to those schools based on where their parents live, parents receive 90 percent of what the state would have spent on their child in their district school, with funds being deposited directly into a parent-controlled account.

Parents can spend the money on the educational services that best meet their children’s individual needs, such as private or home schools, tutors, online courses, and therapy. Funds not used by the student in a given year can be rolled over for future years.

Florida, Mississippi, and Tennessee also have ESA programs limited to particular groups of students, such as those with special needs. Nevada passed a near-universal ESA bill in 2015, but it is yet to be funded.

“When parents have more choices, kids win,” said Arizona Governor Doug Ducey. It’s time for Oregon parents to have those choices, too. For more information about Oregon’s Education Savings Account bill, under consideration this legislative session, visit schoolchoicefororegon.com.


Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Oregon program at Cascade Policy Institute, Oregon’s free market public policy research organization.

 

Testimony Before the Senate Business and Transportation Committee in Support of SB 656, SB 657, and SB 659

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

Before the Senate Business and Transportation Committee

In support of SB 656, SB 657, and SB 659

April 3, 2017

The Public Purpose Charge (PPC) was originally authorized by the legislature to run for 10 years: from March 2002-March 2012. It was anticipated that subsidies for conservation, renewables, and market transformation would no longer be necessary after that time.

The chart below shows that the original forecast was correct. PPC administrators are running out of things to do. The low-hanging fruit for retrofits has been picked, and newer homes have been built to stringent energy codes. The mission has largely been accomplished.

Therefore reducing the PPC from 3% to 2%, as called for in SB 657, is appropriate. In 2019 you should drop it by another percent, and then phase it out entirely in 2021.

Keep in mind that the Energy Trust receives additional ratepayer funding through the “increment” allowed under SB 838. During 2017, that increment will more than double the amount of money that ETO will receive from the basic PPC. Therefore, the Trust would continue to have significant funding regardless of what you do with these bills.

Ratio of Energy Benefits (kWh saved or generated) to Expenditures

All PPC Administrators

2003-2004 2005-2006 2007-2008 2009-2010 2011-2012 2013-2014 2015-6/2016 % change, 2003-6/2016
ETO Conservation 5.7 6.6 6.7 4.4 4.5 5.3 3.4 -40%
ETO Renewables 13.8 4.0 33.5 1.6 1.4 2.0 1.6 -88%
School   districts 0.8 0.6 1.0 0.5 0.5 0.3 0.4 -50%
OHCS low-income 1.3 0.9 0.7 0.5 0.8 0.4 0.6 -54%
Self-direct (conservation) 7.2 3.2 4.3 5.2 3.0 2.5 3.8 -47%

Source: Biennial reports to the Legislative Assembly on PPC expenditures, all years. 

Since the PPC was first authorized in 1999, it has escaped scrutiny by the legislature. The oversight called for in these bills is long overdue and I encourage your support.


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

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