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.

Now Is the Time: Oregon’s Educational Opportunity Act, The Power of Choice

By Steve Buckstein

Oregon now has the chance to become an early adopter of a universal Education Savings Account program. An ESA program allows Kindergarten through 12th grade students to use part of the state funds allocated to their local school districts for other educational expenses and services of their choice, such as private or home schools, tutors, and online courses. Funds not used by the student in a given year can be rolled over, all the way to college.

Senate Bill 437 as Introduced would allow 100 percent of the average annual state funding (currently $8,781) for disabled and low-income students, and 90 percent for all other students, to fund ESAs for any students wishing to use them. This likely would result in a $200 million fiscal impact on the state and local school districts combined. A small price to pay for educational freedom, but not likely to happen in a legislative session facing a budget shortfall.

So, the bill has been amended to virtually eliminate any negative fiscal impact. It lowers ESA accounts to $6,000 for disabled and low-income students and $4,500 for all other students. These accounts represent real money…for real educational opportunities…for every student—with no fiscal impact on the state budget.

Please share your interest in Senate Bill 437, the Educational Opportunity Act, with your state legislators. And get involved at the Educational Opportunity Act Facebook page and at SchoolChoiceforOregon.com.


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

Testimony Before the House Committee on Revenue in Opposition to Tobacco and Inhalant Nicotine Tax Bills

To: Chair Barnhart and members of the House Committee on Revenue

From: Steve Buckstein, Senior Policy Analyst and Founder of Cascade Policy Institute, a Portland-based non-partisan, non-profit public policy research organization

Re: Tobacco taxes and inhalant nicotine taxes proposed in
HB 2037, HB 2056, HB 2062, HB 2084, HB 2119, HB 2662, and HB 3178

Why the state should not depend on increased sin taxes

  • Oregon’s addiction to tobacco/nicotine revenues will only grow if we become more dependent on them to fund new or existing programs.
  • Taxes on alcohol and tobacco are frequently justified as a means of discouraging “unhealthy” behavior. But this objective quickly gives way to a different one: raising revenue. This creates a “moral hazard” problem: sin taxes cannot simultaneously both discourage consumption and raise more revenue. For one to succeed, the other must fail.
  • As cigarette smoking continues to decline, tobacco taxes will continue to shrink, punching one more hole in future state budgets.

The regressivity of Sin Taxes

Paying for any state programs by taxing smokers may make some program recipients better off, but it will also make smokers and their families worse off.  As you may know:

  • Cigarette smoking adults are more likely to be uninsured than non-smoking adults.
  • Cigarette smokers are in poorer physical condition than non-smokers.
  • Cigarette smokers generally have lower incomes and less formal education than non-smokers.
  • Cigarette smokers are more likely to be unemployed or unemployable than non-smokers.

Policy option:

Currently, less than eight percent of Oregon tobacco taxes are used for the Tobacco Use Reduction Program. Funding other state programs through cigarette, tobacco and/or nicotine taxes is very regressive, targeting less educated, lower income and sicker Oregonians. If anything, these taxes should be reduced, not increased.

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.

How Legislators Can Balance Oregon’s Budget—Without Raising Taxes

By Eric Fruits, Ph.D.

Despite an eight percent increase in general fund revenues, Governor Kate Brown and some lawmakers say Oregon is facing a $1.7 billion budget shortfall in the 2017-19 biennium. Nevertheless, the Governor has released a budget that expands entitlements while raising taxes, fees, and charges by nearly $275 million for the general fund alone.

Expanding programs while increasing taxes is something Oregon could do if it were a rich state. Oregon is not a rich state. Income for the average Oregonian is about nine percent lower than the national average, and the cost of living is 15 percent higher. In other words, the average Oregonian earns less but pays more for basic items than the average American. Oregon legislators and other policymakers must face the reality that the state simply cannot afford costly new or expanded programs.

My analysis published in Facing Reality: Suggestions to Balance Oregon’s Budget Without Raising Taxes (February 2017), by Cascade Policy Institute and Oregon Capitol Watch Foundation, identifies seven straightforward solutions to the state’s current budget crisis for savings of nearly $1.3 billion in the next biennium.* If all the solutions were implemented, none of the tax and fee increases outlined in the Governor’s budget would be necessary.

Governor Brown blames three-fifths of the budget crisis on Oregon’s decision to expand Medicaid coverage under the Affordable Care Act. Policymakers undertook the expansion with full knowledge that the federal government would be shifting some of the costs of expansion to the state. Janelle Evans, budget director for the Oregon Health Authority, estimates these costs to the state’s general fund will be as much as $360 million in the next biennium. With many portions of the ACA likely to be reformed or replaced by this Congress, Oregon can see immediate budget savings by opting out of the Medicaid expansion now.

The skyrocketing costs of Oregon’s Public Employee Retirement System presents the biggest long-run challenge to balancing state and local government budgets. As reported in The Portland Tribune, the impact on the 2017-19 state budget is approximately $500 million because the state funds two-thirds of the operating costs of school districts, which will also be hit with the steep increase in PERS costs. In addition to the higher costs of PERS padded into the agency costs, the Governor’s budget includes a $100 million line item to support the state’s increased PERS costs.

Senate Bill 560 provides a reform that would cap at $100,000 the final average salary used to calculate Tier 1 and Tier 2 retirement benefits. The PERS actuary calculates this reform alone would save the state budget approximately $135 million in the 2017-19 biennium.

Oregon has the 12th highest pay in the U.S. for state employees. The Governor’s budget proposes increasing the state government workforce by 675 full-time-equivalent employees. This expansion of the public sector workforce would cost the state more than $120 million in additional compensation costs for the 2017-19 biennium. A halt on adding more state employees during this biennium would free up resources and ward off some of the pressure to increase taxes, fees, and charges.

In addition to these items, Oregon can face its budget reality by adopting targeted reductions already identified by the Department of Human Services, reforming the state’s cash assistance programs, saying “no” to the Governor’s wish to expand Medicaid to those who are not “legally present” in the state, and saying “no” to Measure 98’s unfunded high school education spending mandate.

State tax revenues are approaching all-time highs. Nevertheless, the state must face the budget reality that Oregonians do not have the resources to support ever-expanding spending programs that outpace our ability to pay for them.

 

* Solution Impact
Medicaid—opt out of ACA expansion $360 million
Cover All Kids—reject expansion $55 million
PERS—$100,000 cap $135 million
Department of Administrative Services—halt additional hiring $120 million
Department of Human Services—targeted reductions $321 million
Department of Human Services—cash assistance reforms $160 million
State School Fund—reject Measure 98 $139 million
Total $1,290 million

 


Eric Fruits, Ph.D. is an Oregon-based economist and adjunct professor at Portland State University. Fruits has been invited to provide analysis to the Oregon Legislature regarding the state’s tax and spending policies. His testimony regarding the economics of the Oregon public employee pension reforms was heard by a special session of the Oregon Supreme Court. A version of this article originally appeared in The Portland Tribune on February 23, 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.

Policy Picnic – February 23, 2017

Please join us for our monthly Policy Picnic led by

Cascade Policy Institute’s

Research Associate Lydia White


The Seen and Unseen World of Solar Net Metering

Environmentalists claim residential solar energy is the solution to fulfilling our energy needs, but they often overlook its unintended consequences. Looking through the lens of Frédéric Bastiat’s “That Which is Seen, and That Which is Not Seen,” Lydia will address the flaws of solar net metering. The “Seen” paints a rosy picture of sustainable green energy captured by our greatest renewable resource, the sun. But, the “Not Seen” reveals the unreliability and unaffordability of net metering and the inequity this program creates.

Admission is free, but reservations are required due to space limitations. You are welcome to bring your own lunch; light refreshments will be served.

Reserve your free tickets here.

Cascade’s Policy Picnics are generously sponsored

by Dumas Law Group, LLC

dumaslawlogo 80percent

“Facing Reality” Report Offers Solutions to Governor Brown’s $1.7 Billion Budget Hole Without Raising Taxes

FOR IMMEDIATE RELEASE

Media Contacts:

Steve Buckstein (503) 242-0900

Jeff Kropf (541) 729-6229

PORTLAND, Ore. – Cascade Policy Institute and Oregon Capitol Watch Foundation jointly released a new report Wednesday, entitled Facing Reality: Suggestions to balance Oregon’s budget without raising taxes. The report offers practical solutions to fill Governor Kate Brown’s estimated $1.7 billion budget hole without raising taxes.

Facing Reality is the third budget blueprint in a series: In 2010 and 2013 Cascade Policy Institute and Americans for Prosperity-Oregon published Facing Reality reports that offered state legislators an opportunity to “reset” state government using the time-tested principles of limited government and pro-growth economic policies.

“Oregon has over one billion dollars more to spend than the last budget but is still nearly two billion short because Governor Brown’s budget continues out-of-control and unsustainable spending,” said Jeff Kropf, Executive Director of Oregon Capitol Watch Foundation. “It’s time to face the reality that raising taxes will never provide enough money to build the fantasy utopia envisioned by the Governor and current legislative leadership. There is no free lunch, and new taxes are only going to hurt the poor and the middle class.”

Facing Reality outlines $1.3 billion in reduced spending in seven specific areas which, coupled with small across-the-board agency reductions, equals $1.7 billion, enough to fill the Governor’s estimated budget hole and removing the need to raise taxes.

“Keep in mind that even with our Facing Reality budget reductions, the state of Oregon will still be spending more money than the previous budget,” said Steve Buckstein, Senior Policy Analyst and Founder of Cascade Policy Institute. “The reality the Governor and the legislature must face is that the bill for years of overspending is coming due, and raising taxes that hurt the economy is not the answer. Reducing how fast spending grows is the sustainable way forward.”

This third Facing Reality report offers politically possible solutions to meet the needs of Oregonians. It still gives most state agencies more money to spend, but without enacting new taxes being proposed by the several dozen tax increase bills introduced for consideration in the 2017 legislative session.

Here are the seven specific budget reductions proposed in Facing Reality:

Solution Impact
PERS—$100,000 cap $135 million
Department of Administrative Services—halt additional hiring $120 million
Medicaid—opt out of ACA expansion $360 million
Cover All Kids—reject expansion $55 million
Department of Human Services—targeted reductions $321 million
Department of Human Services—cash assistance reforms $160 million
State School Fund—reject Measure 98 $139 million
Total $1,290 million

For agencies not identified for specific reductions in the report, across-the-board reductions of about three percent from Governor Brown’s budget would eliminate the shortfall she identified. If this plan were implemented, none of the tax and fee increases outlined in the Governor’s budget would be necessary.

Buckstein and Kropf note, “Most Oregonians must face their own family budget realities every day. Facing Reality is a good-faith effort to hold our state government to the same budgetary realities. We look forward to working with state legislative and executive branch leaders to help implement such realities in 2017.”

Read the full report here: Facing Reality: Suggestions to balance Oregon’s budget without raising taxes

Founded in 1991, Cascade Policy Institute is a nonprofit, nonpartisan public policy research and educational organization that focuses on state and local issues in Oregon. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity.  Oregon Capitol Watch Foundation is a 501(c)3 charitable educational foundation dedicated to educating Oregon citizens about how state and local governments spend their tax dollars by researching, documenting, and publicizing government spending and developing policy proposals that promote sound fiscal policies and efficient government.

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Oregon Leaders Must Reject ACA’s Medicaid Expansion

By Eric Fruits, Ph.D.

Despite an eight percent increase in general fund revenues, Governor Kate Brown and some lawmakers say the State of Oregon is facing a $1.7 billion budget shortfall in the 2017-19 biennium. In her inaugural address, the governor blames more than $1 billion of the shortfall on the state’s choice to expand Medicaid and other taxpayer-funded insurance. The Census Bureau estimates that about one in four Oregonians are in the state’s Medicaid program.

In addition to the expansion provided by the Affordable Care Act, the governor seeks new state money to expand single-payer public insurance to those who are not “lawfully present” in the United States, under a program called Cover All Kids.

Although the federal government pays a large portion of the costs of Medicaid expansion, the state’s share of the costs is growing under the ACA. The huge costs of Medicaid mean even a small increase in Oregon’s share has big impacts on the state’s budget. State Senator Elizabeth Steiner Hayward, incoming co-chair of the Ways and Means Committee for Human Services indicates that about one-third of the deficit at the Oregon Health Authority comes from what she called a “minuscule” reduction in the federal match. This deficit is certain to grow as federal support for expansion shrinks over time, as outlined in the ACA.

The state has massively underestimated the costs of Medicaid expansion in Oregon. A 2013 report prepared for the state estimated that the Medicaid expansion would cost Oregon’s general fund $217 million in the upcoming 2017-19 biennium. Janelle Evans, budget director for the Oregon Health Authority, now estimates a cost to the state’s general fund of at least $353 million. For the federal government, the cost of Oregon’s Medicaid expansion will cost more than $3.5 billion over the next two years.

Oregon simply cannot afford the ACA’s Medicaid expansion and Governor Brown’s expensive new entitlement. Nationally, expansion costs and enrollment have grown much faster than projected. Previous expansions of the Medicaid program have resulted in crowding out, the process by which taxpayer funded Medicaid replaces private health insurance. These earlier expansions have seen crowd-out rates ranging from 15 percent to 50 percent, depending on the type of expansion. Not only does the expansion crowd out private insurance, government spending on the expansion crowds out funding for other state and national priorities, such as education, infrastructure, and defense.

In Congress, repeal of much of the ACA is imminent. Oregon Congressman Greg Walden, incoming chairman of the House Energy and Commerce Committee, is working on a timeline for repealing major provisions of the health care law, including the expansion of Medicaid. In the absence of repeal, Congress should consider an enrollment freeze approach. A freeze would halt new enrollment while allowing current enrollees to stay in the program until their incomes climb above eligibility limits. It would be an intermediate step towards repeal with immediate benefits for taxpayers and current enrollees.

However repeal of the ACA rolls out, Oregon’s congressional delegation should be at the forefront of ending the Medicaid expansion as soon as possible. While Congress works through the details, Oregon can take steps in the upcoming legislative session to protect the state’s fragile finances. One first step would be to opt out of the ACA’s Medicaid expansion and reject Governor Brown’s proposal to expand coverage even further. As noted in the governor’s inaugural address, the state’s choice to expand Medicaid is the single largest source of the impending budget deficit. Rejecting the health care law’s expansion is the clearest path to fiscal solvency and financial responsibility.


Eric Fruits, Ph.D. is president and chief economist at Economics International Corp., an Oregon based consulting firm specializing in economics, finance, and statistics. He is also an adjunct professor of economics at Portland State University, an Academic Advisor to Cascade Policy Institute, and author of Cascade’s report, The Oregon Health Plan: A “Bold Experiment” That FailedThis article originally appeared in The Oregonian on January 27, 2017.

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