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.

Policy Picnic – November 16, 2016

Please join us for our monthly Policy Picnic led by

Cascade’s President and CEO, John A. Charles, Jr.


Innovations in Highway Finance

All over the world, new highways, bridges, and tunnels are being built, paid for with tolls. But these not your grandfather’s tolls, and there are no toll booths. These are collected electronically, with variable price rates to ensure traffic speeds of 45 MPH or better. This presentation will summarize the latest roadway projects and the implications for Oregon.

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

 

Cascade’s Policy Picnics are generously sponsored

by Dumas Law Group, LLC. 

Dumas Law Group

Power Is the Narcotic of Choice for Politicians

By John A. Charles, Jr.

Oregon’s free-market research center, Cascade Policy Institute, celebrated its 25th anniversary with a gala dinner party on October 20 at the Tualatin County Club. Since its founding in 1991, Cascade has emerged as a leading voice for individual liberty and economic opportunity. Building coalitions with others, Cascade has helped develop innovative policies such as Oregon’s charter school law and the more recently enacted Right-to-Try statute.

Cascade helped Ethiopian immigrants break the Portland taxi cartel and secure a license to operate a new company. The Institute also helped a young Black woman start her hair-braiding business by persuading the legislature to repeal onerous licensing regulations.

And a paper first published by Cascade in 1996 suggesting that 84,000 acres of the Elliott State Forest be sold off helped persuade the State Land Board to do just that; a sale will be approved by the Board in December of this year.

However, such advancements will be tougher to come by in the years ahead, because the culture of Oregon has changed. The permanent political class that now rules the state has little respect for the entrepreneurial spirit.

The 2016 legislative session served as Exhibit A for this change. In the short space of 30 days, the majority party rammed through two major pieces of legislation: (1) a dramatic increase in the minimum wage; and (2) a mandate forcing electric utilities to provide 50% of their retail load from designated “renewable energy” sources.

Each bill only received a few hearings. Vast areas of complexity were brushed aside as unimportant. When hundreds of witnesses showed up pleading for a more incremental approach, they were dismissed. In 35 years of lobbying, I had never seen anything like it.

This was in contrast to Cascade’s early years, when the organization sponsored “Better Government Competitions” in 1994, 1996, 1998, and 2000. These events solicited good ideas from citizens about how to make government work better. Top officials including Governor John Kitzhaber and Portland Mayor Vera Katz enthusiastically endorsed Cascade’s “citizens’ suggestion box.”

Today, many elected officials openly disdain the public they serve. They don’t want your ideas, just your obedience and your tax dollars. Moreover, if you compromise and give them half of what they want today, they’ll be back for the rest tomorrow.

Nowhere was that more evident than with the so-called “coal to clean” bill in 2016. Why was this topic even being discussed when only nine years ago the legislature passed SB 838, which mandated that large electric utilities procure 25% of their power needs from specified “renewable energy” sources by 2025?

SB 838, passed in 2007, was seen as a visionary achievement. The leading legislative advocates, Senator Brad Avakian and Representative Jackie Dingfelder, were exultant. Oregon was now on a path to renewable energy Nirvana!

Yet by 2016, the “25 by 25” banner was seen as wimpy and out of date. Oregon’s perceived reputation as an international environmental leader had been undercut by legislation elsewhere. So the new (arbitrary) standard became “50% by 2040.”

We can do better than this. Perhaps if Measure 97 fails, legislators will stop looking for quick fixes and work together on tax reform. There are officials in both parties willing to tackle PERS reform and transportation finance, if the Majority party allows it.

Replacing hubris with humility would be a good first step.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in the October 2016 edition of the newsletter, “Oregon Transformation: Ideas for Growth and Change.”

Something’s Rotten in Metro’s Missing Garbage Tax Money

By John A. Charles, Jr. and Allison Coleman

Metro is asking for a new tax levy this November (Measure 26-178 on your ballot) despite the fact that it already has sufficient funds to operate all its parks.

In 2002, the Metro Council enacted a garbage tax for the specific purpose of funding operations and maintenance of Metro parks. That amount was raised to $2.50 per ton in 2004. Between 2002 and 2015, the garbage tax brought in $46.8 million for Metro parks.

Given that Metro raised all this money for parks, why is Metro asking for voter approval of another $80 million parks levy in the upcoming November election? Where did the $46.8 million in garbage tax money go?

The answer can be found in a bait-and-switch ordinance adopted by Metro in 2006. The Council amended the Metro Code to retain the garbage tax, but “undedicate” its use so that revenues would be swept into the Metro General Fund.

Since 2006, regional taxpayers have paid more than $32 million in garbage taxes that should have gone to parks, but instead went to other purposes. We’ve heard the scare stories before, but it’s time to call Metro’s bluff. Voters should reject the Metro tax levy and demand that all money from the garbage tax be rededicated to parks maintenance, as promised 14 years ago.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. Allison Coleman is a Research Associate at Cascade.

Metro’s $32 Million Broken Promise

— Why You Should Vote Down Metro’s Natural Area Levy

By John A. Charles, Jr. and Allison Coleman

In 2006, the Metro Council submitted to the voters a general obligation bond measure in the amount of $227.4 million to fund natural area acquisition. The measure was approved.

In a little-noticed appendix to Resolution No. 06-367A, the Metro Council stated that greenway lands acquired with bond funds would be land-banked with limited maintenance beyond initial site stabilization and possible habitat restoration. The Council noted that it had the financial means to carry out this promise:

“Once the 2006 Natural Areas Bond Measure is approved by voters, Metro will commit existing excise taxes to this basic level of maintenance, with Metro having sufficient resources currently to manage the newly acquired properties in this manner for a period of approximately ten (10) years.”

If the phrase “existing excise taxes” seems puzzling, there’s a reason; almost no one remembers that in 2002, the Metro Council enacted a garbage tax of one dollar/ton for the specific purpose of funding operations and maintenance (O&M) of parks. That amount was raised to $2.50/ton in 2004. Between 2002 and 2015, the garbage tax brought in $46,789,044 for Metro parks.

Metro Solid Waste Excise Tax

Dedicated to natural area maintenance

 

Year Excise Tax Tonnage Total Revenue
2002 $1.00 1,251,823 $1,251,823
2003 $1.00 1,362,204 $1,362,204
2004 $2.50 1,563,884 $3,909,710
2005 $2.50 1,626,255 $4,065,637
2006 $2.50 1,720,168 $4,300,420
2007 $2.50 1,613,848 $4,034,620
2008 $2.50 1,524,370 $3,810,925
2009 $2.50 1,381,326 $3,453,315
2010 $2.50 1,320,992 $3,302,480
2011 $2.50 1,248,191 $3,120,477
2012 $2.50 1,297,716 $3,244,290
2013 $2.50 1,373,612 $3,434,030
2014 $2.50 1,431,132 $3,577,830
2015 $2.50 1,568,513 $3,921,282
Total Revenue     $46,789,044

Given that Metro raised all this money for parks, and promised no new taxes before 2016, why did Metro place an operating levy on the ballot in 2013 for parks maintenance (which passed); and why is Metro asking for voter approval of another $80 million parks levy in the upcoming November election? Where did the $46.8 million in garbage tax money go?

The answer can be found in a bait-and-switch ordinance adopted by Metro just a few weeks after the bond measure was referred out to voters in March 2006. The Council amended Metro Code Section 7.01.023 to retain the $2.50/ton excise tax, but “undedicate” its use so that revenues would be swept into the Metro General Fund.

Since 2006, regional taxpayers have paid more than $32 million in garbage taxes that should have gone to parks O&M, but instead went to other purposes.

Instead of owning up to this chicanery and restoring the garbage tax as a dedicated revenue source, Metro officials continue to make the case for a new property tax. In a 2011 publication, Metro claimed, “…the existing financial model is not sustainable. Metro’s portfolio of land continues to grow, while the general fund resources needed to support it are decreasing.”

In a more recent document, Metro asserted, “In Metro’s general fund, which pays for many primary programs and support services, costs continue to rise faster than revenues.”

Both of these claims are false. In 2011 Metro was already taking in more than $3 million annually in garbage tax revenue for parks. By the end of 2015 it was nearly $4 million.

Meanwhile, Metro was swimming in a sea of new revenue. The Metro Auditor found that during the 10-year period of 2003-2013, total annual revenue went up 22% in real terms, while total expenses went up only 16%. Annual revenue per capita for the Metro region went up 7%; expenses per capita increased by only 4%.

Metro Councilors now state that if voters refuse to approve a new tax levy in November, the agency will “have to ramp back pretty much everywhere.”

We’ve heard the scare stories before, but it’s time to call Metro’s bluff. Voters should reject the Metro tax levy (Measure 26-178 on your ballot) and demand that all money from the $2.50/ton garbage tax be rededicated to parks maintenance, as promised 14 years ago.


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

New Report Highlights Civil Rights Implications of Oregon Land Use Laws, Urban Growth Boundaries

FOR IMMEDIATE RELEASE

Media Contact:
John A. Charles, Jr.

john@cascadepolicy.org

503-242-0900

PORTLAND, Ore. – A new report released today by Cascade Policy Institute demonstrates that Portland’s rapidly growing housing prices are a major hardship on newcomers, renters, and low-income families. The report claims the ultimate source of Portland’s crisis in housing affordability is the region’s urban growth boundary and that minorities suffer the most from the consequences of high housing prices.

The report, Using Disparate Impact to Restore Housing Affordability and Property Rights, is authored by Randal O’Toole, an adjunct scholar with Cascade Policy Institute, Oregon’s free market public policy research organization, and the author of The Vanishing Automobile and Other Urban Myths.

The report claims the ultimate source of Portland’s crisis in housing affordability is the region’s urban growth boundary:

“The Oregon legislature and various cities have applied band-aid solutions to this problem; but none of them will work and some, such as inclusionary zoning, will actually make housing less affordable. That is because none of these solutions address the real problem, which is that the urban growth boundaries and other land-use restrictions imposed by the Land Conservation and Development Commission, Metro, and city and county governments have made it impossible for builders to keep up with the demand for new housing.”

“Common sense says that restricting the supply of something for which demand is increasing will cause prices to go up,” says O’Toole, who cites the findings of economic studies from Harvard, the Federal Reserve Board, the University of California, and the University of Washington, among others, to conclude that strict land-use regulation is the main cause of unaffordable housing.

Other policies which make Portland-area housing less affordable, the report claims, include lengthy delays in the permitting process, onerous impact fees, and architectural design codes. But these policies would have little effect if developers could meet market demand by building homes in unregulated areas outside of existing cities. Urban growth boundaries not only limit supply, but they shield city governments from outside competition.

“These policies effectively discriminate against low-income blacks and other minorities,” says O’Toole. “Under the 2015 Supreme Court ruling, Texas Department of Housing v. Inclusive Communities Project, they also violate the Fair Housing Act just as much as if Portland put out a sign saying, ‘No blacks allowed.’”

O’Toole explains how this Court decision could have a profound impact on Portland’s housing market. He says the Supreme Court’s ruling said that land use policies that make housing more expensive can be legal under the Fair Housing Act only if they have a legitimate goal and there is no other way of accomplishing that goal without making housing less affordable.

According to Cascade Policy Institute CEO John A. Charles, Jr., “Policymakers think the solution to our housing shortage is to build more tax-subsidized apartments, but simply deregulating the land markets would result in far greater housing supply at lower cost.”

The report, Using Disparate Impact to Restore Housing Affordability and Property Rights, is available here.

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. For more information, visit cascadepolicy.org.

###

Light Rail to Bridgeport Village: The Dumbest Train Project Yet

By John A. Charles, Jr.

TriMet and Metro are promoting the idea of a new light rail line from Portland State University to the Bridgeport Village shopping mall in Tualatin.

The question is, who would ride it?

We already know from experience that mall shoppers prefer private cars to trains. The Red Line to the airport was opened in 2001 specifically to service the Cascade Station shopping center, which is anchored by IKEA, Target, and Best Buy. Field observations conducted by Cascade Policy Institute in 2010 and again in 2016 showed that more than 98% of all passenger-trips to and from Cascade Station are made in private automobiles. Light rail is simply irrelevant.

The same is true for Gresham Station, another shopping center specifically built around a light rail stop. Regardless of the time-of-day or day-of-week, virtually all trips to and from Gresham Station are made in private vehicles.

The Green MAX line, which terminates at Clackamas Town Center, has also had no effect on travel patterns at the mall.

In order for the Bridgeport Village line to be built, Tigard residents will need to approve the city’s participation in the project by voting for Measure 34-255 in the November election. Local voters should learn from experience and turn down this measure. Light rail through Tigard would be a total waste of money.

1 2 3 4 5 29