Press Release: New Report Proposes Better Outcomes, Lower Costs for State and Local Governments Through User Fees

PORTLAND, Ore. – A new report released by Cascade Policy Institute suggests numerous ways state and local governments can lower the costs of public services through judicious, targeted use of “user fees,” rather than relying on general taxation. Resurrecting User Fees in Public Finance: A Prescription for Lowering the Cost and Improving the Fairness of Public Services was authored by Randall Pozdena, Ph.D. Pozdena is president of QuantEcon, Inc., an Oregon-based consultancy.

The share of personal income collected as revenue by state and local governments has doubled since 1945. Oregon and other U.S. state governments obtain approximately 75 percent of this revenue through broad-based taxation and 25 percent from fees levied on the beneficiary of the service.

This report details the theoretical and practical advantages of reducing reliance on broad-based taxation in favor of user charges. It reviews the economic philosophy of reliance on user charges versus broad-based finance and the findings of the public finance literature. These key findings are:

  • The total cost of public services would decline. By making users of services and facilities aware of the costs associated with their use, spending would be limited only to those services for which consumers get benefits commensurate with their user costs.
  • Because user fees, unlike broad-based taxes, are only paid if one uses a service, the public or private providers of the services are incentivized to provide a service of value and at the minimum cost. This effect is particularly pronounced if users also enjoy choice of the provider of the service.
  • User fees link the generation of revenue intimately to the specific service or facility used. This avoids the “trust fund” or “trough” financing model that allows political lobbies to direct the allocation of revenues and provision of services to those with political power, rather than what is beneficial to consumers overall.
  • The result is more efficient and equitable provision of services because of the closer nexus of financing burden and receipt of benefits from the services.

The report also examines historical and current patterns of state and local spending and revenue collection. The review of these practices reveals that increased reliance on user charges is both practical and desirable in K-12 education, higher education, health services, public safety, and transportation infrastructure (especially highway and transit services). Together, these services constitute approximately 50 percent of state and local public spending in Oregon and other states in the aggregate, but in total have less than 5 percent reliance on properly designed user fees at present.

Cascade President and CEO John A. Charles, Jr. commented, “Switching from general taxation to user fees would be a more progressive way to pay for infrastructure because those who consumed the most would pay the most. This is how we pay for electricity, gasoline, and thousands of other commodities.”

User fees can completely, or near-completely, replace broad-based taxation in key areas of public spending, and consistently yield better outcomes and lower costs. This would be a benefit to state and local government budgets and, ultimately, to the taxpayers who finance them.

Cascade Policy Institute is Oregon’s free market public policy research organization. Cascade promotes public policy solutions that foster individual liberty, personal responsibility, and economic opportunity. The full report by Cascade Policy Institute may be viewed here.

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Press Release: Legal Analysis Finds Land Board in Breach of Trust over Elliott State Forest

November 25, 2014

FOR IMMEDIATE RELEASE

Media Contacts:
John A. Charles, Jr.
503-242-0900
john@cascadepolicy.org

Kathryn Walter
617-519-6168
kwalter@altuslaw.com

 

PORTLAND, Ore. ― A detailed legal analysis released today by Cascade Policy Institute concludes that the State Land Board, which has responsibility for the Elliott State Forest, has not prudently managed this asset and likely has breached its fiduciary trust to generate maximum net revenue over the long term for K-12 schools, as required by the Oregon Constitution.

The Elliott is a 93,000-acre forest on the south coast. It is part of a portfolio of lands known as “Common School Trust Lands” (CSTL), and these lands must be managed as endowment assets for public schools. The State Land Board, comprised of the Governor, the Secretary of State, and the Treasurer, manages all Trust Lands.

For over 30 years, the net revenue from the Elliott has been steadily declining. In 1994 a consultant to the Oregon Department of Forestry recommended that the Board divest itself of the Elliott entirely, stating that, “Selling the Elliott is the only marketing alternative likely to significantly increase net annual income to the CSF.”

In 1995, the Division of State Lands (as it was then known) recommended that the Board sell all 3.4 million acres of Trust Lands for the same reason. Both recommendations were rejected by the Board.

In 2013, the Elliott actually lost $3 million, prompting the Board to sell 2,800 acres. On December 9, 2014, the Board will consider recommendations from the Department of State Lands for a “new business model” for the Elliott.

Trust law requires that trustees exercise reasonable care and skill in managing a trust and make trust property productive. Trustees must also preserve trust property and defend actions that may result in loss to the trust and must act with absolute loyalty to the beneficiaries. Failure to carry out these duties is a breach of the trustee’s fiduciary duties.

The Cascade legal analysis, undertaken by Portland attorney Kathryn Walter, concludes that:

  1. The Board is not prudently managing the trust land assets. Although a trustee is not charged with 20/20 hindsight, the trustee must be able to explain the reasoning behind an investment strategy. Only recently has the State Land Board attempted to understand the value of the Elliott State Forest. Further, the Board has ignored recommendations to divest all trust land holdings.
  1. The Board should have known that doing nothing was imprudent. The Board, by its inaction, has breached its duty by failing to dispose of the Elliott State Forest when the opportunity presented itself and, by waiting too long, has left the trust with devalued property.
  1. The Board must protect the trust from loss, including insuring trust property against loss and when facing litigation or other claims implicating the trust. A trustee is also obligated to defend the trust against claims, to avoid claims of liens and other losses, and to pay taxes. The Board failed to fulfill its duties by not negotiating a Habitat Conservation Plan (“HCP”), which would have alleviated the impact of the federal Endangered Species Act (ESA) on the Elliott.
  1. The appointment of the State Land Board as trustee in Oregon’s constitution likely violated trust principles from the trust’s beginning. A trustee has a duty to act honestly and with undivided loyalty to the interests of the trust and its beneficiaries. By virtue of the Board members’ political roles, the Board members cannot offer undivided loyalty to the beneficiaries because they are beholden to so many competing interests.

Cascade Policy Institute President John A. Charles, Jr. stated, “During 2013, the Land Board managed to lose $3 million on a timber asset worth some $500 million, while the S&P 500 Index was enjoying total returns of 32%. When the Land Board meets on December 9, it must take action to ensure that the Elliott State Forest begins generating income for public schools.” Cascade has recommended that the Board either sell the Elliott, or explore a land exchange with the federal government.

Charles also noted, “Since the Land Board is a highly political entity, the state legislature in 2015 should consider establishing a new, non-political board to assume management responsibilities for all Common School Trust Lands.”

The full report by Cascade Policy Institute may be viewed here.

Report Shows Possibilities for Elliott State Forest to Make Money for Oregon Schools

Today, the Cascade Policy Institute released a report analyzing the range of policy options for turning the Elliott State Forest from a liability into an asset for Oregon’s Common School Fund.

The Elliott State Forest (ESF), located on Oregon’s South Coast, is part of a portfolio of lands known as “Common School Trust Lands.” These lands are an endowment for the Oregon public school system and must be managed by the State Land Board to maximize income over the long term. Unfortunately, due to environmental litigation, income from the Elliott’s net timber harvest receipts has been steadily declining over the past two decades. In 2013, the ESF cost Oregon taxpayers $3 million, which was a drain on the Common School Fund.

“The State Land Board has been watching the financial returns from the Elliott State Forest steadily decline for over 20 years, while doing essentially nothing,” said Cascade Policy Institute President John A. Charles, Jr.

“The Elliott is now a liability instead of the $800 million asset it was in 1995. Oregon schools deserve better,” said Charles. “The State Land Board has a fiduciary obligation to take decisive action, and the analysis by Strata Policy helps provide a road map for Board decision-making.”

The Land Board in 2014 directed the Oregon Department of State Lands to develop a “new business model” for the ESF. The Cascade report, prepared on contract by Strata Policy, a Utah-based consulting firm, provides a critical review of various options for accomplishing this goal.

The report divides the known options into three categories: viable options, potentially viable options, and individually unviable options.The top three recommendations – the only ones considered “viable” – are full privatization, a land exchange with the federal government, and completion of a Habitat Conservation Plan that would allow logging in habitat currently used by protected species.

The full privatization option was analyzed at length for Cascade Policy Institute by economist Eric Fruits and published as a separate paper in March. Selling or leasing the forest clearly would result in the greatest financial returns to Trust Land beneficiaries over the long term.

A land exchange with the federal government also could result in healthy financial returns to the Common Schools if any lands could be identified for such an exchange, but that is doubtful given the litigious nature of federal forest management in the Pacific Northwest. Moreover, it would take Congressional approval, which likely would take a decade or more to execute. Such delays appear to be a violation of the fiduciary trust responsibilities held by the Land Board.

Development of a Habitat Conservation Plan (HCP) would face the same bureaucratic challenges. Oregon attempted to develop an HCP in cooperation with the U.S. Fish and Wildlife Service and spent $3 million over a 10-year period without gaining federal approval. Before reviving this effort, there needs to be some reassurance from the federal government that an HCP is actually possible.

The Land Board is scheduled to take public testimony regarding ESF management in Coos Bay on October 8, and will discuss options for a “new business model” at its December meeting in Salem.

The full report by Strata Policy may be viewed here.

Report Shows Possibilities for Elliott State Forest to Make Money for Oregon Schools

Today, the Cascade Policy Institute released a report analyzing the range of policy options for turning the Elliott State Forest from a liability into an asset for Oregon’s Common School Fund.

The Elliott State Forest (ESF), located on Oregon’s South Coast, is part of a portfolio of lands known as “Common School Trust Lands.” These lands are an endowment for the Oregon public school system and must be managed by the State Land Board to maximize income over the long term. Unfortunately, due to environmental litigation, income from the Elliott’s net timber harvest receipts has been steadily declining over the past two decades. In 2013, the ESF cost Oregon taxpayers $3 million, which was a drain on the Common School Fund.

“The State Land Board has been watching the financial returns from the Elliott State Forest steadily decline for over 20 years, while doing essentially nothing,” said Cascade Policy Institute President John A. Charles, Jr.

“The Elliott is now a liability instead of the $800 million asset it was in 1995. Oregon schools deserve better,” said Charles. “The State Land Board has a fiduciary obligation to take decisive action, and the analysis by Strata Policy helps provide a road map for Board decision-making.”

The Land Board in 2014 directed the Oregon Department of State Lands to develop a “new business model” for the ESF. The Cascade report, prepared on contract by Strata Policy, a Utah-based consulting firm, provides a critical review of various options for accomplishing this goal.

The report divides the known options into three categories: viable options, potentially viable options, and individually unviable options.The top three recommendations – the only ones considered “viable” – are full privatization, a land exchange with the federal government, and completion of a Habitat Conservation Plan that would allow logging in habitat currently used by protected species.

The full privatization option was analyzed at length for Cascade Policy Institute by economist Eric Fruits and published as a separate paper in March. Selling or leasing the forest clearly would result in the greatest financial returns to Trust Land beneficiaries over the long term.

A land exchange with the federal government also could result in healthy financial returns to the Common Schools if any lands could be identified for such an exchange, but that is doubtful given the litigious nature of federal forest management in the Pacific Northwest. Moreover, it would take Congressional approval, which likely would take a decade or more to execute. Such delays appear to be a violation of the fiduciary trust responsibilities held by the Land Board.

Development of a Habitat Conservation Plan (HCP) would face the same bureaucratic challenges. Oregon attempted to develop an HCP in cooperation with the U.S. Fish and Wildlife Service and spent $3 million over a 10-year period without gaining federal approval. Before reviving this effort, there needs to be some reassurance from the federal government that an HCP is actually possible.

The Land Board is scheduled to take public testimony regarding ESF management in Coos Bay on October 8, and will discuss options for a “new business model” at its December meeting in Salem.

The full report by Strata Policy may be viewed here.

Cascade Policy Institute Encourages a ‘No’ Vote on Measure 86

The Board of Directors for the Cascade Policy Institute recently voted to oppose Measure 86, known as the Oregon Opportunity Initiative, on November’s ballot.

Measure 86 would require the creation of a Permanent Fund for Post-Secondary Education, which can be funded a number of ways, including by the state selling general obligation bonds. Earnings on the Fund can be used to subsidize certain students, but it will be taxpayers who are saddled with paying off any bonds for 30 years, with interest.

Further, only 30 percent of Oregon’s 2014 high school graduates showed readiness for college, based on ACT college admissions tests.

“We shouldn’t spend more money on higher education until our public school system prepares most college-bound students to actually succeed there,” said Cascade Founder and Senior Policy Analyst Steve Buckstein. “Otherwise, we’re just paying twice for remedial courses to teach college students what they should have learned in high school.”

Measure 86 is based on what one researcher calls “one of America’s most durable myths…that the more people who graduate from college, the more the economy will grow.” However, Richard Vedder, author of the book “Going Broke by Degree: Why College Costs Too Much,” notes that conclusion may depend on how those educations are paid for. He found statistical evidence that states which provide more higher education funding actually have slightly lower economic growth rates than states which provide less.

“Individuals know their needs better than politicians do, so leaving the money in private hands produces better results,” said Buckstein.

Finally, even the chief sponsor of Measure 86, State Treasurer Ted Wheeler,  criticized the university system for being slow to adapt to new opportunities in technology which can make education cheaper and easier for students*.

“As technology drives down higher education costs, why saddle Oregon taxpayers with perhaps $100 million or more in debt for the next 30 years to subsidize the old, high-cost economic model? The answer is we shouldn’t,” said Buckstein.

* Video of Treasurer Wheeler’s statement is online at:
youtube.com/watch?v=ZMPMtmEyieg

Cascade Policy Institute Gives Support to Measure 91

Cascade Policy Institute’s Board of Directors recently voted to support the latest marijuana legalization initiative, Measure 91, which will be on Oregon’s November ballot.

While Cascade has always supported the decriminalization of cannabis on both philosophical and practical grounds, this is the first actual ballot measure in which the organization sees the positive features outweighing the negative features.

In response to this vote by the Cascade Board, Cascade’s President and CEO John A. Charles, Jr. released the following statement:

“There is a simple reason to support the Measure 91: consenting adults should be allowed to make informed decisions about cannabis use on their own, without undue interference by the state. Measure 91 promotes this goal through a formal sales licensing process as well as through the Section 6 ‘exemptions’ that allow small amounts of cannabis to be owned and exchanged by unlicensed individuals without taxation.

“That said, Measure 91 is not without flaws. One is the expansion of jurisdiction for the OLCC, a state monopoly that should have been abolished long ago. Taking on marijuana sales will make this agency more deeply entrenched than ever before, even though it is not a proper function of government to be in the business of selling either distilled spirits or marijuana.

“In addition, Measure 91 is clearly designed to be a revenue-raising measure, and the distribution of funds to schools, police, and other designated recipients creates a ‘moral hazard’ problem in which beneficiaries of taxation will have a direct stake in the future sales of marijuana. Over the past 30 years lawmakers have become increasingly dependent on lottery sales, as well as excise tax revenues from tobacco, distilled spirits, beer, and wine. Adding marijuana to that list is a step in the wrong direction.”

Despite these downsides, Charles stresses that Measure 91, on balance, is a sensible approach to cannabis possession, and worthy of voter support.

New Poll Shows 84% Percent of Oregonians Support Employee Choice

Eighty-four percent of Oregonians support allowing union employees to leave their union without force or penalty, a concept generally referred to as Right to Work. That’s the finding of a new poll, released today by Cascade Policy Institute as part of National Employee Freedom Week, which runs from August 10 to 16. NEFW is a grassroots campaign of 77 organizations in 44 states dedicated to helping union employees learn about their right to leave their unions.

The poll, with a sample size of 500 Oregon residents, asked this question: “Should employees have the right to decide, without force or penalty, whether to join or leave a labor union?” Of the respondents, a resounding 84 percent answered Yes.

The coalition also released a poll showing 82.9 percent of Americans nationwide support the Right to Work principle. Currently, 24 states have passed Right to Work laws which allow workers to leave their union without penalty or having to pay dues to an organization they choose not to belong to. Because of a deal struck by Governor John Kitzhaber, Oregonians won’t have the opportunity to end forced union dues in the public sector this year.

The poll results are significant because Oregon and twenty-five other states require workers to pay so-called “fair share” dues even if they decline union membership and refuse to pay the political portion of union dues. The other 24 states have taken advantage of federal Right to Work law that lets workers choose not to pay any dues at all if they decline to join a union. The federal government also prohibits forced union dues in its own workplaces; yet unions still represent some federal workers, and they represent workers in Right to Work states who voluntary choose to join.

Cascade Policy Institute founder Steve Buckstein notes, “Most Oregonians now support letting workers decide whether to both join and pay any dues to a union. Cascade research finds significant economic benefits if Oregon becomes a Right to Work state, but employee choice is more than an economic issue. It’s a profoundly moral one as well. No one should be compelled to pay union dues in order to hold a job.”

Unions often do as little as is required by law to inform their employees that they have the right to opt out. But as previous NEFW polling illustrates, over 33 percent of those in union households want to leave. Therefore, educational efforts like NEFW are necessary to inform and educate union members about their workplace rights and empower them to make the decision about union membership that’s best for them. More information is available at www.EmployeeFreedomWeek.com and at Cascade’s new website, www.OregonEmployeeChoice.com.

The poll was conducted by Google Consumer Surveys, between July 11 and July 31, 2014. It surveyed adults nationwide, including roughly 500 Oregonians and has a margin of error of approximately 3.76 percent.

Cascade Policy Institute is Oregon’s free market public policy research center. Cascade’s mission is to explore and promote public policies that advance individual liberty, personal responsibility, and economic opportunity.

U.S. Supreme Court rules that freedom of association trumps public sector union demands

The U.S. Supreme Court today ruled in Harris v. Quinn that home health care workers in Illinois cannot be forced to pay public sector union dues because that violates their freedom of association as protected by the First Amendment. The decision should help similar workers in Oregon who are being forced to pay dues to the state’s largest public sector union, SEIU.

The Court ruled that requiring in-home health care workers to pay so-called “fair share” fees for public sector union collective bargaining costs violates their constitutional rights by compelling them to associate with the union. The Court has previously found that freedom of association is an essential part of Freedom of Speech, which is protected in the First Amendment.

Even though it is narrowly crafted, today’s decision should apply to other states like Oregon in which public sector unions are allowed to force in-home health care workers to either join their union or pay “fair share” dues. And, the arguments used by the Court to uphold the constitutional freedom of association rights of home health care workers should be expanded in future cases to workers in general who object to being forced into paying fees for union services they don’t want.

In Oregon, for example, more than 30 percent of union households would opt if they could, and some 30 percent of SEIU public employees have already opted out of membership but are required to pay “fair share” dues for collective bargaining costs. While today’s Court decision may not free them from that financial burden, it will bolster the case that their freedom of association is being violated. At some point, the Court will need to further clarify who can and who cannot exercise their First Amendment rights when faced with paying fees to an organization they would choose not to support.

Report Questions Legality of Renewable Energy Certificates

PORTLAND, Ore. – Cascade Policy Institute issued a report today, questioning the legality of renewable energy certificates (RECs) and calling for the state Attorney General to investigate possible violations of the Oregon Unfair Trade Practices Act.

RECs are tradable commodities purporting to represent the “environmental amenities” of producing electricity from a select list of renewable energy sources. A REC is created electronically for each megawatt-hour of electricity produced by qualifying sources, and a unique number is assigned to the REC. It can then be bought or sold as a product that is either bundled with the actual electrical output of the facility, or sold separately.

However, nowhere in the transaction process are the so-called “environmental amenities” associated with each REC verified. The REC market is shrouded in secrecy; relevant data about individual RECs such as the power facility it is associated with cannot be obtained from utilities, REC brokers, or the Oregon Public Utility Commission. This is the major finding in the Cascade report entitled “Renewable Energy Certificates: A Costly Illusion.”This lack of transparency is a problem because not all “renewable power” sources are benign. Intermittent sources such as wind and solar require back-up power at all times to ensure reliability of the regional grid, and most of those sources create environmental problems such as air pollution or fish mortality. It is impossible for any consumer to know where their purchased RECs came from, and therefore impossible to know if there are any net environmental benefits.

“We believe that statements made by REC producers and brokers violate the Oregon Unfair Trade Practices Act by representing that the purchased RECs have benefits and qualities that they do not have,” Cascade’s President and CEO John A. Charles, Jr. stated in the letter to Attorney General Ellen Rosenblum.

There is no direct link in time or location between the payments a customer makes for “renewable” energy and the production of that electricity or its delivery to the customer paying for it. According to Charles, “The REC market is a Trojan Horse. Purchasers of RECs such as universities and businesses are buying these certificates to provide a ‘green glow’ for themselves, yet the alleged environmental benefits probably do not exist.”

In 2007, the Oregon legislature approved a law that would require at least 5 percent of power generated by electricity utility companies to come from “renewable resources,” like solar and wind power. This required percentage increases to 15 percent by 2015, 20 percent by 2020, and 25 percent by 2025. Instead of having to actually produce this electricity themselves, the law allows electricity companies to purchase or produce RECs.

The Cascade report recommends that the Oregon Legislature amend the 2007 statute to prohibit the use of RECs for compliance purposes if they are associated with intermittent power sources.

Click here to read the report.

As the Affordable Care Act Turns Four, Cascade’s Predictions Were on the Mark

Sunday, March 23, was the fourth anniversary of the passage of the Patient Protection and Affordable Care Act (“ObamaCare”). Cascade founder and senior policy analyst Steve Buckstein predicted then that ObamaCare would “represent much more a violation of individual liberty than an improvement in American health care.”

Four years later, the law remains mired in controversy, confusion, and dysfunction. The ACA has been challenged from numerous constitutional, philosophical, and moral angles; and the Supreme Court will hear a case this week challenging the ACA on First Amendment grounds.

Buckstein wrote in 2010:

When we founded Cascade Policy Institute in 1991, our mission was, and still is, to promote public policy alternatives that foster individual liberty, personal responsibility and economic opportunity. This bill threatens to set us back in all three areas:

Individual liberty will be violated as the federal government takes away even more of our options regarding what insurance, if any, we choose to purchase and how we purchase it.

Personal responsibility will be decimated as the federal government tells us “don’t worry about taking care of yourself; we’ll do that collectively from now on.”

Economic opportunity will be stifled as the tax burden on individual workers, employers and investors go up, not down. Without meaningful cost controls, health care costs will spiral, leading to higher federal deficits and to even more government involvement in the economy.

When the bill’s supporters tell us that every other industrialized country has national health insurance, our response should be, “America is not every country; America is supposed to be the land of the free.”

We now see that most of these predictions are coming all too true. Not even considering the HealthCare.gov website disaster, and the totally dysfunctional Cover Oregon website debacle, it appears that more people may be losing their health insurance coverage than have gained new coverage under this deeply flawed law. The Congressional Budget Office now estimates the law will cause the equivalent of two million jobs to be lost by 2017. The 2013 PolitiFact Lie of the Year was President Obama’s oft-told fib, “If you like your health care plan you can keep it.” Only a fraction of those who have signed up under ObamaCare exchanges are the “young and healthy” the scheme needs to pay higher premiums to subsidize the “old and sick.” It seems that younger people would vote for Obama, but they won’t follow him off a health care cost spiral cliff.

With the first ObamaCare open enrollment period ending on March 31, its flaws will certainly be hard to gloss over.* Rather than carve out even more exemptions to the law, the administration should admit that they got it wrong. Then we can have an honest discussion about how to move toward real insurance reform using market principles that offer true affordable alternatives to the Affordable Care Act, which has proven anything but.

* The administration is now expected on March 26th to announce an extension of the March 31st open enrollment deadline for certain individuals.

 

 

 

 

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