Cascade in the Capitol: Tax Reform Testimony Presented to the Senate Finance Committee

Senior Policy Analyst Steve Buckstein testified on Thursday before the Senate Committee on Finance and Revenue about a series of tax reform proposals. Below is his testimony to the panel of legislators.

Testimony before the Senate Committee
on Finance and Revenue
regarding Tax Bill HB 2456
by Steve Buckstein

Good afternoon, Chair Burdick, Vice-Chair George, and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, which is a non-profit, non-partisan think tank based in Portland. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity.

I’m here to express my support for amending HB 2456 to include a new, lower income tax rate for most small businesses in the state. Small businesses, including start-ups and individual entrepreneurs, are a significant source of job creation. I have it on good authority that all state legislators would like to take credit for creating more jobs in this state. Here’s your chance.

I cannot support other changes in the bill which would jack up tax rates on C corporations and in effect raise taxes on high-income individuals. Such provisions will simply reinforce Oregon’s reputation as business-unfriendly.

In this modern world, people and capital are mobile. Investors and businesspeople change their behavior based on the incentives and disincentives they face. Oregon’s high tax rates shine like a big STOP sign at the border, warning high-income people and most businesses that the cost of coming here may be too high compared to other states.

So, by all means lower tax rates where you can, especially for small businesses. And rather than rely on taxing others more to generate revenue, rely on the fact that making Oregon more business friendly will in itself generate revenue–and jobs.

Thank you.

Open Letter to Federal Transit Administration Regarding TriMet

 On June 14th, John Charles sent this letter to the Federal Transit Administration regarding TriMet and C-TRAN proposals for the CRC light rail project.

June 14, 2013

 

Richard F. Krochalis

Regional Administrator, FTA

Jackson Federal Building
915 Second Avenue, Suite 3142
Seattle, WA 98174

            Re: FTA requirements for operating funds on New Starts projects

Dear Mr. Krochalis,

I was in the audience on May 15th when you discussed the CRC light rail proposal with the C-TRAN board. I heard you say repeatedly that the application for a FFGA could not proceed until C-TRAN had a firm commitment of adequate funding to operate the new train line.

However, those statements are at variance with how FTA is handling the same issue for federally funded LRT projects in Portland. As I outlined to you in a detailed letter two years ago, TriMet has been in violation of its FFGA for the Green Line since the day it opened, and FTA has done nothing about it.

Service hours for the Green Line were reduced by 33% before it ever opened in September 2009.[1] Service has continued to decline since then. Weekly revenue hours have dropped from 692.4 in the opening year to 686.3 in the fall of 2012, a loss of 1%.[2]

TriMet is also in violation of its FFGA for the Yellow MAX line. That line opened in 2004 with 605.4 weekly revenue service hours. By the fall of 2012, service had dropped to 568.4 weekly revenue hours, a loss of 6%.[3]

Peak-hour service on the Yellow Line was supposed to operate at headways of 10 minutes in the opening year, improving to 7.5 minutes by 2020[4]. Instead, peak-hour headways are currently 15 minutes.[5]

As I pointed out to you in 2011, TriMet has a dedicated revenue source that was supposed to be used to fulfill the obligations of the respective FFGAs. That source, the regional payroll tax, was enhanced by the state legislature in both 2003 and 2009, allowing TriMet to raise the tax rate. The first tax increase was implemented effective January 2005, and has raised a cumulative total of $122.6 million in new revenue through FY 13.[6]

The combined net operating costs of the Green and Yellow lines in 2011 were $10.2 million.[7] Clearly the new revenues generated by the payroll tax rate increase were adequate to pay for all promised new service on the two new MAX lines, if such service had been a priority for TriMet – which it isn’t.

Not only has TriMet failed to provide promised service on federally-funded light rail lines, the agency’s  total fixed route service has dropped by 14% since 2005 — despite the fact that the agency’s all-funds budget has gone up by 125% over that same period, as displayed below:

TriMet Financial Resources, 2004-2013 (000s) 

 

FY 04/05

FY 08/09

FY 10/11

FY 11/12 (est)

FY 12/13 (budget)

% Change 04/05-12/13

Passenger fares

$  59,487

$  90,016

$  96,889

$  104,032

$117,166

+97%

Payroll tax revenue

$171,227

$209,089

$224,858

$232,832

244,457

+43%

Total operating resources

$308,766

397,240

$399,641

$476,364

$465,056

+51%

Total Resources

$493,722

$888,346

$920,044

$971,613

$1,111,384

+125%

 

Annual Fixed Route Service Trends, 2004-2012 

FY 04

FY 06

FY 08

FY 10

FY 12

Change

Veh. revenue hours

1,698,492

1,653,180

1,712,724

1,682,180

1,561,242

-8.1%

Veh. revenue miles

27,548,927

26,830,124

26,448,873

25,781,480

23,625,960

-14.2

In its most recent long-term financial forecast, TriMet admits that the agency’s current service problems are “not caused by TriMet’s revenue base.” According to the agency, TriMet’s operating revenues per capita “are 70% higher than its peer comparators.”[8]

Nonetheless, TriMet service is in a death spiral.

TriMet General Manager told his board in February that the forecast for TriMet service shows that by 2030, the agency will have a “revenue-expenditure imbalance” of some $200 million. Therefore, TriMet clearly does not expect to meet its light rail service obligations to FTA at any time during the life of the two relevant FFGAs.

In your response to me on June 20, 2011, you noted that many transit agencies experience temporary service declines due to various economic factors. Such conditions were “not typically viewed by FTA as a breach of contract.”  You pointed out that Section 19(a) of the FTA FFGA discusses “default” in terms of “…substantial failure of the Grantee to complete the Project in accordance with the Application” for federal funding.

It is clear that TriMet has failed and will continue to fail to meet its contractual obligations to operate federally-financed light rail lines as promised.

Given these facts, I can only conclude that either you misinformed the C-TRAN board about the importance of local operating revenues, or you will soon be requiring TriMet to begin fulfilling its FFGAs for the Green and Yellow lines. Which of these things is true?

Please advise at your earliest convenience.

Sincerely,

 

John A. Charles, Jr.

President & CEO

 

CC:       C-TRAN Board of Directors

TriMet Board of Directors

Interested parties



[1] TriMet, Fall 2010 Financial Forecast, p. 39.

[2] TriMet finance office, personal communication with the author, September 18, 2012.

[3] Ibid

[4] TriMet, Before and After Study, Yellow MAX Line, 2009, p. 2-2.

[5] TriMet website as of June 14, 2013, http://www.trimet.org/schedules/w/t1190_1.htm.

 

[6] TriMet, CRC August 2011 New Starts Submittal, Table 1.

[7] TriMet, FY11 Operating Statistics

[8] TriMet, Long Term Fiscal Sustainability Plan, December 2012, p. 7.

Cascade in the Capitol: Testimony Against Local Tobacco Tax Proposal

John A. Charles, Jr. submitted testimony on Monday to the Senate Committee on Finance and Revenue, speaking against a proposal to allow counties to impose local tobacco taxes.


Testimony of John A. Charles, Jr.

President & CEO 

Before the Senate Committee on Finance and Revenue

Regarding HB 2870-A

April 29, 2012 

 

I am writing in opposition to HB 2870-A.

This bill suffers from an inherent contradiction in its twin policy objectives: raising money and reducing tobacco consumption. For one to succeed, the other must fail.

None of the proponents want to admit this. They prefer to claim that the primary goal is “public health.” However,  the bill only requires that a minimum of 40% of the proceeds be spent on tobacco use prevention and cessation programs, which means that 60% of the funds will go for other uses. This clearly shows that public health is not the primary motivation behind the bill, revenue generation is.

If we admit that this is just a money bill, then there is no compelling argument in favor of taxing a product used by only a fifth of the population, in order to create a revenue stream that will likely benefit everyone. The only reason such bills get introduced is because it is politically easy to pick on a minority group engaged in a habit that is publicly scorned.  But we should not tax minorities just because we can.

If local governments genuinely want to spend more money on tobacco cessation programs, they already have access to the MSA settlement funds. Oregon has received over $1 billion in MSA money since 1998, but virtually none of it has gone to directly help smokers. Since that was one of the express purposes of creating the fund, I’d suggest local governments direct their lobbying efforts at state legislators who continue to use revenue from the MSA as an all-purpose slush fund.

Between state and federal tobacco taxes, plus the price hikes needed by the major tobacco companies to make the MSA payments, tobacco users have paid more than their fair share for any so-called “negative social externalities” associated with smoking. Please leave them alone by tabling HB 2870.

Cascade in the Capitol: Testimony in favor of a School Choice Tax Credit

Testimony before the Senate Committee on
Education and Workforce Development
in Favor of SB 500 and SJR 23

Good afternoon, Chair Hass and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-profit, non-partisan public policy research center based in Portland.

I support SB 500 and SJR 23 for several reasons.

First, in 1922 Oregon voters approved a Ku Klux Klan supported measure that would have outlawed all private and religious schools. It was a blatantly anti-Catholic effort. The measure never took effect because the U.S. Supreme Court struck it down in 1925, and uttered these famous words:

“The child is not the mere creature of the state; those who nurture him and direct his destiny have the right, coupled with the high duty, to recognize and prepare him for additional obligations.”

In 2009, a survey of 1,200 likely Oregon voters asked a series of questions about K-12 education and school choice. 83 percent of those polled had children in school. The key finding was that while 91 percent of Oregon families sent their children to a regular public school – only thirteen percent would do so if the choice where fully theirs. The rest, 87 percent, would choose private, charter or online schools, or educate their children at home.

Please don’t be fooled by the small percentage of parents who actually exercise school choice today.

Why would 91 percent of children be in regular public schools if only 13 percent of their parents want them there? Because most people can’t afford to pay taxes for public schools and tuition for private schools at the same time.  Even though more than $5 billion tax dollars a year go toward educating Oregon’s school-age children, virtually all of that money goes to public school districts, not parents or students. Send your children where the state wants you to send them and their education is “free.”  Make another choice, and you foot the bill yourself.  The tax money stays in the public system, even if your child is being educated somewhere else.

So, ask yourselves, are we spending those $5 billion a year to support brick school buildings and the adults who work in them, or are we spending that money to educate children, wherever they can learn best?

Allowing a $1,000 tax credit is a small, but significant step you can take now to help parents exercise what the Supreme Court said was their right, and high duty — to prepare their children for additional obligations.

Oregonians clearly want to be able to choose where their children go to school. It’s about time that our lawmakers give them that choice by letting the money follow the child.

I urge you to support both SB 500 and SJR 23.

Thank you.

Cascade in the Capitol: Testimony in Opposition to More Subsidies of Student Higher Education Costs

State Treasurer Ted Wheeler has proposed that the state obligate its citizens to repay hundreds of millions of dollars in General Obligation bonds to subsidize student higher education costs. Below is the prepared testimony that I gave to a House committee last week and will give to a Senate committee tomorrow, setting out my objections to the plan:

I oppose HJR 6SB 11 and SJR 1 for several reasons.

First, as Professor Richard Vedder, author of the book “Going Broke By Degree: Why College Costs Too Much,” says, higher education prices are rising rapidly because of the predominant role of third-party payments, including federal and state support for institutions and students. “When some else is paying a lot of the bills, students are less sensitive to the price, thus allowing the colleges to care less about keeping prices under control.”

So, rather than help keep college costs and student debt levels down, Treasurer Wheeler’s proposal will likely do just the opposite.

That would be bad enough, but it will be worse because even if the investment assumptions for his proposal work out, taxpayers will be on the hook to repay hundreds of millions of dollars of bond principal, plus interest decades into the future.

Worse yet, there is evidence that more government funding of higher education actually translates to slower state economic growth. That’s likely because individuals know their needs better than politicians do, so leaving the money in private hands produces better economic results.

Further, academics such as Charles Murray and Carl Bankstron join Dr. Vedder in arguing that four-year degrees aren’t what they used to be, and that state funding may simply waste precious financial and human resources.

All that said, if increasing the percentage of Oregonians who earn two- and four-year degrees is a good goal, you should step back and look at efforts in other states to significantly reduce the cost of those degrees. Arthur Brooks recently noted in the New York Times that one idea gaining traction is the $10,000 college degree, which public universities in several states are moving toward right now. That’s $10,000 total direct costs for four years. According to Brooks, this “is exactly the kind of innovation we would expect in an industry that is showing every indication of a bubble that is about to burst.”

In conclusion, whatever the value of a college degree to an individual, it’s becoming clear that state funding of those degrees is likely to cost taxpayers more than they gain. I urge you to reject HJR 6, SB 11 and SJR 1.

Thank you.

Cascade in the Capitol: Light Rail to Vancouver vs. CTRAN Express Buses – Testimony on HB 2800

Cascade President John Charles testified today before the Joint Committee on Interstate-5 Bridge Replacement Project regarding HB 2800. His testimony follows.

The CRC Plan for Light Rail:

A Step Backwards for Transit Customers

 John A. Charles, Jr.

Cascade Policy Institute

February 2013

Metric

TriMet Yellow MAX Line to North Portland

CTRAN Express Buses Serving Downtown Portland

Capital cost of expanding  light rail to Vancouver

$932 million

$0

2011 annual operating cost

$10.2 million

$5.04 million

Operating cost/hour

$270

$110

Annual hours of service

40,492

45,996

Farebox recovery ratio for operations cost

47%

67%

Cost/new vehicle

$4,200,000

$458,333

Peak-hour frequency

Every 15 minutes

Every 10.3-15.5 minutes

Peak-hour travel speed

15 MPH

31-45 MPH

Travel time, Vancouver to Portland

36-38 minutes

16 -18 minutes

% of passenger seating capacity actually used at the peak period

34%

38%

Promises of Frequent Transit Services: Hope Over Experience

According to the most recent finance plan for this project, “Light rail in the new guideway and in the existing Yellow line alignment would be planned to operate with 7.5 minute headways during the “peak of the peak” and with 15-minute headways at all other times. This compares to 12-minute headways in “peak of the peak” and 15-minute headways at all other times for the existing Yellow line.”[1]

In fact, the Yellow Line runs at 15 minute headways all day, with even less service at night.  Yet according to the FTA Full Funding Grant Agreement for the Yellow Line, service is supposed to be operating at 10-minute headways at the peak, improving to 7.5 minute headways by 2020. TriMet is violating its FFGA contract, which could lead to a denial of funding for the $850 million grant request that the CRC project plans to make.

The Green MAX line is also operating at service levels of at least 33% below those promised in the FFGA. 

The legislature should not be expanding TriMet’s territory at this time – especially into another state that already has a transit district – because TriMet cannot afford to operate the system it already has. Despite a steady influx of general fund dollars, TriMet has been cutting service ever since the legislature approved a payroll tax rate increase in 2003, as shown below.

TriMet Financial Resources, 2004-2013 (000s)

 

FY 04/05

FY 08/09

FY 10/11

FY 11/12 (est)

FY 12/13 (budget)

% Change 04/05-12/13

Passenger fares

$   59,487

$   90,016

$   96,889

$   104,032

$117,166

+97%

Payroll tax revenue

$171,227

$209,089

$224,858

$232,832

244,457

+43%

Total operating resources

$308,766

397,240

$399,641

$476,364

$465,056

+51%

Total Resources

$493,722

$888,346

$920,044

$971,613

$1,111,384

+125%

Note: Pursuant to legislation adopted in 2003, the TriMet payroll tax rate was increased on January 1, 2005, will rise by .0001% annually until it reaches a rate of .007218% on January 1, 2014.

 

  Annual Fixed Route Service Trends, 2004-2012

FY 04

FY 06

FY 08

FY 10

FY 12

% Change

Veh. revenue hours

1,698,492

1,653,180

1,712,724

1,682,180

1,561,242

-8.1%

Vehicle revenue miles

27,548,927

26,830,124

26,448,873

25,781,480

23,625,960

-14.2

Average veh. speed – bus

15.8

15.8

14.9

14.7

14.6

-7.6%

Average veh. speed – L. Rail

20.1

19.4

19.3

19.4

18.4

-11.5%

Source: TriMet annual service and ridership report; TriMet budget documents and audited financial statements, various years.



[1] C-TRAN, High Capacity Transit System and Finance Plan, July 20, 2012, p. 4.

Testimony on the Nike Tax Bill (Economic Impact Investment Act of 2012)

Good morning, Co-Chair Burdick, other co-chairs and members of the committee. I’m Steve Buckstein, Senior Policy Analyst and founder of Cascade Policy Institute, a public policy research center based in Portland. Our mission is to promote individual liberty, personal responsibility, and economic opportunity in Oregon.

Regarding the concept of this legislation, I have some praise for the Governor, coupled with concerns and suggestions for making the bill better, and fairer.

First, the fact that the Governor is ready to grant tax certainty to Nike and other big companies in return for capital investment and job creation should be applauded. It’s recognition that taxes matter, and good tax policy can attract business and jobs. But, Oregonians of all political stripes also appreciate fairness, and I’m concerned that this legislation will be fundamentally unfair, especially to small businesses and many Oregon job seekers.

 

The Governor only wants to make tax certainty deals with what he calls “the right kind of businesses” that will drive our per capita income up. This leaves out people who, for whatever reason, have little education and/or few job skills. These are often the young and minorities, for whom a lower wage job is the first rung up the economic ladder.

 

Also, granting the Governor power to approve or disapprove such deals at all risks charges of favoritism and corruption. Just think about Nike getting its deal while one of its competitors is later turned down. A level playing field would eliminate these concerns. One way to do this is with a formula that prorates the number of jobs and capital investment required to the business size. For example, 500 jobs added to Nike’s current 8,000 Oregon employees would equate to 125 new jobs for a company that currently employs 2,000 Oregonians, without any gubernatorial discretion at all.

 

And, what’s magical about the 500-job threshold in the first place? While that’s a big number anywhere in Oregon, 50 jobs may be a big number in smaller communities. And, five jobs may be significant elsewhere. This is a small business state; so why not expand tax certainty to the businesses that create most of the jobs already?

 

In conclusion, I agree that granting Nike tax certainty is a good idea. But it would be an even better idea if all companies got the same certainty—big and small alike. That way, every Oregonian would stand to benefit, and the program would be fair to all.

 

Thank you.

Testimony before the Clackamas County Board of Commissioners

Testimony before the Clackamas County Board of Commissioners

Regarding the revised IGA for the Milwaukie Light Rail Project

August 22, 2012

 John A. Charles, Jr.

President & CEO

My name is John Charles and I represent Cascade Policy Institute, a non-partisan policy research center.

The Clackamas County Board seems to think that the financing agreement signed with TriMet in 2010 is a binding contract. However, TriMet itself has already breeched the contract, as follows:

  1. The Clackamas County Commission formally endorsed the “PMLR Locally Preferred Alternative” (LPA) on July 24, 2008. That endorsement was for a light rail plan including 1,000 parking spaces at the Park Avenue station and another 1,000 spaces at the Tacoma Street station.

In addition, the LPA offered a possible alternative alignment, known as the “Minimum Operating Segment”, terminating at Lake Road in Milwaukie. If this plan were chosen, the Tacoma Street station would include 1,250 parking spaces.

  1. The LPA with 1,250 – 2,000 committed parking spaces was endorsed by the County Commission when it signed the IGA in 2010.
  1. The project now being built has changed dramatically. The Park Avenue station includes only 350 parking spaces and the Tacoma Street station 320 spaces. This will lower the expected ridership of the project by a wide margin.

The entire 26-year experience with TriMet’s light rail system shows that outside the Portland city center, light rail is largely dependent on park-and-ride lots for ridership.  For example, the Gateway Transit Center has had a chronic parking shortage for decades because it is the closest parking lot to downtown on the east side. On the Westside, the Sunset Transit Center has only 587 spaces. Since this is the closest Westside TriMet lot to downtown Portland, it is usually filled to capacity every weekday by 7:00 a.m. TriMet would have higher ridership on the Westside MAX if it had built a much larger parking lot.

  1. By under-building for parking on the PMLR line, TriMet is asking both Clackamas County and the City of Milwaukie to absorb the many downsides of this project – including the taking of homes and businesses, loss of express bus service to Portland, and the cannibalization of other public services – while offering no transportation benefits compared with existing bus service.

Since TriMet has chosen to begin construction on a different project than the one promised, the Clackamas County Commission is free to opt out of previously made commitments, and should do so. The PMLR project never made any sense from a transit standpoint, and is clearly a step backwards for express bus commuters on HW 99e, who will be forced to transfer from the fast bus to the slow train in Milwaukie if this is built.

Regardless of how the project was perceived in 2008, public sentiment has changed. The County’s most recent “Community Services and Issues” survey, conducted by Davis, Hibbitts & Midghall during late February and mid-March, asked respondents for “the most important issues” facing the county. Supporting light rail elicited only a 3% positive response, while 5% of respondents stated that “stopping MAX” was important to them. Overall, many other issues are of greater concern to county taxpayers, including the economy, road maintenance, education and law enforcement.

Recommended Course of Action for Clackamas County:

  • The BCC should formally state that the IGA with TriMet is no longer binding because TM is building a different project than the one promised in 2010 and 2008.
  • The county’s plan to sell bonds should be abandoned and the entire PMLR project de-funded.

 

  • The terminus of the line should be moved from Park Avenue to Tacoma Street, and the parking facility at that station should be increased to 1,250 spaces, as originally anticipated in the EIS. That would be financially feasible with savings from shortening the line.

Conclusion

It is clear that the September 18th ballot measure requiring a public vote on rail expenditures is going to pass easily. Instead of fighting the obvious, the BCC should use this vote as a mandate to protect county taxpayers from a bad deal negotiated in a different era.

 

Fortunately, it’s not too late to make this move; the single most expensive property scheduled for condemnation on the entire PMLR right-of-way – the Beaver Heat Treating facility on Moore Street – is still standing. This one property alone is likely to cost more than the entire $19.1 million IGA that is being discussed tonight. If the BCC does the right thing, the family-wage jobs at Beaver Heat Treating and other businesses in the ROW will be protected, and we won’t throw scarce tax dollars down a rat hole.

However, the window of opportunity is closing, because TriMet knows that the faster they destroy private property, the more difficult it becomes politically for elected officials to do the right thing. I encourage you to reject the proposed amended IGA, and to terminate the County’s interest in this project immediately.

Oregon’s Budget Transformation

Governor John Kitzhaber has called for transforming state government, in part by proposing a new ten-year budget process that he says “is necessary to change a decade of declining employment and wages.” The Governor hired former Metro Chief Operating Officer Michael Jordan to implement this transformation, while leading and supervising all aspects of the state’s day-to-day operations as its first COO. Jordan’s charge includes reviewing outdated state systems, streamlining departments, and creating efficiencies and cost savings.

The transformation process includes a set of Guiding Principles and Outcome-Based Budgeting Principles that sound good but so far fail to address adequately at least four important concerns:

First, Government cannot and should not do everything. Determining core functions and prioritizing them should be the first step to achieving more accountability in state government.

Many state agencies don’t have a clear understanding of what their priorities should be. This concern was highlighted in a legislative hearing where the head of an agency was asked by a freshman legislator what his highest priority activities were.* Without hesitation, the agency head looked at the freshman and told him that everything his agency did was high priority.

The legislator then asked what would be cut if the agency budget ended up smaller than requested. The agency head stated, again without hesitation, that he couldn’t cut anything. He repeated that everything his agency did was a top priority.

If everything is a top priority, then nothing is a top priority.

The proper role of government in a free society clearly includes the protection of our rights to life, liberty, and property. But just as clearly, for example, it should not include provision of our jobs, entertainment, and alcohol. We should be willing to end state economic development programs, which do not create jobs so much as they pick winners and losers in the economy.

We need to end state control of liquor through the OLCC, and we should not even consider using tax dollars to fund entertainment venues such as sports stadiums. These belong in the private sector.

Of course, sticking to core functions is hard, especially because of the misguided belief that anyone’s unmet need is the proper concern of government. It is not. The average person can’t afford the time in Salem to lobby against any given program that may only cost him or her a few dollars a year. However, it is well worth the time for those who benefit from a program to spend as much time and money as needed to ensure that the millions or billions of dollars at stake move from the taxpayers to them.

The pressure is always in favor of more government, not less. To resist this pressure, lawmakers need to understand government’s proper role and the harm they do when taking money from some to provide benefits to others. Citizens need to learn why more government means less freedom and how they might meet their needs better through voluntary, private sector approaches.

Second, we need to understand why one of the Governor’s 10-Year Plan Guiding Principles—the reliance on evidence-based information to make informed policy decisions—hasn’t worked before and may not work in the future.

In the late 1980s, then-Senator President John Kitzhaber relied on this principle when he helped create the Oregon Health Plan (OHP). The Plan attempted to use medical and scientific evidence to prioritize treatment of medical conditions for Medicaid patients based on cost-benefit analysis. The problem then was (and likely will be now) that politics gets in the way.

Medical conditions that objectively should have fallen below the cutoff line in the OHP rose above the line because special interest groups successfully lobbied for their constituents. Consequently, the plan saved little, if any, money for taxpayers. As long as government provides the service, or provides the funding, this dynamic will be hard to change.

Third, achieving streamlined operations and cost savings through consolidation of agencies, boards, and commissions will be harder than it sounds.

Forces are at work in large firms and governments that cause them to produce goods and services at increased per-unit costs. Economists call these forces diseconomies of scale. They are especially prevalent when trying to combine monopolies―which defines government agencies.

Take, for example, Oregon’s attempt from 1992 through 2001 to reduce education costs by consolidating school districts. Legislation resulted in 277 school districts being consolidated down to 198. Rather than fewer districts resulting in less administrative overhead, at the end of the period there were actually more central office staff per pupil than at the beginning. Also, non-teaching staff grew faster than teachers, and real per student spending rose more than 11 percent. We should not be surprised if upcoming efforts to consolidate boards, commissions, and agencies yield similar results.

Finally, as famed management consultant Peter Drucker warned: “There is nothing so useless as doing efficiently that which should not be done at all.”

This gets us back to the first concern above. Unless we prioritize core functions, and stop doing other things, state government will expend a lot of energy, and a lot of taxpayer dollars, trying to do efficiently that which government should not be doing at all.

* House Agency Oversight and Efficiency Committee, Oregon Legislature, April 8, 1997. Rep. Ryan Deckert (D) questioning William Scott, Director, Oregon Economic Development Department.

Testimony Before TriMet Board of Directors Regarding the Proposed FY 2012-13 Budget

 

 

Testimony of John A. Charles, Jr.

 

Before the TriMet Board of Directors

 

Regarding the Proposed FY 2012-13 Budget

 

 

 

April 25, 2012

 

 

 

 

 

There are some elements of the proposed budget that move TriMet in the right direction. I support the proposals to eliminate the free-rail zone and reduce streetcar funding. Rail passengers have been coddled for far too long and these changes will require them to finally put some skin in the game.

 

 

 

Notwithstanding this progress, the budget overall has serious problems that the Board needs to address. The first is the assumption that management will win its protracted dispute with the ATU. Management has been forecasting this outcome for years, and has consistently been wrong. Examples of past predictions include the following:

 

 

 

  • TriMet press release, April 13, 2011: “The FY2012 budget assumes that a new Working and Wage Agreement with the ATU has benefits more in line with peer agencies, and consistent with those contained in TriMet’s July 2010 Final Offer.”

 

 

 

  • TriMet FY 2012 budget message, July 2011: “A critically important assumption upon which TriMet’s financial forecast and the FY 12 Adopted Budget are based is that TriMet enters into a Working and Wage Agreement WWA) with the Amalgamated Transit Union, probably through the binding arbitration process, and that the wages and benefits are consistent with those contained in TriMet’s July 2010 Final Offer….” 

 

 

 

  • TriMet press release, October 26, 2011: “The contract expired in 2009 and both parties are now heading to interest arbitration scheduled for mid-January 2012.

 

 

 

  • TriMet FY 13 budget message, April 2012: “…the FY 13 proposed budget includes a $12 million revenue increase/expenditure reduction package, based on the assumption of a labor arbitration decision favorable to TriMet.”

 

 

 

Given that every recent prediction about the ATU contract has been wrong, it might be time to change the forecast. A more prudent forecast would be that the ATU wins, creating a $5 million imbalance for FY 13. Perhaps that should be addressed now in the current draft budget.

 

 

 

The second big problem with the budget is the continued fantasy that rail construction has no harmful effects on bus service. Some board members may not be aware that in February 2011, TriMet succeeded in getting the Oregon Transportation Commission to approve $13 million in scarce OTC “flex funds” for the Milwaukie light rail project, by promising that TriMet will “agree to refrain from requesting Capital bus Program funds for bus purchases for the next three biennia…”  This deal was made even though TriMet had been so desperate for new buses that it had put a $125 bond measure on the ballot the previous November. My testimony to the OTC is attached.

 

 

 

TriMet management simply does not value bus service; all the glamour is perceived to be in the ribbon-cutting ceremonies for new train lines. In FY 13 TriMet will sell bonds for PMLR and thus incur $3 million in new debt service. The agency is already paying more than $25 million in annual debt service for previous light rail bonds. This debt is a major reason why bus service has been cut by 13% in recent years, even though buses move 2/3 of TriMet customers each day.

 

TriMet has never demonstrated that the alleged “operating cost savings” of rail transit offsets the debt service and other “opportunity costs” associated with new rail construction.

 

 

 

There’s a very simple solution: terminate all rail expansion plans. It doesn’t matter how attractive rail may have once seemed; moving forward, the capital costs cannot be justified. It is indefensible to impose service cuts year after year, while spending more than $205 million/mile for tiny expansions of the rail empire (7.3 miles for PMLR and 2.9 miles for the CRC).

 

 

 

A third point is that the proposed budget once again hides the true cost of labor, by planning for another token payment into the OPEB trust fund of $865,760. While this is better than the FY 12 contribution of $410,000, the level recommended by the outside auditor last July was $77.7 million.

 

 

 

The unfunded actuarial accrued liability for OPEB is at least $876 million, and because TriMet is allowed to carry this debt off-book the public naturally assumes that all is well when the agency announces that it has a “balanced budget” each year. This practice of shifting obligations downstream simply sets up a ticking time bomb for future TriMet board members.

 

 

 

While making the full ARC payment of $77 million would be impossible now, a substantial down payment – with the tough decisions it would force right now — would have the medicinal effect of waking up the public to the seriousness of the problem.

 

 

 

Finally, attached is a chart showing the juxtaposition of TriMet’s huge revenue increases since 2004 with the steady decline in transit service.  This is a disgrace, yet the Board continues to accept it year after year, without even considering fundamental changes in strategy.

 

 

Business as usual is not going to work anymore. It’s time for board members to stop acting like victims and start taking control of the organization.

 

 Click here to see February 14 OTC Testimony.

TriMet Financial Resources, 2004-2013 (000s)

 

 

FY 04/05

FY 08/09

FY 10/11

FY 11/12 (est)

FY 12/13 (budget)

% Change 04/05-12/13

Passenger fares

$   59,487

$   90,016

$   96,889

$   104,032

$117,166

+97%

Payroll tax revenue

$171,227

$209,089

$224,858

$232,832

244,457

+43%

Total operating resources

$308,766

397,240

$399,641

$476,364

$465,056

+51%

Total Resources

$493,722

$888,346

$920,044

$971,613

$1,111,384

+125%

 

Note: TriMet payroll tax rate increased effective 1/1/05, and will rise .01% every January through 2024.

 

 Annual Fixed Route Service Trends since 2004

 (light rail, bus, commuter rail)

 

2004

2006

2008

2010

2011

% change

             

Peak veh

625

606

613

618

601

-3.8%

Revenue hrs

143,784

137,973

144,469

133,776

128,435

-10.7%

Vehicle hrs

2,621,657

2,476,114

2,532,453

2,375,802

2,247,113

-14.3%

 

Sources: Annual budget documents; monthly TriMet performance reports.

 

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