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

By Eric Fruits, Ph.D.

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

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

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

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

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

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

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

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

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

 

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

 


Eric Fruits, Ph.D. is an Oregon-based economist and adjunct professor at Portland State University. Fruits has been invited to provide analysis to the Oregon Legislature regarding the state’s tax and spending policies. His testimony regarding the economics of the Oregon public employee pension reforms was heard by a special session of the Oregon Supreme Court. A version of this article originally appeared in The Portland Tribune on February 23, 2017.

The Portland Seed Fund: Boom or Bust?

By Joel Grey

The Portland Seed Fund started as a public-private venture intended to close a funding gap for small loans to entrepreneurs. The City of Portland, the City of Hillsboro, and the State of Oregon provided a majority of the funds for the first Seed Fund and a significant portion of the second Seed Fund. It was sold as a way for public entities to help private companies begin, with the expectation that the Fund would earn money.

At this time, it is impossible to say whether the Fund has earned a profit because that information is not publicly available, and none of the public entities involved could give an answer when asked what the return on investment had been. The first person I contacted at the Portland Development Commission said the Seed Fund didn’t sound familiar. The City Budget Office also didn’t initially recognize the name of the Seed Fund, but a budget analyst eventually contacted someone at the PDC. However, that person has not responded.

The conclusion from all of these conversations is that there is little or no accountability in place to ensure that taxpayer money is being well spent, nor is there a way for taxpayers to see how their money is being spent.

Ultimately, there are professionals who risk private money in venture capital firms. Government entities shouldn’t play venture capitalists with taxpayer funds.

Joel Grey is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

“Pay-It-Forward” Is a Step Back

By Joel Grey

The Oregon Higher Education Coordinating Commission is considering a proposal called “Pay-It-Forward.” This pilot program would give free tuition at a state university to one thousand high school graduates each year, beginning in 2016. In exchange for free tuition, students would cede 3-5% of their paychecks over a twenty-year period. Although the program is intended to become self-sustaining, it would cost between $6.5 and $20 million each year for the first twenty years until that happened.

This is an example of a government proposal that is not well thought out. Yale tried a similar experiment in the 1970s and eventually forgave much of the debt years later. Many students overpaid for their education, while 20% defaulted. Oregon shouldn’t repeat Yale’s mistake.

Furthermore, having a third-party payer for college reduces students’ incentive to decide whether to attend college or to pursue other options, like technical schools. It also makes students less sensitive to the prices of institutions, likely increasing the cost of college over the long run.

Education should be an investment, but students and their families should invest and then reap the benefits. That way, talented students can succeed based on merit, rather than government funding students at great cost to taxpayers, with no guarantee a pilot program like “Pay-It-Forward” will work as intended.

Government simply can’t make decisions as well as the individuals who are affected by those decisions.

Joel Grey is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

Oregon’s Self-Service Gas Prohibition Probably Won’t End—But It Should

Only two states prohibit motorists from pumping their own gasoline: New Jersey and Oregon. I’m not sure what excuses the powers-that-be use in New Jersey, but here they in-effect warn that “you’ll set yourself on fire.” The ban went into effect in 1951, and the only attempt to end it failed at the polls in 1982.

The Oregonian published a provocative editorial last week making fun of our self-serve ban, but prohibitionists came out of the woodwork to make argument after argument in favor of keeping the ban.

The three most popular arguments for keeping the ban seem to be:

I don’t want to pump my own gas, so you can’t either;

The ban is a good “make-work program” that keeps people employed and tax revenue flowing; and,

Employing attendants doesn’t make our gas more expensive anyway.

First, I don’t want to pump my own gas either, but that doesn’t give me the right to prohibit you from pumping yours. If there is enough demand for station attendants, someone will fill that demand in a free market.

Second, sure, creating jobs is a good thing. But government “make-work programs” often misallocate resources, costing taxpayers more than any tax revenue they might generate.

And third, if labor costs have no impact on prices, then why not mandate one attendant for every pump? Or, mandate one checkout clerk for every customer at the grocery store? Lots of jobs will be created at apparently no cost to consumers; what could go wrong?

In short, it seems that too many Oregonians see our self-serve gas ban as something that makes our state unique. The ban probably won’t end, but it should.

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

There’s a Sucker Born Every Minute

Last month, Oregon’s first commercial “wave energy” project near Reedsport was officially abandoned.

The lead developer, New Jersey-based Ocean Power Technologies, had been promoting a utility-scale power project featuring 100 buoys, each weighing 260 tons. That plan was downsized to 10 buoys―and then to none.

The company had previously received a subsidy of $430,000 in Oregon lottery funds, along with millions more from the federal government. Apparently, this wasn’t enough; the company announced plans to move its operations to Australia, where it has been promised $62 million in handouts by the government.

This is just the latest in a string of Oregon fiscal blunders. The state wasted more than $200 million on a non-functioning health insurance website. Another $180 million disappeared in planning studies for a bridge over the Columbia River than never got built. And Governor Kitzhaber hired an “education czar” who was compensated some $400,000 before taking off for New York after less than a year on the job.

Investors all over the world understand that Oregon is the place to come for easy money. The business plan is simple: Profits flow to private companies, while losses are bone by Oregon taxpayers.

A 19th-century circus impresario once remarked, “There’s a sucker born every minute.” He wasn’t talking about Oregon, but maybe this should be our new state slogan.

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

Coming This January: The Largest-Ever Rally for School Choice Nationwide

Millions of Americans nationwide will voice their support for educational opportunity during the fourth-annual National School Choice Week, which begins January 26, 2014. The Week will include an unprecedented 5,500 events across all 50 states, with a goal of increasing public awareness of the importance of empowering parents with the freedom to choose the best educational environments for their children.

National School Choice Week events will be independently planned and independently funded by schools, organizations, individuals, and coalitions. Events—which include rallies, roundtable discussions, school fairs, parent information sessions, movie screenings, and more—will focus on a variety of school choice issues important to families in local communities, including open enrollment policies in traditional public schools, public charter and magnet schools, private school choice programs, online learning, and homeschooling.

“During National School Choice Week, millions of Americans will hear the uplifting and transformational stories of students, parents, teachers, and school leaders who are benefiting from a variety of different school choice programs and policies across America,” said Andrew Campanella, president of National School Choice Week. “Our hope is that by letting more people know about the successes of school choice where it exists, more parents will become aware of the educational opportunities available to their families.”

“During the Week, Americans from all backgrounds and ideologies will celebrate school choice where it exists and demand it where it does not,” Campanella said. “National School Choice Week will be the nation’s largest-ever series of education-related events, which is testament to the incredible levels of support that exist for educational opportunity in America.”

Cascade Policy Institute will host a National School Choice Week “Policy Picnic” on Wednesday, January 29, at noon. Cascade founder Steve Buckstein will discuss the Education Savings Account (ESA) bill being considered during Oregon’s 2014 legislative session and what Oregonians can do to promote greater educational opportunity in our state. Oregon’s 2014 Education Equity Emergency Act (“E3”) is modeled on Arizona’s highly successful ESA program. For details and to RSVP for this free event, visit cascadepolicy.org.

Students today have diverse talents, interests, and needs; and they learn in different ways. The landscape of educational options to meet those needs is far more expansive today than it was even a few years ago. Freedom in education is good for all children, not just for children who are “at risk” or “in failing schools.” Parents, not bureaucracies, should decide which learning environment is best for their children and be empowered to choose those schools. National School Choice Week provides a platform for all of us to demand greater educational opportunities for children, especially in areas which do not yet provide meaningful options to families.

For more information about National School Choice Week and to participate in events near you, visit schoolchoiceweek.com.

Kathryn Hickok is Publications Director at Cascade Policy Institute and Director of the privately funded Children’s Scholarship Fund-Portland, which provides partial tuition scholarships to Oregon elementary students from lower-income families.

Reverse the Trend: Restore Oregon’s Economic Freedom

By William Newell

Our world is freer today than ever before. More people are free from war, poverty, and crime; and they are also more free to start a business, find a job, and join the middle class. Despite the recent recession, the world’s economy has grown 70 percent over the last 20 years (from $32 trillion to $54 trillion), in large part because of the expansion of markets into developing nations. Fortunately for more and more people, their governments are liberalizing markets and allowing competition, rather than enacting Soviet-style “five-year plans.”

But what about the champion of free enterprise, the United States; how are we doing in terms of economic freedom? Sadly, the former bastion of free markets is regressing in terms of economic freedom relative to other nations. According to the 2104 Index of Economic Freedom, released by the Heritage Foundation and the Wall Street Journal, the U.S. has fallen out of the top ten most economically free nations.

Many problems with the U.S. economy are mirrored at the local level. States have regressed economically, including Oregon, which had one of the largest reductions in economic freedom of any state over the last two years. If the U.S. and Oregon want to continue generating economic success, we need to remember what got us there in the first place: a free economy and a free society.

William Newell is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization. He is a graduate of Willamette University.

Can We Correct Oregon’s High Corrections Costs?

By Brandon Maxwell

Behind Oregon’s cultural mystique lies a troubling truth: Compared with similar-sized states, we have one of the fastest growing prison populations in the nation and spend 7.5 percent more per inmate than the national average. Of the fourteen states with populations between two and five million people, ten of them spend less per inmate than Oregon. Where is the money going?

According to the Legislative Fiscal Office, entry-level correctional officers in Oregon take home 24 percent more annually than surrounding states. Likewise, Oregon is the only state that doesn’t require union correctional workers to contribute to their own health plan premiums. As a result, taxpayers carry the burden.

Union wages and benefits aren’t the only things rising―so is the average age of inmates. $21,000 in outside health care costs can be attributed annually to the average inmate over 46. Oregon taxpayers are not only footing the health care bills for aging union members, but for aging prisoners.

Making Oregon a right-to-work state would open the door to performance-based pay through competition, and medical parole reform would curtail Oregon’s aging inmate population. Both could save taxpayers money while arguably improving efficiency in the correctional system.

Oregon taxpayers have a right to be concerned about high prison costs. But until we confront and remedy the causes behind the costs, Oregon’s financial burden will only continue to rise.

 Brandon Loran Maxwell is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

More Money, Same Problems for Oregon Schools

By William Newell

Oregon’s 2013 legislative session ended with the passage of the largest education budget the state of Oregon has ever seen. At nearly $6.75 billion, the budget has been hailed both as a renewed effort to prioritize education and as a weak attempt to reinvest in a lagging school system. The purported decade of underinvestment looks confirmed by the fact that Oregon’s school system was given a “C” by Education Week and a “D-” by Students First, two respected education research institutions. But is it true Oregon’s government has spent too little and thus neglected its duty to provide a quality education system? The answer might surprise you.

Instead of investing too little, Oregon schools have failed to invest their scarce resources in the right places, namely students and teachers. A major part of the problem lies in the hiring of an ever-increasing number of administrators and non-teaching support staff who are soaking up highly valuable but limited funding. A report released by the Friedman Foundation for Educational Choice shows that Oregon had a 47.3 percent increase in the number of administrators and non-teaching support staff from 1992 to 2009. This astounding growth more than triples that of students and teachers, which only grew by 15.4 percent and 12.7 percent respectively. Oregon schools now employ more administrators and non-teaching support staff than they do teachers.

At the same time, student achievement has stagnated with small increases and even decreases in national reading and mathematics scores. Looking at statistics from the National Assessment of Educational Progress, Oregon fourth-grade students have improved their scores in mathematics by 14 points but have fallen below the national average score at the same time. Eighth graders, once well above the national average in math, have regressed back down to the national average. In reading, fourth graders are below the national average and have only seen a two-point score increase. For eighth graders, their reading scores have fallen by two points and have also regressed to the national average. All in all, Oregon students have not reaped the benefits of additional administrators and support staff.

If the growth of administrators and support staff had risen in line with that of students, Oregon could have saved $302,612,947 per year according to the same Friedman Foundation report. These savings could have meant reducing taxes or employing new teachers and keeping young teachers from being fired due to district cuts. A little math shows that if Oregon spent that $300 million on employing teachers compensated at $80,000 (salary plus benefits), the state could have employed almost 3,782 more teachers than it does now.* Instead, Oregon maintains the third largest class sizes in the entire U.S., according to the National Education Association, with a 20.2 student-to-teacher ratio. Instead of creating a larger, more inefficient education bureaucracy with its new money, Oregon schools should refocus on those who matter most: students and their teachers.

*Teacher compensation was calculated by taking the average Oregon K-12 teacher salary of $57,000 plus 40% for benefits.

William Newell is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization. He is a graduate of Willamette University.

Tip of the Education Iceberg

By William Newell

When you think of a school, you probably imagine classrooms filled with students and teachers, not employee offices. The reality is that highly compensated administrators and non-teaching support staff outnumber Oregon’s K-12 teachers.

The growth of administrative and non-teaching support staff has more than tripled that of students and teachers since 1992. In the last 21 years, the student population has grown by only 15.4 percent and teachers by only 12.7 percent. At the same time, the ranks of administrators and non-teaching support staff have grown by a staggering 47.3 percent.

The growth in staff hasn’t improved student achievement. Oregon fourth and eighth grade National Assessment of Educational Progress test scores in math and reading have regressed to or fallen below the national average. In 2013, Oregon received a “C” from Education Week and a “D-” from StudentsFirst, two respected education research organizations.

Rudy Crew, Oregon’s recently departed chief education officer, abused his spending privileges and did little to improve Oregon schools, ultimately showing the top-heavy system’s main flaws. Sadly, the top education bureaucrat’s $280,000 salary and gold-plated benefits package are just the tip of the education iceberg.

If administrative and support employment had grown in line with students, Oregon could have saved more than $300 million annually or hired almost 3,782 teachers compensated at $80,000 each.* Going forward, schools must refocus their priorities back on the classroom and away from the education bureaucracy.

*Teacher compensation was calculated by taking the average Oregon K-12 teacher salary of $57,000 plus 40% for benefits.

William Newell is a research associate at Cascade Policy Institute, Oregon’s free-market think tank.

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