Month: September 2017

Too Late to Fix PERS by Fooling Oregonians

By Scott Shepard

Governor Kate Brown’s task force, assigned to find ways to cut Oregon’s yawning unfunded PERS pension liability, is approaching its November 1 reporting deadline. Governor Brown is relatively new at her job, so perhaps she can be forgiven for hoping her PERS task force can produce magical founts of free money. But it can’t.

The Governor wants proposals to cut the admitted pension deficit of about $25 billion by 20 percent ($5 billion). Even if the task force managed this feat, the recognized debt would only return to its 2015 level, before the PERS Board started inching the assumed rate of return down from its long-standing eight percent figure toward more plausible figures. If the Board shifted to an assumed rate that matched risk with the certainty of payment obligations, unfunded pension liabilities would approach $50 billion.

Oregon taxpayers simply cannot—and will not—pay this tab. Oregon is not wealthy or highly populous. Raising an extra $50 billion—or even 25—is likely impossible. Taxes would have to rise and services decline to the point that businesses and families would begin to flee the state. This would spark a vicious cycle. Fewer taxpayers would be taxed even more to pay a fixed, unpayable bill, creating more incentives for emigration, until the state inevitably declared defeat. While this might sound apocalyptic, it’s not far-fetched: Puerto Rico has already slid into this vortex, and Illinois may become the first American state to fall into default and possible federal receivership.

Governor Brown’s task force efforts cannot thwart this process. She has charged it to find “out-of-the-box solutions” for raising these $5 billion. But no such ideas, out of any box whatever, can come without cost to taxpayers. Some ideas recently floated include increased “sin” (e.g., alcohol and tobacco) taxes. Those who don’t drink or smoke might think themselves off the hook, but they’re not. These increases, if not dedicated to PERS payments, could (and probably would) go to other purposes, like funding the state’s perennial non-pension budget deficit.

The same is true of all proposals floated. Money spent one way can’t be spent in others. Raiding the rainy day fund would force tax increases during the next economic downturn, increasing the pain of the next recession. Raiding the workers’ compensation fund would increase fees to employers, which would increase the costs of goods and services and decrease wages. Selling government property for pensions would mean that property is not available for public use or to sell for other purposes.

Governor Brown knows this. When she seeks “out-of-the-box” funding increases, the constraint she seeks to escape is really our knowledge that taxes are rising, public assets are shrinking, services are being curtailed, and our options are closing around us.

The only viable answer to Oregon’s pension and budget crisis is to reduce pension benefits for government workers. They enjoy more generous wages and benefits than those of comparable private-sector workers. Older government workers also earn benefits for every hour of work that are far higher than those earned by their younger peers.

The legislature first must shift all government workers, for work not yet performed, to the lower benefit structure that serves as a permanent cap for newer public employees. A 2015 Oregon Supreme Court opinion* fixed a long-term Court error by recognizing that the state can take this basic, equitable step to put all employees on the same basis for work not yet completed.

Then it must make use of another implication of that 2015 decision: that the Supreme Court has wrongly suppressed a set of amendments added to the Oregon Constitution in 1994 that, if followed, would have averted this crisis. The legislature should pass legislation to facilitate the equitable adjustment of excessive pension payments made for more than 20 years on the basis of the Court’s error, and fast-track review of the legislation to the Court.

Finally, the legislature should move all government employees into the type of 401(k), defined-contribution retirement plans that are the only sort available to most taxpayers.

It is far too late for panels tasked with finding ways to fool the public. Oregon’s pension crisis requires fair but real pension payment adjustments. Nothing else can succeed.

* Moro v. State, 357 Or. 167 (2015).

Measure 8 (1994), incorporated at OR. CONST. art. IX, § 10–13.

Scott Shepard is a Salem lawyer and law professor and author of an academic study on Oregon state pensions published August 1, 2017 by the Mercatus Center at George Mason University. He is also an Academic Advisor to Cascade Policy Institute in Portland. A version of this article appeared in The Portland Tribune on September 28, 2017.

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On 25th Anniversary, Charter Schools Have Much to Celebrate

By Kathryn Hickok

America’s charter school movement celebrates its 25th anniversary this month. Since the first charter school opened in St. Paul, Minnesota in 1992, the number of charters nationwide has grown to about 7,000, serving three million students.

Charter schools are public schools that operate according to a charter granted by a sponsoring agency (like a school district, a university, or a department of education). In exchange for independence from many regulations applicable to traditional public schools and unionized school staff, charters agree to standards of accountability for student achievement. This allows charters to focus on innovative ways to meet students’ educational needs.

In a recent commentary for The Wall Street Journal (“Charter Schools Are Flourishing on Their Silver Anniversary,” Sept. 7), the Progressive Policy Institute’s David Osborne noted that “[t]he American cities that have most improved their schools are those that have embraced charters wholeheartedly.”

“New Orleans,” he wrote, “which will be 100% charters next year, is America’s fastest-improving city when it comes to education….The city’s schools have doubled or tripled their effectiveness in the decade since the state began turning them over to charter operators….New Orleans became the first high-poverty city to outperform its overall state in 2015 and 2016.”

Given charter schools’ increasingly recognized ability to use innovative means to raise students’ achievement levels, Oregon lawmakers, school districts, and education professionals should note what’s working both here in Oregon and across the country, and make it easier for Oregon’s charter schools to build on these successes.

Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Oregon program at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Health Care Tax Would Hurt Middle Class

By Eric Fruits, Ph.D.

Many Oregonians are now spending as much on health insurance and health care as they are on their mortgage payments. The Oregon legislature recently passed House Bill 2391 (signed by Governor Kate Brown) that will spike these costs even higher.

The law provides $605 million in new funds to the Oregon Health Authority. The money is meant to fill the fiscal hole made by the state’s costly expansion of Medicaid under the Affordable Care Act (ACA). Most of the money will come from taxes on health insurance providers, hospitals, managed care providers, and insurance provided through the Public Employee Benefits Board (PEBB).

Two of Oregon’s largest insurance providers on the ACA exchange have been approved for double-digit premium increases: Kaiser at almost 15 percent and Providence at more than 10 percent. For a 40-year-old with a Silver ACA plan, that amounts to an increased cost of about $500 a year.

The law explicitly allows the new taxes on health insurance providers to be passed on to consumers. With these new taxes, that Silver ACA plan will cost about $625 more in 2019 than in 2018. It’s not just 40-year-olds who will get hit with the insurance tax. Nearly 12,000 college students who buy their own health care as a requirement of attending a public college will pay the tax. Small group employers—such as the local coffee shop, auto repair, or bookstore—will pay the new tax.

Taxes on hospitals will raise the costs of care across the board. Emergency room visits, surgeries, diagnostics, and even childbirth will be hit with this new sales tax on hospital services. The cost of these taxes also will be passed on in the form of higher deductibles and premiums. Even if you don’t go to the hospital, you will be paying the hospital tax through higher insurance prices.

Because of the tax on the PEBB, local governments and school districts will also pay higher prices to insure their employees. These higher costs will lead to further cuts in staffing and services. Oregon’s already crowded classrooms will almost certainly get more crowded as districts struggle to fund the PERS crisis and higher insurance costs.

Medicaid providers are also hit with the tax. Because they do not have the pricing flexibility of other providers, they will have a harder time passing on the higher costs to consumers. Instead, they likely will reduce payments to doctors, nurses, and staff. With reduced payments, these professionals may decide to get out of the Medicaid market, thereby worsening the current shortage of Medicaid providers.

The Oregon Health Authority reports it recently removed nearly 55,000 people from its Medicaid program, after the state found they no longer qualified or failed to respond to an eligibility check. State auditors said in May that each of these Medicaid enrollees costs Oregon, on average, about $430 per month, or more than $550 million a biennium. These new savings alone more than cover the legislature’s tax increases.

While nearly everyone will be hit with the cost of these taxes, Oregon’s middle-class families will be hit the hardest. The Census Bureau reports that more than half of Oregon’s uninsured are adults between the ages of 25 and 64 who are not in poverty. These middle-class Oregonians surely want health insurance but have been priced out of the market. According to estimates by the Kaiser Family Foundation, about half of the individuals buying insurance on the Obamacare exchange get no subsidies under the law. This has been called “the middle-class loophole of no help.” Adding the legislature’s new taxes will drive more of the middle class to take their chances with being uninsured. Is this really the state of health care we want for Oregon?

These taxes can be stopped. is now collecting signatures to put Referendum 301 on the ballot, allowing voters to repeal about $320 million in new taxes on health insurance and health care.* It would save the average household more than $200 a year in new taxes. Middle-class families will see even bigger savings. The referendum won’t stop the cost of health care from rising, but it will stop things from getting worse than they already are for Oregon’s middle class.

* The Referendum did collect enough signatures and is now Ballot Measure 101 on the January 23, 2018 Oregon ballot. A No vote will keep these taxes from going into effect.

Eric Fruits, Ph.D. is an Oregon-based economist, adjunct professor at Portland State University, and Academic Advisor for Cascade Policy Institute, Oregon’s free market public policy research organization. A version of this article appeared in The Portland Tribune on September 21, 2017.


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You Can Stop New Health Care Taxes

By Steve Buckstein

The Oregon Health Authority has finally removed nearly 55,000 people from its Medicaid program because an audit found they no longer qualified or failed to complete an eligibility check. At $430 a month per person, this can save taxpayers some $550 million a biennium.

This tremendous savings means that there is even less reason to let some $320 million in new health care taxes go into effect next year.

Why should some Oregonians have to pay a new tax on their health insurance premiums, and why should many hospitals have to pay a new tax on their income that will be passed on to patients?

If you are a registered Oregon voter, you can sign the petition to put these new taxes on the ballot by going to Signatures should be returned in the mail no later than October 1, which is less than two weeks away.

Assuming enough signatures are gathered, the Referendum will appear on a special election ballot in January. You will then have a chance to undo what the legislature and the Governor tried to do, which is make health insurance and health care even more expensive than they are now.

So sign the petition, and then vote against these new health care taxes.

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

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Governor Brown Wants Oregonians to “Take One for the Global Team” over CO2

By John A. Charles, Jr.

Oregon Governor Kate Brown has announced her intention to pass legislation in the short session of 2018 to place a regulatory limit on emissions of carbon dioxide by large industrial sources. Once a company exceeds the annual limit, it will have to purchase allowances for additional emissions.

Proponents estimate that the regulations will cost businesses $1.4 billion per biennium. These costs will be passed on to consumers.

Such regulations might be appropriate if there were known environmental or health benefits to reducing carbon dioxide. Unfortunately, such a clear link does not exist. Not only are benefits speculative, but they are global in nature and very long term—possibly centuries in the future.

The costs, however, are very clear. They will be known, immediate, and local. Prices of cement, steel, and millions of consumer products will have to go up.

In essence, the Governor is asking Oregonians to “take one for the global team” in the hope that somebody, somewhere will benefit in the misty future.

This is not likely to be embraced by voters who already feel immense strain from the high cost of housing, health insurance, and public employee pensions.

State legislators have many problems to worry about. Regulating CO2 should not be one of them.

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


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Whose Money Is Your Oregon Kicker Refund?

By Steve Buckstein and Kathryn Hickok

State economists have confirmed that individual Oregon income taxpayers will receive kicker refunds next year. Based on the May revenue forecast, more than $463 million will be returned to taxpayers as a credit on their 2018 tax bills, with the average refund being $227.

But with the news that the coming refunds will reduce our tax liabilities, some are criticizing the way the kicker law works, while others argue the money really belongs to the state, not the taxpayers. They argue that as long as any group of Oregonians—or any state government budget item—has a “need” for that money, then the money should go to them instead of back to the individuals who earned it.

Whether the kicker law is good or bad public policy doesn’t change the answer to a more fundamental question: Whose money is it? Is the kicker a rebate for overpaying your taxes or is it somehow the State of Oregon’s money, better left in government coffers? If we can find a better way to restrain runaway government spending, we should do so. But until that day arrives, Oregon’s kicker law is one defense against those who argue that some of the money you earned belongs to someone else just because they “need” it.

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

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