Month: March 2020

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Small Modular Reactors Are Not the 20th-Century Nuclear Plants We’re Familiar With

By Rachel Dawson

Oregon, it’s about time we talk about nuclear power.

No, I don’t mean major reactors like PGE’s decommissioned Trojan Nuclear Plant which shuttered in 1992. Rather, I’m talking about small modular reactors (SMRs) which are experiencing rapid development and receiving great international interest.

Countries around the world, such as Russia and Canada, are currently exploring this technology. The U.S. Nuclear Regulatory Commission has completed its first SMR certification review for a company called NuScale Power, which expects final approval by 2020. As it so happens, NuScale is headquartered right here in Portland.

NuScale is developing a new type of nuclear reactor that it claims is safer, smaller, and more affordable than traditional nuclear reactors.

NuScale’s major advancement is related to the circulation of water for the reactor’s safety system. Traditional nuclear reactors circulate water by using electricity. NuScale SMRs use natural circulation and thus don’t rely on power to cool the reactor down. According to a NuScale representative, the Fukushima nuclear disaster could never happen with an SMR. In Fukushima, the plant lost power to its safety system during an earthquake and tsunami, which caused the plant to melt down. SMRs can cool themselves without any intervention in the case of a major natural disaster.

SMRs are significantly smaller than traditional nuclear reactors. Because of this, the modules can be produced in a factory and shipped onsite. Doing so allows costs to come down and ensures that quality control is more evenly managed.

SMRs also have a unique business model. Instead of operating a single large reactor, SMR plants will consist of a single or multiple smaller modules. This allows for flexible operation, and a region can add more modules as its population grows.

NuScale expects its first SMR to come online in Idaho Falls in 2026. The line item estimates for the first NuScale plant will be approximately $65 per MWh, though a NuScale representative stated that costs are expected to come down with increased production. This initial cost places SMRs within the estimated cost range of a gas combined cycle plant according to Lazard’s Levelized Cost of Energy Analysis.

Though SMRs are carbon free, they aren’t considered to be a substitute for other renewable resources, such as solar or wind, by their developers. Rather, NuScale has emphasized that SMRs are competing against natural gas as a baseload power that will keep the grid reliable during times when the sun isn’t shining, or the wind isn’t blowing.

Of course, there’s the issue of what to do with nuclear waste produced by the reactors. The most efficient way to deal with nuclear waste is to recycle it. NuScale has more modern recycling technology than France (where nuclear power accounts for 72% of total electricity production and nuclear waste is recycled), but NuScale cannot take any action as it’s currently illegal to recycle nuclear waste in the United States. In lieu of recycling, NuScale plans to create onsite storage for nuclear waste, though disposal is left up to utilities.

Unfortunately, NuScale is not able to construct an SMR plant in Oregon even though the company is located here. Oregon passed a moratorium in 1980 that effectively banned the construction of any new nuclear plants in the state.

Wind and solar plants are not currently able to power the grid by themselves given their intermittency, and battery technology is not developed enough to be implemented at utility scale. The grid needs some kind of baseload power that is capable of backing up renewables when they fail to produce power. Right now, that role is being filled by natural gas and coal plants. If Oregon officials are serious about operating the grid with 100% renewable power, they need to bring SMRs into the discussion. Otherwise the reliability—and affordability—of the grid could be at stake.

Rachel Dawson is a Policy Analyst at the Portland-based Cascade Policy Institute, Oregon’s free market public policy research organization. She can be reached at rachel@cascadepolicy.org.

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The Upcoming PERS Crisis: The system is facing a $30 billion shortfall—radical reform is needed

By Eric Fruits, Ph.D.

Coronavirus has hit the economy hard. Nearly all the stock market gains from the past two or three years have been wiped out. While it’s painful for investors and retirees, it’s likely to fuel the third major PERS crisis since the dot-com bust.

PERS, the public employee retirement system, has two major sources of funds: investment returns and employer contributions. PERS investments are managed by the state treasurer, under guidance from the Oregon Investment Council. “Employers” are state and local governments whose employees are PERS members.

PERS charges these employers a rate equal to some percent of their payroll to fund the costs of their employees’ anticipated retirement benefits. Currently, the average rate is approximately 25% of payroll. For example, for a city employee with a salary of $60,000 a year, the city must pay an additional $15,000 to PERS.

One of the many factors that affect the employer rate is the unfunded actuarial liability, or UAL. The UAL is an estimate of how much money would be needed to pay off all existing beneficiaries if the system were liquidated. Think of it this way: If you sold everything you owned—house, car, checking, savings, retirement—would you have enough to pay everyone you owe? If you don’t, you have unfunded liabilities.

PERS currently has a UAL of $24.5 billion. If PERS liquidated all its assets to pay its existing members, the system would be $24.5 billion short. The employer rate is set to fill that gap over a period of approximately 20 years. So, if the UAL increases, the employer rate increases. Similarly, if the UAL decreases, so does the employer rate.

Here’s where investment returns come in.

Because of the way PERS benefits are calculated, the system’s investments must earn an average of at least 7.2% a year to stop the UAL from getting bigger. That’s a very aggressive, and optimistic, target.

In good times, when PERS investments earn above average returns, the money from the investments reduces the UAL, which in turn reduces the employer contribution rate. If, on the other hand, PERS investments tank, the UAL balloons, and state and local governments must make bigger contributions to fill the gap.

PERS investment returns are correlated with stock market returns. Generally speaking, in a bull market, PERS investments run with the bulls; when the market drops, PERS investments suffer as well.

The stock market is down more than 20% from the beginning of the year. That means PERS investments would be down by about 11%. Based on past experience, such a drop would add another $6 billion to PERS’ unfunded liabilities, for a total UAL of about $30 billion.

Let’s say the economy improves and the stock market recovers all its losses, ending the year unchanged from the beginning of the year. PERS investments would be up by about 5%, based on past experience. Even so, PERS unfunded liabilities would increase by about $3 billion for a total UAL of about $27 billion.

Based on these observations, it’s very possible that state and local governments would face an employer contribution rate for PERS of 30% or more. That $60,000 employee would now come with an $18,000 additional cost to pay for PERS.

Where will that additional money come from?

It’ll come from us. Legislators and local governments will be under tremendous pressure to raise taxes to pay for skyrocketing PERS costs. Along with that will come budget cuts, with fewer teachers, state police, foster care workers resulting in bigger class sizes, reduced law enforcement, and more children stranded in the foster system. It’s not just a financial crisis, it’s a human crisis.

PERS has been a ticking time bomb for two decades. Attempts at meaningful reform have been put off by timid politicians and thwarted by powerful public employee unions. In the first PERS crisis of 2002, the system’s unfunded liabilities were less than $4 billion. In the second crisis, beginning in 2008, the UAL ballooned to $16 billion. Today, we’re looking at a third crisis with a UAL of $30 billion or more, or nearly $19,000 per household.

We are entering an era in which PERS cannot be merely tweaked or reformed. We are entering a PERS crisis that will require a radical overhaul of the entire system. It can begin with some straightforward first steps:

  1. Move all new public employees into a 403(b) defined contribution plan. These are similar to the 401(k) plans held by many private sector employees. TriMet has already made the switch, and it saved the agency from insolvency.
  2. The PERS Board must change its assumed rate of return on PERS investments. Because of the mismatch between assumed and actual investment returns, PERS is accruing liabilities much faster than it’s growing its assets. Bad assumptions were unsustainable 20 years ago, and they’re disastrous now.

These are just first steps that can be handled quickly in an emergency session of the legislature and an emergency meeting of the PERS board. There’s never a good time to upset the public employee unions. Now that we’re in a crisis, it’s time for leadership and action to save the state from fiscal disaster.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Oregon Can Support Workers by Reducing Regulations

By Rachel Dawson

Businesses across Oregon are laying off employees and shuttering their doors, triggered by the COVID-19 outbreak and Kate Brown’s executive order requiring social distancing and closing specified businesses. Unemployment claims jumped by around 3,200% in Oregon last week and unemployment could reach 20% in the coming months.

Due to the outbreak and increased statewide demand, the state is relaxing requirements for some occupations. For example, the state will be expediting the licensing process for daycare providers and will “waive, suspend or amend existing administrative rules pertaining to child care while allowing for emergency child care to be established.”

Easing the burden and costs of licensing for daycare workers is a good first step, but the state can go farther to help more Oregonians access jobs they otherwise would be locked out of due to costly fees and lengthy processes. Oregon has the 8th most burdensome licensing laws in the nation and licenses 69 of 102 lower-income occupations identified by the Institute for Justice.

For instance, residents who are already certified as an EMT in another state must apply, pass a background check, and pay a fee to be granted a license in Oregon. Officials can reduce or waive these requirements to improve access to the health care industry, which may be especially important now if others fall ill while caring for sick Oregonians.

Oregon can support workers and help more people attain employment by cutting the red tape now and committing to reduced occupational regulations in the future.

Rachel Dawson is a Policy Analyst at Cascade Policy Institute, Oregon’s free-market public policy research organization.

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Tax Relief Can Slow the Spread of COVID-19 Financial Panic

By Eric Fruits, Ph.D.

The coronavirus is already taking a toll on our pocketbooks. Families are facing layoffs. Businesses are closing—and some may never reopen. Our elected leaders are urging everyone to do their fair share. Property owners have been asked to give tenants a six-month grace period to pay their rents. They’re considering forcing small businesses to provide paid sick leave to their employees. That means property owners won’t have the money they need to pay their mortgages and property taxes. That means small businesses will be spending money on workers who aren’t working.

Oregon politicians have been silent on how government is going to do its fair share to relieve the burden of COVID-19. They need to do more than just promise more facemasks and testing kits.

People need cash, but they don’t want handouts. And that’s where state and local governments can help out. Now.

For years, Oregon politicians have been loading new and higher taxes on its people and businesses. They had a permanent prosperity mindset. They believed employment would always increase, wages would always grow, and the stock market would always rise. Year after year, more and more taxes were added—just the price of a latte a week, they’d tell us. But, it all adds up. Property taxes, gas taxes, business taxes, and payroll taxes are just a few of the nibbles that over time have added up to a big bite out of our wallets. It’s time to let us keep some of that money until this crisis passes.

First, the state and local governments must give everyone an automatic six-month extension to file—and pay—their income taxes. Families need that money more than the government.

Next, the Kicker. Oregonians are due for $1.5 billion in Kicker refunds this year. That’s about $350 for the average taxpayer. Instead of waiting to get a credit on this year’s tax return, the state should send out Kicker checks. That’s what the state used to do. Plus, it’s not new spending, it’s money that’s already owed to taxpayers.

As an emergency measure, the governor should order the Oregon Department of Revenue to delay implementation of the Corporate Activities Tax (CAT) for another year. The CAT’s implementation has been chaotic, and many businesses don’t know if they owe money or how much they owe. The first of the quarterly CAT payments are due April 30. Businesses struggling to survive the virus outbreak can’t afford to spend the time and money it takes to figure out this complex and uncertain tax.

Portland should suspend the Clean Energy Fund’s gross receipts tax on retailers. Portlanders need cash on hand now and businesses need to stay solvent. Solar panels can wait until the pandemic passes.

Now’s the time for Portland to kill its Arts Tax and stop its collection efforts. In this time of worry, the city can bring a small piece of relief to the region by ending its hated Arts Tax. The first mayoral candidate who promises to get rid of the Arts Tax has a good shot at being Portland’s next mayor.

Metro should pull its May 2020 ballot measure that would impose two new income taxes on families and businesses. Portland Public Schools should stop the clock on its $1.2 billion school construction bond. Multnomah County should realize the folly in raising taxes for free preschool when students across the state are on a near-permanent Spring Break.

The age of permanent prosperity has come to a quick and unexpected end. Who knows when prosperity will return? Our leaders need to adopt a crisis mentality and work hard to make sure citizens stay solvent and businesses survive. Providing tax relief isn’t “austerity;” it’s action. Action that informs voters that the politicians they vote for care about them when leadership is needed most.

Government is rarely the solution to a crisis, but it can take concrete steps to stop today’s health care scare from turning into a financial panic.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Kate Brown is out of touch if she thinks an executive order is needed to reduce emissions

By Rachel Dawson

Oregon’s Governor Kate Brown responded to the Republican walk-out and end of the 2020 legislative short session by saying that she “will be taking executive action to lower our greenhouse gas emissions.” Brown is also “open to calling a special session if we can ensure it will benefit Oregonians.”

Despite what Brown may believe, executive action is not necessary to lower our state’s greenhouse gas emissions. Oregon residents and businesses are way ahead of the governor and are already cutting emissions in their daily lives. And they’re doing it without heightened government regulation or a burdensome tax.

According to the Oregon Global Warming Commission, per capita emissions have decreased by 22.8% since 1990, and emissions per unit of GDP have dropped by 50.7%.

                      Source: Oregon Global Warming Commission, 2018 Biennial Report

Additionally, Oregon’s energy use per capita is the lowest it’s been since 1960; and Oregonians have decreased energy consumption per capita by 37% since it peaked in 1972.

                                Source: Oregon Department of Energy, 2018 Biennial Report

If these trends continue, aggregate GHG emissions will decrease in the future without placing an undue financial burden on rural and low-income residents.

Oregonians, and not Kate Brown, are doing what needs to be done to benefit Oregonians.

Rachel Dawson is a Policy Analyst at Cascade Policy Institute, Oregon’s free-market public policy research organization.

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Cascade Policy Institute Asks the Federal Transit Administration to Enforce Light Rail Contracts with TriMet

March 9, 2020

FOR IMMEDIATE RELEASE

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

Portland, OR – Cascade Policy Institute has submitted a letter to the Federal Transit Administration (FTA) requesting that the agency enforce contracts with TriMet for three light rail projects: the Yellow Line, the Green Line, and the Orange Line. Each project received substantial federal funding, which came with contractual obligations to provide minimum levels of service. TriMet has not met those obligations.

For both the Yellow and Green Lines, TriMet is supposed to be providing 8 trains per hour during peak periods. Current service on those lines is 4 trains per hour.

For the Orange Line, TriMet is supposed to be providing 6 trains per peak-hour. Current service provides only 4.6 trains per hour.

All three lines are also traveling at slower speeds than promised, and ridership projections have been missed by large margins.

Under FTA policy, the agency is empowered to demand repayment of federal funding if grant recipients fail to meet the terms of funding contracts. In its letter, Cascade Policy Institute is asking that FTA require TriMet to begin operating light rail lines in accordance with grant agreements within six months or begin paying back the federal funding.

Cascade is also requesting that FTA embargo any future funding for the Southwest Corridor Project, until such time as previous light rail projects are in compliance with contracts.

According to John A. Charles, Jr., President of Cascade Policy Institute, “TriMet’s under-performance is not an aberration, it’s a pattern. Since FTA has funded more than half the cost of the total MAX system, FTA should hold TriMet accountable by requiring the district to provide the service that was promised.”

The letter can be read here.

About Cascade Policy Institute:

Founded in 1991, Cascade Policy Institute is a nonprofit, nonpartisan public policy research and educational organization that focuses on state and local issues in Oregon. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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The Housing Crisis Isn’t a Portland Problem; It’s a UGB Problem

By Rachel Dawson

Portland’s housing crisis isn’t unique to the Metro region. Other areas of Oregon, such as Bend in Central Oregon, are also experiencing rising housing costs. But the high price of living isn’t the only similarity between these two areas: Both Portland and Bend have strict urban growth boundaries (UGB) and government regulations that artificially inflate the cost of building homes, and thus their prices to buyers.

Permits in Bend are low; twice as many building permits were pulled in 2005 compared to now. Given Bend’s population growth, this certainly isn’t due to a lack of demand.

So then why are homes in short supply when demand is only growing? There are two major factors driving this issue: land availability and regulatory fees.

Just like in Portland, Bend has a UGB and an influx of residents. This boundary restricts the amount of buildable land available for purchase, which in turn increases both the value and the cost of the land.

On top of artificially high land prices, regulatory fees to construct a home in Bend are around $30,000 before any shovel hits the dirt. Further, the new Corporate Activities Tax is “a huge devastating reality for the industry and will ultimately be passed on to the home buyer.”

To make housing more affordable, both Bend and Portland officials should make more land available to developers and cut back on regulatory fees. Doing so will help ease the housing crisis without increasing the burden placed on residents.

Rachel Dawson is a Policy Analyst at Cascade Policy Institute, Oregon’s free-market public policy research organization.

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Metro’s Housing Tax Requires Serious Oversight

By Eric Fruits, Ph.D.

At the first—and likely only—public hearing on Metro’s “supportive housing” tax measure, one resident asked a question on everyone’s mind: “Our money isn’t being spent the way it should be now, so what assurances do we have that this will be any different?”

The question highlights the fact that trust in local government is at a low point. Among Portland areas voters who have an opinion of their local government, approximately one-third have an unfavorable opinion of Metro or county government and more than 40% have an unfavorable opinion of their city government, according to a survey by FM3 Research.

With more than a billion dollars a year in new taxes heading to the ballot in 2020, voters deserve assurances their hard-earned money won’t be wasted or soaked up in administrative costs. If all the measures pass, some households will pay thousands, literally thousands, more in taxes. That means fewer meals out, reduced back-to-school shopping, and “staycations” instead of vacations. If taxpayers are working more to pay their tax bills, they should feel confident local governments will ensure that money is well and wisely spent. Our local governments, however, do not instill much confidence.

When asked how the regional government’s supportive housing measure could be set up to have more accountability, Metro Council President Lynn Peterson responded, “Well, we’re going to be setting up an oversight committee.” In some ways this is an admission that Metro Council can’t be bothered to oversee the program and instead intends to farm out oversight to a group of unelected and hand-picked volunteers.

In other words, “oversight committee” is a politician’s way of saying, “Nothing to see here, move along.” Voters envision a group of serious citizens scrutinizing spreadsheets, pushing back on smoke-blowing bureaucrats, finding fraud and waste, and dropping the hammer on malfeasance. The reality is different from the vision, as seen in Metro’s “Parks and Nature” oversight committee.

The committee has overseen more than $250 million of taxpayer money spent on Metro’s parks and nature program. It has 12 members, serious citizens who do, in fact, scrutinize spreadsheets. But this group has become less serious over time. At one meeting last year, only two of the 12 members attended; at another only five members showed up. At the most recent meeting, one member complained, “My eyes glass-over a bit when reviewing” the program’s spreadsheets.

While there have been attempts to see through the haze of smoke-blowing bureaucrats, the committee has been stymied more often than it’s been successful. For example, the committee has been repeatedly rebuffed in attempts to review pending land purchases. By withholding important information until a deal has closed, the committee cannot provide effective oversight.

More recently, the committee has raised questions about the administrative costs of the parks and nature program, which Metro promised would not exceed 10% of total costs. In recent years, administrative costs have skyrocketed to 20% or more of total costs; and “indirect” administrative costs have more than tripled relative to the program’s first years. In response to these questions, the committee and Metro staff decided that the 10% cap should be applied over the life of the program, rather than year-by-year. In other words, they hope overspending this year can be offset by underspending is some previous or future year.

Even worse, on at least two occasions, Metro’s “Parks and Nature” oversight committee held meetings in violation of Oregon Public Meetings Law. Metro provided no public notice of meetings in September 2019 and February 2020. At both of these meetings, the committee discussed the program’s administrative costs and other issues of public interest. By withholding public notice, these meetings were effectively conducted in secret. This is serious business. The public meetings law specifies members of a governing body may be liable for attorney and court costs both as individuals or as members of a group if found in willful violation of the law.

As Metro is asking voters to approve $300 million a year in new taxes for supportive housing, oversight of spending must be transparent, energetic, and effective. Unfortunately, Metro’s experience with its parks and nature program calls into question how effective any oversight of the housing measure will be.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free-market public policy research organization. A version of this article was published by Pamplin Media on March 1, 2020.

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