Author: john a. charles jr.

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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Moving Beyond Symbolism

By John A. Charles, Jr.

Last week Governor Kate Brown gave a speech to Portland activists promising to secure carbon-pricing legislation in next year’s one-month legislative session. A few days later, she met with Interior Secretary Ryan Zinke and urged him to maintain or expand the Cascade-Siskiyou National Monument in Southern Oregon.

Clearly, the Governor is getting bad advice about environmental priorities. Carbon dioxide is not a pollutant; it’s a beneficial gas that is essential for plant growth. If the Governor continues Oregon’s “war on carbon,” she will impose great costs on the economy with no offsetting benefits.

Similarly, there was no need for the Governor to lobby on behalf of national monument expansion when Oregon already has plenty of federal land in protected status. She should have used her time with Secretary Zinke to argue for improved management of BLM lands in Oregon, including forest thinning and increased timber harvesting. Without active management, all public lands—including parks, wilderness areas and national monuments—will continue to be threatened by Oregon’s top environmental risk: catastrophic wildfires.

Holding photo ops to tell her supporters exactly what they want to hear is not leadership. The Governor needs to get serious about environmental problems.


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

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Floor Memo Regarding Bond Funding for the Elliott State Forest

TO: Members of the Oregon Legislature

FM: John Charles for Cascade Policy Institute

RE: SB 5505/Elliott State Forest Bonds

DT: July 5, 2017 

SB 5505 includes bond funding for many worthy projects. Unfortunately, it also includes authorization for the sale of $101 million in Certificates of Participation for the purpose of “buying out” part of the Elliott State Forest (ESF), which we already own.

The State Land Board chose this option in May rather than taking a cash offer of $220.8 million to sell most of the ESF, which is losing money for schools.  While this “feel good” measure appeased many environmental interests, what has never been discussed publicly is the long-term opportunity cost of borrowing $101 million and paying $199 million in debt service over 25 years, instead of investing $220.8 million of new money into the Common School Fund.

The graphic below attempts to do that over a 50-year period, using an average total return rate of 5.58% (the actual rate over the past 10 years). The gap between the blue and red lines is the estimated loss to schools in the annual payouts from the CSF. Note that the gap widens over time and can never be made up. Over the lifetime of the Fund – which is infinity – your approval of the bond sale will result in many billions of dollars lost to Oregon schools.

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The Paris Agreement Was Symbolism over Substance, Leaving Was the Right Call

By John A. Charles, Jr.

President Trump made the right call last Thursday when he terminated participation by the U.S. in the Paris Climate Agreement.

The central problem with the Paris agreement was that the alleged benefits were speculative, long-term, and global; yet the costs to Americans would be real, immediate, and local. It was a terrible deal for American taxpayers who would have been required to send billions of dollars to an international green slush fund, with no accountability.

Pulling out of the Paris agreement does not mean that the climate change apocalypse is upon us. The carbon intensity of the U.S. economy has dropped by 50% since 1980 simply through technological innovation and the dynamic market process. If reducing carbon dioxide is a worthy policy goal—which is just an assumption—the United States already has an impressive track record of reducing emissions.

The Paris agreement was always a triumph of symbolism over substance.

The man who predicted that the U.S. would pull out of the Paris Climate Agreement is coming to Portland this Friday, June 9. Myron Ebell is director of the Competitive Enterprise Institute’s Center for Energy and Environment. He led the Trump Presidential Transition’s agency action team for the EPA and will give a unique perspective on the new administration’s environmental agenda.

Visit cascadepolicy.org for tickets to our Friday, June 9th luncheon. Reservations are required.

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

 

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Testimony on SB 847 Regarding Management of Common School Trust Lands

Testimony of John A. Charles, Jr.

President and CEO, Cascade Policy Institute 

Regarding SB 847

June 5, 2017

My name is John Charles and I have been closely following the management of Common School Trust Lands since 1996.

Sadly, the Trust Lands have been steadily losing value as an endowment asset during that entire period. For example, the Elliott State Forest was estimated to be worth over $800 million in 1995; it is currently a liability for the Common School Trust Fund.

The 620,000 acres of rangelands had net operating income of -$1.2 million in 2016.

SB 847 offers a pathway for the disposal of underperforming lands, but it’s difficult to see how a proposed transfer to other public bodies would be compliant with the fiduciary duty that Land Board members have to CSF beneficiaries.

Funds that the legislature might appropriate to “buy out” Trust Lands have to be paid by taxpayers. A large subset of that group will include beneficiaries of the CSF, including public school parents, school board members, public school teachers, and other school employees. Taxing them with debt service on bonds, as is now being proposed by the Governor for the Elliott, would be taking money away from them.

The Trust Land portfolio includes 1,540,000 acres of lands, as displayed in the attached summary from the most recent DSL status report. The estimated return on asset value for 2016 was 0.4%, which is an inflated number due the unknown market value of 767,100 acres of “Mineral and Energy Resource” lands and 13,200 acres of “Special Stewardship Lands.” They have minimal value to the CSF as an endowment asset, and that will not change.

The only way to carry out the fiduciary duty to CSF beneficiaries is to inject new, private capital into the picture. The state should sell the remaining Trust Lands – which could be worth more than $700 million — and invest the net proceeds in the Common School Fund, where annual total returns of 5%-8% could be expected for centuries to come.

[Click Download the PDF to view exhibits]
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Statement regarding President Trump’s decision to withdraw the U.S. from the Paris accord on climate change

FOR IMMEDIATE RELEASE

Media Contact:

John A. Charles, Jr.

(503) 242-0900 

PORTLAND, Ore. – Today Cascade Policy Institute’s President and CEO John A. Charles, Jr. released the following statement on President Donald Trump’s decision to withdraw the United States from the Paris accord on climate change:

“President Trump made the right call today in terminating participation by the U.S. in the Paris climate change agreement.

“The central problem with the accord was that the alleged benefits were speculative, long-term, and global; yet the costs to Americans would be real, immediate and local. It was a terrible deal for American taxpayers who would have been required to send many billions of dollars to an international green slush fund, with no accountability.

“Pulling out of the Paris agreement does not mean that the climate change apocalypse is upon us. The carbon intensity of the U.S. economy has dropped by 50% since 1980 simply through technological innovation and the dynamic market process. If reducing carbon dioxide is a worthy policy goal—which is just an assumption—the United States already has an impressive track record of reducing emissions.

“The Paris accord was always a triumph of symbolism over substance. Now that American participation has ended, we can appropriately move on to issues of real significance.”

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.

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The Case of the Missing Transit Money

By John A. Charles, Jr.

Last week the TriMet Board adopted a budget for fiscal year 2018, which begins on July 1.

As usual, the budget shows no correlation between the levels of subsidies given to TriMet and the amount of service provided to customers.

For example, in 2008, TriMet had a total of $397 million to pay for operations of bus and rail service. In 2018, the agency predicts it will have $600 million, a 51% increase. Yet bus service—which carries two-thirds of all passengers—has barely improved.

In 2008 the “revenue-miles” of bus service (those miles where buses were in operation) totaled 22,574,030. If service increases in 2018 as planned, the total is likely to be 22,597,927—only a 0.1% increase.

Where did all the money go?

TriMet claims that increased light rail service made up the difference, but between 2008 and 2016 the revenue-miles of MAX only went up 14%. No service increase in 2018 will make up the difference between 14% and 51%.

Moreover, ridership is not growing along with the increased funding. In fact it is shrinking. During 2008 the total number of “originating rides” (which excludes transfers) was 77.6 million. Ridership peaked in 2012 at 80 million, and then dropped to 77.2 million in 2016.

TriMet is also losing market share, especially at peak hours. According to the Portland city auditor, in 2008 an estimated 15% of all Portland commuters used TriMet. By 2016, that had dropped to just 10%.

The steady rise in TriMet’s revenue is almost entirely due to tax subsidies, not passenger fares. In fact, next year passenger fares will only account for 10% of TriMet’s all-funds budget—likely the lowest level of passenger support in TriMet history.

Nonetheless, the Oregon legislature is considering a bill that would authorize a new, statewide employer tax that would generate even more subsidies for transit. The Portland experience shows that this is a bad idea. The more we subsidize monopoly transit, the more the employees divert funds for their own use.

Last year TriMet spent $1.23 on employee benefits for every $1.00 expended in wages. That largely explains why service levels have been stagnant.

In 1969 the Portland City Council put Rose City Transit out of business because Councilors believed that a government-run monopoly would be much more efficient than a private-for-profit company. The TriMet experience has shown that the City Council was wrong.


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

 

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Overtaxed and Underbuilt

By John A. Charles, Jr.

An Oregon Legislative committee is proposing a massive series of tax increases to pay for various transportation projects.

The proposal calls for higher taxes on vehicle registration, increased gas taxes, a new sales tax on motor vehicle purchases, a statewide employee tax to subsidize transit, and a new bicycle sales tax.

While there are many bad ideas on this list, perhaps the most offensive is the sales tax on vehicle purchases. It is being crafted so that most of the money would be diverted from highway maintenance into something called the “congestion relief and carbon reduction fund.”

Anything that includes “carbon reduction” in the title is guaranteed to be a boondoggle.

Before this proposal goes any further, legislators should consider a bill simply focusing on improving the road system. We all benefit from better roads.

In addition, they should try to charge people based on actual road use, not the mere ownership of vehicles. The gas tax is a good surrogate for this, so it would make sense to increase the gas tax rate while lowering vehicle registration fees. This would be fair to motorists, while still raising the funds needed for road improvements.


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

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Testimony Before the Oregon State Land Board Regarding the Potential Sale of the Elliott State Forest

By John A. Charles. Jr.

The decision before you today is simply one of exercising your fiduciary duty. You have an offer on the table of $220.8 million in private funds. If you accept the offer, the money will be deposited in the CSF, where it will immediately begin earning income for schools.

Alternatively, the various public ownership options require: (1) persuading the legislature to approve the sale of $100 million in state bonds so that taxpayers can “buy” an asset they already own; and (2) paying debt service on the bonds. Those costs (presently unknown) will be paid in part by public school parents, teachers, and other CSF beneficiaries. Therefore, debt service has to be subtracted from earnings on the invested $100 million.

Additionally, a new HCP will need to be negotiated. Since DSL has failed to do this for over 15 years, this is a highly speculative “benefit.” It’s also possible that even with a new HCP, timber harvesting would result in continued losses to the CSF.

As the chart below indicates, over a 100-year horizon, the difference between the Lone Rock offer and the public ownership option is roughly $1.08 billion in earnings. There is no plausible scenario in which continued public ownership can make up that loss. As fiduciaries, this is not even a close call: you should take the offer in hand.

CSF Financial Projections for New Revenue Derived from the Elliott State Forest 

Lone Rock Offer vs. Continued Public Ownership

Cumulative CSF Payouts to Schools @4% of Annual Earnings

Assumes total annual return of 5.58% (CSF average for 2000-2015)

  Add timber harvest revenue Subtract cost of debt service payments Cumulative payout to schools – first 10 years Cumulative payout to schools – first 100 years
L. Rock – $220.7 M invested 6/1/17 N/A N/A $99,107,680 $1,956,775,945
Bond sale – $100 M invested 9/1/17

 

Requires new HCP; could also result in annual losses ??? $44,300,595 $874,668,232
Difference ??? (???) ($54,807,085) (1,082,107,713)

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

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Oregon Politicians Support Better Roads, Just Not Here

By John A. Charles, Jr.

Recently the Oregon Legislature held a hearing on HB 3231, a bill promoted by Rep. Rich Vial (R-Scholls) that would authorize the formation of special districts for the purpose of constructing and operating limited-access highways.

Opponents made many of the same arguments they’ve been using for decades: new highways threaten farmland; increased driving will undermine Oregon’s “climate change” goals; and we can’t “build our way out of congestion.”

Perhaps the most comical opposition argument was made by Marion County, which sent all three of its Commissioners in a show of force. The Commission Chair concluded his remarks by saying, “We understand progress; we just want that progress to go somewhere else.”

Oregon stopped building new highways in 1983 after I-205 was completed. Elected officials came to believe that our needs for mobility could be met through increased urban densities, massive subsidies for public transit, and various forms of “demand management” to entice or even force people out of their cars.

The new approach didn’t work.

It turns out that manipulating urban form through land-use controls has very little influence on driving. Sure, you can regulate suburbia out of existence through density mandates, as Metro is doing. You can also reduce the parking supply and bring light rail right to someone’s front door.

But no matter how much some people fantasize about using alternatives to cars, it’s not very practical. Midday meetings, post-work errands, childcare obligations, and countless other demands lead people to rationally opt for driving for most trips.

That’s why, after a 20-year spending binge of $3.67 billion for new rail lines, TriMet’s share of daily commuting in Portland actually dropped from 12% in 1997 to 10% in 2016.

Auto-mobility is a wonderful thing, and there is no reason to feel guilty about new roads. For one thing, driving is strongly associated with economic growth. According to ODOT, for every job created in Oregon, we can expect an additional 15,500 miles of auto travel each year. If you’re in favor of new job creation, you have to accept increased driving as a logical consequence.

Moreover, the emissions associated with driving are now so minor that the real concern should be reducing air pollution from congestion. Vehicles sitting in gridlock have per-mile emissions of infinity; getting those vehicles into free-flowing conditions will improve local air quality.

Autos generally have the lowest emission rates when traveling at steady speeds of around 50 MPH. This is also a driving speed that makes most drivers happy, especially at rush hour. The way to accomplish both goals is through the construction of new highways when needed, coupled with the use of variable toll rates (also known as “dynamic pricing”). This could happen under HB 3231.

Across the country, dozens of impressive new highways are being built, many with private financing. Dynamic pricing is being be used to pay off bonds and eliminate congestion. This is the progress that most commuters dream about.

Unfortunately, it probably won’t happen here. Oregon politicians only support progress somewhere else.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. A version of this article originally appeared in the Portland Tribune on April 25, 2017.

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The Greatest Challenge to Traffic Safety? It’s Not Residential Speed Limits

By John A. Charles, Jr.

Earlier this week the Oregon House of Representatives passed HB 2682, which will allow Portland to lower traffic speeds on residential streets from 25 MPH to 20 MPH. This was hailed as an important step towards reaching the city’s goal of zero traffic fatalities by 2025, but in reality the bill is mostly symbolic.

First, HB 2682 only affects residential streets. Most traffic fatalities occur on higher-speed arterials.

Second, reducing travel speed is just one of many factors in traffic safety, and not always the most important. According to the 2015 Portland Traffic Safety Report, 54% of fatal crashes involve alcohol or drugs. When pedestrians are involved, 30% of fatalities involve either an intoxicated walker or driver.

Traffic speed is a factor, but 80% of Portland’s fatalities and serious injuries occur on the 19% of roadways that are posted at 30 MPH or higher. None of those roads will be affected by HB 2682.

The ubiquitous use of digital devices by motorists, cyclists, and pedestrians represents the greatest new challenge to traffic safety. Unfortunately, people who would rather text than watch the road are unlikely to be helped by a law that reduces speeds in quiet neighborhoods from slow to slower.


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

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Testimony Regarding Senate Bills 432, 602, 608, 612 and 618

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

Regarding Senate Bills 432, 602, 608, 612 and 618

April 6, 2017

Advocates of land-use planning strongly believe that the benefits of planning always outweigh the costs.

But no regulatory system is perfect. Certainly the Oregon program can be improved, if we have the will.

The most obvious problem is that land-use regulation imposes a static vision on a dynamic economy. Oregon demands “urban containment” as the top priority, enforced through urban growth boundaries and rural exclusionary zoning. This has to result in an imbalance between housing supply and demand, leading to rapid price escalation. There is no other logical outcome unless planning advocates have invented a new economic theory that only they understand.

The bills under discussion today may not be the perfect responses to current problems, but surely at least one of them could be used by the Committee as a vehicle for modest reform.

I encourage the Committee to pick one flaw in the Oregon system and address it going forward.

You could focus on the dysfunctional urban growth boundary management process, the punitive “Transportation Planning Rule,” or perhaps farmland preservation requirements that are disconnected from economic reality.

It doesn’t matter which problem you address, but to say that no flaws exist and all reform bills must be killed year after year is not plausible.

Failure to address obvious problems will undermine public confidence in the legislative process. Please use the remaining time in this session to solve at least one problem related to zoning.


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

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Testimony Before the Senate Business and Transportation Committee in Support of SB 656, SB 657, and SB 659

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

Before the Senate Business and Transportation Committee

In support of SB 656, SB 657, and SB 659

April 3, 2017

The Public Purpose Charge (PPC) was originally authorized by the legislature to run for 10 years: from March 2002-March 2012. It was anticipated that subsidies for conservation, renewables, and market transformation would no longer be necessary after that time.

The chart below shows that the original forecast was correct. PPC administrators are running out of things to do. The low-hanging fruit for retrofits has been picked, and newer homes have been built to stringent energy codes. The mission has largely been accomplished.

Therefore reducing the PPC from 3% to 2%, as called for in SB 657, is appropriate. In 2019 you should drop it by another percent, and then phase it out entirely in 2021.

Keep in mind that the Energy Trust receives additional ratepayer funding through the “increment” allowed under SB 838. During 2017, that increment will more than double the amount of money that ETO will receive from the basic PPC. Therefore, the Trust would continue to have significant funding regardless of what you do with these bills.

Ratio of Energy Benefits (kWh saved or generated) to Expenditures

All PPC Administrators

2003-2004 2005-2006 2007-2008 2009-2010 2011-2012 2013-2014 2015-6/2016 % change, 2003-6/2016
ETO Conservation 5.7 6.6 6.7 4.4 4.5 5.3 3.4 -40%
ETO Renewables 13.8 4.0 33.5 1.6 1.4 2.0 1.6 -88%
School   districts 0.8 0.6 1.0 0.5 0.5 0.3 0.4 -50%
OHCS low-income 1.3 0.9 0.7 0.5 0.8 0.4 0.6 -54%
Self-direct (conservation) 7.2 3.2 4.3 5.2 3.0 2.5 3.8 -47%

Source: Biennial reports to the Legislative Assembly on PPC expenditures, all years. 

Since the PPC was first authorized in 1999, it has escaped scrutiny by the legislature. The oversight called for in these bills is long overdue and I encourage your support.


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

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Selling Bonds to Buy the Elliott State Forest Would Be a Breach of Fiduciary Trust

By John A. Charles, Jr.

State Treasurer Tobias Read has announced that he is now prepared to support a plan being developed by Gov. Kate Brown to sell bonds that would “buy out” the Elliott State Forest from the Common School Trust Land portfolio and keep it in public ownership.

Unfortunately, this would saddle taxpayers with debt service on the bonds, thereby reducing or even eliminating the financial benefits of adding the bond proceeds to the corpus of the Common School Fund. This would be a breach of fiduciary trust on the part of the State Land Board.

Members of the public may not understand that bond sales don’t create “free” money; the face amount must be repaid over some designated period of time, with interest.

For example, if the legislature authorizes the sale of $100 million in general obligation bonds, total principal and interest will likely exceed $150 million over several decades.  All Oregon taxpayers will be legally obligated to pay off that debt.

Another option might be the sale of bonds backed by future earnings on the Oregon Lottery. But lottery revenues are essentially the same as General Fund revenues. Paying debt service on lottery-backed bonds will inevitably take money from public schools.

The Governor’s proposal to have the public buy a forest it already owns is akin to someone losing money in an IRA, then transferring funds into the account from a 401(k) to make up for the loss. If both accounts are owned by the same individual, there is no net gain; the loss is just disguised.

As the state’s elected Treasurer, Tobias Read should know better. The only way to decouple the Elliott State Forest from the Common School Fund is to sell it to private parties with no taxpayer financing involved.

Such an offer is sitting in front of the Board today. The Board should accept the offer of $220.8 million from the Lone Rock Timber consortium, place the net proceeds into the Common School Fund, and let the money begin immediately working for public school students.


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

 

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Let’s Build Some Highways

By John A. Charles, Jr.

Oregon stopped building new highways in 1983 when I-205 was completed. Top planning officials began espousing a philosophy of spending money on rail transit rather than roads. The government also used the power of zoning to crowd more people into urban centers, in the belief that high density would lead to less reliance on cars.

The new strategy failed.

The Portland regional transit agency, TriMet, was given more than $3.6 billion to build a light rail system; yet between 1997 and 2016, TriMet’s market share of all commute trips in Portland fell from 12% to 10%. As a result, traffic congestion has become a major barrier to regional mobility.

Now a bipartisan group of legislators, led by Republican Rich Vial of Wilsonville and Democrat Brian Clem of Salem, has introduced a bill that would jump-start the highway-building process. HB 3231 would authorize cities and counties to jointly form special districts for the purpose of building and operating limited-access public highways.

If built, such highways would likely be financed through loans, with debt service paid off by tolls.

So far HB 3231 has not received a public hearing. It should. Motorists deserve all the highways they are willing to pay for. Let’s give them a chance to vote with their dollars for a better road system.


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

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It’s Finally Time to Sell the Elliott State Forest

By John A. Charles, Jr.

At the February 14 meeting of the State Land Board, the Board voted 2-1 to enter into negotiations with a private consortium to sell 82,450 acres of the Elliott State Forest. Gov. Kate Brown, who was on the losing end of the vote, has ordered the Department of State Lands to come back in April with an alternative plan that would allow for continued public ownership.

Not only is the Governor being petulant, but the alternative she favors has been studied repeatedly since 1995. That was the year that the Board released its first “Draft Asset Management Plan.” The Elliott was then valued at $850 million, but annual revenues were dropping due to rising management costs.

The Land Board was told by a consultant that “selling the Elliott State Forest would be the most effective way to maximize Common School Fund revenues.” The Board is required by the Oregon Constitution to make money on the Elliott because it is an endowment asset for public schools.

Sadly, that recommendation was rejected. Instead, state officials spent the next 20 years engaged in fruitless negotiations with federal regulators regarding compliance with the Endangered Species Act. Every time the Board thought an agreement to cut more timber had been reached, it turned out to be a false summit.

Meanwhile, advocacy groups used the Elliott as a legal piñata. They successfully sued the Land Board so many times that the forest stopped generating any revenue by 2013 and actually became a financial liability for Oregon schools.

The costs of this wait-and-see approach were not trivial. According to a report published by the Board in 2014, the Elliott had cost the Common School Fund $1.4 billion in lost earnings since 1995.

Things actually worsened after the report was published. In 2015 the Land Board decided to finally sell the Elliott; but instead of taking competitive bids, the Board established a fixed price. The Board also downzoned the land by imposing multiple limitations on future timber harvesting.

The result was that the Board received a single offer in 2016, for the state-mandated price of $220.8 million. The net result of 22 consecutive years of public ownership was a loss to the Common School Fund of at least $1.62 billion.

Governor Kate Brown now wants to renege on the sale entirely (despite voting for it in 2015) and use state bonding capacity to “buy out” a portion of the Elliott. This is probably the worst idea yet. The public already owns the forest; why would we want to go into debt buying ourselves out?

While the $220.8 million offer now on the table is a far cry from the $850 million we could have received in 1996, it’s better than hanging on to a dead asset. Secretary of State Dennis Richardson and State Treasurer Tobias Read voted to sell the forest, and that was the appropriate decision. Adding $220 million in new revenue to the Common School Fund endowment will generate many billions of dollars for schools over the next century.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. A version of this article originally appeared in the Portland Tribune on March 16, 2017.

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Oregon Taxpayers, Not Riders, Pay Most Costs of Public Transit Operations

By John A. Charles, Jr.

In a recent interview with the Portland Business Journal, Chris Rall of Transportation for America argues for increased state support of public transit service. He says that Oregon only covers three percent of the operating costs of transit, while other (unnamed) states pay for 24 percent.

I don’t know the source of Mr. Rall’s claim, but the audited financial statements for the largest transportation districts in Oregon show a very different picture.

In FY 2016 TriMet had total operations revenue of $542,200,000 but only $118,069,000 came from passenger fares. That means TriMet riders received a 78% subsidy from other sources.

At Lane Transit District in Eugene, passenger fares in 2015 were only $7.2 million, while total operating revenue was $60.9 million. Non-riders paid for 88% of operations.

For Cherriots Salem-Keizer transit, public support totaled 94% of all operating revenue in 2015.

Undoubtedly the largest subsidy goes to the Portland-Eugene passenger rail line operated by ODOT. For every one-way ticket sold in 2015, the public paid $120.

Before state legislators approve any more subsidies to transit, they should require that transit operators recover at least 50% of costs from customers. If riders are only willing to pay 10 percent, why should taxpayers have to pick up the rest of the tab?


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

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Land Board Votes to Sell Elliott State Forest

By John A. Charles, Jr. 

On February 14 the Oregon State Land Board – comprised of Governor Kate Brown, Treasurer Tobias Read, and Secretary of State Dennis Richardson – voted 2-1 to sell 82,450 acres of the Elliott State Forest to a consortium of private parties led by Lone Rock Timber Management Company. The agreed-upon sale price is $220.8 million; and the net proceeds will be placed in the Oregon Common School Fund (CSF), an endowment for public schools.

This parcel is a small part of the Oregon Common School Trust Land portfolio of 1.5 million acres of lands that must be managed by the Land Board to maximize revenue over the long term for the benefit of public schools.

For many years the Elliott was a money-maker, but environmental litigation steadily reduced timber harvesting to a trickle. For the last three years the Elliott has actually lost money, which prompted the Board in August 2015 to vote unanimously to sell the Elliott and put the proceeds into alternative investments.

As a long-time Board member, Gov. Kate Brown repeatedly voted to sell the forest, but in December 2016 she changed her mind and announced her intent to use state bonding capacity to buy a portion of the Elliott and keep it in public ownership. Treasurer Ted Wheeler and Secretary of State Jeanne Atkins agreed with her conceptually, but no formal vote was taken and both of them have since left the Board.

At the meeting earlier this week, Gov. Brown made a motion to terminate any further negotiations to sell the forest, despite the fact that Lone Rock and its partners had spent at least $500,000 putting together a good-faith offer in response to the Land Board’s sale protocol. Her motion never received a second.

New Treasurer Tobias Read indicated that he was uncomfortable walking away from the offer at the last minute, and that the legal doctrine of “undivided loyalty” to Common School Fund beneficiaries – public schools – compelled him to sell the money-losing forest. Secretary of State Dennis Richardson concurred and the Governor was out-voted.

Cascade Policy Institute has been urging the Land Board to sell the Elliott since 1996, when the forest was valued at roughly $800 million. It was evident to us that over the next several decades, environmental lawyers would treat the Elliott like a legal piñata and file continuous lawsuits to prevent timber harvesting. That is exactly what happened, turning this vibrant forest into a net liability by 2013.

Cascade published a number of technical papers demonstrating that over virtually any time period and under any reasonable set of assumptions, Oregon schools would be better off if the Board simply sold the forest and put the net proceeds into stocks, bonds, and other financial instruments. These papers were ignored by multiple generations of Land Board members, including John Kitzhaber, Ted Kulongoski, Jim Hill, Phil Keisling, Randall Edwards, and Kate Brown.

Many editorial writers are urging the Land Board to “hit the pause button” on this sale, but the fact is the Board has been “pausing” since at least 1995. As timber harvest receipts steadily declined over the next several decades, Oregon wasted more than $3 million trying to negotiate a so-called “Habitat Conservation Plan” with the federal government that would shield Oregon from further litigation. Such an agreement was never reached.

In a report paid for by the Department of State Lands in 2015, experts found that the failure to sell the Elliott in 1995 – as recommended by a Department of Forestry consultant – had cost public schools $1.4 billion in lost earnings over a 20-year period.

Gov. Brown’s last-minute effort to buy back timberland the public already owns was poorly thought out. Most of the media observers – who tend to favor public ownership – have apparently overlooked the fact that any revenue bonds sold by Oregon would have to be paid off by profits generated on-site. Since the Elliott has been steadily losing money under public management, it’s unlikely that anyone would even buy such bonds.

Although selling the Elliott was the right thing to do, we will never know if the public received fair market value because the Land Board refused to take competitive bids. In 2016 the Board established a price of $220.8 million based on multiple appraisals, and no one was allowed to offer a higher amount. Clearly, this was a bizarre way to sell a valuable asset and demonstrates how Kate Brown, Ted Wheeler, and Jeanne Atkins consistently abdicated their fiduciary responsibilities in favor of a political agenda to retain public ownership.

Treasurer Read and Secretary Richardson deserve credit for moving forward with the sale. Neither of them wanted to do it, but they understand that they have an obligation to current and future public school students to add value to the Common School Fund.


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

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Car Ownership Is Not a Crime

By John A. Charles, Jr.

A bill has been introduced in the state legislature that would impose a $1,000 ownership tax every five years on automobiles more than 20 years old.

Fortunately, leaders of the Republican Party quickly denounced it; and without bipartisan support the bill has no chance of passage. The chair of the House Revenue Committee, Rep. Phil Barnhart of Eugene, has announced that the bill is dead.

The fact that this legislation was even introduced points to a conceptual problem shared by many lawmakers: They think that owning a vehicle is undesirable and should be taxed.

But owning a car imposes no cost on the public; it’s the use of the vehicle that we should be concerned with.

As one legislator told me many years ago, “I own four cars—but I only drive one at a time!”

Since we do need money for improved roads, any transportation tax should focus on road use. One option would be to lower the cost of vehicle registration in exchange for a small increase in the gas tax.

Motorists deserve all the roads they are willing to pay for. Raising the gas tax would give drivers a chance to vote with their tires for a better road system.


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

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Surprise! Renewable Energy Mandates Are Actually Fossil Fuel Mandates

By John A. Charles, Jr. and Lydia White

The Sierra Club and other environmental groups are objecting to PGE’s plan for new, natural gas-powered generation to help replace the electrical output that will be lost when PGE shuts down the Boardman coal plant in 2020. What these groups should admit is that they are the ones responsible for that decision.

Last March, the Oregon legislature adopted the Oregon “Renewable Portfolio Standard” (RPS), which requires PGE to procure 50% of its retail load from designated renewable energy sources by 2040. This requirement, enacted with few public hearings in the rush of the one-month session, was demanded by environmental groups as a way to burnish the state’s mythical green power credentials.

The RPS is essentially a mandate for more utility-scale wind and solar power. These are known as “intermittent resources” because wind farms don’t generate any power about 68% of the time, while solar goes dead about 71% of the time. Being forced to rely on randomly-failing generators means that utilities must have back-up sources (known as “spinning reserve”) in order to preserve grid reliability.

Electricity cannot be stored like other commodities. As soon as electricity is fed into the grid, it travels at the speed of light through many pathways until it is consumed almost instantaneously by a household, factory, or some other end-user. Supply and demand have to be matched at all times in order to avoid grid failure, or “blackout.”

Right now, wind and solar only account for about 5.69% of Oregon’s electricity supply. As lawmakers keep ratcheting up RPS mandates towards 50%, the need for spinning reserve will go up as well. The only practical fuel is natural gas.

These new gas-fueled plants will be running even when not used, in order to be ready when the windmill blades stop turning or the sun goes down. This will result in wasted fuel and increased air pollution.

If utilities must have spinning reserve, can we predict the need for it? This question was the subject of a paper recently published by the National Bureau of Economic Research (NBER). The researchers found that a 1.0 percentage point increase in the share of fast-reacting fossil generation capacity in a country is associated, on average, with a 0.88 percentage point increase in the long-run share of renewable energy.

In other words: more wind and solar = more fossil fuel use. Oregon legislators rushed through the RPS law so quickly that they forgot about the law of unintended consequences.

PGE and PacifiCorp will both be turning to increased natural gas generation over the next 20 years because they don’t have a choice. Customers want their electricity 100% of the time, not 30% of the time. If environmental groups are offended by the use of more natural gas, they should admit that the 50% RPS requirement was a mistake and ask legislators to repeal it.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. Lydia White is a Research Associate at Cascade. This article originally appeared in the Portland Business Journal on January 12, 2017.

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Kate Brown’s Math Problem

By John A. Charles, Jr.

For the past 18 months, the Oregon Land Board has been working to sell the Elliott State Forest. The decision to seek buyers was based on the fact that the Elliott is losing money, and it is supposed to be making money for Oregon schools.

At its December meeting, the Board was presented with a firm offer of $221 million from a private buyer. Instead of accepting the offer, the Board did nothing. Governor Kate Brown said she wants to sell bonds to buy the Elliott so that it remains in public ownership.

The only problem is that the public already owns it. Selling bonds to buy ourselves out makes no sense.

Land Board members have a fiduciary obligation to maximize revenues from the Elliott for the benefit of students. Increasing taxes on the parents of those students to pay off bonds would be a breach of fiduciary trust.

The only way to ensure that taxpayers benefit is to sell the Elliott to private parties and place the proceeds in the Common School Fund, where the investment earnings are shared with school districts.

The two new Land Board members—Treasurer Tobias Read and Secretary of State Dennis Richardson—should work with the Governor to accept the private offer and move on.


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

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There’s Never Enough Money for Government

By John A. Charles, Jr.

The news from Portland is that despite record levels of revenue, the City Council needs to cut $4 million in spending next year in order to balance the budget.

The news from Salem is that despite record levels of revenue, the Governor needs to close a $1.7 billion dollar budget gap for the next two-year state spending cycle.

It’s not just a coincidence that these messages are the same. Elected officials are almost always poor stewards of public money. No matter how much they receive from property taxes, income taxes, payroll taxes, liquor taxes, garbage taxes, and dozens of other fees and licenses, it’s never enough.

The primary reason is that politicians tend to adopt new programs where the costs are back-loaded. Policies are approved that sound good and don’t seem to cost much in the short-term; but decades out, the costs explode. Public employee pensions are the most painful example of this.

By the time it becomes obvious that we can’t afford the programs, the politicians who approved them are long gone, and the expenses are locked in.

We don’t have a revenue problem in government; we have a spending problem. The top priority at both the Portland City Council and the state legislature should be to reduce or completely eliminate programs before any new taxes are even considered.


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

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Testimony Before the Oregon State Land Board on the Sale of State Trust Lands

Cascade Policy Institute President and CEO John A. Charles, Jr. presented a version of this testimony before the Oregon State Land Board on December 13, 2016.


Re: December 13 SLB hearing on the possible sale of the Elliott State Forest

Dear Land Board members:

I am writing in advance of the December 13 Land Board hearing to summarize my testimony.

First, you were correct in deciding last year that a sale of the trust lands was necessary to fulfill your fiduciary responsibilities to the Common School Fund (CSF) beneficiaries. The continued requests from public land advocates to retain ownership should be ignored.

Unfortunately, your sale protocol is fatally flawed, for two reasons: (1) the four unnecessary “public benefits” requirements inherently devalue the asset; and (2) you are prohibiting competitive bids. Both of these elements ensure that you will not be able to get the best possible offer for the transfer, which you are required to do as fiduciaries.

Any sale should be made through a straight up, no-string-attached auction of the property. That is the only way you can determine fair market value.

To illustrate how much money you are leaving on the table, we’ve done two sets of calculations. In one scenario, we took the difference between the “official” price tag of $220.8 million and the high appraisal of $262 million ($41.2 million), and calculated the value of that over 50 and 100 year periods.

In another scenario, we assumed that the Land Board took the “maximum revenue” approach by dispensing with appraisals and simply selling the Elliott via competitive bid with no public benefit requirements. For this scenario we picked $350 million as a conservative value for what the winning bid might be, then subtracted the official price of $220.8 and used the difference ($129.2 million) as the starting point.

We used two different assumptions about future return rates – the first being the 7.5% used by Oregon PERS, and the second a more conservative rate of 6.0%. The projections are below.

Elliott State Forest sale

Investment projections of net proceeds under various assumptions

Difference between high appraisal and sale price: $41.2 M
Interest rate 7.5% 7.5% 6.0% 6.0%
Time period 100 years 50 years 100 years 50 years
Present value $41,200,000 $41,200,000 $41,200,000 $41,200,000
Future value $56,982,781,049 $1,532,217,537 $13,979,245,841 $758,910,356
Difference between market price and sale price: $129.2M 7.5% 7.5% 6.0% 6.0%
Time period 100 years 50 years 100 years 50 years
Present value $129,200,000 $129,200,000 $129,200,000 $129,200,000
Future value $178,693,575,522 $4,804,915,187 $43,837,829,190 $2,379,883,932

Notice the stunning difference in earnings between the first 50 years and the second 50 years. This is, of course, the miracle of compounding. The refusal of the Land Board to sell off this land in a traditional auction will likely cost public school students somewhere between $44 billion and $179 billion in lost earnings by 2117, and much more in the centuries beyond that. 

You have a fiduciary responsibility to the CSF beneficiaries to get the best possible price for the timberland. That can only come through a traditional auction. I urge you to set aside the one offer in front of you and direct the DSL staff to design a new, competitive bid sale protocol to be implemented during 2017.

Sincerely,

John A. Charles, Jr.

President & CEO

Cascade Policy Institute

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Portland’s Regional Transit Strategy Is Not Working

By John A. Charles, Jr.

The Portland Auditor released the 2016 Annual Community Survey on November 30. The responses show that the share of all commute trips taken by public transit fell 17% during the past year.

This was part of a longer-term decline in transit use. The transit share of all Portland commute trips peaked in 2008 at 15%. Since then it has hovered near 12%, and now rests at 10%.

Taxpayers should be especially concerned about the negative correlation between passenger rail construction and market share. In 1997, when the region had only one light rail line—the Blue line to Gresham—transit market share was 12%.

After extending the Blue line to Hillsboro and adding four new lines plus the WES commuter rail and the Portland Streetcar, transit market share is only 10%.

Travel Mode Share for Weekday Commuting

Portland citywide, 1997-2016

Mode 1997 2000 2004 2008 2010 2012 2014 2015 2016
                   
SOV 71% 69% 72% 65% 62% 61% 63% 60% 61%
Carpool 9% 9% 8% 8% 7% 6% 6% 5% 6%
Transit 12% 14% 13% 15% 12% 12% 11% 12% 10%
Bike 3% 3% 4% 8% 7% 7% 8% 7% 8%
Walk 5% 5% 3% 4% 6% 7% 8% 9% 9%
Other n/a n/a n/a n/a 7% 6% 6% 7% 7%

      Source: Portland Auditor, Annual Community Survey

The numbers cited above are for citywide travel patterns. When broken out by sector, the Auditor found that just 5% of all commuters in Southwest Portland took transit to work in 2016. Despite this lack of interest by commuters, TriMet and Metro are working to gain approval for another light rail line extension from Portland State University through SW Portland to Bridgeport Village. The likely construction cost will be around $2.4 billion.

Unfortunately, there is no empirical basis for thinking that cannibalizing current bus service with costly new trains would have any measurable effect on transit use.

Transit advocates like to claim that we simply need to spend more money to boost ridership, but we’ve already tried that. TriMet’s annual operating budget went up from $212.2 million in 1998 to $542.2 million in 2016. After adjusting for inflation, that’s an increase of 72%. Those increases were on top of construction costs for rail, which cumulatively exceeded $3.6 billion during that era.

It’s time to stop the myth-making and start holding public officials accountable for a plan that isn’t working.


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

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How Much Is the Elliott State Forest Worth to Oregon Schools? (Don’t Forget the Value of Compounding)

By John A. Charles, Jr.

Advocates of public schools frequently complain about the need for more money, yet many of them are now objecting that the State Land Board is on the verge of selling off the Elliott State Forest, which is an endowment asset for public schools.

The fact is, the Land Board is required by the Oregon Constitution to maximize revenue from the Elliott. The sale has to go forward because timber management is no longer profitable. But the Board should insist on competitive bids, which it is currently prohibiting. The Board should also remove all restrictions on future timber harvesting.

If the Elliott were sold in a competitive auction, it would likely go for $350 million or more. Let’s assume that the proceeds were invested in a manner similar to the PERS fund and had average annual returns of 7.5%, which is the target rate for PERS.

After 50 years, the investment would be worth $13 billion; but after 100 years, it would be worth $487 billion. The huge difference in the two time periods is due to the miracle of compounding.

Do school funding advocates have a better idea for raising $487 billion? If not, they should support an auction sale of the Elliott State Forest.


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

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Power Is the Narcotic of Choice for Politicians

By John A. Charles, Jr.

Oregon’s free-market research center, Cascade Policy Institute, celebrated its 25th anniversary with a gala dinner party on October 20 at the Tualatin County Club. Since its founding in 1991, Cascade has emerged as a leading voice for individual liberty and economic opportunity. Building coalitions with others, Cascade has helped develop innovative policies such as Oregon’s charter school law and the more recently enacted Right-to-Try statute.

Cascade helped Ethiopian immigrants break the Portland taxi cartel and secure a license to operate a new company. The Institute also helped a young Black woman start her hair-braiding business by persuading the legislature to repeal onerous licensing regulations.

And a paper first published by Cascade in 1996 suggesting that 84,000 acres of the Elliott State Forest be sold off helped persuade the State Land Board to do just that; a sale will be approved by the Board in December of this year.

However, such advancements will be tougher to come by in the years ahead, because the culture of Oregon has changed. The permanent political class that now rules the state has little respect for the entrepreneurial spirit.

The 2016 legislative session served as Exhibit A for this change. In the short space of 30 days, the majority party rammed through two major pieces of legislation: (1) a dramatic increase in the minimum wage; and (2) a mandate forcing electric utilities to provide 50% of their retail load from designated “renewable energy” sources.

Each bill only received a few hearings. Vast areas of complexity were brushed aside as unimportant. When hundreds of witnesses showed up pleading for a more incremental approach, they were dismissed. In 35 years of lobbying, I had never seen anything like it.

This was in contrast to Cascade’s early years, when the organization sponsored “Better Government Competitions” in 1994, 1996, 1998, and 2000. These events solicited good ideas from citizens about how to make government work better. Top officials including Governor John Kitzhaber and Portland Mayor Vera Katz enthusiastically endorsed Cascade’s “citizens’ suggestion box.”

Today, many elected officials openly disdain the public they serve. They don’t want your ideas, just your obedience and your tax dollars. Moreover, if you compromise and give them half of what they want today, they’ll be back for the rest tomorrow.

Nowhere was that more evident than with the so-called “coal to clean” bill in 2016. Why was this topic even being discussed when only nine years ago the legislature passed SB 838, which mandated that large electric utilities procure 25% of their power needs from specified “renewable energy” sources by 2025?

SB 838, passed in 2007, was seen as a visionary achievement. The leading legislative advocates, Senator Brad Avakian and Representative Jackie Dingfelder, were exultant. Oregon was now on a path to renewable energy Nirvana!

Yet by 2016, the “25 by 25” banner was seen as wimpy and out of date. Oregon’s perceived reputation as an international environmental leader had been undercut by legislation elsewhere. So the new (arbitrary) standard became “50% by 2040.”

We can do better than this. Perhaps if Measure 97 fails, legislators will stop looking for quick fixes and work together on tax reform. There are officials in both parties willing to tackle PERS reform and transportation finance, if the Majority party allows it.

Replacing hubris with humility would be a good first step.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in the October 2016 edition of the newsletter, “Oregon Transformation: Ideas for Growth and Change.”

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Something’s Rotten in Metro’s Missing Garbage Tax Money

By John A. Charles, Jr. and Allison Coleman

Metro is asking for a new tax levy this November (Measure 26-178 on your ballot) despite the fact that it already has sufficient funds to operate all its parks.

In 2002, the Metro Council enacted a garbage tax for the specific purpose of funding operations and maintenance of Metro parks. That amount was raised to $2.50 per ton in 2004. Between 2002 and 2015, the garbage tax brought in $46.8 million for Metro parks.

Given that Metro raised all this money for parks, why is Metro asking for voter approval of another $80 million parks levy in the upcoming November election? Where did the $46.8 million in garbage tax money go?

The answer can be found in a bait-and-switch ordinance adopted by Metro in 2006. The Council amended the Metro Code to retain the garbage tax, but “undedicate” its use so that revenues would be swept into the Metro General Fund.

Since 2006, regional taxpayers have paid more than $32 million in garbage taxes that should have gone to parks, but instead went to other purposes. We’ve heard the scare stories before, but it’s time to call Metro’s bluff. Voters should reject the Metro tax levy and demand that all money from the garbage tax be rededicated to parks maintenance, as promised 14 years ago.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. Allison Coleman is a Research Associate at Cascade.

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Metro’s $32 Million Broken Promise

— Why You Should Vote Down Metro’s Natural Area Levy

By John A. Charles, Jr. and Allison Coleman

In 2006, the Metro Council submitted to the voters a general obligation bond measure in the amount of $227.4 million to fund natural area acquisition. The measure was approved.

In a little-noticed appendix to Resolution No. 06-367A, the Metro Council stated that greenway lands acquired with bond funds would be land-banked with limited maintenance beyond initial site stabilization and possible habitat restoration. The Council noted that it had the financial means to carry out this promise:

“Once the 2006 Natural Areas Bond Measure is approved by voters, Metro will commit existing excise taxes to this basic level of maintenance, with Metro having sufficient resources currently to manage the newly acquired properties in this manner for a period of approximately ten (10) years.”

If the phrase “existing excise taxes” seems puzzling, there’s a reason; almost no one remembers that in 2002, the Metro Council enacted a garbage tax of one dollar/ton for the specific purpose of funding operations and maintenance (O&M) of parks. That amount was raised to $2.50/ton in 2004. Between 2002 and 2015, the garbage tax brought in $46,789,044 for Metro parks.

Metro Solid Waste Excise Tax

Dedicated to natural area maintenance

 

Year Excise Tax Tonnage Total Revenue
2002 $1.00 1,251,823 $1,251,823
2003 $1.00 1,362,204 $1,362,204
2004 $2.50 1,563,884 $3,909,710
2005 $2.50 1,626,255 $4,065,637
2006 $2.50 1,720,168 $4,300,420
2007 $2.50 1,613,848 $4,034,620
2008 $2.50 1,524,370 $3,810,925
2009 $2.50 1,381,326 $3,453,315
2010 $2.50 1,320,992 $3,302,480
2011 $2.50 1,248,191 $3,120,477
2012 $2.50 1,297,716 $3,244,290
2013 $2.50 1,373,612 $3,434,030
2014 $2.50 1,431,132 $3,577,830
2015 $2.50 1,568,513 $3,921,282
Total Revenue     $46,789,044

Given that Metro raised all this money for parks, and promised no new taxes before 2016, why did Metro place an operating levy on the ballot in 2013 for parks maintenance (which passed); and why is Metro asking for voter approval of another $80 million parks levy in the upcoming November election? Where did the $46.8 million in garbage tax money go?

The answer can be found in a bait-and-switch ordinance adopted by Metro just a few weeks after the bond measure was referred out to voters in March 2006. The Council amended Metro Code Section 7.01.023 to retain the $2.50/ton excise tax, but “undedicate” its use so that revenues would be swept into the Metro General Fund.

Since 2006, regional taxpayers have paid more than $32 million in garbage taxes that should have gone to parks O&M, but instead went to other purposes.

Instead of owning up to this chicanery and restoring the garbage tax as a dedicated revenue source, Metro officials continue to make the case for a new property tax. In a 2011 publication, Metro claimed, “…the existing financial model is not sustainable. Metro’s portfolio of land continues to grow, while the general fund resources needed to support it are decreasing.”

In a more recent document, Metro asserted, “In Metro’s general fund, which pays for many primary programs and support services, costs continue to rise faster than revenues.”

Both of these claims are false. In 2011 Metro was already taking in more than $3 million annually in garbage tax revenue for parks. By the end of 2015 it was nearly $4 million.

Meanwhile, Metro was swimming in a sea of new revenue. The Metro Auditor found that during the 10-year period of 2003-2013, total annual revenue went up 22% in real terms, while total expenses went up only 16%. Annual revenue per capita for the Metro region went up 7%; expenses per capita increased by only 4%.

Metro Councilors now state that if voters refuse to approve a new tax levy in November, the agency will “have to ramp back pretty much everywhere.”

We’ve heard the scare stories before, but it’s time to call Metro’s bluff. Voters should reject the Metro tax levy (Measure 26-178 on your ballot) and demand that all money from the $2.50/ton garbage tax be rededicated to parks maintenance, as promised 14 years ago.


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

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Light Rail to Bridgeport Village: The Dumbest Train Project Yet

By John A. Charles, Jr.

TriMet and Metro are promoting the idea of a new light rail line from Portland State University to the Bridgeport Village shopping mall in Tualatin.

The question is, who would ride it?

We already know from experience that mall shoppers prefer private cars to trains. The Red Line to the airport was opened in 2001 specifically to service the Cascade Station shopping center, which is anchored by IKEA, Target, and Best Buy. Field observations conducted by Cascade Policy Institute in 2010 and again in 2016 showed that more than 98% of all passenger-trips to and from Cascade Station are made in private automobiles. Light rail is simply irrelevant.

The same is true for Gresham Station, another shopping center specifically built around a light rail stop. Regardless of the time-of-day or day-of-week, virtually all trips to and from Gresham Station are made in private vehicles.

The Green MAX line, which terminates at Clackamas Town Center, has also had no effect on travel patterns at the mall.

In order for the Bridgeport Village line to be built, Tigard residents will need to approve the city’s participation in the project by voting for Measure 34-255 in the November election. Local voters should learn from experience and turn down this measure. Light rail through Tigard would be a total waste of money.

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Measure 97 and the Mirage of School Funding

— Voters are destined for disappointment

 

By John A. Charles, Jr.

Proponents of Measure 97 have consistently claimed that if the measure passes, it will generate an additional $3 billion annually for public education and other social services. Judging from the comments I’ve read in various Oregon newspapers, many people are falling for this argument.

Apparently none of the letter writers have ever watched a legislative appropriations hearing. These are the meetings where a tiny group of senior politicians sit in a back room and decide how to spend billions of dollars. I’ve watched hundreds of such hearings, and the most predictable outcome is that politicians will spend money in front of them on whatever they want.

Let’s just take a simple example. Oregon was one of 44 states that sued the tobacco industry in the mid-1990s to recover the health care costs associated with smoking. Plaintiffs claimed that the tobacco industry had long been imposing uncompensated costs on states in the form of health care for smokers who became sick from use of the product.

The suit was settled through adoption of a Master Settlement Agreement (MSA) with the four largest tobacco manufacturers. As part of the agreement, each state was to receive payments every year from 1998 through 2025.

According to the plaintiffs, the estimated $25 billion of MSA money was supposed to be used for tobacco prevention activities and health care subsidies necessary to treat smoking illnesses. But that was not a formal part of the agreement. Each state was free to use the funds in whatever way its state legislature approved.

In Oregon, total MSA funds received since 1998 have exceeded $1.26 billion. Almost all of it was spent on programs that had nothing to do with tobacco cessation or public health. Only 0.8 percent was appropriated for tobacco prevention programs.

How could this be? They promised!

Yes, Virginia, they promised. But every two years, 90 legislators show up in Salem, and they each have their own priorities. Once you put a pot of money on the table for them to spend, it’s game over.

Almost no one in the Capitol remembers what the MSA was, and, furthermore, they don’t care. They only care about spending money for the stuff they want right now.

Measure 97 is a horrible tax proposal, for many reasons. It unfairly targets a small subset of all businesses directly, but hits all businesses and all of us indirectly. It taxes sales but not profits. It would be the largest tax increase in Oregon history.

But if voters ignore these concerns and approve it anyway because they think it will increase funding for schools, they are destined for bitter disappointment.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in the September 2016 edition of the newsletter, “Oregon Transformation: Ideas for Growth and Change.”

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MAX at 30: Portland Transit Needs a New Plan

September 5 marked the official 30th anniversary of the opening of TriMet’s light rail system. Like many Portland residents, I took a free ride that day and felt that this was a big step forward for transit service.

Unfortunately, actual performance never lived up to the hype. My hopes for “high-speed” transit were dashed when I discovered how many stops there were. The average train speed today is only 18 MPH.

My expectation that MAX would include five or six train cars was also incorrect. There are only two cars per train on MAX, and there will never be more than two cars because Portland has 200-foot blocks in downtown. Longer trains would block busy intersections.

The cost of construction also spiraled out of control. The Orange line to Milwaukie cost $210 million per mile, making it hundreds of times more costly than simple bus improvements.

In short, MAX is a low-speed, low-capacity, high-cost system, when what we really need is just the opposite—a higher-speed, higher-capacity, low-cost system.

Regional leaders should pull the plug on any more rail and start focusing on the future of transit, which will feature driverless vehicles, door-to-door delivery, and private car-sharing services such as Uber Technologies.

The passenger rail era died a hundred years ago. It’s time for Portland to get into the 21st century.

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Repeating Mistakes Is Not a Housing Strategy

The Portland City Council has approved a plan for the Housing Bureau to lease industrial land in North Portland for $10,000 per month, beginning October 7. The site is to be used for the construction of a large homeless shelter that potentially could serve up to 1,400 people. This idea, pushed by developer Homer Williams, was rushed through with virtually no due diligence.

Before additional money is spent, the City Council should carefully analyze what went wrong in two previous construction projects. First was the $58-million Wapato Jail built by Multnomah County in 2004, but never operated. With 525 beds in pristine condition, one would think there is potential for this site to temporarily house at least a few people now living under bridges.

Second, in 2011 Portland opened the $47 million Bud Clark Commons, which includes 130 studio apartments and extensive social services for low-income individuals. It was a nice idea, but the police have been called so often to the Commons that in December 2013, then-Chief Mike Reese told the Portland City Council that he was considering filing a chronic nuisance property complaint against the shelter.

Both structures were built with good intentions, but things did not go as planned. Let’s learn from the past before repeating mistakes in the future.

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Oregon Land Board Low-Balls Elliott Timber with Fixed-Price “Bidding”

Last week the Oregon Department of State Lands announced the “fair market value” of 82,450 acres of Common School Trust Lands within the Elliott State Forest as $220.8 million. The number was picked by Roger Lord of the consulting firm Mason, Bruce & Girard after analyzing three different professional appraisals. Proceeds from the land transfer will go to the Common School Fund and be invested for the long-term benefit of public school students.

At a public meeting held in Salem, the Director of the Department, Jim Paul, reiterated that anyone hoping to acquire the 82,450 acres must offer exactly $220.8 million. Any offer above that will be considered “outside the protocol” and deemed “non-responsive.” This announcement was the latest step in the Land Board’s plan to dispose of the Elliott property in a non-competitive bid process.

The Land Board has invented a “fair market” value of the Elliott timberland without allowing a market to actually function. The price investors are willing to pay might be higher than $220.8 million, or even multiples of that number. Unfortunately, we’ll never know because the Land Board is refusing to take competitive bids. Clearly, this is a breach of fiduciary trust. Public school students, teachers, and parents deserve to get top dollar in this once-in-a-lifetime sale of a public asset.

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Portland Schools Need Radical Change, Not Just a New Superintendent

Portland school superintendent Carole Smith abruptly resigned in July, after nine years on the job. She was originally planning to retire next June, but the release of an independent investigation into the district’s inept handling of contaminated drinking water caused her to speed up her departure.

The school board immediately announced a national search for a successor, and the rest of the story is predictable. After months of searching, finalists will be scrutinized in a detailed public vetting, and someone will be signed to an expensive contract. The new leader will enjoy a short honeymoon and then gradually sink into the bureaucratic quagmire of school politics.

Amidst never-ending arguments about school transfers, graduation rates, and a myriad of other issues, buyer’s remorse will set in. Eventually the superintendent will resign and the process will begin anew.

This is the way we’ve been doing things for decades, usually with disappointing results. We could take a different path. But first we have to admit that if system results are disappointing, we need to change the system, not the people.

Large urban school districts are inherently dysfunctional. Teaching is a distributed service; the learning takes place student by student, classroom by classroom. When measured in terms of students, teachers, money, and facilities, there are millions of moving parts. The notion that a single bureaucrat in the central office can design the optimal system to satisfy all customers is a fantasy.

The system itself needs radical change, and the single most important reform Portland could pursue would be to redesign how the money flows.

Right now, tax dollars go to the district, regardless of results. Students are assigned to schools like factory widgets and few families have other options. The suppliers of service have all the leverage, while consumers have almost none.

A better option would be for the district to seek legislative approval of Educational Savings Accounts (ESAs). The ESA concept is simple: Parents who are dissatisfied with the government school assigned to them can opt to have most or all of the per-student money that would have gone to that school for their children deposited instead in personal accounts managed by the state treasurer. The funds in each account become property of the family and may be used for a variety of educational services, including private education, home schools, online learning, and tutoring.

Ideally, any money left over at the end of a school year would remain in the account, available for future use. This would encourage wise stewardship of those funds. If the account still had money at the time the student graduated from high school, it could be used for college tuition or technical training.

Distributing school funding through consumers rather than providers would instantly change the balance of power. High-cost union contracts would have to change. Parents would need to be satisfied. And market discipline would replace ineffective top-down management.

Most parents would probably not use ESAs. It’s likely they are satisfied with their neighborhood school and wouldn’t want the hassle of shopping around. But the mere fact that they could use an ESA would create incentives for teachers and administrators to behave differently. When suppliers of a service know that 100 percent of their customers have the means to shop elsewhere, they focus on satisfying those customers.

Carole Smith was neither the worst nor the best Portland school superintendent in recent memory; she was just part of the conveyor belt of socialism that defines generic government education. Stopping the conveyor belt would be a good first step toward liberating students and improving educational achievement in Portland.


This article originally appeared in the July 2016 edition of the newsletter, Oregon Transformation: Ideas for Growth and Change.

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Oregon Land Board Low-Balls Elliott Timber at $220.8 Million

FOR IMMEDIATE RELEASE

Media Contact:
John A. Charles, Jr.

503-242-0900

john@cascadepolicy.org

 

PORTLAND, Ore. – Today the Oregon Department of State Lands announced the “fair market value” of 82,000 acres of Common School Trust Lands within the Elliott State Forest as $220.8 million.

The number was picked by Roger Lord of the consulting firm Mason, Bruce & Girard after analyzing three professional appraisals which valued the land at $262 million, $225 million, and $190 million, respectively.

All proposed “Elliott Acquisition Plans” are due to the Department of State Lands by 5:00 p.m. November 15, 2016. If there are multiple plans accepted, the Oregon Land Board will choose the winning offer at its December meeting. Proceeds from the land transfer will go to the Common School Fund and be invested for the long-term benefit of public school students.

At a public meeting held in Salem, the Director of the Department, Jim Paul, reiterated that anyone hoping to acquire the 82,000 acres must offer exactly $220.8 million. Any offer above that will be considered “outside the protocol” and deemed “non-responsive.”

Today’s announcement was the latest step in the Land Board’s plan to dispose of the Elliott property in a non-competitive bid process. This prompted Cascade Policy Institute President John A. Charles, Jr. to make the following statement:

“The Land Board has invented a ‘fair market’ value of the Elliott timberland without allowing a market to actually function. The price investors are willing to pay might be the $262 million appraisal, or it could be multiples of that number. Unfortunately, we’ll never know because the Land Board is refusing to take competitive bids. Clearly this is a breach of fiduciary trust. Public school students, teachers and parents deserve to get top dollar in this once-in-a-lifetime sale of a public asset.”

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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Portland Schools Need More Than a New Superintendent

Portland school superintendent Carole Smith announced her resignation this week after nine years on the job.

The next steps are predictable: The school board will conduct a national search for a successor and eventually sign someone to an expensive contract. After a short honeymoon, the new leader will sink into the bureaucratic quagmire and leave after a short and forgettable tenure.

Management experts know that if system results are disappointing, you need to change the system, not the people. The single most important change Portland could make would be to redesign how the money flows.

Right now, tax dollars go to school bureaucracies, regardless of results. Students are assigned to schools like widgets in a factory, and few families have a “Plan B” if they are unhappy.

A better option would be to enact Educational Savings Accounts (ESAs). This would allow every family to have their share of per-student revenue diverted from the bureaucracy to the student’s ESA, where alternative services could be purchased. Families would instantly have dozens of exciting options.

Equally important, ESAs would incentivize school administrators to make each school perform at a high level, thereby benefiting all students, including those not using ESAs.

Carole Smith made her share of mistakes, but the Portland school district needs institutional change more than it needs a charismatic new leader.

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Trust Lands Should Be Auctioned to High Bidder to Benefit Schools

In his recent guest column in The Oregonian, Director of the Oregon Department of State Lands Jim Paul summarizes the history of the Elliott State Forest. He correctly notes that the Common School Trust lands within the Elliott must be managed as an endowment asset for public schools.

Since the Elliott is now a net liability instead of an asset due to environmental litigation, the State Land Board has appropriately concluded that the Trust Lands should be sold.

Unfortunately, the sale will not take place through competitive bidding, because this is not an auction. On July 27, the Land Board will announce the results of an appraisal and set the sale price as the appraised price. If you dare to offer even one dollar more, your bid will be set aside by state lawyers as “nonresponsive.”

The three Land Board members – the Governor, the Secretary of State, and the Treasurer – do not want prospective purchasers to compete on price. They want them to compete on four non-financial variables, which will greatly complicate the sale process.

All offers must include at least the following set of “public benefits”: (1) at least 50 percent of the timberland must remain open for public recreational use even after it is transferred to new owners; (2) 120-foot no-cut buffers on each side of fish-bearing streams must be left permanently untouched; (3) at least 25% of the older stands of trees must be left standing; and (4) at least 40 full-time jobs annually must be provided over the first ten years of ownership.

If there are multiple offers at the same mandated price, the tie will be broken by the strongest package of these public benefits. But that turns the process into a beauty contest. There is no objective way to compare an offer with 130-foot buffers with another offer that has only 120-foot buffers but proposes to employ 50 people each year rather than 40.

Public school students, parents, and employees deserve to receive fair market value for surrendering this asset. An “appraisal” is not the same as market value.

Evidence of this is everywhere. For example, almost everyone selling a home in Portland right now knows that the final sale price is likely to be higher than the listed price, because the Portland market is red-hot.

When the State of Indiana decided to lease the operations of the state turnpike to a private vendor in 2006, the “experts” estimated that it might be worth $2 billion. In fact, the winning bid from a Spanish-Australian consortium was $3.8 billion.

In 1984 the Portland Trail Blazers famously appraised the value of Michael Jordan to be lower than that of Sam Bowie. Subsequent events proved that the Trail Blazers had made one of the worst talent “appraisals” in pro sports history.

And just last month, a Chinese investor paid $3.4 million for one lunch with investor Warren Buffet (the purchaser gets to bring seven of his closest friends). How many of us, if asked on the street, would have appraised a single lunch with anyone as being worth $3.4 million?

But that’s the point of competitive bidding. Only the market knows the value of an asset. If even one person in the world is willing to pay millions for a single lunch, then that is exactly what the lunch is worth. If we don’t allow a market to set the price of Elliott State Forest timberland, we’ll never know its true value.

There is a simple fix to this problem. The Land Board should require that all offers for the Elliott Trust Lands include the mandated four public benefits, and then select the highest responsible bid.

School beneficiaries such as local school boards, employee associations, and parent booster groups should prepare now to sue the Land Board for breach of fiduciary trust if the Board continues with its absurd plan to give away Common School Trust Lands without competitive bidding. The appraised value announced on July 27 should be the starting point for competitive offers, not the end point.


A version of this article originally appeared in The Oregonian on July 14, 2016.

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"Beyond Traffic" Has a Different Meaning in Portland

Portland is one of seven cities still in the running for a $50 million grant as part of the “Beyond Traffic” challenge sponsored by the federal Department of Transportation.

While the idea of solving traffic congestion sounds great, that is not an actual goal of Portland planners. In fact, local officials are trying to make traffic worse, by downsizing roads and lowering traffic speeds. As part of this campaign, a northbound travel lane on Naito Parkway was recently removed, and later this year two lanes on Foster Road will be eliminated.

Portland planners think we drive too much, so they want $50 million in federal funds to develop new data collection systems to encourage people to travel by bus, train, or bike. Since most people prefer a car, this will be a big waste of public money.

The transportation challenge for Portland is the need for an expanded highway system. Experimenting with technologies such as electronic tolling as a way of paying for that expansion might have been a useful grant application. But Portland planners don’t want to grow the system; they’d rather keep it small and congested, then use fancy technology to entice a few people onto a slow bus.

This is not a plan that will move us “beyond traffic.”

Updated as of 6/22: According to The Oregonian, the U.S. Department of Transportation has selected Columbus, Ohio as the winner of the federal “Smart City-Beyond Traffic” competition.

With this distraction out of the way, perhaps city planners can turn their attention to something more useful, such as finding ways to actually reduce traffic congestion in Portland.

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Portland Schools Schedule Book-Burning Party

The Portland Public School board recently voted to prohibit textbooks or classroom materials questioning the mainstream thinking about climate change.

The decision has sparked an outpouring of commentary, with many writers supportive of the School Board.

However, the wording of the Board resolution should greatly concern parents of Portland public school students. Resolution No. 5272 is two pages long, but the most chilling part is the final sentence:

“[Portland Public Schools] will abandon the use of any adopted text material that is found to express doubt about the severity of the climate crisis or its root in human activities.”

The primary purpose of education is to teach students how to be critical thinkers. Now that the School Board has declared that expressions of doubt about complex scientific topics will be banned, what is the point of going to school?

Regardless of the subject we should encourage students to be skeptical. The more questioning, the better. They will be poorly prepared for adult living if they spend their childhood years being spoon-fed in schools where skepticism is prohibited.

Public education already faces a growing challenge from private schools, online learning, and home-based education. If Resolution 5272 is upheld, Portland Public Schools will give parents one more reason to leave.

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If Gambling Is a Problem, Who Is Responsible?

Governor Kate Brown opposes a plan by the Coquille Indian Tribe to build a casino in Medford.

In her public statement, the Governor said she opposes the addition of any more casinos because “even a single additional casino is likely to lead to significant efforts to expand gaming across Oregon to the detriment of the public welfare.”

Her concern for the public welfare is touching, but if one simply “follows the money” associated with the state’s own gambling franchise—the Oregon Lottery—it’s clear that the Governor has little regard for the health of Oregon citizens.

The Oregon Lottery is a state-run monopoly using a network of 3,939 retailers to offer players a wide choice of games, including Scratch-its, Keno, Powerball, Win for Life, Mega Millions, Lucky Lines, and Pick 4.

In addition, the Lottery has approximately 11,925 Video Lottery terminals deployed throughout the state. These terminals accounted for 71.5% of total sales in 2015 and are highly addictive. According to the Oregon Health Authority, roughly 90% of problem gambling in Oregon is associated with Lottery video machines.

In 2015, Oregon earned $1.2 billion from the state Lottery. In January, Powerball mania resulted in record sales of $36 million in one week. An Oregon Lottery spokesman said, “Any time sales go up, that’s a good thing for our beneficiaries.”

Who are these beneficiaries? By law, 57% of net Lottery revenues support public education. Activities loosely defined as “economic development” get 27%. State parks and salmon enhancement programs split 15% of revenues.

Those activities account for 99% of all Lottery funds. The last 1% gets allocated for problem gambling. The state estimates that 81,800 adults and 4,000 adolescents have a gambling addiction.

If Governor Brown were so interested in the “public welfare,” she would be advocating for an increase in the percent of Lottery funds dedicated to the 86,000 problem gamblers. This would at least give her some moral high ground to stand on before criticizing a casino proposed by the Coquille Tribe.

But despite total control of the legislative process by the Democratic Party, the Governor has not made this a priority.

Oregon’s misuse of tobacco tax money is even more egregious. Oregon was one of 44 states that sued the tobacco industry in the mid-1990s regarding the health care costs associated with smoking. As a result of a Master Settlement Agreement (MSA) with the four largest tobacco manufacturers, each state was to receive payments every year from 1998 through 2025.

According to the plaintiffs, MSA money was supposed to be used for tobacco prevention activities and health care subsidies necessary to treat smoking illnesses, but that was not a formal part of the agreement. Thus, each state was free to use the funds in whatever way its state legislature approved.

In Oregon, total MSA funds received since 1998 equal $1.26 billion—yet only 0.8% of the money has been used for tobacco prevention activities.

The Governor’s hypocrisy associated with the use of tobacco and gambling profits is embarrassing. She should clean up her own house before she starts lecturing any of the Tribes about their casino expansion plans.


This article originally appeared in The Coos Bay World on May 24, 2016.

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Google’s War on the Poor

Google announced recently that it would no longer run ads for payday loans, the short-term loans that typically have high annual interest rates due to the poor credit of customers.

Google’s decision is significant because many states (including Oregon) have effectively regulated payday lenders out of existence, so much of the business has moved online. If Google cuts off ads, potential customers will have a more difficult time getting loans.

Google undoubtedly considers this decision part of its “corporate social responsibility.” What they overlook is the adverse impact it will have on low-income individuals. A week ago, payday loan customers had few legal options for short-term borrowing. Now they have even fewer.

When the Oregon legislature outlawed much of the payday lending industry in 2007, the most striking aspect of the public debate was the total absence of payday loan customers. Borrowers themselves weren’t the ones complaining about high interest rates; it was the upper-income Progressives, who didn’t need payday loans.

Google has been one of the most successful companies in American history. The company should stick to its core business and stop trying to protect payday loan customers by censoring ads. Borrowers don’t need that kind of help.

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Why is the State Land Board selling the Elliott State Forest without competitive bidding?

In August 2015 the Oregon Land Board (Governor Kate Brown, Secretary of State Jeanne Atkins, and Treasurer Ted Wheeler) voted to sell roughly 82,450 acres of “Common School Trust Lands” within the Elliott State Forest because the state was losing money on those lands. Under Oregon law, School Trust Lands are supposed to make money for schools.

Given the ongoing losses, the Board reached the correct decision. Unfortunately, the sale protocol adopted by the Board is bizarre. The Board will establish a price for the land based on appraisals, and that will be the only price accepted. If you dare to offer $1 more, your offer will be declared “non-responsive.”

How can this make sense when Trust Lands serve an as an endowment for public schools? Trustees of any endowment have a fiduciary obligation to make decisions in the best interest of beneficiaries. The 82,450 acres of timberland being sold in the Elliott may be worth anywhere from $300 million to more than $400 million, but no one knows the exact value. Setting a non-negotiable price through appraisals means that potentially vast amounts of money could be left on the table.

Anyone who has been to a charity fundraising auction knows that the estimated value of something frequently turns out to be wrong—by a lot. That’s why we have competitive bidding.

The same is true in business transactions. Just last month, for example, Alaska Airlines bought Virgin Airlines for $2.6 billion, or $57/share—a price that was 80% higher than what the shares had been trading for prior to the sale.

Instead of bidding on price, the Land Board plans to pick a winning offer based on which prospective purchaser has the best package of “public benefits.” The minimum level of benefits has been defined by the Board as the following: (1) at least 50 percent of the purchased timberland must remain open for public recreational use; (2) no-cut buffers of 120 feet on each side of fish-bearing streams must be left permanently untouched; (3) at least 25% of the older stands of trees must be left intact; and (4) at least 40 full-time jobs annually must be provided over the first 10 years of new ownership.

These benefits may have merit, but using them as the way to choose the best offer will turn the sale protocol into a beauty contest. There is no objective way to compare an offer including 130-foot buffers with another offer that has only 120-foot buffers but proposes to employ 50 people each year rather than 40.

This protocol is going to create a nightmarish decision process for the three Land Board members, while violating their fiduciary obligations to schools.

There is an easy solution to this problem: Simply make the four public benefits a minimum requirement, and then pick the highest-price offer meeting those requirements. Maybe we’ll find out that the Elliott is worth a lot more than it’s been appraised for.

Anyone who works at a public school, serves on a school board, or has a child enrolled at a public school should be outraged at this giveaway.


This article originally appeared in the Salem Statesman Journal on April 30, 2016.

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Get Ready for High-Cost Electricity

In the recently concluded session of the Oregon legislature, the big environmental “win” was Senate Bill 1547, a bill that was hatched in secret by two large utilities and a group of environmental activists. The bill promises to rid the Oregon electricity grid of coal-fired power and to double the required levels of “renewable energy” from 25 percent to 50 percent by 2040.

When the legislature was debating SB 1547, members were calmly assured by proponents that the cost of these requirements would be minimal. They were reminded that the existing standard of 25 percent (by 2025) had always included an “off-ramp” if the cost of compliance reached 4 percent of utility revenue—and the costs had never come close to 4 percent.

Indeed, compliance costs for PGE in 2014 were only 0.24 percent of revenue (or $4.2 million in dollar terms). Obviously, ratepayers had nothing to worry about.

This storyline was especially soothing when it was repeated by Sen. Lee Beyer, former member and chair of the Oregon Public Utilities Commission. In his grandfatherly way, he told his colleagues that everything was under control.

The problem with this narrative was that it’s highly misleading. What the advocates didn’t say was that the reason the cost of compliance so far has been low is that utilities only needed to get 10 percent of their power from designated renewable energy sources through 2014. However, from 2015 to 2019, the requirement jumps to 15 percent, and rises steadily after 2020.

No one actually knows how much it will cost to get 50 percent of the power from “green energy” sources by 2040, but it’s going to be expensive.

We get a hint of this in the PGE forecast for 2017-2021. For those five years, PGE predicts that compliance costs will total $335 million, or 3.46 percent of revenue. Those costs will have to be paid for by ratepayers, and they will get nothing in return.

Under SB 1547, the highest costs are back-loaded. Advocates know that when the program blows up a decade from now, it will be someone else’s problem. Many of the legislators who voted for it will be sitting poolside collecting their PERS checks.

Senate Bill 1547 is a fraud. Virtually every claim made by proponents is false. Instead of increasing our “energy security” by making the Oregon grid “coal-free,” it will dramatically increase the risk of power failure by force-feeding huge amounts of intermittent sources like wind and solar into the grid. In engineering terms, the electrical distribution system requires stability; SB 1547 mandates volatility.

System costs have to rise because consumers will be paying twice for the same power—once for the subsidized wind farms and again for the adult power sources used to back up the wind farms that sit idle most of the time.

The advocates also claim that SB 1547 will get coal out of the system by 2030; but Oregon’s only coal-fired power plant will be shut down in 2020 anyway. The notion that this bill will affect coal used in other states is laughable.

In his floor speech, Rep. Cliff Bentz summarized his criticism of SB 1547 by saying it was “long on symbolism, short on results, and really expensive for ratepayers.” Nonetheless, a majority of legislators voted for it, and the governor signed it.

Ratepayers deserved so much better. In 2017, repealing SB 1547 should be at the top of the legislative “to-do” list.

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Who Profits from Gambling?

Governor Kate Brown opposes a plan by the Coquille Indian Tribe to build a casino in Medford.

In her public statement, the Governor said, “even a single additional casino is likely to lead to significant efforts to expand gaming across Oregon to the detriment of the public welfare.”

What she actually means is she’s opposed to more gambling if it’s not run by state government.

During the current two-year budget cycle, Oregon expects to earn $1.2 billion from the state Lottery. In January, Powerball mania resulted in record sales of $36 million in one week. A Lottery spokesman said, “Any time sales go up, that’s a good thing for our beneficiaries.”

The hypocrisy of Oregon politicians about gambling and other so-called “sinful” activities is tiresome. We are constantly lectured to avoid smoking, drinking, and gambling because those activities are bad for us; but as soon as legislators get a cut of the action, it’s full steam ahead.

Now that recreational marijuana is legal and taxed, politicians are suddenly enjoying a new profit stream. Can marijuana advertising be far behind?

As soon as our governor starts reining in the state Lottery, I might take her concerns about tribal casinos seriously. Until then, she should stop pretending to be a voice of morality.

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Earning Their Keep: Do Elected Officials in the Portland Region Show up for Meetings?

By Nick Pangares and John A. Charles, Jr.

Most elected officials who serve on school boards or city councils do not get paid for service. However, for at least five governing jurisdictions in the Portland metro region, councilors do receive compensation. Those jurisdictions are: the Commissions for Multnomah, Clackamas, and Washington Counties; the Portland City Council; and the Metro Council.

This research examined the attendance records for all regularly scheduled meetings for the five jurisdictions during 2014 and 2015. In some cases, there were also “board briefings” or “work sessions” to attend.

In general, most elected officials attended a high percentage of meetings, either by being present or by participating via telephone. Group participation rates usually exceeded 85%, on average.

Washington County Commissioner Greg Malinowski had the best attendance record of all elected officials over the two-year period – 100% for both years. Multnomah County Commissioner Judy Shiprack had the worst two-year record – 70% for board briefings, and 80% for board meetings. She is termed-out and not running for re-election.

Summaries of the attendance records for all elected officials are below. The numbers indicate the percent of meetings where the officials participated.

 

Clackamas County Commission

Regular Commission Meetings

 

Ludlow Savas Schrader Smith Bernard
2014 98% 100% 82% 89% 89%
2015 98% 95% 93% 93% 89%

 

 

Multnomah County Commission

Regular Commission Meetings

 

Madrigal Kafoury McKeel Wendt Baily Smith Shiprack
2014 100% 98% 88% 98% 86% 90% 83%
2015 n/a 92% 97% n/a 89% 95% 77%

 

 

Multnomah County Commission

Regular Briefings

 

  Madrigal Kafoury McKeel Wendt Baily Smith Shiprack
               
2014 100% 93% 83% 97% 94% 90% 70%
2015 n/a 100% 100% n/a 65% 90% 70%

 

 

Washington County Commission

Regular Commission Meetings

 

  Duyck Malinowski Schouten Rogers Terry
           
2014 94% 100% 87% 87% 94%
2015 91% 100% 91% 88% 85%

 

 

Portland City Council

Regular Meetings

 

  Hales Fish Fritz Novick Saltzman
           
2014 92% 83% 92% 94% 85%
2015 97% 92% 97% 92% 85%

 

 

Metro Council

Regular Meetings

 

  Hughes Chase Craddick Harrington Stacey Collette Dirksen
               
2014 84% 97% 95% 97% 97% 97% 89%
2015 93% 98% 95% 98% 100% 98% 93%

 

 

Metro Council

Regular Work Sessions

 

  Hughes Chase Craddick Harrington Stacey Collette Dirksen
               
2014 85% 94% 96% 96% 96% 96% 94%
2015 89% 93% 93% 95% 98% 91% 91%

 

While taxpayers probably expect officials to show up, does attendance really matter? That depends. Strictly speaking, yes. Each body must have a quorum of members present to conduct business. If too many officials skip meetings, decisions can’t be made. So even if individual commissioners are ineffective, a minimum number of them are needed at any given meeting.

Moreover, at most public meetings where agenda items will be voted on, public testimony will be taken. Constituents have a right to expect that when they take the trouble to show up with prepared testimony, elected officials will be there to listen.

However, attendance has little to do with influence or effectiveness. Public meetings are a form of street theatre; all the key decisions have been made ahead of time behind closed doors. So an elected official with a spotty attendance record could easily be the most important member of the body – it’s just that the heavy lifting is being done out of sight.

For example, Portland City Commissioner Dan Saltzman had the lowest two-year record of attendance among all City Commissioners, but few observers would consider him ineffective. To the contrary, he may be the most influential member of the Council, especially with a Mayor who is not running for re-election.

Metro Presiding Officer Tom Hughes also had the worst attendance record among his peers. Yet any Council member hoping to advance new policy would hardly consider Councilor Hughes unimportant.

There are also extenuating circumstances. What we see may not reflect the whole story. According to Commissioner Malinowski:

“The issue of absences turns out to be apples and oranges most of the time. This is partially because 4 out of the 5 commissioners are part time, and most of the time the reason Commissioners miss meeting is because of prior obligations regarding outside County business. If you compare absences with the schedule of each commissioner, this is usually the case. However, meeting attendance and communication is critical, particularly when technical questions about County business need to be answered.”

When asked if there should be a required minimum participation rate for meetings, Commissioner Malinowski responded:

“Overall the honor system of attendance is working, and I don’t see a need for a minimum attendance rate requirement. Many times what happens is the Commission will cancel meetings if two or more Commissioners are going to be absent. This usually happens on Tuesday evening meetings.”

The value of attendance is ultimately determined by voters. Those who are satisfied with the performance of their representative may overlook a mediocre participation rate.

However, voters should remember two things. First, for the five jurisdictions featured in this report, elected officials get paid to show up. They are not volunteers.

Second, attendance does matter. If everyone takes a night off, no business gets transacted. And running a government entity is a business.

About the authors: Nick Pangares is a research associate at Cascade Policy Institute. John A. Charles, Jr. is President and CEO of Cascade Policy Institute and also serves on the board of a rural water district in Clackamas County. Volunteer Bob Ludlum assisted with data gathering for this report.

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TriMet’s Edifice Complex

Recently TriMet announced that after two years of planning for an expensive new “bus rapid transit” line from Gresham to Portland, the new service would actually take 8-11 minutes longer than current buses.

Over in Southwest Portland, TriMet is planning a $2 billion light rail line to Bridgeport Village near Tualatin, a suburban shopping mall.

Agency planners are fascinated with shiny new objects, but most riders don’t benefit. For example, between 2000 and 2015, TriMet opened five new rail lines, but the total vehicle-miles of daily transit service actually dropped by 5%.

It’s time to admit that TriMet’s basic business model is becoming obsolete. The agency is a sluggish monopoly that takes years to bring new service to market, while customers live in a smartphone world where they have millions of choices and same-day delivery.

In particular, the coming era of driverless vehicles will create entirely new businesses that will free riders from the tyranny of fixed-route transit service. Legacy systems such as TriMet will be stuck with a vast network of aging infrastructure that will be too expensive to maintain.

We don’t need another light rail line to Bridgeport, or a bus rapid transit line to Gresham. What we need is new vision of mobility in Portland.

(revised 4/6/16)

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Portland Chases Another Dream

The U.S. Department of Transportation announced this week that Portland is one of seven cities still in the running for a $50 million grant as part of DOT’s “Smart Cities” challenge. Portland is proposing to build “smarter streets” that talk to self-driving cars and to develop an app that will decrease reliance on private automobiles.

This is not a joke, and it’s not another episode of Portlandia. There are actually federal bureaucrats who think that putting sensors in streets to talk with computerized cars is important, and that Portland is capable of running such a system.

Apparently, they are unaware that Portland’s street system is so run down that the city could be the film location for a Mad Max movie.

And given the region’s obsession with 19th century street cars that move more slowly than pedestrians, why would anyone think Portland is capable of being a national leader in 21st century roads?

This is a city that tried to prevent car-sharing companies such as Uber and Lyft from legally operating here last year. No fancy street sensors were required; the necessary smart phones were already in the hands of potential customers. All the City Council needed to do was get out of the way, and even that was too complicated for them.

We should let Google worry about autonomous cars. Portland should stick to something simple, like filling potholes.

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Broken Promises: The Real Trends in TriMet’s Transit Performance (2004-2015)

TriMet’s ridership is declining and its level of fixed-route service is lower today than it was in 2004. According to mainstream transit advocates, the solution is to spend more public money.

The problem is we’ve already tried that, and it’s not working. TriMet has been imposing a regional payroll tax on most employers since 1972. The rate was initially 0.30%, then grew to 0.60% by 1979. During the 2003 legislative session, TriMet sought approval to raise it by another tenth of a percent. According to TriMet General Manager Fred Hansen, “TriMet’s proposed payroll tax increase will be used exclusively to provide new or enhanced transit service. This will include assisting in the operation of Washington County Commuter Rail, Clackamas County light rail, Lake Oswego Streetcar, increasing Frequent Service routes, and enhanced local service connections to these lines.”

The rate increase was approved, and was phased in over a 10-year period, beginning January 2005.

During the 2009 legislative session, TriMet lobbied for another rate increase, phased in over 10 years. The new rate of 0.7337% went into effect on January 1, 2016.

Now that we have more than a decade of experience with payroll tax rate increases, it is informative to compare revenue trends with service trends. The results show that there is no correlation between revenue and service.

 

 

TriMet Financial Resource Trends for Operations

2004-2015

 (000s) 

2004 2006 2008 2010 2012 2014 2015 % change
Passenger fares $55,665 $68,464 $80,818 $93,729 $102,240 $114,618 $116,734 +110%
Tax revenue $155,705 $192,450 $215,133 $208,933 $248,384 $275,357 $292,077 +88%
Total operations $290,513 $342,274 $404,481 $433,609 $488,360 $522,155 $493,572* +70%

 

*Grant revenue in 2015 dropped by $41,876 due to timing of receipt; those funds will appear in TriMet’s 2016 income statement.

 

VIEW TABLE IN PDF HERE

 

In fact, there is negative correlation – as TriMet’s revenue went up over the course of a decade, actual service went down. 

 

Annual Fixed Route Service and Ridership Trends for TriMet

2004-2015 

2004 2006 2008 2010 2012 2014 2015 % change
 
Hours of service 1,698,492 1,653,180 1,712,724 1,682,180 1,561,242 1,608,090 1,676,826 -1.3%
Miles of service 27,548,927 26,830,124 26,448,873 25,781,480 23,625,960 23,763,420 24,248,910 -12%
Originating rides 71,284,800 74,947,200 77,582,400 77,769,119 80,042,810 75,779,560 77,260,430 +8.4

 

Source: TriMet, http://www.trimet.org/pdfs/publications/trimetridership.pdf 

VIEW TABLE IN PDF HERE

 

There is a slight correlation between revenue and transit use, as total originating rides went up 8% while operating revenue went up 70%. However, ridership peaked in 2012 and has dropped by 3.5% since then.

It is also interesting to compare revenue trends with TriMet’s share of commute trips. The Portland Auditor has conducted an annual “community survey” since 1997, and those surveys measure travel choices by Portland residents. The results show that TriMet’s market share of commuting has remained exactly the same since 1997, despite (or because of) massive expenditures on rail transit during that period. 

 

Travel Mode Share for Weekday Commuting

Portland citywide, 1997-2015 

Mode 1997 2000 2004 2008 2010 2012 2013 2014 2015
                   
SOV 71% 69% 72% 65% 62% 61% 64% 63% 60%
Carpool 9% 9% 8% 8% 7% 6% 6% 6% 5%
Transit 12% 14% 13% 15% 12% 12% 10% 11% 12%
Bike 3% 3% 4% 8% 7% 7% 7% 8% 9%
Walk 5% 5% 3% 4% 6% 7% 7% 8% 8%
Other n/a n/a n/a n/a 7% 6% 6% 6% 7%

VIEW TABLE IN PDF HERE

Notwithstanding the obvious drop in service, TriMet claims that the legislative promise was met because new rail lines were opened. But to the 66% of TriMet riders who saw their bus service drop by 12%, shiny new rail lines were of little consolation.

The chief enablers of TriMet’s tax addiction have been Portland-area business associations, including Portland Business Alliance, Westside Economic Alliance, Oregon Business Association, and the Central Eastside Industrial Council. Those groups repeatedly embraced higher taxes for their members on the premise that more transit revenue equaled more transit service. That premise is clearly false.

When the TriMet Board meets to increase the tax rate again in September, Portland business groups should reconsider their automatic support. Unless and until TriMet service levels reach those of 2004, there is no reason to continue “throwing money” at an underperforming monopoly.


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

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Failed Promises: Why the Legislature Should Reject TriMet’s Request for New Spending Authority

TriMet is currently seeking new spending authority in SB 1510 to help finance regional “multi-modal” transportation projects. Legislators should deny this request based on previous experience with TriMet commitments.

To refresh the memory: during the 2003 session, TriMet sought approval to increase the payroll tax rate by one-tenth of a percent. According to TriMet’s then-General Manager,

“TriMet’s proposed payroll tax increase will be used exclusively to provide new or enhanced transit service. This will include assisting in the operation of Washington County Commuter Rail, Clackamas County light rail, Lake Oswego Streetcar, a substantial increase in Frequent Service routes, and enhanced local connections to these lines.”[1]

The rate increase was approved, and was phased in over a 10-year period.

During the 2009 legislative session, TriMet sought an additional rate increase. The legislature again approved the request. The TriMet board approved the first of 10 planned rate increases last September, and the new rate of 0.7337% went into effect on January 1, 2016.

Let’s look at the results. After a decade of tax increases, it’s clear that there is no correlation between increased TriMet revenue and actual levels of service: 

TriMet Financial Resource Trends for Operations, 2004-2015

 (000s)

CLICK HERE TO VIEW TABLE IN PDF 

2004 2006 2008 2010 2012 2014 2015 % change
Passenger fares $55,665 $68,464 $80,818 $93,729 $102,240 $114,618 $116,734 +110%
Tax revenue $155,705 $192,450 $215,133 $208,933 $248,384 $275,357 $292,077 +88%
Total operations $290,513 $342,274 $404,481 $433,609 $488,360 $522,155 $493,572 +70%

 

In fact, there is negative correlation – as TriMet’s revenue went up over the course of a decade, actual service went down: 

Annual Fixed Route Service and Ridership Trends for TriMet

2004-2015

CLICK HERE TO VIEW TABLE IN PDF 

2004 2006 2008 2010 2012 2014 2015 % change
 
Hours of service 1,698,492 1,653,180 1,712,724 1,682,180 1,561,242 1,608,090 1,676,826 -1.3%
Miles of service 27,548,927 26,830,124 26,448,873 25,781,480 23,625,960 23,763,420 24,248,910 -12%
Originating rides 71,284,800 74,947,200 77,582,400 77,769,119 80,042,810 75,779,560 77,260,430 +8.4%

 Note: The term “originating rides” excludes transfers.

Source: TriMet, http://www.trimet.org/pdfs/publications/trimetridership.pdf 

There is a slight correlation between revenue and transit use, as total originating rides went up 8% while operating revenue went up 70%. However, ridership peaked in 2012 and has dropped by 3.5% since then.

TriMet claims that the 2003 promise of “enhanced service” was met because many new rail lines were built. But to the 66% of TriMet riders who travel by bus and saw their service drop by 12%, shiny new rail lines were of little consolation.

TriMet now wants to expand its reach through SB 1510 so as to spend new funds for “multi-modal” projects. We suggest a simple response: unless and until TriMet transit service returns to at least 2004 levels, no additional spending authority should be granted.

[1] Fred Hansen, testimony before the Senate Revenue Committee on SB 549, March 11, 2003, p. 3.


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

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TriMet’s 7-Year-Old WES Line: Still a Project in Search of a Purpose

February marks the seven-year anniversary of the Westside Express Service (WES), the 14.7-mile commuter rail line that runs from Wilsonville to Beaverton. While the train’s owner, TriMet, has emphasized the steady growth in ridership over time, the truth is that WES has been a failure. Daily boardings are still far below the opening-year forecast, and taxpayers subsidize each rider by nearly $35 per round trip.

Although WES was 15 years in the making, it was always a project in search of a purpose. At various times the train was promoted as: (1) a congestion relief tool for HWY 217; (2) a catalyst for so-called “Transit-Oriented Development;” or (3) a way of providing “another option” for travelers. None of these arguments holds up to scrutiny.

During legislative hearings in Salem, representatives from Washington County claimed that WES would take 5,000 motor vehicles per day off of nearby highways. But WES is not even capable of doing that because it only runs 8 times (each direction) in the morning, and 8 more times in the afternoon. And unlike traditional commuter trains pulling eight or nine passenger cars, WES travels only in one-car or two-car configurations.

During its best hours of performance, the total number of passengers traveling on WES is less than 0.5% the number of motorists traveling on HWY 217/I-5 at those same hours. WES crosses more than 18 east-west arterials four times each hour. On busy commuter routes, such as HW 10 or Scholls Ferry Road, each train crossing delays dozens of vehicles for 40 seconds or more.

Since the train itself typically only carries 50-70 passengers per run, this means that WES actually has made Washington County congestion worse than it was before the train opened.

WES also will not be a catalyst for “transit-oriented development,” because the train stations are a nuisance, not an amenity. The noise associated with train arrivals was always underestimated and has proven to be a significant problem for nearby businesses and residents.

As for the hope that WES would provide “another transit option,” there were already two TriMet bus lines providing over 4,000 boardings per day in parallel routes prior to the opening of WES. Commuter rail simply replaced inexpensive bus service with a massively subsidized train.

Several key statistics summarize the problems with the train:

  • WES was originally projected to cost $65 million and open in 2000. It actually cost $161.2 million and opened in 2009.
  • TriMet projected an average daily ridership of 2,400 weekday boardings in the first year; actual weekday ridership was 1,156. It grew over time to 1,964 in 2014, but dropped to 1,771 last year. Since each rider typically boards twice daily, only about 900 people actually use WES regularly.
  • The WES operating cost/ride in January 2016 was $15.95, roughly five times the cost of bus service.

Ridership and Cost Trends for WES

2009-2015

(in 2015 $)

 

2009 2010 2011 2012 2013 2014 2015 % change
 
Avg. daily boardings 1,156 1,313 1,571 1,700 1,876 1,964 1,771 +53%
Operating cost per ride $27.41 $24.46 $20.43 $18.39 $18.98 $15.85 $18.60 -32%
Cost/train-mile    $54.70 $54.12 $53.30 $53.79 $56.82 $51.12 $55.01 +1%
Cost/train hour $1,180 $1,166 $1,171 $1,180 $1,501 $1,109 $1,203 +2%
Average subsidy/ride $26.18 $23.00 $19.01 $17.64 $17.19 $14.36 $17.10 -35%

 

 


Ridership has certainly improved since 2009, but still remains far below the rosy projections made by TriMet for the opening year of operation. There is little reason to think that ridership will grow significantly, given that the train runs exclusively through four suburban communities with no major job centers within walking distance of train stations.

WES is destined to be a one-hit wonder―an expensive monument to the egos of TriMet leaders and Westside politicians. Taxpayers would be better served if we simply canceled WES, repaid grant funds to the federal government, and moved the few WES customers back to buses.


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

 

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WES at 7: Still a Financial Train Wreck

February marks the seven-year anniversary of the Westside Express Service (WES), the 15-mile commuter rail line that runs from Wilsonville to Beaverton. While the train’s owner, TriMet, promotes WES as a transit success story, the truth is that commuter rail has been a failure.

WES was originally projected to cost $65 million and open in 2000. It actually cost $161 million and opened in 2009.

TriMet projected an average daily ridership of 2,400 weekday boardings in the first year. Actual daily ridership in 2009 was 1,156, less than half the forecast.

Ridership grew over time and peaked at 1,964 in 2014, but then dropped. For January 2016, daily boardings averaged only 1,735. Since each rider typically boards twice daily, that means fewer than 900 people actually use WES regularly.

The operating cost per ride is $16, most of which is subsidized by taxpayers. This is five times the cost of bus service.

Rail proponents have long dreamed of extending WES to Salem, but taxpayers would be better served if we simply shut the train down. When you’re losing $14 per boarding, you can’t make it up in volume.


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

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Oregon electricity ratepayers about to be ripped off with so-called “clean energy” bill

Oregon’s electricity ratepayers are supposed to be protected from monopolistic electric utilities by the Public Utility Commission. Yet, the most significant piece of energy legislation in decades was hatched in secret last year by those same utilities, without PUC input.

After the backroom deal became an actual legislative bill, the Oregon House of Representatives was happy to go along with the scam by approving HB 4036 in mid-February. None of the three PUC Commissioners testified on the bill.

The PUC did send a lone staff member to address the House Environment Committee, and he raised multiple concerns. He stated definitively that HB 4036 would increase costs to ratepayers and that the green power mandate would put utilities into “uncharted territory” that would risk the reliability of the regional power grid—due to the fact that wind and solar energy facilities fail to produce any output most of the time.

HB 4036 purports to be a big environmental win for the state due to a requirement that utilities cease using coal power by 2030. But Oregon only has one coal-fired power plant, at Boardman, and PGE already plans to shut it down by 2020. So this is a fake benefit. Score one for the utilities.

HB 4036 is also being marketed as a way to move Oregon to 50% reliance on “renewable power” by 2040, but that’s also a gimmick. According to the Oregon Department of Energy, the total of all electricity consumed by Oregon ratepayers from “renewable energy” sources is 6.2% of total consumption. Yet current law requires utilities to get 15%, so we already have a problem.

The gap between the reality of 6.2% and the fantasy of 15% is made up with so-called “Renewable Energy Certificates” (RECs), which don’t provide any actual electricity. RECs are just double-payments made to wind farms and other green energy producers so that the REC purchasers can pretend that they bought the actual electricity (they didn’t).

In financial terms, RECs are to power production what Bernie Madoff was to Wall Street. And just as the SEC put its stamp of approval on Madoff for years while he ran his Ponzi scheme, state and federal regulators have fully endorsed the use of RECs to allow utilities to pretend that they are using actual green electrons.

HB 4036 is specifically designed to make electricity more expensive and less reliable. That’s why there are sections in the bill allowing the PUC to temporarily stop compliance with the law under any of three conditions: if the reliability of the grid is threatened by the randomly-failing wind farms; if electricity rates rise too fast; or if the mandates for green power production (reaching 50% by 2040) can’t be met.

This is immoral. We should be enacting laws designed to make the grid more reliable and at less cost.

Proponents claim that we have to pass this bill; otherwise, even more onerous measures will be placed on the ballot in November.

So what’s the problem? Let the ballot measures go forward. I have full confidence that Oregon voters would never be dumb enough to vote to increase their rates by billions of dollars while receiving no environmental benefits.

When HB 4036 is scheduled for hearings in the Senate, legislators should insist that members of the Oregon PUC testify. The PUC is the official ratepayer watchdog; the muzzle needs to be taken off.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in The Oregonian on February 18, 2016.

 

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What Can Be Learned from Portland’s Smart Growth Experience?

The annual “New Partners for Smart Growth” conference opens in Portland on Thursday, February 11. “Smart Growth” refers to an amorphous planning theory favoring (or requiring) high urban densities, mixed-use development, and non-auto travel.

Given Portland’s status as the Mecca for this philosophy, it’s likely that the conference will be a love fest of planners, activists, and consultants celebrating the “Portland story.” Unfortunately, the reality of Smart Growth is a lot less glamorous than the PowerPoint slides.

For example, Portland has been a leader in light rail construction for over 30 years, but it hasn’t changed how people travel. According to the Portland City Auditor, in 1997 – when Portland had only one light rail line terminating in Gresham – 12% of Portland commuters took transit.

In 2015, transit use was still only 12% of commuter travel, despite (or because of) a multi-billion rail construction campaign that added a streetcar loop, a new commuter rail line, and five new light rail lines. During that era bus service was reduced by 14%, and buses still account for two-thirds of daily riders.

On the land-use front, planners have succeeded in their goal of densifying the region; but there was collateral damage. Due to density regulations, buildable land is now scarce, driving up the cost of housing. This is incentivizing many property owners to tear down nice homes and replace them with out-of-scale apartment buildings – many with no off-street parking. Some Portland Progressives who supported this planning agenda now wonder why their formerly pleasant neighborhoods are flooded with automobiles.

In the suburbs, most new projects simply have no backyards. It’s hard to remember now, but in 1995, the average lot size for a new home in Washington County was 15,000 square feet. This provided plenty of room for kids.

Those days are over. In the new “South Hillsboro” development, which will be built out over the next decade, most dwellings will be attached units on tiny lots. The larger parcels – averaging only 7,000 square feet – are being marketed as lots for “executive housing.”

Nice backyards that were once common are now only available to the rich, due to the artificial scarcity of land that Smart Growth calls for.

The Portland conference will feature trips to “transit-oriented developments” (TODs) like Orenco Station in Hillsboro. Orenco features a housing project with passive solar design along with urban-scale density near light rail, but both elements required large public subsidies. It would be difficult to replicate those projects elsewhere.

Perhaps the most disappointing fact about regional planning in Portland is that very little effort is being made to learn from the experience. Since 2008, at least four audit reports by the Metro Auditor have criticized agency planners for this failure.

In the 2010 report, the Auditor found that “Metro’s processes to plan transportation projects in the region were linear when they should have been circular. After a plan was adopted, the update process began anew with little or no reflection about the effectiveness of the previous plan or the results of the performance measures they contained.”

It’s clear that this was not an accident; it was by design. As the Auditor noted, “systems to collect data and measure progress towards these outcomes were not in place.”

No measurement means no accountability. That’s not a smart way to plan a region.


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

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Not One Dollar More

The State of Oregon will sell 84,000 acres of the Elliott State Forest by March 2017, in order to make money for public schools.

However, the lands will not be auctioned to the highest bidder. In fact, they will not be auctioned at all. The State will set the price based on appraisals, and purchasers will pay that price.

If there is more than one offer, the tie will be broken based on which buyer promises the most “public benefits.” Those benefits are defined as public access to at least 50% of the property; preservation of old growth timber; protection of stream corridors; and the guarantee of at least 40 jobs for 10 years.

Evaluating competing offers promising “more jobs” versus “wider stream corridors” will be entirely subjective—in essence, a beauty contest. At a meeting last week for prospective buyers, the Department of State Lands was asked about the possibility of simply offering a higher bid. They responded that if someone bid even one dollar over the appraised value, it would be deemed a “non-responsive” offer and rejected.

Prospective buyers were stunned. The timber is likely to be worth somewhere between $300 million and $450 million, and a high bid could really help schools. But for the State Land Board, price doesn’t matter.


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

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Electric Utilities Should Call the Bluff of Green Radicals

Two committees of the Oregon Legislature will hear presentations this week on a legislative proposal to eliminate the use of coal in Oregon’s electricity grid by 2035. Coal is the source of power for 33.4% of Oregon’s electricity consumption.

According to news reports, Portland General Electric and PacifiCorp have agreed to this proposal in order to head off a possible ballot measure that would impose even more onerous requirements if passed in November of this year.

The biggest problem with the proposal is that the two renewable technologies most preferred by radical environmental groups – solar and wind – are intermittent sources that randomly fail to provide any electricity to the grid. During the winter months when utilities must provide the highest levels of reliable power – the so-called “peak periods” – wind and solar combined supply only about 5% of the necessary electricity.

This means that ratepayers will be forced to spend billions subsidizing uneconomic renewable power facilities, and then pay a second time for gas-fired generators that will be necessary to back up the unreliable wind and solar plants.

Utility lobbyists should be ashamed of themselves for agreeing to this deal, and legislators should soundly reject it in the February legislative session. Instead, they should call the bluff of the radical greens and let them put their measures on the ballot. Few Oregonians would willingly support a “freeze in the dark” policy if given a chance to vote.

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

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The Time is Right for School Choice

By John A. Charles, Jr.

In early December, President Obama signed a bill that dismantles most of the No Child Left Behind Act (NCLB), the signature education legacy of former President George W. Bush.

According to the New York Times, the reform law will “restore authority for school performance and accountability to local districts and states after a lengthy period of aggressive federal involvement.”

Tennessee Senator Lamar Alexander, chair of the Senate Education Committee, stated that the repeal of NCLB “will unleash a flood of excitement and innovation and student achievement that we haven’t seen in a long time.”

Ironically, in 1991, when he was secretary of education under President Bush, Alexander flew out to Oregon to pay tribute to the passage of the Oregon Education Act for the 21st Century (OEA-21). The OEA-21 was the legacy of then-House Speaker Vera Katz, who described it as “revolutionary” and “necessary to the economic prosperity of the state.”

OEA-21 established the infamous CIM/CAM student progress standards that came to be hated by just about every teacher, student, and parent in Oregon. CIM/CAM requirements were euthanized by the Oregon legislature in 2007.

With the demise of two prominent education reform programs, there’s a lesson here for Oregon policymakers: Having the federal government micromanage K-12 education is a bad idea, but top-down planning by the state isn’t much better. Parents are the ones who need to be in charge of the decision making.

A new program enacted by Nevada last June is exactly what Oregon needs. The Nevada legislature approved a law establishing Educational Savings Accounts (ESAs) for all public school students, beginning January 1, 2016. ESAs are private accounts, managed by the state for parents, which allow students to create their own individualized educational programs.

When an ESA is established, 90 percent of the state funds that would have been spent on a student in a generic public school are placed in the ESA, where the money is drawn down in debit-card fashion by parents for various educational expenses, including private school tuition, online learning, tutors, or textbooks.

For 2016, a Nevada ESA will be worth about $5,100 for each student, or $5,700 for low-income students who will receive 100 percent of the state allocation. Therefore, every public school student will have the financial means to walk out of an underperforming school and pursue alternatives. This will immediately change the balance of power between parents and school administrators, creating an incentive for every public school to treat students as customers, not conscripts.

Most importantly, if ESA funds are not fully utilized by the end of the school year, the residual amount stays in the account, available for future use. This eliminates the dysfunctional “use it or lose it” imperative associated with most government programs.

Since 93 percent of all Nevada students are in public schools, they will immediately qualify for an ESA. Private school students can become eligible if they return to a public school for at least 100 consecutive days. All students entering kindergarten will be eligible and will never have to requalify, which means the Nevada program will have universal coverage for all students by 2027 at the latest.

On November 17, the Oregon Senate Education Committee held an informational hearing on the Nevada ESA program. Nevada Senator Scott Hammond participated via speakerphone. He provided an overview of the ESA law and answered questions from Oregon senators.

Education Committee Chair Arnie Roblan (D-Coos Bay) has not publicly said whether he will pursue similar legislation for Oregon, but the November hearing was a positive step forward. If there is legislative interest, we can use the 2016 interim as an opportunity to observe the Nevada rollout, learn from their experience, and craft a similar (or better) program for Oregon.

Now that Congress has helped clear the way by repealing the most onerous provisions of NCLB, this would be an excellent time to move beyond Utopian central-planning schemes and restore “consumer sovereignty” in learning with Educational Savings Accounts.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in the December 2015 edition of the newsletter, “Oregon Transformation: Ideas for Growth and Change.”

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New Transportation Funding Bill: Going Nowhere FAST

Last week Congress passed H.R. 22, a five-year transportation funding bill known as Fixing America’s Surface Transportation, or FAST.

Under the terms of FAST, the federal Highway Trust Fund will take in about $208 billion in federal gas taxes, while sending $280 billion back to the states by 2020. The $70 billion deficit will be made up from income taxes.

Essentially, this is the same thing Congress has been doing for decades. Since 1993 we’ve paid a federal gas tax of $18.4 cents/gallon; the money flows to Washington; then it gets sent back to the states after a chunk of it has been diverted into a wasteful transit account.

There is no policy rationale for this circular travel of dollars. Most auto, transit, and truck trips are local. Therefore, the operational money should be collected locally as well.

What Congress should have done is repeal the federal gas tax and shut down the federal transportation agencies.

The FAST Act was an expensive band-aid for a problem that needs a new approach. We have the technology to collect mileage-based user fees from motorists, truck operators, and transit customers. We should use that technology to pay for the roads and transit facilities that consumers are willing to pay for, and stop waiting to be saved by a federal transportation Santa Claus.

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

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The Futility of Public Hearings

Over the past four years, TriMet and Metro have been planning something called the SW Corridor Project. Metro describes it as a multi-modal project featuring new transit capacity, local street improvements, and enhancements to trails, sidewalks, and bike lanes. The project will begin at Portland State, travel along Barbur Boulevard, and terminate somewhere near Tualatin.

The exact nature of the transit element has never been disclosed; ostensibly, the choice is between light rail and bus-rapid transit. The Project Steering Committee insists that final decisions on the technology, route, terminus, and financial plan are still open for discussion, with some preliminary decisions scheduled for 2016.

Curiously, however, at the November 11 TriMet Board of Directors planning retreat, the Board was informed (at 3:17:05) by project staff that opening day for the project has already been set: September 12, 2025.

How is it that TriMet already knows the exact day that operations will commence, if it doesn’t even know any of the particulars – including a proposed, $250 million tunnel to PCC-Sylvania that would only be built if light rail is chosen?

Apparently, all decisions have actually been made, and future public hearings will be just as fake as the past ones.

All aboard for light rail to Bridgeport Village. Only 3,581 days till the opening ceremony!

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

 

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Oregon Scraping Bottom in State Integrity Rankings

This week the Center for Public Integrity released a report grading the 50 states on governance. The metrics used to measure integrity included the categories of “Public Access to Information,” “Lobbying Disclosure,” and “Ethics Agency Enforcement.”

Oregon was ranked 44th among the states, with a grade of “F.”

Oregon’s poor ranking was not a surprise given the nationwide coverage of the Kitzhaber-Hayes influence-peddling scandal. By any standard, the behavior of our former governor was unacceptable.

But this was only the headliner issue. Beneath the surface are many less-glamorous problems that will be difficult to address. For instance, there is virtually no meaningful oversight of state expenditures. Legislators spend tax money to promote their own agendas, and the budgeting process is deliberately opaque in order to keep citizens in the dark.

Also, the law allowing us access to public records is constantly abused. Agencies frequently play games of “20 questions” in order drag out the process; and when they do offer up the requested documents, they impose massive fees that most citizens cannot afford.

Unfortunately, no amount of “oversight” will solve the problem. Government is unable to police itself. Once a taxpayer sends money to the state, it’s too late.

The best solution is to dramatically prune the weed patch of regulations and programs. A smaller government, focusing on a few core functions, will have more integrity than a larger one.

 

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Portland Worries About Homelessness, While Metro Makes Housing Less Affordable

The Portland City Council has decided to allocate $20 million to solve a perceived crisis with “homelessness” and another $67 million to subsidize “affordable housing.”

As usual with Portland spending, these numbers were pulled out of thin air; they have no connection to an actual strategy. If the Council had done some thinking, it might have realized that Portland’s housing crisis is the result of many factors, including ongoing government policies that are making things worse.

First and foremost is excessive government regulation. Any private investor trying to build more housing faces a gauntlet of barriers, including planning requirements, inspections, density mandates, parking restrictions, environmental overlays, and punitive fees. Many of these interventions serve no purpose other than to ensure that top-down mandates of planners replace market preferences. All of them impose delays and add costs to construction.

To make matters worse, Metro is recommending that no new land be added to the regional Urban Growth Boundary. When this recommendation is finalized next month, it will ensure that the already-high price of buildable land continues to increase.

Government is not the sole cause of the housing crisis; poor decision-making also causes many individuals to become homeless. But deliberately creating a shortage of buildable land through government regulation guarantees that the affordable housing crisis will get worse.

 

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Is TriMet Better Off Than Greece?

Syndicated financial writer Malcolm Berko recently advised a small investor to stay away from Greek bonds or securities. He wrote, “Greece has morphed into a bureaucratic five-star welfare state; but in reality, Greece is a one-star economy. The pensions and entitlements consume 52 percent of government income.”

Well, TriMet’s most recent audited financial statement was released in September, and last year TriMet’s “income” – money earned from customers buying rides, advertising, or services – totaled $153.4 million. The cost of fringe benefits such as pensions and health insurance equaled $166.8 million, or 109% of income.

But the actual problem at TriMet is far worse, because most of the obligations for pensions and other benefits don’t show up as current-year expenses. They appear in financial statements as accrued liabilities that have to be paid off sometime in the future.

Taking into account all liabilities for fringe benefits, TriMet has $711 million in health care obligations, $18 million in pension liabilities for management, and $159 million in pension costs for the union. This sums to $888 million in actuarial accrued unfunded liabilities, or 579% of operating income.

Greece is an international financial disaster; but compared with TriMet, it’s a model of fiscal restraint.

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Transit Policy: Kryptonite for Business Leaders

By John A. Charles, Jr.

During September, the Portland regional transit monopoly, TriMet, voted to raise the payroll tax rate by 1/10th of a percent, beginning January 2016. The rate increase will be phased in over a ten-year period, as required by the state legislature.

Politically, the only reason TriMet was able to do this was that none of the major business associations objected. The question is, “why?”

A number of issues should have raised red flags for business representatives. First, the payroll tax pays for more than half the cost of all transit operations. That ratio seems far out of balance. The primary beneficiaries of transit are transit riders, yet they only pay about 24% of operations cost. It would seem far more equitable to insist that passenger fares pay for at least 50% of the operational cost.

Second, there is no reason for businesses to pay more if TriMet is unwilling to impose discipline on the expenditure side. The transit district has failed miserably to do this for decades. TriMet has approved so many lucrative labor contracts that the total cost of benefits now routinely exceeds the cost of wages. In FY 2014, the ratio was $1.49 in benefits for every $1.00 in wages; in FY 2015, it was $1.19. It’s hard to imagine any private sector company paying that much in total benefits.

And third, TriMet has repeatedly broken promises about how it would spend new payroll tax money. In 2003, when the Legislature approved an earlier tax rate increase, TriMet promised that every penny of new tax revenue would be used for “new service.” Yet over the subsequent decade of tax rate increases – 2004-2014 – TriMet’s total annual operational revenue increased by 80%, while miles of actual transit service declined by nearly 14%, as shown below: 

TriMet Financial Resource Trends

 (000s) 

  2004 2006 2008 2010 2012 2014 % change
Passenger fares $ 55,665 $ 68,464 $ 80,818 $ 93,729 $ 102,240 $ 114,618 +106%
Tax revenue $ 155,705 $ 192,450 $ 215,133 $ 208,933 $ 248,384 $ 275,357 +77%
Total op. resources $ 290,513 $ 342,274 $ 404,481 $ 433,609 $ 488,360 $ 522,155 +80%

  

Annual Fixed Route Revenue Service Trends 

  2004 2006 2008 2010 2012 2014 % chng.
Hours of service 1,698,492 1,653,180 1,712,724 1,682,180 1,561,242 1,608,090 -5.3%
Miles of  service 27,548,927 26,830,124 26,448,873 25,781,480 23,625,960 23,763,420 -13.7%

TriMet claims that service actually increased during this period because several new rail lines were built, and rail cars are bigger than buses. But that is a fallacy. Most transit vehicles are under-utilized most of the time, so seating “capacity” is rarely important.

When bus service was cut throughout the 525-square mile district by 14% over the past decade, the thousands of riders who were inconvenienced were not made better off just because a few new trains were operating in narrow corridors somewhere else. They were made worse off, and may have stopped riding transit altogether as a result.

In fact, transit has lost market share over the past 17 years despite (or because of) the rail building boom. According to the Annual Community Surveys conducted by the Portland Auditor, the transit share of commute travel was 12% in 1997, when TriMet had only one light rail line. By 2014, it had dropped to 11%.

 

Travel Mode Share for Weekday Commuting

Portland citywide, 1997-2014 

Mode 1997 2000 2004 2008 2010 2011 2012 2013 2014
               

 

 
SOV 71% 69% 72% 65% 62% 63% 61% 64% 63%
Carpool 9% 9% 8% 8% 7% 6% 6% 6% 6%
Transit 12% 14% 13% 15% 12% 12% 12% 10% 11%
Bike 3% 3% 4% 8% 7% 7% 7% 7% 8%
Walk 5% 5% 3% 4% 6% 6% 7% 7% 8%
Other n/a n/a n/a n/a 7% 6% 6% 6% 6%

             Source: Portland Auditor

Transit policy tends to make otherwise rational business leaders do silly things. Instead of defending themselves and demanding that public transit districts operate more efficiently, they feel obliged to “take one (more) for the team.” But this simply enables the dysfunctional behavior by transit districts to continue.

The fact is, public sector monopolies and their unionized employees will take every dollar available for themselves as long as someone keeps putting new dollars on the table.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in the September 2015 edition of the newsletter, “Oregon Transformation: Ideas for Growth and Change.”

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Mysteries of Tilikum Crossing

Portland’s newest bridge over the Willamette River, Tilikum Crossing, has a few puzzling design features. Apparently, a barrier down the middle of the bridge means that a stalled light rail train or bus would shut down transportation until it was removed, because no vehicle could go around it.

If the bridge is only open to trains, buses, cyclists, and pedestrians, what useful purpose does the barrier serve? (Other than potential MAX and TriMet bus line rush hour chaos, that is.)

And that’s not all….

Syndicated radio host Lars Larson interviewed Cascade’s John Charles on Monday. Click on the Listen link to hear John reveal his observations from Portland’s South Waterfront during Tilikum Crossing’s opening week.

You might be surprised by what he saw bicyclists doing on SW Moody Avenue.

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Tilikum Crossing: More Punishment for Motorists

The new bridge over the Willamette River, TriMet’s Tilikum Crossing, opened for business on Saturday. With beautiful weather and parties at every stop of the Orange MAX line, a good time was had by the thousands of sightseers.

Unfortunately, now that we’ve returned to gray skies and normal weekday travel, it’s clear that the bridge created both winners and losers. The big winners are light rail passengers and bicyclists. The scenic bikeway has already proven immensely popular with local cyclists, who are crossing at a rate 10 times higher than the rate previously observed on the nearby Ross Island Bridge.

The big losers are motorists. The Tilikum Crossing is closed to autos and trucks. In addition, the new traffic signal at the west end of the bridge creates a major bottleneck on SW Moody Avenue, the busiest road within the district.

At both morning and afternoon peak-periods, Moody Avenue traffic is shut down 60% of the time in order to accommodate light rail, the streetcar, and buses leaving or entering the bridge. This gums up all north-south travel, including most of the same bike riders cruising over from east Portland, who must cross Moody Avenue as they exit the bridge.

Moody Avenue motorists have no choice but to wait through red lights that sometime exceed three minutes; but pedestrians and cyclists are rebelling by the hundreds. After losing patience, they simply cross the rail tracks illegally.

In most normal cities, a new bridge makes everyone better off. But in Portland, a bridge simply becomes one more weapon in the political war on mobility.

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Oregon Leads the Nation in Passenger Rail Subsidies

By John A. Charles, Jr.

In the waning days of the 2015 legislative session, a much publicized group of eight legislators conducted extensive negotiations with the Governor’s office over a “transportation package” that would have raised fuel taxes, created a new transit tax, repealed most of the “low-carbon fuels standard” enacted earlier in the session, and paid for various highway improvement projects. That package failed, leaving many observers with the impression that Oregon is “underinvesting” in transportation.

But not every mode suffered. For the few riders of ODOT’s Portland-Eugene passenger rail line, the bank vault was open. The legislature approved $18 million in subsidies for the 2015-17 biennium, including $10.4 million in scarce General Fund dollars.

While this may not sound like a lot in the big picture, it’s quite generous given the minimal use of this line. For the most recent year, the line generated a mere $180,000 in passenger fares, but racked up operating expenses of $7,875,409. This worked out to an operating subsidy of $65.70/ride.

However, the reality is actually much worse. Upon vigorous questioning by Ways and Means Subcommittee Co-Chair Betsy Johnson, ODOT admitted that the “all-in” subsidy was closer to $120/ride.

Was this embarrassing to rail advocates? Hardly. When the multi-billion ODOT budget was up for its single public hearing, there were 21 witnesses who testified—and 20 of them spoke for the sole purpose of defending the rail subsidy. This author was the only witness to suggest euthanizing passenger rail.

The problem is that two decades ago, Amtrak began off-loading most short-line runs to states. ODOT and its legislative overseers foolishly agreed to accept this responsibility, and taxpayers have spent more than $300 million since 1994 propping up the line. Bureaucrats and single-issue advocates know that once you let the “camel’s nose under the tent,” the rest of the camel will soon follow—and then it will be too late to cut the program.

So even though the ODOT rail administrator was the subject of withering criticism by various members of the Ways and Means subcommittee during budget hearing, in the end he was still standing—and walking away with the full appropriation.

Coincidentally, as the ODOT budget was being considered, the Washington, D.C.-based Brookings Institution released a new paper showing the extent of passenger rail operating subsidies across the nation. In every case, transit districts lost money last year, but the losses were relatively modest on a per-boarding basis. The biggest loser, the Hampton Roads Transit system of Virginia, had subsidies of $6.63 per ride.

For whatever reason, Brookings ignored the Portland-Eugene line, as well as the TriMet commuter rail line running from Beaverton to Wilsonville, which has operating subsidies of roughly $12/ride. Cascade Policy Institute took the Brookings data and created a new chart showing that Oregon was at the top of the leaderboard in the category of “most wasteful transit lines,” and shared this with various legislators. Predictably, it had no effect.

Oregon surface transportation infrastructure continues to deteriorate; but for the privileged few who take the rail line from Eugene to Portland, life is good.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in the August 2015 edition of the newsletter, “Oregon Transformation: Ideas for Growth and Change.”

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Press Release: Cascade Policy Institute Urges TriMet to Cancel Proposed Tax Increase

July 23, 2015

FOR IMMEDIATE RELEASE

Media Contact:

John A. Charles, Jr.

503-242-0900

john@cascadepolicy.org

Cascade Policy Institute Urges TriMet to Cancel Proposed Tax Increase

PORTLAND, Ore. – At Wednesday’s TriMet board meeting, Cascade Policy Institute President John A. Charles, Jr. presented a detailed critique of TriMet’s proposed tax increase, and urged the Board to cancel public hearings on the tax proposal set for August and September.

Over the past several months, TriMet has been quietly meeting with business associations and large employers in efforts to gain political support to raise the rate of the regional payroll tax it imposes on most employers within the transit district. The current rate is 0.7237 percent. The proposal is to raise it by 1/10th of a percent, phased in over a ten-year period.

TriMet expects to have the first reading of the proposal on August 12, and a Board vote is scheduled for September 23. If approved, the rate increase will go into effect on January 1, 2016.

In his testimony, Charles pointed out that the last time TriMet increased the tax rate – the period of 2005-2014 – total operating revenues for TriMet increased by 80%, but actual service declined by nearly 14%. This was contrary to promises made by TriMet management in 2003 when the legislature authorized the tax rate increase.

Charles also reiterated that TriMet’s cost of employee benefits is unsustainable, with the cost of benefits equaling 149% of the cost of wages in 2014.

In addition to financial issues, the effectiveness of TriMet service is declining. According to TriMet records, ridership in 2014 was lower than it was in 2007, despite an increase in regional population. TriMet’s market share is also dropping. Portland commuters used transit for 12% of trips in 1997; in 2014, that number had dropped to 11%.

According to Charles, “TriMet thinks that the most recent labor agreement solves its employee compensation problem. It doesn’t. Until the cost of benefits drops below the cost of wages, TriMet has no moral authority to impose higher tax rates on local employers.”

The full critique of TriMet’s proposal can be viewed here.

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.

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Is It Possible to Power an Export Facility Entirely by Renewable Energy?

The Portland Sustainability Commission recently recommended that the City Council approve a $500 million propane export facility proposed by Pembina Pipeline Corporation. However, as part of its approval, the Commission is requiring that 100% of the electricity used at the export facility be generated by Oregon renewable energy sources.

This is an impossible standard to meet. We know it’s impossible because Portland has already tried it. In 2001, the City Council publicly committed that by 2010 all electricity consumed by city bureaus would come from renewable energy sources. Yet, despite great efforts, Portland never came close to meeting the goal by 2010.

Notwithstanding this failure, in 2009 the City pledged to meet the 100% goal by 2012, with a new aspiration of supplying 15% of the total electricity load from self-generated green power. By the end of 2012, the City had only reached 9% self-generation, and total green power reached just 14% of all consumption.

If Portland has consistently failed to meet the 100% goal over a 14-year period, it should not impose the same requirement on a private facility.

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Time to “Uberize” the Transportation Economy

This week marks the beginning of a 120-day “pilot project” by the City of Portland to allow private car-sharing companies such as Uber and Lyft to legally compete with cab companies. Given the consumer demand for such services, there is little doubt that the Portland experiment will become permanent.

Cab services have long been heavily regulated. Detailed rules governed every facet of operation, including rates, dispatching, and―most importantly―the number of cabs allowed in the city. Although justified as “protecting the public interest,” the system was really designed to protect cab companies from new competition.

This model is now being swept aside by the dual forces of technological innovation and entrepreneurial success. Goodbye taxi cartel, hello freedom.

Unfortunately, the roads that we all use are still run as a government monopoly. As with the old taxi cartel, if state officials decide that no more highways will be built, consumers are stuck with a shortage of service. And in fact, that decision has already been made. The last new highway in the Portland region opened in 1982. There are no plans for a new one.

Ultimately, this model can’t work. As Portland grows, we will need new roads. Encouraging the road-building “Ubers” of the world to provide these services is the next logical step in the growth of the regional transport economy.

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Portland Set to Approve Public Shaming of Building Owners

For members of the Portland City Council, the end always justifies the means.

Their current obsession is energy use in commercial buildings. On April 15 the Council likely will approve a regulation to require the owners of such buildings to: (1) monitor energy consumption; (2) calculate an “energy use intensity” score; and (3) file annual reports with the city.

Advocates claim that this will be good for building owners. It will give them information they would never get without prodding by bureaucrats, and provide market recognition for high-performing buildings.

In fact, this is just an effort to shame building owners and tenants into adjusting their behavior to conform to the political edicts of City Hall. Commercial buildings consuming “too much” energy will receive a Scarlet Letter and be harassed by bureaucrats and activists into expensive energy conservation retrofits, many of which will make no financial sense.

Energy consumption is a private matter. The Portland City Council should stand down on this proposal and leave people alone.

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If the state loses $1.4 billion for schools and nobody notices, did it really happen?

The Oregon legislature is in the midst of its biennial quest for more public school funding. Advocates are so desperate for cash that they are even proposing that the state seize gift cards as “abandoned property” if some portion of the original value remains unused after three years.

While grabbing gift cards is certainly creative, it will not materially affect school funding. A much more lucrative source is available if we have the political will: selling the 93,000-acre Elliott State Forest (ESF) and placing the net receipts (likely to be $400 million or more) into the Common School Fund, where investments typically earn 8% or more annually.

In fact, the failure of the state to sell the Elliott 20 years ago when it was first proposed has already cost schools at least $1.4 billion in lost value. It’s a mystery as to why school advocates are willing to accept this.

The Elliott is located on the South Coast near Reedsport. By law, most of the timber must be managed to maximize revenue for the “common schools.” Unfortunately, over the past 20 years, timber harvesting on the ESF has plummeted due to environmental litigation. As a result, in 2013 the state actually lost $3 million on the Elliott, then lost more money in 2014. These losses drain money from public schools.

This disaster could have been avoided. In 1994, the state commissioned a study of ways to increase net revenues on the Elliott. The consultant reported that “selling the ESF would be the most effective way to maximize CSF revenues.”

The State Land Board (made up of the Governor, the Secretary of State, and the State Treasurer) considered selling the Elliott in 1996 but rejected the idea. That decision locked the state into a revenue death spiral on the forest.

The extent of that loss was quantified by the Oregon Department of State Lands (DSL) in a report published last November. The chart below summarizes the results:

Simulated Prior Elliott Sale versus Actual Elliott Management

 

Simulation Simulated endowment in 2014

Simulated distribution over time period

Estimated residual land value Total value over time period
(Actual) managed for timber since 1995 $1.4 billion $0.7 billion $0.4 billion $2.5 billion
Sale in 1995 and invested proceeds $2.5 billion $1.4 billion $0 $3.9 billion
Buyout in 2005 and invested proceeds $1.8 billion $0.8 billion $0 $2.6 billion

Source: Oregon Department of State Lands, November 2014

The failure to sell the ESF in 1995 cost schools $1.4 billion in lost value. That is a very large number, not only in absolute terms, but compared with public losses elsewhere that have resulted in resignations and political scandal.

For example, the U.S. Congress is investigating the disappearance of $305 million in federal funds spent on Cover Oregon. At the state level, the Oregon Department of Justice has just opened a civil and criminal investigation into the $11.8 million of energy tax credits issued for an array of solar panels installed by several state universities.

Yet the loss of $1.4 billion in school funding seems to be uninteresting to school advocates. No lawsuits have been filed, and no investigations are underway.

The legislature should insist that the Governor, the Secretary of State, and the Treasurer turn the Elliott from a liability into an asset, as required by law. Selling the entire forest is the best option for doing that.


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

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TriMet’s Great Disappearing Act

During the 2003 session of the Oregon State Legislature, TriMet sought an increase in the regional payroll tax rate. In public testimony, TriMet General Manager Fred Hansen said, “TriMet’s proposed payroll tax increase will be used exclusively to provide new or enhanced transit service.”

The legislature approved TriMet’s request, and the payroll tax rate went up every January for ten straight years. By the end of 2014, TriMet had received $34.4 million in new payroll tax revenues attributable to rate increases. Yet during that same decade, the miles of transit service offered to patrons actually dropped by 14%, while the hours of service declined by 5%.

Like a magic show, TriMet tried to distract the audience by pointing to grand celebrations for the opening of the WES commuter rail line and the Green MAX line, both of which opened in 2009. But overall service levels were reduced five times in six years, the opposite of what was promised in 2003.

TriMet’s proposed budget for 2015-16 was released last week. It calls for “expanding service through the opening of the Portland-Milwaukie light rail line.” Once again, all the attention will be on new trains, while total service levels will still be far below the levels we had in 2003.

State legislators should be asking TriMet where all the money went. But sadly, no one in Salem cares about results.

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Proposed Tobacco Tax Increase Will Simply Encourage More Smuggling

State legislatures across the country have piled on the tobacco taxes over the past decade. Not surprisingly, this has created a growing problem of tobacco smuggling. As the tax rate rises, it encourages people to buy products from low-tax states and sell them illegally in high-tax states.

New York is the most obvious example of this problem. The Empire State has a tax rate of $4.35/pack, far higher than most other states. As a result, an estimated 57% of all cigarettes sold in New York are brought in by smugglers.

This creates multiple problems. Cigarette buyers are inconvenienced; state legislators lose the tax revenue they were hoping for; and smuggling increases the likelihood of violence, since there are no legal ways to settle disputes among competitors.

These lessons seem lost on Oregon legislators. The House Revenue committee will consider House Bill 2555 on February 25, which would raise the tobacco tax by $1.00/pack. Currently, only about 12.7% of Oregon cigarettes are smuggled. If the new tax passes, more sales will take place in the underground economy, and net revenue to the state could actually decline.

With smoking now banned in virtually all indoor environments, the non-smoking majority is completely protected from secondhand smoke. There is no reason for additional taxes just because smokers are in the minority.

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Media Release: The Case of the Disappearing Backyard

February 25, 2015

FOR IMMEDIATE RELEASE

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

PORTLAND, Ore. – Cascade Policy Institute today released a report investigating the disappearance of backyards throughout the Portland metropolitan region.

In 1995, the average lot size for a new home in Washington County was 15,000 square feet. Today, new residential housing projects in Washington County list 7,000 square foot lots as “executive housing,” an apparent luxury only for the rich. Has the American Dream disappeared in the Portland region?

The purpose of this research project was to see if the disappearance of backyards was real or an illusion. After examining the adopted land-use plans and accompanying zoning codes of the three metro counties and a cross-section of local cities, it became clear that private backyards in fact are being zoned out of existence, in order to comply with state and regional land-use mandates.

All new development projects on lands recently approved for urban growth boundary expansion in the Portland region have high-density overlays that prevent traditional backyards (roughly 4-5 units/acre), except for a small percentage of all units. In addition, many older neighborhoods with large lots are experiencing an epidemic of teardowns, due to the artificial shortage of buildable land. Homes with large yards are being purchased, demolished, and replaced with several homes or towering apartment complexes.

As a result of density mandates, homebuyers are increasingly paying more while getting less in the way of private open space.

According to report author John Glennon, “Local planners know that most people prefer lower-density neighborhoods; yet zoning codes have been written to take that option away.”

Cascade Policy Institute President and CEO John A. Charles, Jr. noted, “As Metro prepares for another round of possible growth boundary expansions, elected officials should think hard about the effects of land-use regulation on livability. In a state that is already 98% open space, there is no reason to create an artificial shortage of buildable land. The State Legislature should enact reforms this year to remove high-density mandates from local governments.”

The full report, Have Private Backyards Been Outlawed in the Portland Metropolitan Area?, can be downloaded here.

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Testimony Regarding SB 324-A, Low-Carbon Fuels Standards

The top legislative priority for most Democrats in Salem has passed the Senate and will be up for its first public hearing in the House on Tuesday, February 24th.

SB 324-A, the “low-carbon fuel standard” bill pushed so hard by Cylvia Hayes and former Gov. Kitzhaber, will be reviewed in the House Environment and Energy Committee at 3:00 p.m. on Tuesday. In prepared testimony sent to the committee today, Cascade President John A. Charles, Jr. points out that the “carbon intensity” of driving has dropped by 47% since 1975, making SB 324 redundant. Moreover, carbon dioxide is not a real “pollutant” anyway, so there would be no public health benefits to reducing emissions.

If SB 324 passes, it would raise the price of motor fuel by at least 19 cents/gallon, but none of the increase would benefit roads. Only an actual “motor fuel tax” raises money for roads, and Oregon already has a state gas tax of 30 cents/gallon. Legislative leaders hope to also increase that tax, meaning motorists would face two new taxes but receive less than half the benefits.

Cascade supporters are encouraged to contact their state Representative in opposition to this poorly-conceived bill.

Read full testimony here

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When Is a Tax Not a Tax?

Governor Kitzhaber wants you to drive less, and he knows that the best way to discourage driving is to make it more expensive.

The simplest way to do this would be to raise the state gas tax, which is currently 30 cents per gallon. However, this would require approval by three-fifths of the state legislative assembly, rather than the simple majority necessary for non-tax measures. There might not be enough votes for a tax increase.

The other problem is that the Oregon Constitution directs all gas tax revenues to be used only for road maintenance and improvement. Since improving roads would actually benefit motorists and potentially encourage more driving, this would undercut the Governor’s objective.

Instead, he is backing a legislative proposal known as the “low-carbon fuel standard,” designed to reduce the carbon dioxide emissions from motor vehicles. Because this will be a very expensive requirement for gasoline refiners, it would cause the price of gasoline to rise by at least 19 cents per gallon, and possibly much more.

As a non-tax measure, this bill only needs a majority of votes in the legislature, and there will be no actual revenues created that might benefit motorists. They will simply pay more, and get nothing in return.

In the world of Oregon environmental policy, this is called a clever strategy. For motorists, it’s a scam. Legislators who go along with it should be ashamed of themselves.

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Report Shows Oregon Public Employment Contracts Are a Ticking Time Bomb

PORTLAND, Ore. – Cascade Policy Institute today announced the release of a new report showing that Oregon public employers have more than $2.6 billion in unfunded actuarially accrued liabilities associated with non-pension benefits promised to current and future retirees. These benefits, often referred to as “Other Post-Employment Benefits (OPEB),” typically include health care coverage for retirees, but may include other forms of deferred compensation such as life insurance.

A decade ago, the Governmental Accounting Standards Board (GASB) mandated that public employers begin clearly stating financial obligations for OPEB in their comprehensive annual financial reports. However, employers were not required to set up trust funds to pay for these promises. As a result, the Cascade review of 125 financial reports of state, regional, and local governments shows that most employers have no money set aside and are paying for OPEB obligations out of annual operating revenues. This cannibalizes funds needed for actual services.

The Portland transit agency TriMet has the biggest unfunded OPEB liability, estimated to be $950 million as of January 2014. Other employers with relatively large unfunded liabilities include Lebanon school district, Tillamook County, and the city of Corvallis.

Cascade President and CEO John A. Charles, Jr. said, “Over a period of decades, Oregon public employers have deliberately back-loaded employment contracts so that the cost of generous compensation packages would not become apparent until decades later, when the decision-makers themselves would be long gone. Those time bombs are now exploding, harming public school students, transit riders, and others who rely on public services.”

The Cascade paper is a call to action for the legislature to impose some form of fiscal discipline on public employers by requiring them to make annual contributions to OPEB trust funds. Legislation to accomplish this has been considered in past sessions but never approved.

In commenting on this failure, Charles noted, “Actuaries always state what it would take to amortize OPEB liabilities over a 25-year period; these are referred to as ‘annual required contributions (ARC).’ Unfortunately, most government managers treat the ARC as merely a suggestion. All the Oregon legislature has to do is pass a one-page bill reaffirming that ‘required’ means ‘required.’ How hard can that be?”

The Cascade report, Unfunded OPEB Liabilities for Oregon Public Employers: A $2.6 Billion Time Bomb, can be downloaded here.

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Equal Outcome Is the Wrong Goal

In Governor Kitzhaber’s final inaugural address this week, he focused on the themes of equality and community. Specifically, he wants to reduce the gap between rich and poor. He also believes that only through collective action can we achieve that goal.

Unfortunately, his obsession with “equal outcome” guarantees that we will lose “equal opportunity.”

For instance, our Governor is passionate about spending more public money on the “free” public education system, because free education is supposed to make everyone better off. But the taxes required for this very expensive entitlement impose major burdens on families that prefer to educate their children at home or through private schools.

Is the Governor proposing legislation offering a money-back guarantee so that dissatisfied parents can get a refund and spend their tax dollars on the schools of their own choosing? No, he is not. His insistence that we all pay for a generic service makes him feel better about himself, but deprives actual students of educational opportunities.

The governor may dream of a more equal world, but if he insists on regulating his way towards that goal, he will dramatically reduce our personal freedom. And what most people really care about is the opportunity to pursue their own dreams, regardless of whether the eventual outcome makes them richer or poorer than their neighbors.

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No Wonder Portland Can’t Afford to Maintain Streets

The Portland City Council seems determined to raise taxes to pay for street maintenance. But the City doesn’t have a revenue shortage problem; it has a spending misallocation problem, which continues to grow.

The latest example is a proposal to begin collecting and publicizing energy consumption data from about 1,000 of the largest commercial buildings in the city. This is being proposed as part of the city’s Quixotic attempt to “fight climate change.” Proponents claim soothing words that the regulation would “provide market recognition to those who perform really well” on some arbitrary energy consumption scorecard.

In fact, this is just an effort to shame building owners, managers, and tenants into adjusting their behavior to conform to the political edicts of City Hall. Commercial buildings consuming “too much” energy will receive a Scarlet Letter and be harassed by bureaucrats and activist groups into expensive energy conservation retrofits, many of which will make no financial sense.

The cost of city oversight? At least one full-time employee. This is why city streets are falling apart. Too many bureaucrats are pushing papers for programs that are irrelevant to the core functions of government. The Council should kill this idea before it goes any further.

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Report Shows No Return on Public Investment for Oregon Wave Energy Trust

PORTLAND, Ore. – A new report released by Cascade Policy Institute concludes that the public-private partnership Oregon Wave Energy Trust has failed to achieve a return on public investment.

The Oregon Wave Energy Trust (OWET) is a nonprofit, public-private partnership established by the Oregon State Legislature that works to “responsibly develop ocean energy by connecting stakeholders, supporting research and development, and engaging in public outreach and policy work.” Since its inception in 2007, OWET has received nearly $12 million dollars in public funding from the Oregon Innovation Council (Oregon InC), another government-sponsored entity. OregonInC claims its initiatives must earn a profit, but that is clearly not the case with OWET. None of the money spent to date by OWET has led to any profitability.

Cascade President and CEO John A. Charles, Jr. commented, “Electric utilities in Oregon, both public and private, are quite capable of generating and delivering power to their customers. If wave power is a good idea, utilities themselves will bring it to commercial scale. If it’s a bad idea, taxpayers should not be forced to bear all the risks of early-stage experiments.”

The Cascade paper recommends that Oregon legislative leaders “should closely examine all state-sponsored venture capital funds to determine if grant recipients will ever become financially self-sufficient, as originally envisioned. OWET would be an excellent place to start.”

Cascade Policy Institute is Oregon’s free market public policy research organization. Cascade promotes public policy solutions that foster individual liberty, personal responsibility, and economic opportunity. The full report, entitled Waiving Profitability: The Oregon Wave Energy Trust’s Failure to Achieve a Return on Public Investment, may be viewed here.

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Press Release: Report Shows No Return on Investment for Portland Seed Fund

December 3, 2014

FOR IMMEDIATE RELEASE

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

PORTLAND, Ore. – A new report released by Cascade Policy Institute concludes that the managers of the publicly financed Portland Seed Fund cannot provide documentation to show any positive return on investment for the millions of dollars spent on risky start-up ventures.

The Portland Seed Fund is a public-private venture intended to close a funding gap for entrepreneurs. It invests $25,000 in each startup selected and reserves money for follow-up investments as well. The City of Portland, the City of Hillsboro, and the State of Oregon (through the Oregon Growth Account) supplied most of the money for the first Seed Fund and a significant portion of the second Seed Fund. So far, the public funds amount to $3.4 million, with another $100,000 likely to come from this year’s Portland Development Commission (PDC) budget. The City of Portland and the Oregon Growth Account are the two biggest supporters, each contributing $1.5 million or more.

The Portland Seed Fund has spent large amounts of taxpayer money to subsidize private-for-profit companies, yet governments which gave money could not provide information about the success of those expenditures when questioned by Cascade researchers. It is not even clear that there are any defined expectations for this fund. Very little information is available, and the average taxpayer would have no way of knowing where tax funds are being spent. The Seed Fund is not even listed on the City of Portland’s Investment Reports.

Cascade President and CEO John A. Charles, Jr. commented, “The Portland Seed Fund allows politicians to play at being venture capitalists―without any of the personal risks that real venture capitalists bear. This is a misuse of taxpayer funds.”

The Cascade paper urges the City Councils of Portland and Hillsboro, and Oregon’s state legislators, to have public discussions about the Seed Fund, and either explain why tax funds are being spent on private companies or shut the Fund down.

Cascade Policy Institute is Oregon’s free market public policy research organization. Cascade promotes public policy solutions that foster individual liberty, personal responsibility, and economic opportunity. The full report, entitled The Portland Seed Fund: Planting High Hopes, Reaping Few Results, may be viewed here.

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

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

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

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

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

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

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

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

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

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

November 25, 2014

FOR IMMEDIATE RELEASE

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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Scare Tactics Not Working in Road Tax Debates

The Oregon Department of Transportation (ODOT) recently issued a report describing the deteriorating condition of Oregon highways. The authors estimate that the cumulative cost to the state economy from poor roads will be $94 billion by 2035.

At the same time, the Portland City Council is considering a new local income tax to pay for road maintenance and safety, citing a lack of adequate funding.

While road maintenance is indeed a problem throughout Oregon, the public is unlikely to approve new road taxes. The primary reason is a lack of trust. During the past 15 years, Portland has squandered vast amounts of money on fads like streetcars, light rail, bioswales, and “road diets.” At the state level, ODOT spent nearly two decades and $180 million on a silly bridge-with-light-rail proposal to Vancouver, Washington that is now dead.

These projects were mostly aimed at getting people “out of their cars.” Yet the reality is, regardless of how people travel, more than 99% of all trips take place on a road. So road maintenance needs to be the top priority with existing transportation dollars.

New methods to pay for transportation infrastructure will eventually be needed, but politicians need to re-earn the public’s trust before that can happen.

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The Elliott State Forest Should Be an Asset―Not a Liability―for Oregon Schools

By Jordan Lofthouse, Randy Simmons, and John A. Charles, Jr.

With Oregon’s schools constantly facing budget crises, why are our lawmakers missing out on the opportunity to give more money to our kids?

As part of the Common School Trust Lands, the Elliott State Forest has the constitutional obligation to generate money for Oregon’s schools. In the last few years, however, environmental interests have carefully manipulated the Endangered Species Act so that the Forest costs taxpayers money instead of providing funds for Oregon’s children.

Lately, harvest levels and revenues have been a fraction of their former levels. Despite potential to harvest 40 million board feet in 2013, actual harvest was only 4.5 million board feet. The expected timber harvest for 2014 is similar. This has resulted in a net deficit of $3 million that is covered by your tax dollars.

The Oregon State Land Board is searching for ways to balance the financial responsibilities of the forest with environmental factors hindering the Forest from providing revenue for schools.

Researchers at Utah-based Strata Policy have identified several options for monetizing the Elliott State Forest so it can meet its constitutional responsibility to Oregon’s children. Privatizing the Elliott State Forest is likely the most financially beneficial option. In a report for the Cascade Policy Institute, Eric Fruits of Economics International concluded that selling or leasing Forest assets could provide stable funding for Oregon schools at approximately $40 to $50 million annually.

A second option is a land exchange between the federal government and the state government. The federal government would receive control of the ESF in exchange for federally owned land that could be more easily monetized for Oregon schools. Other states such as Utah, Minnesota, and California have all successfully made land exchanges to increase revenue for schools.

A third but less likely option consists of renewing a Habitat Conservation Plan (HCP) with federal agencies. HCPs allow timber to be extracted while also protecting endangered species habitat. The former HCP expired several years ago, meaning that harvestable areas in the Elliott State Forest are severely limited. If state and federal agencies can negotiate a new HCP for the forest, timber harvest and revenue can increase while also protecting critical habitat. However, conflicts between state and federal agencies make HCP renewal a significant challenge.

As we consider ways of providing increased funding for education in Oregon, we should press the State Land Board to pursue options that will allow the ESF to fulfill its constitutional responsibilities. We can no longer allow environmental groups and federal regulations to dictate the failure of this trust at the expense of children’s education.

 

Jordan Lofthouse and Randy Simmons are scholars with Strata Policy, based in Utah. John A. Charles, Jr. is President and CEO of Cascade Policy Institute in Portland.

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Time for a “New Business Model” for the Elliott State Forest

Oregon’s political leaders have the chance to do what they frequently ask of the state legislature: provide more money to Oregon’s schools. So why aren’t they doing it?

The Elliott State Forest on Oregon’s South Coast is an endowment asset for Oregon public schools and is supposed to be making money through timber sales. Unfortunately, due to mismanagement by the Oregon Land Board, timber harvest levels (and associated revenues) have been a fraction of their former levels.

Earlier this year, the Land Board directed the Department of State Lands to develop a new business model for the Elliott in order to turn it from a “net-negative to a net-positive.” In a new report by Cascade Policy Institute, researchers at Utah-based Strata Policy have identified several options for monetizing the Forest so it can meet its constitutional responsibility to Oregon’s children. One option, privatizing the Forest, is likely the most financially beneficial. In a previous Cascade report, economist Eric Fruits concluded that selling or leasing Forest assets could provide stable funding for Oregon schools at approximately $40 to $50 million annually.

The State Land Board will make preliminary decisions on the “new business model” on December 9. Environmental advocates are pushing strongly to eliminate all timber harvesting from the Elliott, but the Board must turn the Forest into an income-producing asset to fulfill its fiduciary obligations to the schools.

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

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

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

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

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

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

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

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

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

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

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

The full report by Strata Policy may be viewed here.

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No New Street Fee: City Council Should Approve Street Maintenance from the General Fund

Last week Portland City Commissioner Steve Novick suggested that the City Council approve $7 million in General Fund dollars to help pay for street maintenance. The City expects to have a surplus of some $9 million this fall, allowing new discretionary requests from individual bureaus.

Such a transfer would be far preferable to enacting a street tax, which has been widely opposed. Continuing to push the tax would be divisive and a huge waste of time for the hundreds of city residents who would show up to oppose it. Street maintenance is one of the most basic responsibilities for any municipality. Therefore, it is appropriate to use property tax dollars from the General Fund to maintain the road network.

Moreover, the City Council has an abysmal track record of managing dedicated transportation user fees. This was highlighted in a report issued last year by the Portland City Auditor, showing that dedicated transportation revenues had been going up over the last decade, while actual spending on road maintenance had dropped. This conclusion makes any proposed tax increase a non-starter.

The unexpected budget surplus gives the Council a graceful way to put the street tax proposal to bed. They should take the opportunity and move on.

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Conservation Is Not Always the Best Option

The Oregon Public Utility Commission (PUC) is considering a request by the Energy Trust of Oregon (ETO) to allow the Trust to spend ratepayer dollars on certain energy efficiency measures that don’t pencil out. The Oregonian has correctly noted that if the estimated benefits of such projects are less than costs, we should stop spending ratepayer dollars on the subsidies.

Several recent op-ed writers have taken The Oregonian to task on this because the local mantra of environmental advocates has long been that conservation is always better than building a new power plant. In a world of high natural resource prices, this is likely true; as a region we have saved a lot of energy through conservation over the past 30 years.

But we are in a new boom period for American energy production, across multiple fronts, including natural gas, coal, oil, and propane. With a glut of natural gas, domestic prices have dropped, leading to negative results for the benefit-cost tests applied to some conservation projects. Yet, advocates who were happy to trumpet the virtues of “cost-effective” investments all those years now resent the fact that the math no longer works in their favor. Therefore, they’d like to change the rules.

Proponents have made a lot of arguments for continued public subsidies: the ETO should be allowed to offer a “core program” of insulation measures for natural gas homes that are exempt from cost-effective determinations; there are “non-energy” benefits from conservation, such as more comfortable buildings; and natural gas prices might rise again, so we should keep all these contractors working to install stuff even if it doesn’t make financial sense today.

But the law that created the Energy Trust was clear that ratepayer funds collected through the three percent monthly tax on ratepayers (otherwise known on your monthly utility bill as the “Public Purpose Charge”) could only be spent on “cost-effective” measures. It’s bad enough that the PUC has been letting ETO operate with a waiver from this requirement for the past two years; there is no justification for another extension.

The PUC staff recently made draft recommendations to the Commission that will disallow those measures with the worst benefit-cost numbers, but continue allowing many that are close to positive, but still losers. The PUC should take the guesswork out by simply complying with the law. Ratepayer funds should only be spent on conservation measures where estimated benefits exceed costs.

John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in the Oregonian on September 21, 2014.

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Cascade Policy Institute Gives Support to Measure 91

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

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

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

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

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

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

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

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Forum on the Future of America’s Transportation Infrastructure

Cascade president and CEO John Charles  presented on the demise of the highway trust fund at a Portland town forum on August 4, 2014. The forum, sponsored by Rep. Earl Blumenauer, included a number of presenters that spoke on the the future of America’s transportation infrastructure.

Charles’s presentation can be seen at 1 hour and 14 minute (1:14) mark of the video shown below.

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The PUC Is Right: Some Conservation Projects No Longer Make Sense

The Energy Trust of Oregon (ETO) is a nonprofit organization funded by taxes imposed on utility ratepayers. Most of the tax money is spent on subsidies for energy conservation programs.

While energy efficiency is a good idea, not all projects pencil out. State law requires that specific measures, such as installing additional attic insulation, be “cost-effective.” That means that installing the measure makes more financial sense over the long term than having the utility simply provide more energy. Projects that are too costly are disallowed.

Now that the country is experiencing a glut of natural gas, many conservation measures no longer meet the legal requirement; but the Energy Trust wants an exception in order to continue funding its energy efficiency programs. Proponents argue that energy conservation is always cheaper in the long run than building a new power plant, but clearly this is not the case. According to the Energy Trust itself, some of their efficiency measures only return two dollars of benefits for every five dollars spent.

The staff of the Public Utilities Commission is recommending that some conservation measures preferred by the Trust be disallowed in order to protect ratepayers from excess taxation. This is the proper recommendation to make, and the Commission should support it.

When natural gas prices are low, ratepayers should be rewarded, not punished by continued taxation for projects that no longer make sense.

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The Demise of the Highway Trust Fund: A Market Solution

 

In the 1967 film The Graduate, Dustin Hoffman plays a nerdy twenty-something who suffers through an unwanted college graduation party hosted by his parents. As he makes the rounds, a middle-aged business man offers a memorable bit of career advice: “I just have one word for you: plastics.”

 

In the context of today’s forum on the future of the Highway Trust Fund, I also offer one word of advice: Uber.

 

Most of you probably know that the ride-sharing company Uber relies on the use of a smartphone app to connect potential customers with nearby drivers who use their own vehicles to provide door-to-door transit service. The $17 billion company has become so successful that in late June thousands of taxi drivers around the world went on strike to protest this private, unsubsidized challenge to their monopoly franchises.

 

The Oregonian reported recently that Uber had launched in Vancouver, WA, but faces one major barrier: The company’s service is outlawed in Portland. In fact, Portland is the only major city on the entire west coast that does not allow Uber.

 

This issue is symbolic of everything that’s wrong with transportation policy. Municipal taxi regulation is as anachronistic as the price and route control which used to be imposed by the Civil Aeronautics Board (CAB); and the Congressional decision to euthanize the CAB in 1978 enabled the market-based airline revolution that changed flying from a boutique experience for the wealthy to a mass consumption option for the middle class.

 

Transportation insiders are now obsessed by the consistent failure of Congress to come up with a new funding stream for surface transportation programs, but the success of Uber suggests that we’re looking in the wrong places for money. There is a vast amount of investment capital circling the globe, looking for a profitable place to land. That capital can be deployed to the benefit of motorists and transit users if we create real markets in transportation.

 

Apparently, most people in this room have a different perspective; they agree with Congressman Blumenauer that the primary solution is to raise the 18.4 cents/gallon federal gas tax. But if we step back and think about the nature of the problem, there is no reason to have the federal government involved at all. The beneficiaries of every transportation investment are the users, who can pay the full cost through user fees or local taxes. All users are local.

 

Collecting taxes from Ames, Iowa and Camden, New Jersey to finance a road culvert project in Beaverton, OR is a convoluted and wasteful way to pay for service. The only reason we cling to it is because it benefits the politicians and bureaucrats whose power base is tied to the laundering of gas tax money through Washington, D.C. The legislative ability to pork-barrel from one state to another removes all fiscal discipline, and virtually guarantees that vast amounts of money will be wasted on useless toys such as “high-speed rail.”

 

I was asked to defend the concept of “devolution” today, and I’m happy to do so. There are federal agencies that should follow the Civil Aeronautics Board into the bureaucratic burial grounds, including the Federal Highway Administration and the Federal Transit Administration. Neither adds much value, and both distract us from better solutions.

 

However, devolution would only be a small step forward because state and local politicians love to pork-barrel tax money just as much as federal officials do, and they’re very good at it. For instance, in 2013, the Portland Auditor released a report entitled: “Transportation funding: revenue up, street maintenance down.” That’s all you need to know about the contrived road maintenance crisis in Portland.

 

The Metro Auditor has published at least 5 reports since 2008 chastising Metro for wasteful transportation spending. The Metro Council has completely ignored these reports.

 

TriMet has been awash in taxpayer cash over the last decade, yet service has dropped. Between 2004 and 2013, total annual operations revenue at TriMet went up 62%, while annual vehicle miles of transit service went down by 14%.

 

Given that pork-barreling is endemic to government spending, the transportation finance “solution” requires a massive dose of Uber, whereby capital is raised from private investors, innovative services are marketed entirely on the basis of consumer preference, and the profit motive imposes fiscal discipline on spending.

 

What is preventing this from happening in transportation is the mindset of government officials. They want to control the flow of investment dollars, pick all the projects, set all the prices, and determine how and where people travel.

 

In other words, they insist that we regulate surface transportation in the same failed way that the CAB used to set prices and routes for commercial airlines.

 

The Uberization of the transportation economy would involve at least the following elements:

 

  1. Allowing/encouraging bridges and limited access highways to be converted to tollways, with variable pricing in those urban areas where peak-hour traffic congestion is a problem. The gas tax at any level cannot solve urban congestion because traffic varies by day of the week, time of day, location, and direction of travel. Therefore, the appropriate user fee must vary in real time as well in order to modify behavior appropriately.

 

  1. Restricting the use of all highway toll revenues to maintenance and expansion of those tollways. Motorists cannot be used as ATMs for non-road boondoggles.

 

  1. Allowing/encouraging private companies to build new highways and bridges with private equity, financed through electronic tolls, without excessive regulation. The latter point is highly relevant as we consider the possibility of a third bridge over the Columbia River that might be built by a private company and financed entirely with tolls. If that company approached Metro next week seeking help with the environmental permits, everyone in this room knows what the response would be: drop dead.

 

We need a major attitude adjustment among regulators, not just more money.

 

  1. Deregulating the entire transportation market to allow/encourage competition to TriMet, the streetcar, the taxi cartel, PDOT, and ODOT.

 

  1. Devolving all decisions away from the federal government, and converting the existing 18.4 cents/gallon federal gas tax to an add-on state tax (which would bring the state tax rate to 48.4 cents/mile).

 

  1. Creating real markets in transportation infrastructure and returning consumer sovereignty, whereby consumers get all the transportation choices they want – as long as they are willing to pay for them.

 

The decades-old arguments about the federal gas tax versus some other funding mechanism is stale. You can choose to stay in that endless legislative loop, or you can get out of it and look for something else. The success of private companies such as Uber, Lyft, Bolt Bus, and the large consortiums building new tollroads all around the world indicates that there is plenty of money available for the construction, reconstruction, and maintenance of surface transportation facilities under the right conditions. The job of elected officials is to create those conditions and then get out of the way.

 

I predict that within two years, Uber will be legal in Portland, and the local taxi cartel will have morphed into something much more market-driven. We should applaud this change, and look for other opportunities to connect consumers with service providers through the dynamic market process.

 

A version of this essay was presented at a Portland town forum sponsored by Rep. Earl Blumenauer on August 4, 2014.

 

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Time for a Third Bridge to Vancouver

Last week a conceptual plan for a new bridge over the Columbia River was unveiled at a public forum in Vancouver, WA. The plan, presented by Florida-based Figg Engineering, calls for a four-lane bridge east of I-205. The new bridge would have 144 feet of river clearance – the same as the I-205 Bridge — and include sidewalks and bikeways completely protected from highway traffic.

The financing is still to be determined, but could involve user fees, known as tolls. In fact, one option would be for the bridge to be privately owned and operated, paid entirely with tolls. Those drivers unwilling to pay could continue to use the Glenn Jackson Bridge, as they do today.

Oregon political officials are notably cold towards the idea of a third or fourth bridge over the Columbia. Local politicians believe that the two bridges we have now are all we should ever get – even though Portland is served by nearly a dozen bridges over the smaller Willamette River.

As the Portland-Vancouver region grows we will need much more bridge capacity. Since government won’t provide it, we should welcome this opportunity to pursue a private investment option.

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

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Are You Being Scammed on Your Electric Bill?

During the past decade, it has become popular for individuals, businesses, and universities to brand themselves as “green power” supporters. Some have done this by installing actual generating facilities such as solar panels. However, for most people, this is too costly, so a new option has arisen for them: renewable energy certificates (RECs).

A REC is not a physical thing. It is simply an accounting mechanism purporting to represent the “environmental amenities” associated with one megawatt-hour of electricity generated at certain qualifying facilities. Every time a megawatt-hour of power is produced, the electricity is sold as one commodity, and a REC is created as a separate commodity. The two are not necessarily sold at the same time, or to the same buyer.

What are these “environmental amenities”? No one actually knows. To take a hypothetical example: If you bought a REC associated with a new hydroelectric facility, a potential environmental benefit would be the lack of air pollution from that facility. But the hydro dam probably would have several environmental “disamenities” such as fish mortality and loss of recreational opportunities to river users. The net effect might be zero environmental gain, depending on how one values the trade-offs.

The question becomes much more complicated for intermittent sources such as wind and solar. Since those generators don’t produce any useful output most of the time, they must be continually backed up by other sources (known as “spinning reserve”). This is a requirement of the electrical grid, where electricity demand and supply must be in equilibrium at all times to avoid blackouts.

If wind and solar facilities must be backed up, then in order to quantify the “environmental amenities” of an individual REC, we would need to know exactly where the back-up came from. In order to learn more about this last year, I assigned a number of bright college students the task of identifying specific RECs (by the unique number assigned each one) and then investigating what sources (if any) were being used as spinning reserve. It turns out that finding such information is impossible. We asked electric utilities, REC brokers, and state utility regulators. All denied our requests.

The contrast between the green energy field and the “sustainable agriculture” industry on this point is stark. If you walk into almost any fine restaurant or supermarket and ask where the produce or beef came from, the information will be readily available. In fact, managers are likely to launch into an extended dissertation about the virtues of “local sourcing,” “organically grown” crops, and “humanely raised” animals.

However, if you ask similar questions about the qualities of a REC you just purchased, you will hear the sound of silence.

The evidence shows that RECs are actually a fake commodity, created out of thin air, and that consumers who purchase them are being bilked. This is all documented in a Cascade report released in May.

As a follow-up to this research, Cascade has asked Attorney General Ellen Rosenblum to investigate the REC market for fraud under the terms of the Oregon Unfair Trade Practices Act. As of this writing she has yet to respond.

In the meantime, consumers would do well to steer clear of the REC scam. A prominent circus promoter once claimed, “A sucker is born every minute.” There is no need to be part of the evidence that proves him right.

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

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Testimony to TriMet Board About WES Expansion

John A. Charles, Jr. presented this testimony to the TriMet Board of Directors on May 28, 2014 with regard to their proposed expansion of the Westside Express Service.

 

Board members:

Below are my comments on Resolution 14-05-27, Adopting the Fiscal Year 2014-15 Annual Budget and Appropriating Funds, for your May 28 meeting:

Assumed cost of fringe benefits: According to the introductory narrative, the proposed FY 15 budget “assumes management’s initial offer for active and retiree health benefits.” This is consistent with the budget statements from previous years, which have tended to “assume away” unpleasant aspects of labor negotiations. It does not seem prudent to continue making these assumptions, based on the history of TM labor negotiations over the past 22 years. As much as I like seeing the proposed expansion of service, perhaps it would be better to scale back service enhancements and set aside more funds for a worst-case outcome on the cost of health benefits.

Plans for WES expansion: The staff recommends purchasing two additional vehicles for WES, at a cost of $8.5 million, or $13.2 million over 20 years of debt service. All of those costs will cannibalize other general fund programs. I’d suggest that this proposal be pulled from the budget and possibly added back later, after further public vetting.

WES is TriMet’s most expensive fixed-route service, but I’m not aware of any justification that has ever been offered. Fewer than 1,000 TriMet riders benefit from these subsidies each weekday. Why are WES riders so privileged?

To put the issue in context, below are the costs of WES compared with those of similar bus service offered by SMART of Wilsonville. While WES is undoubtedly a nicer and quicker ride for users, the cost premium is difficult to justify to non-riding taxpayers who have to make up the difference.

Express Service from Wilsonville Station to Beaverton Transit Center

Operating cost/mile Operating cost/hour
TriMet Express Rail $43.74 $949.84
SMART Express Bus $   1.30 $   83.17

In addition, WES is an energy hog. According to a new report by the Federal Railroad Administration, the average energy consumed by all commuter rail systems in America during 2010 was 2,923 British Thermal Units (BTU) per passenger-mile. WES was close to the bottom: It consumed 5,961 BTU per passenger-mile, more than twice the national average (by comparison the top performer was Stockton, CA: 1,907 BTU/passenger-mile).

Not only is WES inefficient compared with its peer group, it is wasteful compared with other modes of travel. The national average for all transit buses in 2010 was 4,240 BTU per passenger-mile; for light-duty cars, the average was 3,364.

WES has always been a planning mistake. Before the Board decides to double-down on failure, there should be careful consideration of an alternative action: terminating service. None of the current board members had anything to do with the original decision, so no one should feel a personal need to defend it. Certainly terminating service would result in some short-term costs because of likely re-payment penalties to the federal government, but at some point the lower operations would provide net benefits to taxpayers (including those outside of TriMet’s district in Wilsonville, who pay TriMet more than $25,000/month to subsidize train operations).

In a typical year, there are very few opportunities for the Board to actually express a clear policy choice for TriMet’s future; most decisions are made by the staff. This is a rare chance for the Board to isolate two distinct policy options, consider the long-term effects, and express an independent preference for one of those options. I strongly encourage you to defer action on the proposed purchase of additional WES vehicles for at least another 60-90 days in order to have that public conversation.

Sincerely,

John A. Charles

Cascade Policy Institute

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Should Portland Residents Pay Another Fee to Cover Basic Road Maintenance?

Portland Mayor Charlie Hales is proposing a new transportation tax for 2015. He claims this is needed to offset a decline in revenue.

However, the facts show a different story. Total revenue for transportation has been growing for decades. For example, from 1996-2007, Portland transportation revenue grew by 60%. According to the city auditor, that was the largest increase among all city agencies during that period.

Portland’s general fund has also been flush. Between 2003 and 2012, the amount of annual tax revenue the city received from each Portland resident increased from $2,292 to $2,656. Total property taxes grew by 27% during that time.

Despite all this money, the city’s streets are poorly maintained. The problem is that local politicians have preferred to spend vast amounts on frivolous toys like the eastside streetcar and Milwaukie light rail, rather than taking care of basic maintenance. As a result, transportation debt service has increased from 10% of discretionary spending to 20% in just the past four years. The charge card is getting maxed out.

Instead of demanding more tax dollars for shiny new objects, the City Council should maintain and improve the basic road network. If this task is too difficult, taxpayers should ask why we bother to have a city government at all.

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

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Report Questions Legality of Renewable Energy Certificates

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

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

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

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

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

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

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

Click here to read the report.

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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.

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Elliott State Forest Management Puts Small Birds over Small Kids

By John A. Charles, Jr.

Last year the S&P 500 Index had a total return on investment of 32%. That should have been good news for Oregon public schools, which receive twice-yearly checks from an endowment known as the Common School Fund (CSF).

One of the largest assets supporting the Fund is the 93,000-acre Elliott State Forest, near Coos Bay. Net timber harvest receipts from the Elliott are transferred to the CSF, where the money is invested in stocks, bonds, and other financial instruments.

Unfortunately, the Elliott did not return 32% last year. It did not even return zero percent. The state actually lost $3 million. That is quite a feat of mismanagement for timberland valued at more than $500 million.

The Elliott is governed by the State Land Board, comprised of Governor John Kitzhaber, Secretary of State Kate Brown, and State Treasurer Ted Wheeler. Under their leadership, timber harvesting has steadily declined on the Elliott, so that roughly 78% of the forest is off-limits. Since overhead is relatively fixed (e.g., fire suppression and road maintenance), if harvest is halted, the forest loses money.

 

The Elliott is part of a broader portfolio of lands known as the Common School Trust Lands. Under the terms of the Oregon Admissions Act, the primary management objective for Trust Lands is to raise money for the Common School Fund. Therefore, the Land Board has a fiduciary duty to maximize timber harvest on the Elliott.

As environmental litigation became more widespread in the 1980s, it became clear that “fiduciary trust” would start taking a back seat to wildlife habitat preservation in state forests. Knowing this, in 1994 outside consultant John Beuter was retained by the Department of Forestry to look at various options for increasing revenue to the School Fund from the ESF. His conclusion: “Selling the Elliott is the only marketing alternative likely to significantly increase net annual income to the CSF.”

The Land Board did consider this option in 1995-96, but rejected it. Instead, the Board wasted more than a decade on a futile attempt at negotiating with the federal government on a so-called “Habitat Conservation Plan” (HCP) for spotted owls and marbled murrelets. But ultimately the Board was left at the altar by federal negotiators, and the HCP was abandoned.

This continual appeasement emboldened environmental activists, who sued to halt virtually all commercial logging on the Elliott. As single-issue advocates, they have never cared about the collateral damage to schools. They only want one thing, and that is a shutdown of commercial timber harvest on the ESF.

There is a better way. Selling or leasing the Elliott would result in much more revenue for schools while still protecting bird habitat, because private landowners are subject to Endangered Species Act regulation just as the state is. However, it’s well known in the industry that private landowners use different compliance techniques that allow reasonable levels of harvest, while also maintaining necessary habitat. Private owners generally don’t waste time trying to negotiate HCPs.

To its credit, the Land Board has recently acknowledged that the status quo is unacceptable and is reviewing bids for three parcels of the ESF that it may sell off this year, totaling some 2,700 acres. Selling this land would help erase the $3 million loss from last year, but the basic problem remains: The state itself is a poor manager of commercial timberland.

A recent study by independent economist Eric Fruits reinforces the conclusion made by John Beuter 20 years ago, namely that Oregon schools would gain additional revenues of $40-50 million per year if the state placed management of the Elliott in private hands. While this is not the only option available, it is clearly the one that would generate the most money for schools. Therefore, it needs to be seriously considered by the Land Board.

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

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