Category: Tax and Budget

Oregon Legislators Should Vote Yes on Nuclear Power-cm

Oregon Legislators Should Vote Yes on Nuclear Power

By Rachel Dawson

Oregon is home to NuScale Power, the nation’s leading small modular nuclear reactor (SMR) developer. However, our state isn’t able to take advantage of NuScale’s innovative technology because it is illegal to site a nuclear plant in Oregon. Three bills being considered in Oregon’s current legislative session could change that.

HB 2332 would repeal current legal provisions requiring that there be a permanent storage site for waste and that voters approve the proposal before a nuclear power plant could be issued a site certificate.

Instead of repealing these provisions, HB 2692 would carve out an exemption for SMRs and would require the Oregon Department of Energy to develop a program to educate the public about the new technology.

SB 360 would also offer an exemption for SMRs. However, cities or counties first would have to approve the siting of SMRs in their jurisdiction before they could be located there.

While HB 2332 would grant the most amount of freedom for siting nuclear plants, any of these three bills would be a step in the right direction for our state.

Recent blackouts in California and Texas demonstrate that the grid needs baseload energy resources capable of backing up renewables when they fail to produce power. If Oregon officials are serious about operating the grid with 100% renewable power, they need to bring SMRs into the discussion. Legislators should vote in favor of these three bills to bring reliable power to Oregon.

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

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Empower Oregon Families Today by Funding Students, Not Systems-cm

Empower Oregon Families Today by Funding Students, Not Systems

By Kathryn Hickok and Helen Doran

Every parent knows a solid education prepares children for life, and that path begins in grade school. Almost a year ago, the COVID-19 pandemic closed school buildings for in-person classroom instruction. But even before the coronavirus upended K-12 school routines, many Oregon students were trapped in schools that didn’t meet their educational needs, with no access to meaningful alternatives.

As schools begin to reopen, state policymakers and legislators should recognize that Oregon families urgently need more options so they can find the right fit for their children to learn effectively and safely. Traditional public schools, charter schools, magnet schools, online learning, private and parochial schools, homeschooling, and tutoring are all paths to success for students. All options should be valued, and parents should be empowered to choose among them to help their children succeed.

Giving families control over a portion of the state’s per-pupil education funding to spend on tuition and other education resources would empower parents to find immediate solutions that match their children’s needs, their work schedules, and their health concerns. More than half the states in the U.S. currently give families flexibility to direct their children’s education through education choice programs like scholarships, tax credits, and Education Savings Accounts.

Education Savings Account programs (ESAs) give parents a kind of “money-back guarantee” if they want to opt out of their zoned public schools for other options. ESA programs currently operating in five states deposit a portion of the state school funding that would be spent for a student in a public school into an account associated with the child’s family. Families can use those funds to pay for tuition or other education expenses. Senate Bill 658, which has been introduced in the 2021 Oregon Legislative Session, would establish an ESA program for Oregon parents.

Many Oregon families already have “school choice.” They move to neighborhoods with public schools they like, enroll their kids in tuition-based schools or public charter schools, or get online classes or tutoring. In response to the loss of in-person learning during the pandemic, parents have formed “pod schools” to teach their kids in small groups. Thousands of Oregonians successfully homeschooled before the pandemic, and many more became their children’s official teachers in 2020.

But other families don’t have the financial resources to “pay twice” for education—once through their taxes and again through tuition or out-of-pocket fees. Or, they don’t have the work or family flexibility to monitor their children’s at-home, public school distance learning programs or to homeschool their kids full-time. Low-income and minority families, especially, are most often stuck with only one option: district schools assigned to them based on their home addresses, and the instruction options those schools provide for them.

All children should be able to attend schools where they can thrive. But those who deserve school choice the most are those at greatest risk of falling behind and not graduating from high school on time—or at all. According to the National Association of Education Progress, only 34% of Oregon fourth-graders tested “proficient” in reading in 2019. Moreover, our state continues to have one of the lowest graduation rates in the country. Changing those outcomes requires a solid early education leading to graduation and employment. Early intervention makes all the difference in a student’s long-term education success.

Parents increasingly support the idea of more education choices for their children, especially when their designated public schools are not meeting their students’ needs. In fact, a RealClear Opinion Poll in late 2020 showed that almost 80% of parents now support the concept of governments sending education funding directly to families and allowing parents to choose how those funds support their child’s education.

As families continue to struggle with virtual programs and uncertain school reopening plans, it is vital that students have access to options that will work for them now and in the future. Giving parents the means to choose which schools or learning options best fit their child’s needs will put the power of education back into the hands of parents, where it belongs. Oregon legislators should enact a school choice law now, to give opportunity to families who need to get—or keep—their kids engaged, learning, and on-track for graduation, in whatever circumstances they find themselves today.

Kathryn Hickok is Executive Vice President at Cascade Policy Institute, Oregon’s free market public policy research organization. She is also director of Cascade’s Children’s Scholarship Fund-Oregon program, which provides partial tuition scholarships to Oregon elementary students from lower-income families. Helen Doran is Program Assistant for External Affairs at Cascade Policy Institute.

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SolarWorld factory closure is the latest among government subsidy mistakes-cm

SolarWorld factory closure is the latest among government subsidy mistakes

By Rachel Dawson

Should governments use taxpayer dollars to support select companies of their choice? The recent closure of SolarWorld’s Portland area solar panel factory and the failure of the government-backed SoloPower Systems show why public dollars shouldn’t be spent to subsidize private firms.

SolarWorld opened the nation’s largest solar panel factory in Hillsboro in 2008.[1] It was a major facility in Oregon, employing as many as 1,000 Oregonians in 2010. However, the company soon filed for bankruptcy for the first time in May 2017, and again in March 2018. SolarWorld was then acquired by SunPower Corporation in 2018. The company shrank in size and sold the property in Hillsboro, choosing to lease around 200,000 square feet for just more than 200 workers.

But things did not improve for the solar panel manufacturer. With 170 workers, SolarWorld officially closed its doors for good earlier this year.[2] This is an unfortunate end for the factory’s workers—and for taxpayers. SolarWorld received 19 subsidies from the state, amounting to around $30,385,602 in the form of property tax abatements and tax credits.[3]

This is not the first time a local solar manufacturer has shut down in recent years. The SolarWorld plant closure is reminiscent of SoloPower Systems’ failure in 2017.

SoloPower Systems, a firm that specialized in a thin-film solar power technology, used a large amount of local and state taxes to build a solar panel plant in the city of Portland. It first opened in 2012, but soon closed its doors when the solar market was in upheaval. It opened and shut down again in 2014 “with little evidence that it had ever gained market share or even produced much product,” according to Portland Business Journal.[4] Despite the company’s inability to stay afloat, efforts by federal, state, and local agencies kept SoloPower functioning.

In 2010, the state agency Business Oregon granted SoloPower $20 million in tax credits, and the U.S. Department of Energy loaned SoloPower $10 million. At the same time, the City of Portland agreed to cover half of SoloPower’s debt to the state if it built its factory within Portland city limits. Multnomah County “declared the company’s North Portland factory site to be within an enterprise zone”[5] so it would not have to pay property taxes as long as it met certain job requirements.

One year later in 2011, the federal government offered the company $197 million in loan guarantees, and the California Energy Commission loaned just under $5 million.

SoloPower was not able to break through the market despite the millions of taxpayer dollars government agencies gave it.

The federal government quickly withdrew all $197 million in loan guarantees. Multiple lawsuits were brought against SoloPower: the first from California in 2013 after SoloPower defaulted on its loans, and the second in 2017 by Multnomah County to recuperate back taxes after the company “failed to create the minimum number of jobs needed to qualify for tax breaks.”[6]

However, the Oregon Department of Energy and the City of Portland were not so prudent. SoloPower claimed it simply needed more time and promised to restart successfully at the end of 2017. The Oregon Department of Energy bought the story and paid $640,000 in rent so that Multnomah County could not seize the company’s equipment. A DOE spokesperson told The Portland Tribune that the state did this because “they are banking on the company’s ability to raise the capital that they need to be successful.”[7] The state received no collateral for the payments, and this capital was never raised.

SoloPower’s Portland plant was shut down in 2017, and the City of Portland began paying $119,000 every month to cover its debt to the state. Portland covered the company’s debt until October 2020. Because of Portland’s mistake, the city was wasting $119,000 per month during a pandemic and a recession.

The mistakes made in these two cases are not new. Oregon’s failed Business Energy Tax Credit (BETC) was found to be chock full of similar examples, a third of which were deemed to be “suspicious and worthy of further investigation.”[8]

For example, Cascade Grain Products built an ethanol plant for around $190 million in 2008 with the help of Oregon’s BETC.[9] The plant only operated for about six months before shutting down. In 2009 the company filed for Chapter 11 bankruptcy and was sold for $15 million.[10] The BETC was frequently abused and was eventually terminated by the Oregon legislature due to mounting controversy. Both Democrat and Republican legislators admit that “taxpayer dollars were being wasted in many cases.”[11]

Governments should not be picking winners and losers in the market, and especially should not underwrite debt for a company with a poor financial track record. Agencies should cease all funding of private companies now and in the future and instead allow the marketplace to determine who is successful. This would ensure that Portland and Oregon taxpayers are not on the hook for poorly performing companies.


[1] https://www.bizjournals.com/portland/news/2020/02/06/former-solarworld-site-to-get-a-1-million-square.html

[2] https://pamplinmedia.com/fgnt/37-opinion/494300-396705-our-opinion-a-sad-end-to-solar-manufacturing

[3] https://subsidytracker.goodjobsfirst.org/parent/solarworld

[4] https://www.bizjournals.com/portland/news/2017/09/06/why-oregons-latest-solopower-bet-was-likely-its.html

[5] https://www.oregonlive.com/business/2018/08/state_agency_kept_shoveling_mo.html

[6] https://www.oregonlive.com/business/2018/08/state_agency_kept_shoveling_mo.html

[7] https://pamplinmedia.com/pt/9-news/369884-252601-state-county-at-odds-over-solopower-taxes

[8] https://www.oregonlive.com/business/2018/08/state_agency_kept_shoveling_mo.html

[9] http://ethanolproducer.com/articles/7516/oregon-ethanol-plant-prepares-to-restart-idled-2-years

[10] https://www.bizjournals.com/portland/stories/2009/12/07/daily27.html

[11] https://www.oregonlive.com/business/2014/07/oregons_business_energy_tax_cr.html
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Rachel Dawson is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Banning Bacon Won’t Heal the Sick-cm

Banning Bacon Won’t Heal the Sick

By Vlad Yurlov

If you thought hospital food was bland now, get ready to hear this. The Oregon Legislature is considering a bill that bans hospitals from serving bacon and every other salted, smoked, or cured meat. Because House Bill 2348 also requires hospitals to make plant-based food available, proponents argue that this is simply about promoting good health. But who’s to say that a room full of legislators knows more than a hospital full of doctors?

Being stuck in a hospital bed is bad enough. Patients need to eat to keep up their strength. And comfort food is one secret that gets people eating and happy to be alive. So if the bedridden want bacon, give them bacon.

Politicians are ready to trade your range of choices for their own agendas, especially if they don’t have to eat the results. So let’s save the health food kick for home. If the “bacon ban” passes, buying comfort food from a hospital will only be harder for those that could really use some comfort.

Vlad Yurlov is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Make Oregon the Opportunity State-cm

Make Oregon the Opportunity State

By Eric Fruits, Ph.D.

Oregonians blame Californians for many of our state’s woes. They drive up our housing prices, crowd our roads, and import nanny-state policies like banning plastic bags, plastic straws, and styrofoam cups. Many Oregonians wish they’d just go back home.

But what if the Golden State stopped sending us their residents?

The short answer: We’re toast. Over the past two years, Californians accounted for about half of Oregon’s population growth. Their college degrees hide Oregon’s dismal public education system. The business they bring with them fuels employment growth. And, their incomes provide the tax revenues for Salem’s never-ending expansion.

If all that stopped, Oregon would be done for. But will it stop? It might. Oregon’s a nice place to live, but nice only gets you so far. They’re moving here because California has gotten so bad. If Oregon continues to fall into Golden State levels of dysfunction, Californians looking to leave may decide Texas, Arizona, or Nevada are better places to raise their families and grow their businesses.

I fear that day may come sooner than we’d like. Oregon taxes have skyrocketed, our public schools have stagnated, and the public sector has rolled back crucial services. Oregon lawmakers should enact public policies that promote economic opportunity at all income levels, increase choices in education for Oregon parents, and foster a robust culture of entrepreneurship. That will make our state a great place to visit, live, and work for our current and future residents. If we don’t make Oregon the opportunity state, we’re toast.

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

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Take Stock, Then Take Action on Portland’s Homeless Crisis-cm

Take Stock, Then Take Action on Portland’s Homeless Crisis

By Vlad Yurlov

Since 2015, Portland City Council has declared continuous housing emergencies. We’re now into the sixth year, and the City’s housing and homelessness crises are still in full swing. Yet, nobody even knows where or how many shelter beds are available in the metro area. Cascade Policy Institute released a new report that offers straightforward solutions to the growing number of unsheltered homeless in the Portland region. It’s time to get back to the basics. And what is more basic than knowing where homeless people can go?

This means tracking where shelter beds are available and distributing this information to outreach workers and officers. If there really isn’t space, we need to know. But if there are available beds, we must offer every homeless individual a roof over their head.

Cities in both Washington and California use tracking systems to help more people get shelter. Meanwhile, Portland is behind the curve and paying for it. Instead of using shelter space more efficiently, the City Council pushed a housing bond that calls spending nearly $300 thousand per unit “affordable.”

We can’t keep extending emergency declarations and borrowing forever. A shelter tracking system would allow Portland to finally take account of the homelessness crisis.

Vlad Yurlov is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Press Release Cascade Policy Institute Offers Straightforward Solutions to Oregons Homeless Crisis-cm

Press Release: Cascade Policy Institute Offers Straightforward Solutions to Oregon’s Homeless Crisis

January 22, 2021

FOR IMMEDIATE RELEASE

Media Contacts:

Eric Fruits, Ph.D.
Office: (503) 242-0900
Mobile: (503) 928-6635
eric@cascadepolicy.org

Vlad Yurlov
Office: (503) 242-0900
Mobile: (503) 807-5978
vlad@cascadepolicy.org

PORTLAND, Ore. – Today Cascade Policy Institute released a new research report addressing the homelessness crisis in Oregon. Homelessness in the Portland Region: Some Straightforward Solutions to a Complex Problem was authored by Eric Fruits, Ph.D. and Vlad Yurlov. The report provides several recommendations, including:

  • Opening unused public buildings as emergency shelters;
  • Converting the Portland Expo Center to an emergency shelter with transitional services with funds from Metro’s Supportive Housing Services fund;
  • Creating a regional shelter tracking system to identify available shelter space and vacancies.

These recommendations build off principles first laid out by former Mayor Bud Clark more than 30 years ago: Reach out to those who want help, be firm with those who don’t, and create an environment where residents feel safe and businesses can flourish. While there is no single solution to Portland’s homelessness crisis, readily available resources and technologies can provide rapid relief to homeless individuals and restore safety and livability to Portland residents.

During the COVID-19 pandemic, Multnomah County used publicly operated buildings, such as community centers, to help other shelters socially distance. Even so, thousands of homeless people remain unsheltered in the Portland metro area. Cascade Policy Institute proposes using more public buildings to safely and effectively house the homeless in emergency shelter space. Bybee Lakes Hope Center is an example of such a repurposing. In less than a year, Multnomah County’s never used Wapato Jail was converted into transitional housing with space for as many as 500 people.

Building on the success of Bybee Lakes, Cascade recommends Metro, the Portland area regional government, consider converting the now shuttered Portland Expo Center to an emergency and transitional homeless shelter. This 330,000-square-foot facility is built on 53 acres of land with a kitchen, spacious meeting rooms, and plenty of outdoor exhibition space. The facilities can house and serve thousands of currently unsheltered individuals. The timing is right, too. Metro is currently conducting a development opportunity study in search of different and new uses for the event center. Metro’s recently approved Supportive Housing Services income taxes can provide funding for the project.

One of the biggest barriers to sheltering the homeless is also one of the easiest to solve. Currently, the region has no system to track the availability of shelter beds. Cities in California and Washington have developed manual shelter tracking systems and are in the process of moving the systems online.

Portland already has an online system to report and visualize homeless campsite locations. Some straightforward upgrades to the system can provide real-time data on shelter space and occupancy. Simply knowing where space is available is an important first step toward getting homeless residents into shelter.

Report coauthor Vlad Yurlov says, “The first step in housing a person is using a tracking system to find where they can go. Then, publicly owned and operated facilities such as the Portland Expo Center can provide immediate relief to both homeless individuals and the entire community.”

The Portland region has had a decades-long homelessness crisis. Over that time, local governments have embarked on numerous programs to “end” homelessness and spent countless millions of dollars only to see the crisis worsen. This is because government programs have focused on costly and inadequate affordable housing projects. Meanwhile, some of the most straightforward solutions to bring rapid relief have been ignored or dismissed.

The full report, Homelessness in the Portland Region: Some Straightforward Solutions to a Complex Problem, can be downloaded here.

Founded in 1991, Cascade Policy Institute is Oregon’s free-market public policy research center. Cascade’s mission is to explore and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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Homelessness in the Portland Region-cm

Homelessness in the Portland Region

Some straightforward solutions to a complex problem

By Eric Fruits, Ph.D. and Vlad Yurlov

Executive Summary

Every city in the United States has homeless individuals and families. Coastal cities, especially on the West Coast, have numbers of homeless that have hit crisis levels. In addition to the personal toll homelessness takes on the individuals and their families, the spread of unsheltered homeless populations and homeless camps imposes enormous social costs in the form of public health, public safety, and livability for the community at-large.

After decades of attempts to address homelessness—and unknown, but large, amounts of money spent—the crisis seems to have worsened in many places, especially in Portland, Oregon. Since the mid-1980s the region has launched long-range plans to “end” homelessness. All of the plans failed to reach their goals, for many reasons: insufficient funding, political headwinds, legal barriers, and the seeming intractability of solving the problem.

In 2020, the region’s voters approved two new income taxes to provide “supportive housing services” to the homeless and those at risk of becoming homeless. The taxes are anticipated to bring in approximately $250 million a year. During the campaign, proponents claimed, “We know what works, it’s just a matter of scale.” That’s not correct.

To be blunt, we don’t know what works, and there appear to be no economies of scale. For more than two decades, the “Housing First” approach has been heralded as the best solution. The approach focuses first on providing housing to individuals and families, then addressing issues that led participants to homelessness and are keeping them from being housed. These “wrap around” services are expensive and require individuals to have the ability and will to fully use them.

While the approach has improved outcomes regarding the transmission of HIV and the survival of those with HIV/AIDS and has had some success in reducing alcohol abuse, the National Academies of Sciences, Engineering, and Medicine concluded that there is no substantial published evidence to demonstrate improved health outcomes or reduced health care costs. Moreover, there is no evidence that Housing First approaches have had any effect on reducing overall homelessness or the number of unsheltered homeless.

For the community at large, the unsheltered population is the biggest concern. These are the people seen sleeping on the streets, in parks, in tents, in cars, or in abandoned buildings. This population is most quickly associated with filth left in doorways, needles scattered in parks, car prowls, and property theft. While a majority of Portland area voters have compassion for the homeless, they also want an end to overnight camping. They want to feel safe walking down the street or in their parks. They want their city’s businesses to flourish.

Many cities are bound by the Ninth Circuit Court’s decision in Martin v. City of Boise. This ruling prohibits city anti-camping ordinances from being enforced if there is no shelter space available. In addition, the City of Portland is bound by a settlement agreement requiring 24-hour notice before homeless camps can be cleared. The delays associated with the notice requirement means once a camp is reported, it can take the city a week or more to clear a camp.

One way to enforce a camping ban, while complying with Martin, is to develop a database of vacant and available shelter space. If the database indicates space is available, broad laws that prohibit public camping may be enforced. For example, after the Martin decision, Modesto, California implemented a straightforward inventory/vacancy system. Each day, county staff contact emergency homeless shelter providers in the county to track the availability of shelter beds. The information is then distributed to outreach workers and law enforcement officers. Police officers are then able to offer people who are camping illegally a more stable place to stay. As simple as this may seem, neither the City of Portland nor the State of Oregon has such a system.

Because of the COVID-19 pandemic, Portland has increased temporary emergency shelter beds to allow shelters to practice socially distancing. Among other locations, sites have been set up at the Oregon Convention Center, three community centers, a recently abandoned Greyhound bus station, and vacant outdoor land. Cascade Policy Institute proposes the city should continue to pursue making permanent some of these low-cost emergency shelters and camping sites.

In October 2020, Bybee Lakes Hope Center opened its doors as a supportive transitional housing facility for the homeless at the site of the never-opened Wapato Jail in Portland. Along the way, the project faced opposition from local politicians who claim solving homelessness is their main priority. Opponents argued housing people in a former jail was undignified, saying it amounted to merely “warehousing” the homeless. They claimed local zoning laws—which they control—didn’t allow for housing. But, the owner and operator of Bybee Lakes overcame these objections and now the site provides a template for repurposing surplus public land and buildings into facilities to serve the homeless.

Toward that end, Cascade Policy Institute urges Metro, the regional government, to convert into emergency housing the now-shuttered Portland Expo Center. The Expo Center is a 330,000-square-foot exposition facility sitting on 53 acres of land. It has easy access to public transit as a light rail line terminates at the front of the Expo Center and provides frequent service to downtown Portland. The facility needs significant capital investment to remain competitive in the exposition market, but has no identified funding source to meet these needs.

At 100 square feet per person, the site’s exhibition space alone could serve 2,000 to 3,000 individuals. Its 2,500 vehicle parking lot provides ample space for individuals who prefer to camp or sleep in vehicles. Converting the Expo Center could bring immediate relief to thousands of homeless individuals and families while providing a much better return on investment than current plans to remodel the site for low-attendance expositions. In addition, the massive increase in shelter capacity from converting the Expo Center would provide local jurisdictions the opportunity to reduce overnight camping and to clear camps, while remaining in compliance with the Ninth Circuit’s Martin v. Boise ruling.

None of Cascade’s proposals “solve” or “end” homelessness. Instead, they take some big steps toward a coherent framework for addressing homelessness: reach out to those who want help, be firm with those who don’t, and create an environment where residents feel safe and businesses can flourish.

READ THE FULL REPORT HERE.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute. He is also an adjunct professor at Portland State University, where he teaches course in urban economics and real estate.

Vlad Yurlov is a Policy Analyst at Cascade, specializing in homeless, transportation, and regional land-use planning. He has a Bachelor of Science in Quantitative Economics from Portland State University.

Research assistance was provided by Rachel Dawson and Helen Doran.

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Willamette Cove Is the Reset Button Metro Needs-cm

Willamette Cove Is the Reset Button Metro Needs

By Helen Doran

What does an old industrial site from World War II have to do with your tax dollars? Actually, quite a lot.

Willamette Cove dates back to the early 1900’s as a hub for industrial activity in Portland. Metro bought the property in 1996 from the Port of Portland with the intent of creating a new multi-use trail just minutes away from Cathedral Park, the University of Portland, and multiple neighborhoods.

Twenty years later, you can technically take a walk in Willamette Cove, but you would need to ignore the warning signs, hop the gate, and wear special protective gear. Despite several decades in public ownership, warning signs still call attention to the area’s hazardous levels of contaminants, which include dioxins, metals, and polychlorinated biphenyls (PCBs). These contaminants are known to cause cancer and other adverse effects.

Metro has worked voluntarily with the Oregon Department of Environmental Quality and the Environmental Protection Agency to clean up the area. In 2015 and 2016, the majority of spots hazardous to human activity were removed. Yet, the site does not appear to be any closer to becoming a beloved Portland park than it was in 1996.

Recent action by the DEQ to finalize a cleanup plan prompted Metro to make Willamette Cove eligible for funding from the $475 million in Parks and Nature bonds approved by voters in 2019. The funds Metro will dedicate to the project are for assisting the cleanup process led by the DEQ, but they do not guarantee public access to the site.

Willamette Cove is distinct from many of the regional government’s parks and natural areas and should be prioritized by Metro. Willamette Cove is in the heart of Portland and borders several neighborhoods as well as a university. The convenient location of the site contrasts with the majority of Metro’s parks and natural areas, many of which are outside Metro’s jurisdiction and far from any neighborhoods or public transportation.

Willamette Week reports the area is so convenient that some residents take the risk and walk their dogs along the shore, despite the hazards. The area is also used as a campground by those experiencing homelessness. These activities highlight the need for Metro to restore the area and provide the recreational opportunities requested by the community. Other small-scale projects, such as Killin Wetlands, can wait.

Providing public access to Willamette Cove would revive Metro’s original mission for its Parks and Nature program: to offset the loss of backyards in urban areas with “nature in neighborhoods.” Yet, only 12% of Metro’s land acquisitions are accessible to the public, and over 80% are outside the urban growth boundary.

The 2019 parks and natural areas bond measure does almost nothing to bring parks where they are needed most—within the urban areas in which people live and work. In fact, the largest project funded by the measure, Chehalem Ridge Nature Park, can only be found by car since it is located almost 20 minutes from the nearest TriMet stop. Prioritizing public access to pedestrian-friendly Willamette Cove would be a sign of good faith from Metro that it can shift direction and provide parks within the cities, where taxpayers need them most.

Metro’s Parks and Nature program has needed a reset button for decades. Willamette Cove could serve as just that for taxpayers tired of funding inaccessible natural areas far outside the urban growth boundary. Metro should prioritize the restoration of Willamette Cove and expedite the construction of a multi-use trail. Metro residents have been waiting decades for this type of recreational opportunity.

Helen Doran is the Program Assistant, External Affairs at Cascade Policy Institute, Oregon’s free-market public policy research organization. She co-authored the only independent audit of Metro’s Parks and Nature program, entitled “Hidden lands, Unknown Plans: A Quarter Century of Metro’s Natural Areas Program.”

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Why are we still paying a “temporary” energy tax 19 years later-cm

Why are we still paying a “temporary” energy tax 19 years later?

By John A. Chalres. Jr.

Every month when you pay your electricity bill, you pay a surcharge of about 5.6%. If you are a natural gas customer, you pay a similar tax ranging from 2.5% to 4.9%, depending on your vendor. Both taxes are likely identified as a “Public Purpose Charge” (PPC).

That name tells you nothing, which is by design. The proponents of the PPC don’t want you to think about why the tax was imposed or where the money goes, but you should. A lot of it is being wasted.

For example, the Energy Trust of Oregon – which receives over 80% of all PPC funding – spent $21 per million BTU of energy generated in its green power program in 2003, just after the PPC was enacted. By 2019, that cost had gone up to $135, an increase of 532%.

Between 2013 and 2016, Energy Trust also spent PPC funds to subsidize the sale of energy-efficient refrigerators, freezers and washing machines, while encouraging consumers to give the money away to the Oregon Food Bank. Many did, totaling $252,809. That was great for the Food Bank, but every penny was supposed to be used to entice consumers to buy appliances that they wouldn’t have purchased otherwise. The fact that they gave the PPC money away showed that the subsidies were wasted.

The Energy Trust is so well-funded that according to a 2018 audit by the Oregon Secretary of State, ETO spent $26,500 on a “holiday party and employee recognition expenses” for the retirement of its founding CEO.

Public schools also receive PPC funding; and in 2012, Secretary of State Kate Brown released an audit of school conservation expenditures. Her audit showed that at least 333 projects had costs that exceeded benefits. In one case, the Newberg School District installed insulated roofing panels at Mabel Rush Elementary School in 2005 that had a payback of 111 years and an expected life of 25 years. The panels were estimated to cost $84,200, but were only expected to generate $762 in energy savings each year. The measure was estimated to lose $65,150.

The Public Purpose Charge was enacted by the Oregon legislature in 1999 as a modest, 3% tax on customers of PGE and PacifiCorp. It was supposed to go into effect in 2002 and disappear by April 2012. The purpose was to create a small pot of money that could be used to subsidize both energy conservation and renewable power projects.

Instead, it morphed into something much more expensive. Soon after passage, the Oregon Public Utility Commission began coercing most natural gas companies into participating, which was not part of the original law. Then, in 2007, another add-on tax was approved by the legislature to subsidize small energy conservation projects. In that same law, the PPC expiration date was extended from 2012 to 2026.

Since 2002, the PPC has collected more than $2.3 billion from electricity ratepayers. More than 80% of funding goes to the Energy Trust of Oregon, which now has an annual budget of roughly $200 million.

The most cost-effective PPC projects were completed between 2002 and 2012, exactly as the legislature envisioned. By 2019, the cost of subsidizing energy conservation and green power projects had gone up by 73% since the start of the program.

Cascade Policy Institute recently released an analysis of PPC expenditures and concluded that the original, ten-year mission of the PPC has been met. Now in its 19th year, the tax should not be extended again and should be repealed prior to 2026 if possible. Ratepayers are reeling from the effects of the pandemic, and eliminating a combined 10% tax on electricity and natural gas would provide much-needed relief.

John A. Charles, Jr. is President and CEO of the Portland-based Cascade Policy Institute, Oregon’s free-market public policy research organization. A version of this article was published in the Portland Tribune on January 13, 2021.

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Portland’s toxic taxes will do little for clean air-cm

Portland’s toxic taxes will do little for clean air

By Rachel Dawson

In the middle of a worldwide pandemic that has decimated local businesses, Portland is proposing millions of dollars in new taxes. Officials recently announced a new proposal called “Clean Air, Healthy Climate” that would impose two separate carbon taxes on large stationary emitters as early as this month.

Portland facilities that produce 2,500 metric tons of carbon or more each year would be charged a “Healthy Climate Fee” of $25 per carbon ton. Approximately 35 Portland area facilities such as Daimler would be required to pay the fee with a minimum charge of $62,500. Officials estimate the fee will generate around $9 million dollars that would fund programs and projects “to meet the City’s decarbonization pathways.” This includes paying for engagement with specified organizations and vulnerable populations, commercial and residential building retrofits, and EV infrastructure, among other things. While these programs seem highly ambitious, specific details and outcomes remain vague or undetermined.

A separate “Clean Air Protection Fee” would apply a tiered fee of up to $40,000 on major facilities generating “substantial hazardous air pollution locally and are therefore required to hold …Air Contaminant Discharge Permits, or Title V Permits.” In 2019 a total of 72 Portland facilities held these specified permits.

The City estimates the Clean Air Protection Fee would bring in around $2 million annually in revenue. That revenue would be used for investments in “pollution reduction programs” with a focus on vulnerable and marginalized communities. Such investments duplicate current pollution reduction programs such as the Portland Clean Energy Fund and the Energy Trust of Oregon.

The City claims the taxes are needed because county data suggest the region is not meeting its self-imposed greenhouse gas reduction goals. Multnomah County data from 2018 show total GHG emissions were reduced 19% below 1990 levels. Portland claims this is “far short of the City’s goal to reduce emissions 50 percent by 2030.” Aside from the fact that there is a mismatch between Multnomah County and Portland area boundaries, the 19% statistic does not tell the whole story.

While Multnomah County emissions have gone down by 19% since 1990, the county’s population level has increased by 39%. Thus, GHG emissions per capita actually have decreased by 42%, a remarkable achievement.

However, these taxes won’t be imposed on the entire population. Only major stationary emitters, such as industrial facilities, will be required to pay them. And since 1990, industrial facilities in Portland have done more than their fair share in reducing GHG emissions. Between 1990 and 2018 total industrial emissions in Multnomah County have decreased by 51% and industrial emissions per capita have gone down by 65%. Instead of punishing industrial facilities by imposing additional fees, Portland officials should be celebrating their success.

In fact, when industrial emissions are taken out of the equation, total Multnomah County emissions have only gone down by 10% since 1990.

These taxes come at a time when many businesses are struggling to keep their doors open and staff employed. Over the past year, Oregon has lost 16,700 manufacturing jobs. As of August, Precision Castparts eliminated 10,000 jobs worldwide due to the Coronavirus, 717 of which were located in the Portland Metro area. Despite the company’s struggle to keep workers on its payroll, Portland’s proposed carbon fee would cost Precision Castparts an estimated $629,494 annually. The company has stated that “significant tax or fee increases would factor into future decisions related to our operations in Portland.”

Additionally, Evraz North America, a global steel company, would pay over $2.7 million annually. Evraz has already cut around half of its Portland area employees since last year.

Instead of fighting climate change, this tax may end up costing Portlanders their jobs.

Other eligible employers include many major hospitals such as Oregon Health & Sciences University, Legacy Emanuel Hospital & Health Center, and Providence Portland Medical Center.

Officials should be supporting businesses hard hit by the pandemic and recession, not taxing them into layoffs. These two carbon taxes will punish a sector that is already making great strides in lowering GHG emissions. Since total industry GHG emissions have decreased to 51% below 1990 levels, the industry sector by itself has already surpassed Portland’s GHG reduction goal. The City of Portland should immediately halt all current and future work on this proposal.

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

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Oregon’s new cigarette taxes will hurt, not help, low-income residents-cm

Oregon’s new cigarette taxes will hurt, not help, low-income residents

By Rachel Dawson

Oregon couldn’t let a new year commence without the rollout of a new tax increase.

Voters passed Measure 108 last year which increases cigarette and cigar taxes and establishes a new tax on vaping products beginning January 1, 2021.

The measure was approved by 65% of voters, likely because it was painted as an effort to reduce smoking and help low-income Oregonians by directing 90% of funds to the Oregon Health Plan. However, once in practice these new changes will have unintended consequences.

First, the taxes are regressive and will hurt low-income Oregonians. A recent study found that “low socioeconomic status is generally associated with a high prevalence of cigarette smoking.” Smoking prevalence was 41% among men with incomes below the poverty level versus 24% for those with incomes at or above it. It’s absurd that the state is taxing some of the very same people these medical services are supposed to help.

Second, only 10% of raised funds will go to tobacco-use prevention and cessation. It’s clear the purpose of these taxes is to fill a budget hole, not to help tobacco users quit their addiction. The state has created a perverse incentive for itself–the more people smoke, the more money the state brings in. Additionally, e-cigarettes and vaping products, both safer alternatives to cigarettes, will now be taxed. One study found that for every 10% increase in e-cigarette prices, sales dropped by 26%, leading to an increase in traditional cigarette use.

If officials are truly committed to protecting public health by reducing cigarette use, they should allocate a higher percentage of the taxes’ revenue to smoking cessation and prevention programs.

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

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Employers Are Left With the Bill After Lockdowns-cm

Employers Are Left With the Bill After Lockdowns

By Vlad Yurlov

When businesses fail, they shut down. But when the government shuts down businesses, it simply increases taxes. More than 85% of Oregon businesses will pay higher unemployment insurance rates in 2021. This is after lockdowns and restrictions forced their workers to use unemployment benefits in the first place. Most businesses pay unemployment insurance taxes into Oregon’s Unemployment Insurance Trust Fund, which the state distributes to employees that are laid off without cause.

Oregon’s pandemic response shut down hundreds of businesses, but its effects will continue to dampen economic recovery. Higher unemployment insurance tax rates mean that fewer people can go back to work. And any delay in employment furthers economic instability.

Oregon boasts “one of the healthiest [trust funds] in the nation.” The reserves are meant to supply benefits for 18 months and there is $4.1 billion in the fund today. So why should businesses have to increase their unemployment taxes? If it were up to employers, they would gladly hire their workers back instead! As revenues struggle above break-even, businesses should not be responsible for government restrictions that increase the use of unemployment benefits.

Vlad Yurlov is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Portland Has Highest Income Taxes in the U.S. Are We Getting Our Money’s Worth-cm

Portland Has Highest Income Taxes in the U.S.: Are We Getting Our Money’s Worth?

By Eric Fruits, Ph.D.

This year, Oregon passed a major milestone. In 2020, Portland became the city with the highest personal income taxes in the United States.

The news was delivered this week in testimony to the Oregon Legislature. The State Tax Research Institute reported that state and local income taxes in Portland total nearly 14% — a rate that’s higher than San Francisco or New York.

That means the average Portland resident must work almost two months just to pay their state and local taxes.

Are we getting our money’s worth? It sure doesn’t seem like it.

  • Do we have great schools? No. We have the fifth worst graduation rate in the country.
  • Do we have flourishing businesses? No. Over the past few years it seems more businesses are leaving than arriving.
  • A lot of our taxes go to the Oregon Health Plan. Do we have great health care? According to U.S. News and World Report, our state ranks near the bottom in adult and child wellness visits as well as child dental visits.

Now that we have record shattering tax rates, it’s time for us to ask: When will we get our money’s worth?

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

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Where Can the Homeless Go. Portland Still Doesn’t Know-cm

Where Can the Homeless Go? Portland Still Doesn’t Know

Shelter space can be used effectively by tracking and reporting vacancies

If a homeless person asks you to find them shelter space, could you do it? It’s harder than you think. That’s because Portland lacks a key piece of a shelter system. No one knows which shelters have space or how much space is available. The first step in sheltering people is knowing where space exists. Without a tracking system, campsites spiral out of control, while their residents suffer. People with mental health problems and drug addictions are effectively cut off from recovery options.

If a homeless person were to ask an outreach worker for a place to stay, the best they could do would be to call each shelter individually. Oregon Housing and Community Services says agencies and local partners rely on 211, an information hotline which can provide only the location and contact information of shelters. Operators do not regularly maintain contact with shelters or receive vacancy updates, so they can’t report actual availability. This leaves people on public streets and away from resources. To solve these problems, Portland should implement a shelter tracking system that would allow outreach workers and officers to house homeless people quickly.

Shelter tracking systems have already helped other western states battle homelessness. Modesto, California successfully implemented a basic tracking system. It takes one person up to two hours each day to contact and receive information from emergency shelter providers in Stanislaus County. After the data is collected, it’s given to outreach workers and law enforcement officers who use it to find shelter for homeless people. Spokane, Washington goes a step further and tracks shelter capacity by having homeless shelters report their availability to a dispatcher. The city is also working on a public website that would allow easy data entry and near-real-time tracking. These examples show that a shelter tracking system is not only a possibility, but it is vital to optimizing local public resources.

Portland should implement a manual tracking system and make use of our local Homeless Management Information System. Effective tools are currently available. The Environmental Systems Research Institute (ESRI) has online applications which track homelessness resources through geographic information systems. The City of Portland already uses ESRI products to report and visualize campsite locations. Proper use of these resources would allow access to near-real-time data on shelter vacancies. By using available and familiar technologies, Portland could target its homelessness outreach and use shelters effectively.

A tracking system also would allow Portland to comply with the Ninth Circuit Court of Appeals ruling Martin v. City of Boise. In 2018, the Court ruled that local ordinances can’t ban sitting or sleeping in public spaces if there is no available shelter space. But if officers can show that nearby shelters have open beds, they could help people get access to life-saving resources and minimize the risks associated with camping outside. Both Modesto and Spokane have maintained compliance with the Martin ruling through their use of shelter tracking systems.

The bottom line is that people are needlessly sleeping on the streets in Portland, while shelters have vacancies that are difficult to find. Over the past few years, Portland and Multnomah County have opened many emergency shelters. Throughout the COVID-19 pandemic, six motels have housed people to help traditional shelters with social distancing. In order to effectively house individuals who have been left in the streets, we need to know what resources are available. By creating a shelter tracking system, Portland would be able to comply with the Martin ruling while providing outreach workers and officers with the right information to connect homeless people with housing. The worst thing someone seeking shelter can hear is, “We don’t know if there is space.” It’s time for answers.

Vlad Yurlov is a policy analyst at Cascade Policy Institute, Oregon’s free market public policy research organization. He co-authored a forthcoming report on Portland’s homelessness crisis.

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Oregon ratepayers need relief. Ending the Public Purpose Charge can help-cm

Oregon ratepayers need relief. Ending the Public Purpose Charge can help.

By Rachel Dawson

As government-imposed shutdowns continue, more Oregonians are struggling to pay their electricity bills. Portland General Electric reported in June that arrears (when payment is 31 days past due or more) were up 41% compared to the same time last year. Economic hardship likely will persist for many people long after the COVID-19 vaccine is distributed.

It’s clear that Oregon ratepayers need relief. One way for legislators to provide such relief would be to eliminate the Public Purpose Charge (PPC) energy tax, or to allow Oregonians to opt out of it.

This 3% tax has been paid by PGE and PacifiCorp ratepayers since 2002. It was originally intended to last 10 years to help fund energy conservation and to subsidize the renewable energy industry until it became market competitive. The PPC has since been extended to 2026.

A recent Cascade Policy Institute report found the PPC’s ten-year mission has been met and recommends the tax should not be further extended. Just as intended, the most cost-effective programs were completed in the early years of the tax, leading to a 73% increase in costs per unit of energy saved. The cost of installing solar has decreased 76% between 1999 and 2019. Thus, it appears the solar industry no longer needs PPC subsidies to be market competitive.

Ending the PPC is long overdue. And doing this during a recession would be a great way to immediately aid many struggling Oregonians.

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

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Who Will Pay the Bills When the Pandemic Ends-cm

Who Will Pay the Bills When the Pandemic Ends?

By Eric Fruits, Ph.D.

This week, the U.K. became the first western nation to vaccinate its residents against COVID-19. The recipient, a 91-year-old retired shop clerk, voiced relief, “I can finally look forward to spending time with my family and friends in the New Year.” Despite the fanfare greeting the vaccine rollout, authorities warned that the vaccination campaign would take many months. They warned the tough restrictions that have rattled daily life and cratered the economy are likely to go on into spring.

While many of us dream the vaccine will bring a return to normal life, for many people post-pandemic life will be a nightmare. The end of pauses, freezes, shutdowns, and lockdowns will mean the end of moratoriums on housing evictions, utility shutoffs, and student loan payments. During COVID-19, millions of Americans have racked up thousands—maybe tens of thousands—of dollars in unpaid rent, utilities, and student loans. For example, information presented to the Oregon Governor’s Council of Economic Advisors estimates unpaid rent in the state is between $250 million and $300 million. When the emergency ends, those bills will come due.

Elected officials have put themselves in an impossible position. If they allow masses of evictions and utility shutoffs, they will face torches and pitchforks from their constituents. If they try to pass laws wiping out the debt, they will face a revolt from some of their biggest donors. And, even worse, they will face years of constitutional challenges.

Both the U.S. and the Oregon constitutions forbid any laws “impairing the obligation of contracts.” Rental agreements are contracts. So are arrangements with utilities and student loan providers. Neither the federal government nor state or local governments can simply “wipe out” the payment provisions of these contracts. Our politicians are in a bind, but it gets even worse.

One way to work around the constitutions’ contracts clauses would be to establish a voluntary program of debt forgiveness. But for a program to be truly voluntary, the state must provide a compelling incentive for debt holders to forgive the debt.

An option promoted by Rep. Jule Fahey (D-Eugene) would provide state grants to certain property owners who forgive 80 percent or more of their tenants’ past due rent. It has been reported the proposed legislation would set aside $100 million for grants to renters and property owners. On the one hand, $100 million is a lot of taxpayer money. On the other hand, $100 million is less than half the total amount of unpaid rent in the state.

If such a fund is established, it will be an admission that the governor’s emergency orders have caused enormous damage to households and businesses. If the state is willing to admit it’s caused at least $100 million in damage to rental properties, how much damage has it done to restaurants, bars, retailers, manufacturers, nonprofits, and families?

In September, Portland attorney John DiLorenzo sent a letter to Governor Kate Brown demanding the state compensate several businesses for losses associated with her pandemic-related executive orders. Under Oregon law people are “entitled to reasonable compensation from the state” if their property is “taken” under the emergency powers Brown invoked to shut down most of the state. According to DiLorenzo, “What’s happened here is the governor has basically destroyed property for the purpose of furthering the policy behind the executive order.” Rep. Fahey’s draft bill would be the first piece of legislation to attach a dollar figure to the value that has been taken as a result of the executive orders.

It’s easy for politicians and policy makers to mindlessly remind us, “We’re all in this together.” But, too often they face no meaningful consequences for their decisions that affect millions of people. Oregon’s law requiring reasonable compensation for property taken under the governor’s emergency orders was designed to impose a consequence on the government. If the government has to pay a price for its emergency orders, then the government is more likely to make decisions that account for the costs it imposes on everyone else.

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

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Oregon Legislators should throw restaurants and bars a lifeline by legalizing “cocktails to-go”-cm

Oregon Legislators should throw restaurants and bars a lifeline by legalizing “cocktails to-go”

By Rachel Dawson

Do you want to enjoy a drink but don’t feel safe sitting in a bar?

If you live in one of the many states that have allowed “cocktails to-go” since the beginning of the pandemic (including our neighbors in California, Washington, and Idaho), you’re in luck! Oregon restaurants and bars, however, aren’t so fortunate, as our state legislators have thus far failed to similarly update our liquor laws.

In Oregon, restaurants may sell beer, cider, and wine for delivery and take-out orders; and distilleries can sell bottled liquor and cocktail-kits to-go. However, bars and restaurants are barred from selling pre-mixed, to-go cocktails in closed containers for offsite consumption.

Oregon lags behind other states across the nation in this regard. Since the beginning of the coronavirus pandemic, at least 33 states have allowed cocktails to-go. Florida and Mississippi authorized the sale of to-go cocktails on a limited basis before the pandemic began. While Texas restaurants can deliver coolers full of jello shots, Oregon restaurants can’t even include tequila with orders for margarita mix.

Restaurant and bar owners across the state have asserted cocktails to-go sales would be a lifeline for them, given that on-site capacity remains limited and many Oregonians are dining at home. In desperation, the Botanist House, a Portland restaurant, threatened to sell cocktails to-go in defiance of the law. In a public letter, the owner, Matt Davidson, explained his reasoning:

“The COVID-19 Pandemic has simplified our business priorities down to a single word, survival. Our protest is not about increasing our top line revenue, driving more dollars to the bottom line, or expanding our market share. It is simply about doing what 70% of the country is already doing to help struggling businesses survive.”

Ultimately, the protest never took place due to the possibility of a resolution in an anticipated emergency session of the Oregon legislature. State Representative Rob Nosse from the Southeast Portland area has drafted a bill legalizing the sale of to-go mixed drinks. Rep. Nosse’s bill would limit orders to two cocktails and require that cocktails be sealed and purchased in conjunction with food.

Those opposed to a change in legislation argue that this bill could harm people recovering from alcohol abuse and who are susceptible to relapse, or that it could lead to drinking and driving. Rep. Nosse responded that, if this is a concern, “why do we allow people to buy beer at Plaid Pantry and screw-top wine?” Further, 72% of Oregon adults said they would support a proposal allowing cocktails to-go, according to a survey conducted by the National Restaurant Association.

Although many states are allowing cocktails to-go temporarily through emergency orders, some—like Iowa—are taking steps to make them permanent. Iowa’s governor signed a bill legalizing cocktails to-go after it passed through the House with unanimous support back in June.

Oregonians are capable of safely enjoying cocktails to-go with their take-out orders even after pandemic restrictions are eased and restaurants open back up to full capacity. Oregon legislators can learn from Iowa and come together during the next session to pass a bill that will allow restaurants and bars to sell cocktails to-go for both immediate relief of their businesses and their patrons’ future enjoyment.

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

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Comments on the Elliott State Research Forest proposal-cm

Comments on the Elliott State Research Forest proposal

John A. Charles, Jr.
President & CEO
Cascade Policy Institute
November 29, 2020

Below is a summary and discussion of Cascade’s comments on the draft Elliott State Research Forest proposal, which can be found here.

Summary

The ESRF proposal is built on the following key assumptions:

  • The state legislature will provide the financing to decouple the ESF from the Common School Fund in a way that would survive legal challenge from CSF beneficiaries;
  • The $100 million in bond authorization previously approved is a legally sufficient down payment on that decoupling strategy;
  • The total amount needed to decouple is $220.8 million;
  • The state legislature or some other entity will provide $24.8 million in start-up funds;
  • The ESRF will be a financially self-sustaining entity through annual timber harvests of 16.6 MMBF and the sale of carbon credits;
  • If the ESRF is not able to be self-sustaining, OSU trustees will create a firewall to protect the university from incurring losses;
  • The state of Oregon will successfully negotiate a multi-species HCP with the federal government that will allow OSU to harvest an annual average of 16.6 MMBF of timber; and
  • There is a market demand by forestland managers, academics, and policy-makers for the research outputs promised by the ESRF.

It’s unlikely that any of these assumptions are valid, therefore this proposal has little chance of ever being implemented. In the meantime, the State Land Board is breaching its fiduciary obligations to CSF beneficiaries, and remains vulnerable to a lawsuit on the scale of the successful litigation brought by the Forest Trust Counties on similar grounds. Given this vulnerability, the Board should terminate any further work on the ESRF, and prepare to sell the Elliott State Forest in a public auction.

Discussion

This section explores each of the points made above in greater detail.

Decoupling: No one on the SLB or at OSU has a vote in the legislature. Therefore it’s a mistake to assume that a decoupling strategy can work. Indeed, that was the reason why the Board agreed to sell the ESF back in 2015 – it was the only decision that the Board itself controlled. Until such time as a funding package is approved by the legislature and signed into law by the Governor, no one should assume that funding will be available.

Moreover, the assumption that tax-supported funding of $121 million will suffice to decouple is wrong, on both counts. Any financing that relies on taxing CSF beneficiaries is a breach of fiduciary trust by lawmakers. To put the matter plainly, the $100 million in bond funding previously approved by the legislature requires $145.9 million in debt service over the life of the bonds. The debt service in the current biennium is $15.59 million. Those payments are being made by Oregon taxpayers, and a large subset of that group include CSF beneficiaries – parents of K-12 students, school employees, and school board members.

In essence, the SLB has given money to the beneficiaries in one pocket, but is extracting an identical amount from another pocket. That is the opposite of “fiduciary trust.”

While SLB members may be rationalizing this on the assumption that it provides an arbitrage opportunity to borrow money at low rates, and then make a profit through CSF investments, that is purely speculative. Those investments could also lose money. A prudent person would certainly not choose this option when a private party has previously made a cash offer of $220.8 million to take the entire ESF liability off the Board’s hands.

In addition, at the same time the Board rejected the cash offer, it dissolved the ESF Sale Protocol that had resulted in the $220.8 million valuation. That valuation was deliberately depressed by the Board when it designed the protocol with four key sideboards. Previous valuations had been much higher, including the 2006 estimate of $344-489 million stated in the DSL Asset Management Plan, and the estimate of $850 million stated in DSL’s first AMP in 1995.

The only way to determine the true value of the ESF is to place it up for sale in a global auction, with no constraints. Since the Board has already rejected that course of action, while also reducing timber harvests levels to zero, there is no legally viable path forward. As the ESF continues to drain money from the CSF, it’s only a matter of time until beneficiaries sue the Board.

Start-up  funding: The ESRF concept requires estimated start-up funding of $24.8 million. There is no indication of who will provide this. The legislature cannot provide it because appropriating tax revenues would inevitably harm CSF beneficiaries, which is illegal. It will also be difficult for OSU to provide the money because any fundraising effort risks diverting money from other OSU programs, which OSU has promised to protect. This concept paper does not provide any guidance that resolves this problem.

The ESRF will be financially self-sustaining: The pro forma offered in this proposal is based on two anticipated streams of revenue: timber sales averaging 16.6 MMBF annually; and carbon credit sales into the California cap-and-trade market. Neither of these assumptions holds up to scrutiny.

Over the past 30 years, preservation groups litigating under the ESA have reduced the annual timber harvest on the ESF to zero. The last time harvests exceeded 16.6 MMBF was in 2012, when the harvest was 28.54. During the period of 2013-2017, the average annual harvest was 7.09 MMBF. The strategy of ESA litigants has always been to halt timber cutting in the ESF, and they have succeeded. There is no reason to think that they will simply give back those gains.

In fact, shortly after the Board rejected the Lone Rock offer and embraced the ESRF concept as a substitute, a spokesman for Cascadia Wildlands told the Eugene Register-Guard, “If logging old public forests is going to be part of this experimental forest, we oppose it.”

Cascadia Wildlands has consistently out-maneuvered the Land Board both in the court of law and the court of public opinion. That will continue if the ESRF proposal relies on timber harvesting as a source of financing. Using timber revenue to finance a social good (in this case, research) has exactly the same built-in conflict of interest that the CSF has in relying on Trust Lands as a revenue source.

The second assumed source of revenue, carbon credits, is even more speculative. The pro forma is not based on a detailed analysis of ESF timber stands. As stated in the narrative, “Results are estimates. Actual credits available for registration require a carbon inventory, review of baseline assumptions by regulatory agencies and approval by California ARB.”

The ARB has approved the use of specific biomass equations generated by the US Forest Service Forest Inventory and Analysis (FIA) National Program to estimate biomass. All approved projects are required to use them. The equations differ depending on region as well as by tree type. These equations were not used in the draft research proposal in calculating biomass (which is then used to calculate carbon), nor are they referenced. 

Instead, for biomass the proposal cites a 2003 national study by Jenkins et al. However, this is a national meta-analysis on hundreds of other equations and is not recommended for site specific use. Authors of the study state:

  • There is a “…clear variability in tree C allocation from site to site and from study to study…This variability makes it difficult to estimate tree biomass accurately even when a site-specific regression equation is used.”
  • “We found that many of the published equations were unusable for large-scale application because of inconsistencies in methodology and definitions, incomplete reporting of methods, lack of access to original data, and sampling from narrow segments of the population of trees in the United States. Our equations may be applied for large-scale analyses of biomass or carbon stocks and trends, but should be used cautiously at very small scales where local equations may be more appropriate.”

Another substantial barrier is the concept of “additionality.” As noted in the ESRF proposal, “Fundamentally, a landowner must sequester more carbon than would be sequestered under a business-as-usual approach.”

Since 2012, the “business-as-usual” approach on the ESF has been to harvest an annual average of 7 MMBF of timber. Since 2017, that has dropped to zero. Therefore, the 16.6 MMBF proposed in this concept paper is worse than the baseline, from the perspective of the California ARB. Why would California regulators spend taxpayer dollars in Oregon for the ESRF proposal when California residents are already getting a better carbon deal for free?

Moreover, any agreement with California would require that Oregon monitor and maintain tree stands for 100 years. Given the erratic behavior of the SLB over just the past decade – including the bizarre rejection of a $220.8 million cash offer – it’s unlikely that California regulators would trust the Oregon SLB to hold up its end of the contract for 100 years.

Finally, the concept paper provides two scenarios for obtaining carbon credit financing, based on the type of ownership. As explained in the concept paper, “The private protocol yields harvest levels that result in an average stocking equal to the common practice metric. The public protocol is so restrictive that the carbon offsets generated are about one fifth of the private protocol. The main reason the public protocol generates fewer credits than the private protocol is because ARB’s baseline requirements for the two protocols are different.”

The high-bound assumption of carbon credit revenue assumes that the “OSU ownership structure allows for use of private protocol.” Why is this being assumed? The concept paper is replete with statements that the ESF will remain a public asset with public governance. All of the political factors that have resulted in the ESF becoming a net liability to school beneficiaries over the past decade will still apply. There is no reason to create a high-bound assumption of revenue based on private protocol when the ESF is not a private asset.

OSU Trustees will create a financial firewall to protect the university:  The ESRF narrative states, “As part of this structure, we anticipate that the OSU Board of Trustees will ensure OSU does not redirect university resources to cover shortcomings in ESRF revenue.”

This statement of intent is designed to assure students, faculty and donors of OSU that the ESRF will not become a financial albatross. Unfortunately, history suggests that this is a false hope. The ESF already has the strongest possible protection for K-12 beneficiaries – a Constitutional mandate for the SLB to maximize net revenue over the long term – yet Board mismanagement over the past 25 years has turned the forest into a CSF liability.

Given that the Constitutional mandate to do one thing is not being met, how does OSU expect to be protected from losses when the new mission statement described in this 107-page document includes multiple goals, many of which are conflicting?

This problem is referenced on page 10 of the proposal, in the following sentence: “We also acknowledge that not all commitments can be honored simultaneously in the same spaces, which will require a balanced and sustainable approach to forest research and management.”

The Land Board itself has been required by the Oregon Constitution to manage the ESF in a balanced and sustainable way, in pursuit of a single over-arching objective, and it has failed miserably. The most likely scenario going forward is that if the ESRF ever becomes reality, it will suffer immediate operating losses, and after years of procrastination, ownership will revert again to the SLB. That is not a long-term resolution; it simply prolongs the agony.

DSL will successfully negotiate a multi-species HCP with the federal government that will allow the ESRF to move forward:  According to the ESRF narrative, DSL initiated the HCP process in 2018, contracting with IFC, Inc. Drafting the HCP is underway, with a draft “anticipated to be available for public review in early 2021 prior to submission to the federal agencies.”

Pursuit of the HCP is the triumph of hope over experience. This was noted by former Gov. Ted Kulongoski at his last SLB meeting. In a lengthy soliloquy at the end of the meeting, he reminded the audience, “We spent 10 years and $3 million trying to get an HCP, and we wound up with nothing.”

Eventually the SLB, including Gov. Kate Brown, reached the sober conclusion that there was no hope of negotiating an HCP that would allow the SLB to meet its constitutional duty to maximize net timber revenue over the long term. The desire to establish an ESRF with annual timber harvesting at levels more than 100% higher than the average achieved since 2013 is what football fans might refer to as a “Hail Mary” pass. Those plays sometimes succeed, but no team counts on them for points.

There is a compelling need for the proposed ESRF research among academics, forestland managers, and public policy-makers. When State Treasurer Tobias Read hastily proposed to transfer ownership of the ESF to OSU in early 2017, in order to justify the reversal of his prior vote to sell the forest to the Lone Rock consortium, he and his collaborators argued that the world of science was eager to carry out the envisioned research.

In fact, the OSU representatives who testified before the Board that day made it clear that they had other financial requests pending with the legislative Ways and Means Committee, all of which were more important. Conducting long-term, large-scale research as envisioned in this proposal was never a priority for the university. Under questioning, the OSU spokesmen stated that they would be willing to accept ownership of the forest, as long as it was given to them and operational expenses would not impinge on the business model of the university. Those sideboards remain to this day.

It’s evident that this is a shotgun wedding between OSU and the SLB, and that the “fundamental aspiration” for the ESRF is not something the academic community has been pining for.  This is noted in the peer review section by Dr. Jerry Franklin, who states:

I find the concept of conducting an experiment that essentially involves the entire property at the outset of OSU’s stewardship to be inappropriate… I don’t consider an experiment about how to divide forest landscapes at any scale among production and conservation goals to be a high priority in our current world…There are so many important things to be done and this is not one of them.

The fact is, forest management practices are determined by ownership class, not science. Private landowners are motivated by fundamental business principles and don’t need any of the research being proposed herein. Public sector forestland owners are constrained by statutory requirements and litigation outcomes, especially related to the ESA.

Since timber harvest on the ESF has been reduced to zero, exactly as planned by Cascadia Wildlands and other ESA litigants, there is no need for the kind of research envisioned with this proposal. No matter how “pure” the research may prove to be, timber management on the ESF will always be driven by law and politics, as long as it remains in public ownership.

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

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Electricity Ratepayers need tax relief now-cm

Electricity Ratepayers Need Tax Relief Now

December 3, 2020

FOR IMMEDIATE RELEASE

Media Contacts:
John A. Charles, Jr.
Office: (503) 242-0900
Mobile: (503) 459-3727
john@cascadepolicy.org

Rachel Dawson
Office: (503) 242-0900
Mobile: (971) 221-3810
rachel@cascadepolicy.org

Today, Cascade Policy Institute released an analysis of Oregon’s Public Purpose Charge (PPC), recommending that the tax be repealed as soon as possible. The report, Oregon’s “Public Purpose” Energy Tax: Mission Accomplished, or Mission Creep?, was authored by John A. Charles, Jr. and Rachel Dawson.

The PPC is a 3% tax enacted by the Oregon Legislature in 1999. The tax applies to ratepayers of Portland General Electric and PacifiCorp; most natural gas consumers also pay a similar tax that was imposed after 1999 by the Oregon Public Utility Commission. 

The PPC went into effect in 2002, and it was supposed to end in 2012. In 2007 the legislature extended it to 2026.

The legislature directed that 56% of PPC revenue would pay for energy conservation; 17% for funding the above-market costs of renewable energy; 12% for low-income weatherization; 10% for energy conservation in schools; and 5% for construction of low-income housing. Since 2002, the PPC has collected more than $1 billion from electricity ratepayers.

The Energy Trust of Oregon receives 74% of PPC funds, for programs addressing energy conservation, renewable energy, and “market transformation.” Remaining funds are transferred to Oregon public schools within the service territories of the two electric utilities, and the Oregon Housing and Community Services (OHCS).

According to independent reports filed every two years with the legislature, the most cost-effective PPC programs were completed in the early years. In the 2003-04 biennium, PPC administrators spent $91.4 million to acquire 1.7 million British Thermal Units (BTU) of saved or generated energy. During the 2017-19 biennium, PPC expenditures had grown to $159 million, but the energy savings were still 1.7 million BTU. This represented a 73% increase in costs.

Trends in Cost-Effectiveness for PPC Expenditures by Energy Trust, OHCS and Public Schools

YearsPPC ExpendituresClaimed savings or energy generated (MBTU)Expenditure per MBTU
2003-04$91,396,4761,710,36453.4
2005-06$121,070,4762,021,51860.3
2007-08$142,413,4174,355,77332.7
2009-10$176,725,2481,751,822100.8
2011-12$179,486,7731,816,40798.8
2013-14$157,980,2411,914,42482.5
2015-16$188,633,4131,762,673107.0
7/17-6/19$159,277,6931,724,10392.4

During the 2019 Oregon legislative session, a bill was introduced to extend the PPC to 2036. That bill was never voted on but likely will be introduced again in 2021. The purpose of the Cascade study is to help inform state legislators about what has been accomplished with PPC funds since 2002.

Based on nearly a decade of research, the Cascade paper concludes that the original, ten-year mission of the PPC has been met, and the tax should not be extended again. If possible, it should be repealed prior to 2026. Ratepayers are reeling from the effects of COVID-19, and eliminating a costly sales tax would provide immediate relief. PGE reports that customer accounts in arrears (31 days or more past due) are up 41% this year.

If the legislature is unwilling to sunset the PPC program, then Cascade recommends that ratepayers be given a chance to opt out of the tax, since many of them will never benefit directly from PPC programs.

According to Cascade Policy Institute President and CEO John A. Charles, Jr.:

The Public Purpose Charge was enacted as a ten-year program to help fund energy conservation programs and subsidize the renewable energy industry so it could become market-competitive. That mission has been accomplished; the cost of installing solar energy – the most popular offering of the Energy Trust of Oregon – has dropped by 76% since the PPC was enacted. Clearly the renewables sector can stand on its own without further subsidization by tens of thousands of renters and low-income ratepayers who will never own solar energy systems.

The Cascade research paper, Oregon’s “Public Purpose” Energy Tax: Mission Accomplished, or Mission Creep?, can be downloaded here.

Founded in 1991, Cascade Policy Institute is Oregon’s free-market public policy research center. Cascade’s mission is to explore and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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Oregon’s Public Purpose Energy Tax Mission Accomplished, or Mission Creep-cm

Oregon’s “Public Purpose” Energy Tax: Mission Accomplished, or Mission Creep?

By John A Charles, Jr. and Rachel Dawson

EXECUTIVE SUMMARY

The Oregon Public Purpose Charge (PPC) is a tax enacted by the Oregon Legislature in 1999, as part of SB 1149. The tax applies to ratepayers of Portland General Electric and PacifiCorp and is set at 3% of utility revenue.

The original reason for the tax was to create a revenue stream that could be used to subsidize energy conservation and renewable power projects within the service territories of the two electric utilities. Specifically, the PPC money was allocated as follows: 56% for energy conservation; 17% for funding the above-market costs of renewable energy; 12% for low-income weatherization; and 10% for energy conservation in schools. For political reasons, 5% of the PPC revenue was designated for construction of low-income housing, although this has nothing to do with energy conservation.

SB 1149 directed the two electric utilities to collect money from ratepayers and turn it over to various organizations to administer the required programs. The Public School Program is administered and overseen by the Oregon Department of Energy, with project implementation handled by school districts. The Oregon Housing and Community Services (OHCS) administers PPC funds for low-income weatherization and subsidized housing.

Almost 74% of PPC funds are designated for energy efficiency projects in homes and businesses, and the above-market costs of certain renewable energy projects. In 1999, no organization existed to administer such programs, so in November 2001 the Oregon Public Utility Commission (PUC) signed a grant agreement with a new  nonprofit, the Energy Trust of Oregon (ETO). The Trust opened for business on March 1, 2002, and began receiving Public Purpose funds through the Oregon PUC.

Natural gas utilities were not affected by SB 1149. However, they were later brought into the fold by PUC stipulation.

During the 1999 legislative session, drafters of SB 1149 made it clear that this would be a temporary tax. The law stated that the PPC would go into effect in March 2002 and would end 10 years later in March 2012.

However, in 2007 a different group of legislators moved the sunset date for the PPC from 2012 to 2026, as part of SB 838. In addition, the new law authorized ETO to negotiate with the private utilities for an additional add-on tax that would pay for more energy efficiency work. The result was a combined energy tax (SB 1149/SB 838) that has grown to over 10% for many ratepayers who use both electricity and natural gas.

Total PPC Rates, 2016-2020*

 PGEPacific PowerNW NaturalCascade Natural GasAvista Natural Gas
      
20165.7%5.5%2.5%4.4%n/a
20177.7%5.9%3.2%4.3%1.1%
20187.1%5.5%4.0%4.3%1.1%
20195.9%6.0%3.9%5.8%2.3%
20205.6%5.6%3.7%4.9%2.7%

            *Includes assessments for schools, low-income and Energy Trust for electric utilities

From its inception in 2002 through July 2019, the original PPC collected roughly $1.33 billionfrom ratepayers for the “public purposes” laid out in the statute.However, the most cost-effective projects were done in the early years – exactly as the authors of SB 1149 envisioned. In the 2003-04 biennium, PPC administrators spent $91.4 million to acquire 1.7 million BTU of saved or generated energy. During the 2017-19 biennium, PPC costs had gone up to $159 million, but the energy savings were still 1.7 million BTU.

Trends in Cost-Effectiveness for PPC Expenditures by Energy Trust, OHCS and Public Schools

YearsPPC ExpendituresClaimed savings or energy generated (MBTU)Expenditure per MBTU
   
2003-04$91,396,4761,710,36453.4
2005-06$121,070,4762,021,51860.3
2007-08$142,413,4174,355,77332.7
2009-10$176,725,2481,751,822100.8
2011-12$179,486,7731,816,40798.8
2013-14$157,980,2411,914,42482.5
2015-16$188,633,4131,762,673107.0
7/17-6/19$159,277,6931,724,10392.4

The costs per unit of energy saved or generated in the most recent biennium were 73.03% higher than in 2003-04.

Moreover, the numbers above are heavily skewed by the fact that the Energy Trust claims 100% of the credit for any renewable energy or conservation project it subsidizes, even if the PPC funding is just a tiny part of the overall cost. If ETO took credit in proportion to its investment of PPC funding, the reported savings (or generation of electricity from renewable energy projects) would be much smaller.

Warning lights about PPC expenditures have been flashing for some time. In 2012, Oregon Secretary of State Kate Brown released an audit of PPC spending in schools, showing that almost $40 million of savings had been missed and that 70% more energy could have been conserved if school districts had implemented the measures identified by energy audits as having the highest payback.

In some cases, PPC money had been used for projects that would never pay for themselves. For instance, Newberg School District installed insulated roofing panels at an elementary school in 2005 that had an estimated simple payback of 110.5 years and an expected life of 25 years. The measure was estimated to lose $65,150 over its lifetime.

The peak years for energy conservation in schools were 2007-2008, when 604 energy-saving measures were implemented. For the most recent biennium, there were only 123 measures implemented – the lowest number since the program began.

The Oregon Housing and Community Services (OHCS) department is required to ensure that they maintain a 1:1 ratio of PPC expenditures to energy saved for installed conservation measures. From 2002-12, the agency was able to do that six out of ten years. Since 2012, OHCS has never met the required standard.

The Energy Trust of Oregon receives 74% of PPC funds. In ETO’s flagship program – electricity savings – the Trust spent $14.7 million in 2003 and achieved savings at a cost of $0.11 per kWh. In 2017, ETO spent $157 million, but savings had a cost of $0.26 per kWh – an increase of 136%.

ETO’s renewable energy program was severely affected by the passage of SB 838 in 2007, which prohibited the organization from spending any more PPC money on utility-scale projects. Confined to small projects, ETO’s cost per megawatt of renewable energy has gone up by more than 1,400% since then.

By legislative design, the Energy Trust of Oregon was incorporated as a  nonprofit charity under section 501(c)(3) of the IRS code. However, it is not actually a charitable organization. Roughly 99% of ETO’s annual revenue comes from the PPC, which is mandatory.

Nonetheless, over the five-year period of 2014-2018, ETO reported PPC revenue to the IRS totaling $847 million under the category of “gifts, grants, contributions, and membership fees.”

If PPC payments by utility customers are considered charitable gifts by the IRS, then ratepayers should be receiving receipts and deducting the cost of the PPC from their federal tax filings. In fact, this was anticipated by the founders of Energy Trust. Article IV of ETO’s Articles of Incorporation states, “It is intended that the Corporation qualify as an organization which is exempt from federal income taxation under Code section 501(c)(3), contributions to which are deductible for federal income, estate, and gift tax purposes….”

We are not aware of Energy Trust or any other administrator of the Public Purpose Charge ever issuing receipts to utility ratepayers for their $1.33 billion dollars of “donations.”

Most energy activists believe that the PPC should become permanent, and PPC administrators tend to agree. In fact, the 2020-2024 strategic plan for ETO explicitly assumes that the PPC will be extended past 2025. A legislative bill for that purpose was introduced in the state legislature during 2019, but did not pass out of committee. It will likely be introduced again in 2021.

The time has come for legislators to decide whether the original mission of the PPC has been accomplished, or if it should be expanded. Based on nearly a decade of research, this paper makes the following recommendations:

  • The Public Purpose Charge has fulfilled its original, 10-year mission, and should be ended as soon as possible. The Oregon economy is reeling from COVID-19. PGE reports that customer accounts in arrears (31 days or more past due) are up 41% this year. There is no reason to maintain a costly energy tax of 6-10% for a program that has already served its purpose.
  • If the PPC continues through 2025 or longer, the SB 1149 mandate related to small-scale renewable energy projects should be repealed. ETO’s renewables program has been made obsolete by multiple laws passed since 1999, including several “green power” mandates and a new solar subsidy program.

    More than 99% of all ETO renewable projects have been solar electric. Since the installation costs of those projects have dropped by roughly 76% since the passage of SB 1149, the original intent of helping renewables transition to market-competitiveness has been met.
  • The SB 1149 mandate for market transformation should also be repealed. There is no way to adequately define or measure the term “market transformation.” Moreover, the preeminent market transformation organization is the Northwest Energy Efficiency Alliance (NEEA), which already has its own funding from over 100 utilities.
  • Between now and 2026, ETO should switch its more costly program offerings from cash grants to no-interest loans. The best way to ensure that a project is worth doing is to require significant “skin in the game” by recipients of public assistance.

    A loan program would provide the up-front cash often needed to start a project, while imposing much-needed fiscal discipline. A loan program would also mean that any ongoing public purpose charge could drop over time to zero, because debt service payments would eventually make the fund self-supporting.
  • ETO should utilize its tax status as a  nonprofit institution regulated under Section 501(c)(3) of the IRS code to seek foundation grants and individual contributions. ETO claims that its various programs have saved ratepayers more than $7 billion dollars. If that is true, it should not be difficult to persuade many of them to donate to the Trust.
  • The legislature should examine why Energy Trust of Oregon lists all revenue on its federal tax filings as “gifts, grants, contributions, and membership fees received,” yet ratepayers receive no gift receipts for PPC payments. The legislature has created a service delivery model that provides tax-exempt status to only one entity: the Energy Trust of Oregon. Ratepayers receive no such treatment. That contradiction should be addressed by the legislature in 2021.

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Winter is coming the homeless need shelter and the expo center has the space-cm

Winter Is Coming, the Homeless Need Shelter, and the Expo Center Has the Space

By Eric Fruits. Ph.D.

Winter is coming to Oregon, and it might be a rough one. As if the pandemic, riots, and a recession weren’t enough, the Northwest is looking at La Niña weather conditions that will bring us a cold, wet winter. While most of us will tough it out in our warm homes, thousands of unsheltered homeless will be stranded on the streets or in camps, unless we make better use of the resources we have.

In November 2016, Portland voters approved a $260 million bond measure to build more affordable housing in the city. Two years later, Metro voters approved a $650 million affordable housing bond. Combined, the measures promised to build more than 5,200 units of affordable housing throughout the region. Currently, only 51 units have been completed.

This year, the region’s voters approved Metro’s two new income taxes to provide “supportive housing services” to the homeless and those at risk of becoming homeless. The taxes are anticipated to bring in approximately $250 million a year. During the campaign, proponents claimed, “We know what works, it’s just a matter of scale.” They say what works is a “Housing First” approach providing thousands of units of permanent affordable housing along with a wide range of support services for those placed in housing.

To be blunt, no one knows what works, and there appear to be no economies of scale. For more than two decades, the Housing First approach has been heralded as the best solution. But, these projects take years to build and construction costs per unit are more than double private sector costs. The “wrap around” services are expensive and require individuals to have the ability and intent to fully use them. Even worse, there is no evidence that the Housing First approach is effective at reducing the total number of unsheltered people in a community.

Observers and experts concluded Portland and Multnomah County’s emphasis on a Housing First approach diverted money away from emergency shelter beds. Housing redevelopment projects before and after the Great Recession replaced single-room occupancy apartments and low-cost motel rooms with high-end apartments and condominiums. Put simply, there are not enough beds to support all the homeless in the region. Local governments’ slow-motion construction of affordable housing units can’t satisfy existing demand, let alone keep up with future demand.

With winter approaching and an unknown end to the pandemic, the region needs thousands of emergency shelter beds now. Fortunately, the region has a facility that is well suited to house thousands of people in such an emergency.

The Portland Expo Center is a 330,000-square-foot exposition center sitting on 53 acres. The Expo Center is owned and operated by Metro. The facility has meeting rooms, a full-service kitchen, a restaurant, and flexible outdoor exhibit space. The facility has been losing money for years and needs significant capital upgrades to compete in the exposition market.

The exhibition space alone could serve 2,000 to 3,000 individuals. Its 2,500-vehicle parking lot provides ample space for individuals who prefer to camp or sleep in vehicles. It is located away from residential and commercial areas, but also has easy access to public transit—the TriMet Yellow Line terminates at the front of the Expo Center and provides frequent service to downtown Portland.

Because the pandemic effectively closed the Expo Center, Metro should work with other local governments to immediately open the Expo Center as a temporary emergency homeless shelter. Repurposing an existing exposition center would be much less expensive than Metro and the City of Portland’s current “affordable housing” construction projects. Over time, Metro can use its Supportive Housing Services funds to redevelop the Expo Center into a permanent emergency and/or transitional housing shelter providing services to those in need.

Converting the Expo Center could bring immediate relief to thousands of homeless individuals and families while providing a much better return on investment than current plans to remodel the site for low-attendance expositions. If we’re truly all in this together, it’s time to put the Expo Center to work.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization, and an adjunct professor at Portland State University, where he teaches courses in urban economics and regulation. He can be reached at eric@cascadepolicy.org. A version of this article was published in the Portland Tribune on November 22, 2020.

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Oregons new drug law contains a lethal dose of unaccountability-cm

Oregon’s New Drug Law Contains a Lethal Dose of Unaccountability

Voters approve Measure 110, decriminalizing drugs while creating an unaccountable bureaucracy

By Eric Fruits, Ph.D.

Oregon voters recently approved a ballot measure that decriminalizes possession of small amounts of “hard” drugs, including heroin, cocaine, LSD, and methamphetamine. Supporters see the measure as a big step toward ending the failed 50-year “War on Drugs.” Opponents fear the measure will lead to widespread and rampant drug abuse and turn the state into a destination for narco-tourism. While drug decriminalization made news headlines, the media missed the fact that Measure 110 is a head-on attack on our democratic institutions.

The measure creates a new bureaucratic agency to be known as the “Oversight and Accountability Council.” Despite its name, the council has neither accountability nor oversight. The council is appointed by an unelected bureaucrat, answers to no one, and is guaranteed funding outside the legislative budget process. In other words, with Measure 110, Oregon voters just created an agency that doesn’t have to answer to voters or elected officials.

The Oversight and Accountability Council awards grants to government agencies and community-based nonprofits who will create “Addiction Recovery Centers.” These centers will address the acute and ongoing needs of drug users, provide “intensive” case management, and link drug users to care. All of these services are to be provided free-of-charge to drug users. Put simply, Measure 110 asserts a right to free health care for those with substance abuse issues. The council also awards grants to government agencies and nonprofits to provide housing and peer support to people with substance use disorder. Not only does the council award the grants, but it also writes the rules governing the grants, establishes the requirements for the Addiction Recovery Centers, and oversees their implementation. This Oversight and Accountability Council has enormous authority and will be handling at least $57 million a year, in addition to an undefined amount related to state savings from reduced arrests and convictions.

The 17-member council will be “established” by the director of the Oregon Health Authority, an unelected agency head appointed by the governor. Each member serves a four-year term. Measure 110 does not specify any conditions under which a council member can be removed and provides no process for removing a member. While the governor can be voted out and the OHA director can be fired, Oversight and Accountability Council members face no risk of removal. In this way the council is accountable to no one.

Funding for the Oversight and Accountability Council and its grants will come from the state’s marijuana tax. The measure specifies that this will be at least $57 million the first year that the measure is in effect, 2021. The measure also provides for yearly increases in line with inflation or increases in marijuana tax revenues, whichever is larger. With a dedicated and guaranteed source of funding, Measure 110 bypasses the legislative budget process. While schools, universities, police, and transportation must go to the legislature for most of their funding, the Oversight and Accountability Council sits comfortably on a steadily increasing revenue stream.

Measure 110 won by a wide margin, because the headlines promised it would decriminalize drug possession. With no organized opposition and press that cheered it on, the nefarious details of the measure never got their own headlines. As a result, Oregon voters approved the creation of a huge new bureaucracy that is unaccountable to voters and elected officials and disconnected from the same budget pressures faced by nearly every other state agency. The Washington Post tells us “democracy dies in darkness.” It also dies from voter approval of misleading ballot measures.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization. He served on the City Club of Portland’s research committee on substance use disorder in Oregon.

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Avoidable Expenses for Affordable Housing-cm

Avoidable Expenses for Affordable Housing

By Vlad Yurlov

While many people in the Portland region value efficient governments, prevailing wage laws are rarely questioned. Prevailing wage laws drain tax-payer funded resources by increasing the labor costs of public construction projects such as affordable housing. These laws were originally enacted to shut out minorities from construction jobs in the 1930s. Portland and Metro are currently using more than $900 million in tax dollars to build affordable housing projects. Both jurisdictions are subject to prevailing wage laws that significantly decrease their efficiency.

Portland and Metro’s housing bonds are already spending roughly $300,000 per new unit, which is nearly double market-rate projects. The Bond Stakeholder Advisory Group of the Portland Housing Bureau found that “[p]revailing wage typically increases the labor costs in a project by approximately 12% to 18%.” This means fewer housing units can be built.

One of Portland’s recent projects avoided paying prevailing wages by limiting the number of project-based vouchers that their building contained. This clearly shows that prevailing wages inhibit the creation of affordable housing. To increase efficiency in affordable housing construction, Oregon must end prevailing wage laws.

Vlad Yurlov is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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$7 Billion for That-cm

$7 Billion for That?

Metro’s Transportation Tax Will Overspend on Underused Projects

By Rachel Dawson and Vlad Yurlov

What could you do with $7 billion? That’s the question on a lot of people’s minds as the Metro regional government pushes a permanent transportation tax this November. The tax will be paid by employers at workplaces with 26 or more workers, including nonprofit organizations. Metro, however, exempted itself and other local governments from paying the tax. Many of these projects will end up causing more problems in the future, creating congestion and redundancy and saddling us with more public debt.

The crown jewel of Metro’s transportation tax program is the Southwest Corridor light rail line extension, which is expected to cost $2.8 billion. This project encapsulates many of the problems in this measure. Southwest Corridor is an 11-mile extension of the MAX Green Line from Portland State University to the Bridgeport Village luxury mall. The draft environmental impact statement for the project concludes it will increase congestion at 46 intersections during the PM peak and 30 intersections during the AM, compared to only 36 and 14 intersections otherwise. Multiple I-5 ramps will see increases in congestion during both peak hours.

While some argue that light rail investments will get people out of their cars, much of light rail ridership comes from commuters who already ride public transit. Furthermore, light rail ridership has decreased by roughly 65% since the beginning of the pandemic, and many riders won’t return because CDC recommends that employees avoid transit. Roughly $2.8 billion will be spent on a rarely used facility that will worsen our region’s congestion.

Congestion Creators

Projects such as bus-only lanes will create bottlenecks and increase congestion on multiple corridors. Taking away a traffic lane before an intersection will force other vehicles to merge into a neighboring lane, increasing traffic and creating safety hazards. For example, Metro wants to implement at least one mile of bus-only lanes at various intersections along the Tualatin Valley Highway corridor. Portland’s proposed bus-only lanes are expected to increase delays for cars and trucks, divert traffic to nearby streets, and remove parking. Metro’s bus-only lanes are sure to produce similar congestion effects throughout the region.

Redundant Projects

While Portland certainly needs more bridges for cars and trucks, Metro’s bond measure will fund an unnecessary pedestrian bridge. The Trolley Trail Bridge is a $14.4 million project within the McLoughlin corridor. The bridge would cross the Clackamas River between Gladstone and Oregon City. The proposed bridge, however, is located right next to the recently renovated 82nd Drive Pedestrian Bridge. It takes less than 3 minutes for a cyclist to get from the proposed bridge’s end to the 82nd Drive Bridge and about 8 minutes for pedestrians. If local residents want to build a bridge next to an existing one, local jurisdictions should be the funding source. While it might be nice to have, this redundancy adds little value to the region.

Lavish Costs

The Foster/172nd Roundabout included in the Clackamas to Columbia corridor is a clear example of lavish spending and inflated costs. The City of Gresham’s 2018 cost estimate for a roundabout or traffic signal at this intersection was $342,000 (or approximately $348,197 in 2019 dollars). Metro’s new cost estimate for this project is more than 18 times higher at $6.5 million in 2019 dollars. This drastic increase in price calls into question the validity of this corridor’s cost estimates. Since the City of Gresham’s Transportation System Plan had this roundabout in its 50-year construction forecast, it is not an urgent development. However, safety improvements could be installed here with a traffic light for under $200,000. This amount can fit within a local jurisdiction’s budget without a regional wage tax.

These four examples were selected from hundreds of problematic investments proposed in Metro’s 2020 transportation measure. Increased congestion, redundancy, and lavish spending are not what we should be funding. Portland’s business community has made it clear that the tax imposed by this measure would cost jobs in our region. During an economic recession we should be leaving money in the voters’ pockets. Although Metro pushes this measure as a regional effort, everyone’s tax burdens will fund projects that few people will use. Metro area residents should vote “NO” on Metro’s Measure 26-218 this November.

Rachel Dawson and Vlad Yurlov are policy analysts at Cascade Policy Institute, Oregon’s free market public policy research organization. They can be reached at rachel@cascadepolicy.org and vlad@cascadepolicy.org.

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Press Release METRO GOVERNMENT’S INAPPROPRIATE USE OF TAX DOLLARS TO PROMOTE NEW PAYROLL TAX TO VOTERS-cm

Press Release: METRO GOVERNMENT’S INAPPROPRIATE USE OF TAX DOLLARS TO PROMOTE NEW PAYROLL TAX TO VOTERS

Cascade Policy Institute urges Metro Auditor and the Oregon Secretary of State to immediately investigate Metro’s likely abuse of power.

October 12, 2020

FOR IMMEDIATE RELEASE

Media Contact:
Eric Fruits, Ph.D.
(503) 242-0900
eric@cascadepolicy.org

PORTLAND, Ore. – Last week, thousands of Oregon residents received a multi-color postcard from Metro urging them to vote on the regional government’s payroll tax, Measure 26-218 (Exhibit 1). The expensive mailing was sent far and wide, with even some Bend residents finding Metro’s postcard dropped in their mailboxes.

The postcards were designed and mailed using tax dollars, and Metro made no effort to disguise their support for the payroll tax. In large type, Metro’s mailer promotes the ballot title number, uses the “Get Moving 2020” slogan from campaign proponents, and has a multi-color map similar to the map shown in TV ads in favor of the tax.

Approximately 70% of the mailer’s text presents positive messages about the measure, including a listing of the projects Metro anticipates funding, describing input from the community and “leaders” in creating the measure, and identifying oversight provisions if the measure passes.

Less than one-quarter of the postcard’s text mentions the primary purpose of Measure 26-218—to impose a payroll tax on 70% of the region’s workers. The payroll tax is the only reason for the ballot measure. Metro already has the authority to fund transportation projects, but needs voter approval for a payroll tax.

Rather than encouraging recipients to “get both sides” of the arguments for and against Measure 26-218, the mailer directs recipients to Metro’s own webpage for more information (oregonmetro.gov/transportation). This link immediately redirects the visitor to another page titled “Proposed Measure 26-218: ‘Get Moving 2020’” (https://www.oregonmetro.gov/public-projects/get-moving-2020Exhibit 2).

Oregon’s election finance law limits the political activities of public employees while on the job during working hours. Restrictions also prohibit the solicitation of public employees for political activity.

ORS 260.432(2) provides, “No public employee shall . . . promote . . . the adoption of a measure . . . while on the job during working hours.”

ORS 260.432(1) provides, “No person shall attempt to, or actually, coerce, command or require a public employee to influence or give . . . service or other thing of value to promote . . .  the adoption of a measure  . . . .” 

Metro’s mailer does more than encourage individuals to return their ballots. The mailer does not encourage recipients to vote for federal, state, or local candidates. Recipients are not urged to vote for any other state or local measures. Instead, Metro exhorts recipients to vote on a single issue: Measure 26-218, “Get Moving 2020.”

Metro used public employees’ time and the public’s money to create and send the postcards. In addition to the money spent on postage, public employee time was likely used to draft and edit the language of the postcards and design the layout. The out-of-region addresses suggest Metro used public money to purchase a politically targeted mailing list from a third party.

Cascade Policy Institute demands that Metro immediately stop production on any additional promotional mail pieces and asks that Metro’s independently elected auditor and the Oregon Secretary of State to immediately investigate whether Metro’s mailers are an inappropriate or illegal use of tax dollars to encourage voter approval of Measure 26-218.

Under ORS 294.100, Metro Council President Lynn Peterson, as well as any other councilors or Metro staff, may be personally liable for reimbursing Metro taxpayers for the decision to create and mail the brochures [emphasis added]:

(1) It is unlawful for any public official to expend any moneys in excess of the amounts provided by law, or for any other or different purpose than provided by law.

(2) Any public official who expends any public moneys in excess of the amounts or for any other or different purpose than authorized by law shall be civilly liable for the return of the money by suit of the district attorney of the district in which the offense is committed, or at the suit of any taxpayer of such district, if the expenditure constitutes malfeasance in office or willful or wanton neglect of duty.

Eric Fruits, Vice President of Research at Cascade Policy Institute, concludes, “This taxpayer expenditure clearly crosses the line into using public dollars to advocate for the passage of this payroll tax measure. That is wrong and should stop. Metro’s auditor and the Oregon Secretary of State should immediately investigate this likely abuse of power.”

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Contact Dr. Eric Fruits by email at eric@cascadepolicy.org for more information or to schedule an interview.

 About Cascade Policy Institute:

 Founded in 1991, Cascade Policy Institute is Oregon’s free-market public policy research center. Cascade’s mission is to explore and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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Government Alone Can’t Solve Homelessness

By Vlad Yurlov

On October 2, Helping Hands unveiled its latest transitional housing facility. After Wapato Jail collected dust for 14 years, Jordan Schnitzer bought the facility to create a homeless shelter. Allen Evans, someone who spent years battling homelessness, was eventually tapped to lead the effort. During months-long negotiations and media coverage, many public officials denounced the plan to house homeless people in what they still thought of as a jail. If a deal had not been made, the whole building would have been demolished.

All of their concerns were addressed by Helping Hands, the data-driven nonprofit organization that is now set to offer transitional housing to the homeless population. Under the leadership of Allen Evans, Helping Hands worked with many organizations to supply the Bybee Lakes Hope Center with education, internet access, and transportation.

At the grand opening, Portland Mayor Ted Wheeler admitted, “Government couldn’t do it alone.” Even when a solution was presented, the government didn’t back the shelter for months. The philanthropic community and private businesses banded together to solve a problem in an innovative way without the need for public money. To solve homelessness, Portland should embrace public-private partnerships that are led by people who know how to get things done.

Vlad Yurlov is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Press Release: Eric Fruits, Vice President of Research at Cascade Policy Institute, urges Metro Council to reject Ordinance 20-1449

October 4, 2020

FOR IMMEDIATE RELEASE

Media Contact:
Eric Fruits, Ph.D.
(503) 242-0900
eric@cascadepolicy.org

PORTLAND, Ore. – On Thursday, October 1, Cascade Policy Institute’s Vice President of Research, Dr. Eric Fruits, testified before the Metro Council, urging them to reject Ordinance 20-1449. The ordinance would authorize the sale of up to $28 million in revenue bonds. The funds would be used to implement, impose, and collect Metro’s new personal and business income taxes.

Fruits also pressed the Council to delay implementation of Metro’s Supportive Housing Services income taxes scheduled to go into effect January 1, 2021.

“Metro has completely misplaced its priorities,” Fruits says. “Instead of focusing on its core obligations, it has spent the last two years expanding its mission by chasing expensive new programs funded with new and increasing tax burdens on its constituents.

“The Council must step back from the messes it has made for itself and Metro as a whole. It should spend the next two years recovering from the pandemic’s financial hit and focusing on the organization’s mission, not its mission creep.”

Cascade Policy Institute’s Vice President of Research, Dr. Eric Fruits, testified before the Metro Council

Click here to read Eric Fruits’ full testimony.

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Contact Dr. Eric Fruits by email at eric@cascadepolicy.org for more information or to schedule an interview.

About Cascade Policy Institute:

Founded in 1991, Cascade Policy Institute is Oregon’s free-market public policy research center. Cascade’s mission is to explore and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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Metro: Deep in Debt and Getting Deeper

The regional government plans to borrow money to implement its new income taxes

By Eric Fruits, Ph.D.

Hardly a week goes by that Metro isn’t reaching into your pocketbook or getting deeper in debt. This week, Metro will move forward on issuing $28 million in bonds.

Why does Metro need to borrow $28 million? There are two reasons.

First, Metro needs the money because that’s how much it’s going to cost to set up its new system to collect TWO new income taxes that go into effect in the New Year. We warned you it would be expensive to implement two new taxes on short order. But, even we had no idea it would cost a whopping $28 million. It takes a lot of money to take a lot of money.

Believe it or not, the second reason is even worse. Metro is out of money.

Since Lynn Peterson began leading Metro, the regional government has more than quadrupled its debt load and now has more than $1 billion in debt.

And that’s where the problems really are. Metro has never brought in enough money to cover its expenses. Out of control spending combined with reduced revenues because of the pandemic have worsened its shortfall.

As a result, Metro is under enormous pressure to raise more money from taxes, fees, and charges. They’ve dug us into a hole, and the only way they can fill it is with our tax dollars.

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

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Metro’s Mission Creep

By Vlad Yurlov

Metro is expected to spend over $1.4 billion this fiscal year. That nearly triples their revenue from a decade ago. But, has anyone received three times the service?

Instead of improving its basic functions, Metro is micro-managing the entire region. Metro’s original charter provided the regional government with a modest mission of growth planning. But, it also allows Metro to address “matters of metropolitan concern.” These four words have led to decades of mission creep.

A prime example of Metro’s mission creep is their upcoming transportation ballot measure, which has only one regional project. ODOT, TriMet, and every local jurisdiction already have dedicated transportation funding mechanisms, such as the gas and property taxes. Nevertheless, Metro is seeking to funnel another $5.2 billion in payroll taxes to fund its own priorities. By disrupting the tie between local money and local projects, Metro will continue to hurt local transportation.

Instead of 17 politically chosen projects, Metro’s residents should be using their money to decrease traffic congestion. The upcoming transportation measure only offers three percent to ease traffic congestion, while using up a tax base hammered by the pandemic.

Voters should reject Metro’s transportation ballot measure and call out their mission creep. There is no sense in laundering billions of dollars through a bloated bureaucracy when locally elected organizations already manage transportation improvements. Let’s keep taxes and transportation improvements local and worthwhile.

Vlad Yurlov is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Pinocchio Politics on the November Ballot

By Eric Fruits, Ph.D.

President Trump is frequently accused of lying. But he doesn’t have a monopoly on falsehood. Look around the Portland region and you’ll see our local politicians lying to us. We live in our own Pinocchio-land.

Metro’s “Get Moving 2020” ballot measure is a $5.2 billion tax increase disguised as a transportation measure. It’s a permanent tax on the total compensation paid by every private business and nonprofit with more than 25 employees. Metro says it’s a payroll tax, but it’s much more. It will tax every dollar you earn — even the money you save for retirement.

Comedian John Oliver says, “If you want to do something evil, put it inside something boring.” And, that’s what Portland City Council has done with a major charter change packaged as some minor housekeeping.

Portland says the amendment merely clarifies the charter. In reality, the amendment will open a spending tap with water customers on the hook for ever rising water bills.

Portland Public Schools deserves its own wing in the Hall of Pinocchios. PPS put a $1.2 billion bond measure on the November ballot. About $200 million of the new money will be used to fill cost overruns on the projects funded by the 2017 bond.

How did PPS run $200 million over budget? Simple: PPS lied to us. The school board intentionally low-balled cost estimates to fool voters into approving the measure.

This year, voters must put an end to the billions of dollars of fibs our local politicians are telling. Pinocchio learned his lesson about lying; it’s time for our politicians to learn theirs.

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

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Metro Pushes Transportation Bond While Acknowledging Serious Problems

Oregon’s Business Community Is Challenging the $7.8 Billion Measure

By Vlad Yurlov

After years of planning, revising, and negotiating Metro’s transportation funding plan, the region’s business community has had enough. Last month, several tri-county chambers of commerce sent a letter to the Metro Council urging a delay on the measure, because of the COVID-19 epidemic.

Metro spent years finding ways to spend money on transportation projects, while spending about two months figuring out how to pay for it. They only settled on a payroll tax because polling was good.

But, Metro’s polling was from May, when much of the county was hopeful the pandemic would be over by the start of school. Instead, the economy has crashed with businesses closing, workers losing their jobs, and thousands of families struggling to pay their bills. For many households, Metro’s plan to create a permanent payroll tax costing $500 a year for the average worker reflects bad timing, if not poor judgment.

Metro Council President Lynn Peterson claims the spending will create jobs, reduce pollution, prepare the region for growth, and advance racial justice. But such claims require extraordinary evidence.

The plan will not “create” thousands of jobs. Metro President Peterson falls for the fallacy that spending more money creates more jobs. In fact, Metro’s payroll tax will reduce take-home pay and kill jobs. Research shows that workers pay the price of a payroll tax, with low-skilled workers suffering the most. Even the Draft Environmental Impact Statement for the Green Line extension states that “net employment change in the corridor and region over the long term…would likely be negligible.”

The plan will not “advance” racial justice. Metro admits the Southwest Corridor light rail line will displace hundreds of residents and businesses, many of whom are from minority and low-income communities. While strategies to reduce the impact have been discussed, communities of color will be forced to uproot their lives because of these projects.

Finally, the plan will not “reduce” pollution. Climate Solutions and Oregon Environmental Council expect that the measure’s projects would only reduce emissions by less than one-tenth of one percent per year.

The plan will not “transform” its key corridors. Most of the projects involve minor improvements such as adding lighting and mending sidewalks, as well as improved lights and access improvements.

The plan will not “prepare” the region for growth. Many of the new amenities will likely inhibit new commuters travelling between work, home, and leisure destinations, because most of the projects are designed to make congestion worse.

The Council President’s letters tried to cut deals with the business community. She offered a reduction of the payroll tax, on the condition that the Portland Business Alliance doesn’t campaign against the measure and lobbies Oregon’s legislature to recoup the losses. This was quickly rejected. Instead, Metro carved out local governments from the tax, right before the referral vote. This 11% loss further burdens businesses and residents.

Willamette Week reported that the Metro Council remains “undaunted.” The business community then filed a ballot title challenge arguing that Metro’s wording was unfair in using the phrase “business tax” rather than a “wage-based payroll tax.” While Metro employees use the term “payroll tax,” it was recharacterized as a business tax after realizing how unpopular the phrase sounds during a time when many firms can’t make payroll and so many families aren’t getting paid.

A large part of the push for the measure on the ballot is Lynn Peterson’s chase for federal funding, which she believes will run out if voters don’t approve the measure. Additionally, Lynn Peterson is suspected to be eyeing a run for Oregon governor. This means that this measure’s rush may not be out of preparedness, but of an eager Council looking to grab federal dollars, even if it means that our own tax rates will skyrocket, and personal gain.

Metro’s transportation measure would cripple the region’s COVID-19 recovery, because the payroll tax that funds it diverts development away from businesses that create wealth and into projects that merely move it around. This transportation bond measure will not allow the tri-county area to “Get Moving.” Residents and businesses will have to freeze in place to survive an additional payroll tax for another unsustainable gamble.

Vlad Yurlov is a Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization. He has closely followed Metro’s transportation bond and is currently researching its history and impacts.

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Higher Taxes, Less Business

By Cooper Conway

Joe Rogan, the outspoken commenter, comedian, and host, announced on a recent episode of his popular podcast, “The Joe Rogan Experience,” that he would be moving to Texas in search of less homelessness, less taxes, and a little bit more freedom.

Rogan will be bringing his business that recently signed a 100-million-dollar deal with Spotify, too. The move to the Lone Star state will save Rogan and his company over $13 million in taxes and provide more economic growth for the state that is the perennial winner of the Governor’s Cup for economic growth and job creation.

Unlike California, Texas has no income tax and frequently poaches businesses from the West Coast, such as Tesla, Charles Schwab, and McKesson.

Oregon, whose top income tax rate is slightly under California’s at 10 percent, should note the multiple businesses fleeing California for Texas and follow Texas’s tax policy lead instead of California’s.

Amid a pandemic, now more than ever is the time for economic development and job creation to flood Oregon, allowing Oregonians to succeed. The implementation of free-market solutions such as lower-income taxes will alleviate local business owners from the damage that COVID has done while allowing more Oregonians to rejoin the workforce.

Cooper Conway is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Portland Politicians Suffer From the Edifice Complex

By Eric Fruits, Ph.D.

On July 24th, the New York Times ran a 2,300-word piece describing the challenges owners of vacation homes have faced in converting their second homes into their primary residences during the COVID-19 pandemic. Challenges included the inability to get a Starbucks vanilla latte or find a bagel shop.

Readers overwhelming responded: “Read the room, New York Times!”

With millions out of work and struggling to pay the bills, it’s hard to sympathize with a vacation homeowner struggling to find a place in her second home to put a pencil holder and paper tray she bought in Florence, Italy.

Closer to home, our elected leaders can’t read the room either. Sitting safely in their home offices, collecting steady paychecks, and venturing out for a photo op at a protest, they continue to push ever higher taxes on their struggling constituents.

Less than five months after sending two new income taxes to the voters, Metro is now charging full speed ahead on a payroll tax to pay for the unneeded Southwest Corridor light rail project from Portland to Bridgeport Village. The project anticipates tearing up Barbur Boulevard and adding congestion to dozens of intersections and highway ramps. Making way for light rail will require the destruction of at least 78 residential dwellings, and as many as 293. In addition, as many as 156 businesses will be forced out, displacing up to 1,990 employees.

The payroll tax will cost about $500 a year for the average household in the region. That’s $500 that can’t be spent on rent, utilities, groceries and other necessities.

Read the room, Metro. Is a light rail line to an upscale shopping mall more important than the houses that’ll be bulldozed, the business that’ll be shuttered, and paychecks that’ll be raided?

The City of Portland is no better. Because of years of mismanagement, the city’s parks bureau has spent itself into a deep hole. Last year, the city closed the Sellwood and Hillside community centers. This year, Mayor Ted Wheeler cancelled all summer parks programs. Even with the cuts, the city claims the parks program has a deficit of more than $6 million.

Earlier this month, the city council voted to send a $48 million-a-year property tax increase to the ballot to fund its mismanaged parks program. It’s not clear why the city needs $48 million to fill a $6 million gap. But, I’m just a dumb voter who doesn’t understand the ins and outs of government accounting.

Nevertheless, in a time when tenants can’t pay their rents and homeowners can’t make their mortgage payments, Mayor Wheeler and city council are promoting a tax increase that will cost the average Portlander $180 a year. Read the room, Portland.

Of course, Multnomah County has to get into the money grab game, too. In November, voters will decide on a $37 million property tax measure to increase library spending. That’s about $115 a year for the average household. Currently, all the county libraries are closed, except for picking up books put on hold. Maybe the libraries can wait until after this recession is over before reaching into our wallets. Read the room, Multnomah County.

Even though schools are closed and Portland Public Schools is still mumbling and fumbling over its plans for the fall, PPS is looking to send a $1.1 billion property tax measure to the ballot in November. A big chunk of that money is earmarked to pay for nearly $250 million in cost overruns from the last school bond measure.

With the pandemic causing a radical rethinking of how education is delivered to our children, perhaps now is not the right time to embark on a spending blowout to build more massive brick-and-mortar schools. Read the room, PPS.

For years – no, more like decades – Portland-area voters seemed to have demonstrated an endless tolerance for raising their own taxes. They also seem eager to elect politicians who promise more and more spending on massive and costly projects. This has been called the “Edifice Complex” – it’s fun and sexy to be at the ribbon cutting for a new MAX line, library or remodeled school. There are no photo ops for trimming a budget.

In 2020, Portland-area politicians have become so consumed by their Edifice Complex that they have failed to read the room. In the middle of a pandemic and recession, voters may teach the elected that feeding their families is more important than feeding the beast of local government.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free-market public policy research organization. This article was originally published in the July 2020 Oregon Transformation newsletter.

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Metro’s Broken Promise of Racial Equity

By Helen Doran

A scenic drive through the country does not usually call to mind the empty promises of local government. But this drive was different. I was taking the 30-minute journey from downtown Hillsboro to visit Metro’s Chehalem Ridge Nature Park.

The nearby farms provided a scenic backdrop to my mission, but my mind was focused on Metro’s long history of broken promises. One of these broken promises is particularly relevant to the recent calls for racial equity.

Not much of the drive has changed since I toured the park last summer. It still required white knuckle steering to keep control of the car around gravel turns. I tried to imagine how the neighboring farms would deal with the increased traffic to the park on these winding, rural roads. Miles away from the nearest bus stop, I also questioned how anyone without a car would get to this remote park.

Several construction signs and machines welcomed me when I parked. I had mixed feelings about this new development. I was glad Metro had finally broken ground after 10-years of promising a regional park. But I was more troubled by the many promises Metro broke along the way to build these several miles of trails on land far outside of its jurisdiction.

The regional government’s mission strongly emphasizes racial equity in its park plans. Yet these promises of equity and diversity are nowhere to be seen in the making of Chehalem Ridge. The parks’ master plan frequently mentions serving the area’s diverse population. It projects that, “the planning process and resulting improvements should be particularly attuned to the recreational interests of Latinos.” The plan also promises to remove barriers to accessing and using the park.

But my challenging drive to Chehalem demonstrates the discrepancy between Metro’s words and its actions. Despite multiple mentions in the master plan, Metro failed to address the greatest barrier of all to its promise of racial equity–getting to Chehalem in the first place. In particular, Metro noted that Spanish speakers surveyed strongly supported biking, walking, and shuttle serving the park. It further observed that “Spanish speakers reported experiencing greater transportation barriers.”

Yet the route is especially unfriendly to cyclists, pedestrians, and public transportation. Anyone attempting to visit the park must drive along nine miles of winding, rural roads to get to the entrance. Moreover, the park is outside Metro’s jurisdiction, and Washington County has indicated it has no intention of spending its transportation budget to improve access. This raises the question: why is Metro building parks inaccessible to the low-income and diverse communities it serves?

This summer, Metro referred its Get Moving 2020 transportation and payroll tax measure to the November ballot. The regional government claims the money will be used to improve transportation across the Portland region, especially for low-income communities and communities of color. Even so, the measure does nothing to improve access to Chehalem Ridge Nature Park.

In the end, Chehalem Ridge will be yet another Metro park accessible only to those privileged to own one of Metro’s long-running boogeymen: the automobile. If Metro sincerely seeks to fulfill its mission of racial equity, we would see parks full of amenities within Metro neighborhoods–near places people live. That is the essence of equity.

Helen Doran is Program Assistant, External Affairs at Cascade Policy Institute, Oregon’s free-market public policy research organization. In 2019, Helen co-authored the first independent audit of Metro’s Parks and Nature Program, titled “Hidden Lands, Unknown Plans: A Quarter Century of Metro’s Natural Areas Program.”

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Regulating Third Party Food Delivery Services is Hurting, Not Helping, Portlanders

By Rachel Dawson

Based on the passage of a 10% cap on commission fees collected by third-party food delivery services from Portland restaurants, it’s unclear if Portland City Councilors understand the basic principles of economics.

This new rule also bars food delivery companies from making up the lost revenue from delivery drivers and will end 90 days after Portland ends its state of emergency order.

However, there’s no such thing as a free lunch; someone will have to make up the difference. And that someone is the customer. UberEats has already added a $3 fee to all customer receipts from Portland businesses.

This fee isn’t applied to restaurants outside Portland city limits, so customers can simply avoid the added cost by ordering meals from businesses in surrounding cities. This likely will make Portland restaurants worse off, as many area residents will purchase food from neighboring cities or forego using food delivery apps entirely.

No one requires restaurants to use third-party apps like UberEats or Postmates; such services didn’t even exist more than 5 years ago. The fact that businesses use them demonstrates the value the apps provide to restaurants who no longer have to maintain their own delivery services. That value was reflected in the delivery fee previously charged to restaurants.

Portland officials should support economic activity, not make it more difficult or more expensive. They can do just that by rescinding this 10% commission fee cap.

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

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Energy Reform Is Needed to Combat Rising Energy Bills in Oregon

By Rachel Dawson

After 42 years, the Public Utility Regulatory Policies Act (PURPA) may be finally getting the update it has needed for years.

President Carter signed PURPA into law in 1978 when the U.S. was between the energy embargo of 1973 and the 1979 oil crisis, when the price of crude oil nearly doubled. Congress created this legislation with the aim of reducing the U.S.’s dependence on oil from international markets and encouraging fuel diversity.

PURPA requires electric utilities to purchase electricity from qualified facilities (QFs) such as small solar, wind, and biomass renewable resources at the utility’s “avoided costs.” A utility’s avoided cost is “the cost a utility would incur if it chose to generate the electricity itself or purchase it from another source.” The utility is locked into paying this cost for the contract’s length, which in Oregon is 20 years.

PURPA’s mandatory purchase obligation essentially forces utilities to purchase energy they do not need at rates that are higher than what is available on the market.

The Federal Energy Regulatory Commission (FERC) has proposed changes to PURPA that will help to decrease the law’s current purchase mandates and long contract terms. Included in the changes is the elimination of fixed rates currently afforded to QFs and the expansion of what is known as the “one-mile rule.”

Eliminating the fixed rates granted to QFs will give states more flexibility to account for time, dates, and market price fluctuations when calculating the avoided cost rate. A recent study from Concentric Energy Advisors shows that PURPA’s locked-in contracts now increase the cost of energy by as much as $216 million a year. The Oregon legislature isn’t forcing residents to purchase 42-inch plasma TVs at their average 2004 price of $4,000 when they can now buy them for under $500, but PURPA’s locked-in contracts with state utilities follow the same logic.

Under the current “one-mile rule,” QFs using the same energy resource and owned by the same entity are considered to be the same site if they are located within one mile of each other. Many renewable energy supplies have taken advantage of this rule by separating their facilities and forcing utilities to purchase their power at avoided costs. This PURPA rulemaking will expand that rule to ten miles.

The U.S. energy industry has come a long way since PURPA was created. American ingenuity has increased the production of renewables by over 115 percent since 1980, and solar costs have dropped in Oregon by 76 percent since 1999. Moreover, recent legislation passed in Oregon on renewable energy, such as our state’s community solar program, make PURPA obsolete.

Since energy rate increases are inherently regressive, Oregon’s low-income families suffer the most from PURPA’s added burdens. This is especially important now when ratepayers are finding it increasingly difficult to pay their energy bills due to COVID.

PURPA forces utilities to buy power at high prices, then locks them in for decades. Consequently, ratepayers are being overcharged. Since the renewable energy industry is now quite mature and market-competitive, we should get rid of those mandates so ratepayers can obtain the cheapest electricity possible. This effort led by FERC Chairman Neil Chatterjee represents a significant step in the right direction to reducing ratepayer bills.

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

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Metro’s Transportation Package: Progressive Politics Mask Regressive Tax

By Eric Fruits, Ph.D.

While much of the region is stuck at home under the governor’s “stay home, stay safe” order, the Metro regional government is charging ahead with a $7 billion “T2020” transportation package focused on an expensive and unneeded light rail line. Unlike Metro’s recently passed taxes for housing services, T2020 will impose hundreds of dollars in new taxes on just about every working person in the region.

To fund its massive spending plan, Metro has settled on a new poll-driven tax: a payroll tax anticipated to cost about $250 million a year. Approximately 925,000 people work in Metro’s jurisdiction, so the payroll tax will be about $270 a year per employee. Where will that payroll tax money come from?

In most cases, the payroll tax will fall on the workers. A review of the research on payroll taxes concludes that workers tend to bear nearly all of the burden of payroll tax, even if the tax is levied on their employer: “virtually all applied incidence studies assume that both the employee share and the employer share are borne by the employee (through a fall in the net wage by the full amount of payroll tax).”

Research published earlier this year concludes “the employment effects of payroll taxes are concentrated among low-skilled workers and workers performing routine tasks.” In other words, payroll taxes are regressive and disproportionately burden low-wage workers. There are several ways workers would bear the full burden of the payroll tax.

Employers will reduce wages. They may not directly cut workers’ wages; instead, workers may find that they don’t get the annual pay raise they expected. Employers may cut workers’ hours. Wage reductions can come in the form of making workers pay more for employer provided benefits such as health insurance. Wage reductions can also come in the form of reduced benefits like less vacation pay. There are many ways to push the costs onto employees.

Employers will reduce the number of workers. Hiring plans can be put on hold, and retiring workers may not be replaced. Evidence indicates some firms replace low-skilled workers with higher-skilled workers. Other firms replace low-skilled workers with technology, as seen with restaurants replacing employees with computer ordering kiosks. With the pandemic, some firms have learned there’s no special benefit to doing business in the metro region. Why not move to Bend, Vancouver, or Boise?

Proponents of the payroll tax argue the money will come out of company profits. This is simply not true. Currently, Metro’s payroll tax would be assessed on all employers, including nonprofits and government agencies which have no profits to tax. Portland-area businesses have already had their profits extracted with Oregon’s Corporate Activities Tax, Portland and Multnomah County’s business income taxes, Portland’s Clean Energy Fund tax, and Metro’s new business income tax that goes into effect next year. There are no more profits to tax.

Unlike Social Security, Medicare, and unemployment payroll taxes, workers paying Metro’s payroll tax receive no direct benefit. Most of the tax will be used to build a light rail line from Portland to Bridgeport Village—a light rail line that will worsen road congestion. The project anticipates tearing up Barbur Boulevard and adding congestion to dozens of intersections and highway ramps. Workers will be handing over a chunk of their paycheck for projects that will make their lives worse, not better.

For years, TriMet has been violating its contractual obligations with the Federal Transit Administration regarding operations of the Yellow, Green, and Orange light rail lines. For example, TriMet promised both the Yellow Line and the Green Line would run 8 trains during peak hours in 2020. In contrast, before the pandemic TriMet was running only 4 trains an hour on these lines. TriMet promised the Orange Line would run 6 trains during peak hours in 2020; instead, before COVID-19 it had been running 23% below the promised levels.

Metro’s transportation package is a monument to misplaced priorities, and its reliance on regressive payroll taxes makes it an abomination. It’s time to tell Metro enough is enough.

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

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Metro’s $700,000 Sentiment

By Helen Cook

On June 25th, Metro approved $700,000 in taxpayer money for what is best entitled a nice sentiment: Metro’s Nature in Neighborhoods program. The program hopes to improve water quality and wildlife habitats through grants to local organizations that promote racial and cultural equality.

But the program has a serious flaw: Success is not easily measured, despite the large amount of taxpayer dollars flowing into the grants.

Metro’s approved recipients for 2020 demonstrate the subjectivity of the program. Objectives include bringing “healing to the community and landscape through Traditional Indigenous healing practices” as well as building “youth of color’s relationship around the water and waterways.”

Perhaps an important question is whether our local government should be exploring these objectives with taxpayer dollars, especially during this time of economic instability. Ironically, Metro councilor Craig Dirkensen came close to this question when he asked whether Metro’s grant program was unique. The simple answer was “no.” Similar programs do exist, just not at taxpayers’ expense.

Metro should get out of the grant business and into the park-building business. The Nature in Neighborhoods program is yet another example of how Metro consumes taxpayer dollars without measurable benchmarks for success.

Helen Cook is a Program Assistant for External Affairs at Cascade Policy Institute, Oregon’s free market public policy research organization.

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You can count on the “Every Mile Counts” plan to make life costlier for Oregonians

By Rachel Dawson

Governor Kate Brown took carbon policy into her own hands earlier this year after the failure of Oregon’s cap-and-trade bill by issuing Executive Order 20-04. This order creates new greenhouse gas (GHG) emissions reduction goals and directs various agencies to take actions and exercise their authority to reduce GHG emissions.

Four agencies, the Department of Transportation (ODOT), Department of Land Conservation and Development (DLC), Department of Environmental Quality (DEQ), and Department of Energy (ODOE), collaborated to develop a draft statewide work plan in response to the governor’s directive, known as the Every Mile Counts initiative.

The strategy is fundamentally flawed. On the one hand, it duplicates efforts already underway. On the other hand, it does so in a way that will impose additional costs on Oregonians without producing any measurable effects on global climate change.

Objective 1: Reduce VMT per capita

The work plan proposes a number of action items aimed at decreasing statewide vehicle miles traveled. In the 2004 Statewide Congestion Overview for Oregon report, ODOT predicted that we could expect an additional 15,500 vehicle miles traveled (VMT) annually for every job created in Oregon and 360 additional VMT for every $1,000 increase in total state personal income.

Traffic is tied to economic activity. Increased traffic is a sign of a growing economy, and VMT plummets during recessions. As the state’s economy came to a standstill during the COVID-19 pandemic, traffic volumes on Oregon roads steeply dropped. Stifling economic activity is the surest way to reduce VMT in state. Efforts to aggressively reduce VMT in Oregon go hand-in-hand with efforts to reduce employment and income growth.

Increasing VMT in Oregon is a sign that more people and businesses are moving to our state. More people are consuming goods and services; and thus, our economy is growing. Oregon is already experiencing record-high levels of unemployment due to COVID-19. The state should not actively be promoting a reduction in VMT.

This is especially important now with COVID-19. The Center for Disease Control (CDC) has concluded that cars are a better option than transit during the crisis and has urged businesses to offer their employees incentives to “use forms of transportation that minimize close contact with others,” such as driving alone or biking. This plan’s objective to reduce single-occupancy trips directly contradicts the CDC’s advice.

Business owners, and not state agencies, have a deeper knowledge of their firms’ transportation requirements. If trip reduction efforts, such as telecommuting and flexible work hours, will benefit their business and employees they should be willing to engage in such efforts without the need for government intervention.

Objective 2: Support use of cleaner vehicles and fuels

State agencies should not support a zero emission vehicle plan. This is redundant as Oregon utilities are already required by the PUC to support transportation electrification plans, which will invest ratepayer funds in statewide electric vehicle (EV) charging infrastructure and increase outreach efforts on EV adoption. Having four more agencies engage in the same type of investments would be an inefficient use of taxpayer funds.

Objective 3: Consider GHG in decision making

Finally, state agencies should not require local GHG reduction planning and related performance measures. One of the largest rulemaking efforts these agencies plan on engaging in an update to the Transportation Planning Rule (TPR) to require that local governments “plan for  transportation systems and land uses to reduce GHG emissions.”

However, the TPR already indirectly works towards reducing GHG emissions by promoting the development of transportation systems designed to reduce reliance on passenger vehicles. While explicitly adding GHG emissions reduction in the TPR may be a worthy endeavor, including it to an already lengthy list of objectives will make the planning process more complex and time-consuming for cities. According to ODOT, completing all elements of a TSP “typically takes 12-15 months, with additional time for public adoption.” This proposed change will simply add another layer of compliance.

It is not clear if the proposed actions derived from Brown’s EO are necessary given Oregon’s steady decrease in per capita emissions over the past few years. Oregon per capita emissions have decreased by 22.8% since 1990, and emissions per unit of GDP have dropped by 50.7%. According to ODOE, Oregon’s energy use per capita is the lowest it has been since 1960; and Oregonians have decreased energy consumption per capita by 37% since it peaked in 1972.

Oregon’s environmental goals need to consider the dramatic progress that has already been made in reducing emissions. For this reason, Governor Brown should suspend her costly Executive Order.

Policymakers also should acknowledge the truth about the vital role automobility plays in a strong statewide economy and rising personal incomes. The above state agencies should provide an explicit cost-benefit analysis demonstrating how the benefits of each action item will outweigh its costs. If they cannot clearly outline such an analysis, the plan should not move forward. During the midst of a financial recession and global pandemic Oregonians need stability and relief, not more costly government regulation with vague benefits.

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

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The Era of Permanent Prosperity Is Over: It’s Time for a Serious Budget Discussion

By Eric Fruits, Ph.D.

The 2020 we’re living in is very different from the 2020 we rang in at the beginning of the year.

In January, there were about a dozen Democrats seeking the nomination for President. Medicare for All, the Green New Deal, free college tuition, and universal basic income were seriously debated as potential policies for a Democratic President.

State and local politicians in Oregon were eagerly awaiting the first payments from the billion-dollars-a-year Corporate Activities Tax (CAT), the money earmarked to finally pull Oregon out of its near-last in the nation ratings of K-12 achievement. Cap-and-trade would end climate change. More bike paths, sidewalks, and light rail—always more light rail—would put an end to traffic congestion. A booming stock market meant we’d never have to reform PERS.

Today, schools are shuttered, businesses are crushed by the CAT, and TriMet ridership has evaporated and may never come back. Climate change is the least of our worries, and PERS will likely sink the state.

We began the year with an illusion of permanent prosperity, a game of musical chairs in which the music never ends. There wasn’t a single problem that couldn’t be solved with more spending. Tax increases were sold as equal to the cost of a latte a day. But, there were a lot of lattes.

Little did we know the music would stop so soon. Never mind buying a latte a day, today half the state can’t get a haircut even if they could afford one. Not only is the state’s education system deeply flawed, we learned our unemployment system is completely broken and our health care system is way more fragile than we thought. Rather than ramping up testing, the state simply tells us to “Stay home. Save lives.” The myth of permanent prosperity has given way to a reality of endemic dysfunction.

The latest revenue forecast for the state should be a wakeup call for the governor and the legislature. With anticipated revenues down $2.7 billion from pre-COVID projections, there is no way to avoid big budget cuts. Tax increases must be ruled out—struggling households and businesses need the cash to pay their own bills. We can’t turn the public sector’s budget problems into a private sector bankruptcy crisis. It’s going to take strong political leadership.

Three program areas make up nearly 90% of the state budget: education, human services, and public safety. Employee compensation—salaries, PERS, and other benefits—are a huge portion of these costs. There is no way to balance the budget without cuts in these areas.

PERS must be reformed. The first step should be to move all new employees to a 401(k)-type defined contribution program. This small move won’t solve the impending pension catastrophe; it’s simply a crucial first step toward more meaningful reforms. The most meaningful would be an amendment to the state’s constitution specifying public sector employment agreements are not contracts.

Public school spending must be cut. Construction projects should be shelved, and the money used for planning these projects should be shifted to the classroom. Introducing an education savings account program could save the state money by encouraging students to pursue schooling outside of the public sector, thereby reducing public school enrollment and expenditures. The state’s university system must be streamlined. This means closing smaller, struggling public institutions that have demonstrated a low return on investment for their students.

The legislature should reconsider Oregon’s participation in Medicaid expansion. While the feds pick up 90% of the costs for the expansion population, the cost to the state for the other 10% is eye-popping. In the last budget cycle, the state faced a $1.7 billion budget shortfall. At the time, Governor Kate Brown claimed, “Three-fifths of this deficit is the cost of expanding health care to all Oregonians.” That was when the economy was going gangbusters. Today, Medicaid expansion is a luxury the state cannot afford.

The cynic says, “Never let a crisis go to waste.” Nevertheless, a crisis is a time to re-evaluate priorities, and the best measure of politicians’ priorities are the budgets they pass. The era of permanent prosperity has ended, and we have entered an age where rational realism must rule.

: Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute and an adjunct professor at Portland State University, where he teaches courses in urban economics and regulation. He can be reached at eric@cascadepolicy.org.

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The hidden truth behind the Renewable Energy Certificate market

By Rachel Dawson

You may have noticed companies and public agencies using the words “renewable energy certificates” or RECs in regard to the alleged source of their electricity, but rarely do they explain what they are. Only that purchasing RECs on your behalf is a good thing.

But what exactly is a REC? And what benefits do we as voters and consumers reap from these entities’ continued investment in them?

As it turns out, they may not do as much “good” as you’re being told.

RECs are a tradable commodity sold by renewable energy facilities (such as wind and solar farms) to the wholesale market, that purport to represent the “environmental amenities” of certain renewable energy projects. By purchasing a REC, an entity has the legal right to claim it is using renewable energy; however, the group has not purchased any energy itself.

For example, the City of Portland has the objective of generating or purchasing “100 percent of all electricity for city operations from renewable resources.” However, the vast majority of the claimed “renewable energy sources” are actually RECs purchased on the market from wind farms. In fact, 14% of the renewable energy they claim to have comes from wind farms in Alaska. Since Portland is in no way connected to the Alaskan grid, the City of Portland is using taxpayers’ dollars to lay claim to wind energy that is actually being consumed by Alaskans.

Further, TriMet claims their electric buses run on 100% wind energy, however, TriMet’s buses are hooked up to the same utility grid as your home. This means that only 9% of the electricity they consume is actually wind, while 14% comes from coal. The only difference is TriMet spends $228.75 per month to claim their electricity is completely green.

Many private companies also purchase RECs, purely for public relations purposes. Buyers include Starbucks and General Mills. These costs are then passed on to consumers even though renewable energy was not actually used.

Fortunately one major company is pulling the curtain back on this practice, and ironically it’s the company Portland politicians love to hate: WalMart.

According to WalMart: (emphasis added)

“We want to do more than just shift around ownership (and marketing rights) of existing renewable energy…we prefer not to simply offset our non-renewable power by purchasing standalone renewable energy credits (RECs)…While REC purchasing may allow us to more quickly say we are supplied by 100% renewable energy…we do not have confidence that offsetting instruments alone are sufficient to drive new renewable projects, as opposed to simply shifting around ownership of existing renewable electrons.” (emphasis added)

WalMart’s analysis is backed up by leading academics. According to Daniel Press, a Professor of Environmental Studies at UC Santa Cruz, “RECs do little to reduce emissions in the real world because they have become too cheap to shift energy markets or incentivize businesses to build new turbines.”

Further, Michael Gillenwater, a Princeton researcher who helped to develop the EPA’s carbon emissions tracking system, admits that most renewable energy projects would have been developed without the help of consumer purchased RECs. It’s hard to verify claims made by utilities regarding the amount of carbon dioxide emissions that were avoided due to RECs and “you don’t have an overseeing regulator ensuring that the claims made are backed up.”

Private companies are free to spend their money as they please. However, Oregon should prohibit the purchase of RECs with tax dollars by government agencies. If the goal is more renewable energy, then like WalMart we should focus on generating actual electricity.

Certainly, it would be embarrassing for Oregon politicians to admit that they are wrong and WalMart is right. But the long path to moral redemption begins with the first steps.

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

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Metro has a history of breaking promises to voters. The housing bond measure is no exception.

By Rachel Dawson

Metro has a history of breaking promises to voters. This track record continues with the Metro Affordable Housing Bond measure that was passed in 2018.

At the time the measure was passed, the regional government said the cost of new projects will be around $253,000 per unit. They also warned the costs could be much higher.

That warning is already proving true. Metro recently released cost data on the first four projects the agency has approved and committed funds for.

The average total cost for the four developments is nearly $365,000 per unit, with the most expensive project coming in at more than $405,000 per unit. This is 44% higher than what Metro projected only two years ago.

Because these are private-public partnerships, the Metro bond is not funding the entirety of the developments. Even so, had Metro placed a cap on bond funds distributed per unit, or a cap on the cost per unit of qualifying projects, we would likely see lower development costs.

Metro must be held accountable for its low-ball projections and its budget-busting cost increases. Every dollar wasted on cost overruns is a dollar that’s not spent on providing the affordable housing voters were promised.

Good government is services delivered. Metro has over promised and under delivered.

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

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COVID-19 Is Killing the Economy; New Business Taxes Are Bayonetting the Wounded

By Eric Fruits, Ph.D.

Many Oregon businesses are looking forward toward May 15. That’s the day the state expects to ease some of Governor Kate Brown’s COVID-19 “Stay Home, Stay Safe” order.

But, many businesses are considering whether they should they re-open at all. Dakine is closing its Hood River office and moving the outdoor gear company’s headquarters to Southern California. Nordstrom announced it is closing its Clackamas Town Center store. World of Speed motorsport museum in Wilsonville is permanently shutting down and sending its exhibits to schools and other museums.

As the state slowly re-opens, some businesses will be facing a seemingly insurmountable debt burden: delayed rent and utility payments will come due, Paycheck Protection Program loans may have to be repaid, lines of credit will have to be restored, and deferred taxes will have to be paid.

Coronavirus is only one of many new challenges facing Oregon businesses. Leading up to the pandemic, Oregon business owners were sweating the state’s new Corporate Activities Tax. Last year, in anticipation of the CAT and other new taxes, Stimson Lumber laid off 40% of its workforce in Forest Grove and moved some of the operations to Idaho and Montana.

While the rules governing this new gross receipts tax won’t be finalized until sometime in June, the first quarterly payments were due on April 30. Because it’s a tax on sales, the tax is due even if the business is losing money.

Portland’s Chown Hardware claims its first quarterly payment was approximately $30,000. Because of the combination of coronavirus and the new tax, the owner laid off 25 of his 100 employees. Facing a $10,000 quarterly tax bill, a pharmacist in the small town of Banks shut down his pharmacy and laid off his six employees.

In the middle of the pandemic, Multnomah County commissioners approved a steep increase in the county’s Business Income Tax, from 1.45% to 2%. The county expects the hike to increase business income tax revenues by one-third, or $900-$1,000 per affected business. These new taxes are on top of Portland’s 1% tax on the sales of large retailers which went into effect last year, with the money earmarked for so-called “clean energy” projects.

As if that’s not enough, the May 2020 ballot has Metro Measure 26-210. This measure imposes two new income taxes: one on businesses with more than $5 million in sales, and another on households with more than $125,000 in income ($200,000 if filing jointly). Business owners who earn pass-through income—many small and medium sized businesses—will be taxed twice under Metro’s measure.

Consider a pass-through business with income of $150,000 on just over $5 million in sales (that’s a 3% profit rate). The owner will be looking at more than $17,000 in new taxes this year:

Corporate Activities Tax $15,000
Multnomah County Business Income Tax 800
Metro business income tax 1,500
Metro personal income tax 75
Total $17,375

 

That’s the increase in taxes relative to last year, and it amounts to more than one month’s work—just to pay the new taxes.

As the economy slowly re-opens, business owners are going to go through the same calculus as Chown and the Banks pharmacist and ask themselves: “What’s the point?” Their businesses have been wiped out, they’ve racked up debt with unpaid rent and other bills, and to make matters worse they’re staring down steep new tax bills.

State and local politicians blandly remind us, “We’re all in this together.” But we’re not. You’re on your own. For business owners, your job is to toe the line on the state’s shutdown orders and cut checks to feed the government bureaucracies that got bloated during the boom times. No matter how much your taxes increase, they’ll keep saying your business doesn’t pay its fair share.

Someday, and that day may come soon, business owners will look at their financials and come to the conclusion that it’s easier to run a bookstore in Boise, open a restaurant in Reno, or a be financial adviser in Vancouver. Portland doesn’t have a monopoly on livability.

COVID is already killing the economy. We cannot let tax increases bayonet the wounded.

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

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COVID-19 and New Business Taxes: Bayonetting the Wounded

By Eric Fruits, Ph.D.

Many Oregon businesses are looking forward toward May 15. That’s the day the state expects to ease some of Governor Kate Brown’s COVID-19 “Stay Home, Stay Safe” order.

But, many businesses are considering whether they should re-open at all. And coronavirus is only one of many new challenges facing Oregon businesses.

Leading up to the pandemic, Oregon business owners were sweating the state’s new Corporate Activities Tax. While the rules governing this new gross receipts tax won’t be finalized until sometime in June, the first quarterly payments were due on April 30. Because it’s a tax on sales, the tax is due even if the business is losing money.

On top of that, in the middle of this pandemic, Multnomah County commissioners approved a steep increase in the county’s Business Income Tax.

As if that’s not enough, the May 2020 ballot has Metro Measure 26-210. This measure imposes two new income taxes: one on businesses with more than $5 million in sales, and another on households with more than $125,000 in income ($200,000 if filing jointly). Business owners who earn pass-through income—many small and medium sized businesses—will be taxed twice under Metro’s measure.

No matter how much your taxes increase, they’ll keep saying your business doesn’t pay its fair share.

COVID is already killing the economy. We cannot let tax increases bayonet the wounded.

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

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Metro’s Housing Measure: Bad Policy, Terrible Timing

By Eric Fruits, Ph.D.

Does Metro’s appetite for more money ever end? Last November, Metro raised property taxes by $475 million for parks and nature. Now, with Measure 26-210, Metro wants another $2.5 billion for housing services. In November, Metro will have a third ballot measure, asking for an additional $3.8 billion to expand light rail. That’s nearly $6.8 billion in new taxes for Metro—in one year alone.

COVID-19 has crushed the economy. Our region is in a recession. Businesses are closing, and many of them will never reopen. Even so, Metro’s charging full speed ahead with Measure 26-210. Many small and medium sized business owners will be taxed twice by Metro’s measure. First on their business income, then on their personal income. It’s bad policy coupled with terrible timing.

In its rush to get Measure 26-210 to the ballot, Metro has left many unanswered questions. Who’s going to collect the taxes? How will collections be enforced? Who gets the money? How many people get off the streets and into housing? When will the camps go away? How do we measure success? No one knows.

Metro claims the measure is designed to provide “homeless services.” To most people, this means helping the people sleeping on the streets, in parks, or in cars. But if Measure 26-210 passes, those people will only receive a small fraction of the money.

Close to 40% of the assessed tax will go toward collection costs, administration, and overhead. Setting up two complex tax schemes is going to cost millions of dollars. Then, there are the costs of collecting the taxes. After that, there’s Metro’s overhead. Metro then passes the money to counties, who have their own overhead. The counties then pass the money to nonprofit service providers who also have their own overhead. Every time the money passes, the pot shrinks.

Based on Metro staff calculations, about 45% of the money raised will be spent on rent assistance for households who are facing “severe rent burden,” rather than those who are actually homeless. The measure itself makes clear that tax revenues will be used for “affordable housing and rental assistance,” “eviction prevention,” “landlord tenant education,” “legal services,” and “fair housing advocacy.”

According to Metro staff, only 15% of the tax money is earmarked for support services for unsheltered individuals and families.

Metro’s original mission was land use and transportation planning. Measure 26-210 expands Metro’s mission to include homeless and housing services. At a February work session, Metro Councilor Craig Dirksen declared, “it’s clear to me that Metro does not have the expertise or experience, let alone the capacity, to actually administer, to provide these services.”

Metro is already overwhelmed trying to manage its park and natural areas, the Oregon Zoo, the Convention Center, the Expo Center, and serving as the landlord for Portland area arts organizations. Adding another massive program to Metro’s expanding portfolio is more likely to lead to failure than success.

The region has had a homeless problem for more than 30 years. In 1986, Portland mayor Bud Clark made national news with his homeless plan: reach out to those who want help, be firm with those who don’t, and create an environment in which residents can feel safe and businesses can flourish. It was never fully implemented.

People have had enough of the homeless crisis. They don’t want camps in their neighborhoods, needles in their parks, or more crime. Rather than an expensive program of rental vouchers and “wraparound” services, the region needs more emergency shelters to transition the unsheltered into temporary housing and off streets.

Measure 26-210 doesn’t have a plan for action. It’s just a framework to create a plan. If it passes, the only thing we know for sure is that families and businesses will face a hefty new tax burden, with no clear idea of where the money will be spent or who will be helped. That’s a risk we can’t afford to take.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute and an adjunct professor at Portland State University, where he teaches courses in urban economics and regulation. He can be reached at eric@cascadepolicy.org.

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Ballot Measures with No Accountability Deserve a No Vote

By Eric Fruits, Ph.D.

We all need to raise questions about our politicians’ priorities and how they spend our money. Even well-meaning policies should be skeptically scrutinized. Especially well-meaning policies. At the heart of every crisis in Oregon, there’s a policy that’s gone sideways. From PERS to CoverOregon to housing affordability and homelessness to massive overruns on Portland Public Schools construction: All are failures because of inadequate scrutiny.

That’s why I’m opposed to both Metro’s housing measure and the renewal of Portland’s 10-cents-a-gallon gas tax. They’re both unfair taxes and are likely to fail to make any measurable improvement in the lives of Oregonians.

Much of the blame for the Portland area’s housing affordability and homelessness can be placed on Metro and other local governments’ decades-long policy to pursue density at any cost. Their push for expensive high-rise housing has displaced housing that was once available for low- and middle-income residents. Their refusal to expand the urban growth boundary has stifled any development of affordable housing on the edges of the region.

Now Metro tells us it will cost $250 million a year to deal with the problems their own policies have caused. Homelessness and affordable housing is a regionwide problem that affects almost everyone. However, Metro crafted their measure so the costs of Measure 26-210 fall on only 10% of households and businesses. That’s not a “we’re all in this together” approach, it’s an “us vs. them” approach—it’s not just unfair, it’s wrong.

Over and over in the endorsement interviews, the measure’s proponents were asked who they’re going to help and how they’ll measure success. Over and over, the proponents deflected from these obvious questions, saying it’s complicated or too hard to put numbers to. Willamette Week, which endorsed the measure, details the lack of accountability:

Here’s what gives us pause: The supporters of Measure 26-210 cannot say with any specificity how they plan to spend this money.

They don’t know how much money would be spent on rent assistance, how much on addiction treatment, how much on mental health care, and how much on employment services.

When pressed, the architects of the measure did not promise a single metric for measuring how many would be served by these tax dollars, or what aid they’d get. They have shielded themselves from failure by never saying what success might look like.

When most people think of the homeless crisis, they think of the people sleeping in doorways, under overpasses, or in their cars. They think of the camps scattered across the city. Even so, neither Metro nor Measure 26-210’s proponents can say how many people will get off the streets or how many camps will clear out. If there are no clear measures of success, then there’s no accountability, and the crisis will never clear up.

Portland’s streets are a mess. By the city’s last estimates, Portland has a road paving backlog of about 3,100 lane miles. That’s enough to pave a two-lane road from Pioneer Square to El Paso, Texas. Over the years, Portland has taken money away from road maintenance to spend on light rail and streetcars. For example, in 2009, Portland committed $30 million to the Milwaukie light rail project. That same year, the city eliminated paving projects on local streets. In 2012, the city suspended major paving projects.

Now Measure 26-209 is looking to raise about $75 million in gas tax revenues over the next four years to fund Portland’s “Fix Our Streets” program.

Except, very few of the streets will actually be repaired. The list of proposed projects shows paving projects for only seven miles of city streets. That’s less than one percent of the current backlog.

In the endorsement interviews, proponents claimed sidewalk repair would be a key areas of gas tax spending. But, again, the list of proposed projects identifies a total of only one mile of sidewalk repairs.

Take a look at the breakdown of spending under Measure 26-209. Many of the projects are designed to increase congestion and make things worse for drivers.

  • $4.5 million for Neighborhood Greenways designed to impose burdens on auto drivers. PBOT defines “Neighborhood Greenways” as “Streets with low traffic volume and speed where bicycles, pedestrians and neighbors are given priority.”
  • $1.5 million for all the “In Motion” plans—Northwest In Motion, North Portland In Motion, Southwest In Motion. All designed to make driving a car more costly. They’re more like “Slow Motion” plans.
  • $2 million for speed bumps.

We have a housing affordability and homeless crisis. We have a traffic congestion crisis. Both tax measures aspire to solve pressing problems. However, both measures are doomed to fail. They both lack the accountability that is necessary for effective government. That’s why Cascade Policy Institute spends so much time and energy staying on top of these issues—to provide skeptical scrutiny and accountability where they’re needed most.

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

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Portland Gas Tax: Big Dollars, Minuscule Results

By Eric Fruits, Ph.D.

This May, Portland voters will be asked to renew the city’s 10-cents-a-gallon gas tax. As with the last one, Measure 26-209 promises slightly more than half of the money raised will be used to repair and repave Portland streets.

As with the last measure, while the dollars look big, the results are minuscule. For example, the street paving projects promise an eye-popping $25 million in spending. But, when you look at the actual projects promised, it adds up to only 7.5 miles of city streets.

But if you look at the breakdown of spending under Measure 26-209, you’ll see that many of the projects are designed to increase congestion and make things worse for drivers paying the gas tax.

  • $4.5 million for Neighborhood Greenways where “bicycles, pedestrians and neighbors are given priority.”
  • $1.5 million for all the Slow Motion plans—Northwest Slow Motion, North Portland Slow Motion, Southwest Slow Motion—all designed to make driving a car more costly.
  • $2 million for speed bumps.

Portlanders voting for Measure 26-209 will be voting to underwrite programs that will make their commutes measurably worse.

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

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Portland’s homeless population needs a “hand-up,” not another Metro money grab

By Rachel Dawson

The Oregon nonprofit Cascadia Clusters understands the value of providing Oregon’s growing homeless population with a “hand-up” by helping individuals gain the skills needed to construct affordable transitional housing. Cascadia Clusters is a nonprofit charity that receives no government funding. Instead, it relies on donations.

The organization provides meaningful skills training for homeless individuals along with a daily stipend. These skills include framing, roofing, insulation, and finish carpentry. The “tiny homes” they build make up the units at Hazelnut Grove in North Portland and Agape Village in Southeast. Each tiny home is about 200 square feet and costs $18,000 to build. Each has a basic kitchen, a sleeping loft, and a composting toilet. The people who take part in Cascadia Clusters’ construction training gain both a safe home and the skills to lift themselves out of poverty.

The work being done by Cascadia Clusters differs dramatically from Metro’s “Supportive Housing Services” Measure 26-210 on the May ballot. Unlike Metro’s poorly planned and unclear measure, Cascadia Clusters has a straightforward plan for what the organization wants to accomplish and how, when, and where all donated money will be used. Its “hand-up” philosophy can be imitated by other groups wanting to help people leave the cycle of homelessness for good. Voters who want to assist the homeless should consider donating to one of the many Portland nonprofits with a track record of helping those in need, and vote no on Metro’s bureaucratic money grab.

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

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

By Eric Fruits, Ph.D.

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

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

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

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

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

Here’s where investment returns come in.

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

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

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

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

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

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

Where will that additional money come from?

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

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

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

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

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

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

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Oregon Can Support Workers by Reducing Regulations

By Rachel Dawson

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

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

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

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

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

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

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

By Eric Fruits, Ph.D.

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

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

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

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

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

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

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

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

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

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

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

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

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

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Metro’s Housing Tax Requires Serious Oversight

By Eric Fruits, Ph.D.

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

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

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

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

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

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

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

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

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

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

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

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Cap Taxes or You’ll Trade Business

By Miranda Bonifield

You may not be able to tax carbon out of existence, but you can tax agriculture out of business.

That’s the refrain of Timber Unity, the coalition which sees the resurrection of last year’s cap-and-trade bill as a threat to businesses which have called Oregon “home” for decades. One woman at the Timber Unity protest in Salem February 6 said she would see an additional $45,000 in taxes if SB 1530 passes. That’s a non-starter for small businesses whose profit margins are often in the single digits.

In other words, hardworking people will be put out of business if this bill passes: folks who brought their trucks from around the state before dawn to remind Salem what the voice of Oregon sounds like. The atmosphere among the thousands gathered wasn’t tense or angry. The thousands gathered were just ordinary people who care about the environment and want to make an honest living.

Timber Unity has proposed alternatives that could help continue the downward trend of carbon emissions, which are already at their lowest level per capita since 1960. But a bipartisan compromise or referring the issue to voters don’t seem to be options. (Perhaps that’s because we already know passing a carbon tax would be a hard sell at the ballot box.)

As Senator Betsy Johnson (D, Scappoose) said, “Real Oregonians are affected by what we do in this building. …This was a bad bill last session. It’s a bad bill this session.”

Miranda Bonifield is Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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They Always Want More: Voters Face at Least a Half Dozen New Taxes in 2020

By Eric Fruits, Ph.D.

With this year’s “short” session of the legislature, the $700 million a year cap-and-trade bill is on everyone’s mind.

As they say on the infomercials: “Wait, there’s more.” Way more. Way more taxes. This year, Portland area voters are facing at least six new tax measures.

First, we have Metro’s transportation package that will amount to more than $400 million a year in new taxes.

This week, Metro is also looking to move forward with another set of taxes for homeless services. That’s expected to cost about $300 million a year.

Then, we’ve got Portland Public Schools’ billion dollar plus school construction bond, where $200 million will be used to pay for cost overruns from the last bond measure.

Wait, there’s more.

In November, Portland voters will be asked to renew the city’s 10-cents per gallon gas tax.

In the Portland area alone, voters will see at least six new taxes totaling more than a billion dollars a year.

Also in November, ballots will go out for a $2 per pack increase in Oregon’s cigarette tax plus a massive new tax on vaping products.

Wait, there’s one more.

In response to House Speaker Tina Kotek’s call for a housing emergency in Oregon, Governor Kate Brown is pressing for a new tax on home sales. That’s right, the state with a housing affordability crisis is looking at a tax to make homes more expensive.

No matter how much they spend, they always want more. It’s time for Oregon voters to pick up their ballot and tell their politicians, “Enough is enough.”

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

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Why are rural, low-income residents subsidizing Teslas for Oregon’s urban elite?

By Rachel Dawson

Oregon state officials recently celebrated helping the state reach 25,000 registered electric vehicles (EVs) through local incentives and the Clean Vehicle Rebate Program. This celebration, however, is a punch in the gut to the state’s low-income and rural residents whose taxes fund the rebates and incentives used to purchase the EVs by predominantly wealthy and urban Oregon residents.

Programs include two rebate programs through the Oregon Department of Environmental Quality, a federal tax credit, and local utility rebates (though local utility rebates generally tend to target businesses and the 2019 Nissan LEAF). For example, a consumer could use between $7,500 and $10,000 taxpayer dollars to purchase a new 2020 Tesla Model 3, which currently sells for $39,999. In fact, 24% of the EVs registered in Oregon are Teslas.

These incentive programs may shave a couple thousand dollars off the consumer cost of EVs and plug-in hybrids, but their prices will likely still be too high for those with lower incomes. Purchasing an EV also isn’t a viable option for many residents living in rural counties due to a lack of EV infrastructure.

The three counties with the largest number of EV purchases, Washington, Multnomah, and Clackamas, are all coincidentally located in the Portland metro area. They also happen to be the three most wealthy counties in the state, so it’s no wonder their residents purchase 75% of the state’s registered EVs.

David Larson, Jaguar Land Rover’s general manager of product development, told ABC news that EVs “still cost a lot more than ICE [internal combustion engine] cars and charging takes a long time … For a rancher in Montana, EVs are not the solution. These cars are for people who live in urban areas and don’t travel more than 100 miles or more a week.” The same logic could be applied to people living in Eastern and Southern Oregon.

EVs are being promoted due to their supposed environmental benefits, but in reality, the emissions are simply being shifted from urban cities to rural areas. The electricity powering the vehicles comes from a mix of coal, hydro, wind, solar, and gas power plants. You won’t see any of these plants in Portland as most of them are located in other areas of the state, such as Eastern Oregon, where utilities can purchase and construct facilities on large plots of land.

Oregon officials are very vocal when it comes to “environmental benefits,” but seem to have tight lips when it comes to the range of issues EVs experience.

The vehicles use lithium ion batteries which are sensitive to temperature changes. Larson says that cold weather can cut range by up to one third. These issues make EVs a suitable option for warm, urban areas—a big reason why the largest markets for EVs in the US are located in California, Texas, and Florida. This may not be an issue in warmer climates, but EVs will experience a variety of problems during Oregon’s cold winters. The battery can also be significantly drained depending on how fast one drives, heating or cooling the vehicle, and radio usage.

Portland also has one of the milder climates in the state, so it is no surprise that the state has seen a surge of EV purchases in the urban metro area.

But even in an urban environment, relying on an EV can prove costly and inefficient. Recent electricity blackouts in California have left thousands without power, leaving EV owners stranded unless they own a gasoline powered generator to charge their vehicle or have access to other means of transportation.

Officials’ environmental concerns should be eased by the fact that vehicle emissions in Oregon are decreasing despite a growing population and are projected by ODOT to decrease to 20% below 1990 levels by 2050. This is due in part to older vehicles being retired and replaced by more efficient cars.

Multiple legislative concepts related to EV infrastructure will be discussed in the legislative short session this year. LC 222 would amend building code requirements to create an EV infrastructure requirement for the construction of certain buildings, such as privately-owned commercial buildings and residential and mixed-use buildings with five or more “dwelling units.” LC 224 would authorize the Public Utility Commission to allow utilities to recover the costs of EV infrastructure from all ratepayers.

The passage of these potential bills would further disperse the cost of EVs to those who do not own one through increased power bills and housing prices. Oregon taxpayers from across various counties and income levels should not be subsidizing EV purchases that tend to be used by wealthier residents living in urban environments. Given that EVs are already decreasing in price as new vehicles enter the market and technology improves, state officials should not move forward with the above legislative concepts and should eliminate the unjust EV rebates.

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

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New Year, New Tax: What You Need to Know About Oregon’s Gross Receipts Tax

By Katie Eyre, CPA

The 2019 Oregon Legislature established a new tax affecting all firms that do business in Oregon. While it is called by its misnomer the “Corporate Activity Tax,” the CAT actually applies to most types of organizational entities such as partnerships, individuals, limited liability companies, and trusts that have commercial activity generated in Oregon in the regular course of their trade or business. It is a tax paid annually for the privilege of doing business in Oregon. Initial expectations are that it will raise about $1 billion in new revenue annually. These funds are to be set aside for exclusive use for education and school purposes.

By now, every business in Oregon should have received a generic letter from the Oregon Department of Revenue alerting them to this new tax. This letter is a helpful primer on the CAT, but is not incredibly useful in figuring out the impact on each business’s specific situation. As is usual with all tax law, the devil is in the details.

How did the Corporate Activity Tax come about? In May 2019, the Oregon Legislature passed HB 3427. In this bill, it established the CAT as the primary mechanism to fund the new Fund for Student Success. Then in June 2019, the Legislature passed HB 2164 which provided technical corrections to HB 3427. As a follow up, the Department of Revenue held informational and listening sessions around the state through the last half of 2019. In December 2019, the Department of Revenue issued 12 temporary rules related to this new tax. The agency intends to release additional temporary guidance through March 2020. Any time there is a new tax put in place, there is much ambiguity, and so as a tax practitioner, we appreciate any guidance that is issued, especially since the effective date is January 1, 2020 and the first estimated tax payment is due April 30, 2020 (more on that later).

Who is subject to the CAT? That tax is imposed upon enterprises with a trade or business and “substantial nexus” in Oregon, who also meet certain specific thresholds. We’ll drill down on some of the definitions, but here is a quick threshold listing:

  • Any business with Oregon “commercial activity” in excess of $750,000 will need to register,
  • Any business with Oregon “commercial activity” in excess of $1,000,000 will need to file, and
  • Any business with Oregon taxable “commercial activity” in excess of $1,000,000 will need to pay the CAT.

How much is the CAT? It is 0.57% of a firm’s Oregon taxable commercial activity in excess of $1,000,000 plus $250. If a business does not have Oregon taxable commercial activity in excess of $1,000,000, then it will not owe any tax, including the $250 minimum tax.

What is a “substantial nexus”? HB 3427 states that a business has a substantial nexus if it:

  • Owns or uses a part or all of its capital in this state,
  • Holds a certificate of existence or authorization issued by the Secretary of State’s office,
  • Has a “brightline presence” in Oregon, defined as:
    • Owns property in Oregon with an aggregate value of at least $50,000, or
    • Has Oregon payroll of at least $50,000, or
    • Has commercial activity in the state of at least $750,000, or
    • At least 25% of the total property, payroll, or commercial activity is in Oregon, or
    • Is a resident or domiciled in Oregon for commercial, corporate, or other business purposes.

The Department of Revenue provides an example of a hypothetical out-of-state firm that would be subject to CAT regulations:

Atlas Company (Atlas Co.), headquartered in Maryland, operates a website supporting internet sales, primarily to European country customers. Atlas Co. made approximately 10,000 sales at $99.00 per sale, to residents of Oregon during the year, realizing $990,000 of commercial activity. Atlas Co. contracts with an Oregon mailing service to deliver the merchandise in Oregon. While the amount of commercial activity realized by Atlas Co. is below the threshold to file a corporate activity tax return and pay tax, Atlas Co. does have substantial nexus in Oregon, and must register with the department when commercial activity exceeds $750,000.

What is commercial activity? HB 3427 introduced many new terms that require definitions. Fortunately, the law provided some definitions that will add partial clarity. The definition of commercial activity is the total amount realized by a subject taxpayer, arising from transactions and activity in the regular course of the taxpayer’s trade or business, without deduction for expenses incurred by the trade or business. For the most part, many businesses will think of this as their gross sales. For the most part, that is accurate. However, HB 3427 and HB 2164, list 47 exceptions to the calculation of commercial activity. They fall in to two categories:

  • “Excluded persons” like non-profits and some health care providers, for example. There are many others.
  • “Gross receipt exemptions” like non-trade interest income, excise taxes collected from customers, or wages received as an employee, for example. There are many others.

The CAT also introduces a “use tax” concept which will be unfamiliar to most Oregon businesses. If a business purchased equipment/property out of state, then brings it in to Oregon within one year of purchase, the value of the property is included in “commercial activity” unless the buyer can show that it wasn’t purchased out of state to avoid the CAT. This now requires the taxpayer and the state of Oregon to consider an Oregon business’s motivation in purchasing equipment/property from out of state suppliers and puts the CAT burden of the “gross receipts” tax on the buyer rather than the seller for this transaction.

What is Oregon taxable commercial activity income? We have discussed what “commercial activity” is, but not what the Oregon taxable commercial activity is. The CAT is only assessed against the Oregon taxable commercial activity. It is broken down as follows:

Commercial activity apportioned to Oregon

minus

35% of the greater of

  • Oregon cost inputs (as defined by the Internal Revenue Code Sec 471) or
  • Oregon labor costs
  • Note: This subtraction is limited to 95% of the Oregon commercial activity

What this means is that of the included commercial activity, only Oregon commercial activity is included. Non-Oregon activity is excluded. From there, a taxpayer can subtract out 35% of certain costs that are apportioned or sourced to Oregon.

What if a taxpayer has more than one business? The Oregon CAT requires a taxpayer to look at their businesses as a “unitary business” rather than separate businesses. This concept was designed for the situation where on a separate business basis, some of the businesses would not be subject to the CAT. But if aggregated into a unitary business, then they would meet the thresholds and therefore be subject to the CAT. A unitary business must file their CAT returns on a unitary basis, even though they are separate taxpayers for other purposes. This is one of the most complicated areas of the new law. The draft regulations provide the general rule that “if the activities of one business either contribute to the activities of another business, or are dependent upon the activities of another business, those businesses are part of a unitary business.” HB 3427 also discusses common ownership, centralized management, common executive force, among other things.

What are some of the administration aspects of the CAT? The Department of Revenue is still working out some kinks, but here in a nutshell is what we know to date:

  • The effect start date is January 1, 2020.
  • All CAT filings must be done on a calendar year basis, regardless of any fiscal year end for the taxpayer.
  • A taxpayer must register if their commercial activity is at least $750,000. (If not previously required to register, the taxpayer must register within 30 days of reaching the $750,000 threshold or face per month penalties).
  • Estimated taxes are required to be paid quarterly if the CAT will be greater than $5,000 for the year.
    • Due April 30, July 31, October 31, and January 31 for the previous quarter.
    • Note the first quarterly estimated payment will be due April 30, 2020.
    • All estimated tax payments must be paid electronically.
  • The annual tax return is due April 15 of the following year.
    • Note the first annual return filing will not be due until April 15, 2021 for the 2020 tax year.
    • A 6-month filing extension may be granted only for “good cause.” Extensions do not appear to be automatically granted.
  • Unitary groups must file as a single taxpayer. Each member will be jointly and severally liable for the filing and payment of the estimated taxes and the annual filing and taxes.

What can a business do now? This is just a general discussion of the new CAT and should not be relied upon for your unique situation. Because this is a new and complex tax, both the Oregon Department of Revenue and tax advisors are trying to understand as much as possible. The information is still evolving. Any Oregon business should consult with their tax advisor immediately so that they can understand how this new tax will impact their specific business. If subject to the tax, the business will need to budget for it and be prepared to register, as well as be prepared to file and pay the quarterly estimated tax. If you have a financial review or audit, talk with your certified public accountant to find out if it should be included in your tax provision analysis. And because of the definition of “cost inputs” for subtractions, you may want to talk with your tax advisor to see if you can enhance what is currently put into your cost of goods sold.

What kind of money are we talking about? Per the revenue impact of HB 3427, each of the next biennia will generate $1.6 billion to $3.1 billion for the Fund for Student Success. However, $423 million to $762 million will be sent to the general fund, an amount totaling approximately 25% of the new tax. In addition to collected taxes from businesses, the government will also add employees. Per the fiscal impact statement of HB 3427, government will also grow. In the first biennium, 87.62 FTEs will be needed to administer the various accounts within the Fund for Student Success and for the Department of Revenue to administer the CAT.

In addition to discussing with your tax advisor, you can find more information online at:

Oregon.gov/DOR/programs/businesses/pages/corporate-activity-tax.aspx

Katie Eyre, a Certified Public Accountant, is a Tax Partner at Fordham & Co LLP in Hillsboro. She is a former Oregon state legislator and served on the Hillsboro Planning Commission for more than ten years. She is a board member of Cascade Policy Institute.

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Why Cap-and-Trade Can’t Be “Tweaked”

By Eric Fruits, Ph.D.

Oregon is less than three months away from the next meeting of the Legislature and cap-and-trade is coming back.

While California is setting the cap-and-trade example with sky-high power rates and rolling blackouts, Oregon’s State Senator Michael Dembrow is reworking the bill that failed to get enough Democratic votes earlier this year.

Last summer’s attempt at imposing cap-and-trade gave rise to the Timber Unity movement, who descended on the capitol with hundreds of log trucks and whose Facebook group has more than 53,000 members.

The latest tweaks are aimed at bringing skeptical Democrats on board and stifling Republican dissent.

But, here’s the thing…. Cap-and-trade can’t be tweaked. The proposal is fundamentally flawed. It’s all pain and no gain. In fact, the only way cap-and-trade “works” is if the pain is bigger than the gain.

The state itself estimates gas prices will increase by more than 20 cents a gallon in the first year alone, which would give Oregon the third highest prices in the country—below California and Hawaii. No amount of tweaking will make that go away.

Put simply, cap-and-trade won’t work in Oregon. And no amount of reworking will make it work. Our legislators can avoid log trucks rolling through Salem and rolling blackouts throughout the state by shelving their plans for cap-and-trade.

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

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Oregon Distilleries Deserve Better

By Helen Cook

Oregon has a booming craft distilling industry. That’s why it’s so surprising that one popular distiller is calling it quits. Mike Selberg, owner of Cannon Beach Distillery, announced in June that he was forced to close up shop. This is largely because of Oregon’s tax structure on distilleries.

I decided to reach out to other Oregon distilleries for their situations. The resounding message was that something needs to change. Local distillers are taxed on the dollar value of their tasting room sales rather than on alcohol content. This ultimately punishes small-volume, high-price distillers and discourages small distillers from thriving as local businesses.

Oregon is a “Liquor Control State.” This means that the Oregon Liquor Control Commission (OLCC) is the sole distributor of spirits. Distillers can sell spirits in Oregon liquor stores through the OLCC’s distribution network as well as out of their own tasting rooms, but the distillers’ products are owned by the state of Oregon.

Similarly to licensed liquor stores, tasting room owners are commissioned by the state to sell their spirits. This means that a certain percentage of each liquor sale from a tasting room goes to the OLCC every week. This percentage can be detrimental to distilleries.

While several distilleries, such as Stone Barn Brandyworks, value the distribution network that the OLCC offers, the majority acknowledge that this overall structure does not benefit tasting rooms. Sebastian Deegan at Stone Barn Brandyworks stated that 38-40% of his distillery’s gross income goes to the state because of the “tax” on his tasting room. “I don’t think there is a business in the country that can operate with that overhead.” On average, Oregon distillers currently pay 33% of gross retail sales.

Tom Burkleaux runs New Deal Distillery and serves as Vice-President for Oregon’s Distillery Guild. “The state of Oregon takes more than we take,” he said. “Everyone is frustrated. The cards are definitely stacked against a small distillery.”

Larger distilleries have an advantage because they generally produce cheaper spirits in higher volume. Since money is collected based on the retail price, distilleries that produce high volumes of lower priced spirits are not adversely affected by the system. However, smaller distilleries hoping to produce high-end goods are discouraged from this craft since manufacturing and the retail price cost significantly more.

Some distillers might take a similar approach to Mike Selberg’s at Cannon Beach Distillery: move to a distiller-friendly state. But Tom doesn’t think many will follow in Mike’s footsteps. “Most people would close up shop rather than move. You want to start your business in your home.”

Michelle Ly from Vinn Distillers noted this, stating: “I would say that we do really pride ourselves on wanting to be here. Oregon is known for supporting local business and being a tight-knit community, so I think if we were given that flexibility, we would all be doing much better and contributing to the economy of Oregon.” Vinn Distillery will have to close its tasting room this summer largely because of this tax burden.

Distillers hoped that legislation could be passed to remove distillery tasting rooms from this structure. But such legislation has already been suggested without much success or interest from legislators. Tad Seestedt from Ransom Spirits noted that “there are few legislators that really would like to see parity and want to help the Oregon’s distilling community.” Other distillers shared the same sentiment.

Ultimately, tasting room sales would barely make a dent if removed from OLCC’s $1.22 billion yearly revenue. Distilleries remitted $2,775,462 to the state as net profit from their sales in 2018. While this is pocket change for the OLCC, this remittance is significant for small distilleries.

Oregonians shouldn’t have to choose between their home, their business, and the quality of their product, especially when their craft is a point of pride for Oregon residents. Our local distilleries deserve better from our legislature and the state of Oregon.

Helen Cook is a Research Associate at the Portland-based Cascade Policy Institute, Oregon’s free market public policy research organization. She can be reached at info@cascadepolicy.org.

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Dumbing Down Voters

By John A. Charles, Jr.

In 2016 Val Hoyle, then a legislator from Eugene, introduced a bill to guarantee postage-paid envelopes for Oregon’s vote-by-mail system. She argued that having to find and apply a stamp was a barrier to voter participation, especially to young people.

That idea was widely ridiculed, and the bill died.

Unfortunately, the political culture has changed. In March the Oregon legislature quietly passed SB 861, which requires the state to pay for ballot envelopes that can be returned by business reply mail. It will go into effect on or after January 1, 2020.

Implementation will cost an estimated $1.6 million to the state General Fund for the first 18 months. There will be an additional cost to Counties of $84,000 to destroy obsolete ballot return envelopes.

Is Oregon really so wealthy that we should spend $1.6 million just to ensure that voters don’t have to find a first class stamp? I don’t think so. Instead of treating postage as a voting barrier, perhaps we should treat it as an entrance exam.

The test would be simple: If you can’t figure out how to use stamps, or you are incapable of hand-delivering your ballot to the county elections office, you are not qualified to vote.

We might get better results.

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

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Portland’s Temporary Gas Tax Should Stay Just That

By Rachel Dawson

Portland’s temporary gas tax should stay just that: temporary.

Portland voters approved the 10 cent per gallon gas tax three years ago to fund a road repair and traffic safety program. Since its implementation, the program has failed to live up to all expectations.

Gasoline-using vehicles pay for 100% of the tax but only receive a little over half the benefits. Only 56% of tax revenues go to street maintenance projects, while 44% is spent on pedestrian and bicycle safety.

The program is also poorly managed. A 2019 audit on the tax found that program oversight has been ineffective, many projects have not been completed on time, revenue goals have not been met, and completed projects have cost $900,000 more than what was told to voters.

City staff admitted that project schedules were not realistic and took longer to begin “because the scopes of individual projects were not yet well-defined.” This lackadaisical approach to project planning would never fly in the private sector, so why is the city getting a pass?

Portland commissioner Chloe Eudaly will send the expiring gas tax back to voters in May 2020. The region needs better roads, not another poorly managed tax. For these reasons, Portlanders should vote “no” on extending the gas tax in 2020.

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

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Residents Say Portland is Not the City that Works

By Eric Fruits, Ph.D.

What if the self-proclaimed “City that Works” isn’t working? That’s what Portland residents are saying.

Last week the City of Portland published its most recent survey of city residents. Nearly 90 percent of those surveyed are dissatisfied with the city’s response to homelessness and almost two-thirds are dissatisfied with traffic congestion on their daily commutes.

This outrage comes after voters approved hundreds of millions of dollars for affordable housing projects and steep hikes in gas taxes to improve roads. Clearly, more money is not the answer: The more the city spends, the worse things get.

Council’s renter relocation payments, inclusionary zoning, and renter screening rules are shrinking the supply of affordable housing. While the city’s population is growing, it’s reducing its road infrastructure through road diets and replacing automobile lanes with dedicated bus and bike lanes.

Instead of punishing property owners for renting apartments, let’s loosen regulations on building and renting truly affordable housing. Instead of bringing traffic to a standstill, let’s add traffic lanes to foster a safe and speedy flow of auto and truck traffic. These aren’t radical ideas. In fact, these were Portland’s policies when it really was “The City that Worked.”

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

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Stop Raising Rents in Portland

By Micah Perry

On Wednesday, August 7, 2019, the Portland City Council passed yet another ordinance that will harm the housing market in the city. Landlords will now be required to register all their rental units with the city and pay a $60 yearly registration fee for each unit.

Any economist, or even a student who has taken Econ 101, can tell you that countries with more regulations are less prosperous than nations that enjoy greater economic freedom. Entrepreneurship, from the opening of a small bakery to the development of an apartment complex, is seriously disincentivized by regulations.

Rules and fees placed on the housing industry cause any would-be entrepreneurs and developers—individuals who could provide a solution to Portland’s housing problem—to think twice and reconsider investment in housing rentals. This new ordinance joins a slew of deterrent regulations on rental housing within Portland.

Over the past few years, Portland’s City Council has approved policies that restrict or complicate a landlord’s ability to reject a rental applicant for reasons such as criminal background or ability to pay rent, and that require landlords to help pay for a renter’s relocation costs. Those who have already built rental housing may find it more lucrative and safer simply to sell the property they own rather than continue to rent it. Those considering building new rentals may now balk at the opportunity altogether.

Proponents of the new ordinance will argue that the fee is critical because it funds the city’s Rental Services Office, but the necessity of the office itself is questionable. Most of the office’s responsibilities seem to involve explaining the complex landlord-tenant laws passed by the city in recent years, a self-induced problem that could be solved by simply repealing them. In addition, while the office is portrayed as a resource for tenants to utilize when being treated unfairly, the office’s website notes that it often refers those in need of help to previously existing nonprofits and advocacy groups, who would help without the city’s intervention.

There are also at least two clear structural problems with the ordinance. First, mobile homes, which provided an affordable housing solution long before the city stepped in, will be subject to the tax and almost certainly see rents rise. Second, the fee’s structure makes it an especially steep price to pay for landlords managing large complexes throughout the city, even though city bureaucrats claim that it is a moderate price.

To use an example from the testimony of one landlord, Seattle, which has a similar program, charges landlords a base rate of $175, plus two dollars for every additional unit they own. So, the owner of a 200-unit apartment in Seattle would pay $575 a year, but an identical building in Portland would be charged $12,000 a year. Landlords most likely will pass along the costs to tenants in the form of higher rent.

This new ordinance will do more harm than good. It will raise rents on most people and, more importantly, further constrict the supply of rental housing in the city.

Micah Perry is a Research Associate at the Portland-based Cascade Policy Institute, Oregon’s free market public policy research organization. He can be reached at info@cascadepolicy.org. A version of this article appeared in The Portland Tribune on August 20, 2019.

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Metro: Where Temporary Means Forever

By Rachel Dawson

Milton Friedman once famously said that “nothing is more permanent than a temporary government program.” If Friedman were currently living in Portland, Oregon, it is likely he would instead be saying “nothing is more permanent than a temporary Metro tax.” The Metro Council unanimously voted in July to approve funding for planning and development grants supported by the regional government’s construction excise tax (CET) in the 2019-20 fiscal year. This CET is riddled with problems, including the removal of its sunset date and mission creep.

The CET was originally adopted by the region in 2006 as a temporary tax to support development planning for areas newly brought into the urban growth boundary (UGB). The tax is paid by anyone applying for a building permit for construction within the UGB, with some exceptions.

Its original sunset date was slated for 2009 or until Metro collected a certain amount of money. When asked if this was a permanent tax in 2006, Metro responded by saying, “No. This tax takes effect July 1, 2006, and will remain in effect until $6.3 million is collected.” This fund threshold was met and the original sunset date was passed, however, the CET was not allowed to die.

The CET was extended another five years until 2014, and again extended in 2014 until 2020. Instead of extending the CET once more, Metro voted to eliminate the tax’s sunset date in 2019, using its powers to create a continuous revenue stream. The resolution approved by the Metro Council states, “Collection of the excise tax will continue into the future until such a time as the Metro Council determines it is no longer necessary or effective.” Based on this language, the tax will never end, because Metro will never find such a flow of cash unnecessary.

It now appears that Metro has taken the liberty of shifting the scope and purpose of the tax, leading to mission creep. By the end of the CET’s original sunset date, the vast majority of the planning work the tax was established to carry out was completed. Metro no longer had enough projects to justify the tax’s existence.

Therefore, Metro expanded the scope of projects eligible for funding in 2009 so that tax revenue could be used for planning in existing urban areas in addition to the newly added territory. The purpose of the CET has again changed in recent years to prioritize “equitable development” projects within the UGB.

For example, Albina Vision Trust was awarded $375,000 for its community investment prospectus as part of Metro’s new equitable development category. Albina Vision Trust does not own any of the land referenced in its proposal. Rather, the project focuses on “community-based programming” and the “investment potential” of the lower Albina area. The desired project outcome is to pre-develop scenarios of what the community could look like and how the organization could maintain “social values” in Albina. The CET was originally created to plan development of land incorporated into the UGB, not to think about how a nonprofit can maintain social values in a neighborhood it does not own.

Metro’s approval of the Albina Vision Trust prospectus highlights another problematic change that has been made to the CET: Metro now has the authority to approve grants to private organizations instead of only to public entities. Metro should not be picking winners and losers by investing tax funds in ideas which may not be successful at the expense of other potential players.

Concerns regarding the CET do not stop there. Metro’s auditor concluded in a 2016 report that Metro has poorly managed use of CET funds. Administrative costs have increased since 2009, the program is becoming less aligned with regional planning priorities, and its regional impact is unknown. Furthermore, no performance measures were in place when the program was reviewed, and project monitoring was weak. For example, Metro amended funding of a project that was already largely completed and approved two different contracts that likely funded the same project.

Most area residents are unaware of Metro’s CET and its troubling history. This lack of regional oversight has allowed Metro to manipulate the CET to accommodate its wishes without regional approval or knowledge. The CET should have expired in 2009 when it raised the original amount of funding and completed the work it was created to support. If Metro wants to pay for other projects with CET revenue, it should go through the process of winning voter approval to create a new revenue stream.

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

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Portland’s City Council Wants Rent to Go Up

By Micah Perry

The Portland City Council recently passed a new ordinance that will require landlords to register all of their rental units with the city and pay a $60 yearly registration fee per unit.

While regulated affordable housing will be exempt, other types of rentals, like mobile homes, will still be subject to the fee. It is almost certain that landlords will pass on the increased costs to their tenants.

During one council meeting, current landlords noted that the registration fees will siphon money away that could be used for maintenance. They also said that increased housing regulations will discourage potential developers and landlords from wanting to build new rental units in the city. Many landlords are incentivized to sell their units, rather than rent them, because of the increased regulation.

The money raised by the fee will fund the Rental Services Office, a new, needless expansion of Portland’s bureaucracy that will only serve to grow the number of rules placed on housing in the city.

This ordinance adds to the long list of policies that disincentivize the operation and construction of rental units in Portland. If the Portland City Council keeps pursuing policies like these, rents will continue to go up and rental housing will continue to disappear.

Micah Perry is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Oregon Distilleries Deserve Better

By Helen Cook

How much would you be willing to pay in taxes for your local business?

Thirty-three percent of total sales from Oregon distilleries currently goes to the Oregon Liquor Control Commission. This means, on average, that the state makes a greater profit from tasting room sales than the distillers making the product. In comparison, beer and wine crafters remit 0% of tasting room sales to the state.

Oregon is a “Liquor Control State.” This means that all liquor is owned by the state, entitling it to a certain percentage of each liquor sale. The revenue that distillers do receive from tasting room sales is actually a commission for selling the state’s liquor.

Distilleries are struggling to stay afloat because of this control system. In fact, Cannon Beach Distillery recently decided to close rather than pay remittance to the state. Others are worried they might have to do likewise.

Granting distillery tasting rooms the same privileges as the beer and wine industries could be what keeps craft distilleries in Oregon from disappearing. Oregon distilleries deserve better.

Helen Cook is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Portland’s Clean Energy Tax: A High Cost with Low Benefit

By Rachel Dawson

In January 2019 the City of Portland implemented a voter-approved a 1% tax on certain “retail sales” within Portland to fund clean energy projects and jobs training. This tax will be applied to retailers with $1 billion or more in total sales, $500,000 of which must be from within Portland city limits. Retailers can pass the cost of the tax along to the purchaser of the good or service. Thus, it is likely consumers—not retailers—will ultimately be paying for it. Once collected, these funds will be administered by the Portland Clean Energy Fund.

Despite claims that the Portland Clean Energy Fund is unique, the energy efficiency projects funded by this tax are already being completed by the Energy Trust of Oregon (ETO) and Oregon Housing and Community Services through a surcharge on ratepayers’ utility bills. In some cases, the Portland Clean Energy Fund will be triple-taxing Portland utility ratepayers.

Approximately 40-60% of funds will be allocated to clean energy projects including renewable energy, conservation, and green infrastructure for residential, commercial, and public school projects. At least one half of clean energy project funds must benefit low-income residents and minorities. The Portland Clean Energy Fund will also be used to help Portland meet its goal of using 100% community-wide electricity from renewable sources by 2035.

Many voters believed this tax would only affect large retailers. However, senior deputy city attorney Kenneth McGair admits the tax will affect public works projects and construction equipment wholesalers, as well as disability insurance plans and insurance policies. The only exempt transactions will be groceries, medicine, and health care services. Due to its impact on construction, this tax will increase the cost of taxpayer funded projects such as affordable housing.

While 1% may seem like a small amount, it will add up to millions of dollars when applied to high-cost construction projects. For example, the tax will add an estimated $2 million to Lincoln High School’s $200 million renovation costs.

Voters may be unaware that they are already paying for similar clean energy projects through a surcharge on their utility bills known as the Public Purpose Charge (PPC). The tax rate from the PPC has grown to over 6% for many electric utility customers and up to 5.8% for ratepayers who consume natural gas.

ETO uses funds from the surcharge to support energy efficiency projects for low-income families (low-income weatherization), rehabilitation and construction of low-income housing, above-market renewable energy, and energy conservation and market transformation. Not only will the Portland Clean Energy Fund be completing similar projects to ETO’s, but ETO projects that involve construction, such as their affordable housing and school green infrastructure projects, will now be further taxed to support energy efficiency. Some ETO ratepayer-funded clean energy projects will be taxed to further fund clean energy projects. And many Portland area residents will be caught paying for both.

In addition to the ETO, the Oregon Housing and Community Services (OHCS) agency also benefits from the PPC surcharge to fund additional low-income weatherization projects, arguably the same demographic the Portland Clean Energy Fund aims to help.

One of these tax programs should be repealed: either the Portland Clean Energy Fund or the Public Purpose Charge. Doing so will ensure that Portland residents are not double- or triple-taxed for multiple programs that provide the same services.

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

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Public Debt for Public Housing

By Vlad Yurlov

In the 2018 general election, voters approved a bond measure that enabled Metro to borrow about $652 million for low-income public housing in the tri-county area. This money will be given out to localities within Metro. With the minimum of 3,900 housing units to be built, the price-tag would be more than $165,000 per unit.

When pressed for completion times for this project, a high-level Metro staffer stated new units can be expected to be used in eight to ten years. This schedule should not surprise anyone who has dealt with government bureaucracies, but a decade is a long time to wait for a crisis we’re having today.

For comparison, more than 6,700 housing units were constructed per year between 2010 and 2018 in the tri-county area, based on the U.S. Census Annual Housing Estimates. This means that even a target of 3,900 units would be roughly 60% of just one year’s worth of private construction. In addition, if Metro does build homes, private companies have less incentive to build, thereby compounding the current crisis.

A good government delivers public services on time and on budget. Right now, Metro is taking the bucks, without making much of a bang.

Vlad Yurlov is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Portland’s Ill-Considered Climate Action Tax

By Micah Perry

Last fall, Portland voters approved a new 1% tax on large retailers to help the city achieve the goals of its Climate Action Plan. This measure has had serious consequences for Portland businesses.

Before the vote, proponents of the new tax described large retailers as places like Walmart or Fred Meyer. But, according to Dan Drinkward of Hoffman Construction, the city’s implementation of the measure “has gone beyond the clear intent of the measure as it was communicated to voters.”

Because of the measure’s broad language, many construction companies are defined as retailers and will have to pay the tax. Their clients will ultimately bear the cost increases—clients like Portland Public Schools, low-income housing developers, and the City of Portland itself.

Portland’s schools will especially suffer. The district’s projects have already increased in price because of the tax, with the Lincoln High School rebuild now costing an extra $2 million.

While certain foods, medicines, and health care services are exempt, other necessities like clothing and toiletries are subject to the tax, making Portland’s cost of living even higher, especially for low-income residents.

It would only take three commissioners from the Portland City Council to revise or repeal this poorly-thought-out tax. For the sake of the city, Portland’s voters must call on them to do so.

Micah Perry is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Metro Wants More Money—For Parks You May Never See

By Helen Cook

How much would you be willing to spend to buy parkland that would ban your dog?

Metro hopes Portland area taxpayers will spend $475 million to buy land kept from public use for many years. That’s the purpose of a Metro bond measure on the ballot in November.

Much of the new tax money would go to acquiring natural areas that will be unusable by the public for an unspecified amount of time. If this feels like déjà vu, that’s because Metro passed a similar bond measure in 2006.

Rather than let the previous tax increases sunset, Metro wants more money, ostensibly to create parks for historically underserved communities. But much of the land Metro plans to buy is located far from the communities it’s intended to serve.

Metro also claims the new bond measure won’t increase taxes. This is not true. If the bond measure fails, property owners’ tax bills will go down. A “yes” vote is a vote for higher taxes. A “no” vote will save the average homeowner about $48 a year.

Metro’s new bond is neither the beginning nor the end of a cycle of buying remote natural areas that won’t allow recreational uses. Make sure to look for this measure on your ballot in November and vote no.

Helen Cook is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Oregon Legislator to Oregon Business: “Let ‘em Leave!”

By Eric Fruits, Ph.D.

“Let ’em leave. Someone else’ll come in.” That was Oregon state senator James Manning’s response when told that new business taxes will cause some firms to leave the state.

Unfortunately, the senator is not alone with the let-them-leave attitude. That seems to be the attitude of the supermajority in the legislature as well as the city of Portland, who have both recently passed massive business taxes.

The legislature just passed a billion dollar a year “corporate activities tax.” The new tax is triggered once a business hits one million dollars in sales. This may seem like a lot to a legislator; but many small businesses such as restaurants, retailers, and consulting firms can easily generate a million dollars in sales. In fact, the Census Bureau reports about a quarter of Oregon employers have sales of a million or more a year. Thousands small firms will be subject to thousands of dollars in new sales taxes on top the income taxes they already pay.

Last year, Portland voters approved their own tax on business revenues, with money earmarked for so-called clean energy projects. Firms who thought they were exempt are now learning that they, too, will face a steep tax bill.

These new taxes will be a good test of Senator Manning’s let-them-leave theory, as owners look to other states for a better business environment. However, I’m not confident someone else will come in to replace the ones that leave.

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

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SW Corridor Project: A Net Negative for the Environment

By John A. Charles, Jr.

Portland politicians claim to be concerned about carbon dioxide emissions and climate change. That’s why so many of them support TriMet’s proposed 12-mile light rail line from Portland to Bridgeport Village near Tigard. They think it will reduce fossil fuel use.

Their assumptions are wrong.

According to the Environmental Impact Statement (EIS) for the project, energy used during construction of the rail project will equal 5.9 trillion Btu. Much of this will be in the form of fossil fuels needed to power the heavy equipment. Additional energy will be used to manufacture the rail cars, tracks, and overhead wires.

The EIS claims that the negative environmental consequences of construction will be made up by energy saved from operations of the train. However, the operational savings are so small it would take 61 years to mitigate the carbon dioxide emissions of construction.

2035 Daily Vehicle Miles Traveled and Energy Consumption 

Vehicle Type Daily VMT – No build option Million Btu/Day – No build option Daily VMT

With Light Rail

Million Btu/Day

With Light Rail

Passenger vehicle 51,474,286 249,084 51,415,071 248,798
Heavy-duty trucks 3,389,982 73,132 3,389,288 73,117
Transit bus 100,122 3,546 97,501 3,453
Light rail 19,189 1,247 21,200 1,377
TOTAL 54,983,579 327,009 54,923,060 326,745

                                          Source: Draft EIS, SW Corridor Project

Unfortunately, all of the light rail cars will need to be replaced before then. Building new cars will require more energy, resulting in additional CO2 emissions and a longer payback period.

Light rail is not a solution to a perceived climate change problem; it IS a climate change problem. Any further planning for the SW Corridor project should be terminated.

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

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Press Release: Multi-year case study of Multnomah County’s Sellwood Bridge explains the history behind worsening traffic congestion in the SE Portland bridge corridor

June 6, 2019

FOR IMMEDIATE RELEASE

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

PORTLAND, OR – Today Cascade Policy Institute released the results of a seven-year case study of the Sellwood Bridge reconstruction, The New Sellwood Bridge: Promises Unfulfilled.

The evidence shows that even though the new Sellwood Bridge is more than twice as wide as the original bridge, it moves fewer people at peak hours. Moreover, use of the bridge by cyclists and pedestrians has not increased significantly, despite the generous facilities provided for them.

As a result, traffic congestion in the bridge corridor is worse than it was in 2012, and cut-through traffic in the Sellwood neighborhood has seriously degraded the quality of life for those living and working there.

The increase in traffic congestion was actually planned for by Metro more than 20 years ago, when the regional agency placed a moratorium on any new Willamette River bridge capacity for motor vehicles between the Marquam Bridge and Oregon City. Metro believed that if a bridge cap was imposed, significant numbers of people could be diverted from auto travel to biking, walking, or transit.

Their assumptions were wrong. During two years of intensive field monitoring by Cascade Policy Institute, the combined travel share for biking and walking never exceeded three percent, as shown below:

Sellwood Bridge Travel Patterns, 2017-18

Based on hourly sampling

Year Total observed passenger-trips Auto share Transit share Bike share Pedestrian share
2017 13,593 95.1% 2.2% 2.2% 0.5%
2018 19,888 95.2% 1.9% 2.4% 0.6%

 

Although the new Sellwood Bridge was marketed as a cutting-edge example of the Portland commitment to “multi-modalism,” the bridge itself is not even a multi-modal facility. Heavy trucks are prohibited, and there is no bus service most of the time. Average daily travel is actually more reliant on the private automobile than it was in 1993.

According to Cascade Policy Institute President John A. Charles, Jr., who directed the study,

“Portland-area planners have long believed they could change travel behavior by starving the road system while promoting alternative modes such as transit, walking, and biking. The evidence from the Sellwood Bridge reconstruction shows that wider sidewalks are not a substitute for increased road capacity.”

John Charles is President and CEO of Cascade Policy Institute and has written about transportation policy for more than 30 years. The focus of his research is utilizing field studies to determine how the built environment influences urban travel behavior. Charles received a BA degree with honors from University of Pittsburgh and an MPA degree from Portland State University.

The full report, The New Sellwood Bridge: Promises Unfulfilled, can be downloaded here.

Founded in 1991, Cascade Policy Institute is Oregon’s free-market public policy research center. Cascade’s mission is to explore and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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Carbon Regulation: Another Legislative Circus

By John A. Charles, Jr.

According to the state’s Global Warming Commission, Oregon has already met its goal of reducing per-capita carbon dioxide emissions to levels that are 20% below 1990 emissions by the year 2020. In fact, we met the goal four years ago.

Are state legislators celebrating this achievement? Not at all. They are too busy rolling out a 98-page bill that will establish a statewide limit on carbon dioxide emissions, designed to make energy more expensive. The bill also repeals the CO2 goal that we’ve already met and imposes a more stringent one: to reduce emissions to 80% below 1990 levels by the year 2050.

Why change the goal? Because proponents of the bill don’t care about results. They always want aggressive sounding goals with distant timelines, in order to give themselves bragging rights about how visionary Oregon is in restricting the use of fossil fuels.

Most of the costs are backloaded to occur after 2030, when electric utilities will be forced to buy a shrinking number of carbon dioxide allowances. At that point, electricity bills will start going up. But you won’t be able to blame politicians, because most of the legislators voting for the bill this year will be out of office by then. That’s how it always works.

We’ve already met the state goal for CO2 reduction. Legislators should leave us alone.

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

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Why Record-Breaking Revenues Aren’t Enough

By Eric Fruits, Ph.D.

This week, Oregon is facing a one-day teacher strike, with educators demanding more money for schools. Also this week, the legislature will consider a billion-dollar-a-year sales tax on business. All this is happening in the face of record-breaking tax revenues.

Research published by the Pew Charitable Trusts shows that Oregon tax revenues are nearly 30 percent higher than the pre-recession peak. Only one other state has seen bigger growth in tax revenues.

But even a gusher in tax revenues can’t keep pace with government spending. Despite a booming economy with record low unemployment, the number of people on the Oregon Health Plan has nearly doubled from pre-recession levels. Over the same period, the annual cost of the public employee retirement system has grown by 60 percent, or double the rate of tax revenues.

Nearly every problem with state and local budgets can be traced to PERS costs and Medicaid expansion. Our budget problems are spending problems, not revenue problems.

While we recovered from the last recession, our elected leaders are making dangerous decisions today that will lead to devastation when the next recession hits. If our government can’t balance the books during a boom, we won’t survive a bust.

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

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May 8 Should Be Declared “Fix PERS Now Day”

By Eric Fruits, Ph.D.

The Oregon Education Association is organizing a statewide walk-out May 8 related to what it says is inadequate school funding. What they’re really demanding is a $2 billion tax increase.

Districts across the state, including Portland, Beaverton, North Clackamas, Gladstone, and Eugene have canceled classes for the day, forcing working parents to stay home or line up day care for the strike. The teachers surely have their chants and songs already scripted for their rallies. But, there’s one slogan the teachers won’t be shouting. That’s: “Fix PERS Now!”

District administrators appear to be in support of the Oregon Education Association’s unauthorized strike. West Linn-Wilsonville superintendent Kathy Ludwig said, “OEA’s purpose with this rally is to send the message to all Oregonians that public school funding has been insufficient for decades and needs to be addressed.” A written statement made to the Portland teachers’ union by superintendent Guadalupe Guerrero reads: “Our educators and students deserve better. It is long overdue that we prioritize schools in Oregon.”

The claim that Oregon hasn’t prioritized public education is simply wrong. Portland Public Schools voters have approved nearly $1.3 billion in construction bonds since 2012. In 2011 and 2014, voters approved and renewed a local option property tax increase for Portland schools. Another renewal of the $95 million tax is expected to be on the ballot this year.

In Oregon, total expenditures per student were $13,037 in 2016, the most recent year for which information is available from the U.S. Census Bureau. Oregon is exactly in the middle of the state rankings of per student total expenditures. Six states, including Oregon, Washington, and California, have per student spending that is within five percent of the national average. Total expenditures include salaries, employee benefits such as health insurance and PERS, supplies, and debt service, among other things.

According to the state’s Legislative Revenue Office, annual state and local education spending in Oregon has increased by about $1.7 billion over the past ten years. This amounts to $2,350 in increased spending per student and has greatly outpaced the rate of inflation.

Despite a booming economy with increased tax revenues and funding for schools, many districts claim they are facing a funding gap. Beaverton expects to cut more than 200 teachers. Portland plans to eliminate 45 classroom teaching positions and combine many fourth and fifth grade classrooms. These announcements raise the question: Why are districts cutting staff in the face of rising revenues?

PERS and other benefits are the biggest drivers of Oregon’s education finance problems. The cost of paying for public employee retirements has doubled over the past ten years. In 2009, school districts paid approximately 15 percent of payroll to fund PERS. The latest estimates indicate next year, districts will have to pay 30 percent of payroll. The increased cost of PERS alone in the next biennium would cause the average class size to increase by two to four students per classroom.

It gets worse. In reaction to earlier PERS crises, many school districts took on additional debt to reduce their PERS obligations. The interest payments on the bonds are taking money out of classrooms. Census data indicate Oregon schools pay almost $600 per student per year in interest payments alone, making it the fourth highest state in per student interest payments.

The OEA claims it’s seeking more spending to reduce class sizes and improve graduation rates. However, the Oregon Business Council calculates PERS will consume much of the $2 billion in tax increases under consideration by the legislature. Without meaningful PERS reforms, Oregonians will face decades of multi-billion-dollar tax increases every time the legislature meets.

The frustration of teachers is understandable. They are on the front lines of education. However, walking off the job is the wrong approach and sets a poor example for students. It punishes pupils, parents, and employers for our politicians’ failure to fix PERS. It also misses the mark strategically because the legislature doesn’t have any more money, and neither do put-upon taxpayers. Parents who are forced to stay home to watch their kids on May 8 should take them on a field trip to the OEA’s rallies with signs of their own, reading, “No New Taxes—Fix PERS Now!”

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

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A Trio of Terrible Bills for Oregon Employers

By Eric Fruits, Ph.D.

Apparently, there is no limit to the Oregon legislature’s disdain for businesses and other employers. This disdain is demonstrated in three bills that seek to saddle employers with expensive mandates and expansive regulations that will smother job opportunities, stifle employment growth, and do little improve the everyday lives of most working Oregonians.

Paid family leave

Oregon’s legislature is currently considering HB 2005, which would turn family and medical leave in Oregon into a universal benefit that would pay out a portion of an employee’s wages while they are out of work because of a difficult pregnancy, a serious injury or illness, a family emergency, or the birth or adoption of a child.

Under the bill, also known as the FAMLI Equity Act, family and medical leave would be paid for by a state insurance program. Workers and employers would each put up to one percent of an employee’s wages in a state-run insurance fund. Employees on leave would be eligible for benefits equal to some or all of their salary. Beginning in 2022, employees would be able to take up to 22 weeks of paid leave:

  • Four weeks for pregnancy, if the employee is completely unable to work due to pregnancy or childbirth;
  • Eight weeks for medical leave, which could also be used to care for a family member who is seriously ill; and
  • Ten weeks for parental leave, for use only in the year after a child’s birth, adoption, or foster placement.

The program applies to just about any firm with one or more employees, even the self-employed. Although the proposal has been amended to provide state grants up to $3,000 to help small employers while a worker is out on leave, the program would be especially costly and burdensome for small employers who do not have the ability to shift staffing or hours to cover workers who are out on extended paid leave. It will also be costly and burdensome for employers with highly specialized workers who are difficult to replace on a temporary basis.

So far, no one knows how much employers or employees would have to contribute to the fund (the bills says “not to exceed one percent of employee’s wages”), how much it would cost to run the program, or how much it would cost to set up the program. A simple back-of-the-envelope calculation suggests this will be a very expensive program. At two percent of payroll—one percent for the employer and one percent for the worker—the cost for the average Oregon employee will be more than $1,000 a year.

In addition to payroll taxes reducing their incomes, employers will be less inclined to take on new employees, especially if those potential employees are deemed likely to take paid leave. Employees will see smaller paychecks, either directly through payroll deductions to pay for the program or in lower pay to account for costs imposed on their employer.

Medicaid payroll tax

HB 2269, also known as the Employer Health Care Responsibility Act, requires employers with more than 50 workers to spend at least 50 cents per work hour per employee for employee health care. If employers do not provide health insurance coverage, they must provide the 50 cents per hour per worker on either direct spending for worker health care services or by paying into a state government fund. The bill is a major component of Governor Brown’s tax package to support expanding Medicaid.

This tax would be in addition to the two percent sales tax surcharge on health care premiums paid by many Oregon employers under HB 2010, which was signed by the governor earlier this year.

As written, the legislation does not consider the common cases in which a worker may not have insurance through his or her employer but may have coverage through a spouse or parent. It also does not consider the cases in which a worker rejects insurance from the employer, often in exchange for higher take-home pay.

The end of independent contractors

 One way employers can avoid some of the costs of the paid family leave program and the Medicaid payroll tax would be to rely more heavily on independent contractors. However, HB 2498 could eliminate this option. This bill would reclassify many, if not most, independent contractors as employees. It says that if the contractor performs services that are “within usual course of business” of the firm hiring the contractor, then that contractor is deemed an employee of the firm.

A hairdresser renting a chair in a salon would be deemed to be an employee of the salon. Uber and Lyft drivers would be deemed employees of the ride-hailing companies. Even lawyers working part-time as outside counsel would be deemed employees of their client firms. While these newly deemed “employees” may receive benefits as employees rather than contractors, they would also lose the ability to determine when they work, where they work, and even how they work.

Well-meaning policies have a tendency to backfire, even if polling says the policies are popular. Too often, the polls fail to put a price tag on the policies. When the price tag includes substantially higher taxes and diminished opportunities for work, programs such as Oregon’s proposed paid family leave and Medicaid payroll tax bills end up harming far more people than they help.

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

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There’s No Such Thing As a Free Government

By Miranda Bonifield

April 16 was the first day of 2019 where the money Americans have earned finally exceeded the portion of our income dedicated to the support of the government. Tax Freedom Day is an annual reminder of the real cost of expanding government’s power and responsibilities. The $5.2 trillion we spend on taxes in 2019—29% of our income—will outpace our spending on food, clothing, and shelter combined.

Unfortunately, this is only what we’ll pay this year—not what the government will spend. If annual federal borrowing were taken into account, Tax Freedom Day would fall on May 8, meaning we would work nearly half of this year to support government programs.

Americans have handed the government an ever-growing share of our money in exchange for the promise of a chicken in every pot and a roof over every head. But prosperity is not preserved and poverty is not prevented by government spending. Rather, it is the everyday Americans who work and innovate every day to create value for ourselves and our communities who are responsible for the opportunities we can all take hold of.

Next time you’re asked to approve a tax increase, ask yourself how many days you’re willing to work to fuel government programs, and how many you’d like to work to support your family.

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Portland’s Affordable Housing Bond: Nothing for Money

By Eric Fruits, Ph.D.

Remember that song about getting money for nothing? In Portland, it’s the opposite. We’re getting nothing for money.

This week, Portland’s City Council will get the first annual report on how the city is spending its affordable housing bond money. The four-page report—yes, it’s really only four pages—is colorful and has lots of pictures but nothing about actual results. So, I did some research.

Turns out, by the end of 2018, the city spent almost $38 million and built exactly zero new units of affordable housing. Sure, Portland bought two buildings. But, the buildings were already built or almost completely built, which means the money did nothing to actually add any new units.

Once the city spends millions more on the four other buildings in their pipeline, Portland might have only 250 additional units of affordable housing.

Last year, French President Emmanuel Macron announced plans to reform the country’s social welfare programs. He said, “We put a crazy amount of dough into our social benefits and poor people are still poor.”

The same can be said for Portland: We’re spending a crazy amount of money on affordable housing, but we’re not actually building much new affordable housing.

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

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Read My Lips: Metro’s Promises Are Doubtful at Best

By Miranda Bonifield

There’s nothing so permanent as a temporary government program, and nothing is quite as immortal as a temporary tax. Metro promised in 2006 that its parks bond would leave no need for new taxes until 2016. Instead, the money was sent to a general fund and additional taxpayer support was requested in both 2013 and 2016.

Now Metro is planning a new 400-million-dollar bond measure to support expansion of its parks and nature programs. The organization argues that tax rates wouldn’t be raised and that the funds would combat the challenges posed by population growth, climate change, and racial inequity.

What isn’t said is that your property taxes would go down without approval of the new 20-year bond measure. Metro can and probably will want to issue additional bonds and levies in future years, including a potential transportation bond in 2020—meaning that taxes would rise in the long term.

Metro’s auditor found in 2015 that Metro’s land acquisition often lacks clear connection to its long-term goals. This means that not only is Metro stretching for more money, it’s not even entirely sure what it accomplishes by spending it.

Read my lips: Metro’s version of no new taxes is doubtful at best.

Miranda Bonifield is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization. 

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Oregon Taxpayers Can’t Celebrate $146 Million Debt Service on the Elliott State Forest

By John A. Charles, Jr.

This week our State Treasurer, Tobias Read, issued a press release bragging that investors around the country “stood in line” to loan Oregon $100 million so that Governor Kate Brown could buy part of the Elliott State Forest, which we already own.

According to Treasurer Read, “There was three times more demand than supply” of the bonds, which will be repaid to investors over 20 years at an interest rate of 3.83 percent.

While this may have been a great day for investors, Oregon taxpayers have no reason to celebrate. They will be paying roughly $146 million in debt service on the loan, while getting little in return.

The Elliott is an 82,500-acre forest in Coos and Douglas Counties. It is an asset of the Common School Fund, which means it must be managed for the financial benefit of K-12 public schools. It was once a thriving commercial forest, generating millions of dollars each year for schools. In 1994, it had an estimated market value of $850 million.

Timber harvesting started to decline in the late 1980s due to environmental litigation. By 2014, timber production was so minimal that the Elliott actually started losing money. This immediately caught the attention of the State Land Board, which owns it. Land Board members in 2015—Governor John Kitzhaber, Secretary of State Kate Brown, and Treasurer Ted Wheeler—feared they would be sued for breach of fiduciary trust if they continued to hold onto a money-losing asset.

Seeing no other options, the Board unanimously voted in August of that year to sell the forest and place the proceeds in the Common School Fund, where they could be profitably invested in stocks, bonds, and other financial instruments.

The Board set the market value of the forest at $220.8 million. After a lengthy outreach process, the Board received a bid for that amount in 2016 from a consortium of buyers led by Lone Rock Timber Co.

However, by the time the bid was evaluated in December, the composition of the Land Board had changed. Kate Brown had become Governor, Tobias Read was Treasurer, and Dennis Richardson was the new Secretary of State. At the first meeting of the board in February 2017, both Read and Richardson stated that they had a fiduciary duty to sell the forest so that $220.8 million could be invested in better-performing assets. Gov. Brown reversed her 2015 vote and urged the Board to reject the offer. The final vote was 2-1 in favor of selling the forest.

This infuriated Oregon’s environmental lobby, even though it was their own lawsuits that had turned the Elliott into a liability. After the vote, pressure mounted on Treasurer Read to change his mind.

Two months later, Read reversed himself. He and Gov. Brown decided that instead of selling the forest for $220.8 million, they would retain it and ask the legislature for permission to borrow $100 million to buy part of the Elliott so that it would no longer be required to make money. The $100 million would be placed in the Common School Fund to make up for the lost timber harvest receipts.

Unfortunately, the $100 million loan will require debt service payments of roughly $200 million, and all of it will have to be paid by Oregon taxpayers. Therefore, the benefits to schools of adding $100 million to the Common School Fund will be diluted or possibly exceeded by debt service.

Moreover, the Land Board had no clear idea of which part of the Elliott will be free of the obligation to produce revenue for schools. The $100 million certainly will not “buy” the entire forest; an unknown portion will still have to be managed for profit, if that’s even possible.

Ordinarily, one could expect the State Treasurer to be the adult in the room regarding a cash offer of $220.8 million and the Board’s fiduciary duty to schools, but this is Oregon. It’s so much easier to just borrow money and talk about something else. Tobias Read is giddy that several of the bond buyers were from “socially responsible investment funds.”

Perhaps if he talks long enough about green investing, taxpayers will forget about the $200 million they owe on the loan.

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

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What’s Causing Oregon’s “Housing Affordability Crisis”?

By Miranda Bonifield

Here’s a question for you: Why is housing so expensive in Oregon?

Government at all levels has attempted to address the issue of housing affordability for years with tax credits, occasional expansion of the urban growth boundary, multimillion dollar bond measures, and now statewide rent control in Oregon. But rather than making life easier for Americans, state and local policies play major roles in the affordability crisis.

Economist Dr. Randall Pozdena recently authored a report published by Cascade Policy Institute that analyzes the decline of housing affordability, with a particular focus on Oregon. His research confirms what any developer can already tell you: Housing is less affordable because land is less available.

Easy access to land up until the 1970s meant housing price increases roughly tracked increases in household income. But in the ’60s and ’70s, planners and environmentalists dreaming of European-style density began lobbying against automobile-driven suburban sprawl. These measures gained enough traction that by 2000, the Brookings Institution found, state ballots around the country contained 553 “anti-sprawl” measures. Supporters expected higher density to decrease the need for public spending, improve traffic conditions by facilitating the use of transit, and lower development costs.

Instead, housing is escalating further out of reach every year. Oregon, California, Hawaii, and Washington, D.C. have the worst affordability scores in the country. An expensive market might make sense in D.C. and Hawaii, as both have extremely limited land available for development. California’s problem is the bureaucratic state whose regulations keep developers from meeting demand. But it’s Oregon that has the worst score for affordability out of the fifty states: Our housing prices rose 32% faster than our incomes between 1992 and 2007. This puts housing affordability in Oregon behind every one of the other 49 states.

With some exceptions, Oregon’s income growth has generally kept pace with the rest of the nation. We have plenty of developable land and a capable, productive community. Our housing is unaffordable because we’ve embraced some of the most aggressive “anti-sprawl” policies in the country. Dr. Pozdena finds:

“The higher the rank of anti-sprawl policy in a state, the poorer is the affordability rank of the state and the lower has been the availability of additional development sites relative to population growth. The confidence that these associations are not random is 99.99 percent. This is strongly indicative of a causal relationship between implementation of anti-sprawl policy, land conservation, and the affordability problem.”

There is no market and no economic philosophy in which reducing supply while demand increases leads to lower prices. In reality, Oregon’s policies have increased public spending, damaged public service quality, made no sizable impact on the number of automobile commuters, and worsened congestion.

It’s encouraging to hear policymakers acknowledge that we need to expand urban growth boundaries and encourage more development; but until a fundamental shift occurs in the philosophy behind growth policy, these statements are all flash and no substance. Oregon’s land use regulations don’t align with the way Oregonians actually live. They worsen traffic, crowd cities, and decrease quality of life.

Oregon must address the true causes of housing affordability problems, not just the symptoms—or the crisis will never end.

Miranda Bonifield is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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A Done Deal and a Bad Deal: Why Rent Control Won’t Solve the Housing Crisis

By Eric Fruits, Ph.D.

Oregon will soon be the first state to have a statewide rent control program. Last week, in my first week at Cascade Policy Institute, I testified in opposition to the rent control bill, SB 608. The bill has the support of the Governor Kate Brown, House Speaker Tina Kotek, and Senate President Peter Courtney. About 100 people signed up to testify, and supporters outnumbered opponents by 2-to-1. It’s a done deal and it’s a bad deal.

During World War II, the federal government instituted a national system of rent controls, establishing maximum rents for rental properties. New York City was the only city to retain this first generation of rent controls after the war. During the 1970s, rent regulations were introduced in many cities, including Boston; Washington, D.C.; San Francisco; and Los Angeles.

In contrast with pure rent control (a fixed maximum price), SB 608 is a form of “second generation” rent controls that allows annual rent increases, limited to 7 percent plus inflation. Rent controls under SB 608 apply to buildings that are more than 15 years old. The bill also places strict limits on “no cause evictions.”

Nobel laureate Paul Krugman wrote in the New York Times that rent control is “among the best-understood issues in all of economics, and—among economists, anyway—one of the least controversial.”[1] Krugman’s well known and widely used economics textbook describes the economic inefficiencies associated with rent control:[2]

Rent control, like all price ceilings, creates inefficiency in at least four distinct ways. It reduces the quantity of apartments rented below the efficient level; it typically leads to misallocation of apartments among would-be renters; it leads to wasted time and effort as people search for apartments; and it leads landlords to maintain apartments in inefficiently low quality or condition.

Proponents of rent controls argue that “second generation” rent controls reduce or eliminate the inefficiencies associated with “first generation” rent controls. For example, Kotek was quoted in the Oregonian:[3]

What you’re hearing from landlords about rent control is they have an idea of it that’s very much the model that began right after World War II where properties had hard, fast caps on rents. That’s not the kind of rent control we’re talking about. We’re talking about second generation rent stabilization where there’s a process for managing rent increases that protects investors and tenants.

Kotek is correct that second generation rent controls are not as bad as first generation rent controls, but it’s matter of degree. Second-degree burns aren’t as bad as third-degree burns, but a second-degree burn still hurts.

While many proponents see rent control as one way to address housing affordability, none of them indicated it would do anything to resolve what is widely perceived to be a housing shortage. In fact, an expert flown in from Berkeley by the housing committee admitted that rent controls in other cities have led to the conversion of apartments to condominium. He went so far as to suggest legislation that would ban the conversion of apartments to condos.

This suggestion lays bare the pernicious chain of regulation that rent control brings. Second generation rent control doesn’t “work” unless there are strict limits on the termination of month-to-month rents. Then, it won’t work unless there are strict limits on the conversion of units. One witness even suggested that apartment building owners should be forbidden from selling their properties.

The limits on providers’ ability to terminate leases will lead to providers becoming more selective in to whom they rent units. In this way, the ordinance misallocates rental units among would-be renters and may do the most harm to those whom the bill is intended to help, such as those with a history of homelessness, impaired credit, criminal convictions, or employment instability. An older woman testified about her horror story of trying to find an apartment with her retired husband in Medford, applying to dozens of apartments only to be told she’d be on a list. Her story will become more common as rent controls reduce the supply of rental units.

In addition to the inefficiencies identified by Krugman, SB 608 will ultimately lead to higher rents than would occur in the absence of the law. As rental units turn over, providers will factor in the expected cost of the law into the rents and other fees that they charge incoming residents. Some or all of the expected cost associated with SB 608 will be passed on to tenants. Ultimately, the law will have the perverse impact of increasing—rather than reducing or stabilizing—rents over time and reducing the amount of market rate housing available to low- and middle-income households.

[1] Krugman, Paul. “A rent affair.” New York Times. June 7, 2000.

[2] Krugman, Paul and Robin Wells. Microeconomics, 3rd ed. New York: Worth Publishers. 2013. p. 130.

[3] Friedman, Gordon R. “Portland’s Tina Kotek explains her rent control plans—and landlord pains.” Oregonian. February 4, 2017.

 

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

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Cap and Trade in Oregon: All Pain, No Gain

By Eric Fruits, Ph.D.

The Oregon legislature is expected to pass a carbon cap-and-trade bill this session.

While there is some agreement that climate change can have a negative impact on livability in the Pacific Northwest and throughout much of the world, there has been little attention paid to how little Oregon contributes to worldwide carbon emissions.

Oregon emitted about 65 million metric tons of carbon dioxide equivalents in 2017. By way of comparison, total global emissions were about 37 billion metric tons. That means that Oregon accounts for less than two-tenths of one percent of global emissions. About one six-hundredth. That’s tiny.

In other words, even if Oregon were to reduce carbon emissions to zero, the state would do virtually nothing to change worldwide carbon emissions, which means it would do virtually nothing to slow or stop global climate change.

At the same time, the cap-and-trade program would hit the pocketbooks of every Oregonian. An earlier version of the bill estimated the state would sell about $700 million a year of carbon permits, with the costs passed on the consumers and businesses.

Oregon’s cap-and-trade bill fails the basic cost-benefit test: The costs of cap-and-trade to everyday Oregonians would be exceptionally high while doing nothing to stop or slow climate change.

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

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Rent Control Is a Steal

By Miranda Bonifield

Remember that emotional final episode of the now-classic sitcom Friends? As the group reminisces about the New York apartment that served as the stage for most of the show, Chandler tells his newborn child, “This was your first home…and thanks to rent control, it was a steal.”

His comment was more apt than the screenwriters probably realized. Rent control is a steal. It steals incentive from landlords who are interested in providing housing but can’t make ends meet when they’re no longer in charge of their rates. And especially in combination with aggressive anti-sprawl policies cities like Portland are so fond of, it steals housing opportunities from individuals who need them most.

Rather than solving housing problems, studies have found that in the long run, rent control policies increase housing costs and fuel gentrification. In San Francisco, researchers found that landlords frequently turned their apartment buildings into condominiums and invested in higher-value properties—making it even more expensive to live in the city. And unfortunately, landlords are less interested in maintaining rent-controlled apartments, which does nothing for the tenants’ quality of living.

If people are struggling to find housing, the solution isn’t to limit supply and destroy affordability. That just makes things harder. Instead, state leaders should reduce regulations that constrict housing supply, allowing developers to provide the homes Oregonians need so desperately

Miranda Bonifield is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Education Savings Accounts: Fiscal Analysis of a Proposed Universal ESA in Oregon

By Eric Fruits, Ph.D.

Executive Summary

Education Savings Accounts deposit a percentage of the funds that the state would otherwise spend to educate a student in a public school into accounts associated with the student’s family. The family may use the funds to spend on private school tuition or other educational expenses. Funds remaining in the account after expenses may be “rolled over” for use in subsequent years.

Empirical research on private school choice finds evidence that private school choice delivers benefits to participating students—particularly educational attainment.

Currently, Arizona, Florida, Mississippi, North Carolina, and Tennessee have active ESA programs that are limited to particular groups of students such as those with special needs. The proposed Oregon ESA bill would introduce a universal ESA program for all K–12 students.

ESAs are frequently designed so the amount of funding provided to families is less than the amount the state would otherwise pay for a student to attend public school, with the state recouping the difference. In this way, ESAs can be designed to produce a net fiscal benefit (i.e., cost savings) to state and local government budgets.

A fiscal analysis of the proposed Oregon ESA bill finds that it would cost the state approximately $128 million a year but would lead to savings of about $130 million a year to local school districts, for a net state and local impact of approximately $2.2 million in reduced costs. There is virtually no net impact on per-student spending for students who choose public K–12 education. ♦

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CLICK HERE FOR A ONE-PAGE FACT SHEET ON SB 668

Eric Fruits, Ph.D. is president and chief economist at Economics International Corp., an Oregon-based consulting firm specializing in economics, finance, and statistics. He is also an adjunct professor at Portland State University, where he teaches in the economics department and edits the university’s quarterly real estate report. His economic analysis has been widely cited and has been published in The Economist, the Wall Street Journal, and USA Today. 

Dr. Fruits has been invited to provide analysis to the Oregon legislature regarding the state’s tax and spending policies. He has been involved in numerous projects involving natural resources and Oregon forest products such as analysis for Ross-Simmons v. Weyerhaeuser, an antitrust case that was ultimately decided by the United States Supreme Court. His testimony regarding the economics of Oregon public employee pension reforms was heard by a special session of the Oregon Supreme Court.

Dr. Fruits has produced numerous research papers in real estate and financial economics, with results published in the Journal of Real Estate Research, Advances in Financial Economics, and theMunicipal Finance Journal.

 

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More Money for Schools Is Meaningless Without Controlling PERS Costs

By John A. Charles, Jr.

Several members of the Portland Public Schools Community Budget Review Committee recently co-authored an essay entitled, “The under-funding of schools must end.”

The authors assume that all money problems at public schools are the result of insufficient tax support; but the reality is that schools have been unable to control costs, especially related to pensions.

For example, in 1998 Oregon schools were required to send premiums equal to 9.9% of their salaries to pay for their share of the Public Employee Retirement System (PERS).

Since then, those rates have gone up steadily and will reach 18.3% later this year—an increase of 84% over two decades. Some school districts will pay much more. Sherwood school district will pay 27% of salaries for their PERS Tier 1 and Tier 2 obligations. Tigard-Tualatin school district will pay 28%. Tillamook Community College will pay 21%.

School support from the Oregon general fund has doubled since 2001, but it doesn’t do much good when tax money entering the front door of schools leaves out the back door for retirees. In many cases, those former workers are earning more in retirement than they did when they were actually teaching.

Unless the legislature is willing to take strong measures to control the cost of PERS, there will never be enough money to satisfy public school advocates.

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

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Press Release: Report shows Oregon’s “smart growth” policies make housing less affordable for Oregonians

FOR IMMEDIATE RELEASE

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

PORTLAND, Ore. – Cascade Policy Institute has released a new report examining the links between anti-sprawl, “smart growth” regulations and increasing housing costs in Oregon. The report measures the extent of supply restrictions in Oregon and their impact on housing prices. It concludes that “smart growth” policies contribute substantially to the decrease in affordable housing and single-family housing options in Oregon.

The report, The Housing Affordability Crisis: The Role of Anti-Sprawl Policy, was written by Randall Pozdena, Ph.D. Pozdena is president of QuantEcon, Inc., an Oregon-based economics consultancy.

Over the last fifty years, many states have adopted “smart growth” or “anti-sprawl” policies. Enough time has elapsed for the effects of these policies to be studied. The evidence shows that many urban areas now have housing prices that make either home ownership or rental increasingly unaffordable.

In the face of resulting “affordable housing crises,” cities and states are currently considering additional regulations and subsidy policies to attempt to provide residents with more affordable housing options. There is virtually no public policy discussion of whether regulatory interventions precipitated the housing crisis in the first place, let alone consideration of abandoning these damaging policies.

In The Housing Affordability Crisis, Pozdena examines the links between anti-sprawl regulations and the spectacular increases in housing costs and the virtual disappearance of affordable housing in many markets. Specifically, he measures the extent of site supply restrictions and its impact on housing prices using an economic model of housing markets, data on the economic conditions in housing markets, and trends in development revealed in satellite inventories of U.S. land uses. At the national level, using state and Metropolitan Statistical Area data, Pozdena concludes:

  1. Twenty-three of the 50 states studied fail to provide housing units at a volume adequate to keep housing prices and incomes growing at a rate consistent with affordability. On average, these states under-provided housing units by 6.4 percent of their current stock of housing units.
  1. Those states that fail the affordability and supply adequacy test are overwhelmingly those with documented adoption of one or more aggressive anti-sprawl growth regulatory initiatives.
  1. Annual housing price inflation exceeded annual income growth by 14 percent each year during the study period in those states that failed to provide housing in sufficient quantity to keep it affordable. Extrapolating the findings to the nation, the housing stock is smaller by as much as 4.5 million housing units than it should have been to preserve affordability.

Cascade Policy Institute President and CEO John A. Charles, Jr. said, “Oregon land-use planners have long pretended that Urban Growth Boundaries and other site restrictions have no real effect on housing supply. Dr. Pozdena’s analysis clearly shows that this is wrong. We cannot solve the housing crisis by simply ‘throwing money’ at public housing projects; growth controls need to be reduced or repealed if we want to make the American Dream affordable.”

The full report, The Housing Affordability Crisis: The Role of Anti-Sprawl Policy, can be downloaded here.

Founded in 1991, Cascade Policy Institute is Oregon’s free-market public policy research center. Cascade’s mission is to explore and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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The Housing Affordability Crisis: The Role of Anti-Sprawl Policy

By Randall Pozdena, Ph.D.

Executive Summary

So-called smart growth policies are advocated as a means of avoiding sprawl.  These policies have at their heart a policy of reducing the availability of land for housing in urban areas. In Oregon and some other states, anti-sprawl policy is implemented by regulations that impose urban growth boundaries (UGBs).  Other regulations impose minimum density policies and others reduce spending on highways and increase spending on transit service—especially light rail—as an alternative.  Advocates of anti-sprawl policies argue that such regulations would allow urban growth to proceed at a lower overall cost.

Many states adopted smart growth policies in the last five decades—enough time for the policies to have demonstrated their purported advantages.  The evidence, at least on the housing front, is that the cost-containment claims have not materialized.  Instead, many urban areas are finding themselves with home prices that make ownership and rental of housing increasingly unaffordable.  Cities and states are thus using or considering additional regulations and subsidy policies to provide their residents with more affordable housing.  There is virtually no discussion of whether anti-sprawl regulatory interventions precipitated the housing crisis, let alone consideration of abandoning the policy.

The purpose of this study is to examine the links between anti-sprawl regulations and the spectacular increases in housing costs and the virtual disappearance of affordable housing in many markets.  Specifically, we measure the extent of site supply restrictions and its impact on housing prices using an economic model of housing markets, data on the economic conditions in housing markets, and trends in development revealed in satellite inventories of US land uses.

We apply the analysis to data from all 50 states and identify those states whose development policies reflect constrained site supply and those that do not.  Because Oregon has among the longest-standing and most aggressive implementations of smart growth land use policy, we pay particular attention to the state, and drill down with analyses at the Metropolitan Statistical Area (MSA) level in Oregon to demonstrate that the state-level findings are corroborated for all of its MSAs.

The primary metrics examined in this study are the rate of housing price appreciation, the degree of rigidity (“inelasticity”) of the supply of new homesites, and the degree to which the housing stock has failed to increase enough to affordably provide additional housing services.  Since we note that the adverse trends in house price inflation and slowing of site supply took greatest effect the last 30 years or so, we scrutinize market behavior subsequent to this period.  Because of the onset of the Great Recession in 2007, however, we estimate our models on this period.  This is because we do not wish to conflate the effects of anti-sprawl policy with the collapse of mortgage markets and home construction that persisted for the next half decade.

After establishing the linkage between constrained site supply and housing prices and affordability, we turn to the evaluation of the various policies that are in place or proposed to redress these problems.  This analysis is performed for the state of Oregon only.  The State’s wide-ranging and aggressive policies and proposals make it broadly representative of the nature, cost, and effectiveness of these policies—both those in place and those recently proposed.  With theory as a guide, and our acquired knowledge of the reactivity of the housing market to various stimuli, we can then opine on the likely effectiveness of these policies.  We also offer our own suggestions.

At the national level, using state and MSA data, we find the following:

  1. Twenty-three of the 50 states studied fail to provide housing units at a volume adequate to keep housing prices and incomes growing at a rate consistent with affordability. On average, these states under-provided housing units by 6.4 percent of their current stock of housing units.
  2. We demonstrate that those states that fail the affordability and supply adequacy test are overwhelmingly those with documented adoption of one or more aggressive anti-sprawl growth regulatory initiatives.
  3. Annual housing price inflation exceeded annual income growth by 14 percent each year during the study period in those states that failed to provide housing in sufficient quantity to keep it affordable. Extrapolating the findings to the nation, the housing stock is smaller by as much as 4.5 million housing units (in 2015 likely) than it should have been to preserve affordability.

Because Oregon has aggressively pursued anti-sprawl policy, it was given special attention in the study.  We found the following:

  1. All eight of Oregon’s MSA housing markets failed the test of affordability and adequacy of supply over the various study periods for which data was available. The estimated total shortfall in supply equals approximately 18 percent of the existing stock—virtually identical to that found for Oregon using state-level data.
  2. We analyzed the current and proposed housing policies of the state of Oregon. At present, proposals include approximately $2.3 billion by the State and the Department of Housing and Urban Development (HUD) to assist housing access and over $600 million in new affordability-related programs. This study finds that there is little hope that these policies can redress the scale and extent of Oregon’s affordable housing problems and, in some cases, may worsen them by burdening developers of housing with new regulations.

In summary, this study finds anti-sprawl policy to have been implemented in a manner that has pernicious effects on housing affordability.  Specifically, regulatory constraints on site supply have caused an on-going crisis of housing supply and affordability.  In many markets, the development of land for housing is regulated too aggressively.  Additionally, existing and new programs for addressing housing affordability rely on other regulation and spending programs that will not have the designed effect of providing affordable housing.  This study strongly recommends, instead, relaxation of regulations that limit the land area available for housing development.  Any residual concerns about sprawl should be addressed by reforming current highway and transit pricing and finance practices, which are known to be economically inefficient.

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ODOT’s Passenger Rail Project Equals Increasing Costs, High Taxpayer Subsidies

By Justus Armstrong

The Oregon Department of Transportation recently published its Tier 1 Draft Environmental Impact Statement (EIS) for the Oregon Passenger Rail Project, which plans to expand and improve passenger rail service between Eugene and Portland and increase Amtrak Cascades rail service from two to six round trips per day. Out of two potential build alternatives—Alternative 1, which would improve the existing Amtrak route, and Alternative 2, which would create a new route along Interstate 5 between Springfield and Oregon City—ODOT has identified Alternative 1 as the preferred alternative. Many are optimistic about improved passenger rail options, but Alternative 1 would include anywhere from $870 to $1,025 million in capital costs. Is the project worth such a high price?

One of the stated goals of the Passenger Rail plan is to implement a cost-effective project, but based on ODOT’s own testimony, it appears that Amtrak is actually becoming less cost-effective. In a 2017 Legislative report on passenger rail performance, ODOT reported that “[t]he gap between revenue and costs continues to increase.…It is likely the costs to operate the service will increase in the coming years.”

The EIS estimates that Alternative 1 would cost around $48 million a year in operations and maintenance costs—a sharp increase from the $17.75 million ODOT currently pays Amtrak annually to support the existing rail service. The EIS also admits that this is a conservative estimation based on the assumption that Amtrak payments will triple as the number of round trips triples. Currently, ODOT subsidizes each one-way Amtrak ride to the tune of about $118, and with the costs to operate Amtrak already rising, expanding an increasingly cost-ineffective service risks adding to an even greater burden on Oregon taxpayers.

On the other hand, if the improved passenger rail service were to achieve the 89 percent increase in ridership hoped for by 2035, ODOT’s subsidy would be distributed more broadly among an expected 646,000 annual rail passengers. Theoretically, this could help make ODOT’s investment more worthwhile.

More Amtrak passengers would mean more ticket revenue, lessening the gap between revenue and operating costs. However, ODOT’s ridership projections are largely based on the hope that population increases in the Willamette Valley “could result in unprecedented ridership increases.” In perspective, only 105,000 (less than 4%) of the Willamette Valley’s 2.8 million residents were riding Amtrak in 2015. Living up to the ridership goals in the EIS would require a significant shift in transportation choice towards intercity passenger rail not yet seen in Oregon.

The draft EIS does not include projections for expected revenues and fare recovery, so exact measures of cost effectiveness for the project are not yet nailed down. Unless fare recovery is significantly improved, Oregon will continue to lead the nation in passenger rail subsidies and triple already wasteful operating expenditures.

There is also the matter of the $1 billion in construction and design costs that would have to come from state and federal funds. ODOT’s passenger rail plans are likely motivated by prospects of broader eligibility for federal funding, but any advancements in rail service are bound to be a costly investment for Oregonians.

Public transportation expansions are often put forward as solutions to highway congestion. However, the EIS for the passenger rail project admits that neither build alternative would alleviate Oregon’s congestion issues, stating that the potential reduction in the number of vehicles on I-5 between Eugene and Portland “would not be significant enough to affect or improve congestion on I-5.” In fact, the EIS states that the project could even exacerbate congestion by increasing vehicle activity on surface streets near Amtrak stations. Expanding passenger rail service may benefit the small portion of the Willamette Valley population that uses Amtrak, but would do little to address Oregon’s broader transportation challenges.

Instead of expanding Amtrak rail service, ODOT could plan on gradually increasing the frequency of Thruway bus service over the next 20 years. The No Action alternative already includes plans to increase intercity bus service between Eugene and Portland to seven round trips per day, so why not focus on further increasing bus frequency rather than replacing it with a more costly rail alternative? That way, transportation service can be more flexibly adjusted to transportation demands without the same level of capital investment and heavy subsidies that expanding passenger rail would require.

Justus Armstrong is a Research Associate at Cascade Policy Institute, Oregon’s free-market public policy research organization.

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Prosper Portland’s Latest Business Grants Program Oversteps Again

By Justus Armstrong

Should the City of Portland invest taxpayer money in local marijuana businesses just because they’re owned by people of color? Prosper Portland seems to think so. Its new grants program seeks to expand minority-owned cannabis businesses in the Portland area.

 The Cannabis Business Development Equity Program, funded by a 3% local tax on legal cannabis sales, is intended to address the disproportionate effects of the War on Drugs on people of color. Grants ranging from $5,000 to $30,000 will be administered by the NuLeaf Project and are expected to be awarded to 10-20 businesses. Prospective grant recipients must have at least 51% ownership by people of color to qualify.

 Redressing—in some fashion—the economic impacts of marijuana prohibition on minorities might seem like a laudable goal. Grants funded by Portland cannabis tax revenue have also gone towards clearing records and assisting with workforce reentry for those disproportionately affected by marijuana prohibition.

 Measures addressing the direct criminal justice implications of drug convictions may, in fact, help to right past inequities; but the business development aspect of Portland’s program oversteps these intentions. Prosper Portland’s latest “investment” project follows the same trend as many other government programs, continuing a troubling pattern of crony capitalism disguised as affirmative action.

 Giving cannabis startups funding from the city doesn’t correlate to healing the wounds of incarceration. The NuLeaf Project doesn’t require applicants to come from a background specifically affected by cannabis prohibition. Rather, preference is given to any business with at least 51% minority ownership. The assumption seems to be that because drug possession charges have disproportionately affected people of color, all minority entrepreneurs in the cannabis industry face significant “capital, education, and connection hurdles” when starting a business.

 Prosper Portland packages the program as a way to help negatively impacted communities, but the request for proposals explicitly states that the program is “designed with an emphasis on supporting a business through growth and ensuring technical assistance leads to wealth creation outcomes.” Whether or not NuLeaf’s mission is worthwhile, it’s hard to see why public money should be given away for private wealth creation. Should Portland assume that minority-owned businesses in an industry approaching $25 billion can’t succeed without help from the city government?

 Corporate welfare is corporate welfare, regardless of the industry or the race of a business’s leadership. If you don’t believe Carrier Corporation should receive targeted tax breaks from President Trump, or that Amazon should receive special treatment from Seattle, the principle is the same. Prosper Portland’s subsidizing of cannabis companies is a similar market distortion and an illegitimate use of public funds. Tax funding should not be directed to fund businesses in Portland or anywhere in Oregon. Minority-owned cannabis businesses, like any other businesses, should succeed or fail by their own merit.

Justus Armstrong is a Research Associate at Cascade Policy Institute, Oregon’s free-market public policy research organization.

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QuickPoint! – “They Left Out Radio!” – The Human Genius Behind Economic Growth

By Kathryn Hickok

Bull market? Bear market? Growth? Uncertainty? What does 2019 have in store?

Economies are described in numbers, percentages, and quarterly comparisons. But the picture is richer than dollar values of production and consumption. No economy exists without millions of unique people bringing to the marketplace their creativity, intelligence, initiative, and effort. The knowledge, skills, and experiences of people are the true wealth of a society.

President Reagan once remarked on the limitations of economic predictions that can’t measure human genius. He said:

“You know, back in the twenties I think they did a report for Herbert Hoover about what the future economy would be like. And they included all their projections on industries and restaurants and steel, everything. But you know what they left out? They left out radio! They left out the fantastic rise of the media, which transformed the commercial marketplace….

“And now they make their projections, and they leave out high tech….”*

Fostering economic growth requires a tax and regulatory climate that’s friendly to businesses and the people who start them. The Oregon legislature should remember this when it convenes in February.

 

* Peggy Noonan, What I Saw at the Revolution: A Political Life in the Reagan Era (New York: Random House, 1990), 146.

 

Kathryn Hickok is Executive Vice President at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Fake Leadership

By John A. Charles, Jr.

Governor Kate Brown’s proposed two-year general fund budget for 2019-21 requests $23.6 billion. That is an increase of 12.4% over the current level, which was the largest budget in Oregon history when it was adopted 18 months ago.

So far, few legislative leaders have questioned why the Governor needs so much money. At the Oregon Business Plan summit, held on December 3, most of the talk was about adopting new taxes and repealing the popular “kicker” law that rebates surplus funds to Oregon taxpayers. That’s not a good omen.

Most parents teach their children at a young age that they can’t always ask for more; sometimes you have to make do with what you have. That lesson has been lost on Oregon’s political leaders. No matter how much money we send to Salem, it’s never enough.

Before legislators vote to approve even one more tax, they should ask where the money will go, and why is it needed? And more importantly, if the current record-setting budget is not enough, what will change in the next two years to avoid another huge increase in 2020?

Any governor can demand more money; addressing the root causes of our problems takes real leadership. Gov. Brown has yet to figure that out.

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

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Metro Should Let Transit Customers Drive Transportation Innovation

By Justus Armstrong

ABC’s Shark Tank may be coming to the Portland region—not in the form of a reality TV special, but as a taxpayer-funded project that positions the Metro regional government to act as a venture capital firm. Rather than investing in the success of growing businesses, however, the Sharks at Metro plan to fund temporary pilot projects that test new transportation technology.

Metro proposes that its Partnerships and Innovative Learning Opportunities in Transportation (PILOT) program—a component of the Emerging Technology Strategy—would help meet its “guided innovation” goals, but the shortsighted approach of this program ignores a vital question: Are risky technological investments the best use of taxpayer funding?

In a presentation at a Metro work session in July, Senior Technology Strategist Eliot Rose suggested the PILOT program would “guide innovation in transportation technology toward creating a more equitable and livable region.” Embedded in the presentation were numerous contradictions, beginning with the oxymoron of “guided innovation.” In Metro’s case, guided innovation more than likely means “hindered innovation,” with PILOT funding being a carrot-and-stick method of ensuring that emerging technologies take the direction technocrats deem appropriate, not the direction consumers are demanding.

By allocating government funding to the transportation projects of its choice, Metro risks preventing better ideas from emerging and hampering the innovation necessary for real progress to take place. As Metro strategist Rose noted, ridesharing, bikesharing, and other technologies PILOT wishes to foster have already been expanding in Portland. This technological progress has taken place with private investment, yet Rose still concludes that public money is needed for it to continue.

During the July work session, Metro staff claimed that the government “needs to intervene to bring technology to people and communities that the market doesn’t serve.” This assumption presents another contradiction: If an investment isn’t cost-effective for a private actor, what makes it a cost-effective investment to Metro? And how can successful projects be expected to continue without public funding, if the projects’ functions wouldn’t otherwise be demanded by the market?

Furthermore, Metro’s plan risks sinking taxpayer money into potentially unsuccessful projects. The $165,000 Forth-Hacienda project was presented by Metro as an example of a successful pilot project—not because the project itself was successful, but because its failure offered a great learning experience. The desire to better understand new technologies is not without merit, but the experimental nature of such pilot projects hardly makes them a good fit for taxpayer funding.

For all the project’s flaws, discussion about Metro’s Emerging Technology Strategy has included some promising aspects. For instance, during the work session, Metro Councilor Shirley Craddick brought up the idea of transitioning some of TriMet’s responsibilities to ridesharing networks. Considering more innovative modes for public transportation would be a step in the right direction and likely would improve cost-effectiveness, quality, and ridership of transit while meeting the needs of the populations Metro seeks to assist.

Perhaps a more effective Emerging Technology Strategy could focus solely on ways to improve existing public transportation through new technology, rather than interfering with private transportation markets through subsidies and attempts to shape private development. Instead of subsidizing companies with PILOT funding, Metro could offer open-ended transportation vouchers directly to transit users, especially transit-dependent and underserved populations.

Transit vouchers could be spent on a variety of transportation options, including TriMet and the newer technologies the PILOT program intends to target, such as rideshare, bikeshare, and electric vehicle and autonomous vehicle rentals. Putting the money directly into the hands of transit users could drive innovation through consumer sovereignty on the demand side, encouraging competition and making companies work to meet transit users’ needs instead of Metro’s project specifications.

With its PILOT program, Metro seeks to encourage innovation while managing risk; but any risk associated with developing new technologies should be borne by the companies driving the innovation, not by the public. If Metro moves forward with the PILOT program, it will only hinder its own goals. Instead of shaping existing markets in the private sector, Metro should focus on applying technological improvements to public transportation options.

Moreover, Metro should reform the regulatory framework and barriers to entry that may be preventing the emerging transportation technology market from functioning at its best. After all, the expansion of Uber and Lyft in Portland didn’t take place because Portland subsidized these companies. It happened because Portland stopped banning them. Metro councilors and staff can’t foresee the direction that new technologies will take, so they can’t know enough in advance to guide the direction of innovation or adequately manage its risks. The best they can do is get out of the way.

Justus Armstrong is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Another Tax Increase from Kate Brown

By John A. Charles, Jr.

Governor Kate Brown’s top health care administrator is requesting that the legislature increase taxes on beer, wine, cider, cigarettes, cigars, and vaping pens. If approved, the taxes would result in $784 million in new revenue for the state over the next two years.

Health officials claim that this is a “public health” measure designed to reduce consumption of harmful products, but it’s really just a money grab. The state has an estimated shortfall of $800 million in Medicaid funding, and this proposal conveniently would raise almost that amount.

However, the proposed tax probably will not actually raise that much money because of a built-in contradiction: If consumption goes down, then tax revenue has to go down as well. Legislators cannot support it as both a public health measure and a revenue-raiser at the same time. For one goal to succeed, the other must fail.

It’s an open secret in Salem that the biggest “addiction” problem in the state is not tobacco or alcohol consumption; it’s the addiction that politicians have to taxation on smoking, drinking and gambling. They don’t want less of these activities; they actually want more.

Legislators are not our parents. Oregonians should be left alone so they can decide for themselves what products to use.

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

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Metro’s Bond Measure 26-199 Raises Taxes on Homeowners, Requires No Accountability for Money Spent

By Miranda Bonifield

Metro claims Measure 26-199 is designed to address affordable housing, but the 652.8 million dollar bond measure raises taxes for homeowners without ensuring that it will accomplish its goals.

Metro claims these bonds would fund up to 3,900 low-income housing units. However, the measure doesn’t require a minimum number of units: Metro could build a few units, spend the rest of the money on “services,” and fulfill the requirements of Measure 26-199. The text of the measure even says these bonds may be used for things like grocery or retail space without limitation. In other words, there’s no guarantee the measure will make even a small improvement to housing affordability.

There is no deadline ensuring Metro provides these units in a timely fashion. There is no requirement for Metro to change its practices if auditors find Metro is failing to accomplish its goals. 26-199 asks you to trust Metro’s intentions without any accountability to encourage success. Meanwhile, urban growth boundaries and endless red tape keep Oregon’s housing supply from meeting the needs of our growing population.

Any major project needs firm deadlines and specific goals to have any hope of success, but Metro’s measure provides neither.

Miranda Bonifield is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Electric Buses: Another Costly Fad

By John A. Charles, Jr.

The TriMet Board recently approved a plan to replace its entire fleet with battery-electric buses (BEBs) by 2040. If implemented, this will cost taxpayers $553 million more than buying diesel buses.

It might be worth the premium if battery powered buses were cleaner or more reliable, but they aren’t. King County, Washington has been testing BEBs since April 2016. On average, they only travel 2,771 miles between service failures. Diesel buses are good for 17,332 miles—more than six times as long.

In addition, battery buses are not the best environmental option, because they draw electricity from power plants using fossil fuels. The Los Angeles County Metropolitan Transit Authority went through an extensive analysis in 2016, and found that “renewable” natural gas derived from landfill methane had a much better environmental profile than electric vehicles.

For that reason, the MTA decided to convert its bus fleet to renewable natural gas, not electric. The agency concluded that renewable natural gas “achieves 39% greater reductions in greenhouse gas emissions, at half the cost” of electric buses.

What does TriMet know that the Los Angeles MTA doesn’t? That question should be answered before we spend $553 million.

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 Kicker Debate Continues

By Steve Buckstein

Because of Oregon’s recent and projected strong economy, a personal “kicker” tax refund of $686 million is projected to go out in the first half of 2020. This would be the second-largest kicker amount in the state’s history. If you pay personal income taxes to the state of Oregon, you will get some of this money as a credit on your future tax liabilities. This will again raise the question: Is the kicker law good or bad public policy?

Some people will be envious that the “rich” will get much bigger refunds than the rest of us and they don’t really “need” the money. While the average kicker is projected to be $336, they point to those in the highest adjusted gross income bracket of $401,200 and above who can expect to receive $6,787. What is often unstated in this argument is that those “lucky” top taxpayers paid way more income tax than the rest of us, and they will get back exactly the same percentage of their tax payments as everyone else does.

So, whether the kicker law is good or bad public policy, let’s think a little about who this money really belongs to. Is it a rebate for overpaying your taxes, or is it somehow “our” money that is better left in government coffers?

How the kicker works 

First, the mechanics of the kicker law: Oregon state government is highly dependent on the personal income tax for its General Fund budget. With a fairly flat tax structure, most wage earners are in the nine percent income tax bracket, while the highest income earners are in the top 9.9 percent bracket. Therefore, state revenue can be quite volatile, going up and down as the economy cycles between boom and bust.

The legislature first passed the kicker law in 1979, and voters added it to the state constitution in 2000. It mandates that state economists estimate what income tax revenue will be over the following two-year budget period. The legislature then must balance the budget by not allocating more money than the estimate. If the estimate is low by two percent or more, then the entire surplus must be returned to taxpayers. The kicker law actually is composed of two parts, dealing with personal income taxes and corporate income taxes differently. In 2012 voters decided that any corporate kickers would be returned to the state general fund to provide additional funding for K-12 public schools.

Some people argue that the way the kicker “kicks” makes little sense. They correctly note that projecting state revenue two years out to within a two percent margin is terribly difficult, and has been done only rarely. Others defend the kicker law as an important brake on runaway government spending, especially since voters have rejected other tax and expenditure limitations at the polls.

Whose money is it? 

Whether the kicker law is good or bad public policy doesn’t change the answer to a more fundamental question: Whose money is it?

Some argue that the kicker money really belongs to the state. After all, they say, it’s in the state’s coffers because individuals paid what the tax law said they owed on their tax returns. As long as any Oregonian has a “need” for that money—be they school children, the elderly, the disabled, etc.—then the money should go to them instead of back to the individuals who earned it.

How much is that latte? 

Of course, this is the Marxist “from each according to his ability, to each according to his need” justification. Taken further, not only would the kicker money remain with the state, but the state could retroactively come after even more of your previous income if, in the wisdom of government officials, anyone still “needed” those funds.

One way to look at this argument is to think about walking into a coffee shop today and ordering a $3 latte. The price is posted on the wall, but the person behind the counter asks you a question before accepting your order. “Did you get a raise last year?” “Yes,” you tell her proudly, “I was very productive last year and my boss gave me a 10 percent raise.” “That’s great,” she replies. “The $3 latte will cost you $3.30.” “Why?” you wonder. “Because your ability allows me to better meet my needs.”

You wouldn’t accept this argument from your barista, and you shouldn’t accept it from your government.

Envy is a powerful emotion, but it should not trump reason. If we can find a better way to restrain runaway government spending, we should do so. But until that day arrives, the kicker law is one defense against those who argue that some of the money you earned belongs to someone else just because they “need” it.

Steve Buckstein is Senior Policy Analyst and Founder of Cascade Policy Institute, Oregon’s free market public policy research organization. You can find more Cascade Commentaries on Oregon’s kicker law here.

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Metro’s Poorly Thought-Out Grants Program

By Justus Armstrong

Portland’s Metro Council plans to award grants for its Investment and Innovation program this fall. The program seeks to strengthen the local infrastructure for waste reduction; but with a combination of corporate welfare and vague performance measures, its methods are murky at best and unethical at worst.

With $9 million in funding over three years, Metro’s program offers grants of up to $500,000 to both non-profit and for-profit organizations for projects in line with Metro’s waste reduction goals. The grants are limited to costs tied to waste reduction projects; but padding companies’ expenses to benefit these projects goes outside the scope of Metro’s stated goals and undermines the competitive marketplace. Most citizens, and Oregon’s Constitution, would oppose tax funding for privately owned corporations. Apart from its good intentions and “green” packaging, what makes this project any different?

Metro’s Investment and Innovation program lacks clear direction and accountability to taxpayers for results. Since the grants outsource waste reduction to third parties, Metro can offer no estimates of the program’s ability to actually reduce waste. Metro is handing out taxpayer money for hypothetical benefits that are unlikely to match the price tag.

Justus Armstrong is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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23 Million Reasons for Metro to Repeal Its Construction Excise Tax

By Jakob Puckett

How much do we have to tax something to make it affordable? You might think that’s counterintuitive, and you’d be right. But that’s exactly what the Portland-area Metro Council is doing with affordable housing through their Construction Excise Tax. So what is this tax? For every construction project valued at over $100,000, Metro taxes 0.12% of its value, with most of the revenue directed to fund grants to plan for affordable housing.

That number may not sound like much, but the Portland City Council also has a Construction Excise Tax, only it’s eight times higher than Metro’s, also for housing land-use planning. So two councils levy the same tax on the same people for the same purpose.

And the money raised rarely goes to constructing housing units. Metro recently approved 10 new grants; and while all of them fund more land-use planning exercises, none of them actually build new housing. This extra paperwork often leads to construction delays, creating an expensive, redundant mess for land developers.

And just how expensive has it been? Metro has renewed this tax twice, raising over $23 million for these projects, which has just made housing construction $23 million more expensive. And, in a city where every dollar put towards new housing counts, that’s 23 million reasons why Metro should repeal its Construction Excise Tax.

Jakob Puckett is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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