Category: Tax and Budget

Too Late to Fix PERS by Fooling Oregonians

By Scott Shepard

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

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

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

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

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

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

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

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

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

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

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


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

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


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

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Health Care Tax Would Hurt Middle Class

By Eric Fruits, Ph.D.

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

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

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

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

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

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

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

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

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

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

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


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

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

By John A. Charles, Jr.

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

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

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

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

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

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

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


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

 

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Whose Money Is Your Oregon Kicker Refund?

By Steve Buckstein and Kathryn Hickok

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

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

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


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

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Cascade Policy Institute Endorses Referendum 301 to Stop New Health Care Taxes on Oregonians

August 2, 2017

FOR IMMEDIATE RELEASE

Media Contact:
Steve Buckstein
(503) 242-0900
steven@cascadepolicy.org

PORTLAND, Ore. – The Cascade Policy Institute Board of Directors has voted to support State Referendum 301 which seeks to refer certain taxes approved in House Bill 2391 to the November 6, 2018 General Election ballot (unless the date is changed to January 23rd by an Act of the legislature).

The Referendum primarily seeks to refer some $333 million in new taxes, in the form of a 1.5 percent tax on health insurance premiums and a new 0.7 percent tax on certain hospitals. The Referendum does not affect the rest of HB 2391 which specifies how the state collects money to pay for the Oregon Health Plan, the state’s version of Medicaid, through assessments and taxes on health care providers.

Signatures must be filed with the Secretary of State’s office no later than October 5, 2017. The petitioners request that all signatures be returned to them no later than October 1.

Cascade Senior Policy Analyst and Founder Steve Buckstein has written in favor of the Referendum and now makes the following statements about why the Institute believes that Oregon voters should sign it:

• The Oregon legislature passed, and the Governor signed, a bill designed to generate some $550 million in new taxes on health care, hospitals, and health insurance premiums. Ostensibly, this money is needed to help balance the budget, even after strong revenue growth, and to help maintain the controversial Medicaid expansion.

• Since the bill’s passage, it has become clear that that nearly half the Medicaid recipients checked in recent months no longer qualify for benefits. This alone eviscerates the supposed need for most or all of these new tax revenues.

• Referendum 301 only targets the most egregious of the taxes in HB 2391. It allows Oregon voters a say in whether or not they want to slap a sales tax on health care.

• According to an Oregonian editorial, when word got out that someone might refer these new taxes to the ballot, legislative leaders showed “how they’re willing to protect that new revenue at all cost—even hijacking the referendum process at the core of Oregon’s identity.”

• The Oregonial editorial went on to say, “Worse, however, the bill tosses aside the usual process requiring impartial groups to describe the measure on the ballot and in the voter’s pamphlet. Instead, [they gave] all that power to a committee made up of four Democrats and two Republicans.” They also moved the referendum vote up from November 2018 to a January special election that will cost taxpayers more than $3 million. As of August 2, the Governor has not yet signed this referendum hijacking” bill, but is expected to do so.*

Petitions can be downloaded from StopHealthCareTaxes.com. They should be properly signed by registered Oregon voters and returned no later than October 1 to:

Stop Healthcare Taxes
29030 SW Town Center Loop E, Suite 202, #514
Wilsonville, OR 97070

Questions to the petitioners can be addressed to info@stophealthcaretaxes.com.

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

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Cascade Policy Institute is a 501(c)(3) non-partisan, non-profit public policy research organization. Its mission is to promote public policies that foster individual liberty, personal responsibility and economic opportunity in Oregon.

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Oregon’s New Health Care Taxes Are Unjustifiable

By Lydia White

Soon after the Oregon Legislature passed a bill expected to generate $550 million of tax revenue to help pay for Medicaid, the state found nearly 45% of all Medicaid recipients are currently ineligible to receive health care benefits.

The bill imposes a sales tax on health insurance premiums and hospital revenue that will be borne by Oregonians. For example, 217,000 people in the individual market and over 11,000 college students who buy their own health insurance are among the hundreds of thousands of Oregonians who will pay. Local Oregon school districts will pay some $25 million and community colleges will likely be forced to raise tuition costs, all because of these new taxes.

If the state hadn’t awarded Medicaid benefits to over 37,000 unqualified people, costing $191,000,000, wasted over $300,000,000 on the failed Cover Oregon insurance exchange website, or spent an additional $166,700,000 on another failed IT system, even proponents of these new sales taxes would have had a hard time justifying them.

Fortunately, Rep. Julie Parrish (R) and two other state legislators are gathering signatures to refer these taxes to the ballot at what might be a January special election. They need almost 59,000 voter signatures by October 5th to qualify for the ballot.

To help hold Oregon’s political leaders and health care bureaucracies responsible, download and sign a petition at StopHealthCareTaxes.com.*

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


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

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Stop Health Care Taxes dot com

By Steve Buckstein

The Oregon legislature just passed, and the Governor signed, a bill designed to generate some $550 million in new taxes on health care, hospitals, and health insurance premiums. Ostensibly, this money is needed to help balance the budget, even after strong revenue growth, and to help maintain the controversial Medicaid expansion.

According to an Oregonian editorial, when word got out that someone might refer these new taxes to the ballot, legislative leaders showed “how they’re willing to protect that new revenue at all cost—even hijacking the referendum process at the core of Oregon’s identity.”

“Worse, however, the bill tosses aside the usual process requiring impartial groups to describe the measure on the ballot and in the voter’s pamphlet. Instead, [they gave] all that power to a committee made up of four Democrats and two Republicans.”

They also moved the referendum vote up from November 2018 to a January special election that will cost taxpayers more than $3 million.

The petitioners have just 90 days to collect nearly 59,000 valid voter signatures to refer the most egregious of these new taxes to the ballot.

These allow insurance companies to pass on to many of us, their policyholders, a new 1.5 percent tax on health insurance premiums in the state, at a time when premiums are rising out of sight already.

If you want to vote on the new premium taxes, go to StopHealthCareTaxes.com, download, sign and return a Petition sheet today.*

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


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

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Transportation Finance Isn’t as Complicated as Legislators Make It

By John A. Charles, Jr.

Some members of the Oregon Legislature think you don’t pay enough to travel. Therefore, they are considering a 298-page bill that would create multiple new transportation taxes.

The draft legislation, HB 2017, includes dramatic increases to vehicle registration fees, higher gas tax rates, a new sales tax on the purchase of motor vehicles and bicycles, and a statewide tax on all employees to subsidize transit.

In addition, a percentage of money currently paid by customers of investor-owned electric and gas utilities would be diverted to subsidize electric vehicle owners.

Billions of dollars would flow to various bureaucratic entities, with little accountability. Those of us paying the taxes would hardly know we’re paying them, and we would have no idea how the money was being spent.

The legislative strategy of simply “throwing money” at transportation is not going to work, because it’s already been tried. For example, TriMet riders only account for about 10% of all revenue in the FY 18 budget; the rest of TriMet’s income is derived from various backdoor taxes.

The agency’s most lucrative income source is the regional payroll tax, authorized by the legislature decades ago. TriMet has been raising its payroll tax rate almost every year since 2005 and will continue to do so through 2024. As a result, the agency now collects over $366 million annually from employers to subsidize transit operations. Yet, in the first decade after tax rates began rising, TriMet service actually declined.

Much of the new money went to pay for generous union contracts rather than the promised service improvements. The result: In 2016, employee benefits equaled 123% of wages. In other years the ratio has been as high as 149%. This is not a finance model that we should emulate.

The best way to improve any kind of service is to have a tight fit between what we pay as consumers and what we get in return. If we don’t know the real price, we can’t evaluate the purchase. And if taxpayers are being forced to subsidize unrelated services, there can be no fiscal discipline.

A better option would be to euthanize this 298-page monstrosity and work to implement highly-targeted user fees. The social costs of travel such as congestion, road wear, and noise pollution vary considerably by time of day, direction of travel, weight of the vehicle, and other factors. The user fees that we pay should account for these differences.

Gasoline taxes and vehicle registration fees are poor user fees because they are fixed, mostly invisible, and not time-sensitive. But new technologies now allow us to collect the full cost of each trip in real time by all modes of travel.

Some auto insurance companies already collect detailed driving data because they sell mileage-based policies. Millions of American drivers also own toll tags for use in modern tollways. And many transit operators use digital technology to collect variable fees based on distance traveled, type of service, and time of day.

User fees should be precisely calculated, and revenues should be dedicated to maintaining and improving the services paid for by consumers, with no cross-subsidization of other modes.

Transportation finance doesn’t have to be complicated. Legislators only make it that way when they don’t want you to know where the money is going.

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

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Kicker Envy 2017

By Steve Buckstein

Individual Oregon income taxpayers may receive kicker refunds when they file their 2017 tax returns based on a percentage of the state income tax they paid in 2016. Based on the May revenue forecast, $408 million could be coming back to taxpayers, with the average refund being $210. A final determination of whether the kicker will “kick” and how big it will be should be announced on August 23.

But even before those potential refunds reduce our 2017 tax liability, some are questioning whose money it is, and others seem envious that the “rich” will get much bigger refunds than the rest of us. 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.

Next, some argue that the kicker “lavishes a windfall on those who don’t need it.” They point to the top one percent of taxpayers with adjusted gross incomes over about $386,000 who would receive more than $4,500 each, while the average taxpayer would only get back $210. 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.

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.


Oregon Income Tax Calculator: https://smartasset.com/taxes/oregon-tax-calculator


Steve Buckstein is Senior Policy Analyst and Founder of Cascade Policy Institute, Oregon’s free market public policy research organization. An earlier version of this Cascade Commentary was published in November 2007.

 

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Overtaxed and Underbuilt

By John A. Charles, Jr.

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

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

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

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

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

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


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

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Oregon Legislature Should Make It Easier for Individuals to Enter the Landscaping Business

Below is a letter being distributed to all members of the Oregon House of Representatives prior to their voting on House Bill 3337 in the 2017 Oregon Legislative Session, which would make it easier for individuals to enter into the landscaping business in this state.


April 20, 2017

Floor Letter in support of HB 3337

Cascade Policy Institute supports passage of HB 3337 which creates a limited landscape construction professional license. This bill is in line with the framework for policymakers on occupational licensing issued by the Obama White House in 2015 which found…

“…the current [occupational] licensing regime in the United States…creates substantial costs, and often the requirements for obtaining a license are not in sync with the skills needed for the job. There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across state lines.”  And…

“There is ample evidence that States and other jurisdictions should review current licensing practices with an aim toward rationalizing these regulations and lowering barriers to employment.”

The White House report also argues that reducing barriers to employment is especially helpful for “marginalized persons such as young people, minorities and individuals with felony convictions.” It notes a 2012 report by the Institute for Justice, License to Work, which found that Oregon is the third most broadly and onerously licensed state, placing it in the top tier just below Arizona and California. Oregon licenses 59 of the 102 low-to-moderate-income occupations studied. Surprisingly, only ten states even licensed landscape contractors. Oregon is one of them.

There is growing awareness on both ends of the political spectrum that many state occupational licensing laws actually stifle economic opportunity and make it particularly hard for lower-income people to move their way up the economic ladder and use their entrepreneurial talents for their own benefit and the benefit of all Oregonians. Licensing can also marginalize consumers who suffer the most when goods and services they need cost more by keeping more people from vying for their business.

HB 3337 is a step in the right direction for those Oregonians who want to work and start landscaping businesses without the burden of excessive occupational licensing restrictions. We urge its passage.

Sincerely,
Steve Buckstein, Senior Policy Analyst and Founder, Cascade Policy Institute


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

 

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

By John A. Charles, Jr.

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

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

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

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

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

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

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


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

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

By Eric Fruits, Ph.D.

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

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

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

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

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

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

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

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

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

 

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

 


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

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Budget-planning--cm

Facing Reality – Suggestions to balance Oregon’s budget without raising taxes

Contributors: Jeff Kropf; Steve Buckstein, Eric Fruits, Ph.D.

Summary

Despite an eight percent increase in general fund revenues, Governor Kate Brown and some lawmakers say the State of Oregon is facing a $1.7 billion budget shortfall in the 2017-19 biennium to maintain current services, to pay for the state’s increased share of the cost of Medicaid expansion, and to fund education ballot measures approved by voters. In addition, Governor Brown has released a budget that increases general fund spending by seven percent over the 2015-17 legislatively approved budget. Her budget expands entitlements and raises taxes, fees, and charges by nearly $275 million for the general fund alone—yet does nothing to address the state’s worsening 1 public pension crisis. While the Oregon economy is improving, the recovery has been uneven, and income for the average Oregonian is still about eight 2 percent lower than the national average. At the same time, the state’s high and rising housing costs mean that Oregon’s cost of 3 living is 15 percent higher than the national average. In other words, the average Oregonian earns less, but pays more for basic items—like housing, food, and transportation—than the average American. Oregon legislators and other policy makers must face the reality that the state simply cannot afford costly new programs or costly expansions to existing programs. In reality, Oregon cannot afford to continue some of the existing programs that drain the state’s budget year after year. This report identifies several straightforward solutions to the state’s current budget crisis for savings of nearly $1.3 billion in the 2017-19 biennium. Each of these solutions are “doable.” In addition, for agencies not listed in this report, reductions equal to across-the-board reductions of about three percent from Governor Brown’s budget would eliminate the shortfall she identified. If implemented, none of the tax and fee increases outlined in the Governor’s budget would be necessary.

READ THE FULL REPORT HERE

 

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There’s Never Enough Money for Government

By John A. Charles, Jr.

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

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

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

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

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

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


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

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Metro Should Dump the Garbage Tax

By Allison Coleman

Portland-area voters just approved Ballot Measure 26-178, which imposes a five-year property tax that will generate $80 million dollars for Metro to maintain parks owned by the agency.

On the surface, this seems like a wonderful thing; everyone likes parks, and they need to be maintained. However, local residents are already paying a Metro garbage tax of $2.50 per ton, originally intended for this very purpose.

In 2002 the Metro Council enacted a garbage tax to pay for the operating costs of parks. In 2004 the tax was raised from $1.50 per ton to $2.50 per ton. Between 2004 and 2015, this tax brought in $46.8 million dollars for Metro.

In 2006, Metro “undedicated” the tax, meaning it would still be collected but the money would be swept into the general fund for other purposes.

This year, the Metro Council claimed they needed the operating levy to maintain their parks, but they never told voters about the garbage tax.

Metro should do the honorable thing and repeal the garbage tax. Voters may not mind paying for parks, but there is no reason to tax them twice.


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

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Portland’s 100% Renewable Energy Claim Is “Greenwashing”

By Allison Coleman

In 2001, the Portland City Council declared that by 2010, all electricity used by city agencies would come from renewable energy. However, by 2010, only 9 percent of Portland’s power was renewable.

Undeterred, in 2012 Portland leaders again declared that city agencies would achieve 100 percent renewable energy. This time around, the city managed to get up to 14 percent.

Today, Portland has magically declared victory, claiming that municipal electricity use is 100% renewable. However, this is a blatant case of greenwashing. Portland is currently generating only 9 percent of its electricity from city-owned biogas and solar facilities. Another 15 percent is claimed from “green power” sold by Portland General Electric.

The remaining 76 percent of city use comes from a conventional mix of coal, gas, nuclear, and hydro. Portland then pretends to offset this by purchasing so-called “Renewable Energy Certificates” (RECs).

Unfortunately for consumers, an individual REC is not a unit of electricity; it is simply is a certificate claiming to represent the “environmental amenities” associated with one megawatt-hour of electricity generated by sources such as wind and solar. You cannot charge your phone or cook dinner with a pile of RECs because they don’t actually exist.

Last year, Portland spent $104,539 purchasing 74,671 RECs to create the image of 100 percent green power consumption. Every dollar spent buying those RECs was wasted money. Portland taxpayers should demand an end to this green power charade.


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

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

By John A. Charles, Jr. and Allison Coleman

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

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

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

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

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


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

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Does Oregon Rank Dead Last in Corporate Taxes? NO

Trying to sell voters on the largest tax increase in Oregon history, Measure 97 proponents claim that Oregon ranks dead last in corporate taxes.” But the nation’s leading independent tax policy research organization, The Tax Foundation, says this claim is misleading. It looked at three ways to rate corporate taxes and found:

• Oregon’s top marginal corporate income tax rate is the 18th highest in the nation.
• On a revenue per capita basis, Oregon’s corporate income tax is the 28th highest.
• The Foundation’s State Business Tax Climate Index ranks Oregon 37th nationally for overall corporate income tax structure.

The dead last corporate tax claim relies on two national reports (AEG, COST) that look at total business tax burdens, not just the tax burdens of large C corporations; the only entities directly targeted by Measure 97. Even so, both these reports make clear that they rate Oregon’s business tax burden low not because corporate taxes are low, but rather because Oregon doesn’t have a sales tax.

As the COST report notes, “If sales tax revenue is excluded…[Oregon] moves from the lowest…to the 20th-lowest rate.”

Misleading voters about Oregon’s corporate tax structure may simply be a tactic to keep us from focusing on the fact that Measure 97 is really a hidden sales tax on steroids that will hit every Oregonian. When we realize that, Measure 97 should suffer the same fate as every other statewide sales tax measure – defeat.

Read much more about Measure 97 and why you should vote against it on
Cascade’s Measure 97 webpage.

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Does Oregon Rank Dead Last in Corporate Taxes? NO

By Steve Buckstein

Trying to sell voters on the largest tax increase in Oregon history, Measure 97 proponents claim that “Oregon ranks dead last in corporate taxes.” But the nation’s leading independent tax policy research organization, The Tax Foundation, says this claim is misleading. It looked at three ways to rate corporate taxes and found:

  • Oregon’s top marginal corporate income tax rate is the 18th highest in the nation.
  • On a revenue per capita basis, Oregon’s corporate income tax is the 28th highest.
  • The Foundation’s State Business Tax Climate Index ranks Oregon 37th nationally for overall corporate income tax structure.

The “dead last” corporate tax claim relies on two national reports (AEGCOST) that look at total business tax burdens, not just the tax burdens of large C corporations, the only entities directly targeted by Measure 97. Even so, both these reports make clear that they rate Oregon’s business tax burden low not because corporate taxes are low, but rather because Oregon doesn’t have a sales tax.

As the COST report notes, “If sales tax revenue is excluded…[Oregon] moves from the lowest…to the 20th-lowest rate.”

Misleading voters about Oregon’s corporate tax structure may simply be a tactic to keep us from focusing on the fact that Measure 97 is really a hidden sales tax on steroids that will hit every Oregonian. When we realize that, Measure 97 should suffer the same fate as every other statewide sales tax measure—defeat.

Read much more about Measure 97 and why you should vote against it on Cascade’s Measure 97 webpage.

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“The Rent Is Too Damn High!” — Why Rent Control Won’t Help

Once again, Portland led the nation this July with its home prices rising 12.4 percent year-over-year versus the national average of just 5.0 percent. As of April, Portland remained the 12th most expensive rental market in the nation. These numbers are not unrelated. Housing prices are often related to what units can be built for, whether they are single-family homes or multifamily apartment houses.

Whatever the causes of rising rents in Portland and elsewhere, the political fix bubbling to the surface not only won’t help most people afford housing, it likely will make the situation worse. That political fix goes by the name of rent control.

Last year, Willamette Week published an informative and entertaining piece entitled “The Five Myths About Portland Apartments.” In response to Myth 3, which is that rent control is the answer, Jerry Johnson of Portland real-estate consulting firm Johnson Economics noted:

“Rent control is an Econ 101-level policy disaster. If you happen to get one of the rent-controlled units, good for you. But it’s basically a lottery of who wins and who loses.”

Apparently unaware of the policy disaster that rent control forebodes, Oregon Speaker of the House Tina Kotek recently proposed allowing localities to enact their own rent control programs. She also wants to end so-called “no-cause” evictions and to ban rent increases above a “reasonable” percentage “for the foreseeable future.” In her prepared remarks she said, “Our housing crisis is a man-made emergency that demands bold action,” and, “We have privileged the right to make a profit on property far above the universal human right to safe and stable housing.”

Our housing crisis may very well be a man-made emergency. If so, the Speaker has misdiagnosed the cause, which has more to do with Oregon’s “man-made” restrictive land use laws than it does greedy landlords. And, the “bold action” she proposes likely will make the situation worse.

Economists of virtually every political stripe reject rent control as a viable way to improve housing affordability. They recognize what too few of our political leaders and voters recognize: namely, that controlling the price of a commodity, in this case rental housing, actually harms the very people the policy is designed to help. They know from economic theory and observation over many decades The High Cost of Rent Control. They know that it misallocates housing resources, heightens tensions between landlords and tenants, stifles private investment in affordable housing, and leads to deterioration and eventual abandonment of the very housing stock that middle- and lower-income tenants wanted it to protect for them at affordable prices.

Three local economists were quick to respond to Speaker Kotek’s suggestions:

“Rent control just sends us a couple hundred miles closer to San Francisco in terms of housing policy,” said Gerard Mildner, director of the Center for Real Estate at Portland State University.

“It’s almost textbook that any form of rent control ultimately harms consumers, as well as landlords,” said Eric Fruits, an economist and editor of Portland State University’s Center for Real Estate quarterly reports. “It may benefit some in the short term, but in the longer term, there will be fewer units available to rent, which will only make matters worse.” Instead, Fruits said, the free market should be allowed to work, with higher prices sending signals to developers that more units are needed.

“The demand for urban living is increasing and cities are not increasing the supply nearly fast enough,” Portland economist Joe Cortright said. “The only solution is to build new housing.”

As an Oregonian editorial then pointed out:

“Among other things, limiting rent growth dampens future investment in housing, inflates rents for unregulated units and discourages residents who secure rent-controlled units from moving, even when it’s in their best interest.”

In a lively discussion on social media following Speaker Kotek’s pronouncements, one person responded to her call for an end to “no-cause” evictions:

“No cause eviction benefits good tenants. When the bad guys move in, they threaten the good tenants who are afraid to testify about their behavior. The good tenants become prisoners in their apartments while the bad guys run wild. A landlord’s only defense is to become more restrictive on who they will rent to, therefore decreasing options for all renters.”

Even self-proclaimed “progressive” Portland city commissioner, Steve Novick, notes:

“…most economists say rent control has unintended consequences, including a decline in the production of new rental housing.”

While this is true, in “progressive” Portland and in the state Capitol economic laws are often trumped by political laws that make people feel better for a while, until economic reality rears its ugly head. Of course by then those who passed the laws have often moved on.

Accountability is rarely a part of the political process, which may be why it so often leads to unintended consequences that harm the very people the politicians were trying to help. Unfortunately, we may be destined to repeat this process again as rent control lurches onto the 2017 legislative agenda.


* Political activist and frequent candidate Jimmy McMillan memorably used “The Rent Is Too Damn High!” as his main campaign issue, slogan, and the name of his political party during his campaigns, including the 2010 New York gubernatorial election.

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Cascade Policy Institute Says NO to Measure 97

ELECTION RESULT: 59 percent of Oregon voters said NO to this sales tax on steroids. Only 41 percent voted to impose it on all of us.
Measure 97 on Oregon’s November 2016 ballot would impose the biggest tax increase in Oregon history: a sales tax on steroids, hidden behind the facade of being a $3 billion annual Gross Receipts Tax on business. It will raise taxes by $600 per capita.
Contrary to claims that it is only a tax on big corporations, the nonpartisan Legislative Revenue Office found that it will act largely as a consumption tax on Oregonians, with lower-income households being hurt the most. Prior to receiving its ballot measure number, Measure 97 was known as Initiative Petition 28.
Below are factual and opinion sites to understand what the measure is and why it is in effect a sales tax on steroids, hidden behind the facade of being a tax on business.

•  Text of Measure 97 (IP28)

•  No on Measure 97: Defeat the Tax on Oregon Sales

The official campaign to defeat Measure 97

•  Does Oregon Rank Dead Last in Corporate Taxes? NO

by Steve Buckstein, Cascade Policy Institute, October 2016

•  Improve Education Outcomes Through ESAs, Not Measure 97’s Hidden Sales Tax

by Steve Buckstein, Cascade Policy Institute, September 2016

•  Measure 97: A $30 Billion Gamble Oregon Voters Shouldn’t Make

by Steve Buckstein, Cascade Policy Institute, August 2016

•  Cascade Policy Institute Opposes Measure 97,
the “Sales Tax on Steroids”

Media Release, August 2016

•  Like a Sales Tax on Steroids

by Steve Buckstein, Cascade Policy Institute, July 2016

•  A Sales Tax by Any Other Name

by Steve Buckstein, Cascade Policy Institute, June 2016

•  Assaulting “Corporate Profits” Will Hit Average Oregonians

by Steve Buckstein, Cascade Policy Institute, October 2015

•  Shifting the Cost of Measure 97 Forward

The Tax Foundation, October 2016

•  Supporters of Measure 97 Mislead On Corporate Taxes

The Tax Foundation, September 2016

•  Gross Receipts Taxes: Lessons from Previous State Experiences

The Tax Foundation, August 2016

•  Oregon Initiative Petition 28: The Threat to Oregon’s Tax Climate

The Tax Foundation, April 2016

•  Oregon Legislative Revenue Office Report on IP 28

(now Measure 97)

•  Portland State University Report on IP 28

(now Measure 97)

•  Oregon Legislative Counsel Opinion Letter on Measure 97

Concluding that contrary to proponents’ claims, “the Legislative Assembly may appropriate revenues generated by the measure in any way it chooses.”

Willamette University Economics Professor and Cascade Policy Institute Academic Advisor Fred Thompson has written a series of informative blog posts related to IP28/Measure 97 on the Oregon Economics Blog:

Why Are State Corporate Income Taxes Disappearing?
Tax Mavens Talk About Disappearing State Corporate-Income-Tax Revenues; Oregon Did Something About It
Where, Oh Where, Has Oregon’s Corporate Tax Gone? Where, Oh Where, Can It Be?
Update on IP28
More Background on IP28 (Measure 97?)
Measure 97: Any Pinocchios Yet?
The LRO’S Research on Measure 97

 

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Measure 97: A $30 Billion Gamble Oregon Voters Shouldn’t Make

The massive gross receipts tax Measure 97 on Oregon’s November ballot (previously known as Initiative Petition 28) is guaranteed to suck more than three billion dollars a year out of the productive private sector and deposit them in state coffers. What isn’t guaranteed is how all this new government spending might impact the state economy.

While union proponents of this “sales tax on steroids” argue that putting more money into education and other public services will be good for the state, two reputable economic studies don’t show it.

A nonpartisan Legislative Revenue Office report looks ahead five years and sees no positive economic effects showing up by then. While LRO economists may believe there will be positive effects later, that assumes the money will be spent effectively by a state that has a poor track record of doing so.

A Portland State University report, actually paid for by the measure’s public employee union proponents, looked ahead ten years and still found no positive economic effects showing up. Again, the PSU economists assume there will be positive effects eventually, but their model doesn’t show them.

So, we’re left with this inconvenient truth: If Measure 97 passes, taxpayers will send more than $30 billion to the state over the next ten years without any noticeable positive economic effects to show for it. That’s a $30 billion gamble that Oregon voters should turn down.

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Oregonians Should Oppose Measure 97’s Regressive Taxation

The biggest proposed tax increase in Oregon history now has a measure number. Measure 97 on this November’s ballot would create a 2.5 percent gross receipts tax on C corporations with Oregon sales above $25 million.

Contrary to union claims, Measure 97 will not simply tax big out-of-state corporations. As the non-partisan Legislative Revenue Office Report has found, it will act primarily as a consumption tax on Oregonians. The estimated cost of this tax is $600 per year per person, with lower-income households being hurt the most. It is an eight-times-larger tax increase than Measures 66 and 67, which voters approved six years ago.

“Corporate taxes” are really paid by individuals, including consumers in the form of higher prices, employees in the form of lower compensation, and owners in the form of lower profits. The union backers of Measure 97 know this but claim that it will simply make corporations “pay their fair share.” This tactic is not only misleading, but if successful will harm every Oregon taxpayer.

Consumers will see price increases that in many cases will be much more than the stated 2.5 percent rate, without having any idea that the cause is Measure 97. As such, Measure 97 is the epitome of a regressive tax, and Oregonians should oppose it.

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Cascade Policy Institute Opposes Measure 97, the “Sales Tax on Steroids”

FOR IMMEDIATE RELEASE 

Media Contact:

Steve Buckstein
steven@cascadepolicy.org

503-242-0900

PORTLAND, Ore. – Cascade Policy Institute’s Board of Directors has voted to oppose Measure 97, the 2.5 percent gross receipts tax on C corporations with Oregon sales above $25 million. It would be the biggest tax increase in Oregon history.

Contrary to union claims, Measure 97 will not simply tax big out-of-state corporations. As the non-partisan Legislative Revenue Office Report has found, it will act primarily as a consumption tax on Oregonians. The estimated cost of this tax is $600 per year for every man, woman, and child, with lower-income households being hurt the most.

As the national Tax Foundation has noted, by seeking to raise more than $6 billion per biennium, Measure 97 will increase total state taxes by approximately 25 percent. It is an eight-times-larger tax increase than Measures 66 and 67, the tax increase measures that were on the 2010 ballot.

Following the Cascade Board vote, Cascade’s President and CEO John A. Charles, Jr. released this statement:

“All corporate taxes are paid by individuals, including consumers in the form of higher prices, employees in the form of lower compensation, and/or owners in the form of lower profits. The union backers of Measure 97 know this, but cynically claim that it will simply make corporations ‘pay their fair share.’ This tactic is not only misleading, but if successful will harm every Oregon taxpayer.”

“As the two most reputable studies (LRO and PSU) on the effects of Measure 97 to date conclude, it will act largely as a consumption tax on Oregonians. As the former State Economist and chief author of the PSU study noted in March, it will be ‘like a sales tax on steroids.’ That is because Measure 97 will tax multiple transactions from production, through processing, through distribution, through the ultimate retail sale.”

“Measure 97 is especially punitive because unlike retail sales taxes that often exempt necessities such as food, medicine, and housing, Measure 97 will tax everything. Consumers will see price increases that in many cases will be much more than the stated 2.5 percent rate, without having any idea that the cause is Measure 97.”

Two recent Cascade publications on the ballot initiative that is now Measure 97:
Like a Sales Tax on Steroids
A Sales Tax by Any Other Name

About Cascade Policy Institute:

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

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Like a Sales Tax on Steroids

Now that the massive Gross Receipts Tax measure IP 28 will be on Oregon’s November ballot, we likely will see many estimates of its impact on the state economy.

An economic research center at Portland State University just came out with its report on the measure, funded by the measure’s sponsor, union-backed Our Oregon.

Too bad that the sponsors picked a center headed by a respected former Oregon State economist who said publicly in March that their proposal would be “like a sales tax on steroids.”

Dr. Tom Potiowsky now chairs the PSU Economics Department and directs the Northwest Economic Research Center at the university. While the new PSU report doesn’t include the “sales tax on steroids” language that he personally used in March, it does confirm that such taxes “share many characteristics with sales taxes, and thus a greater burden on lower income households.”

The report also finds that because the tax will increase the cost of doing business in Oregon, it will destroy some 13,500 private sector jobs by 2027, while the added tax revenue will enable government employment to grow by 33,600 positions over the same period.

So, the tax will most hurt those least able to afford it, and will shift employment from the private to the public sector. Not bad for a sales tax on steroids.

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A Sales Tax by Any Other Name…

Public employee union backers of Initiative Petition 28 have turned in more than enough signatures to place their massive 2.5 percent gross receipts tax measure on Oregon’s November ballot.

While supposedly dedicating most of the $6 billion per biennium additional tax revenue to public education, health care, and senior services, in reality legislators would be under pressure from powerful lobbyists in the Capitol to substitute at least some of this new revenue for money they would otherwise dedicate to those services. In short, the loudest voices in Salem, not voters, will ultimately control where this extra tax money goes.

While the unions portray their measure as making large, out-of-state corporations pay their fair share of Oregon taxes, the nonpartisan Legislative Revenue Office has released a detailed report giving a much more balanced perspective, which includes:

■ IP 28 will increase state and local taxes by $600 per year on average for every man, woman, and child in Oregon, totaling over $6 billion each full biennium.

■ IP 28 will dampen income, employment, and population growth over the next 5 years. In fact, it is expected to reduce employment growth by more than 20,000 jobs over the next five years, with private sector job growth slowing while public sector job growth accelerates in order to spend all that new tax money.

■ IP 28 will hit lower- and middle-income Oregonians harder than it will affect high-income earners. In other words, it is a regressive tax.

Perhaps most telling, the Legislative Revenue Office concludes that IP 28 will act largely like a consumption tax. It estimates that roughly two-thirds of that $6 billion per biennium tax increase will be passed on to Oregon consumers in the form of higher prices. Another name for a consumption tax is a sales tax.

The reality that IP 28 would effectively be a sales tax should be a lesson for all Oregonians that businesses generally don’t pay taxes, people do. Even the largest corporations are made up of people, namely employees, and sell their goods and services to other people, namely customers. It is largely these two groups of people who pay so-called business taxes like the one that IP 28 would impose.

The backers of IP 28 certainly understand that it is really a tax on people, not corporations. But, it is harder to get voters to approve a tax measure when they think it will hit them with rising prices at the store and fewer job opportunities. Better to promote the fiction that big faceless corporations have some magic pots of money that they will simply hand over to state government and public employees without any consequences for the rest of us.

Public employee unions back IP 28 because most of the tax revenue it would generate will go into the pockets of their members. Once the rest of us realize that this money will come primarily out of our pockets, we might not be too excited about voting for this massive new money grab.


 

A version of this article originally appeared in The Coos Bay World on June 1, 2016.

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A Sales Tax by Any Other Name…

Public employee union backers of Initiative Petition 28 have turned in more than enough signatures to place their massive 2.5 percent gross receipts tax measure on Oregon’s November ballot.

While supposedly dedicating most of the $6 billion per biennium additional tax revenue to public education, health care, and senior services, in reality legislators would be under pressure from powerful lobbyists in the Capitol to substitute at least some of this new revenue for money they would otherwise dedicate to those services. In short, the loudest voices in Salem, not voters, will ultimately control where this extra tax money goes.

While the unions portray their measure as making large, out-of-state corporations pay their fair share of Oregon taxes, the nonpartisan Legislative Revenue Office has released a detailed report giving a much more balanced perspective, which includes:

■ IP 28 will increase state and local taxes by $600 per year on average for every man, woman, and child in Oregon, totaling over $6 billion each full biennium.

■ IP 28 will dampen income, employment, and population growth over the next 5 years. In fact, it is expected to reduce employment growth by more than 20,000 jobs over the next five years, with private sector job growth slowing while public sector job growth accelerates in order to spend all that new tax money.

■ IP 28 will hit lower- and middle-income Oregonians harder than it will affect high-income earners. In other words, it is a regressive tax.

Perhaps most telling, the Legislative Revenue Office concludes that IP 28 will act largely like a consumption tax. It estimates that roughly two-thirds of that $6 billion per biennium tax increase will be passed on to Oregon consumers in the form of higher prices. Another name for a consumption tax is a sales tax.

The reality that IP 28 would effectively be a sales tax should be a lesson for all Oregonians that businesses generally don’t pay taxes, people do. Even the largest corporations are made up of people, namely employees, and sell their goods and services to other people, namely customers. It is largely these two groups of people who pay so-called business taxes like the one that IP 28 would impose.

The backers of IP 28 certainly understand that it is really a tax on people, not corporations. But, it is harder to get voters to approve a tax measure when they think it will hit them with rising prices at the store and fewer job opportunities. Better to promote the fiction that big faceless corporations have some magic pots of money that they will simply hand over to state government and public employees without any consequences for the rest of us.

Public employee unions back IP 28 because most of the tax revenue it would generate will go into the pockets of their members. Once the rest of us realize that this money will come primarily out of our pockets, we might not be too excited about voting for this massive new money grab.


A version of this article originally appeared in The Coos Bay World on June 1, 2016.

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Voters Decided to Leave Themselves Stranded by the Side of the Road

In the month since voters in Austin, Texas upheld new city regulations on ridesharing companies like Uber, the law of unintended consequences has been confirmed.

Austin’s highly regulated taxi industry got the city to impose strict regulations on their competition, but Uber and Lyft threatened to pull out of the city rather than comply with rules they said would be bad for them and their customers. The ridesharing companies backed an initiative to repeal the regulations.

As one pundit noted, a majority of voters decided “…to leave themselves stranded by the side of the road frantically searching for a ride. Well, that’s not what they’d say they did. Strictly speaking, they voted to stick it to corporate interests—by supporting political interests who favored other corporate interests.”

The unintended consequences of that vote included about 10,000 ridesharing drivers losing their employment, bars losing business as people had fewer ways to get home safely, and disabled residents looking for new ways to get around the city.

The market responded quickly with unregulated “black market” services such as Austin Underground Ride springing up to meet demand.

Austin voters may not have realized that the only way big corporations become big in a free market is by meeting consumer demand. In this case, Uber and Lyft may become a little bit smaller, but everyone in Austin lost some of their transportation freedom.

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If Gambling Is a Problem, Who Is Responsible?

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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A Sales Tax by Any Other Name

Public employee union backers of Initiative Petition 28 appear to have turned in more than enough signatures to place their 2.5 percent corporate gross receipts tax on Oregon’s November ballot.

While the unions portray their measure as making large, out-of-state corporations pay their fair share of Oregon taxes, the nonpartisan Legislative Revenue Office (LRO) just released its more balanced perspective, which includes:

■ IP 28 will increase state and local taxes by $600 per year on average for every man, woman, and child in Oregon, totaling over $6 billion each full biennium.

■ IP 28 will dampen income, employment, and population growth over the next 5 years.

■ IP 28 will hit lower- and middle-income Oregonians harder than it will affect high-income earners. In other words, it is a regressive tax.

■ Finally, the Legislative Revenue Office concludes that IP 28 will act largely like a consumption tax. It estimates that roughly two-thirds of the $6 billion per biennium tax increase will be passed on to Oregon consumers in the form of higher prices.

Another name for a consumption tax is a sales tax.

Public employee unions back IP 28 because most of the tax revenue it would generate will go into the pockets of their members. Of course, that revenue will come out of everyone else’s pockets.

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New Report: Transportation Funding Should Be a State and Local Responsibility

Study Finds That Transportation Funding Should Be a State and Local Responsibility

May 4, 2016 

FOR IMMEDIATE RELEASE

Media Contact:
John A. Charles, Jr.

503-242-0900

john@cascadepolicy.org

PORTLAND, Ore. –  In a study released today by Cascade Policy Institute, economist Randall Pozdena recommends that transportation regulation and finance devolve from the federal government to state and local governments. In addition, the study recommends that most transportation taxes be replaced with targeted user fees, to ensure that those who pay for services receive benefits commensurate with those payments.

For over 30 years, the federal government has assumed a disproportionately large role in the regulation and subsidization of transportation services. Yet, most travel is local. For instance, the Cascade research paper found: 

  • More than 50% of all household trips, by all modes, are less than five miles long
  • More than 90% are less than 20 miles
  • 92% of freight shipments are less than 500 miles, by weight

Despite the dominance of local travel, 32% of all transportation funding flows through federal processes.

Of the various transport modes, private freight, airline travel, and pipeline shipments are the least regulated and least subsidized. These modes benefit from high levels of private ownership and capital investment, subject to normal market discipline.

Highway travel and transit suffer from the most distortions and cross-subsidies through federal intervention. As a result, most urban areas face growing levels of traffic congestion, and large urban transit systems are seriously (and often tragically) under-maintained.

The transit industry, which has steadily become a government-sponsored enterprise since passage of the Urban Mass Transit Act of 1964, is the sector most in need of a new business model. According to Dr. Pozdena,

“By definition, transit trips are extremely short and not important parts of larger networks. Federal and state governments should be out of the transit sector altogether, and rely on fare box revenue to ensure that the cost of the service is worthwhile to the user.”

For comparison purposes, Dr. Pozdena calculates that it costs roughly $60,000 to recruit one new additional transit rider in Oregon, which is 10 times the cost of providing new highway capacity for one additional auto commuter.

The Portland region in particular suffers from a mode imbalance in which vast sums of federal and state dollars have been spent on lightly-used passenger rail lines, while new highways and bridges have been canceled or delayed. This problem can be solved by inviting private investors to build needed new facilities through toll-based payments, and implementing time-of-day pricing schemes to ensure free-flow travel conditions on the regional highway system.

Last week the Oregon legislature announced the formation of an 18-person task force to study transportation funding for the 2017 legislative session. According to John A. Charles, Jr., CEO of Cascade Policy Institute,

“The Oregon Legislature has struggled unsuccessfully for decades to devise a sustainable transportation funding system. As yet another task force prepares to scale the fortress wall with the same weapons used in previous assaults, members should consider a new approach including targeted user fees rather than broad-based taxes, electronic tolling and variable pricing, elimination of political mandates prohibiting new highway facilities, and market-based reforms including privatization.

“These principles work everywhere else in the economy; they would work in the transportation sector as well, if we allowed them.”

The full report, Devolution of Transportation: Reducing Big Government Involvement in Transportation Decision-Making, can be downloaded here.


Founded in 1991, Cascade Policy Institute is Oregon’s premier policy research center. Cascade’s mission is to explore and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. To that end, the Institute publishes policy studies, provides public speakers, organizes community forums, and sponsors educational programs. Cascade Policy Institute is a tax-exempt educational organization as defined under IRS code 501(c)(3). Cascade neither solicits nor accepts government funding and is supported by individual, foundation, and business contributions. The views expressed in Cascade’s reports are the authors’ own.

 

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Who Profits from Gambling?

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

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

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

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

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

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

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

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Enjoy the illusion that you’re not really paying taxes, when you cash that expensive refund check

Are you happy getting three extra days to file your income tax returns this year?

For nearly eighty percent of us, it doesn’t matter much because we are expecting refunds. No check writing for us. Why? Because the withholding system almost encourages over-withholding, thus giving the impression that we don’t pay taxes, the government pays us!

Try a little experiment. Ask ten of your friends how much they paid in taxes. Chances are, eight of them might say something like, “I didn’t pay anything, I’m getting money back!”

This happened because my hero Milton Friedman had one of his few bad ideas when he proposed the withholding concept while working at the Treasury Department during World War II. The government needed money fast to finance the war effort, and as Friedman said years later:

“It never occurred to me at the time that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom. Yet, that was precisely what I was doing.”

Of course, by over-withholding we’re just giving the government an interest-free loan. But psychologically, doesn’t it feel nice getting that refund check?

So, enjoy the illusion that you’re not really paying taxes when you cash that expensive refund check. You paid dearly for it!

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How Much of the Year Do Your Taxes Cost?

If every penny earned since the beginning of the year went to pay federal, state, and local taxes, Americans would have to work until the middle of April just to cover their tax bills. Tax Freedom Day is a calendar-based illustration of the cost of government which divides all taxes by the nation’s income. By this calculation, Americans typically work more than a hundred days a year, and pay about a third of their earned income, to all levels of government.

But this is only what Americans actually pay, not what government spends. If annual federal borrowing were taken into account, representing future taxes owed, Tax Freedom Day wouldn’t occur until May. That’s more than two weeks of federal government spending paid for by borrowing.

Americans pay more in taxes ($4.85 trillion) than they do on food, clothing, and housing combined. The saying goes, you should “work to live, not live to work.” But the more government grows, the more Americans are working less to live and more to pay for runaway government spending. That leaves fewer resources to invest in the real engines of economic growth: private sector businesses that create jobs and produce goods and services for a market fueled by Americans’ hard-earned purchasing power.

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No Fake Emergencies

I’ve written and spoken about the damage that minimum wage laws do, not only to business owners, but to their customers and their younger, less experienced, and less educated workers and potential workers.

Normally, bills become law in Oregon no earlier than 90 days after the end of the legislative session in which they pass. But the latest ill-advised minimum wage bill had an Emergency Clause attached, so it becomes law today, the day the Governor signed it. Why is a law that phases in wage increases over six years deemed an Emergency? Because supporters didn’t want to let voters refer it to the ballot.

A real emergency, such as a major earthquake or other natural disaster, may require immediate state action, which is what the Emergency Clause is for. But over half of all bills passed by the legislature last year contained such a clause. Most were emergencies only in the political sense, not the real sense.

It’s time to stop such political games by putting the No Fake Emergencies initiative on the November ballot. It will restore Oregonians’ Constitutional rights to refer most laws to a vote of the people if they wish. Bills will still be able to take effect immediately in the face of real emergencies, just not fake ones.

You can sign the petition to place this initiative on the ballot by going to NoFakeEmergencies.com.


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

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Not One Dollar More

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

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

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

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

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


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

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Policy Picnic – February 25, 2016


Please join us for our monthly Policy Picnic led by Cascade President and CEO John A. Charles, Jr.


Topic: The 2016 Oregon Legislative Session

Description:  Every other year the Oregon Legislature meets for just one month. Come get the inside scoop on what happened in Salem this February and what it means for you, your family, or your business.

There is no charge for this event, but reservations are required as space is limited.  To reserve your free tickets, click here.

Admission is free. Please feel free to bring your own lunch.
Coffee and cookies will be served. 
 
Sponsored by:
Dumas Law Group
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Taxpayers Bear the Risk of a Very Rich Oregon Public Employees Retirement System

By Randall Pozdena

The Oregon Public Employees Retirement System (PERS) fund is, once again, in the news because of its weak financial condition. The Oregon Supreme Court recently rejected cost containment changes to PERS plans. Also, asset returns have been weaker than hoped. The Oregonian reported last December 1 that PERS’ unfunded actuarial liability (UAL) was likely to be $20.5 billion by the January 1, 2016—an amount equal to 27 percent of Oregon household income.

The PERS experience illustrates the hazard of legislating defined-benefit (DB) pension plans for public employees. If, as courts have ruled, such legislation creates a contract, the state and other public employers have little ability to manage unanticipated plan risks. The problem is aggravated because DB plans tempt politicians to make overly lavish promises today because risks are only manifest in the future. The complexity of defined-benefit plan actuarial mathematics helps obscure the risks of bad plans.

The origin of the PERS funding problems is 1975 legislation that promised a guarantee against low fund asset returns—specifically, returns below those assumed by the plan itself. In addition, between 1975 and 1999, the PERS board went further, crediting most excess returns to beneficiaries. Set-asides for the inevitable decline in returns grew to be woefully inadequate.

I learned of this crucial feature from the fund’s actuary in 1993—my second year of service on the Oregon Investment Council (OIC). The heads-we-win, tails-employers-lose arrangement was unique among state plans and there was little appreciation of the risks it posed. In fact, however, the crediting process is tantamount to a very risky derivatives strategy—called selling “naked put options”—with employers and taxpayers de facto bearing the risk.

Since the burden of this practice was not known, the OIC requested one of its consultants to make this measurement. An attorney for the unions later characterized this as “pushing buttons [Pozdena and the OIC] had no business pushing.” The dire implications for fund solvency were presented at a PERS board retreat after a year of extraordinarily large asset returns in 1999. The board was urged to not credit that year’s excess return, but did so anyway.

The “winners” in this risky game were Oregon public employees in the plan for the longest time (“Tier 1”). According to PERS data, 2006 Tier 1 retirees with 30 years of experience enjoy average retirement income equal to 100 percent of their final average salary (FAS)—a 100 percent replacement rate. The average replacement rate for all 30-year retirees between 1990 and 2014 is 81 percent. In contrast, a 30-year private DB retiree in our census region enjoyed a replacement rate of just 51 percent in 2010. Moreover, in 2015, only 19 percent of private workers have access to a DB plan, and 54 percent have access to a defined contribution (DC) plan.

I have calculated that, to enjoy a 50 percent replacement rate after 30 years using a DC plan, workers have to invest 18 percent of their income yearly. To achieve 81 percent or 100 percent, like some PERS beneficiaries, they would have to put aside 30 percent or 40 percent of each year’s salary, respectively.

There is an axiom in finance that “risk does not go away; it can only be put on someone else.” There are only three ways to manage risk in this case. One is to achieve better asset returns. But the OIC and the Treasury have limited ability to do so without incurring further risk to plan solvency. The second way is to reform, after the fact, historical crediting excesses. This option is foreclosed by Oregon Supreme Court rulings. The court considers legislated pension plans to be de facto contracts with inviolate features. The state can, and has, created less risk-prone plans for future employees, but this cannot extinguish existing risk. The third way to shift risk is through increased taxation of private incomes and/or termination of public employees and loss of their services. Taxing private incomes is tantamount to making the private sector bear its own plus PERS risks. It also poses macroeconomic risks. Professor Alexander Volokh of Emory Law School has suggested outsourcing or privatization of public services as a means of lowering pension costs that limits economic and service losses.

Randall Pozdena, Ph.D. and CFA, is a consulting economist and former professor and research vice president of the Federal Reserve Bank of San Francisco. He is also a former member and chair of the Oregon Investment Council and a Cascade Policy Institute Academic Advisor.

A version of this commentary was originally published in The Oregonian on December 10, 2015 as “Why PERS is under water yet again.”

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U.S. Supreme Court Today Hears Teachers’ Case to Be Free from All Union Dues

FOR IMMEDIATE RELEASEMedia Contact:
Steve Buckstein
503-242-0900
steven@cascadepolicy.org

PORTLAND, Ore. – The U.S. Supreme Court hears oral arguments this morning in the Friedrichs v. California Teachers Association case aimed at protecting the First Amendment rights of free speech and free association for public employees nationwide, including Oregon.

Rebecca Friedrichs and nine other California public school teachers argue that their Constitutional rights are being violated by the collection of so-called “fair share” or “agency” fees from their paychecks to pay for services the teachers don’t want, from a union whose political goals they oppose.

The Court has long allowed both public and private sector employees to opt out of union membership and the political portion of union dues, but has allowed unions to collect fees for bargaining and representation purposes. Now, Rebecca Friedrichs and her colleagues are arguing that in the public sector, everything their union does is inherently political and therefore they should not be compelled to support that organization with their money.

Organizations and individuals across the country have filed Amicus Briefs with the Court in this case, including two Oregon public employees who have opted out of membership in the labor union that represents them, but are still “…required to make ‘payments-in-lieu-of-dues’ to SEIU….” Their brief was submitted by local attorneys Jill Gibson and James Huffman. Mr. Huffman is Dean Emeritus of Lewis & Clark Law School in Portland and an Academic Advisor to Cascade Policy Institute.

Cascade Policy Institute founder and Senior Policy Analyst Steve Buckstein notes that,

“In bringing her case to the U.S. Supreme Court Rebecca Friedrichs may become the most well-known public school teacher in America—and the most controversial. She is taking this action because, in her own words, ‘It’s time to set aside this union name-calling and all this fear mongering, and let’s put America and her children first, and let’s put the rights of individuals above the rights of these powerful unions.’”

Buckstein adds,

“Cascade Policy Institute stands with Rebecca Friedrichs and her colleagues in this important First Amendment struggle. We look forward to the Court ruling in favor of individual rights above the rights of what Rebecca calls ‘these powerful unions’.”

The Court is expected to announce its ruling near the end of June.

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

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Freedom in Film: Becket (1964)

Film and stage legend Peter O’Toole died December 14, 2013, at age 81. Best known for his epic Lawrence of Arabia, O’Toole is also remembered for his dramatization of King Henry II in Becket (1964), for which he received one of his eight Academy Award nominations. What makes Becket particularly special is the dynamic, intense interaction of two larger-than-life Hollywood personalities, with Richard Burton arguably giving one of his best performances in the title role.

Becket concerns the complicated relationship between King Henry and the Archbishop of Canterbury, who is also the King’s best friend. Henry nominates Thomas Becket for England’s highest ecclesiastical position because he believes Thomas will always side with the King in disputes between the increasingly autocratic power of the State and the independence of the Church. What Henry cannot foresee is that Becket will take his ordination seriously and use his office to defend the legal rights of the Church and promote the civil rights of minorities. Like Sir Thomas More centuries later (whose life and fate resemble Thomas Becket’s), Becket becomes “the King’s good servant, but God’s first.”

American viewers today may experience Becket primarily as a story about the separation of Church and State in a context far removed from the modern world. Yet, in a broader and subtler sense, the film strongly highlights the reasons why we need separation of powers among branches of government.

The power struggle between Henry and Becket takes place in the 12th century, before the adoption of the Magna Carta. At that time, there were few checks on the power of the monarch, and tensions between the King and the barons ran deep. While the King needed a quorum of nobles and knights to support his decisions, few ambitious people dared to take the losing side. The only sector of society which the King could not completely influence was the Church. With its legal structure, rights of “sanctuary” (where accused persons could take refuge while seeking to prove their innocence), and authority figures capable of negotiating with heads of state on behalf of minorities, the Church of the Middle Ages was the only consistent counterbalance to the monarch.

The adoption of the Magna Carta in 1215 was an important milestone in the evolution of English constitutional law. It limited the power of the monarch, guaranteed various rights and liberties to “freemen,” and set the stage for the eventual development of modern parliamentary government in the English-speaking world. When the U.S. Constitution was adopted more than 550 years later, the Founding Fathers recognized the crucial importance of checks and balances. No one person or group of people should be allowed to concentrate all the powers of law, taxation, administration of justice, and war (not to mention religion) in their own hands. The framers of the Constitution created three distinct branches of government so that no one could become an autocrat like Henry, and the U.S. government would not devolve into a brawl among factions.

The Saxon Thomas Becket’s courage in standing up to a Norman King of England, and his tragic betrayal, have been so deeply imprinted upon the English imagination that the events of the night of December 29, 1170 have been memorialized famously from Chaucer, to T.S. Eliot, to O’Toole and Burton’s Becket. If you are looking for an unusual film for Christmas week, look no further than Becket, and watch it in honor of valor and freedom on December 29.

Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Portland program at Cascade Policy Institute.

(A version of this article was originally published December 17, 2013.)

 

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Portland Worries About Homelessness, While Metro Makes Housing Less Affordable

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

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

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

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

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

 

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Policy Picnic – September 16, 2015


Please join us for our monthly Policy Picnic led by Cascade guest speaker Herb Grey


Topic: The Regulatory State: The Revival of Absolutism

Description: 

Today our lives are increasingly regulated by decisions of unelected bureaucrats at all levels of government, from simple zoning and land use decisions to IRS audits to judicial pronouncements imposing monetary sanctions and other conditions ordaining how we conduct business (and with whom).

Is this a necessity required by the complexities of modern life, or merely the raw exercise of government power as old as kings and queens? What do the United States and state constitutions say about it? Should we as citizens continue to tolerate it? What, if anything, should we do to limit or stop it?

Herb Grey is a Beaverton attorney with almost 35 years of civil practice experience handling a variety of cases, including constitutional and civil rights litigation in state and federal courts, as well as practicing before administrative agencies. He is a member of the Oregon State Bar and is admitted to practice in all Oregon state courts and before the U.S. District Court in Oregon, the Ninth Circuit Court of Appeals, and the United States Supreme Court.

Herb is an allied attorney affiliated with Alliance Defending Freedom, a Christian public interest law firm, and a long-time member of the Christian Legal Society. Herb is currently serving as lead counsel defending Aaron and Melissa Klein, dba Sweet Cakes by Melissa, in a high-profile freedom of conscience case investigated, charged, prosecuted, and decided by the Oregon Bureau of Labor and Industries and Commissioner Brad Avakian, now on appeal.

There is no charge for this event, but reservations are required as space is limited.

Admission is free. Please feel free to bring your own lunch.
Coffee and cookies will be served. 
 
Sponsored by:
Dumas Law Group
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Most Teachers Oppose Mandatory Union Fees

A national education journal, EducationNext, has just released results of its annual poll asking a number of education-related questions. One question has particular relevance now because this happens to be National Employee Freedom Week, a nationwide campaign offering an unparalleled focus on the freedoms union employees have to opt out of union membership.

The EducationNext poll asked people in general, parents, and teachers, among other demographic groups, how they feel about mandatory union fees. Here is the exact question asked in the poll:

Some say that all teachers should have to contribute to the union because they all get the pay and benefits the union negotiates with the school board. Others say teachers should have the freedom to choose whether or not to pay the union. Do you support or oppose requiring all teachers to pay these fees even if they do not join the union?

Only 34 percent of the general public supports such mandatory union fees, while 43 percent oppose them.

Only 31 percent of parents support such fees, while 47 percent oppose them.

Most surprising of all, only 38 percent of public school teachers support mandatory union fees, while 50 percent oppose them. As a Reason.com “Hit & Run” blog post notes, “It’s not just non-unionized teachers who think this; unionized teachers made up almost half the sample, and only 52 percent of them said agency fees should be mandatory.”

One public school teacher who opposes mandatory fees could be instrumental in seeing them banned not only for all teachers, but for all public employees across America. California teacher Rebecca Friedrichs has filed a lawsuit against the California Teachers Association, arguing that mandatory fees violate her Constitutional First Amendment rights of free speech and free association. The U.S. Supreme Court recently agreed to hear her case, with a decision likely by next June.

While the Court ruled in 1988 that no one must join a union or pay the political portion of union dues, many workers are still required to pay so-called “fair share” non-political union fees for services such as collective bargaining. Now the Court will take up the argument that at least in the public employment setting, all union activities can legitimately be considered political.

Rebecca Friedrichs says, “It’s time to set aside this union name calling and all this fear mongering and let’s put America and her children first, and let’s put the rights of individuals above the rights of these powerful unions.”

It is clearly time to put individual rights above those of the powerful unions, and now we know that even most teachers agree.

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Put Individual Rights Above Those of Powerful Unions

By the time the U.S. Supreme Court rules in the Friedrichs v. California Teachers Association case next June, Rebecca Friedrichs may be the most well-known public school teacher in America—and the most controversial. She is asking the Court to uphold the Constitutional First Amendment free speech and free association rights of all California public school teachers, and by extension all public sector workers across America, against the demands of unions that now require even non-members to pay “agency fees” or “fair share dues.”

The Friedrichs case is just the latest to come before the Supreme Court pitting individual workers against the powerful unions that seek to take their money without their consent. In Abood v. Detroit Board of Education (1977), public sector unions were allowed to impose fees on all workers for collective bargaining purposes. Then, in Communication Workers of America v. Beck (1988), the Court found that unions could not compel fees for political purposes that workers opposed. Finally, just last year in Harris v. Quinn, the Court went further and ruled that at least some workers could opt out of both the political and bargaining portions of public sector union dues. This set the stage for freeing all public sector workers from any forced union dues, which is what the Friedrichs decision hopefully will accomplish.

In Oregon, there also may be a citizen’s initiative on the ballot next November granting freedom from all union dues for public employees. Public employees are the focus of this initiative, and the Friedrichs case, because it has become clear that all public sector union activities are political, including the inherently political act of collective bargaining with public bodies. Union arguments that they should collect fees from all workers because they represent them all increasingly ring hollow because unions lobby to represent everyone. They could just as well lobby to only represent those who voluntarily agree to pay them.

Several scientific surveys have been conducted to see how the public and members of union households feel about these issues. The 2013 survey found that more than 30 percent of Oregon union households would opt out of union membership if they could do so without penalty. Last year, more than 80 percent of all Oregonians surveyed agreed that employees should be able choose whether or not to join a union or pay union dues. This year’s survey again asked members of union households the following question:

“Are you aware that you can opt-out of union membership and of paying a portion of your union dues without losing your job or any other penalty?”

Surprisingly, over 27 percent of Oregon union household members surveyed answered No. This implies that over 65,000 of Oregon’s some 243,000 union members don’t realize that membership and some dues are optional. This is even more surprising given that their so-called “Beck rights” granted by the Supreme Court in 1988 are named after Harry Beck who is now retired in Oregon and still advocating for worker freedom.

These surveys were conducted for National Employee Freedom Week, which this year runs from August 16th through the 22nd.

Rebecca Friedrichs is taking her case to the Supreme Court because, in her own words, “It’s time to set aside this union name calling and all this fear mongering and let’s put America and her children first, and let’s put the rights of individuals above the rights of these powerful unions.”

“Put[ting] the rights of individuals above the rights of these powerful unions” is something every Oregonian should support.

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“Right to Try” Is a Good First Step, Should Be Expanded

By Anna Mae Kersey

Oregon House Bill 2300 gives terminally ill patients access to potentially life-saving drugs or investigational products not yet approved by the FDA that they might otherwise die waiting for.

While the necessity of such a bill is largely uncontroversial, and since last year more than 20 states have passed similar legislation, restrictions are included in Oregon’s law that severely limit the types of terminally ill patients who would be eligible for this kind of treatment.

As passed unanimously by both the House and the Senate, HB 2300 leaves out children with fatal illnesses and patients in the early stages of cancer or progressive neurodegenerative diseases like ALS, and instead holds them subject to the same restrictions as those seeking “Death with Dignity” or assisted suicide. These patients, who have the possibility of living long and fulfilling lives during which their illnesses might be contained, if not eliminated, are denied this prospect, along with the fundamental human right to care for themselves.

HB 2300 is a good start in the direction of increasing medical autonomy for the terminally ill in Oregon. However, in future legislative sessions the law needs to be expanded so that terminally ill patients seeking to exercise their “Right to Try” are not subject to the same constraints as those seeking the “Right to Die.”

Anna Mae Kersey is a research associate at Cascade Policy Institute, Oregon’s free market think tank. She recently graduated from Mercer University in Macon, Georgia with an Honors B.A. in Philosophy and is pursuing a Master’s of Liberal Arts at St. John’s College in Santa Fe, New Mexico.

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Taking Leave of Sickness

By Maxford Nelsen

A version of this article by Freedom Foundation labor policy analyst Maxford Nelsen originally appeared in The American Spectator on July 1, 2015.

Oregon’s Legislature just passed a law requiring employers with 10 or more employees to offer five days of paid sick leave to their employees per year, making Oregon the fourth state to adopt sick leave mandates for employers, following Connecticut, California, and Massachusetts. Oregon employers with fewer than 10 employees must offer five days of unpaid sick leave per year.* At the federal level, President Obama called for a national paid sick leave law in his 2015 State of the Union address.

But while labor activists treat paid sick leave like a proxy war against Wall Street, the casualties are all on Main Street. In practice, paid sick leave mandates like Oregon’s fall short of supporters’ expectations and are startlingly ineffective at achieving their basic goal of keeping sick employees from coming to work.

Only about 10 studies have attempted to measure the impact of existing paid sick leave regulations, which took off after San Francisco adopted a sick leave ordinance in 2006. A Freedom Foundation report, which was informally reviewed by academic and professional economists, evaluated the existing research and came to some surprising conclusions.

First, while supporters argue that public health demands mandating paid sick leave, workers come to work sick just as often with a mandatory paid sick leave policy as they do without one. Of the five studies to examine the effect of mandatory paid sick leave laws on workplace illness, four found no reduction. One study for the Seattle City Auditor noted that the lack of any decline in workplace illness “seemingly contradicts the intent of the [Seattle] ordinance.”

Second, mandatory paid sick leave laws do nothing to reduce turnover. One methodologically questionable study of Connecticut’s paid sick leave law by a pro-sick leave advocacy group reported a slight decrease in turnover, while a more credible study of Seattle’s paid sick leave ordinance by the University of Washington reported effectively no changes in turnover.

The result should not come as a surprise. As one small business owner in San Francisco—who offered paid sick leave—explained, “Since the new ordinance, employees will have the same benefit no matter where they work. There’s less of an incentive to stay and work for me.”

Third, consumers, workers, and employers are all negatively affected by mandatory paid sick leave policies. Employer surveys indicate that affected businesses frequently respond to paid sick leave laws by increasing prices, decreasing employee benefits and hours, and limiting expansion. Even after taking steps to offset the additional expenses, many businesses report reduced profitability.

Fourth, studies tend to exaggerate employer support for mandatory paid sick leave laws. All four of the studies that asked employers whether they supported the mandate found a majority of employers were supportive. In each case, however, a majority of employers were already mostly or completely in compliance with the law and had to make few changes in response, with the rate ranging from 50 to 89 percent.

While it is hardly surprising that unaffected businesses support a mandate that places additional costs on their competitors, most businesses that had to create new or modify existing policies appear to be opposed to paid sick leave mandates. Many of these businesses also report significant difficulty implementing the mandates.

Lastly, some paid sick leave laws are designed to promote union organizing. Paid sick leave statutes in at least San Francisco, Seattle, Washington, D.C. and Oregon’s new law contain provisions that allow labor unions to waive sick leave requirements in collective bargaining.

Such statutes allow unions to approach non-union employers and offer to waive the sick leave requirements in exchange for the employer’s cooperation in unionizing employees. Studies of San Francisco and Seattle’s sick leave ordinances indicate the waivers are frequently used.

But if paid sick leave is a basic workers’ right, as labor activists contend, why should union workers be the only ones exempt?

Overall, the evidence indicates that requiring employers to provide paid sick leave benefits produces few appreciable benefits and even raises costs.

Oregon’s course may be set, but it’s not too late for other states and the federal government to take heed of the evidence and approach paid sick leave mandates with a healthy dose of skepticism.

* “Employers with Portland operations and who employ at least six employees anywhere in the state will similarly be required to provide up to 40 hours of paid sick leave benefits. Employers with fewer than 10 Oregon-based employees, and fewer than six employees, if operating in Portland, must provide up to 40 hours of unpaid sick leave per year.” Source:  http://www.natlawreview.com/article/oregon-enacts-paid-sick-leave

Maxford Nelsen is Labor Policy Analyst at the Freedom Foundation in Washington State and a guest contributor for Cascade Policy Institute, Oregon’s free market research organization. A version of this article originally appeared in The American Spectator on July 1, 2015.

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Press Release – Should Charities Be Required to Disclose the Names of Donors?

June 12, 2015

FOR IMMEDIATE RELEASE

Media Contact:

John A. Charles, Jr.

503-242-0900

john@cascadepolicy.org

Should Charities Be Required to Disclose the Names of Donors?

PORTLAND, Ore. – Cascade Policy Institute hosted a debate on the topic of donor privacy versus donor disclosure at the Multnomah Athletic Club in Portland June 1. The event was prompted by a growing number of legislative proposals in other states to regulate charitable giving the same as political giving, which requires disclosure of the names, addresses, and employers of contributors.

More than 100 attendees were treated to an engaging discussion between James Huffman, Dean Emeritus of the Lewis & Clark Law School, and Dan Meek, a public interest attorney and Co-chair of the Independent Party of Oregon. The debate was moderated by Nigel Jaquiss, Pulitzer Prize-winning journalist with Willamette Week.

Complete video of the event is available online at cascadepolicy.org.

Attendees were surveyed by email after the debate. Of 83 attendees with email addresses, 30 people responded to the survey.

When asked, “On a scale of 1 to 5, with 1 favoring total donor privacy in charitable giving and 5 favoring complete public disclosure, how would you rank your personal values?”, 33% favored total donor privacy. 27% favored total disclosure.

70% of survey respondents said they would not “support state legislation to require that all nonprofit charitable organizations disclose the names, addresses, and amount of donation for all contributors in the previous year.” 20% said they would support such legislation, and 10% were unsure.

Of those who responded, 37% said the debate persuaded them to reconsider their assumptions about donor privacy.

According to Cascade Policy CEO John A. Charles, Jr., “Donor privacy is important because excessive public disclosure requirements can be used to intimidate people who wish to anonymously support certain charitable causes. This debate shone much-needed light on all aspects of the issue. Most importantly, a third of respondents indicated that the speakers made them reconsider their views. This is the sign of a successful public discussion.”

The donor privacy debate was sponsored by Cascade Policy Institute and the Arthur N. Rupe Foundation. Roggendorf Law LLC and The Federalist Society Portland Lawyers Chapter also cosponsored.

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Event Video – Do Citizens Have a Right to Privacy in Charitable Giving?

Cascade Policy Institute hosted a debate on the topic of donor privacy versus donor disclosure at the Multnomah Athletic Club in Portland on June 1, 2015.

Attendees were treated to an engaging discussion between James Huffman, Dean Emeritus of the Lewis & Clark Law School, and Dan Meek, a public interest attorney and Co-chair of the Independent Party of Oregon. The debate was moderated by Nigel Jaquiss, Pulitzer Prize-winning journalist with Willamette Week.

The debaters masterfully covered many sides of this complex issue, and the audience asked probing questions. The debate was sponsored by Cascade Policy Institute and the Arthur N. Rupe Foundation. Roggendorf Law LLC and The Federalist Society Portland Lawyers Chapter also cosponsored.

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Don’t Steal the Kicker

Would you like to pay $284 less in Oregon personal income tax next year? That’s what the average taxpayer may save if Oregon’s constitutional kicker law is allowed to take effect.

The kicker law requires that if actual state revenue for a biennium exceeds the official economic forecast by two percent or more, the entire surplus is returned to those taxpayers who earned it. It now appears that the state will collect $473 million more than projected and thus have to give all that money back to taxpayers, in the form of a 6.7% credit on their tax bill.

Well, not if State Representative Tobias Read of Beaverton has anything to say about it. He’s introduced House Bill 3555 that would suspend the kicker and send all that money to schools and the state’s rainy day fund. The bill requires a two-thirds super majority vote in both houses of the legislature, something that hopefully will be very hard to do.

Read says that his bill “gives us an opportunity to invest in the things that reflect our values as Oregonians….” Apparently, “our values” don’t include things like carrying out the intent of the voters when they put the kicker in the Oregon Constitution. “Our values” apparently also don’t include letting people keep as much of their own money as possible to spend on the things that they think will benefit their own families.

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A Generational Mistake

The Oregon Supreme Court last week struck down key 2013 legislative reforms to the Oregon Public Employee Retirement System (PERS) that would have saved taxpayers billions of dollars.

The Court in effect added some $5 billion back to the unfunded liability of the PERS system, which will now stand at over $14 billion. If not offset by new taxes or spending reductions elsewhere, public bodies such as school districts and state agencies will have to allocate even more of their budgets to pay for worker retirement benefits.

Before most Oregonians understood that the state retirement system was headed for trouble, Cascade Policy Institute published a 2001 report which concluded that “PERS is almost guaranteed to fall into steep unfunded liabilities over and over again because of its design.”

This conclusion was seconded last week when EcoNorthwest economist John Tapogna noted that “Oregon made a generational mistake in public policy, and the Supreme Court has essentially ruled that we have to live with it.” He noted, “That puts Oregon in a challenging economic position for the next couple of decades.”

The best way to keep such generational mistakes from happening again is to limit the size and scope of government so that future politicians have less control over our lives. Let’s make the $14 billion PERS generational mistake our last.

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America’s 2015 Tax Bill? It’s 31% of the Work Year

Tax Freedom Day arrives this year on April 24, six days later than it was two years ago. Tax Freedom Day is a calendar-based measure of Americans’ cumulative tax bill. It is calculated as the day on which Americans have worked long enough to pay all their taxes. Americans will have worked 114 days to earn enough money to pay this year’s combined federal, state, and local taxes. These taxes include personal income taxes, payroll taxes, corporate income taxes, and property and sales taxes.

However, this is only what Americans actually pay, not what government spends. According to the nonpartisan Tax Foundation, “Since 2002, federal expenses have surpassed federal revenues, with the budget deficit exceeding $1 trillion annually from 2009 to 2012 and over $800 billion in 2013….If we include…annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur on May 8….”

Americans currently pay more in taxes ($4.85 trillion) than they do on food, clothing, and housing combined. The saying goes, you should “work to live, not live to work.” But the more government grows, the more Americans are working less to live and more to pay for runaway government spending. That leaves fewer resources to invest in the real engines of economic growth: private sector businesses that create jobs and produce goods and services for a market fueled by Americans’ hard-earned purchasing power.

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Proposed Tobacco Tax Increase Will Simply Encourage More Smuggling

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

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

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

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

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

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When Is a Tax Not a Tax?

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

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

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

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

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

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

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

December 3, 2014

FOR IMMEDIATE RELEASE

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

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

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

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

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

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

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

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The Governor’s Budget: Much More Than Beer Money

Governor John Kitzhaber released his proposed 2015-17 budget this week. Critics were quick to argue that it’s either too much or too little, depending on their point of view. Media reports focused on his General Fund budget which, at $18.6 billion, would be an eleven percent increase over the current budget.

In an attempt to make this number seem inconsequential, one person commented on an Oregonian story that $18.6 billion over two years works out to about $6.50 per day per Oregonian. He characterized that as less than the price of one beer at a Blazer game, and noted that with the Governor’s budget “you get a whole state, and you’re only renting the beer.”

But that’s less than one third of the story. While the General Fund is, in effect, the discretionary part of the budget funded primarily by state income tax revenue, the All Funds budget is much larger.

At $66.5 billion, the Governor’s All Funds budget proposal is more than three-and-a-half times bigger than the $18.6 billion General Fund amount. Much of that comes from fees and federal funds, but it’s still our money.

So, in the words of that one-beer-a-day commenter, the Governor’s total budget proposal actually would buy every Oregonian three Blazer game beers a day. Put in a more meaningful way, that’s $16,625 over the two-year period for every man, woman, and child in the state. Or, $66,500 for a family of four. Now that’s real money.

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

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

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

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

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

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

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

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

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

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Scare Tactics Not Working in Road Tax Debates

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

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

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

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

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

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Kitzhaber’s “Clean Fuels Program” Is a Hidden Gas Tax

By Jon Egge

Many politicians on the West Coast have fallen in love with untested policies and programs they say will help solve global warming. Many of these policies are mind-bogglingly complicated. What, after all, is a low carbon fuel standard (LCFS), or clean fuels program? And how exactly do programs like “cap and trade” work? And, perhaps most importantly, how do these policies impact you, the consumer?

Here’s the dirty little secret the politicians don’t want to talk about: All of these policies are going to make it more costly to produce gasoline and diesel. In fact, that’s the intended purpose of so-called “market-based” schemes to reduce greenhouse gas emissions. By making the energy we need and use every day more costly to produce, other energy supplies—like wind, solar, biofuels, and hydrogen fuel cells—will become more competitive. And where these programs have been implemented—such as in California—they are also conveniently generating billions of dollars in new revenue for the state to spend however it pleases. That’s why climate-change policies like cap and trade and LCFS are becoming Trojan horses for hidden taxes. These revenue programs provide limited environmental benefits but generate big political paydays.

California has adopted the nation’s only LCFS, a program energy experts say is infeasible. Forcing manufacturers of gasoline and diesel fuels to meet a standard that can’t currently be met puts the state’s entire fuel supply in a very precarious position.

Now, politicians in Oregon are considering a LCFS that, if implemented, will become a new hidden gasoline tax designed to increase the cost of fuel and decrease the bank accounts of everyday motorists and businesses who rely on transportation. Hidden tax schemes increasing the costs of fuel are also regressive revenue-generating policies that hurt poor and middle-income families the most. These families spend a much larger portion of their income on transportation and fuel than wealthy families do, and hidden gas taxes therefore take a much bigger bite of their budgets. Unlike their wealthier counterparts, working families simply can’t trade their vehicles for expensive hybrids and electric cars. And because these policies aren’t transparent, consumers often have no idea why their fuel costs are rising.

We all want to improve our environment and ensure cleaner air. But punishing motorists by increasing fuel costs through hidden taxes is not the way to do it. Governor John Kitzhaber has made it clear he plans to move forward with a LCFS—even without the support of the state’s elected legislators. Last session, our Legislature, after careful consideration, declined to extend authorization for the LCFS. Under the governor’s unilateral direction, the Department of Environmental Quality is now adopting rules to push the LCFS forward.

The governor and agency bureaucrats need to be reminded, once again, that when gasoline and diesel costs go up, families and small businesses suffer. It’s time to put a stop to the hidden gas tax that is masquerading as climate change policy.

Jon Egge is a plumbing service contractor in Clackamas and serves on the Oregon Advisory Council of the National Federation of Independent Business. He is a board member of Cascade Policy Institute. This article originally appeared in The Oregonian.

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The election is coming!: A discussion of Oregon’s 7 statewide ballot measures

Please join us for Cascade’s monthly Policy Picnic led by founder and senior policy analyst Steve Buckstein on October 22, at noon.

There are seven statewide ballot measures on Oregon’s General Election ballot. Cascade has taken positions on two of them: Yes on Measure 91 to decriminalize marijuana, and No on Measure 86 to direct more tax money into subsidizing certain higher education students. Come join us in a conversation about the latest election-related issues – we’d love to hear your opinion!

Admission is free. Please bring your own lunch. Coffee and cookies will be served. Space is limited to sixteen guests on a first come, first served basis, so sign up early.

Sponsored By

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Cascade Policy Institute Gives Support to Measure 91

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

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

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

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

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

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

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

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New Poll Shows 84% Percent of Oregonians Support Employee Choice

Eighty-four percent of Oregonians support allowing union employees to leave their union without force or penalty, a concept generally referred to as Right to Work. That’s the finding of a new poll, released today by Cascade Policy Institute as part of National Employee Freedom Week, which runs from August 10 to 16. NEFW is a grassroots campaign of 77 organizations in 44 states dedicated to helping union employees learn about their right to leave their unions.

The poll, with a sample size of 500 Oregon residents, asked this question: “Should employees have the right to decide, without force or penalty, whether to join or leave a labor union?” Of the respondents, a resounding 84 percent answered Yes.

The coalition also released a poll showing 82.9 percent of Americans nationwide support the Right to Work principle. Currently, 24 states have passed Right to Work laws which allow workers to leave their union without penalty or having to pay dues to an organization they choose not to belong to. Because of a deal struck by Governor John Kitzhaber, Oregonians won’t have the opportunity to end forced union dues in the public sector this year.

The poll results are significant because Oregon and twenty-five other states require workers to pay so-called “fair share” dues even if they decline union membership and refuse to pay the political portion of union dues. The other 24 states have taken advantage of federal Right to Work law that lets workers choose not to pay any dues at all if they decline to join a union. The federal government also prohibits forced union dues in its own workplaces; yet unions still represent some federal workers, and they represent workers in Right to Work states who voluntary choose to join.

Cascade Policy Institute founder Steve Buckstein notes, “Most Oregonians now support letting workers decide whether to both join and pay any dues to a union. Cascade research finds significant economic benefits if Oregon becomes a Right to Work state, but employee choice is more than an economic issue. It’s a profoundly moral one as well. No one should be compelled to pay union dues in order to hold a job.”

Unions often do as little as is required by law to inform their employees that they have the right to opt out. But as previous NEFW polling illustrates, over 33 percent of those in union households want to leave. Therefore, educational efforts like NEFW are necessary to inform and educate union members about their workplace rights and empower them to make the decision about union membership that’s best for them. More information is available at www.EmployeeFreedomWeek.com and at Cascade’s new website, www.OregonEmployeeChoice.com.

The poll was conducted by Google Consumer Surveys, between July 11 and July 31, 2014. It surveyed adults nationwide, including roughly 500 Oregonians and has a margin of error of approximately 3.76 percent.

Cascade Policy Institute is Oregon’s free market public policy research center. Cascade’s mission is to explore and promote public policies that advance individual liberty, personal responsibility, and economic opportunity.

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A Prescription for Affordable Housing in Portland

A new issue faces Portland. City Hall is considering waiving development fees for developers of market-rate housing in the Old Town Chinatown district. Chinatown is Portland’s oldest neighborhood and has earned an unpleasant reputation. City Hall claims that waiving these fees, which cover a project’s impact on urban infrastructure, can stimulate building in Chinatown. In the past, only developers of so-called “affordable housing” have been granted this waiver.

Critics argue that this is an expensive subsidy for big businesses which aren’t providing affordable housing. However, they assume that market-rate rent is permanent, no matter how much housing is built. This may not be true. As the supply of market-rate apartments increases in Chinatown, the market rate can be expected to decrease. Essentially, housing is made affordable by supplying more of it.

Waiving fees deprives certain city bureaus of funds; but perhaps these funds could be better spent, in this case, by private developers. If the City wishes to revitalize Chinatown, it needs to encourage more people to live there, and the best encouragement is lower rent. This can be accomplished by decreasing development fees and encouraging construction. More housing and lower rents could be good for Portland.

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

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Do You Know Taxes Take 30% of Your Year?

If every penny earned since the beginning of the year went to pay federal, state, and local taxes, by April 21 Americans would have worked long enough to pay this year’s tax bills (April 20 for Oregon). Tax Freedom Day is a calendar-based illustration of the cost of government which divides all taxes by the nation’s income. By this calculation, Americans will work 111 days in 2014 and pay 30.2% of their earned income to all levels of government.

But this is only what Americans actually pay, not what government spends. According to the nonpartisan Tax Foundation: “Since 2002, federal expenses have exceeded federal revenues….If we include this annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur on May 6, 15 days later.” That’s an additional two weeks of federal government spending paid for by borrowing.

Americans pay more in taxes ($4.5 trillion) than they do on food, clothing, and housing combined. The saying goes, you should “work to live, not live to work.” But the more government grows, the more Americans are working less to live and more to pay for runaway government spending. That leaves fewer resources to invest in the real engines of economic growth: private sector businesses that create jobs and produce goods and services for a market fueled by Americans’ hard-earned purchasing power.

Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Portland program at Cascade Policy Institute.

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Understanding Oregon’s Hidden Sales Tax on Energy

Please join us for Cascade’s monthly Policy Picnic led by Cascade Policy Institute President and CEO John A. Charles, Jr. on Thursday,February 27th, at noon.

Since 2002 most Oregon electricity customers have been forced to pay a monthly energy tax of at least 3% to support such groups as the Energy Trust of Oregon and the Oregon Housing and Community Services agency. Over the last decade more than one billion has been collected to improve energy efficiency and subsidize renewable power. This presentation will discuss where the money goes and outline ways to reduce or repeal the tax.

Admission is free. Please bring your own lunch. Coffee and cookies will be served. Space is limited to sixteen guests on a first come, first served basis, so sign up early.

Sponsored By

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TriMet Finally Admits Rail Problems

Last week I wrote about the problems TriMet is having with its constantly failing rail system. On Wednesday, TriMet General Manager Neil McFarlane announced that the agency is hiring an outside firm to review light rail maintenance needs. The contract will cost a maximum of $245,000.

This is an important acknowledgment by TriMet that the vaunted regional rail system is suffering from chronic breakdowns that will require ever-increasing levels of maintenance.

The ownership problems associated with rail transit are well known within the industry. Indeed, four years ago the head of the Federal Transit Administration (FTA), Peter Rogoff, gave a speech on this topic to a room full of transit executives. Mr. Rogoff reminded people that rail systems have significant long-term costs. FTA had recently concluded that there were more than $78 billion in deferred maintenance costs for public transit agencies in the U.S., and three-fourths of those costs were associated with rail systems.

TriMet management is having to face up to this reality. The supposed “operating advantages” of hauling rail cars disappear when the lifecycle costs of rail system ownership are taken into account. Bus transit doesn’t face these problems. The cost of a bus is only one-tenth the cost of a rail car; it can be sent to many locations rather than a few dozen; and the ubiquitous road system is paid for by millions of motorists, not the transit agency. This keeps the maintenance costs of bus transit to a manageable level.

Unfortunately, TriMet is in a financial free-fall, and absorbing substantial costs for depreciation and maintenance of light rail will worsen the fall for a long time to come.

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

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Meet the New Tax Reform…Same as the Old Tax Reform

Oregon Governor John Kitzhaber, fresh off his early October special legislative session “Grand Bargain” success, says he will now turn his attention to tax reform. He has plenty of company in Oregon’s recent history.

Governor Barbara Roberts, concerned that property tax limitation Measure 5 which passed in 1990 would decimate state finances (it didn’t), embarked on her Conversation with Oregon to find out what the average voter might accept in the way of tax and other reforms. Thwarted by the divided legislature, she later supported legislatively referred Measure 1 in 1993, which proposed a new five percent sales tax to fund education. The referral also offered property and income tax reductions. Voters said thanks, but no thanks, with a resounding 75% No vote. It marked the ninth time in state history that voters had rejected adding any state sales tax on top of property and income taxes.

Most recently, Governor Ted Kulongoski appointed members to the legislatively created Comprehensive Revenue Restructuring Task Force in 2007, but it was clear to me (as a member of the Task Force) that no serious “restructuring” was in the cards.

Ask the average Oregonian what “tax reform” means, and they are likely to say it means “more taxes.” And, so far they’d be correct.

Before Governor Kitzhaber has even hinted at specifics of his upcoming tax reform plan, several state legislators are fleshing out their own version of “more taxes” which includes a five percent sales tax coupled with property and income tax reductions. This time, they have in hand a Legislative Revenue Office analysis that says it will create 55,405 new jobs and raise $488 million a year in net tax revenue.

So again, this latest “tax reform” discussion seems to focus on raising more money for the state, thus leaving less money for its citizens and visitors. The concept of “spending reform” doesn’t seem to be on the table, and why should it if legislators and the Governor truly believe that government spending is more important than our own family budgets?

As I’ve noted previously, “Any sales tax is dead in this state―unless coupled with elimination of another tax. Reducing other tax rates won’t sell a sales tax.” That isn’t just my prediction, it’s the expert opinion of Portland pollster Adam Davis, based on focus groups he did for Governor Kulogoski’s Task Force in 2007 and more recent quantitative analysis that convinced him that Oregonians will not accept a third tax…period.

This latest legislative proposal seems determined to make the same mistake that legislative referral Measure 1 made in 1993, blindly hoping that somehow, some way, Oregonians will believe politicians when they promise to lower other tax rates in return for creating a new third tax. But history shows that voters don’t believe such promises. Unless the property or income tax is entirely wiped off the books (I prefer eliminating the income tax), an Oregon sales tax seems destined to be soundly defeated for the tenth time since statehood in 1859.

Even if by some miracle a third tax were approved by voters, it wouldn’t solve our state’s fiscal problems. The best way to do that is to tackle “spending reform” first, finding ways to reduce the size and scope of government. Otherwise, any “tax reform” simply will mask our fiscal problems for a while by allowing government to continue to grow until once again it prices itself above our ability to pay.

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

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Which Is the Monster? Tax limitations, or the taxes they limit

A City Club of Portland research panel has concluded that property tax limitation Ballot Measures 5, 47, and 50 have created a “Frankentax” monster that is “slowly but surely wreaking havoc upon its creators and their communities in ways they might not yet realize.”

Before we buy such arguments and repeal these taxpayer protections, let’s see what good has come from limiting property taxes:

So-called government revenue “losses” from property tax limitations are also “gains” to taxpayers who pay less than they otherwise would―in some cases enough less to keep from losing their homes.

Before Measure 5 was enacted in 1991, as a percentage of our income, Oregonians had on average the 5th highest property tax burden among all states. In 2010, that burden had dropped to 20th.*  In the first ten years Measure 5 was in effect, Oregonians saved over $5 billion.**

An Oregonian editorial about the City Club report points out: “The monster metaphor is worth pursuing because the perception of monstrosity goes both ways.” “Voters approved Measures 5 and 47/50, creating a ‘Frankentax’ system, because they wanted to protect themselves from a government-friendly system that behaved like The Blob, always consuming and expanding. The system that exists now, for all its faults, is designed to protect taxpayers at the expense of government, not government at the expense of taxpayers.”

Knowing the father of Measure 5, the late Don McIntire, as I did, I’m confident he would relish the opportunity to engage those who want to kill his creation. Far from being a Frankenstein, Don was one of the taxpayer’s best friends.

* “2013 Public Finance: Basic Facts,” Legislative Revenue Office,         http://www.oregonlegislature.gov/lro/Documents/2013BasicFacts.pdf

** “Halfway There: Measure 5 and the Road Ahead, Jamie Voykto, Cascade Policy Institute, December, 2003, https://cascadepolicy.org/pdf/fiscal/I_126.pdf

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

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The ObamaCare Exchanges: Nowhere Near As Competent As the Post Office

By Sally C. Pipes

What was the worst product launch in history? New Coke, perhaps? How about Colgate’s Dinner Entrees, the frozen food packages with a label mimicking that company’s brand of toothpaste? The Santa Dreidel? They’re all marketing masterpieces compared to the rollout of ObamaCare’s health insurance exchanges—particularly those accessible through HealthCare.gov, the portal operated by the federal government that “serves” 36 states. Though these online marketplaces officially opened October 1, they’ve thus far proven abject failures in their stated mission of expanding the availability of health insurance.

As of October 19, federal officials claimed that 476,000 people had applied online for health coverage. But there’s a big difference between the number of folks who have begun applications—and the number of people who have actually enrolled. According to insurance industry consultant Robert Laszewski, that enrollment figure could be less than five figures. Through its first week, the federal system, which was supposed to work for millions of Americans, had reportedly enrolled about 5,000 people in the 36 states it covers.
Insurers estimate that just one percent of applications submitted through the federal exchange contain sufficient information to actually enroll a person in a health plan. It’s no wonder that the Obama Administration has been mum about official enrollment figures. Visitors have often found that they can’t even log in. A CNN reporter, for instance, couldn’t do so for a whole week. A New York Times researcher failed to log in over 40 separate attempts covering 12 days.

The disastrous rollout of the federal exchange has caused even champions of ObamaCare to train their fire on the president’s team. Washington Post columnist Ezra Klein has said that the Affordable Care Act’s launch this fall has been not been “troubled” or “glitchy” but a “failure.” Robert Gibbs, President Obama’s former press secretary, wants heads to roll, saying, “I hope they fire some people that were in charge of making sure that this thing was supposed to work.”

The Administration has asked the contractors hired to build the system to perform necessary repairs in hopes of re-launching the exchange November 1. But that’s unrealistic, according to the contractors as well as outside experts. One told the New York Times that as many as five million lines of code may need to be rewritten.

Fourteen states and the District of Columbia have set up their own online exchanges. They’re faring little better than the federal exchange. Take Vermont. In the Green Mountain State, 4,300 residents created state insurance accounts. But only 700 were able to apply for insurance—and just 115 of these folks were able to enroll. In Maryland just 1,121 of the 25,781 people who created accounts were able to finish their online applications and get enrolled. That’s less than 5 percent. And the exchanges in Vermont and Maryland are among the better-working ones.

Nine of the 14 states and Washington, D.C. won’t release enrollment data. Oregon admits that its system isn’t fully operational. Hawaii’s exchange launched October 1 but couldn’t enroll anyone for two weeks. Idaho’s and New Mexico’s systems were so hopeless that the states had to turn operations over to the troubled federal system.

Meanwhile, a wide range of experts say that ObamaCare’s online systems are lacking in cyber-security measures and thus invite identity theft. The site’s designers appear not to have included ordinary protections against automated attempts by rogue hackers to falsely log into the system. So cyber criminals can potentially see a user’s social security number, where he lives, how much he makes, and so forth. According to the founder of the McAfee cyber-security company, the exchanges have “no safeguards” and their lack of protection is “outrageous.”

Then there’s the possibility of fraud. The Department of Health and Human Services will not verify the self-reported incomes of all applicants—just those of a sample. Consequently, the federal government could end up doling out millions in unmerited subsidies.

The cause of this mess is not a lack of money. The federal government has spent $634 million on its system—more than the combined cost to design and build LinkedIn and Spotify. That’s nearly seven times the original projected cost. The Obama Administration should have seen this debacle coming. A principal designer of the system, CGI Federal, was fired by the provincial government of Ontario in Canada in September 2012 for botching the province’s online medical registry. The contractor had missed three years of deadlines.

But CGI may have had an impossible task. According to the New York Times, the firm did not begin writing code for the exchange website until the spring of 2013—because the government had been so slow to issue specifications.

One month in, it’s clear that ObamaCare’s exchanges were not ready for primetime, even though Health and Human Services Secretary Kathleen Sebelius repeatedly assured the American public that the marketplaces would launch—and work—as planned. These online marketplaces must function properly if the law is to expand coverage as it promises—and if Americans are to be able to comply with its requirement that they obtain insurance. With each passing day, both are looking less likely.

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. A version of this article was originally published by Forbes.

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Welfare Pays More Than Entry-Level Work in Most States

Welfare currently pays more than a minimum-wage job in 35 states, according to a new study by the Cato Institute. In 13 states, including Oregon, being on welfare can pay more than $15 per hour. That’s over $31,000 tax-free dollars a year. This decreases welfare recipients’ incentive to accept entry-level work and increases their chances of long-term dependence.

Studies show a crucial key to escaping poverty is work, beginning with a low-wage, entry-level job if necessary. But in many states, welfare pays more than being a starting secretary or even a first-year teacher (and in three states, an entry-level computer programmer). With incentives like this, it’s hard for people with few skills to give up the security of a welfare check for any kind of paid work. Welfare benefits are tax-free, so they can exceed the take-home pay a typical recipient could expect to earn entering the workforce. This traps welfare recipients at the bottom of the economic ladder.

Many welfare recipients do want to work and are trying to find employment. But many others make the rational choice to stay on welfare if that pays more than the work for which they are qualified. If Congress and state legislators want to reduce dependence and reward work, they should strengthen welfare work requirements and resist allowing the cumulative benefits of welfare to continue outpacing the benefits of earning income.

Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Portland program at Cascade Policy Institute.

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Surprise! Mandatory Paid Sick Leave Has Real Costs

By Erin Shannon

In March, Portland’s City Council unanimously voted to enact mandatory paid sick leave for Portland businesses. While the law sounds well intentioned, it is poised to hurt the very employees it’s meant to help and may damage the businesses that employ them. A recent survey by the Employment Policies Institute (EPI) reveals that Seattle’s 2012 paid sick leave ordinance is increasing the cost of doing business there. Our law could have similar results in Oregon when it takes effect in January.

The Seattle survey targeted service industry employers, such as restaurant and retail businesses that would be newly providing paid sick leave to employees as a direct result of the new law. More than 56% of these employers said the new mandate would increase their cost of doing business, with over one quarter of those saying the increase would be “big.”

Proponents of paid sick leave argue employers will offset those increased costs through reduced employee turnover. But the EPI survey shows two-thirds of Seattle employers who have started providing paid sick leave do not believe the law will reduce turnover, and one third of Seattle employers think the law will increase unscheduled absences among employees taking advantage of the benefit even though they are not sick.

These employers are likely not off the mark. A survey by the Urban Institute in San Francisco found few employers reported reduced employee turnover as a result of that city’s paid sick leave law. As one business owner noted in that survey, if every employer is required to provide the benefit of paid sick leave, turnover becomes a moot point because that benefit is no longer an incentive for an employee to remain with one employer over another.

Regardless, many employers are not relying on offsetting increased business costs with reduced employee turnover, because they are offsetting those costs in other ways. In Seattle, employers reported that in response to the new paid sick leave mandate they had taken one of the following cost-cutting measures:

  • 15.7% of employers raised prices in response to the paid sick leave law.
  • 18.3% of employers reduced hours and staff.
  • 17.3% increased the cost to employees of current benefits, or eliminated benefits they used to offer.

These survey results are not unusual. Surveys in San Francisco and Connecticut, which both mandate paid sick leave, revealed similar results.  A survey of San Francisco employees by the Institute for Women’s Policy Research found nearly 30% of the lowest-wage employees were laid off or given reduced hours after passage of that city’s paid sick leave mandate. The Urban Institute survey similarly found some San Francisco employers had cut back employee bonuses, vacation time, and part-time help to absorb the new costs. In Connecticut, employers reported that state’s paid sick leave law forced them to raise prices, reduce hours and wages, and sometimes eliminate jobs.

There is no arguing that mandatory paid sick leave increases the cost of doing business. It is a fact. Employers are forced to pay the wages of the worker who has called in sick, while paying another worker to fill in for the sick worker. Alternatively, the employer can opt to let the sick employee’s work go unfinished and sacrifice service, productivity and sales (while still paying the sick worker). Either way, it is a cost to the employer.

Some employers, especially the larger ones, can absorb the increased cost. Others, like restaurants, already allowed employees to trade shifts with sick workers without the law, thereby costing no one. But many employers, especially those running small businesses, operate on a shoestring profit margin. When the costs to run their business go up, they simply cannot afford to absorb them. They have no other choice than to pass those costs on to consumers, or to the very workers paid sick leave is designed to protect.

Erin Shannon is Director of the Center for Small Business at Washington Policy Center in Olympia, Washington. She is a guest contributor at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Hotel Proposal Is Pouring Good Money After Bad

Last week the Metro Council unanimously approved two resolutions in favor of subsidizing a Headquarters Hotel near the Oregon Convention Center in Portland. The original idea behind the Convention Center was that with the right package of amenities, people would come to Portland and spend money eating and shopping when not attending meetings. When the Convention Center didn’t generate the hoped-for revenue, it was expanded. When occupancy rates still dropped, Portland officials started planning a hotel.

Other cities have tried this strategy, and it hasn’t worked. Subsidized convention hotels elsewhere have had disappointing results. Not only have they not increased convention business significantly, but they haven’t made their occupancy projections, either. Now those cities are saddled with money-losing convention centers and money-losing hotels.

In 2007, the Portland Development Commission (PDC) rejected the only hotel proposal that didn’t require government subsidies. The Grand Ronde Indian Tribe offered to build a hotel with private money if they could include a casino. After the PDC turned them down, a tribal spokesman said, “We refuse to raid taxpayer dollars for any project.”

The core functions of government are to protect our lives, liberty, and property, not to provide our entertainment and build convention venues. Instead of throwing more taxpayer money at the Convention Center, Portland officials should consider the advice of management guru Peter Drucker, who warned: “There is nothing so useless as doing efficiently that which should not be done at all.”

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

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Can We Correct Oregon’s High Corrections Costs?

By Brandon Maxwell

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

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

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

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

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

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

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More Money, Same Problems for Oregon Schools

By William Newell

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

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

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

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

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

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

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Blame Unions for High Prison Costs

By Brandon Loran Maxwell

What’s not to love about Oregon? It’s green. It’s hip. It’s weird. Yet, behind the cultural mystique of Oregon lies a troubling truth: Compared to similar-sized states, it has one of the fastest growing prison populations in the nation and spends 7.5 percent more per inmate than the national average—$84.81 each day.

To put $84.81 in perspective, Mississippi spends $39.56 a day—merely half of what Oregon spends. In fact, of the nation’s 14 states with populations ranging between two and five million people, ten of them spend less per inmate than Oregon. Only Iowa, Connecticut, and New Mexico spend more. So where is the money going?

Interestingly enough, of the ten states that spend less than Oregon per inmate, nine are right-to-work states. Of the four states that spend equal to or more than Oregon per inmate, three are forced-union states.

According to the Oregon Legislative Fiscal Office, entry-level correctional officers take home 24 percent more annually than surrounding states. The study also found Oregon was the only state that “did not require the employees to contribute to their health plan premiums.”

Currently, more than a dozen national and local prison employee unions operate within the United States, including Service Employees International Union (SEIU), American Federation of Government Employees (AFGE), and the American Federation of State, County and Municipal Employees (AFSCME) which boasts over 1.5 million members, 25,000 in Oregon alone.

Over the years, AFSCME has lobbied dozens of proposals with little to no regard for Oregon taxpayers, including a 25 percent pay raise which would have increased the salaries of prison health specialists to more than $80,000 a year. Likewise, AFSCME has aggressively opposed sentencing reforms aimed at reducing prison costs, and in other states even sued to keep prisons open and thriving.

In 2000, AFSCME’s international executive board condemned the privatization of prisons, saying, “Prison privatization only benefits corporations….” Newsflash: Prisons are already a business. The California Correctional Peace Officers Association spent over $1 million in 2008 to fight Proposition 5, which would have placed non-violent drug offenders in drug treatment programs instead of prisons. Why? Because it was bad for business. Union business.

Over the past decade, Oregon’s prison population has grown by more than 3,000 inmates, bringing the total number of inmates to over 14,000, spanning 14 prisons―including the $120 million Dear Ridge Correctional Institute which, despite 60 percent vacancy, still operates. On the bright side, union members still have their jobs.

Similarly, Multnomah County’s Wapato Jail has operated 100 percent vacant for almost 10 years, costing Oregon taxpayers between $300,000 and $400,000 annually.

In addition to mounting union wages and benefits, the age of the average inmate has dramatically increased over the past 15 years. Older inmates mean higher health care costs. According to a recent study by Americans for Prosperity-Oregon and Cascade Policy Institute, $21,000 in outside health care costs can be attributed annually to the average inmate older than 46. In other words, Oregon taxpayers are not only footing the health care bills for aging union members, but aging inmates as well. Who are the real prisoners?

Oregon taxpayers have a right to be upset over Oregon’s high prison costs. But until they hold the unions at least partly accountable, costs will only continue to rise.

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

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Correction Costs and Fiscal Restraint Don’t Need to Be at Odds

By Brandon Maxwell

The Founding Fathers emphasized the vital need for the rule of law in a free society. Samuel Adams wrote, “There shall be one rule of Justice for the rich and the poor; for the favorite in Court, and the Countryman at the Plough.” In a free society, rule of law means both equality and accountability before the law.

But the Founding Fathers also warned against fiscal negligence. Benjamin Franklin wrote, “The burden of debt is as destructive to freedom as subjugation by conquest.”

Oregon taxpayers would be wise to heed Franklin’s warning. According to the most recent Legislative Fiscal Office Budget Report, Oregon taxpayers are projected to spend more than $1 billion on corrections by the end of 2013. In addition, Oregon has the fifth-fastest prisoner growth rate in the nation, and the second-highest cost per prisoner, when contrasted with similar-sized states.

In a 2013 study, Cascade Policy Institute and Americans for Prosperity-Oregon found Oregon taxpayers could save between $60 and $70 million biannually simply by reducing the daily costs of inmate housing and millions more by reforming union labor costs. Rule of law is a necessary condition for a free and prosperous society, but it needn’t be bought with inefficient uses of taxpayer funds.

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

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Do You Still Trust the Government?

By John Glennon

President Obama said it himself: “If people cannot trust the government to do the job for which it exists…all else is lost.” With the IRS scandal, federal surveillance issues, and corruption cases in Portland City Hall, do you still trust the government?

The Oregonian recently reported that Jack Graham, Portland’s chief administrative officer, tried to “divert nearly $200,000 in water and sewer ratepayer money to the city’s general fund last year.” This and countless other cases where public officials have abused their power show how important it is to have strong constraints on government. Just like everyone else, government officials pursue their own self-interest. The difference between government officials and everyone else is that they control public resources, sometimes have the ability to change laws, and are often unaccountable to market forces.

Government officials do not want to cut their programs or reduce staff, compensation, or services. In the private sector, people also want to protect themselves and their employees. But private employers do not have the luxury of spending public funds, and they must downsize when necessary for their businesses to remain profitable. Government officials should be fiscally accountable just like private businesses, and their decisions should be brought more in line with the interests of the citizens they serve.

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

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A Problem Bigger Than PERS

By Doug DeFilipps

Education writer Betsy Hammond recently reported that, according to a study done by The Oregonian, in the 2013-2014 fiscal year the budget woes of most school districts will not come primarily from PERS, Oregon’s retirement system for its public employees. The teachers unions (among others) no doubt will celebrate this finding, but they should not.

What is important is not that the financial woes of most school districts are not caused only by PERS, but rather fixing what else is at fault. As Hammond writes, major expenditures include additional hiring, employee health care, and employee pay raises. So the problem is bigger than just PERS: Schools are running up debt and spending taxpayer money, not on greater classroom expenses, but on employees.

Oregon is a state that believes in investing in its children and their future, but that is not what is happening here. Money is being spent on the employees of the education system rather than on the education itself. Oregon’s parents and taxpayers should not put up with this; they should demand real change. They should demand that their tax dollars follow students to the schools of their choice and that school districts rein in their administrative and employee expenditures.

Doug DeFilipps is a research associate at Cascade Policy Institute. He is a recent graduate of Santa Clara University.

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Metro’s Open Space Levy: A Bait and Switch for Taxpayers

Since 1995, Metro has been steadily buying up thousands of acres of undeveloped land with bond money approved by the voters. Most of the large parcels are located far from population centers, often outside the Portland urban growth boundary.

In addition to their being geographically remote, Metro has made little effort to provide public access to these lands. Entrances are frequently gated and locked, signage is poor, and there are few parking lots or restrooms.

Unfortunately, this problem will not be addressed with Metro’s proposed levy (Measure 26-152) that will be on the May 21 ballot. Metro officials have stated that if the operating levy passes, only 5-15% of the money will be used to make natural areas more accessible to the public.

According to the levy proponents, the rest of the estimated $10 million in annual tax funding will go to the following uses:

  • improving water quality in rivers for salmon and other native fish;
  • restoring wildlife habitat;
  • removing weeds;
  • restoring wetlands; and
  • providing nature education programs.

While some of these uses sound good, we are already paying for similar programs through other taxes. For instance, we pay electricity surcharges of $650 million annually to finance the Columbia River Basin Fish and Wildlife Program (administered through the Northwest Power Council). Since 1978 we’ve spent more than $14 billion on regional fish and wildlife habitat improvements. There is no justification for spending an additional $10 million through the Metro levy.

Moreover, Metro’s conception of “habitat restoration” is not very compelling. It includes projects such as clear-cutting politically incorrect tree species (Douglas fir) in order to re-plant with Oregon white oak. There is no scientific reason to replace one tree species with another; it is simply an aesthetic preference of Metro planners.

Given that taxpayers already have provided more than $300 million for Metro to buy up lands, a more respectful approach would be for Metro to make public access the top priority and to pay for it out of Metro’s general fund. Over the past decade the Metro budget has grown steadily, and more than 60 new full-time employees have been hired. Obviously, Metro could pay for parks maintenance without a levy.

We also know that maintenance should not cost $10 million annually, because in 2011, Metro’s net operating cost of managing seven natural areas was only $630,747. Even if Metro had to maintain 25 areas instead of seven (as would be the case under this levy), maintenance costs should be closer to $3 million, not $10 million.

As the national recession continues, Oregon families have had to make difficult choices in order to stay afloat. Many people have lost homes to foreclosure or had their electricity shut off. Metro councilors need to do some belt-tightening of their own. They should pay for operations of natural areas out of existing revenues and make public access to those areas the top priority.

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

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Should Oregon Replace the Income Tax with a Sales Tax?

In 2007 Governor Ted Kulongoski appointed me to represent taxpayers on the legislatively created Comprehensive Revenue Restructuring Task Force. The Task Force reviewed and analyzed revenue and spending streams in the state, but did not recommend comprehensive reforms to the tax system.

At the first Task Force meeting in November 2007, Portland pollster Adam Davis presented his focus group work around tax reform. He told us that public negativity on government and politics was higher than he’d ever seen in his 30-year career.

One key finding stood out, and I believe this is an accurate paraphrase:

“Any sales tax is dead in this state―unless coupled with elimination of another tax. Reducing other tax rates won’t sell a sales tax.”

“Even when it was explained that reduced income and/or property tax rates could be locked into the Constitution, voters responded that ‘They’ll find a way to jack the rates back up.’”

Adam Davis recently told me that his firm later did more quantitative analysis which confirmed his focus group findings that Oregonians will not accept a third tax…period.

With that realization in mind, I proposed to the Task Force, and I propose now, that Oregonians should have a serious discussion about replacing our economically harmful income tax system with a less harmful sales tax system. Research finds states without an income tax have experienced higher economic and job growth than states with high income tax rates like Oregon. Last year, two economists who study this trend said:

“Every year for the past 40, the states without income taxes had faster output growth (measured on a decadal basis) than the states with the highest income taxes….

“Over the past decade, states without an income tax have seen 58% higher population growth than the national average, and more than double the growth of states with the highest income tax rates….

“The transfer of economic power and political influence from high-tax states toward low-tax, right-to-work ones is one of America’s most momentous demographic changes in decades. Liberal utopias are losing the race for capital.”*

While it seems clear that income taxes do harm our economy, sales taxes appear to do less damage, and therefore may be preferable when we cannot find voluntary ways to fund government services.

This month a state senate committee held two public hearings on bills that would impose a five percent retail sales tax while somewhat reducing income and property tax burdens. At the first hearing, Governor John Kitzhaber suggested that sales tax advocates (he among them) should first get a better sense of what voters think is wrong with the current system—and then get a “better handle on spending.”

One state senator suggested that a better handle on spending could be achieved by tying state spending to inflation and population growth, as a 2006 defeated initiative would have done. If it had passed, legislators would be sitting in Salem today with a significant budget surplus, instead of wondering how to wring more tax dollars out of a struggling economy. That may not be the kind of handle on spending the Governor had in mind, but it sure beats having no handle at all.

I testified at the second hearing, proposing that the bills (SJR 36 and SB 824) be amended so that they not only create a state sales tax, but that they prohibit income taxes in the Oregon Constitution (Article IV, section 32). If Oregon voters understand that it would be unconstitutional to tax their incomes, they might render a different verdict on a sales tax than they did when rejecting them nine times at the polls since 1933.

Eliminating the income tax completely is important for economic reasons, but also because, as focus groups and polls have shown, Oregonians simply don’t trust their elected officials to keep rates on other taxes down once a new sales tax is in place. I also believe they understand that states with so-called “three-legged tax stools” have budget problems, too, such as our neighbor to the south, California.

One of the perceived advantages of adding a sales tax to currently existing taxes appears to be that the mix of different taxes seems to reduce instability in the system. A number of people testified that budget stability is important to them, especially for local school budgets which are funded significantly from the state General Fund.

But at the hearings, I was the only person who questioned why the state budget should be more stable than our own business and family budgets. As a former and current member of the Governor’s Council of Economic Advisors wrote in 2007:

“It is not clear why government budgets should be more stable than private budgets. It is already the case, with the kicker and without any rainy day fund, that public employment in the state is 20% more stable than private employment.”**

If legislators are not careful, making state revenue more stable will make their constituents’ after-tax family budgets even less stable, and many of them will not appreciate that.

In conclusion, until we reduce the size and scope of state government, no third source of tax revenue will solve our state’s financial problems. It will simply mask them.

* “Laffer and Moore: A 50-State Tax Lesson for the President,” Arthur Laffer and Stephen Moore, Wall Street Journal, April 20, 2012.

** Excerpt from an email to then-State Senator Ryan Deckert from economist Randall Pozdena, Ph.D., dated March 6, 2007.

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

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The Marketplace Fairness Act: Taxation Without Representation?

Congress is poised to raise taxes again, this time by allowing states to impose sales taxes on online sales. Senators Ron Wyden (D-OR), Max Baucus (D-MT), and Kelly Ayotte (R-RH)―all representing states without sales taxes―oppose the Senate’s “Marketplace Fairness Act” as “taxation without representation.” The proposed legislation would burden online businesses with enforcing potentially thousands of state and local taxes across the country at the point of sale.

 

Andrew Moylan, senior fellow with the R Street Institute in Washington, D.C., writes, “This means quizzing purchasers about their location, looking up the appropriate rules and regulations in more than 9,600 taxing jurisdictions across the country, and then collecting and remitting sales tax for that distant authority. No brick-and-mortar shop has to do this for in-store sales, and yet every online retailer would have to do it for remote sales.”

 

In an editorial this week, The Wall Street Journal added: “Small online sellers will therefore have to comply with tax laws created by distant governments in which they have no representation, and in places where they consume no local services.”

 

Senator Dick Durbin (D-IL) claims tax accounting software makes it easier for smaller businesses to comply with the proposed law than opponents allege. Still, forcing retailers to enforce the tax laws of thousands of different localities across the country is a massive change in the way we do business―one that will have far-reaching consequences for small businesses and consumers alike.

 

Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Portland program at Cascade Policy Institute.

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Time to Reset Oregon’s Budget and Recharge Our Economy: Facing Reality 2013

The Oregon legislature is struggling to balance the state budget while meeting the perceived need to adequately fund education, health care, public safety, and other services. In 2010, Cascade and Americans for Prosperity – Oregon published our first Facing Reality report, offering state legislators an opportunity to “reset” state government using the time-tested principles of limited government and pro-growth economic policies. While this opportunity was mostly ignored in the 2011 legislative session, we decided to update several key proposals from that report, add one more, and present them to the 2013 legislature.

We have just released our new report, Facing Reality 2013. Together, its proposals can save over one billion dollars in the state budget, and add 50,000 jobs over the next five years without any cost to taxpayers. These savings and economic benefits more than counter any claims that we need to raise taxes on hardworking Oregonians and businesses.

Here, in brief, are these proposals and their potential benefits:

FACING REALITY 2013 Components

Benefit Summary

Privatize liquor distribution and sales

$8 million biennial revenue

Reduce corrections costs

$68 million biennial savings

Eliminate the PERS pick-up

$772 million biennial savings

Align state employee compensation with private sector compensation

$160 million biennial savings

Enact Right-to-Work legislation

50,000 more people working in five years; 110,000 more working in ten years.

 

$2.7 billion more in wage and salary income in five years; $7.0 billion more in ten years.

 

14 percent more taxpaying families per year moving into Oregon from non-right-to-work states.

 

Our Right to Work proposal stems from Cascade’s 2012 report, Right to Work Is Right for Oregon, which broke new ground by covering 70 years of data and every state, and relying on what we believe to be the largest datasets ever used to study the impacts of right-to-work laws. Coincidentally, an initiative petition may be circulated soon to grant such freedom to all Oregon public employees. If that happens, Cascade will be in the forefront of making the economic and moral case for its approval.

Decades of well-meaning politicians, bureaucrats, and special interests have grown state government spending without regard for long-term consequences, producing an unsustainable budgetary premise that threatens Oregon’s financial stability. Long-term debt, unfunded liabilities, inefficient programs, unnecessary spending, and bloated bureaucracies all contribute to this bleak future. Along with higher tax rates, fee increases, and unfunded mandates that make it harder for businesses to produce a profit, we face the perfect storm that manifests itself in Oregon’s budget and economy today. Without a drastic change in direction, it will only get worse.

Unfortunately, the demonization of corporations and small businesses during the debate over tax-increase Measures 66 and 67 which passed in 2010, along with proposed regulations and higher state fees, has reinforced the impression that Oregon is not business-friendly. This must be addressed immediately if long-term investments in expanded business capacity are to occur.

The proposals in Facing Reality 2013 represent significant changes in the way Oregon government operates. More will need to be done, but these are a good start. We encourage all Oregonians to study them and ask their state legislators to do the same. It is not too late to refocus Oregon government on its core functions, reduce its costs, and remove it from areas in which it has no business, such as the distribution of liquor.

While we recognize the enormity of the politics that surround these concepts, we believe they are essential if we are to “recharge” our economy and ensure Oregon’s long-term future. Without them, Oregon’s future looks dim. With them, the future is as bright as we want it to be. 

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

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“Housing Fairness” Bill Is Unfair to Landlords

By Doug DeFilipps

Ending “housing discrimination” against holders of Section 8 rent assistance may sound like a worthy goal, but not all ways of expanding their living options are fair. Oregon House Bill 2639 is one such deeply flawed method.

On the surface the law seems reasonable: It requires landlords to consider applications from Section 8 voucher holders, but it does not give special preference to such renters. However, the catch is that any landlord who accepts Section 8 voucher payments must have the building undergo inspection, and it must meet certain marketplace standards. This may be fine when landlords’ participation in Section 8 is voluntary; but is it fair to place these requirements on all landlords?

Meeting these standards takes time and money. No one benefits from landlords having to consider renters whom they then have to accommodate differently from other people. The landlord loses money by having to bring the building up to these standards.

Ending discrimination is one thing. It’s another to saddle Oregon landlords with the burdensome requirements that come with House Bill 2639.

Doug DeFilipps is a research associate at Cascade Policy Institute. He is a graduate of Santa Clara University.

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Coalition Releases New ‘Facing Reality’ Budget Report

For Immediate Release

April 8, 2013

 

PORTLAND, Ore. – Americans for Prosperity-Oregon and Cascade Policy Institute have released a new report, Facing Reality 2013, which calls attention to limited government and pro-growth solutions to current Oregon budget problems.

 

“The Legislature continues to give citizens the false choice of either failing our children or increasing taxes,” stated Karla Kay Edwards, Oregon State Director of Americans for Prosperity. “Facing Reality clearly demonstrates that Oregon can invest in our children’s education without negatively impacting our slow economic recovery.”

 

The report is based on a “Reality Based Budgeting” approach, encouraging political leaders to face reality, stop procrastinating, and adopt ideas to lower the cost of government and get the economy going again.

 

“It’s not too late to refocus Oregon government on its core functions, reduce costs and get out of areas it has no business in, such as the distribution of liquor,” said Steve Buckstein, Founder and Senior Policy Analyst at Cascade Policy Institute.

 

The report focuses on five public policy areas:

– Privatize Liquor Distribution and Sales

– Reduce Corrections Costs

– Eliminate the PERS Pick-Up

– Align State Employee Compensation with Private Sector Compensation

– Enact Right to Work Legislation

 

With solutions to controversial topics such as PERS reform, the report authors challenge legislative leaders to take effective steps to recharge the state economy.

 

“It is time for the Oregon Legislature to ‘Face Reality,’ as Oregonians have had to do, and adopt these non-partisan recommendations,” said Edwards.

###

Click here to read the report.

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Don’t End Tax Increase Warnings

In the late 1990s Oregon voters approved measures that require envelopes containing certain property tax measures to be boldly stamped in red with this warning: CONTAINS VOTE ON PROPOSED TAX INCREASE.

Now, public employee unions are asking the legislature to end this practice on the grounds that the ballots themselves contain clear information about proposed tax hikes. What the unions don’t say is that without these bold warnings, many potential voters won’t even open the envelopes to discover what’s in store for them if the measures pass. Unopened envelopes mean fewer potential No votes, which is just what the unions want.

Another argument against the warnings is that they unfairly apply to some tax measures, but aren’t required for others. That’s true. But, rather than end the current warnings, we should print them on envelopes that contain tax increase votes of any kind. The unions won’t like this, but many taxpayers will.

The legislation aimed at killing the warnings is House Bill 3113. It has already had one public hearing that generated little public opposition. Unless more people stand up and oppose it, the bill may become law.

That would end what Jason Williams of the Taxpayer Association of Oregon calls the “common courtesy that we’re about to knock the daylights out of you with a tax increase.”

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

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Tobacco Cessation or Just Increasing General Fund Revenue?

The Oregon legislature is once again trying to raise the cigarette tax, this time by $1.00 per pack. According to the sponsors of the bill―Representative Mitch Greenlick and Senator Elizabeth Steiner Hayward, both of west Portland―the primary purpose of HB 2275 is to reduce tobacco consumption, not raise revenue for the state.

But the bill itself tells another story. It states in Section 6 that “All moneys from the taxes imposed by this Act shall be credited to the General Fund.” Where is the specific assistance for smokers trying to quit smoking? It’s not there. Under current law, the state’s Tobacco Use Reduction account receives only 2.9% of all current cigarette tax revenue, and HB 2275 does not increase that.

Moreover, since 1999 the state has received more than $1 billion from smokers through the so-called “Master Settlement Agreement” with the four largest tobacco companies. That money was supposed to pay for the “costs of smoking” imposed on society. Yet, most of those funds were spent on other programs that had little to do with public health, and none of it went to tobacco cessation programs.

Smokers are routinely picked on by legislators because they are a vulnerable minority, but they are already paying more than their fair share of taxes. If reducing tobacco use is really the goal, it’s time for politicians to try another approach.

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

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Where’s the Secret Tax for the I-5 Bridge Proposal?

On Monday, the Oregon Senate passed House Bill 2800, the new Interstate 5 Bridge Replacement Proposal (otherwise known as the Columbia River Crossing), which now goes to Governor Kitzhaber for his signature. Despite its passage, the I-5 bridge plan is still seriously flawed.

Legislators have authorized $450 million in debt financing without telling Oregonians who will be taxed for the debt service. All they have said to date is that ODOT will have to pay between $27 and 35 million annually for interest payments on bonds. Since ODOT doesn’t have the money, there must be a future tax increase – just not voted on by the same people who voted for HB 2800 this session.

This “back-loaded” approach to paying for projects taxpayers can’t afford is cynical and dishonest. The I-5 Bridge Proposal passed because legislators didn’t have to admit they were raising taxes. If the plan had included a 4-cent-per-gallon tax increase or a doubling of the vehicle registration fee, the debate would have been completely different.

Legislators who voted for HB 2800 wanted the glory of passing a bill; but before they start pouring concrete, they should look us in the eye and tell us which tax they plan to raise. If they can’t give us an honest answer, they aren’t qualified to serve.

Kathryn Hickok is Publications Director at Cascade Policy Institute.

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The Wages of Sin Taxes

In a misguided attempt to save us from ourselves, Oregon legislators have become addicted to the so-called sin taxes they place on booze, drugs, and gambling. If we don’t break their addiction, it will expand into areas such as sugary soft drinks and fatty foods.

Now, a provocative new study challenges the whole concept of sin taxes, finding that they “not only do little to limit the use of ‘bad’ products, they do nothing to reduce societal costs.” Most remarkably, the study “demonstrates that those shockingly large estimates of the costs that the consumption of alcohol, tobacco, sugar, and fat supposedly impose on society have little basis in reality.”
Sin taxes also hit the poor harder than the rich. That’s because products like tobacco and state lotteries are disproportionately purchased by lower income people.

 

Sin taxes also give governments “a financial incentive to foster the very vices they profess to despise.” This may explain why, out of the more than one billion dollars Oregon has received to date from the Tobacco Master Settlement Agreement between 46 states and the tobacco companies, “not one penny has gone to tobacco prevention.” Prevention would cut into the state’s lucrative tobacco tax revenue, just as it would cut into state monopoly liquor revenue. The same goes for the state lottery that supposedly does good things at the expense of addicted gamblers.

It’s time that Oregon break its addiction to sin taxes.

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

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Mandatory Sick Leave Hurts the Working Poor

By Marc Kilmer

On March 6 the Portland City Council may vote on whether to require virtually all businesses that employ six or more people to provide them with at least five paid sick days per year. While this sounds well intentioned − who doesn’t support helping out a sick person? – it will actually end up hurting low-wage and less-skilled employees. For the sake of the working poor, this proposal should be rejected.

Let’s establish some basic facts about the employee/employer relationship. Employers provide compensation for an employee based on how much value that employee’s labor has for the employer. Employees with skills that are in higher demand get paid more, both because these skills help an employer’s business more and because there are fewer people with those skills. Any kid off the street can wash dishes, so a dishwasher is likely to make far less money than an electrician, someone who has a specialized set of skills.

Compensation is not just the wages paid to an employee. An employee costs a business much more than just salary. There are unemployment, Medicare, and Social Security taxes that must be paid. And if the company offers any benefits, then that is also a cost to the employer. An employee may make $40,000 a year, but it may cost the employer $60,000 a year to employ that person. The total cost of compensation, not just the salary, is what’s important to the employer.

Some people hold the view that an employer should provide a variety of benefits to workers, from paid sick leave to health care to disability insurance to retirement benefits. Any amount of money paid by employers for these benefits raises the cost of hiring that employee.

Mandatory sick leave increases the cost to an employer for hiring an employee. For more-skilled workers, that means that more money is going to the benefits side of the compensation equation and less to the wage side. So better sick leave means lower wages. Some employees may like that, some may not. But if the government mandates it, the employee has no choice.

For lower-skilled employees, the situation is more damaging. Since there are a federal and a state minimum wage, there is a floor below which an employer may not pay an employee. If the government raises the cost of compensation through mandatory sick leave, an employer cannot simply pay a lower wage to someone making minimum wage or close to it. In that case, the employee will have to be let go.

Some may say that the employer should simply absorb the cost of the higher compensation. What they ignore is that an employee’s compensation is based on the value that employee brings to the company. If an employer pays an employee more than his labor is worth, then that employer will soon go out of business.

Mandatory sick leave sounds like a good idea, but it will end up hurting the most vulnerable workers in our society. The more the government mandates benefits for workers, the fewer low-skilled workers will be hired. We need to encourage getting these low-skilled workers in the workforce, not discourage them. For the sake of the working poor, the City of Portland should not mandate sick leave.

Marc Kilmer is a Maryland Public Policy Institute senior fellow specializing in health care issues and a guest contributor to Cascade Policy Institute, Oregon’s free market public policy research center.

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Charity’s Unseen Benefit: Protecting Civil Society from the State

By Benjamin Zycher

Charities and other nonprofit institutions perform a vast array of altruistic works yielding benefits for both the direct beneficiaries and for society writ large.

Most such activities are obvious: medical services for the indigent, educational services for the disadvantaged, support for the arts, and the like. But such organizations serve a deeper function as well: They act as an important buffer between the citizenry and the state.

Government by its very nature is coercive: Tax, spending and regulatory policies inexorably generate wealth transfers among groups, thus creating winners and losers. These effects induce individuals and groups to find routes around the constraints created by government policies, increasing the incentives of government to impose further rules, and so on.

Private organizations, on the other hand, by definition are voluntary; and as they compete with government agencies in the provision of various services, they have powerful incentives to protect their activities and freedoms from efforts by government to expand its powers.

The current efforts by the Catholic Church and other religious organizations to challenge the contraception/abortifacient mandate in the Patient Protection and Affordable Care Act—an obvious attempt by federal policymakers to transform important institutions of civil society into agents of the government—is a prominent example of this phenomenon.

Accordingly, public financial support for private giving can be viewed not only as a way to engender additional charitable activity passing a market test, but also as a tool with which to constrain government power by creating a corrective for the incentives of individuals acting alone to offer too little resistance to the expansion of the state.

The institutions of civil society receiving such support help to protect freedoms from government coercion in ways that individual citizens might find far more difficult to undertake.

This public support is provided primarily through the tax deduction for charitable donations. Tax reform as part of a broad reform of fiscal policy is back in the news, and with it are various proposals to limit or change this tax treatment. Most such proposed changes would increase the after-tax “cost” of giving for many taxpayers by reducing the incremental subsidies created by the current structure of income tax rates. The scholarly literature suggests, roughly, that each 1% change in the after-tax cost of giving reduces giving by the affected taxpayers by about 1%.

One prominent proposal is for a cap of 28% on the marginal tax rate applied to charitable contributions by taxpayers above a given income level. That would raise the perceived cost of giving by, roughly, 18% for the taxpayers affected, leading to a reduction in total giving by all taxpayers of about 2%, or roughly $5 billion annually. In a world of trillion-dollar deficits, that may sound small; but it is 40% greater than the operating budget of the American Red Cross.

Another proposal would convert the current deduction into a 15% tax credit for all taxpayers, but impose a floor of 2% of adjusted gross income for eligibility.

That combination would reduce contributions by an estimated $10 billion or more, an amount equal to about half the operating budget of Catholic Charities. A similar proposal for the conversion to the 15% credit, but without the floor, would reduce giving by about $8 billion.

There are other proposals with varying effects. Perhaps a tax reform that results in substantially greater economic growth in the aggregate would compensate for these impacts.

Or, perhaps, tax reform may be sufficiently important to justify them. But the public discussion of changes in the tax treatment of charitable giving should consider not only the narrow effects on contributions, but also the more subtle but larger implications for the substantial benefits that the institutions of civil society yield in terms of the protection of our freedoms from the coercive and confiscatory power of the state.

Benjamin Zycher is a senior fellow at the Pacific Research Institute in San Francisco, a visiting scholar at the American Enterprise Institute, and a guest contributor for Cascade Policy Institute, Oregon’s free market public policy research organization.

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Oregon Legislature Should End Its General Fund Lottery Addiction

A state legislator from Milwaukie, Carolyn Tomei, has introduced a package of bills designed to address some of the problems associated with the Oregon Lottery.

Perhaps the most important of the three bills is HB 2167, which would cap the total amount of lottery revenue going to the state’s general fund. Under her proposal, all money above the cap would be diverted into a so-called “rainy day” fund, used only during times of fiscal crisis.

This would begin to address a central problem with the lottery, which is the mixed incentives it creates for legislators. On one hand, most of them pretend to be concerned about the growing problem of gambling addiction. Yet, when they use lottery money to pay for base funding of important state programs, they are incentivized to promote gambling.

When priorities collide, the lottery as cash cow always trumps concerns about gambling addiction.

The best solution would be to get state government out of the gambling business entirely; but since that’s not politically feasible, cutting off some of the revenue to the state’s general fund is a good first step. If the cap is set low enough, it potentially could force legislators to look elsewhere for base funding, or maybe even cut spending. Either option would be better than the status quo.

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

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Tax Certainty for Nike? “Just Do It” for All

Governor Kitzhaber has called a special session of the Oregon legislature to enact what he calls the Economic Impact Investment Act of 2012. It would give him the authority to directly negotiate with, and offer “tax certainty” to, any company promising to create at least 500 jobs and invest at least $150 million over five years in our state. Any future changes in Oregon’s business tax structure would not apply to such firms over the lifetime of their agreements.

 

The urgency of this proposal comes from the fact that Nike is looking to expand soon and is apparently being courted by other states. According to the Governor, if his proposal is rushed into law, Nike has agreed to expand here with a proposed $400 million investment and more than 2,000 jobs.

 

Unfortunately, the Governor made it clear that he would only approve such deals for companies that create a lot of relatively high wage jobs. He explicitly rejected the idea that a company offering 500 minimum wage jobs, for example, would be approved.

 

While it’s good to seek high wage jobs here, rejecting low wage jobs hurts those with little education and/or few skills. These are often the young and minorities. They have little reason to rejoice over the Governor’s new plan.

 

Granting Nike tax certainty is a good idea, but it would be an even better idea if all companies got the same certainty—big and small alike. That way, all Oregonians would stand to benefit.

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

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Raising Taxes Won’t Reduce the Deficit

With just weeks to go before America slides off the so-called Fiscal Cliff, many politicians and pundits argue that we must forge a “grand bargain” which includes tax increases and spending cuts. But now, two noted economists have crunched the numbers and conclude that Nobel-Prize-winning economist Milton Friedman was right when he said, “Politicians will always spend every penny of tax raised and whatever else they can get away with.”

 

Stephen Moore of the Wall Street Journal and Richard Vedder of Ohio University recently updated a study done for the congressional Joint Economic Committee in the late 1980s that found every dollar of new taxes led to more than a dollar of new spending by Congress.

 

Moore and Vedder “found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.”

 

They looked at different time periods, used different data, altered other variables, and never once found that higher tax collections resulted in less government spending. These results completely counter the argument that we can solve our nation’s fiscal problems by combining spending cuts with tax increases.

 

The “grand bargain” isn’t such a bargain after all. The only way to cut spending…is to cut spending.

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

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Three Oregon Tax Measures: What They Would Do

With less than a week to go in this election cycle, Oregonians are faced with nine statewide ballot measures.

 

Here are my thoughts on the three that are primarily tax measures.

 

Measure 79 bans future state or local real estate transfer taxes. Only Washington County imposes such a tax now, as anyone who has sold a home there knows. The realtors who put Measure 79 on the ballot don’t want to see such taxes spread to the rest of the state. Government always looks for ways to raise revenue, but taxing home sales isn’t a good idea now or later. I voted Yes.

 

Measure 84 phases out Oregon’s estate tax and forbids taxes on property transfers between family members. Working all your life to build up an estate valued over the $1 million estate tax exemption should not give government the right to tax what you or your family have paid taxes on all your lives. I voted Yes.

 

Measure 85 takes any future corporate kicker money from the companies that earned it and places it in the state General Fund. Nothing in the measure assures that the money will benefit public education as the public employee unions that put it on the ballot claim. Special interests will be in Salem lobbying for that money just as they do now. Measure 85 simply takes money from the private sector and grows government. I voted No.

 

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

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Measure 81 Would Take Salmon off the Table

By Thomas Dulcich and Michael Barton

Oregonians are most fortunate to border the Columbia River, prized for its scenic beauty, recreational opportunities, power generation, irrigation, fishing resources, transportation, and a long list of additional values. We pay for the management of this complex resource with our taxes and utility bills; but if Measure 81 passes this November, Oregonians will have another distinction. We alone will be prohibited from enjoying Columbia River salmon and other fish caught by non-tribal commercial fishers.

 

Measure 81 bans a method of commercial harvest known as gillnetting, but it also includes a stealth provision: a purchase ban for Oregonians only. The “purchase ban,” found in Section 2 (2) of Measure 81, would prevent Oregon buyers and consumers from buying non-tribal net-caught fish from the Columbia River. If you live in Washington, you still would be able to enjoy Columbia River salmon. The same is true if you live in Washington, D.C., or California, or…well, anywhere but Oregon. What justification is offered for prohibiting Oregon buyers and consumers from purchasing Columbia River-caught salmon? None.

 

Measure 81 is the latest effort by sports fishing interests to increase their share of Columbia River fish at the expense of commercial fishing that supplies product to grocery stores and restaurants. Currently, fish are allocated among the small commercial fleet, sports fishers, and tribal fishers (who also oppose Measure 81).

 

What is the source of the conflict? Perhaps it stems from the industrialization of sports fishery and the resulting overcapitalization. The Columbia River commercial fleet, which fishes for consumers, is restricted by “limited entry” laws to a specified number of licenses (only 200 in Oregon). The “guide industry,” which markets day trips for hobby fishermen, is not limited in number by Oregon law. The financial barriers to entry to become a for-profit fishing “guide” are relatively low (a $50 Marine Board license, a pick-up truck, and a boat), so it has been easy, in the absence of limited entry, for this “commercial sport fishing” endeavor to become overcapitalized. Over the past 10 years, hobby fishers got 80% of the Columbia River Spring Chinook and 80% of the sturgeon, while the non-tribal consumer access fleet got 20%. The allocation of other runs also favors recreational fishers. Does it make sense for consumers to get even less?

 

The rationale offered by the backers of Measure 81 includes the claim that removing gillnets from the Columbia River will enhance fish conservation. This idea has been promoted with scary-sounding but unsubstantiated claims of widespread killing of other wildlife by gillnets. In fact, gillnets long have been the only method allowed by law and regulation for the commercial harvest of Columbia River fish, in large part because this is the method which has the least negative impact.

 

While he opposes Measure 81, Governor John Kitzhaber has ordered the Oregon Fish and Wildlife Commission (and has “suggested” to the Washington Commission) that it adopt administrative rules severely restricting the commercial fleet by taking away the mainstream Columbia River and limiting commercial fishing only to very tiny back waters or side channels known as the “select areas.” The governor’s plan also will reduce consumer access to products of the Columbia River, such as the Spring Chinook salmon, Summer Chinook salmon, sturgeon, Fall Chinook salmon, and Coho salmon. The commercial fleet, composed of a few hundred small family businesses and several fish processors (mostly in rural Oregon and Washington), is of the opinion that Governor Kitzhaber’s plan will kill their industry and jobs―not in an overt, sudden way, but instead by slow death.

 

Why should Oregon consumers care about this? First, locally caught salmon is a very healthful source of natural protein, teeming with omega-3 heart-healthy vitamins. Second, Oregon taxpayers (and ratepayers) contribute through their taxes and utility bills to the ongoing work to sustain salmon runs, which must migrate through the hydropower system on the Columbia River and its tributaries. Given this financial investment, it is reasonable that all Oregon consumers―not just hobby fishermen―be able to enjoy Columbia River salmon. Measure 81 and Governor Kitzhaber’s plan are anti-consumer and anti-Oregon, and both should be defeated.

 

Thomas Dulcich is an attorney and one of the 200 Oregon gillnet fishing permit holders. Michael Barton is a member of Cascade Policy Institute’s board of directors.

 

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Taxpayers Should Be ReVolted by Green Business Subsidies

Last week another publicly subsidized “green business” company filed for bankruptcy in Portland. ReVolt Technology had received $6.8 million in state and local subsidies, plus another $5 million from the Obama administration, for its electric car battery technology, but could not get the product to market.

 

One would hope that the repeated failures of subsidized companies would induce a modicum of humility among the political class, but this does not appear to be happening. The director of the Portland Development Commission, which approved a $1.3 million loan to ReVolt, told The Oregonian, “It’s obviously disappointing, but we certainly know we’re going to have a few of these.”

 

Taxpayers should be outraged by this attitude. The Oregon Constitution prohibits public investment in private companies, so none of the companies being propped up with taxpayer money should have ever received a penny in the first place. Yet, the Portland Development Commission is fully expecting to have more public money lost in private sector bankruptcies.

 

There is an important role for government to play in technological innovation, but it’s not to serve as a venture capital fund. In the daily competition among market participants, government should simply call the balls and strikes and enforce the rules of the game. Players should come from the private sector; and the best products should be determined by consumers in the market process, not by government cronyism.

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

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Like Moths to the Flame

Recently, The Oregonian published a feature story about the Portland Seed Fund. This is a two-year-old “public-private” venture capital fund designed to help start-up companies. To date, the Fund has chosen 17 companies to work with, and each one has received $25,000. The public money includes $800,000 from Portland, $500,000 from the Oregon Growth Account (a state-run fund financed with Oregon Lottery dollars), and $250,000 from Hillsboro. This is blended with roughly equal amounts of money from private investors.

 

The Oregonian put a very positive spin on the concept. “We’ve learned that the model can really work in Portland,” said Jim Houston, one of the two fund managers. Amber Case, whose company Geoloqi received support last year, said, “I think it’s really important for the city [Portland] to be involved because it shows that they care.” Jefferson Smith, a state legislator running for mayor of Portland, added that the fund represents an opportunity to “build on what we’re good at.”

 

This is the way it always is with public slush funds. Politicians, fund managers, grant recipients, and editorial board writers all think it’s a great idea to hire smart people to sit at a roulette wheel with public money and pretend that they are making great public investments. There is never a concern that maybe this is not a proper role for government, nor is there a willingness to learn from history. And one doesn’t have to go too far back in time to learn.

 

The Oregon Growth Account, for example, was created by the state legislature in 1995. It was funded with state lottery dollars, and its mission was to “launch and expand young Oregon companies” (funds could not be spent out of state, even if the in-state opportunities were mediocre). As of March 2011, the fund had $105 million in various accounts.

 

In a January 2011 memo to the Oregon legislative assembly, fund managers admitted, “The internal rate of return since inception is negative 7.9%. The current value of the OGA portfolio is less than the money that has been invested to date.”

 

Not satisfied with this failure, in 2001 the state legislature created the Oregon Resource and Technology Development Subaccount (ORTDS) within the OGA. The legislative mandate was to “make seed capital investments in emerging growth businesses,” which sounds a lot like the mission of the OGA itself. The legislation stipulated that the first $4 million of funds credited to the OGA be allocated to the subaccount, in addition to a direct allocation of $5 million from the legislature. As of September 20, 2010, this fund had a return of negative 17.8%.

 

Of course these are just parochial Oregon experiences, but history repeats itself everywhere. Few people remember, but at the turn of 19th century, consumers could buy new-fangled horseless carriages from three distinct categories―steam-powered, electric, or gasoline-powered with the internal combustion engine. It was not at all clear which technology would become dominant. A great deal of money was lost by private investors betting on steam-powered or electric cars.

 

If a politician had decided to pick the internal combustion engine and wanted to spend tax funds subsidizing hot start-ups, the name Henry Ford probably would have emerged. In retrospect, this sounds like it really would have paid off―except for the fact that between 1899 and 1903 Henry Ford founded, and bankrupted, two motor vehicle companies. He didn’t become successful until he formed the Ford Motor Company in June of 1903.

 

So how would politicians have known in 1899 which of the Ford companies was going to change the world? They wouldn’t have. Nor could they have successfully picked any other great companies. Between 1900 and 1908, 502 car manufacturers were launched in the U.S., and 302 either folded or shifted to another line of business. Most companies formed before 1905 never paid back a cent to investors, and the majority never built a single car.

 

This should be humbling to anyone charged with managing public funds, but Oregon politicians are infatuated with the idea of designating certain economic sectors as “the next big thing” and then subsidizing them with tax dollars. Sometimes they even double down by mandating that we also buy the products of politically chosen industries, such as the requirement that Oregon electric utilities purchase 25% of their electricity from money-losing “green power” sources like windmills and solar panels.

 

Unfortunately, a dynamic market economy doesn’t work that way. Consumer preferences can change in a moment, technology becomes obsolete, and old businesses are supplanted by competitors in a never-ending process of “creative destruction.” It’s a fool’s errand to think that politicians and their appointed underlings can predict the future successfully. Nobody can predict the future, so the only people who should invest in start-ups are private individuals gambling with their own money.

 

The state legislature will reconvene in February. One of the first orders of business should be to euthanize every state-sponsored “investment” fund. Subsidizing politically chosen private firms is simply not a proper role for government, regardless of the return on investment.

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

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Statement on Oregon’s Measure 80 Ballot Initiative

PORTLAND, Ore- The eight members of Cascade Policy Institute’s Board of Directors have released the following statement on Oregon’s Measure 80 Ballot Initiative.

“It is time to legalize marijuana in Oregon. The long-standing prohibition on possession and use of marijuana has never served the public interest and has generated a significant amount of collateral damage. Prohibition increases the retail price of the product, which can fuel property and other real crimes as some users turn to theft to pay for it. Prohibition drives the market into the underground economy where disputes are settled with violence, creates opportunities for corruption among law enforcement personnel, and makes it difficult to provide assistance to those with addiction problems. Prohibition also turns otherwise law-abiding citizens into criminals and reduces respect for our justice system in general.”Given that other consumer products such as lottery games, motor vehicles, tobacco, and alcohol are all legal despite health and safety concerns to both users and non-users, the continued prohibition on marijuana stands out as a costly anachronism in state policy.”Unfortunately, Measure 80 is much more than a legalization measure. The proposal includes several other elements that are unnecessary or undesirable. As a result, pro-freedom voters could decide either way on this particular measure.

“On the positive side, under Measure 80, hemp production for fiber, protein, and oil is allowed without regulation, license, or fee. This brings a beneficial agricultural commodity onto the commercial market. Cultivation and possession of cannabis for personal, noncommercial use is also allowed and does not require a license or registration. This reflects the proper role of government in marijuana use, which is to allow responsible adults to make their own decisions without passing judgment about whether such use is good or bad, and without creation of new agencies or fee structures.

“Cannabis cultivation for commercial use is allowed, but only through a permit system run by a new bureaucracy, the Oregon Cannabis Commission (OCC). This is the beginning of ‘mission creep’ for Measure 80. The OCC emulates Oregon’s liquor monopoly by creating a state-run retailing program, except it is worse than the OLCC because five of the seven people who would serve on the OCC are directly elected by growers and processors of  cannabis licensed by the OCC. The state monopoly would be further strengthened by the fact that import or export of cannabis from Oregon remains illegal.

“OCC ‘contractors’ (presumably retailers) would automatically receive 15% of gross sales, a metric not explained or justified anywhere in Measure 80 itself.

“Perhaps the most troubling aspect of the Measure 80 regulatory scheme is that it attempts to ‘buy off’ opposition by liberally spreading marijuana profits around. This is immediately obvious by the formal title of the measure itself: the Oregon Cannabis Tax Act. It is first and foremost a new tax revenue program, not a civil liberties program. The state general fund would receive 90 percent of net revenues, which proponents have used to market this as a ‘pro-schools’ measure. Only seven percent of net revenues would go to drug abuse treatment programs, and the remaining three percent of funds would support two new agricultural commodity commissions and a drug education campaign in schools.

“A major problem with this new tax program is that it would worsen what is already a serious ‘moral hazard’ problem for state legislators, by handing over a lucrative new revenue stream from the sale of cannabis. This not only encourages them to spend more, it creates a vested interest in the growing and selling (for profit) of cannabis through state outlets.

“Legislators already face this problem with gambling, tobacco, distilled spirits, and gasoline. In every case, the track record over time has been to market these products more aggressively and/or raise excise tax rates in order to feed legislative spending habits.

“In fact, legislators are not content to simply spend the money received each year from these products; they routinely mortgage the future by selling bonds to Wall Street, to be paid back with earnings from the sale of the taxed products over a 20-year period. Once the Oregon Treasury is legally obligated to pay off bondholders, the state clearly becomes dependent on ever-greater levels of consumption.

“If marijuana is legalized for the primary purpose of raising tax money for the state, bond debt will grow, and the state will become an overt promoter of marijuana sales through the OCC.

“In legislative parlance, Measure 80 is a ‘Christmas Tree’ bill. It features a fundamentally good policy as the tree – ending the disastrous prohibition on cannabis use – but then weighs it down with extraneous features designed to please many different constituencies. The thinking behind such a strategy is that since the bill contains something for (almost) everyone, a plurality of voters will embrace it, however reluctantly.

“We cannot cross that threshold. We neither support nor oppose Measure 80. We urge voters to read the measure carefully and decide for themselves if this is a ‘package deal’ they are comfortable with.”

 

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Kathryn Hickok discusses the merits of the proposed Multnomah County Library taxing district measure

The League of Women Voters of Portland hosted a debate on local ballot measures, where Cascade Policy Institute Publications Director Kathryn Hickok debated the merits of the proposed library taxing district for Multnomah County.

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Why Can’t Portland’s Pension Problem Be Solved Voluntarily?

By Shane Young

In 2008, the Portland public safety fund realized it had been accidentally overpaying pension benefits to 980 police and firefighter retirees for the last 13 years. This cost the fund $2.89 million. In 2011, the fund tried to recoup this money by withholding the cost of living increases for the retirees until the amount they were overpaid was returned. Alternatively, the retirees were given the option to repay the amount they were overpaid directly back to the fund.

However, as a response to a class action lawsuit brought by five of the affected retirees, a Multnomah county judge has recently declared that the fund cannot recoup the overpaid money by withholding cost of living increases, as such an act would violate the wage claim statute. The fund is now forced to figure out new ways to recoup this money.

While the retirees are not to blame for the overpayments, it is sad that such great lengths have to be taken to recoup what was overpaid. Only 52 of the 980 beneficiaries have chosen voluntarily to pay back their portion of the overpayments.

As ex-public servants, these retirees should be doing all they can to figure out how to voluntarily repay taxpayer money that they did not earn. It shouldn’t be the taxpayers’ job to force them to do the right thing.

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

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