Category: Testimony

October 4, 2020

FOR IMMEDIATE RELEASE

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

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

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

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

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

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

Click here to read Eric Fruits’ full testimony.

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

About Cascade Policy Institute:

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

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June 5, 2019

Chair Wagner and Members of the Committee, my name is Kathryn Hickok. I’m Executive Vice President at Cascade Policy Institute, a nonpartisan policy research organization.

Education Savings Accounts empower parents to customize their children’s education in the ways that are best for them as individual students. ESAs are a “ticket to the future”—today—for every child to find the right fit, to find his or her spark for learning, and to succeed in school and in life. More choices mean more opportunities.

ESAs are government-authorized savings accounts with restricted but multiple uses. ESA programs deposit a percentage of the per-student state education funding allocation into an account, from which the family pays for approved education expenses.

Unused funds may be “rolled over” for subsequent years, including post-secondary education or training within the state of Oregon.

Arizona, Florida, Mississippi, North Carolina, and Tennessee are operating ESA programs today. Senate Bill 668 would create an Education Savings Account program here in Oregon.

Unlike voucher programs, ESAs give parents the flexibility to spend education funds on more than just private school tuition. Depending on the specifics of legislation, other approved uses can include textbooks, AP and online classes, tutoring, testing, dual-enrollment courses, homeschool expenses, and education-related fees.

Some ESA programs operate like controlled-use debit cards, which ensure parents pay only for legitimate education expenses.

Critics sometimes express concern that ESAs would remove funding from the public school system; that parents wouldn’t be held accountable; that non-public schools are not held to the same regulatory standards as public schools; or that ESAs mean “public dollars would be used for private purposes.”

Proponents of ESA programs take these concerns seriously. Senate Bill 668 was designed to address them.

Kathryn Hickok is Executive Vice President at Cascade Policy Institute, Oregon’s free market public policy research organization.

Click here for PDF version:

SB 668 Testimony Before the Senate Education Committee on Education Savings Accounts Kathryn Hickok 6-5-19

By John A. Charles, Jr.

At the last meeting, there was a fair amount of discussion about how the proposed bond measure should be structured to reduce GHG emissions from the transportation network.

If that is the direction the committee prefers, then it implies that the bond measure should not fund any road expansion projects. But it also has implications for light rail construction.

According to the Draft Environmental Impact Statement (DEIS) for the SW Corridor project, the estimated energy consumption during construction of light rail will be 5,886,876 million Btu. The DEIS also asserts that the “one-time energy use required to construct the Light Rail Alternative would be offset by the project’s long-term, beneficial operational impacts.”

To determine if this is true, we can look at the estimated daily energy savings from rail operations. On page 4-129 of the DEIS, the following information is presented:

2035 Daily Vehicle Miles Traveled and Energy Consumption

Since the energy savings from light rail operation compared with the base case are quite small, it would take 61.09 years to overcome the GHG deficit caused by construction. Also, the useful life of the equipment is likely to be only 40 years, so replacing all the light rail cars and track system would create another energy deficit.

If you asked the Energy Trust of Oregon for a grant to install an energy conservation project with a 61-year payback, they would probably reject your request. Cost-effective energy efficiency projects need to have a payback period that is less than the lifespan of the equipment.

Given the over-riding goal of GHG reduction, I recommend that bond expenditures be limited to bike and pedestrian projects only. Among other things, this would drop the total cost by about 90%, which would greatly increase the chance of voter approval.

Click here for PDF version:

Metro Transportation Funding TF.testimony

By John A. Charles, Jr.

Members of the subcommittee, my name is John Charles and I am President and CEO of Cascade Policy Institute, a nonpartisan policy research organization.

Most witnesses ask you to spend money. I am here asking you to save money – by deleting the Governor’s request for $27.5 million in lottery-backed bonds for TriMet’s planned light rail line to Bridgeport Village mall near Tualatin.

It’s important to note that HB 5005 is actually the first part of a two-part request for this project. As Ms. Gabriel stated in her April 5 briefing, the Governor will be asking for an additional $125 million of bond revenue in the next biennium, so you should really think of this as an appropriation of $152.5 million.

I encourage you to reject the request because TriMet has a consistent record of over-promising and under-performing on all its capital construction projects, as detailed below. You should stop rewarding that kind of behavior.

Analysis of the SW Corridor Project

TriMet makes two primary claims regarding this light rail line. First, it will attract 43,000 average weekday riders by 2035. Second, it will provide a “reliable, fast travel option” between Bridgeport Village and Portland.

Neither of these claims is plausible.

TriMet Ridership projections are always inflated

TriMet has a 40-year track record of making ridership forecasts. They have been consistently wrong, and always on the high side. As Figure 1 shows, actual ridership has never even reached 60% of projected ridership on a specific rail line. In 2017 total average weekday ridership was less than half the predicted ridership for MAX in 2020. 

Click here for the full document.

SW Corridor Light Rail Project Joint Ways and Means Committee Testimony John Charles April 2019

By John A. Charles, Jr.

Members of the Subcommittee, my name is John Charles and I am President of Cascade Policy Institute. Cascade is a non-partisan policy research organization working to promote public policies based on sound market principles. As a non-profit corporation we are supported by contributions from individuals, foundations and businesses, most of them based in Oregon.

Much of the proposed ODOT budget involves dedicated funding sources such as motor fuel taxes, which means the Subcommittee has limited discretion to move money around. However, there are some programs supported by the General Fund or lottery-backed bonds, and I would like to call your attention to several that appear to have questionable value:

Willamette Valley passenger rail, $9.86 million: This allocation provides operating support for the Portland-Eugene Cascades train that runs twice daily in each direction.

As noted in the budget documents, ridership for this line peaked in 2013 and has been flat for the past three years. Moreover, the ridership numbers provided to the Committee include the POINT bus service operated by ODOT. This significantly inflates the total number of riders attributed to the passenger rail program.

The POINT bus service includes five routes with stops at 42 locations, as shown below:

1. Portland-Eugene, 7 trips/daily each way, 5 stops
2. Bend-Ontario, 1 trip/daily each way, 11 stops
3. Redmond-Chemult, 2 trips daily each way, 5 stops
4. Portland-Astoria, 2 trips daily each way, 8 stops
5. Klamath Falls-Brookings, 1 trip daily each way, 12 stops.

Click here for the PDF full document.

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

 Regarding HB 4001/SB 1507

February 7, 2018

Members of the Committee: I have spent the last 45 years of my life promoting environmental quality. I began my career working for the Environmental Defense Fund, a group that was an early innovator in market-based mechanisms. From 1980 through 1996 I was CEO of Oregon Environmental Council, where I helped pass dozens of environmental laws. Since 1997 I have worked for Cascade Policy Institute, promoting concepts such as congestion pricing of roads.

If I thought that HB 4001 and SB 1507 could deliver significant pollution reductions at reasonable cost I would support them, but they will not. To summarize the problem in one sentence, the bills require Oregonians to pay a significant tax that will be certain, immediate, and local; for benefits that are speculative, long-term, and global.

This stands in sharp contrast to environmental policies such as drinking water regulations. Provision of safe drinking water does have a major cost, but the benefits are substantial and they accrue 100% to those who pay. Oregonians are quite willing to bear the expense of such programs because they demonstrably make us all better off. This will never be the case with carbon dioxide regulation.

Moreover, even assuming that reducing CO2 has some local benefit, the relevant trends are already moving in the right direction. According to the most recent legislative report from the Oregon Global Warming Commission, the “carbon intensity” of Oregon’s economy – that is, greenhouse gas emissions/unit of state GDP – dropped 64% from 1990 through 2015. This is a spectacular achievement, and it is driven almost entirely by market forces.

Last week the Environmental Protection Agency released its latest update of automobile emissions trends for carbon dioxide. The report shows that CO₂ emissions per mile for all motor vehicles sold in 2017 were the lowest since the agency began collecting data in 1975.

For truck SUVs, the reduction since 1975 was 50%. For minivans it was 51%. For standard passenger cars it was 55%. Almost miraculously, automakers have produced the cleanest cars in history while also making them safer and more pleasant to drive than the 1975 models.

There is no crisis in Oregon regarding CO2 emissions. The trends are positive and long-term. This is a case where you should simply “do no harm” by staying out of the way.

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

Click here for the PDF version:

John Charles Carbon Rationing Testmony HB 4001 2-7-18

By Kathryn Hickok

Director, Children’s Scholarship Fund-Oregon

Dear Chairman Roblan and Members of the Senate Education Committee:

My name is Kathryn Hickok, and I am director of the Children’s Scholarship Fund-Oregon. For almost twenty years our nonprofit program has provided privately funded partial-tuition elementary scholarships to children from lower-income Oregon families. As CSF-Portland, we originally served Washington, Multnomah, and Clackamas counties. Our program area now includes the entire state of Oregon. We are currently sponsoring students from Beaverton to Bend and Albany to Medford.

The Children’s Scholarship Fund-Oregon is a permanent program of Cascade Policy Institute and part of the Children’s Scholarship Fund national network of scholarship granting organizations (www.scholarshipfund.org). CSF and its partner programs are committed to empowering families in need with the ability to choose the K-8 schools that best meet their children’s needs, regardless of their ability to pay or the neighborhoods where they live. To be eligible for a scholarship, families must demonstrate financial need according to standards similar to the Federal free and reduced price lunch program. Our scholarships are financed through the generosity of local Oregon donors and matching grants from the national Children’s Scholarship Fund.

Our experience with the educational choices made by the lower-income Oregon families participating in our program demonstrates several key points relevant to this bill:

First, lower-income parents want to take charge of their children’s futures through educational opportunity; and when they are given a real choice, they do so. While their financial means are limited, our parents are knowledgeable about their options and determined to make any sacrifice to raise their children to be well-educated, responsible, and successful adults. Parents in our program value high-quality education as the way out of poverty for their children and make the commitment and sacrifice of paying a substantial portion of their tuition themselves.

Second, demand for broader educational opportunities in Oregon is real. When our program began in 1999, the parents of more than 6,000 children applied for only 550 available scholarships. Weekly, parents call and email me because they want to find the right educational fit for their children. It could be a specialized program or school tailored to their learning or physical needs, or they could be looking for educational opportunities not available in the public school assigned to them by their home address. Senate Bill 437 would give Oregon families greater power to choose among the broad range of educational choices and learning opportunities currently available, or available in the future, using money the state already allocates for their children’s education.

Third, it does not take a lot of money to change a child’s life. Our scholarships average about $1,500. That small amount can make the difference in allowing children to attend schools they love, that motivate them to do their best, and that foster their individual talents. Education Savings Accounts would make an even greater, empowering difference for parents in where they send their children to school and how they tailor their kids’ entire educational experience to their unique needs and talents.

The benefits of an Education Savings Account program for Oregon families are not theoretical for us. As a charitable scholarship program, CSF-Oregon helps parents to choose the schools best suited to their children’s needs. This bill extends educational options to more children in our communities. It will make a real and immediate difference in thousands of lives, just when they need it the most.

Respectfully,

Kathryn Hickok

Director

Children’s Scholarship Fund-Oregon

Before the Senate Education Committee

By Steve Buckstein
Cascade Policy Institute

Chair Roblan and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and Founder at Cascade Policy Institute, a public policy research organization based in Portland.

I want to share some thoughts about the value of Education Savings Accounts in general, and SB 437 in particular, which we’ve branded the Educational Opportunity Act: The Power of Choice.

Next, Professor Eric Fruits will briefly discuss the Fiscal Impacts of the bill.

Finally, you’ll hear from Oregon’s 2012 Mother of the Year, Bobbie Jager, about the importance of providing different educational options for different children.

School Choice programs allow students to choose schools or other educational resources and pay for them with a portion of the tax funding that otherwise would go to the public school assigned to them by their ZIP code.

While school choice is popular with large segments of the public, opponents worry that specific programs like vouchers or Education Savings Accounts may drain funds from the public school system.*

What these concerns overlook is that public funding for K-12 education should actually help educate students, not simply fund schools whether or not they meet specific student needs.

The latest and most versatile school choice programs being enacted across the country are Education Savings Accounts. Unlike vouchers, which only let parents pay for private school tuition, ESA funds may also be used for other approved educational expenses, such as online learning programs, private tutoring, community college costs, and other customized learning services and materials.

Also, while voucher funds all go to private school tuition or are lost to the families, funds remaining in ESA accounts each year may be “rolled over” for use in subsequent years, even into college. This creates incentives for families to “shop” for the best educational experiences at the lowest cost, as well as incentives for schools and educational programs to price their services as low as possible, not as high as possible as might be done under a voucher program.

Five states already have limited ESA programs. Nevada passed a near-universal ESA program in 2015, but its legislature has yet to fund it. In November 2015 your Committee heard from the author of that bill, 16-year public school teacher and state senator Scott Hammond. He told you that he viewed vouchers as the rotary telephones of the school choice world, and that ESAs are the smartphones of that world.

Vouchers just let parents choose a different school, but ESAs offer the equivalent of apps on your smartphone. You can use ESA funds for tuition at a private school, to pay for online courses, pay for tutors, pay for a Sylvan Learning type program, and/or pay for other approved educational options. A student is free to spend part-time at their local public school, and the rest of the time making other educational choices with the proportional share of their ESA funding.

In 2008, Cascade Policy Institute sponsored a School Choice Video Contest in which we asked parents and students to tell us what school choice meant to them. I want to show you one of my favorite entries. It’s from a 15-year-old homeschooled student in Southern Oregon.

If the Shoe Fits, Wear It! This legislature is about to allocate at least $8.2 billion taxpayer dollars to an education budget that may, in effect, fund shoes that aren’t a good fit for many of our children. ESAs would help some of those families find better-fitting shoes for their kids.

In addition to funding concerns, some critics of ESAs argue that they violate the principle of church/state separation. In Oregon, they might think that SB 437 violates Article 1, section 5 in our state constitution, which basically prevents the state from spending money for the benefit of any religious institution.

But it won’t! The public interest law firm Institute for Justice has studied the bill and concluded that it doesn’t violate either the Oregon or the U.S. Constitution. You have their complete legal analysis on OLIS.

Briefly, at the federal level, the 2002 Zelman Case before the Supreme Court found that as long as it’s the parents, not the state, deciding where a school choice program’s funds go, it doesn’t matter if the parents choose religious schools because it’s the parents, not the state, making those choices.

At least two state supreme courts, in Arizona and Nevada, have found the same thing with regard to ESAs and those state constitutional provisions, which are similar to Oregon’s so-called Blaine Amendment.

Now, let me give you a feel for how much more flexibility ESAs offer over the old voucher plans, and why they’ve sprung up so recently.

It wasn’t too long ago that if our parents or grandparents wanted to make a phone call they would pick up the receiver and ask a phone company operator to place their calls. Later, how glorious it was that we could use our rotary phones to spin out our own calls, even long-distance ones if we could afford the high per-minute costs. Then came digital phones, and finally cell phones became affordable to the masses. But even the early cell phones had limited uses.

You may not remember, but none of us had any cell phone apps before 2008, because there weren’t any. None. Imagine: All you could do on your cell phones before 2008 was make phone calls, maybe text, and maybe connect to the World Wide Web on a slow internet connection.

Just nine years later, over 2 billion people worldwide use apps on their smartphones. You may have dozens of apps on your phone today, and even if you only use a handful of them regularly, that’s a world away from what it was like before 2008. Lots of things are a world away from what they were like before 2008 — except for public education.

Consider the children in our schools today. Many of them have never known a world without smartphones and their apps. Rotary telephones, even landlines, are likely just historical oddities to them. Much of their world is new, except the way we adults try to educate them by sitting them down in rows, in a classroom with kids who are the same age, all in front of one teacher lecturing about some subject they may or may not find interesting and relevant to their lives.

Yet, many teachers see kids’ smartphones as a problem, right? They’re watching their screens instead of sitting politely in rows listening to the math lesson at 10, or the history lesson at 2.

We say that we want our kids to learn how to take advantage of technology, take STEM courses, and be prepared for the new careers awaiting them. So why do we see their use of that technology every day as a problem! They’re not paying attention to the teacher! They’re bored with school. The Shoes we make them wear aren’t good fits for many of them.

We know that they’ll likely find value in many of these subjects later in life, but if they can’t learn those lessons in ways that are relevant to them now, they may never learn them at all; or they may learn them too late to avoid painful life experiences between now and then.

In 2007, the House Subcommittee on Education Innovation, chaired by Representative Betty Komp, heard compelling testimony about some of those kids during a hearing on an earlier school choice bill, HB 2010. It was given by Black Portlander Jomo Greenidge, who describes himself as an educator and technologist.

Jomo can’t be here to talk with you today, but he hopes you’ll watch his earlier testimony and think about how Education Savings Accounts could help kids like these today.

Since Jomo gave that testimony in 2007, smartphone apps emerged, followed by Education Savings Accounts, which act much like smartphones of the school choice world. Many students in our schools today, and all the kids entering our schools tomorrow, will grow up in a world with modern communication and app technology.

It’s time we recognize that much of the money we tax and spend on their educations might not be meeting their educational needs. It’s time that we consider the Education Savings Account approach to let their families have some control over how that money is spent so it better meets their needs.

Other states have debated, and some are adopting, ESA programs this year. The pressure to pass more such bills will only grow.

We know that SB 437 won’t pass this year. While we’re thankful for this Informational Hearing, many Oregon families want more. Many Oregon families can’t wait for years to get their kids into better fitting Educational Shoes.

We can debate the details, but please take this issue seriously and help these families by passing an ESA bill soon, hopefully in the 2018 session.

Thank you.

* A 2009 scientific survey showed us that 87 percent of Oregon families with school-aged children want the ability to choose other than their local public school. And the results were similar for Republicans, Democrats, and Independents. So why do some 90 percent of them still send their kids to their local public school? You know why. It’s because they can’t afford to pay federal, state, and local taxes to fund that local school and pay for private school tuition at the same time. ESAs will give them the financial ability to make some other choices if they want to.

And, if 20 percent of Portland public school teachers send their kids to private schools, why would we think that 20 percent of their neighbors might not want to do the same, if they could afford it?

Based on data from the 2000 US Census, a report was published looking at where public school teachers sent their own kids to school in the nation’s 50 largest cities. It found that public school teachers send their own kids to private schools at much higher rates than their neighbors.

In Portland, 12.7 percent of parents sent their kids to private schools, but 20 percent of public school teachers who lived in Portland sent their kids to private schools. Doing some basic grade school math shows that teachers in the largest cities were 23 percent more likely to send their children to private schools, but in Portland they were 57 percent more likely to do so.

So, will SB 437 bill drain funds from public schools, or will it leave them harmless while allowing many students to make different choices? The answers depend on several assumptions which have now been evaluated by Eric Fruits, Ph.D. in a new review and evaluation of a universal ESA program for Oregon. The amount of the ESA deposits is the biggest driver of fiscal impacts.

As introduced, SB 437 would provide participating students with disabilities and in low-income households $8,781 per year (current state funding) in their ESAs. All other participating students would receive $7,903 (90% of current state funding). As Introduced, based on the assumptions below, the Fiscal Impact on the state and local school districts could be in the range of $200 million annually based on the following assumptions:

■ 90 percent of 61,000 students currently enrolled in non-public education would participate in the program.

■ Seven percent of 563,000 students currently enrolled in public schools would participate.

Based on these assumptions, the program has a fiscal “break even” for state and local school districts combined at an ESA annual amount of $6,000 for each participating student with disabilities and/or in a low-income household and $4,500 for all other students.

These are the dollar amounts proposed in the -1 Amendment to the bill. If fiscal impact were the only measure by which to evaluate this ESA program, the analysis shows that the program is “optimized” at an amount of $3,000 for each participating student with disabilities and/or in a low-income household and $2,250 for all other students. Once fully implemented, the program would save state and local governments $53 million a year.

Of course, fiscal impact is not and should not be the primary measure of this, or any well-designed school choice program. But, it is a political reality that such a program should not impose a fiscal burden on the state at a time that all budgets are under pressure.

The primary measure of this ESA program should be that it offers Oregon families as much choice as possible in how their children take advantage of educational opportunities funded by the state. The full report is here: Education Savings Accounts: Review and Evaluation of a Universal ESA in Oregon

Testimony of John A. Charles, Jr.

President and CEO, Cascade Policy Institute 

Regarding SB 847

June 5, 2017

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

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

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

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

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

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

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

By Steve Buckstein

Co-Chairs Monroe and Smith Warner and members of the Joint Committee on Ways and Means Subcommittee on Education:

I’m Steve Buckstein, Senior Policy Analyst and Founder of Cascade Policy Institute, a public policy research center based in Portland. I’m writing in opposition to HB 2720 A which would require the Oregon Department of Education (ODE) to conduct a study on virtual public charter schools.

My major points of opposition second those of Dr. David Gray, Executive Director of the Metro East Web Academy. He “…served in traditional public education for over 30 years as a state department executive, superintendent, assistant superintendent, National Blue Ribbon School Principal, and a state and nationally recognized teacher.”  In his written testimony submitted on March 3^rd he stated, in part:

“I share your passion for public education. Unfortunately, the traditional education system is broken….Traditional systems are effective for some students but not all and many of those succeed in spite of the good intentions of professional educators This is why we must not limit options for students.

“Although HB 2720’s purpose seems innocuous as some would perceive it to just be a study; it is actually one more study to examine a system of virtual schools that have been studied over and over throughout the United States. In fact, the study purports to use the same data points that are readily available on the ODE website, which will undoubtedly include metrics such as graduation rates, state assessment results, and attendance data. I can not think of a bigger waste of taxpayer dollars, especially in a year when resources are scarce and legislators are scrambling to create an adequate educational budget.

“Ultimately, if it is important to study virtual schools – why don’t we do a study on all of our high schools to determine why students are leaving traditional high schools and coming to charter schools? Why are there so many at-risk students? Do traditional brick and mortar schools add value to a student’s education? Do we know the answers to these questions?” [emphasis added]

In light of these well-stated concerns, HB 2720 A seems a costly distraction that could keep the legislature, ODE and all Oregonians from focusing on the real problems facing our public education system.

I urge you to oppose HB 2720 A.

Thank you,

Steve Buckstein
Senior Policy Analyst and Founder

By John A. Charles. Jr.

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

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

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

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

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

Lone Rock Offer vs. Continued Public Ownership

Cumulative CSF Payouts to Schools @4% of Annual Earnings

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

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

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

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

April 6, 2017

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

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

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

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

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

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

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

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

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

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

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

April 6, 2017

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

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

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

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

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

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

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

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

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

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

Before the Senate Business and Transportation Committee

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

April 3, 2017

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

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

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

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

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

All PPC Administrators

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

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

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

To: Chairman Greenlick and members of the House Committee on Health Care

From: Steve Buckstein, Senior Policy Analyst and Founder, Cascade Policy Institute, a non-profit, non-partisan public policy research organization based in Portland

HB 2128 is a common-sense response to Oregon’s overreach when it became the first state to require a prescription for drugs containing pseudoephedrine in 2006. Only Mississippi has followed our lead.

While our prescription-only law was meant to reduce the incidence of meth labs in the state, federal government data show that by the time our law went into effect, we had already seen an 89 percent drop in the previous two years. Why? Because Oregon adopted its earlier behind-the-counter law for pseudoephedrine drugs in 2004.

As federal data in Figure 1 of Cascade Policy Institute’s 2012 study show, Oregon reported 467 meth lab incidents in 2004, and just 50 by 2006. By 2010 we reported 12 meth lab incidents. So, the overwhelming drop came before our prescription-only law even went into effect. As shown in Figure 1, our two neighboring states of Washington and California showed similar declines over the same period; and they only put these drugs behind the counter, as all states were required to do by federal law starting in 2006.

While I don’t have access to the meth lab incident data from more current years, we do know that according to recent reports from the U.S. Customs and Border Patrol, 99.8 percent of meth seized in the United States in 2015 was produced in Mexico.

Let’s be clear: Neither putting pseudoephedrine drugs behind the counter nor making them prescription-only did anything to reduce meth use and abuse.

Requiring prescriptions simply inconveniences Oregonians who want to treat minor cold or seasonal allergy symptoms, something consumers in 48 other states don’t have to bother with.

Oregonians have to make an appointment, take time off work to visit their doctor, ask for a prescription, and then go to the pharmacy to buy a product they previously could purchase by just asking their pharmacist.

A 2014 study found that this prescription requirement increased consumer prices for these drugs by 35 percent.

Making pseudoephedrine Rx-only is also likely to result in some patients relying on less effective treatments or avoiding treatment altogether due to additional cost and hassle. This could result in more lost work time for individuals and lost productivity for employers.

It’s time to recognize that we solved most of the meth lab problem by placing these drugs behind the counter in 2004. We didn’t need to overreach with our prescription-only law in 2006.

It’s time to repeal the prescription-only restriction and let honest consumers buy the cold and allergy medicines they prefer, just like people in 48 other states.

Thank you.

Click here for Figure 1 of Cascade Policy Institute’s 2012 study

To: Chair Barnhart and members of the House Committee on Revenue

From: Steve Buckstein, Senior Policy Analyst and Founder of Cascade Policy Institute, a Portland-based non-partisan, non-profit public policy research organization

Re: Tobacco taxes and inhalant nicotine taxes proposed in
HB 2037, HB 2056, HB 2062, HB 2084, HB 2119, HB 2662, and HB 3178

Why the state should not depend on increased sin taxes

• Oregon’s addiction to tobacco/nicotine revenues will only grow if we become more dependent on them to fund new or existing programs.
• Taxes on alcohol and tobacco are frequently justified as a means of discouraging “unhealthy” behavior. But this objective quickly gives way to a different one: raising revenue. This creates a “moral hazard” problem: sin taxes cannot simultaneously both discourage consumption and raise more revenue. For one to succeed, the other must fail.
• As cigarette smoking continues to decline, tobacco taxes will continue to shrink, punching one more hole in future state budgets.

The regressivity of Sin Taxes

Paying for any state programs by taxing smokers may make some program recipients better off, but it will also make smokers and their families worse off.  As you may know:

• Cigarette smoking adults are more likely to be uninsured than non-smoking adults.
• Cigarette smokers are in poorer physical condition than non-smokers.
• Cigarette smokers generally have lower incomes and less formal education than non-smokers.
• Cigarette smokers are more likely to be unemployed or unemployable than non-smokers.

Policy option:

Currently, less than eight percent of Oregon tobacco taxes are used for the Tobacco Use Reduction Program. Funding other state programs through cigarette, tobacco and/or nicotine taxes is very regressive, targeting less educated, lower income and sicker Oregonians. If anything, these taxes should be reduced, not increased.

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

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

Dear Land Board members:

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

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

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

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

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

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

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

Elliott State Forest sale

Investment projections of net proceeds under various assumptions

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

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

Sincerely,

John A. Charles, Jr.

President & CEO

Cascade Policy Institute

(more…)

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

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

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

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

Read full testimony here

The following testimony was presented to the Portland Community College Board at their meeting on September 18, 2014.  The Board then voted 5 to 2 in favor of a Resolution giving their support to the Oregon Opportunity Initiative, Measure 86 on the November ballot.

Testimony before the Portland Community College Board in Opposition to the Oregon Opportunity Initiative (Measure 86):

Good evening, Chair Palm and members of the Board. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a public policy research organization based in Portland.
I urge you to reject this Resolution for the following reasons:

First, you have no assurance that any funds generated by the Opportunity Initiative won’t simply replace funds the legislature already allocates to higher education. Plus, there’s no assurance that one community college student will benefit. Decisions about what, if any, funding will benefit specific students will be left to some unnamed public body, subject to the same lobbying efforts the legislature faces now.

Second, even if the Opportunity Initiative helps some students in the short run, it will make the whole system less affordable in the long run. Such third-party payments from states and the federal government are a big part of the reason that college costs and student debt are rising rapidly.

I’m sure you work hard to keep student prices under control. But, to the extent that Measure 86 puts more taxpayer money in student pockets, it will take some pressure off you to do so.

Third, I’m not sure voters understand that even if the Treasurer’s optimistic investment assumptions for Measure 86 work out, income taxpayers will be on the hook to repay all the principal and interest on any bonds issued by the state for decades into the future.

Before asking taxpayers to repay those bonds for the next thirty years, you might consider how technology is beginning to reduce higher education costs.

One Oregonian who recognizes the power of the coming technological revolution is the chief sponsor of the Oregon Opportunity Initiative himself, Treasurer Wheeler. Last October in a public meeting, he criticized the university system for being…

“…very slow to adapt the opportunities around technology.” He said that “there’s a lot of institutional inertia in the university system just as there is in Salem. And, all of these new technologies have opened up new windows to learning that do not require a student to even be in the same state.” He noted that online programs such as iTunes University on his own smartphone “don’t cost…a cent” and are a “game changer” that “undercut the entire economic model of the university system as it currently exists today.” *
​
So, if technology will put downward pressure on college costs, why saddle Oregon taxpayers with perhaps one hundred million dollars or more in debt over the next 30 years to fund the current high-cost model?

Finally, based on recent ACT test scores, only 30 percent of Oregon’s high school graduates are competent enough at English, reading, math and science to pass freshman college classes. Before you encourage more spending on higher education, shouldn’t we find ways for our public school system to prepare most college-bound students to actually succeed there? Otherwise, we’re just paying twice for remedial courses to teach college students what they should have learned in high school.

Wouldn’t you rather see every new PCC student ready for college-level courses, rather than dump more of your limited budget into teaching them what they should already know?

In conclusion, whatever the value of a college degree is to an individual, it’s becoming clear that Opportunity Initiative state funding of those degrees is likely to cost taxpayers more than they gain. I urge you to reject the Oregon Opportunity Initiative.

Thank you.

* Ted Wheeler, Washington County Public Affairs Forum, October 28, 2013.
59-second answer: youtube.com/watch?v=ZMPMtmEyieg.
Entire hour-long presentation with Q&A: youtube.com/watch?v=l1hYXGA3CLA.
Relevant question starts at 52:16.

John A. Charles, Jr. presented this testimony to the TriMet Board of Directors on May 28, 2014 with regard to their proposed expansion of the Westside Express Service.

Board members:

Below are my comments on Resolution 14-05-27, Adopting the Fiscal Year 2014-15 Annual Budget and Appropriating Funds, for your May 28 meeting:

Assumed cost of fringe benefits: According to the introductory narrative, the proposed FY 15 budget “assumes management’s initial offer for active and retiree health benefits.” This is consistent with the budget statements from previous years, which have tended to “assume away” unpleasant aspects of labor negotiations. It does not seem prudent to continue making these assumptions, based on the history of TM labor negotiations over the past 22 years. As much as I like seeing the proposed expansion of service, perhaps it would be better to scale back service enhancements and set aside more funds for a worst-case outcome on the cost of health benefits.

Plans for WES expansion: The staff recommends purchasing two additional vehicles for WES, at a cost of $8.5 million, or $13.2 million over 20 years of debt service. All of those costs will cannibalize other general fund programs. I’d suggest that this proposal be pulled from the budget and possibly added back later, after further public vetting.

WES is TriMet’s most expensive fixed-route service, but I’m not aware of any justification that has ever been offered. Fewer than 1,000 TriMet riders benefit from these subsidies each weekday. Why are WES riders so privileged?

To put the issue in context, below are the costs of WES compared with those of similar bus service offered by SMART of Wilsonville. While WES is undoubtedly a nicer and quicker ride for users, the cost premium is difficult to justify to non-riding taxpayers who have to make up the difference.

Express Service from Wilsonville Station to Beaverton Transit Center

In addition, WES is an energy hog. According to a new report by the Federal Railroad Administration, the average energy consumed by all commuter rail systems in America during 2010 was 2,923 British Thermal Units (BTU) per passenger-mile. WES was close to the bottom: It consumed 5,961 BTU per passenger-mile, more than twice the national average (by comparison the top performer was Stockton, CA: 1,907 BTU/passenger-mile).

Not only is WES inefficient compared with its peer group, it is wasteful compared with other modes of travel. The national average for all transit buses in 2010 was 4,240 BTU per passenger-mile; for light-duty cars, the average was 3,364.

WES has always been a planning mistake. Before the Board decides to double-down on failure, there should be careful consideration of an alternative action: terminating service. None of the current board members had anything to do with the original decision, so no one should feel a personal need to defend it. Certainly terminating service would result in some short-term costs because of likely re-payment penalties to the federal government, but at some point the lower operations would provide net benefits to taxpayers (including those outside of TriMet’s district in Wilsonville, who pay TriMet more than $25,000/month to subsidize train operations).

In a typical year, there are very few opportunities for the Board to actually express a clear policy choice for TriMet’s future; most decisions are made by the staff. This is a rare chance for the Board to isolate two distinct policy options, consider the long-term effects, and express an independent preference for one of those options. I strongly encourage you to defer action on the proposed purchase of additional WES vehicles for at least another 60-90 days in order to have that public conversation.

Sincerely,

John A. Charles

Cascade Policy Institute

February 19, 2014

Testimony Against SB 1538 Before the Oregon House Education Committee

Chair Gelser and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute based in Portland.

I would like you to reject SB 1538.

Interestingly, the Senate has overwhelmingly approved SB 1525, which would make it easier for Oregon college students to take online courses from institutions outside the state. The chair of the Senate Education and Workforce Development Committee noted how fascinating it was that the proposal would break down borders standing in the way of Oregonians having more higher education learning opportunities. That seems non-controversial and clearly a good thing.

Unfortunately, by a much closer margin, the Senate also approved SB 1538, which does the exact opposite of SB 1525. It actually builds up borders that will stand between Oregon’s Kindergarten through 12th grade students and new public charter school options that might offer the very educational opportunities they want and need.

Several years ago I was watching a Portland Public Schools Board Meeting where several charter applicants were making their cases to the board.

One group wanted to start a school with, what I recall, was a particular arts curriculum. They’d jumped through all the hoops required of a charter applicant, but when the board members began commenting, it became clear that the applicant stood no chance of approval.

One board member looked at the applicants, and at the audience, and stated, “We already have one of those.”

She went on to explain that the district already had a school with a similar curriculum focus, and therefore they obviously didn’t need any more. How she knew that there was no more demand among parents and students for such a focus was unclear.

They already had one of those, so that ended the discussion.

This bill would make it even easier for Portland and other districts to write off competent, innovative charter applicants by simply stating that their schools wouldn’t advance one or more educational goals that the board had identified.

“We already have one of those” would become… “We don’t need even one of those.”

This bill would stifle innovation, and stifle opportunities for students currently “captured” by their local public schools to find any way out…to find a better fit for their educational needs.

I hope you reject it.

February 6, 2014

Testimony Against SB 1538 before the Oregon Senate Education and Workforce Development Committee
By Steve Buckstein

Chair Hass and members of the committee, my name is Steve Buckstein. I’m the Senior Policy Analyst and founder of Cascade Policy Institute, a Portland-based free-market think tank.

I’m here to ask you to reject SB 1538.

Chair Hass, the committee just approved SB 1525, which would make it easier for Oregon college students to take online courses from institutions outside the state of Oregon. You noted how fascinating it was that the proposal would break down borders standing in the way of Oregonians having more higher education learning opportunities. That seems non-controversial, and clearly a good thing.

Unfortunately, if you approve the bill we’re discussing now, SB 1538, you’ll be doing the exact opposite. You’ll be building up borders that will stand between Oregon’s Kindergarten through 12th grade students and new public charter school options that might offer the very educational opportunities they want and need.

A few years ago I was watching a Portland Public Schools board meeting where several charter applicants were making their cases to the board. One group wanted to start a school with, what I recall, was a particular arts focus. They’d jumped through all the hoops required of a charter applicant, but when the board members began commenting it became clear that the applicants stood no chance of approval.

One board member looked at the applicants, and at the audience, and stated, “We already have one of those.” She went on to explain that the district already had a school with a similar curriculum focus, implying that obviously they therefore didn’t need any more such schools. One was enough.

SB 1538, brought to you by the current Portland Public School Board, would make it even easier for Portland and other districts to write off competent, innovative charter applicants by simply stating that their proposed schools wouldn’t advance one or more educational goals that the board had identified.

Back when I was about to graduate from a Portland elementary school, I considered attending Benson Polytechnic High School. It was the one Portland public school with an emphasis on technical education, and it seemed to always have a waiting list to get in. I wondered then why the district never opened another Benson type school to meet the obvious need.

Why was “We already have one of those” the mindset then, and why is it the mindset still?

I now believe it’s because board members and administrators don’t have to be concerned about the needs of most students, because most students and their parents don’t have the means to exercise other options, such as moving near a school that better meets their needs, or paying taxes for the public school system and tuition for a private school at the same time.

If SB 1538 becomes law, this mindset of “We already have one of those” could easily morph into “We don’t need even one of those.”

This bill would stifle innovation, and stifle opportunities for students currently “captured”* by their local public schools to find any way out…to find a better fit for their educational needs.

I hope you reject it.

SB 1538 was approved on a 4 to 1 vote in the Committee and will go to the Senate floor for a vote.

Archived audio of the entire February 6, 2014 hearing is here, beginning with the hearing on SB 1525. Senator Hass’s comment about breaking down borders beginning at 08:19 into that hearing. The hearing on SB 1538 begins at 17:20, with public testimony for and against the bill. My oral testimony begins at 51:04.

* Public school districts often try to maintain or increase the percentage of eligible students living within each school’s particular geographic boundaries. This percentage is openly referred to by district officials as the “capture rate.” Anything that could reduce the capture rate of a given district school, such as creation of a new charter school, is seen by those officials as a potential threat to their capture rate goals.

February 11, 2014

Testimony Against HB 4129 in the House Revenue Committee
By Steve Buckstein

Chair Barnhart and members of the committee, my name is Steve Buckstein. I’m the Senior Policy Analyst and founder of Cascade Policy Institute, a Portland-based free-market think tank.

I’m here to ask you to reject HB 4129.

Why the state should not increase so-called sin taxes

• Funding any state program through additional tobacco taxes would add one more advocacy group to those who openly or secretly applaud more smoking in Oregon.

• Oregon’s addiction to tobacco revenues will only grow if we become dependent on those revenues to fund any new programs.

• Taxes on alcohol and tobacco are frequently justified as a means of discouraging “unhealthy” behavior. But this objective quickly gives way to a different one: raising revenue. This creates a “moral hazard” problem: sin taxes cannot simultaneously both discourage consumption and raise more revenue. For one to succeed, the other must fail.

• As cigarette smoking continues to decline, tobacco taxes will fail to fund current, let alone new, programs, punching more holes in future state budgets.

The regressivity of sin taxes

Providing health care services to specific groups of people, in this case smokers, may make some smokers better off; but it will also make other smokers and their families worse off. As you may know:

• Cigarette smoking adults are more likely to be uninsured than non-smoking adults.

• Cigarette smokers are in poorer physical condition than non-smokers.

• Cigarette smokers generally have lower incomes and less formal education than non-smokers.

• Cigarette smokers are more likely to be unemployed or unemployable than non-smokers.

In summary, increasing tobacco taxes is regressive, targeting less educated, lower-income, and sicker Oregonians.

Policy option:

If funding new or increased health care services for smokers is worth doing, it should be done through the General Fund so everyone participates. This avoids the moral hazard problem and is not nearly as regressive as the tax increases proposed in HB 4129.

Thank you.
————-
Audio of the entire hearing is here. The HB 4129 hearing section starts at 1:03:25 into the audio.

Cascade President John A. Charles, Jr. submitted the following testimony to the TriMet Board on January 21, 2014.

To the TriMet Board:

In Resolution 14-01-03, TriMet staff proposes to give away a land parcel valued at $570,000 to a developer on the grounds that the net present value of 30 years of increased transit fares generated by the development is estimated to be $648,732.

The staff has neglected to mention that $648,732 is the gross revenue associated with future boardings. Since TriMet loses money on every trip, the net value of future fares will be a negative number.

For example, the operations cost/boarding for light rail in FY 14 has averaged $1.87. The average originating fare for TriMet fixed route service is $1.47.

Last year all passenger revenue totaled $152,698,000 while operating expenses were $580,289,000, a 26% recovery ratio. So it doesn’t matter what assumptions you use about 30-year discount rates, rental occupancy rates, or rail usage by TOD residents; under all scenarios, TriMet loses substantial amounts of money servicing the proposed project. Therefore there is no “profit” to subsidize the $570,000  giveaway of a public asset.

Moreover, FTA has had a long-standing policy prohibiting such transactions, as noted in the following guidance document:

“Thus, locally preferred Plans for highest and best transit use may be acceptable even if they do not generate the highest possible level of financial return, although the transit system is expected to realize some financial return (i.e., not transfer the property for $1) in a development.”  (Innovative Financing Techniques for America’s Transit Systems, FTA, September 1998, p. 45, http://libraryarchives.metro.net/DPGTL/publications/1998_innovative_financing_techniques_americas_transit_system.pdf).

Elsewhere in the same document, FTA discusses exactly the type of Portland situation contemplated with the SE 17^th Street proposal, and declares it impermissible:

“In one property, the highest and best use was considered to be a 9-unit, median income townhouse condominium, with built-in parking for all units. The metropolitan planning organization, Metro, had calculated that social, economic and environmental benefits in that area would be maximized by a rental apartment development, for low-to-moderate income residents, with structured parking for 40 percent of units. Developers maintained that, while the Metro plan could eventually prove economically viable, the current market would not support the higher density plan. The risk of substantial non-payments of rent, and resulting default on project financing, was considered too high. Thus, the value of the land would have to be reduced to reflect this risk. In discussions with Metro, FTA indicated that while the price of the land was to some degree negotiable, FTA would not accept a zero or negative valuation of property to make the project feasible.” 

Other subsidies: In the staff memo, it is also stated that TriMet has agreed to “assistance with permitting fees” for the developer. What, exactly, does this mean? Is TriMet proposing to subsidize the soft costs of development, and if so, why?

Alternative uses: The proposed land giveaway should be rejected and alternative uses considered. TriMet staff recommends against using the parcel as a parking lot, but offers no analysis. In fact, light rail depends on park-and-rides to attract riders and most TriMet parking lots exist to service light rail. If you don’t provide parking at this station, out-of-district riders will simply invade nearby residential neighborhoods, creating a nuisance.

Sincerely,

John A. Charles, Jr.

Cascade Policy Institute

Testimony in Support of the Education Equity Emergency Bill

Kathryn Hickok

Director, Children’s Scholarship Fund-Portland

Portland, Oregon

January 16, 2014

Chair Hass and members of the committee, my name is Kathryn Hickok, and I am director of the Children’s Scholarship Fund-Portland. For 15 years our program has provided privately funded partial-tuition scholarships to children from lower-income Oregon families. The Children’s Scholarship Fund-Portland has helped nearly 650 Oregon Kindergarten through 12^th grade students have access to diverse educational settings that meet their individual needs.

CSF-Portland is a partner program of the national Children’s Scholarship Fund, headquartered in New York. Our mission is to maximize educational opportunity by offering tuition assistance for children from needy families. We provide partial tuition scholarships based solely on income that are usable at any private school chosen by the students’ parents or guardians. To be eligible for a scholarship, families must demonstrate financial need.

Our experience with the educational choices made by the lower-income Oregon families participating in our program demonstrates several key points relevant to this bill:

First, lower-income parents want to take charge of their children’s futures through educational opportunity. Parents in our program value high-quality education as the way out of poverty for their children and make the commitment and sacrifice of paying, on average, more than half of their tuition out of their own pockets.

Second, demand for diverse educational opportunities in Oregon is real. When our program began in 1999, the parents of more than 6,600 children applied for only 550 available scholarships. Our waiting list continues to grow every week. The last thing parents who call me want to do is see their children not succeed in school.

Third, it does not take a lot of money to change a child’s life. Our scholarships average about $1,500 for a full school year, and that amount makes the difference in allowing children to attend schools they love, that motivate them to do their best and foster their individual talents. The average tuition of our elementary students this year is only about $3,600. So, a relatively small amount of money truly can make the deciding difference for families in where they send their children to school.

While they don’t have much discretionary income, CSF families always must pay part of their tuition themselves. Because they have “skin in the game,” CSF parents are motivated to choose schools carefully and to encourage their children to make the most of their opportunities. When empowered with a modest amount of financial help, parents will invest their own money, time, effort, and discipline to obtain the kind of education they want for their students.

A Portland-area mother named Lisa recently told me, “I wish that the education system could understand that not every child fits into the same sized box, and everyone needs to do what is right for their family.” I witness the lengths to which parents like Lisa go to choose the school they think is best for their kids. The Empowerment Scholarship Accounts in this legislation would empower parents like Lisa to make life-changing choices on behalf of their children’s education, just when they need it the most. I encourage you to support the Education Equity Emergency Bill. Thank you very much.

The Oregon Department of State Lands (DSL) is proposing that the Oregon State Land Board―comprised of the Governor, the Secretary of State, and the Oregon Treasurer―sell off 2,700 acres of the Elliott State Forest. The Elliott is a 93,000-acre state forest located on the southern Oregon coast. Most of the forest is required by state law to be managed to generate revenue for the Common School Fund, an endowment for public schools. Due to environmental litigation, timber harvesting has plummeted on the Elliott, making it impossible to fulfill the mission of providing income for the Common School Fund. Therefore, the DSL is proposing to sell three small tracts in order to generate funds.

Cascade President and CEO John A. Charles, Jr. submitted testimony earlier this week in support of the sale:

“I am writing in support of the proposed sale of three parcels within the Elliott State Forest―the Adams Ridge, Benson Ridge, and East Hakki Ridge Tracts. Sale of these parcels is consistent with the Constitutional and statutory directives to the Land Board that it maximize revenue over the long term from Common School Trust Lands.

“Clearly the annual returns on the Common School Fund over the past 20 years have been far superior to the returns from timber harvesting on the ESF, as noted in the Department’s Real Estate Asset Management Plan. Given that the returns on timber harvesting have been declining and will likely decline even more in the near future due to environmental litigation, public schools that rely on the twice-annual distributions from the CSF would be better served with the sale of timberland from the ESF, with the proceeds placed under the management of the Oregon Investment Council.”

Cascade has long supported the lease or sale of Common School Trust Lands, and welcomes the move by the SLB to sell off small parts of the Elliott State Forest. The Land Board will consider the matter at its upcoming meeting in Salem on December 10.

Steve Buckstein presented the following testimony to the Joint Interim Committee on Special Session prior to the September 30th special session. The audio of the hearing is here. Steve’s testimony begins at 1:09:22. He was the first member of the public to testify on Legislative Concept 3, the revenue raising part of the so-called Special Session Grand Bargain. Each person was limited to two minutes of oral testimony:

Testimony Before the Joint Interim Committee
on Special Session in Favor of
Small Business Tax Cuts
by Steve Buckstein

Good morning, Co-chairs Courtney and Kotek and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, which is a non-profit, non-partisan think tank based in Portland. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity.

While I do not support the revenue raising portions of this legislation, reducing tax rates on small businesses is a very positive step that I urge you to take.
There was an instructive exchange on this topic on June 20th before the Senate Finance and Revenue Committee.* One tax cut opponent noted that he didn’t believe the person who fixes his washing machine was going to buy another truck and get another employee for his small business because of a reduction in his tax rate.

I then told the committee that while this one repair man may not change his economic behavior, a tax cut just might be the deciding factor for some entrepreneur to locate a new washing machine manufacturing plant here, hiring dozens or hundreds of Oregonians.

We need to understand that in this modern world, people and capital are mobile. Investors and businesspeople change their behavior based on the incentives and disincentives they face. Oregon’s high tax rates shine like a big STOP sign at every border, warning high-income people and many businesses that the cost of staying here or coming here may be too high compared to other states.

So, rather than rely on taxing others more to generate revenue, rely on the fact that lowering small business tax rates will make Oregon more business friendly, thus generating jobs and more tax revenue.

I have it on good authority that each of you would like to take credit for creating more jobs in this state. Here’s your chance.

Thank you.

* June 20th Hearing audio. The tax cut opponent’s repair man story begins at 1:25:40. My full testimony begins at 1:45:37 and my repair man story rebuttal starts at 1:47:40.

On August 15, 2013 the Metro Council unanimously approved two resolutions that move the discussion forward toward subsidizing a Headquarters Hotel near the Oregon Convention Center in Portland.

Metro’s news article about the meeting (which quotes from Steve Buckstein’s testimony below) is here. Read his testimony below:

For the record my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a free-market think tank here in Portland.

Originally, the idea behind the Oregon Convention Center was that if we put together the right package of amenities, then everyone would come to Portland and spend lots of money eating and shopping when they weren’t attending meetings.

That same idea occurred to people in other cities, and it sparked an ambitious municipal competition that began back in the 1980s and is still going strong.

First, we built a new convention center to attract the convention business. When the original center didn’t generate the revenue we’d hoped for, we decided to expand it. When occupancy rates dropped after the expansion, we turned our attention to the need for a headquarters hotel. That was the magic ingredient we were missing.

Of course, no one wanted to listen to the critics like Professor Heywood Sanders who came here in 2005 to tell us that other cities had already tried what we wanted to try in 2007, and it didn’t work. Big convention center hotels were built in other cities with disappointing results. Not only didn’t they significantly increase convention business, but they didn’t make their occupancy projections either, and now those cities are saddled with money-losing convention centers and money-losing hotels. The fact that the private sector wouldn’t put up much of its own money for such facilities somehow didn’t matter in other cities.

The question you have to answer now is: Does it matter to us?

We like to tell ourselves that Portland is different, but are you willing to risk your taxpayers’ money on that difference, knowing that the competition for convention business is only getting more intense?

As you may remember, in 2007 The Portland Development Commission (PDC) rejected the only Convention Center hotel proposal that didn’t require government subsidies.

The Grand Ronde Indian Tribe said it could do the project with all private money if it were allowed to include a gambling casino. After they were turned down, a tribe spokesman said, “We refuse to raid taxpayer dollars for any project.” He could have added, “especially for hotels which are not core functions of government.”

Rather than deciding today if you want to double down by subsidizing a headquarters hotel, I suggest you do the politically incorrect thing and consider whether you really want to be in the convention center business at all. If the answer to that question is No, which I believe it should be, then consider selling the Convention Center and cut your losses.

But I hope you will also 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.”

The core functions of government are to protect our lives, liberty, and property. Providing our entertainment and convention venues should not be done by government at all.

Ironically, in October the Convention Center will host another Scam Jam event where the state attorney general and others will help Oregonians avoid being ripped off by financial con artists. I wouldn’t be surprised if some day in the future publicly funded convention centers and headquarters hotels are listed along with stock swindles as financial transactions to be avoided at all costs by the public.

Further information

The Unseen Costs of Ribbon Cutting: Losses from Economic Development Programs, William B. Conerly, Ph.D., Cascade Policy Institute, June 1998.

Cascade President and CEO John A. Charles, Jr. testified regarding a proposed economic development grant in Beaverton before the Oregon Transportation Commission.

Testimony of John A. Charles, Jr.

President & CEO

Before the Oregon Transportation Commission

June 19, 2013

My name is John Charles and I am President of Cascade Policy Institute. Cascade is a non-partisan policy research center, working to promote economic opportunity, individual liberty, and personal responsibility.

I have analyzed the staff report for Agenda item C1, along with related documents provided by Metro and the City of Beaverton. I have also visited the .8 mile stretch of HW 8 that is being considered for a retrofit, and walked the area on both sides of the highway. In addition, I have conducted extensive field research since 1996 on the nearby Beaverton Round light rail station.

I urge the Commission to reject the IOF grant request, for the following reasons:

This is not an economic development project. The primary objective of project advocates is to lower the design speed on HW 8 from 45 MPH to 30 MPH. There is no evidence that such action would incentivize additional capital investment in the region. Indeed, the sad experience of the nearby Beaverton Round district suggests that just the opposite will occur. Deliberately slowing traffic and encouraging more density in the region will make it less attractive.

The series of photos below are instructive on this point. Notwithstanding the seductive architectural rendering that advertised the future project back in 1996 – in which many pedestrians were envisioned relaxing near light rail and no parking was necessary – the reality proved to be quite different. The project went bankrupt twice. Retailers have struggled. And oddly enough, the site is covered with parking, including surface lots, gated private parking, and the tallest single building in Beaverton – a parking garage.

Unfortunately, local planners have learned nothing from the experience. On two different occasions, Metro appropriated $2 million of public money to Beaverton so that the adjacent Westgate theatre could be purchased and bulldozed. The apparent goal was to build more “transit-oriented development” that would improve the neighborhood. The site is still vacant after nearly a decade.

The proposed “tie-ins” of the HW 8 project to a low-stress bike route are a waste of money because sensible cyclists are already riding on nearby parallel streets. One of the selling points of the Beaverton proposal is that “traffic calming” on HW 8 will make it easier for cyclists. But low-stress cycling options already exist, as shown below.

Attempting to turn a state highway into a boutique “Downtown Main Street” is a nostalgic trip to the past that has no relevance. Metro has encouraged most local governments to subsidize downtown investments based on a “Main Street” model. Tigard has done this, but not by trying to re-invent nearby HW 99w; the city has simply created a faux-downtown that benefits a few businesses while being largely ignored by most Tigard residents.

There is no need for a new traffic light at the Rose Biggi/HW 8 intersection. The proposed Canyon Road retrofit project would add another traffic light at Rose Biggi Drive, even though there are already 5 traffic lights on HW 8 in the .8 miles of project territory. The fact that the Beaverton City Council is moving the entire City Hall staff to the Round is no reason to add another light; there are already two traffic lights serving the Round, on either side of Biggi Drive.

Conclusion: Stripping away the political window dressing, the real point of this project is to degrade the state highway system by reducing the design speed from 45 MPH to 30 MPH on HW 8. The OTC should resist this effort. Local planners have been waging a political campaign against auto-mobility for over 25 years, on such routes as HW 43, HW 97, and HW 26. Planners and the cycling/pedestrian/transit advocacy groups will never be satisfied, and will be emboldened to ask for even more if you keep giving away the mobility functions of the state highway system.

Click here to see the full testimony with photos.

Senior Policy Analyst Steve Buckstein testified on Thursday before the Senate Committee on Finance and Revenue about a series of tax reform proposals. Below is his testimony to the panel of legislators.

Testimony before the Senate Committee
on Finance and Revenue
regarding Tax Bill HB 2456
by Steve Buckstein

Good afternoon, Chair Burdick, Vice-Chair George, and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, which is a non-profit, non-partisan think tank based in Portland. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity.

I’m here to express my support for amending HB 2456 to include a new, lower income tax rate for most small businesses in the state. Small businesses, including start-ups and individual entrepreneurs, are a significant source of job creation. I have it on good authority that all state legislators would like to take credit for creating more jobs in this state. Here’s your chance.

I cannot support other changes in the bill which would jack up tax rates on C corporations and in effect raise taxes on high-income individuals. Such provisions will simply reinforce Oregon’s reputation as business-unfriendly.

In this modern world, people and capital are mobile. Investors and businesspeople change their behavior based on the incentives and disincentives they face. Oregon’s high tax rates shine like a big STOP sign at the border, warning high-income people and most businesses that the cost of coming here may be too high compared to other states.

So, by all means lower tax rates where you can, especially for small businesses. And rather than rely on taxing others more to generate revenue, rely on the fact that making Oregon more business friendly will in itself generate revenue–and jobs.

Thank you.

John A. Charles, Jr. submitted testimony on Monday to the Senate Committee on Finance and Revenue, speaking against a proposal to allow counties to impose local tobacco taxes.

Testimony of John A. Charles, Jr.

President & CEO 

Before the Senate Committee on Finance and Revenue

Regarding HB 2870-A

April 29, 2012 

I am writing in opposition to HB 2870-A.

This bill suffers from an inherent contradiction in its twin policy objectives: raising money and reducing tobacco consumption. For one to succeed, the other must fail.

None of the proponents want to admit this. They prefer to claim that the primary goal is “public health.” However,  the bill only requires that a minimum of 40% of the proceeds be spent on tobacco use prevention and cessation programs, which means that 60% of the funds will go for other uses. This clearly shows that public health is not the primary motivation behind the bill, revenue generation is.

If we admit that this is just a money bill, then there is no compelling argument in favor of taxing a product used by only a fifth of the population, in order to create a revenue stream that will likely benefit everyone. The only reason such bills get introduced is because it is politically easy to pick on a minority group engaged in a habit that is publicly scorned.  But we should not tax minorities just because we can.

If local governments genuinely want to spend more money on tobacco cessation programs, they already have access to the MSA settlement funds. Oregon has received over $1 billion in MSA money since 1998, but virtually none of it has gone to directly help smokers. Since that was one of the express purposes of creating the fund, I’d suggest local governments direct their lobbying efforts at state legislators who continue to use revenue from the MSA as an all-purpose slush fund.

Between state and federal tobacco taxes, plus the price hikes needed by the major tobacco companies to make the MSA payments, tobacco users have paid more than their fair share for any so-called “negative social externalities” associated with smoking. Please leave them alone by tabling HB 2870.

Testimony before the Senate Committee
on Finance and Revenue
regarding sales tax bills SJR 36 and SB 824
by Steve Buckstein

[This testimony was submitted for the April 15, 2013 hearing, but was held over for the April 17, 2013 hearing. My prepared April 17th testimony is posted at the end.]

Good afternoon, Chair Burdick, Vice-Chair George, and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, which is a non-profit, non-partisan think tank based in Portland.

In 2007 I was appointed by Governor Kulongoski 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, we heard from Portland pollster Adam Davis about his focus group work around tax reform. 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.’”

Mr. Davis recently told me that his firm did more quantitative analysis for two state senators which confirmed his focus group findings that Oregonians will not accept a third tax…period.

With that realization in mind, I proposed then, and I propose now, that we should have a serious discussion about replacing Oregon’s 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.

I want to be clear that I don’t like sales taxes very much either, but I’m convinced that they do less damage to the economy than do income taxes.

I suggest that SJR 36 and SB 824 be amended so that they not only create a state sales tax, but they prohibit income taxes in the Oregon Constitution (Article IV, section 32).

Once Oregon voters understand that it will be unconstitutional to tax their income, they may render a different verdict on a retail sales tax than they have nine times in the past.

If you worry that this proposal may not raise enough revenue, then you should shelve any talk of tax restructuring until the legislature and the Governor, or the people, have comprehensively restructured and reduced state spending.

I know that many of you don’t want to hear this, but simply adding a sales tax to our current income and property taxes never has been, and I believe never will be, acceptable to Oregon voters. They know that states with so-called three-legged tax stools have budget problems, too.

Until we reduce the size and scope of state government, no third source of tax revenue will solve our problems, it will simply mask them.

Thank you.
______________________________________________

April 17, 2013    Buckstein testimony on SJR 36 and SB 824

I want to highlight key points in my written testimony [above] that you already have, and respond to several issues raised here on Monday, April 15th.

First, I appreciated the Governor’s suggestion that sales tax advocates should first get a better sense of what voters think is wrong with the current system — and then get a better handle on spending.

Senator George suggested a spending limit like the one voters rejected in 2006, which would have tied state spending to inflation and population growth.  If that limit had passed, you’d be sitting here 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 has in mind, but it sure beats having no handle at all.

As to what voters think is wrong with the current tax system, you heard from the chair of Governor Kulongoski’s Comprehensive Revenue Restructuring Task Force.

Lane Shetterly told you that the Task Force discussed sales tax proposals, but chose not to recommend one based partly on polling data.

I was a member of that Task Force, appointed by the Governor to represent the taxpayers.

At the first Task Force meeting in November 2007, we heard from Portland pollster Adam Davis about his focus group work. 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.’”

These findings mirror a concern several people mentioned here on Monday — the lack of Trust in government. Voters simply won’t trust you to keep income and property taxes down once they give you a Sales Tax.

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

With that realization in mind, I proposed then, and I propose now, that we should have a serious discussion about replacing Oregon’s economically harmful income tax with a less harmful sales tax.

Research finds states without an income tax have experienced higher economic and job growth than states with high income tax rates like Oregon.

I want to be clear that I don’t like sales taxes very much either, but I’m convinced that they do less damage to the economy than do income taxes.

I suggest that SJR 36 and SB 824 be amended to PROHIBIT income taxes in the Oregon Constitution.

Once Oregon voters understand that it will be unconstitutional to tax their incomes, they may muster up enough trust to finally approve a retail sales tax.

There was quite a bit of discussion on Monday about devising a more stable source of revenue for state government. Paul ably showed you that a mix of different taxes could reduce instability in the system.

But there was no discussion about why the state budget should be more stable than our own business and family budgets. As a member of the Governor’s Council of Economic Advisors wrote then Senator Ryan Deckert 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 you’re not careful, I fear that making state revenue more stable will make your constituent’s after-tax family budgets even less stable, and I doubt many of them will appreciate that.

Finally, the last person to testify on Monday, representing the League of Women Voters, told you that she wanted to see a so-called three legged tax stool in Oregon. But as you know, states with three legged tax stools have budget problems too. Just look south to California to see why the three legged stool is no panacea.

Until we reduce the size and scope of state government, no third source of tax revenue will solve our problems, it will simply mask them.

Thank you.

 

Testimony before the House Committee on Judiciary
in Favor of HB 3371
by Steve Buckstein

Good afternoon, Chair Barker and members of the Committee. I’m Steve Buckstein, Senior Policy Analyst and founder of Cascade Policy Institute, which is a non-profit, non-partisan think tank based in Portland.

I have provided you with a commentary I recently updated making the case for ending the war on drugs. I see HB 3371 as a significant step in that direction, although I do question some of its provisions.

The main purpose of the bill seems to be revenue generation, with a secondary purpose being the reduction of harm caused by marijuana prohibition.

I suggest that these purposes be reversed. State government is already addicted to revenue from alcohol, gambling and tobacco. You don’t need to add another addiction.

By dedicating marijuana tax revenue to specific state programs, you risk creating what economists call a moral hazard. Allocating set revenue percentages to the public school system and the state police, for example, could inadvertently encourage people in those organizations to root for more marijuana smoking.

I’m also concerned that the bill allows the Oregon Liquor Control Commission to regulate the marijuana business and collect the new taxes. Prohibiting the Commission from purchasing, owning or selling marijuana is good, but why let it have these other roles at a time when many people are seriously considering getting the state out of the alcohol business? These provisions make the bill seem as much  a full-employment program for OLCC employees as a marijuana decriminalization bill.

As a matter of public policy, I don’t want the state to support or oppose the use of marijuana. I hold the same position with regard to alcohol, gambling and tobacco. As a libertarian, I think such decisions should be left to up to free adults.

In conclusion, I hope this bill leads to decriminalizing marijuana as much as possible. I then hope that, if done right, it can serve as a guide to decriminalizing other drugs, thus winding down the disastrous war on drugs. Every such step will be good for individual Oregonians, and good for the state as a whole.

Thank you.

The Oregonian published a great article about this hearing, pointing out Cascade’s long-held position against what the reporter labels government overregulation. She links to the Cascade QuickPoint I provided the committee yesterday.

Unlikely alliance presses Legislature to ease regulations on natural hair care
The Oregonian, March 27, 2013

Audio of the hearing is here. This bill, HB 3409, is heard in the first 36 minutes, with my testimony (in writing below) beginning at 33 minutes into the hearing.

March 26, 2013

Testimony before the House Committee on
Consumer Protection and Government Efficiency
in Favor of Deregulating the Natural Hair Care Industry
 by Steve Buckstein

Good afternoon, Chair Holvey and members of the Committee. I’m Steve Buckstein, Senior Policy Analyst and founder of Cascade Policy Institute, which is a non-profit, non-partisan think tank based in Portland.

I support HB 3409.

I submitted a short commentary one of our summer interns wrote last year after the public found out that Oregon makes it practically impossible for natural hair braiders to practice their trade in the state.

Eleven states already exempt braiders from cosmetology licensing, including our neighbors to the north and the south. Of course, in Washington state it took a lawsuit filed by the libertarian public interest law firm Institute for Justice to free hair braiders from the licensing regime.* I hope that won’t be needed in Oregon.

The law is silent on this issue in 22 other states.

Oregon is one of just seven states that impose licensing requirements on this profession, which include from 1,000 to 2,100 hours of classes.**

Reasonable people can disagree about which professions might require some form of state licensing, but in America the right to earn an honest living should take precedence over the need for the state to regulate everything in sight.*** It should also take precedence over an industry’s desire to keep upstarts out of the market.

Finally, I believe that your committee is in the business of Consumer Protection, not Industry Protection. By allowing hair braiders to earn an honest living, you’ll be doing them and their potential customers a real service.

Thank you.

* In my oral testimony I incorrectly stated that the Washington lawsuit was successful, but according to this article the Department of Licensing clarified the regulations to exempt hair braiding after the lawsuit was filed: Licensed to Work: We should not require state permission to, for example, braid hair, Alan During, Siteline Daily,  October 14, 2011.

**  A Dream Deferred, Valerie Bayham, Institute for Justice, 2005.

***  The Right to Earn a Living: Economic Freedom and the Law, Tim Sandefur, Cato Institute, 2010.

Testimony before the Senate Committee on Finance and Revenue
Regarding SB 326 and SB 507
by Steve Buckstein

Good afternoon, Chair Burdick and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-profit, non-partisan public policy research center based in Portland.

Cascade is supportive of any legislation that allows people to keep more of their own income, as these bills do. When the tax burden is diminished or eliminated, people are incentivized to work harder. This benefits both individual workers as well as the broader community.

However, if your goal is to help raise people out of poverty and lower unemployment, you should be aware that the Earned Income Tax Credit (EITC) works at cross-purposes with the state’s high minimum wage law, which punishes employers for trying to offer jobs to entry-level workers.

The contrast between the two approaches was quantified in a study published last year by economists Joseph Sabia and Robert Nielsen, which found a 1% reduction in state poverty rates associated with each 1% increase in a state’s EITC. Yet, a 2007 study by Mr. Sabia found that single mothers were made worse off by increases in the minimum wage: Their employment dropped by 6% for each 10% hike in the minimum wage.

I understand that you will consider SB 326 and SB 507 as stand-alone measures, while Oregon voters have said that they want a high minimum wage. But the two approaches are in conflict, and the committee would do well to address the punitive effects of minimum wage laws in the future.

Thank you.

Testimony before the Senate Committee on
Education and Workforce Development
in Favor of SB 500 and SJR 23

Good afternoon, Chair Hass and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-profit, non-partisan public policy research center based in Portland.

I support SB 500 and SJR 23 for several reasons.

First, in 1922 Oregon voters approved a Ku Klux Klan supported measure that would have outlawed all private and religious schools. It was a blatantly anti-Catholic effort. The measure never took effect because the U.S. Supreme Court struck it down in 1925, and uttered these famous words:

“The child is not the mere creature of the state; those who nurture him and direct his destiny have the right, coupled with the high duty, to recognize and prepare him for additional obligations.”

In 2009, a survey of 1,200 likely Oregon voters asked a series of questions about K-12 education and school choice. 83 percent of those polled had children in school. The key finding was that while 91 percent of Oregon families sent their children to a regular public school – only thirteen percent would do so if the choice where fully theirs. The rest, 87 percent, would choose private, charter or online schools, or educate their children at home.

Please don’t be fooled by the small percentage of parents who actually exercise school choice today.

Why would 91 percent of children be in regular public schools if only 13 percent of their parents want them there? Because most people can’t afford to pay taxes for public schools and tuition for private schools at the same time.  Even though more than $5 billion tax dollars a year go toward educating Oregon’s school-age children, virtually all of that money goes to public school districts, not parents or students. Send your children where the state wants you to send them and their education is “free.”  Make another choice, and you foot the bill yourself.  The tax money stays in the public system, even if your child is being educated somewhere else.

So, ask yourselves, are we spending those $5 billion a year to support brick school buildings and the adults who work in them, or are we spending that money to educate children, wherever they can learn best?

Allowing a $1,000 tax credit is a small, but significant step you can take now to help parents exercise what the Supreme Court said was their right, and high duty — to prepare their children for additional obligations.

Oregonians clearly want to be able to choose where their children go to school. It’s about time that our lawmakers give them that choice by letting the money follow the child.

I urge you to support both SB 500 and SJR 23.

Thank you.

State Treasurer Ted Wheeler has proposed that the state obligate its citizens to repay hundreds of millions of dollars in General Obligation bonds to subsidize student higher education costs. Below is the prepared testimony that I gave to a House committee last week and will give to a Senate committee tomorrow, setting out my objections to the plan:

I oppose HJR 6, SB 11 and SJR 1 for several reasons.

First, as Professor Richard Vedder, author of the book “Going Broke By Degree: Why College Costs Too Much,” says, higher education prices are rising rapidly because of the predominant role of third-party payments, including federal and state support for institutions and students. “When some else is paying a lot of the bills, students are less sensitive to the price, thus allowing the colleges to care less about keeping prices under control.”

So, rather than help keep college costs and student debt levels down, Treasurer Wheeler’s proposal will likely do just the opposite.

That would be bad enough, but it will be worse because even if the investment assumptions for his proposal work out, taxpayers will be on the hook to repay hundreds of millions of dollars of bond principal, plus interest decades into the future.

Worse yet, there is evidence that more government funding of higher education actually translates to slower state economic growth. That’s likely because individuals know their needs better than politicians do, so leaving the money in private hands produces better economic results.

Further, academics such as Charles Murray and Carl Bankstron join Dr. Vedder in arguing that four-year degrees aren’t what they used to be, and that state funding may simply waste precious financial and human resources.

All that said, if increasing the percentage of Oregonians who earn two- and four-year degrees is a good goal, you should step back and look at efforts in other states to significantly reduce the cost of those degrees. Arthur Brooks recently noted in the New York Times that one idea gaining traction is the $10,000 college degree, which public universities in several states are moving toward right now. That’s $10,000 total direct costs for four years. According to Brooks, this “is exactly the kind of innovation we would expect in an industry that is showing every indication of a bubble that is about to burst.”

In conclusion, whatever the value of a college degree to an individual, it’s becoming clear that state funding of those degrees is likely to cost taxpayers more than they gain. I urge you to reject HJR 6, SB 11 and SJR 1.

Thank you.

Cascade President John Charles testified today before the Joint Committee on Interstate-5 Bridge Replacement Project regarding HB 2800. His testimony follows.

The CRC Plan for Light Rail:

A Step Backwards for Transit Customers

 John A. Charles, Jr.

Cascade Policy Institute

February 2013

Promises of Frequent Transit Services: Hope Over Experience

According to the most recent finance plan for this project, “Light rail in the new guideway and in the existing Yellow line alignment would be planned to operate with 7.5 minute headways during the “peak of the peak” and with 15-minute headways at all other times. This compares to 12-minute headways in “peak of the peak” and 15-minute headways at all other times for the existing Yellow line.”[1]

In fact, the Yellow Line runs at 15 minute headways all day, with even less service at night.  Yet according to the FTA Full Funding Grant Agreement for the Yellow Line, service is supposed to be operating at 10-minute headways at the peak, improving to 7.5 minute headways by 2020. TriMet is violating its FFGA contract, which could lead to a denial of funding for the $850 million grant request that the CRC project plans to make.

The Green MAX line is also operating at service levels of at least 33% below those promised in the FFGA. 

The legislature should not be expanding TriMet’s territory at this time – especially into another state that already has a transit district – because TriMet cannot afford to operate the system it already has. Despite a steady influx of general fund dollars, TriMet has been cutting service ever since the legislature approved a payroll tax rate increase in 2003, as shown below.

TriMet Financial Resources, 2004-2013 (000s)

Note: Pursuant to legislation adopted in 2003, the TriMet payroll tax rate was increased on January 1, 2005, will rise by .0001% annually until it reaches a rate of .007218% on January 1, 2014.

 

  Annual Fixed Route Service Trends, 2004-2012

Source: TriMet annual service and ridership report; TriMet budget documents and audited financial statements, various years.

Good morning, Co-Chair Burdick, other co-chairs and members of the committee. I’m Steve Buckstein, Senior Policy Analyst and founder of Cascade Policy Institute, a public policy research center based in Portland. Our mission is to promote individual liberty, personal responsibility, and economic opportunity in Oregon.

Regarding the concept of this legislation, I have some praise for the Governor, coupled with concerns and suggestions for making the bill better, and fairer.

First, the fact that the Governor is ready to grant tax certainty to Nike and other big companies in return for capital investment and job creation should be applauded. It’s recognition that taxes matter, and good tax policy can attract business and jobs. But, Oregonians of all political stripes also appreciate fairness, and I’m concerned that this legislation will be fundamentally unfair, especially to small businesses and many Oregon job seekers.

The Governor only wants to make tax certainty deals with what he calls “the right kind of businesses” that will drive our per capita income up. This leaves out people who, for whatever reason, have little education and/or few job skills. These are often the young and minorities, for whom a lower wage job is the first rung up the economic ladder.

Also, granting the Governor power to approve or disapprove such deals at all risks charges of favoritism and corruption. Just think about Nike getting its deal while one of its competitors is later turned down. A level playing field would eliminate these concerns. One way to do this is with a formula that prorates the number of jobs and capital investment required to the business size. For example, 500 jobs added to Nike’s current 8,000 Oregon employees would equate to 125 new jobs for a company that currently employs 2,000 Oregonians, without any gubernatorial discretion at all.

And, what’s magical about the 500-job threshold in the first place? While that’s a big number anywhere in Oregon, 50 jobs may be a big number in smaller communities. And, five jobs may be significant elsewhere. This is a small business state; so why not expand tax certainty to the businesses that create most of the jobs already?

In conclusion, I agree that 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, every Oregonian would stand to benefit, and the program would be fair to all.

Thank you.

Testimony before the Clackamas County Board of Commissioners

Regarding the revised IGA for the Milwaukie Light Rail Project

August 22, 2012

 John A. Charles, Jr.

President & CEO

My name is John Charles and I represent Cascade Policy Institute, a non-partisan policy research center.

The Clackamas County Board seems to think that the financing agreement signed with TriMet in 2010 is a binding contract. However, TriMet itself has already breeched the contract, as follows:

1. The Clackamas County Commission formally endorsed the “PMLR Locally Preferred Alternative” (LPA) on July 24, 2008. That endorsement was for a light rail plan including 1,000 parking spaces at the Park Avenue station and another 1,000 spaces at the Tacoma Street station.

In addition, the LPA offered a possible alternative alignment, known as the “Minimum Operating Segment”, terminating at Lake Road in Milwaukie. If this plan were chosen, the Tacoma Street station would include 1,250 parking spaces.

1. The LPA with 1,250 – 2,000 committed parking spaces was endorsed by the County Commission when it signed the IGA in 2010.

1. The project now being built has changed dramatically. The Park Avenue station includes only 350 parking spaces and the Tacoma Street station 320 spaces. This will lower the expected ridership of the project by a wide margin.

The entire 26-year experience with TriMet’s light rail system shows that outside the Portland city center, light rail is largely dependent on park-and-ride lots for ridership.  For example, the Gateway Transit Center has had a chronic parking shortage for decades because it is the closest parking lot to downtown on the east side. On the Westside, the Sunset Transit Center has only 587 spaces. Since this is the closest Westside TriMet lot to downtown Portland, it is usually filled to capacity every weekday by 7:00 a.m. TriMet would have higher ridership on the Westside MAX if it had built a much larger parking lot.

1. By under-building for parking on the PMLR line, TriMet is asking both Clackamas County and the City of Milwaukie to absorb the many downsides of this project – including the taking of homes and businesses, loss of express bus service to Portland, and the cannibalization of other public services – while offering no transportation benefits compared with existing bus service.

Since TriMet has chosen to begin construction on a different project than the one promised, the Clackamas County Commission is free to opt out of previously made commitments, and should do so. The PMLR project never made any sense from a transit standpoint, and is clearly a step backwards for express bus commuters on HW 99e, who will be forced to transfer from the fast bus to the slow train in Milwaukie if this is built.

Regardless of how the project was perceived in 2008, public sentiment has changed. The County’s most recent “Community Services and Issues” survey, conducted by Davis, Hibbitts & Midghall during late February and mid-March, asked respondents for “the most important issues” facing the county. Supporting light rail elicited only a 3% positive response, while 5% of respondents stated that “stopping MAX” was important to them. Overall, many other issues are of greater concern to county taxpayers, including the economy, road maintenance, education and law enforcement.

Recommended Course of Action for Clackamas County:

• The BCC should formally state that the IGA with TriMet is no longer binding because TM is building a different project than the one promised in 2010 and 2008.

• The county’s plan to sell bonds should be abandoned and the entire PMLR project de-funded.

• The terminus of the line should be moved from Park Avenue to Tacoma Street, and the parking facility at that station should be increased to 1,250 spaces, as originally anticipated in the EIS. That would be financially feasible with savings from shortening the line.

Conclusion

It is clear that the September 18^th ballot measure requiring a public vote on rail expenditures is going to pass easily. Instead of fighting the obvious, the BCC should use this vote as a mandate to protect county taxpayers from a bad deal negotiated in a different era.

Fortunately, it’s not too late to make this move; the single most expensive property scheduled for condemnation on the entire PMLR right-of-way – the Beaver Heat Treating facility on Moore Street – is still standing. This one property alone is likely to cost more than the entire $19.1 million IGA that is being discussed tonight. If the BCC does the right thing, the family-wage jobs at Beaver Heat Treating and other businesses in the ROW will be protected, and we won’t throw scarce tax dollars down a rat hole.

However, the window of opportunity is closing, because TriMet knows that the faster they destroy private property, the more difficult it becomes politically for elected officials to do the right thing. I encourage you to reject the proposed amended IGA, and to terminate the County’s interest in this project immediately.

Testimony before the Multnomah County Tax Supervising and Conservation Commission

Regarding the TriMet Proposed FY 13 Budget

John A. Charles, Jr.

President & CEO

May 23, 2012

The TSCC is charged with reviewing local government budgets and certifying that they comply with state law. I encourage you to withhold your approval of the TriMet FY 13 budget, on the grounds that it is not balanced.

TriMet pretends to show a balanced budget by using at least two gimmicks: (1) assuming that $5 million in potential employee compensation costs will disappear via labor arbitration with the ATU; and (2) deliberately under-funding pension and OPEB trust funds to solve immediate cash problems.

If the TSCC were to use a more realistic assumption for the ATU/TriMet arbitration, and if you required TriMet to begin funding retirement trust funds at prudent levels, the TriMet budget would be severely out of balance. That should be addressed now, not next year.

Problem #1: Assuming that management will win the arbitration with  ATU

By making this assumption, TriMet closes a $5 million gap in the budget. But why is this a realistic assumption? TriMet has been making the same prediction for over a year, and has yet to be right, as seen in the following statements:

• TriMet press release, April 13, 2011: “The FY2012 budget assumes that a new Working and Wage Agreement with the ATU has benefits more in line with peer agencies, and consistent with those contained in TriMet’s July 2010 Final Offer.”

• TriMet FY 2012 budget message, July 2011: “A critically important assumption upon which TriMet’s financial forecast and the FY 12 Adopted Budget are based is that TriMet enters into a Working and Wage Agreement WWA) with the Amalgamated Transit Union, and that the wages and benefits are consistent with those contained in TriMet’s July 2010 Final Offer….”

• TriMet FY 13 budget message, April 2012: “…the FY 13 proposed budget includes a $12 million revenue increase/expenditure reduction package, based on the assumption of a labor arbitration decision favorable to TriMet.”

Unless TriMet can provide you with some analytical justification for its continued assumption that management will win the ATU arbitration, TSCC should reject this forecast as wishful thinking and require that TriMet plan a budget on the assumption that ATU wins. That would require $5 million in new revenue and/or expense cuts.

Problem #2: Disguising revenue-expenditure imbalances by underfunding retirement trust funds.

TriMet has been hiding budget problems for decades by deliberating underfunding the trust accounts established to pay for post-employment obligations. This is not apparent to anyone who simply reads the budget; it can only be discerned by looking at the budget and the audited financial statement together.

For your convenience, page 48 of the 2011 TriMet Annual Report is attached. It shows that the trust funds for OPEB and the two pension plans are severely underfunded. Not only that, when expressed in terms of “UAAL as a percentage of covered payroll”, the trends since 2004 are all going in the wrong direction.

Lest you think that this is some kind of 8-year statistical fluke, the chart below shows that management has been underfunding the largest employee pension fund for nearly 30 years.

Trends in pension obligations for TriMet

1983-2011

(millions)

Bargaining Unit Plan                      1983       1987       1991       1995       2001       2005       2009       2011

AAL                                                        $17.5     $23.6     $33.1     $113.1   $194.9   $345.4   $460.3   $517.9

Unfunded AAL                                  $7.1        $17.7     $22.7     $61.1     $94.6     $189.6   $243.2   $228.6

UAAL as a % of Cov. PR                  17%        46%        52%        92%        107%     178%     196.5%  192%

TriMet managers know this is not prudent. They have repeatedly stated that changes must be made. For example, in the budget message for the FY 2011 budget, management stated: “Over time, TriMet will need to increase annual pension fund contributions in order to achieve 75% or higher funding of the defined benefit pension plans.”

The message also noted,  “TriMet needs to begin to take steps to partially fund a retiree-medical trust to assure a funding source for retiree health benefits, which have already been accrued but are not yet funded.”

That language was repeated almost word for word in the FY 2012 budget message last May.

The message for the FY 13 budget states, “TriMet must continue to improve its financial position by addressing the following areas: reduce retiree medical costs and fund existing liabilities with deposits to an OPEB trust; increase the funded ratio for existing pension plans.”

For three years in a row, TriMet has promised to address this problem, yet as of June 2011, the funded ratios for the OPEB trust, the management DB pension plan, and the union DB pension plan were 0%, 68%, and 56%, respectively.

The relative scale of TriMet’s OPEB liability can be seen in the attached spreadsheets, which are excerpted from a larger analysis we undertook last year. The first spreadsheet (blue) is rank-ordered by Actuarial Accrued Liability; the second by UAAL as a % of covered payroll. By either metric, TriMet has the biggest OPEB problem of any unit of government in Oregon.

According to the auditor, the annual OPEB cost last year was $86.2 million, and TriMet only paid for $15.9 million, or 18% of the total cost. If TriMet tried to make the Annual Required Contribution of $77.6 million calculated by the actuary, it would almost wipe out TriMet’s transit service.

At the January meeting of the TriMet board, the TriMet CFO reported that OPEB unfunded liability had increased by roughly $60 million since June 30, which implies that the unfunded liability is (or was) growing at a rate of $2.3 million per week. In essence, TriMet cannot afford to pay its workers, and is using the OPEB trust fund as an ATM.

If an employer paid its employees under the table to avoid payroll taxes, everyone would know that the business was not really viable. Yet TriMet is essentially doing the same thing by moving the growing levels of UAAL for OPEB and pensions off the balance sheet. While this may be legal in the public sector, it is not a sound budgeting practice, and guarantees an even worse budget crisis in the future.

Conclusion

Municipalities and special districts across the country are facing massive budget problems caused by unsustainable retirement obligations for public employees. Yet in every case, something could have been done about it in prior decades, if only policy-makers had had the courage to act.

The same thing is happening at this very moment with TriMet. Year after year, the agency defers more unfunded liability to future years, because the TriMet board is unwilling to make the tough decisions. Members of the TSCC have an opportunity to help put a stop to that practice.

I hope you will reject the proposed budget on the grounds that it hides the true long-term effects of current and past decisions, and require that TriMet resubmit a budget that more accurately states the costs of fringe benefits.

Testimony of John A. Charles, Jr.

President & CEO

Regarding Oregon’s Public Purpose Tax

May 22, 2012

Oregon’s public purpose tax was enacted in 1999 through the passage of Senate Bill 1149. The tax went into effect on March 1, 2002. The stated purposes were to subsidize “new cost-effective local energy conservation, new-market transformation efforts, the above-market costs of new renewable energy resources, and low-income weatherization.”

 

Many diverse interests went into formulating the bill, and all participants were clear that the tax would sunset in ten years. For example, Ron Eachus, the chair of the Public Utility Commission at the time, stated:

 

“[The public purpose tax] provides a reasonable sunset that is long

 enough that enables a more competitive market to develop for those

programs and it gives some stability to the financing of these programs.”

 

He reiterated that, “10 years provides both an assurance of funding and provides some stability and at the same time it provides an opportunity for a competitive market to develop. Then you can decide that the public purpose charge is not needed.”

 

Rep. King stated, “…[renewables] might require a period of ten years until it could be competitive and survive in a competitive market.”

In 2007, the legislature passed SB 838, which imposed renewable portfolio standards (RPS) on large electric utilities.  For reasons never explained, the bill also extended the sunset date of the public purpose tax to 2026. So instead of having the PPT disappear on March 1 of this year – as promised in SB 1149 – ratepayers are facing billions of dollars in rate premiums during the next 14 years. This is a legislative bait-and-switch that should not be tolerated.

 

During the 2012 interim, the Legislative Audits committee should take a hard look at the history of SB 1149 and ask the proponents why their 1999 predictions were so wrong. And more importantly, if subsidies for 10 years turned out to be inadequate, why should we assume that more subsidies will make the renewable energy industry competitive?

 

Testimony of John A. Charles, Jr.

Before the TriMet Board of Directors

Regarding the Proposed FY 2012-13 Budget

April 25, 2012

There are some elements of the proposed budget that move TriMet in the right direction. I support the proposals to eliminate the free-rail zone and reduce streetcar funding. Rail passengers have been coddled for far too long and these changes will require them to finally put some skin in the game.

Notwithstanding this progress, the budget overall has serious problems that the Board needs to address. The first is the assumption that management will win its protracted dispute with the ATU. Management has been forecasting this outcome for years, and has consistently been wrong. Examples of past predictions include the following:

• TriMet press release, April 13, 2011: “The FY2012 budget assumes that a new Working and Wage Agreement with the ATU has benefits more in line with peer agencies, and consistent with those contained in TriMet’s July 2010 Final Offer.”

• TriMet FY 2012 budget message, July 2011: “A critically important assumption upon which TriMet’s financial forecast and the FY 12 Adopted Budget are based is that TriMet enters into a Working and Wage Agreement WWA) with the Amalgamated Transit Union, probably through the binding arbitration process, and that the wages and benefits are consistent with those contained in TriMet’s July 2010 Final Offer….”

• TriMet press release, October 26, 2011: “The contract expired in 2009 and both parties are now heading to interest arbitration scheduled for mid-January 2012.

• TriMet FY 13 budget message, April 2012: “…the FY 13 proposed budget includes a $12 million revenue increase/expenditure reduction package, based on the assumption of a labor arbitration decision favorable to TriMet.”

Given that every recent prediction about the ATU contract has been wrong, it might be time to change the forecast. A more prudent forecast would be that the ATU wins, creating a $5 million imbalance for FY 13. Perhaps that should be addressed now in the current draft budget.

The second big problem with the budget is the continued fantasy that rail construction has no harmful effects on bus service. Some board members may not be aware that in February 2011, TriMet succeeded in getting the Oregon Transportation Commission to approve $13 million in scarce OTC “flex funds” for the Milwaukie light rail project, by promising that TriMet will “agree to refrain from requesting Capital bus Program funds for bus purchases for the next three biennia…”  This deal was made even though TriMet had been so desperate for new buses that it had put a $125 bond measure on the ballot the previous November. My testimony to the OTC is attached.

TriMet management simply does not value bus service; all the glamour is perceived to be in the ribbon-cutting ceremonies for new train lines. In FY 13 TriMet will sell bonds for PMLR and thus incur $3 million in new debt service. The agency is already paying more than $25 million in annual debt service for previous light rail bonds. This debt is a major reason why bus service has been cut by 13% in recent years, even though buses move 2/3 of TriMet customers each day.

TriMet has never demonstrated that the alleged “operating cost savings” of rail transit offsets the debt service and other “opportunity costs” associated with new rail construction.

There’s a very simple solution: terminate all rail expansion plans. It doesn’t matter how attractive rail may have once seemed; moving forward, the capital costs cannot be justified. It is indefensible to impose service cuts year after year, while spending more than $205 million/mile for tiny expansions of the rail empire (7.3 miles for PMLR and 2.9 miles for the CRC).

A third point is that the proposed budget once again hides the true cost of labor, by planning for another token payment into the OPEB trust fund of $865,760. While this is better than the FY 12 contribution of $410,000, the level recommended by the outside auditor last July was $77.7 million.

The unfunded actuarial accrued liability for OPEB is at least $876 million, and because TriMet is allowed to carry this debt off-book the public naturally assumes that all is well when the agency announces that it has a “balanced budget” each year. This practice of shifting obligations downstream simply sets up a ticking time bomb for future TriMet board members.

While making the full ARC payment of $77 million would be impossible now, a substantial down payment – with the tough decisions it would force right now — would have the medicinal effect of waking up the public to the seriousness of the problem.

Finally, attached is a chart showing the juxtaposition of TriMet’s huge revenue increases since 2004 with the steady decline in transit service.  This is a disgrace, yet the Board continues to accept it year after year, without even considering fundamental changes in strategy.

Business as usual is not going to work anymore. It’s time for board members to stop acting like victims and start taking control of the organization.

 Click here to see February 14 OTC Testimony.

TriMet Financial Resources, 2004-2013 (000s)

Note: TriMet payroll tax rate increased effective 1/1/05, and will rise .01% every January through 2024.

 Annual Fixed Route Service Trends since 2004

 (light rail, bus, commuter rail)

Sources: Annual budget documents; monthly TriMet performance reports.

Testimony of John A. Charles, Jr.

President, Cascade Policy Institute

Before the Joint Committee on Legislative Oversight on Columbia River Crossing

 Regarding the Proposed Light Rail Extension to Vancouver

March 15, 2012

The CRC is fundamentally a light rail project. Therefore the first task for the Oversight Committee should be to rigorously assess the purpose and need for light rail. Specifically, what transportation service will light rail provide, and how does that service compare with express bus service currently offered by CTRAN?

It is important that the comparisons be made on a side-by-side basis, not system-wide.  The reason is that the cost-effectiveness of TriMet’s light rail system varies considerably by line. The Yellow line is the least productive MAX line in the entire system[1], averaging only 127 boarding rides/vehicle-hour. In contrast, the most productive line (Blue) averages 166 rides/vehicle-hour.

A summary of key metrics clearly shows that light rail compares poorly:

 

CRC Light Rail vs. CTRAN Express Bus

 

 

*Derived from the FEIS and CTRAN published schedules.

**Various CRC finance documents; author’s estimates for CTRAN.

***Personal communication with finance staff of the respective agencies, 3/14/12.

Travel Speed: The only reason to add new transit service is to make bi-state travelers better off. Light rail would make them worse off, by lengthening commute times by 125%. The attached paper by transit consultant Thomas Rubin provides a more detailed analysis. This is a fatal flaw that cannot be overcome, because MAX is an all-local system, and it is competing with Express Bus service.

Cost: At roughly $300 million/mile, this would be the most expensive transit project in Oregon history. For comparison, the Milwaukie LR project is estimated to cost $211 million/mile while the Emerald Express BRT project in Eugene-Springfield cost $6 million/mile.

Light rail proponents have long argued that the high capital costs of rail are offset by savings in operations cost, but that is based on systemwide averages.  Actual numbers for CTRAN I-5 Express Buses and the Yellow MAX line suggest that there will be no operating cost savings for light rail.  CTRAN recovers 67% of bus operating costs from passenger fares, while the Yellow MAX line collects only 47%.

Conclusion: Vancouver light rail would serve no public purpose and would have extremely low ridership. The Legislative Oversight Committee should euthanize it as soon as possible.

Opposing More Top-Down Control of Oregon Education

Chair Hass, Co-Chair Morse, and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility, and economic opportunity in Oregon.

I’m here to oppose SB 1581 because I believe that the legislature is continuing to fall into the “bigger is better” trap. The goal of unifying everything from early childhood through graduate school education can’t be accomplished without pushing power and control even farther away from the people who should matter most—parents and students. This bill, by giving even partial control over a number of positions in Oregon’s public education system to the new Chief Education Officer, simply continues movement into that trap.

Before you approve any further Oregon Education Investment Board legislation, please ask yourselves how it squares with the Oregon Education Act for the Twenty-First Century, which overwhelmingly passed the legislature in 1991 when Governor Kitzhaber was President of the Senate.

It was full of new committees, new high school CIM and CAM tests (which were eventually abandoned), and a promise from the legislature that it would produce “the best educated citizens in the nation by the year 2000.” So, how did that work out?

In both 2010 and 2011, Education Week’s Annual Education Report Card gave Oregon a grade of C-. It ranked our public education system 43^rd in the nation―not exactly best in the nation.

And how does this new effort square with the Quality Education Model, which then Governor Kitzhaber supported in 1999 by appointing the Quality Education Commission? The Model proposed entirely theoretical prototype elementary, middle, and high schools that, again theoretically and with enough funding, would get 90% of our kids to state standards. Does anyone really think that spending another two billion dollars this biennium, as the Model suggests, would do any such thing?

Why haven’t such big revolutionary reform efforts in the K-12 education system achieved their goals? Because, they “…suck power upward and away from parents and students into top down, centralized and inflexible political arrangements, where unions and other special interests have more political clout. This causes accountability to decline and results in higher per pupil costs and lower educational results.”*

Is the answer really to produce an even broader revolutionary reform effort, putting everything from early childhood education through graduate school into one centrally planned system?

I’m sure the Governor and the people he’s appointed to the Investment Board are very smart people. But no such group can hope to design a system that meets the needs of all Oregon children and their parents.

In conclusion, I want to quote from a 1991 Wall Street Journal column, “Education by Committee in Oregon,” in which we warned what would happen if the “revolutionary” Oregon Education Act for the Twenty-First Century went forward:

“…[T]o be ‘revolutionary,’ educational change must be systemic. It must reform the system, not just add to it. Oregon’s educational reformers are unwittingly legitimizing the very system that needs reform. Well-meaning politicians have once again increased state control over education in order to mandate desirable goals. The Oregon plan provides the nation with an important lesson in reform: how easy it is to fall into the bureaucratic trap of good intentions.”

Our 1991 critique could just as easily be said about the current “revolutionary” reforms through the Investment Board. It’s time to stop increasing state control over education and start moving accountability and control down toward parents and students.

Thank you.

 

* John T. Wenders, Ph.D., “Deconsolidate Oregon’s School Districts,”
Cascade Policy Institute, March 2005.

 

Click here to listen to the testimony. Christina Martin’s testimony to the House Interim Committee on Business and Labor starts at 41:00.

Co-Chair Garrett, Co-Chair Kennemer, members of the Committee:

My name is Christina Martin. I am a policy analyst with Cascade Policy Institute.

I am here today to talk about unemployment accounts. The heart of the unemployment account concept is that incentives matter.

In 1991, Michael Sherraden published Assets and the Poor: A New American Welfare Policy, which sparked an entire movement of non-profit and government funded programs.  In his work, Sherraden showed how the key to getting ahead is not so much income as it is in building assets or wealth. Assets, as you know, include savings, homes, cars, and intangible things like human capital.

Sherraden observed, as many did in the 90s, that decades of welfare had largely failed to help individuals leave poverty, and instead had created cycles of poverty and government dependance by creating disincentives to success. For example, welfare discouraged asset accumulation by limiting how much savings an eligible individual could have. This encouraged people to think hand to mouth, and day to day, not long term. Sherraden and others’ observations helped stoke some good reforms, but much of that problem still exists today.

One intriguing result of Sherraden’s asset building movement was the creation of matched savings accounts called Individual Development Accounts. When an eligible individual saves a dollar in an Individual Development Account, a non-profit (often government subsidized) will match the savings, with usually one or two dollars. The savings can later be used to buy a home, start a business or go to school. In other words, the savings can only be used for the purpose of investing in certain important assets.

These accounts have proven that people with very small incomes can and will save when the incentives are strong. And it has led to life-changing choices – like buying a house, starting a business, or going to school.

Government programs tend to focus on income levels. But assets not only provide financial security, they actually can change the way people behave. Decades of research have shown that asset owners tend to lead more stable lives, think in longer time frames and have more hope for the future. They are also more likely to be involved in community affairs and to plan for their children’s futures.

The children of asset owners are more likely to succeed in school and to escape poverty. The effect of assets on education and test scores is more significant than that of income. Research by the Center for Social Development shows that most likely owning assets actually causes individuals to have greater expectations and, in turn, those expectations cause them to accumulate more assets.

One main focus of the asset building community has been to get rid of some of the asset limits that discourage saving. Similar to asset limits, government programs themselves, like unemployment insurance, cause individuals to save less.

Government safety nets themselves decrease the amount individuals feel they need to save. This effect is very strong with unemployment insurance.

Economists Eric Engen and Jonathan Gruber found that unemployment insurance decreases private savings for the typical unemployment spell by up to one-half.  Some may argue that this is not a problem since these workers may need less precautionary savings because of the government safety-net. But such a simplistic answer neglects the importance of owning an asset to individuals’ psychological well being.

Of course, unemployment insurance has more problems than just discouraging savings.

Last month, an owner of a bakery near Medford, Oregon told me about some of the problems his company faced due to the disincentives in Oregon’s unemployment insurance system. Two years ago, in the middle of the recession, this entrepreneur offered a job to a man who responded that he would not be able to start work for another month. Why? Because his unemployment benefits did not run out until then.

This example is one of many stories I’ve heard about the incentive problems created by unemployment insurance.  I had a friend who only applied for highly competitive jobs that she knew she had little chance of getting. She really preferred to stay on unemployment benefits. She was expecting her child to be born soon, and it didn’t seem make sense to start a new job, particularly since her husband was gainfully employed.

Peer reviewed research shows that people receiving unemployment benefits commonly take longer to find a job. Unemployed workers who receive benefits take more than twice the time to find a job than those who do not. The instances of recipients finding a job increase strikingly just before UI benefits are exhausted (see graph) That does NOT mean that individuals who use unemployment benefits are dishonest, lazy, or bad. It DOES mean that incentives and logic play roles in their job searches. A new job is not only work, but it is full of risks and uncertainty. In some cases, a new job may pay less than unemployment benefits.

Unemployment benefits come with certain requirements precisely because of these incentive issues. Workers must actively search for work and accept appropriate full-time employment. However, requirements are frequently ignored or misunderstood. A U.S. Department of Labor report showed overpayments in unemployment benefits across the nation amount to almost $19 billion in waste.

Beating the national average of 11%, Oregon overpaid an estimated $392 million over the last three years―about 12.2% of all state unemployment benefits paid during that period, according to the Labor Department. About one third of overpayments involved workers receiving benefits when ineligible because they were not available for work or because they failed their work search requirements.

So what’s the solution?

Chile’s unemployment insurance savings accounts have cut back on the disincentives that slow the job search for many who receive unemployment benefits. Chile’s workers and employers pay a portion of wages into Unemployment Insurance Savings Accounts. Each worker has his or her own account. When a worker becomes unemployed for any reason (even if it is voluntary), he or she may draw from the personal unemployment account. Workers who are laid off with small account balances receive help from a more traditional unemployment insurance safety net. When they retire, workers may use any remaining balance in their unemployment accounts

Chile’s experience is demonstrating that these accounts create an improved safety net that also improves some of the disincentives within the U.S. system. The personal accounts system motivates workers to return to work faster so they can have more money upon retirement. This system may not solve all overpayment problems, but it would prevent a significant portion of overpayments, since ultimately workers are first paid from their own accounts first.

Chile’s system also broadens the pool of eligible recipients, since workers own their personal accounts. That means workers who cannot accept full-time employment (like a working mother or student) and workers who quit their jobs for personal or professional reasons (who are not covered under our current system) would have more coverage under Chile’s system.

The question is then, not whether unemployment accounts can make things better, but rather what kind of unemployment account system would improve things for Oregon workers and businesses. Bill will discuss that more.

As you listen, please consider that this is about more than some pragmatic improvement to an old system.

This is about taking a system that has bad incentives and that teachers bad lessons, and turning it into something with healthier and more natural incentives. Remember that merely possessing a savings account can transform how people think. Studies by people like Sherraden have shown that building savings can actually cause people to make better decisions and think in longer terms. So the impact of something like this extends far beyond merely dollars and cents, into hearts and minds.

John Charles was an invited witness before the Senate Government Operations committee on June 8^th. It was an informational hearing about the unfunded liabilities of OPEB (other post employment benefits), such as retiree health insurance.

Click here to listen

Testimony starts at 37:32.

At the May 24^th House General Government and Consumer Protection Committee, Karla Kay Edwards testified in favor of HB 3477. HB 3477 would create a pilot program to contract with private companies to perform State Park operations and maintenance.

Click here to listen to her testimony. Karla Kay Edwards’ testimony begins at 1:36.

John Charles testified on HB 3571, regarding renewable energy credits, before the Senate Environment and Natural Resources Committee on May 12, 2011.

Click here to listen.  John starts at 1:31

John testified against the Bottle Bill Expansion, HB 3145, before the Senate Environment and Natural Resources Committee on May 17, 2011.

Click here to listen.  John starts at 1:41

Before the Joint Education subcommittee of Ways & Means
Regarding establishing an Oregon Education Investment Board to oversee a unified public education system from early childhood through post secondary education
May 19, 2011

Audio can be found Here. Steve begins at the 49:20 mark.

Chairs Komp and Monroe and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

I’m here to oppose SB 909 because I’m afraid that the legislature is about to fall into the “bigger is better” trap. You can’t unify everything from early childhood through post-secondary education without pushing power and control even farther away from the people who should matter most – parents and students.

You’re also about to fall into a related trap that says consolidating agencies, school districts, ESD’s, etc. will lead to efficiencies and cost savings.

Similar efforts have already been tried in Oregon, and failed. Starting before Dr. Kitzhaber became governor the first time, while he was Senate President, the legislature mandated a reduction in the number of school districts, hoping to see cost savings. Between 1992 and 2001 the number of districts fell from 277 to 198.

At the end of the process there were actually more central office staff per pupil than at the beginning. Also, non-teaching staff grew faster than teachers, and per student spending, adjusted for inflation, rose more than 11 percent.

You should ask how the new unifying effort embodied in SB 909 squares with the Education Act for the Twenty-First Century, which passed the legislature in 1991. Remember the certificates of initial and advanced mastery? Some of you probably don’t because they never gained any traction; they just cost taxpayers a lot of money.

And how does this new effort square with the Quality Education Model, which the legislature approved in 1999?

Why haven’t such efforts in the K-12 education system achieved their goals? Because, according to the late education policy analyst John Wenders, they “…suck power upward and away from parents and students into top down, centralized and inflexible political arrangements, where unions and other special interests have more political clout. This causes accountability to decline and results in higher per pupil costs and lower educational results.”*

Is the answer really to put everything from early childhood through post-secondary education into one centrally planned system? I’m sure the Governor and the people he’ll appoint to the Oregon Education Investment Board are very smart people. But no such group can hope to design a system that meets the needs of every, or even most, Oregon children and their parents.

To better meet those needs, we should be going in the opposite direction. Find ways to push power down from the current systems toward teachers, and parents and students. Whatever funding the legislature appropriates to education, give the parents and students much more say in where, and how, it’s spent. Until you can move in that direction, the least you should do is reject this latest attempt to push the power even further away from the people who the system is supposed to help.

Thank you.

* John T. Wenders, Ph.D., “Deconsolidate Oregon’s School Districts,” Cascade Policy Institute, March 2005.

On May 11, 2011 Steve Buckstein testified against HB 3000, which would allow state and local government agencies to pay more for Oregon-made products.

Click here to listen to the hearing, which begins at 1:31 into the recording. Steve’s testimony begins at 16:31.

Testimony before the Senate General Government, Consumer and Small Business Protection Committee in opposition to HB 3000

Chair Shields and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

I believe the so-called Buy Oregon First Bill, HB 3000, is not only bad public policy, but runs the risk of continuing an economic misunderstanding that will lead to repeated policy mistakes in years to come.

Basically, the bill allows state agencies to pay up to 10 percent more for goods fabricated or processed or services performed entirely within the state. The Governor says that “this bill will help Oregon businesses by encouraging the development and growth of our local supply chains, which will help create local jobs and revitalize our state’s economy.”*

Economists have exposed the fallacies of such thinking over the centuries. Henry George may have said it best in 1886 when he wrote**:

If to prevent trade were to stimulate industry and promote prosperity, then the localities where he was most isolated would show the first advances of man. The natural protection to home industry afforded by rugged mountain-chains, by burning deserts, or by seas too wide and tempestuous for…the early mariner, would have given us the first glimmerings of civilization and shown its most rapid growth. But, in fact, it is where trade could be best carried on that we find wealth first accumulating and civilization beginning. It is on accessible harbors, by navigable rivers and much traveled highways that we find cities arising and the arts and sciences developing.

Here in Oregon, we should recognize that Portland was located on two navigable rivers for a reason. Early settlers knew that having access to world markets was good. When people freely choose to trade with one another, consumers have access to more products at better prices, and workers have more job opportunities.

Any jobs that will be created from this bill will not offset the lost jobs and/or other lost opportunities that it imposes on consumers. Paying more for some goods and services means that agencies will have less to spend on other goods and services. While these choices may benefit some Oregon producers, they almost certainly will harm Oregon consumers in general.

As Adam Smith wrote in The Wealth of Nations in 1776, “Consumption is the sole end and purpose of all production, and the interest of the producers ought to be attended to only in so far as it may be necessary for promoting that of the consumer.”

Journalist James Glassman says of the Smith quote above, “That is a great lesson for all policymakers to bear in mind. Ask, does this policy help consumers? Free trade allows consumers to buy a cornucopia of higher quality goods from other countries at lower prices than they would pay if they were restricted to buying homemade goods. Trade is obviously a huge benefit for consumers–that is, individual buyers. And, says Adam Smith, what is better for consumers is always better for an economy…It is indeed true that some producers are hurt by free trade. And we can expect producers–such as textile industries and their employees and tomato growers–to kick and scream over free trade. Fine. But consumers–all 270 million of us–benefit mightily.”***

Everyone in this building wants to help create jobs; but favoring some producers at the expense of most consumers won’t, on balance, create jobs. Mankind has learned this lesson the hard way at least since the mercantilism of the 15^th through 18^th centuries. We forget it now at our peril.

Thank you.

* Governor Kitzhaber’s News Release, April 29, 2011, issued upon the passage of HB 3000 in the House.

** Henry George, “Protection or Free Trade,” 1886.
*** James K. Glassman, The Blessings of Free Trade, Cato Institute, May 1, 1998.

Testimony before the Senate General Government, Consumer and Small Business Protection Committee in favor of House Bill 2825 A

Chair Shields and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

It’s not often that I testify in favor of proposed legislation in this building. More often than not I’m in the minority, arguing against new laws, taxes or regulations.

Today, I’m happy to join with a diverse group of people and organizations asking you to add relevant information and results of select tax expenditures to the Oregon transparency website.

I know that we will have disagreements about individual economic development tax expenditure programs. In my case, I don’t believe that the state should be “picking winners and losers” through such programs in the first place. Either way, I hope we can all agree that as long as such programs do exist, they should be transparent to your constituents.

The original transparency website legislation last session (HB 2500) resulted in a good start toward providing useful state financial information online. I believe that HB 2825 A this session takes a significant step forward in that process, and I urge you to support it.

Thank you.

Testimony of John A. Charles, Jr., regarding HB 3605: Requires Oregon Governments to Fund OPEB
Before the House Rules Committee, May 9, 2011

My name is John Charles and I am President & CEO of Cascade Policy Institute, a non-profit policy research organization. Cascade supports HB 3605 and believes it can be one of the most significant bills of the session.

 

HB 3605 grew out of concern regarding the unfunded, long-term public sector liabilities associated with “Other Post-Employment Benefits”, or OPEB. These benefits include things other than pensions, such as dental, vision and medical coverage.

 

All across the country, state and local governments are discovering that many of the commitments made to public employees about retirement benefits require funding that those units of government don’t have. Consequently, most governments are failing to place adequate reserves in trust funds to pay for future obligations. Instead, they are paying only what they owe current retirees, while allowing future obligations to quietly grow.

 

Up until recently, taxpayers and even most elected officials had no way of knowing how bad the problem was. However, in 2004 the Governmental Accounting Standards Board (GASB) adopted Statement 45, which requires that all units of government undertake a valuation of their OPEB obligations and state those obligations in annual financial reports. Implementation of GASB 45 was phased in during 2007-2009, and all units of government must now comply.

 

OPEB audits must calculate liabilities for all current and future retirees, amortized over a period not to exceed 30 years. Based on these calculations, actuaries determine what the Annual Required Contribution (ARC) would be if each entity paid for current OPEB benefits as well as a pro-rated share of future obligations.

 

However, the ARC is not actually mandatory, despite use of the word “required”; governments must publish information about net OPEB liabilities, but are not required to create OPEB trust funds or pay anything into trust funds. That remains a policy choice of each individual government.

 

Additional background information about GASB 45 is attached on the yellow sheet.

 

The Oregon Problem

A review last year of audited financial statements for 100 randomly-chosen Oregon governments (green spreadsheet, attached) by Jacob Szeto of the Oregon Capitol News (an affiliate of Cascade Policy Institute) showed that there are more than $3 billion in OPEB liabilities. Of that total, only 7.8% is funded. Most governments have no money set aside in OPEB trust funds, as can be seen in the “Funded Ratio” column on the green spreadsheet (3^rd column from the right).

 

By way of comparison, at December 31, 2010, Oregon PERS was funded at roughly an 88% level, plus the total obligations are known. For OPEB liabilities, the level of under-funding is much worse, and the total obligations are not known. If there are $3 billion in unfunded OPEB liabilities from 100 units of government, one can only speculate what the total is for the roughly 1,700 units of government in Oregon.

 

Reliance on a pay-as-you-go system means that long-term unfunded liabilities will likely grow, creating cash flow problems for future managers, especially as large numbers of baby boomers begin retiring.

The Policy Solution: HB 3605 takes a very simple approach to this problem by requiring that all units of government in Oregon make Annual Required Contributions (ARC) into OPEB trust funds, as determined by outside actuaries.

 

This is not a new concept. ORS 238.420 already requires an ARC for the Retirement Health Insurance Account (RHIA), which is a multi-employer OPEB system administered by PERS.  That law states in part:

“The Retirement Health Insurance Account shall be funded by employer contributions. Each public employer that is a member of the system shall transmit to the board such amounts as the board determines to be actuarially necessary to fund the liabilities of the account. The level of employer contributions shall be established by the board using the same actuarial assumptions it uses to determine employer contribution rates to the Public Employees Retirement Fund. The amounts shall be transmitted at the same time and in the same manner as contributions for pension benefits are transmitted under ORS 238.225.”

If you look on the green spreadsheet, you’ll notice that RHIA (listed as #2 on page one) has a funded ratio of 41.9%. It is one of the very few entities with any money in a trust fund. Although the agency has unfunded actuarial liabilities of $297 million, that amount represents only 3.5% of the covered payroll, so the risk is minor.

Some people may ask if this bill is an “attack” on organized labor, or government itself. The answer is “no.” It is simply an attempt to ensure that promises made to employees about retirement benefits are kept. If specific units of government will not have the money to keep those promises, then managers should have an adult conversation with their employees NOW, not at some unknown time in the future when the crisis explodes.

 

Note that HB 3506 does not tell governments how to respond to an OPEB funding problem; it simply requires them to comply with the ARC. If there is no way to make sufficient cash payments into OPEB trust fund accounts now, then that problem needs to be addressed, and there are probably thousands of ways that individual OPEB liabilities could be reduced.

 

One of the most common methods is to change the vesting period for post-employment benefits. If, for instance, employees now have only a two-year vesting period to receive retirement medical benefits, and the vesting period were changed to six years, the OPEB liability (as calculated by the actuaries) would go down, thus the ARC would go down.

 

For employees who actually work longer than six years, this would have no effect on their benefits, so it is a relatively painless way of addressing the OPEB funding problem.

 

Other potential solutions would depend on the specific nature of employee contracts at the various governments.

 

Poster Child for HB 3605: TriMet

A quick glance at the attached spreadsheet will show that TriMet is #1 in unfunded liabilities, by any measure. In fact, the agency is not just #1 – it is an outlier so extreme that it begs some form of explanation. A brief discussion may assist legislators in understanding the need for HB 3605.

 

In 1994 TriMet changed the basic template of its union contract, incrementally lowering the age of retirement and dramatically increasing post-employment benefits. The cost of these obligations steadily accrued each year, but TriMet did not create a trust fund to pay for them. Since GASB 45 did not yet exist, almost no one outside the agency knew about this ticking time bomb.

 

In 2008 TriMet adopted GASB 45, and the district’s outside audit showed, for the first time, a “schedule of funding progress” for OPEB. The Unfunded Actuarial Accrued Liability (UAAL) for OPEB as of January 1, 2008 was $ 632 million.

 

In the 2010 TriMet budget document, the narrative to the Board stated, “TriMet needs to begin to take steps to partially fund a retiree-medical trust to assure a funding source for retiree health benefits, which have already been accrued but are not yet funded.” That was a clear and concise statement of need — yet the adopted budget for that year (FY 10-11) included zero funding for the OPEB trust fund.

 

In the very back of that document, on page 241, TriMet presented a revealing 10-year financial forecast. A copy is attached (the blue page). In that forecast, TriMet predicted that it would finally begin funding the OPEB trust with a token payment of $1 million in 2012, followed by identical payments for the next four years (line U on the blue sheet). The agency did not anticipate getting serious until FY 2019, when it projected an OPEB payment of $10 million.

 

Five months later, TriMet’s 2010 audit was released. The audit showed that in just two years the OPEB liability had ballooned from $632 million to $817 million, and all of it was unfunded.

 

Last month, TriMet released its draft budget for FY 11-12. The narrative is now much more evasive about the subject of OPEB. On page six, it simply states, “The FY 12 proposed budget reflects pay as you go funding of OPEB costs for retirees, and an initial deposit to an OPEB trust to begin funding future retiree OPEB benefit.” It does not say how much.  Also, the 10-year financial forecast page has been deleted.

 

If you search long enough, however, you can finally find on page 45 that the promised payment of $1 million has been downgraded to $410,000. Meanwhile, the OPEB liability keeps rising by the month, and is now probably in the neighborhood of $900 million.

 

Like high school students who keep telling their parents that they will start on that big term paper “tomorrow”, the TriMet Board has been procrastinating for 17 consecutive years on OPEB. This is setting up both employees and future board members for a massive meltdown later this decade.

 

It is important to note that TriMet’s OPEB problem is not the result of declining revenues. To the contrary, TriMet has been one of the few units of government with rising revenues, thanks in part to the legislature.

 

In both 2003 and 2009 the legislature authorized increases in the regional payroll and self-employment tax for TriMet (and Lane County Transit). TriMet began implementing the tax rate hike in January 2005, and will continue to implement it by raising the rate by 1/100^th of a percentage point every year through 2024.

 

The chart below shows that the payroll tax increase, combined with substantial increases in passenger fares and federal grants, has led to both operating and capital funding increases that most local governments could only dream of.

TriMet Financial Resources, 2004-2012[1]

(millions)

 

TriMet will likely respond by stating that the purpose of the payroll tax rate increase was to pay for the “operating cost of new service”, not OPEB liabilities, which is true; but as the chart below illustrates, the increased service never materialized. In fact, service has been steadily dropping for the past three years:

 

Service Trends for TriMet Since the Payroll Tax Rate Increased in 2005

Fixed Route Service – light rail, bus, commuter rail[2]

 

To summarize, the agency hit a gusher of cash in the past seven years, but proceeded to cut service by 12% while dramatically increasing its unfunded OPEB liability. This is a financial disappearing act that would make Penn & Teller envious.

 

While TriMet is an extreme form of the management problem HB 3605 attempts to address, the challenge is the same across the board: promises are being made at many governments for post-employment benefits that probably cannot be kept. The time to deal with fiscal reality is now. The legislature should step in to require that modest steps be taken based on a 25-year amortization schedule.

 

It is rare that legislators have a chance to enact laws that will demonstrably make a positive difference for future generations. This is one of those cases.

 

Thank you for your consideration.

 

Testimony on SB 99 A: Requires Oregon Health Authority to establish Oregon Health Insurance Exchange as public corporation to be governed by board of directors

Before the House Committee on Health Care

by Steve Buckstein

Click Here for Audio (Steve begins at the 31:56 mark)

Co-Chair Greenlick, Co-Chair Thompson and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

I’m here today not to support or oppose SB 99 A, but to put on the record my concerns that if the state does enact an insurance exchange as envisioned in the bill, it should use the exchange as an opportunity to expand rather than restrict consumer choice.

As you may know, the U.S. House earlier this week voted to bar funding for state insurance exchanges. While this effort may very well fail, the Obama Administration took the vote as an opportunity to re-state its position that:

“Exchanges will allow Americans to compare prices and health insurance
plans and decide which quality, affordable option is right for them.”*

In order to make such decisions meaningful, Oregonians should have more insurance plan options than the state currently allows.  As I testified here on March 7^th in favor of HB 2977, Oregonians should be allowed to purchase any policy offered in other states by companies licensed to sell insurance in those states. I’m sure that DCBS concerns about putting these companies on a level regulatory playing field with companies already approved to sell insurance in Oregon can be satisfied.

The exchange should also be open to approving new policies offered within Oregon that do not include all the current state mandates. Whatever decisions are made at the national level regarding the so-called “Essential Health Benefits” package, Oregon should be a leader in allowing our citizens as much choice as possible consistent with full disclosure. This will allow the exchange to satisfy the needs of consumers who want more affordable insurance choices as well as those who want more comprehensive coverage.

If the exchange does not offer such choices, it will quickly become part of the problem, both driving up costs and pushing more people out of the insurance marketplace.

In conclusion, I hope the exchange you envision is charged with helping to open up the insurance marketplace to more affordable plans, thus being be part of the solution.
Thank you, and I would be happy to take any questions.

* “House Votes to Bar U.S. Funding for Insurance Exchanges”, Bloomberg.com, May 4, 2011,

John’s testimony before the Ways/Means subcommittee on Transportation on 4/20/2011 at 9:30am.

Listen to the audio here. John begins at 30:21.

Members of the committee, I am a lifelong transit user and take transit to Salem on most days (TriMet’s commuter rail from Beaverton to Wilsonville, connecting with an express bus to Salem operated by SMART or Cherriots).  However, notwithstanding my personal preferences, there is no compelling state interest that would justify subsidies for rail programs through the ODOT budget.

Passenger rail is simply irrelevant in a low-density state like Oregon. The Portland rail program has failed because it is too slow, too expensive, and too inflexible. My daily ride on WES costs TriMet $18 per one-way trip, but I only pay $2.35. None of the capital costs are paid for by users. That is not a “sustainable” business model.

Rubber-tired transit continues to carry two-thirds of daily transit trips in the Portland region, despite being virtually ignored by TriMet. With low capital cost, this is the only mode that makes sense for transit in Portland.

For inter-city transit, we already have unsubsidized private bus companies operating, and further subsidies to Amtrak will be counter-productive.

For freight movement, rail is a for-profit business that should be supported by its customers. If that is not possible, then the business is not viable.

In looking at the specifics of HB 5046, I have the following brief comments:

• The Connect Oregon programs have relied so much on spending future lottery funds that the lottery is now tapped out. I’m sure you have all seen the February 11 memo from the state Treasury regarding the need to re-finance debt. Continuing to fund transit projects that are inherently uneconomic with lottery funds simply forecloses future uses of that money.

• Expansion of the Portland Streetcar to the south end of the South Waterfront district was financed in part with a $2.1 million Connect Oregon grant. The grant application promised a 30% market share of all district trips for the streetcar and 40% market share for commute trips. Having just completed field research in the district, I can assure you that actual transit use is far lower; on a typical weekday, the streetcar accounts for only 9% of all passenger-trips to and from the district during the hours of 6:00 a.m. to 10:00 p.m. (summary results attached).

• Oregon should stop chasing federal dollars for the Obama “medium-speed” rail program. Passenger rail will never be competitive or cost-effective in Oregon, and there is no willingness on the part of customers to pay for true “high-speed” rail.

• The ODOT “Oregon Rail Funding Research Task Force” should be disbanded. There is already an obvious source of funding: customers. If they are not willing to pay the cost of capital expansion and maintenance, the business is not viable.

• There should be no more funding for the OTC “flex funds” program; this has already been abused by TriMet to promote Milwaukie LR at the expense of more effective bus service.

• The $250 million previously appropriated for lottery-backed bonds to pay for Milwaukie LR was an egregious waste of money and should never be repeated. In its Fall 2010 Financial Forecast TriMet predicts 13,000 average weekday boardings for the opening year of this project, 2015. Of those, 4,500 are estimated to be former bus passengers switching due to the loss of bus service. Since one customer usually creates two “boardings” per day, the total number of new daily passengers is estimated to be only 4,250. At a total capital cost of roughly $1.5 billion, that works out to be $333,333 per new rider. I suspect that if we could locate these speculative new riders and ask them how they would like us to spend $333,333 to improve their mobility, few would actually vote for a slow train from Milwaukie.

• TriMet successfully manipulated the legislature into approving substantial payroll tax rate hikes in both 2003 and 2009 for the stated purpose of paying for the operating cost of new rail service such as the I-205 MAX line, but that line is operating at 33% below the service level promised to FTA. Therefore TriMet is defrauding the federal government, which paid for more than 70% of capital expenses (New Starts grants + flex funds used for the local match), and breaking promises made to the state legislature when the payroll tax rate was approved.

This pattern is about to repeat itself with the Milwaukie project, where planned levels of operating service have already been lowered due to TriMet’s financial problems.

• Contrary to claims made by TriMet, passenger rail is not “high-capacity” transit; it is “low-capacity, high-cost” transit, which is the exact opposite of what we need.

• Local transit districts should be raising operating and capital funds locally through customer fares; there is no role for ODOT to play in local matters unless it is simply passing through federal funds.

This testimony was given April 19, 2011 before the House Committee on Revenue.  It is in response to HB 3420, HB 3282, HB 3283, HB 2562, HB 2730 and HB 3296.

Co-chairs Berger and Barnhart and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

I’m here to testify in favor of reducing Oregon’s capital gains tax rate, which is currently the highest rate in the country. This high rate has the effect of discouraging investment and hiring activity in the state.

Previous research by a member of the Governor’s Council of Economic Advisors calculated that cutting the capital gains tax rate to 4.5 percent would add approximately 6,000 new jobs a year and increase venture capital activity in the state by approximately $300 million a year. This is consistent with more recent research suggesting that completely eliminating the capital gains tax would add approximately 14,000 more jobs by 2013.*

As I’m sure you already know, the capital gains tax is the most volatile segment of Oregon’s tax structure. Between 2007 and 2008, revenue from capital gains declined by 60 percent. Capital gains accounted for 10 percent of state income in 2007, dropping to 4 percent in 2008, and I believe it was as little as 2 percent of income in 2009. In fact, because of tax-loss carry-forwards, in a deeper recession it wouldn’t be impossible to see capital gains income actually turn negative.

From a legislator’s standpoint, I think the best time to reduce or eliminate the capital gains tax is when there aren’t many gains to be taken. Like now.

I’m not a fan of putting conditions on any capital gains rate reduction, as all these bill being heard today do. Requiring investors to reinvest in specific businesses may be well-intentioned, but it’s not necessary. Reducing or eliminating Oregon’s capital gains rate would send a positive message to business people and investors everywhere. It not only would unleash more economic activity from those already living in Oregon, it would help attract such people to relocate to Oregon and bring their capital with them.

The more strings you put on the deal, the less likely enough people will want to take advantage of your offer.

So, rather than trying to pick winners and losers, in this case trying to direct more capital to Oregon businesses through favors in the tax code, simply ensure a level playing field and then trust in the market’s ability to evaluate good deals and invest in them. The more attractive you make Oregon as a place to do business, the more business and investment capital will flow here.

So, in closing, please reduce or eliminate Oregon’s capital gains rate, and then watch the economy pick up. Watch jobs be created. And watch state revenue increase as a result. This is a perfect example of where asking for less will result in generating more.

Thank you.

* All numbers from “Facing Reality: Ideas to Reset Oregon’s Budget and Recharge its Economy”, Cascade Policy Institute and Americans for Prosperity-Oregon.

Testimony given before the Senate Finance and Revenue Committee regarding SB 692, which covers:

• Removes prohibition against imposition of taxes by county on cigarettes and tobacco products.
• Requires at least 20 percent of any tax imposed by county on cigarettes or tobacco products to be used for public health programs or services.

Chair Burdick and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

I cannot attend your hearing on SB 692 so I wanted to submit brief written testimony in opposition.

I noted in this week’s Oregonian editorial in favor of this bill a telling paragraph:

“Try walking around your own neighborhood and you’ll quickly discover,
as Multnomah County did in a price survey, that cigarette prices are
extremely varied. Moral of the story: People addicted to a product are
inclined to run in and pay the going rate and ask questions later, at least
until they get fed up enough to seek help and quit.”*

So, at least some of the bill’s supporters assume that counties will be able to impose a tax on smokers and they either won’t notice, won’t care or won’t have a choice in the short run.  In the long run…well, you know what economist John Maynard Keynes said about that.

If taxing a relatively low-income, less-educated, more minority population is bad public policy on the state level, which I think it is, then it is equally bad public policy on the county level.

Governments too often see smokers as a minority that the rest of us will tax because we don’t smoke, so who cares. Well, the defeat of Measure 50 in 2007 should put that canard to rest. I don’t believe it was the heavy spending against the measure that swung voters to the No side on that tobacco tax. I believe it was a realization that it simply isn’t fair to tax a small minority just because we can.

And, if it isn’t fair to tax a small minority at the state level, then it isn’t fair at the county level either.

So, it isn’t good public policy, and it isn’t fair to tax smokers just because we can. SB 692 tries to look like it’s for the smoker’s own good by requiring at least 20% of the revenue be spent on public health programs, presumably to help smokers quit.  But that means that up to 80% of the revenue could be spent on anything else counties want to spend it on. It seems to me that this is simply a way to let counties impose a tax on a minority of their citizens with very little connection to the needs or wants of that minority.

I’m all for local control; in fact, I think the best local control is control by the individual over his or her own life. That includes the decision to smoke or not smoke without facing unfair taxation of that choice.

Thank you.

On April 12^th, John Charles testified before the House Energy, Environment and Water Committee on HB 3109 which would create ecosystem services credits.  Click here to listen.  John starts at 32:15.

Testimony before the House Transportation and Economic Development Committee on March 30, 2011

I have followed the CRC process quite closely for the past decade. Based on this experience, I offer the following comments about HJM 22:

This is a random request for a random project. There is no evidence that the CRC is part of a strategic transportation vision for the Portland region. Unless and until ODOT comes up with a plan to address related congestion problems and the need for new capacity at the I-84/I-5 interchange, I-405, the Marquam Bridge, and the West Hills Tunnels, the CRC will just absorb vast resources while offering few public benefits.

There is no price tag listed and no specific amount requested. It’s difficult to see how anyone in Congress would take this seriously when the only message seems to be, “more, now.”

 

There needs to be a coherent rationale for the use of tolls and the setting of toll rates. I am not opposed to highway tolls per se; it’s a time-honored method of financing new infrastructure. In fact, I have no doubt that within the next 20 years much of Oregon’s highway system will be converted to an electronic tollway (with variable rates in dense urban centers), and I look forward to those changes.

But unfortunately the most obvious interest in tolling on the CRC has been to use toll revenue as a local match for federal funding, especially for the uneconomic light rail[1] portion. That is the wrong use of toll revenue and will generate a much-deserved rebellion among highway motorists. If the project is really cost-effective, it should be 100% financed by local user fees, and the toll rates should be set to generate adequate cash flow for debt service as well as to vary by time-of-day/direction-of-travel to ensure free-flow driving conditions at all times. I testified before the CRC tolling subcommittee on three different occasions last year making these points, but to this day the proponents of tolling cannot explicitly state a principled rationale for the use of tolls.

The light rail element is a total waste of money. Vancouver transit riders are express bus commuters and will have no interest in a slow train. At a capital cost of $321.27 million mile, this will be the most expensive transit project in the history of Oregon. By comparison, the earlier portion of the MAX Yellow Line (Interstate Avenue) was constructed for about $60 million per/mile. That project was also a mistake; there is no policy reason to magnify the error at 5 times the cost.

Moreover, neither C-TRAN nor TriMet is planning on putting any of their own money into construction of light rail; both agencies expect everyone else to pick up the tab[2]. One can reasonably conclude that if the two transit districts don’t think light rail is worth one dime of their own funds, it is worth even less to the rest of us.

The mega-bridge concept is doomed to fail under any scenario. The CRC project epitomizes the old-guard, “build up, not out” approach beloved by land-use planners. They oppose new bridges because they imagine that more bridges would encourage more driving. But reality is passing the Oregon system by. Between 1998 and 2006, even with no new highways, the percentage of jobs located within 3 miles of downtown decreased from 27% to 23%. The percentage of jobs located more than 10 miles from downtown increased from 24% to 29%. The future of employment and housing is on the periphery of Portland; thus a massive highway structure on Hayden Island will be irrelevant to many motorists and force them to drive out of their way to cross the river.

The more appropriate response would be to build multiple bridges, much smaller in scale, to accommodate the increasingly scattered travel patterns of the next three decades. It’s interesting that Portland has 10 bridge crossings over the Willamette River and only two are highways; the rest are arterials. Yet no one would seriously suggest that Portland rip out the eight smaller bridges in order contain “bridge sprawl”; everyone recognizes that with more bridges, people drive less because they have more direct avenues to travel on.

The City of Pittsburgh, comparable in size to Portland and located along three major rivers, has 29 bridge crossings, and only 5 are connected to Interstate Highways. The rest are small-scale, two- and four-lane bridges handling local traffic.  Since the I-5 Interstate Bridge is not structurally flawed, it seems evident that Oregon should leave the I-5 Bridge in place and look at adding 2-3 smaller bridges upriver and downriver on the Columbia. In particular, there needs to be a way to get Washington-bound traffic originating on the west side of Portland off of HW 26 by creating an alternative route north to HW 30 from Beaverton/Hillsboro, and then over the Columbia. That would reduce congestion problems on HW 26, I-405, the Fremont Bridge, and I-5 north – which the currently proposed CRC will never do.

Testimony before the House Committee on Energy, Environment and Water on March 29, 2011:

Co-Chair Cannon, Co-Chair Gilliam and members of the Committee, my name is Todd Wynn. I am Vice President and energy policy analyst at Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

I am here to testify today against House Bill 3538.

Background

The original purpose of House Bill 3283 is to regulate and reduce CO₂ emissions from regulated facilities by implementing carbon offset projects. The Climate Trust, the only “qualified” organization that receives funds according to the bill, has proven ineffective and wasteful.

House Bill 3538 would change the original purpose of the carbon dioxide standard set forth in HB 3283 and set up the possibility for more fraud and abuse with regard to delivering real, verifiable, and additional carbon offsets.

1. The Climate Trust is not transparent

Because The Climate Trust’s existence is a function of state law regulating facilities, it should be subject to the same standards as public agencies for release of public records.

The Climate Trust has refused to answer questions that could be considered “critical” of carbon offsets[1] and has refused to provide access to the recent five-year report.[2]

The Climate Trust’s annual reports have not been accurate updates. They have been overly positive reports addressing self-proclaimed success and not mentioning failure or specifics of projects.

Many documents such as funding and dollar amounts spent on certain projects are unable to be retrieved or accessed.

2. The Climate Trust has failed to reduce carbon dioxide and to adhere to the monetary offset rate according to House Bill 3283

The Climate Trust has never adhered to the monetary offset rate established by the Energy Facility Siting Council (EFSC), and this has led to a major shortfall in offsets that were paid for by regulated facilities.

The Climate Trust has admitted to paying more than the established monetary offset rate in the last five-year report to the EFSC. Out of thirteen projects, the Climate Trust estimates they spend an average of $3.45 per metric ton, which is well above the current 2007 rate of $1.40 per metric ton. Since The Climate Trust pays an amount higher than the established rate, carbon dioxide is not being offset as according to HB 3283.

The table above shows five of The Climate Trust’s projects that have data on offsets delivered and funds spent. This table describes the shortfall of offsets that should have occurred and the value of these offsets to regulated facilities.

The Climate Trust on these five projects alone has an offset shortfall of 649,923 metric tons which, at the offset rate of $1.40 per metric ton, amounts to $909,893 of regulated facility money.

3. The Climate Trust has continuously failed to produce verifiable and additional carbon offsets

Cascade Policy Institute audited 58% of the offset projects in The Climate Trust portfolio. Cascade Policy Institute audited projects that were completed or near completion in order make use of monitoring and verification reports and other data.[3]

A closer look into the portfolio showed there are numerous problems that undermine the quality and effectiveness of The Climate Trust’s projects. Lack of additionality and accountability of funds, inaccurate assumptions, difficulty in verifying and monitoring results, lack of permanence and leakage issues are most of the problems that plague the analyzed offset projects.

Brief overview on failure of projects:

Deschutes Riparian Reforestation– In addition to only completing approximately 18% of its 2008 goal, The Climate Trust needlessly paid a lumber company to plant more trees on an already stocked land thus negating additionality.

Preservation of a Native Northwest Forest– Climate Trust funds that were supposed to be allocated to the Lummi Indian tribe to purchase 1,654 acres of forest were used to fund the tribe’s annual canoe journey and a college scholarship program.

Blue Heron Paper Manufacturer Efficiency Upgrade– Climate Trust funds that were supposed to be the deciding factor in whether Blue Heron could finance an energy efficiency upgrade were not allocated to the company. Blue Heron’s energy and environment department head stated that they would have completed the upgrades at some point in the future in order to stay competitive thus negating additionality.

Portland Building Efficiency Program– Monitoring and verification reports used two different estimates to calculate the offsets that were not additional. These figures were highly significant in determining the actual amount of offsets paid for and claimed by The Climate Trust. This leads to serious questions on the additionality of these offsets.

Traffic Signal Optimization– The City of Portland already committed to optimizing traffic signals over two years before The Climate Trust’s involvement which negates additionality. In addition, the third party that performed the calculations on fuel savings admitted the estimates were inaccurately calculated.

Internet Based Carpool Matching– The Climate Trust only achieved 1.4% of the ten-year goal and allowed the City of Portland to “make up” the offsets through two projects that were neither monitored nor verified.

Innovative Wind Financing– The Climate Trust paid for renewable energy certificates (RECs) which do not represent actual reductions in carbon dioxide. Subsequently, The Climate Trust has written a policy paper proving why RECs are not offsets.

4. Allowing the Climate Trust to offset more than carbon dioxide goes against the original purpose of House Bill 3283 and opens up the opportunity for more waste and abuse.

The original intent of House Bill 3283 was to reduce and offset carbon dioxide emissions from regulated facilities. This did not include all greenhouse gases.

The majority of fraudulent carbon offset projects have stemmed from greenhouse gases other than carbon dioxide. Massive fraud on the international scale has been attributed to the destruction of trifluoromethane (HFC-23) a greenhouse gas byproduct of manufacturing refrigerant gases. The carbon offset credits that sold to reduce HFC-23 are twice as valuable as the refrigerant itself.

 

A study found that almost three-quarters of Clean Development Mechanism (CDM) registered offset projects were already complete at the time of approval, and thus, didn’t need carbon credits to be built. An estimated 40 percent of CDM projects registered by 2007 represented “unlikely or at least questionable” emission cuts. Between a third and two-thirds of CDM offsets don’t represent actual emission cuts.[4]

Conclusion

HB 3283 was originally passed with the intention of reducing manmade carbon dioxide, not other greenhouse gases.

The Climate Trust has proven itself to be wasteful and non-transparent in its operations.

Allowing The Climate Trust to offset more than carbon dioxide violates the original intent of the law and opens the door for more fraudulent non-additional offsets at the Oregon ratepayer expense.

I urge the members of this committee to vote no on HB 3538.

March 24, 2011

 

Co-Chair Cannon, Co-Chair Gilliam and members of the Committee, my name is Todd Wynn. I am Vice President and energy policy analyst of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

 

I am here to testify today in support of House Bill 2992.

Economic Costs of Not Classifying Hydro as Renewable

 

In 2007, legislators passed Senate Bill 838 which established the Renewable Portfolio Standard (RPS). This legislation forces the major utilities to procure 25% of their electricity from renewable energy by 2025. The bill established a narrow definition of renewable energy which specifically excludes the vast majority of energy produced from Oregon’s hydroelectric system.

 

Cascade Policy Institute’s recently released economic analysis, The Economic Impact of Oregon’s Renewable Portfolio Standard, shows that the RPS with the current strict definition of renewable energy will lead to significant negative economic consequences as only more expensive and intermittent sources of energy qualify[1]:

 

Over the period of 2015 to 2025, the mandate will cost Oregonians an additional $6.811 billion over conventional power within a range of $4.009 billion and $9.310 billion.

 

In 2025, the mandates will cost families an average of $247 per year, commercial businesses an average of $1,394 per year and industrial businesses an average of $11,585 per year.

 

By 2025 the Oregon economy will lose an average of 17,530 jobs, within a range of between 10,025 jobs under the low-cost scenario and 24,630 jobs under the high-cost scenario.

 

Due to higher home energy costs, in 2025, annual real disposable income will fall by $170 million, within a range of $101 million and $230 million.

Oregon is One of the Nation’s Leaders in Clean Energy Generation

Oregon is ranked 48^th out of 50 states in the amount of carbon dioxide and nitrogen oxide produced per unit of electricity generated. The state is also 46^th in the amount of sulfur dioxide per unit of electricity generated. This is mainly due to Oregon’s high use of hydroelectricity.[2]

 

 

 

 

 

The Energy Information Administration currently considers hydroelectricity to be a renewable energy source. When hydroelectricity is defined as renewable energy, Oregon is third out of the entire nation in capacity and generation of renewable energy, generating more than 60% of its energy from renewables.

 

In contrast, for the nation as a whole, renewable sources supply approximately eight percent of total electric power generation.[3]

 

Conclusion

 

Establishing a strict politically motivated definition for renewable energy does not acknowledge the vast amount of clean electricity that the state is producing and using.

 

Excluding hydroelectricity from the RPS will also cause significant negative economic impacts on the state’s economy as utilities are forced to increase their percentage of expensive and unreliable sources of energy.

 

It is best to establish a realistic definition of renewable energy, finally acknowledge our clean energy production and begin reforming a forceful and unrealistic push for expensive renewable energy sources.

 

Testimony before the House Committee on Health Care on HB 2977, allowing purchase of health insurance across state lines

by Steve Buckstein
Co-Chair Greenlick, Co-Chair Thompson and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

I’m here today to support HB 2977. I believe that allowing Oregonians to purchase health insurance across state lines is a good thing. I want to focus my testimony on one concern often raised about this concept.
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Update: Last month, House Bill 2287 passed out of the House Education Committee. Next week, the House is scheduled to vote on this bill.

Testimony to the House Education Committee
Re: H.B. 2287
February 4, 2011
by Christina Martin

Chair Wingard, Chair Gelser, Members of the House Education Committee,

My name is Christina Martin, I am a policy analyst with the Cascade Policy Institute, a non-profit, non-partisan, public policy think tank. Cascade researches policy issues including education reform.

After seeing The Lottery, The Cartel, and anticipating Waiting for Superman, I wanted to know how many of Oregon’s children were on waiting lists to get into a school of choice – a public charter school. So I contacted every charter school in the state. As you can imagine, it is not easy to get a hold of busy school administrators to find out how many kids were waiting. However, out of Oregon’s 108 charter schools, 92 schools responded. I discovered that more than 4,700 kids were on waiting lists for a charter school last summer.  In October, still more than 3,600 kids were waiting to get into charter schools, even though parents do not usually like to disrupt their children’s education with mid-year transfers.
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Testimony in Favor of HB 2291
Kathryn Hickok
Director, Children’s Scholarship Fund-Portland
Portland, Oregon
March 4, 2011

Co-Chairs Gelser and Wingard and members of the committee, my name is Kathryn Hickok, and I am director of the Children’s Scholarship Fund-Portland. For twelve years our program has provided privately funded partial-tuition scholarships to children from lower-income Oregon families.

CSF-Portland is a partner program of the national Children’s Scholarship Fund, headquartered in New York. Our mission is to maximize educational opportunity by offering tuition assistance for children from needy families. We provide partial tuition scholarships based solely on income and applicable to any private school chosen by the students’ parents or guardians. To be eligible for a scholarship, families must demonstrate financial need according to standards similar to the federal free and reduced price lunch program.
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Full text below

My name is Michael Horn; and I am the coauthor of Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns, along with Harvard Business School Professor Clayton M. Christensen and Curtis Johnson, president of the Citistates Group. I am also the cofounder and executive director of education for Innosight Institute, a nonprofit think tank devoted to applying the theories of disruptive innovation to problems in the social sector.

When we approached writing about education originally, we came at it from a very different viewpoint from what has been discussed here today. Our work has centered around how do we make innovation far more predictable and successful?

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Chair Burdick and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon.

As a member of Governor Kulongoski’s Task Force on Comprehensive Revenue Restructuring, I must express reservations about Senate Joint Resolution 26 which seeks to revise the Oregon Constitution in a number of significant ways.

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Testimony on HB 2781 Before the House Judiciary Committee

February 14, 2010
by Karla Kay Edwards

Good afternoon, Judiciary Co-Chairs Krieger and Barker and members of the committee. Thank you for the opportunity to testify on HB 2781. My name is Karla Kay Edwards. I am the Rural Policy Analyst for Cascade Policy Institute, a public policy research organization.

HB 2781 takes a huge step toward attempting to take control of Oregon’s own destiny. More than 53% of Oregon’s land mass is in federal ownership and thus off-limits to any kind of private investment. From 2000 to 2010 federal ownership of land in Oregon has increased by 2,515,739 acres, according to Payment In Lieu of Taxes (PILT) payment records. The federal government has virtually eliminated commodity production on federal forest and grazing lands and continues to further restrict the uses of these lands. A few recent examples: Secretary of Interior Salazar on December 22 issued Order 3310 to designate wild lands (beyond the Wilderness program already in place) and to protect the wilderness characteristics of a potential 245 million additional acres of lands across the U.S. In addition, there is a movement to establish the Siskiyou Crest National Monument which essentially would put another 600,000 acres off limits for many uses in Oregon. Both of these and many other federal land management decisions in Oregon will further limit the ability to manage these lands for multiple uses and generate any significant economic returns for the communities surrounding these areas. Federal land management decisions coupled with state land use laws have reduced more than 90% of non-urban lands in Oregon to what Peruvian economist Hernando de Soto refers to as “dead capital.”
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Subject: TM Resolution 10-09-44

Members of the Board:

I will not be able to attend the board meeting tomorrow. Therefore I wish to enter the following comments into the record today regarding TM Resolution 10-09-44:

There is considerable risk in purchasing this property because it is unlikely that the Milwaukie LRT line will ever get built.  Notwithstanding the oft-made claim by Mr. McFarlane that TriMet is considered to be “an A student” by FTA officials, TriMet has clearly been defrauding the federal government by taking capital grants for rail projects without operating them successfully for 20 years, as required by law. In May 2009 TriMet announced that service on the Green Line would be cut before it ever opened. Service was cut again earlier this month. Cuts have also been made on other federally-subsidized rail lines. Until TriMet restores service on those lines, they remain out of compliance with past funding agreements. Why would FTA spend even more money on TriMet under these circumstances?

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Testimony before the CRC Independent Review Committee

By John Charles

Download Full Testimony Here

June 17, 2010

I wish to make two basic points tonight, related to: (1) tolling; and (2) TriMet’s financial viability

Tolling, Variable Rates, and the Portland Highway Network

For the past several years, the CRC management team has considered tolling primarily as a means of partially financing the new bridge. While there has been some modest consideration of variable toll rates, project managers have never defined the purpose of those rates (in terms of anticipated driver benefits), nor have they analyzed variable pricing within the context of the broader Portland highway network.

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by John A. Charles, Jr.

Testimony before the Multnomah County Tax Supervising and Conservation Commission

Regarding the TriMet Proposed FY 11 Budget

May 25, 2010

TriMet asserts that the proposed FY 11 budget adheres to principles of good budgeting and financial planning because “revenues and expenditures are in balance” and the budget“incorporates a long term perspective” (page 2).

This is disingenuous. The only “long term perspective” being offered by TriMet is the continued practice of pushing debt payments off to the future. The problem is that eventually the future arrives, and someone has to pay. TriMet is creating a regressive, intergenerational burden by hiding more than $1.2 billion in expenses.

TriMet must confront the two major cost drivers that are out of control: (1) employee fringe benefits; and (2) rail construction projects.

Download the Full Testimony

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

John Charles gives testimony before the TriMet council addressing ridership, routes, and ballooning fringe benefits.

You can download a copy of his testimony here.

Listen to the full testimony here. The bill testimony begins at 1:20:30. Buckstein testimony begins at 1:56:17.

Before the House Consumer Protection and Government Accountability Committee in favor of prioritizing Core Functions of State Government

By Steve Buckstein

Good afternoon, Chair Holvey and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a public policy research center based in Portland.

I’m here to lend my support to the idea that Oregonians would be well-served by our state government going through the process of determining what the Core Functions of government should be.

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Testimony to the House Education Committee on HB 3660

February 3, 2010

By Christina Martin

Good afternoon, Chair Gelser and Representatives. My name is Christina Martin. I am here on behalf of Cascade Policy Institute. Cascade is a strong advocate of increasing educational options for families. Online education is one of those important options.

Some parents have more options than others. Wealthy parents can choose online education regardless of what you do here today. But ordinary parents’ choices may rest on what you decide here. Currently, some can choose ORVA (Oregon Virtual Academy), while others cannot get permission from their district to make that choice. Parents can choose ORCA (Oregon Connections Academy), provided that ORCA is within its cap. But why should a parent have to settle for anything but her first choice?

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Before the House Committee on Health Care in favor of making individually purchased health insurance tax deductible

February 3, 2010

Good afternoon, Chair Greenlick and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a public policy research organization based in Portland.

Why are my health insurance premiums tax deductible if paid by my employer, but fully taxable if I pay them myself, which I do by the way. This dichotomy has been part of our nation’s tax code for far too long.

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Testimony before the House Committee on Health Care

February 4, 2010

Chair Greenlick and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a Portland-based research center that promotes individual liberty, personal responsibility and economic opportunity in Oregon.

On a philosophical level, I object to defining health care as a right, or more precisely, what philosophers call a “positive” right. This country was founded on the belief that government cannot create rights; it can at best protect our inalienable rights to life, liberty and the pursuit of happiness. These so-called “negative” rights don’t put demands on anyone else; except the demand that no one violate them.

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My name is John Charles, and I am President of Cascade Policy Institute. I am here to urge the Board to sell or lease the Elliott State Forest.

Read the entire testimony and the analysis, Future mangement of the Elliott State Forest, Providing Adequate Returns for Oregon’s Schools.

Regulatory Issues

I.   The purpose of HB 3283 is not being met and the EFSC monetary offset rate is not being followed.

The purpose of HB 3283 is to regulate and reduce CO2 emissions from regulated facilities by implementing carbon offset projects .
The Climate Trust has never adhered to the monetary offset rate established by the Energy Facility Siting Council, and this has led to a major shortfall in offsets that were paid for by regulated facilities.
The Climate Trust claims that the monetary offset does not provide sufficient funding to offset the amount in excess of the standard. This means HB 3283 and The Climate Trust are not offsetting the carbon dioxide that is required to be offset and is thus failing to meet the intent of HB 3283.
The Climate Trust claims the amount of carbon dioxide in excess of the standard is not being fully offset for two reasons :
1. 20% of the funds received are set aside for the costs of “monitoring, evaluation, administration, and the enforcement of contracts to implement offsets.”
2. “The monetary path rate has not kept pace with market prices”
Click here to read the full report in PDF format

The Portland Streetcar System Concept Plan would have been considered cutting-edge in 1909. Unfortunately for rail advocates, this is 2009, and the heyday of streetcars is long over.  The streetcar as a meaningful transport mode will never return to prominence no matter how much the Council tries to subsidize it, because it’s too slow, too expensive, and not flexible enough for people who typically have multiple places to go each day.
Click here to read the full report in PDF format

Listen to Todd’s testimony on this audio file
at 1:30:01-1:33:34 and response from Representative Bailey at 1:35:38-1:38:48.

HJR 48 would propose an amendment to the Oregon Constitution allowing the Legislative Assembly to impose taxes on carbon emissions for the purpose of funding reductions in carbon emissions and carbon fuel use. HJR 48 would refer the proposed amendment to the people for their approval or rejection at the next regular general election.

This bill is entirely unnecessary and could impose significant costs on Oregonians while providing no environmental benefit. (more…)

Listen to John’s testimony at 1:47:05 through 1:57:35 on this audio file, which includes an exchange he had with Representative Bruun and the unanimous committee vote on the bill.

Senate Bill 34 gives TriMet authority to increase payroll taxes. Watch Representative Wingard’s compelling testimony here.

SB 34 passed the House on a 32 to 28 vote.

Listen to this testimony at 2:55:51-3:09:05 on this audio file.

My name is John Charles and I am president of Cascade Policy Institute, a non-profit policy research organization. I have extensive experience with urban mass transit, both as a consumer and as a researcher. During the past 29 years I have used the TriMet transit system over 20,000 times.

Click here to read the full testimony in PDF format

Read the full text of the bill here.

Listen to this testimony at 1:00:00-1:03:45 on this audio file.

Mr. Chairman and members of the committee, the assumption with HJM 11 is that we can get something for nothing through the hoped-for carbon sequestration on federal lands, as part of a national carbon rationing program. Advocates hope that the creation of a new type of asset called carbon sequestration offsets, formed literally out of thin air, will help lock up more federal lands into non-harvest regimes. (more…)

Listen to the testimony at 0:30-6:21 on this audio file.

Mr. Chairman, although I look forward to someday driving an electric vehicle, subsidizing the industry is a bad idea. There is already a generous federal subsidy program for electric vehicles, beginning January 1, 2010. Tax credits for plug-in electric passenger vehicles and light trucks will range from $2,500 to $7,500, depending on battery capacity. (more…)

Chair Metsger and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon. (more…)

Chair Hass and members of the committee, I am Kathryn Hickok from Cascade Policy Institute in Portland, speaking in opposition to SB 767. Cascade promotes public policy alternatives that foster individual liberty, personal responsibility and economic opportunity in Oregon. We also run an entirely privately funded scholarship program for K-12 Oregon students from lower-income families. The Children’s Scholarship Fund-Portland has helped nearly 650 Oregon students have access to diverse educational settings that meet their individual needs. (more…)

HB 3253 would create a tax credit for plug-in electric drive motor vehicles beginning in 2010. Testimony in opposition from Mr. Charles is at 38:15 – 41:58 of this audio file.

Background

House Bill 3300 instructs the State Workforce Investment Board to develop a plan to promote the growth of green jobs. The bill also requires the Economic and Community Development Department to develop criteria for and make recommendations about promoting green industries, technology, and innovation.

Listen to Todd’s testimony at 1:25:26-1:27:47 on this audio file.

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Background

House Bill 3155 will require consumer-owned utilities (COU) to establish local conservation, energy efficiency programs, and carbon reduction or avoidance programs within the utility’s service territory. (more…)

April 15, 2009
Overview
 Environmental trends over long periods of time matter more than measurements at any given moment. Also, pollution per unit of economic output is the key to measuring economic sustainability. Listen to John’s testimony at 42:08-46:20 and his answer to questions by Representative Cannon at 50:15-52:51.
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.

April 15, 2009
As a member of the Oregon Road User Fee Task Force, I support the policy direction of SB 580-6. The construction and ongoing maintenance of highways, tunnels and bridges should be financed through direct road user fees, collected via electronic tolling technology.

Listen to John’s testimony at 22:14-26:14 and 27:48-30:17 on the audio file.

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Click here to read the full report in PDF format

Senate Bill 80 Amendments

Senate Bill 80 (Oregon’s cap-and-trade bill) has been amended significantly since it was first introduced in the session. The bill no longer includes the ‘trade’ part of the cap-and-trade program. SB 80-3 is seemingly a hard cap bill meaning all facilities that emit greenhouse gases (GHGs) and fall under regulation are mandated to develop a GHG reduction plan to meet the state’s reduction goals.
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Reject transferring billions of dollars from
the private to the public sector
March 12, 2009

Chair Burdick and members of the Committee, my name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon. (more…)

Testimony before the House Committee on Rules in favor of House Bill 2500 The Taxpayer Transparency Act
February 25, 2009

Chair Roblan and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-partisan, non-profit public policy research organization based in Portland. Our mission is to promote policies that enhance individual liberty, personal responsibility and economic opportunity in Oregon. (more…)

Testimony for Senate Bill 80
Senate Environment and Natural Resources Committee
Todd Wynn
February 5, 2009

Senate Bill 80 directs the Environmental Quality Commission to adopt by rule a greenhouse gas cap-and-trade system to achieve greenhouse gas emissions reduction goals. The Oregon version of a cap-and-trade program would be one part of the Western Climate Initiative’s (WCI) regional cap-and-trade program.

There are many problems with implementing a cap-and-trade program in Oregon, but the main issue is that it would create excessive economic burdens and provide little or no environmental benefit. A cap-and-trade program for the state is truly an “all pain, no gain” strategy. (more…)

Senate Environment and Natural Resources Committee
Senate Bill 76: Regarding the Removal of the Klamath Dams
Hearing is February 3 at 3 pm

Testimony for Senate Bill 76
Todd Wynn
February 3, 2009

 My name is Todd Wynn, and I am Cascade Policy Institute’s climate change and energy policy analyst. Cascade Policy Institute is a nonprofit, nonpartisan public policy research organization that focuses on state and local issues in Oregon and has been active in the state since 1991. My research focuses entirely on Oregon public policy that involves energy, climate change and environmentally related issues. (more…)

My name is John Charles, president and CEO of Cascade Policy Institute. Cascade is a nonpartisan policy research center working to promote economic opportunity in Oregon. I have been involved professionally with environmental policy for the past 30 years and am familiar with the politics of climate change. In recent months I have focused a fair amount of time examining claims made about carbon offset projects in the Pacific Northwest. My comments today reflect that work.

I have been asked to speak about two conceptual approaches to global warming legislation: a carbon tax, and a regulatory limit on greenhouse gases (GHGs). Before I begin, however, I would like to place this issue in the context of the GHG reduction goals embodied in HB 3543. (more…)