Month: May 2012

Kathryn Hickok talks with John Kuzmanich about the U.S. exit tax

KUIK radio talk show host John Kuzmanich interviewed Cascade Publications Director, Kathryn Hickok, about her latest piece, Divorcing Lady Liberty, which discusses ex patriots renouncing their U.S. citizenship because of U.S. taxes.

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American Nightmare: How Government Undermines The Dream of Homeownership

Why did the American Dream turn into a nightmare when the housing bubble burst? Who should we blame: Greedy bankers? Corrupt politicians? Ignorant homeowners? In his latest book, American Nightmare: How Government Undermines the Dream of Homeownership, Oregon native Randal O’Toole explores the forces at play in the housing market and shows how we can restore high rates of homeownership by eliminating federal, state, and local policies that distort the free market for housing.

O’Toole says that Metro, the Portland area’s regional government, is aiming to reduce single-family home ownership from 65 percent down to 41 percent; which is nothing short of a war on homeownership.

O’Toole contends that we could boost home ownership rates to nearly 75 percent by eliminating land use-regulations and subsidies.

You can meet this provocative author and hear him expound on his home ownership theories at next week’s Executive Club dinner; Wednesday, June 6th at the Portland Airport Shilo Inn.

Come for the $20 buffet dinner beginning at 6pm, or skip dinner and arrive by 6:45pm for the meeting. O’Toole, Senior Fellow at the Cato Institute, will have copies of his book for sale before and after his keynote address. There is no charge for this important event, unless you choose to buy dinner or a book. We hope to see you there.

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U- Choose Education Forum: Business and Government

Meeting the challenges of running a business in Oregon

Join the U-Choose Education Forum addressing government’s escalating attacks on business.  Tuesday June 19, 6:30- 9:00PM, West End Building, 4101 Kruse Way, Lake Oswego, OR 97035

Oregon is a beautiful place to live, but, unless you are in one of the government favored industries, it is perceived to be one of the less business friendly states.  Over the last decade the economy of this state has been in steady decline.

Are taxes, regulations, and mandates strangling the economy of this state?  Can businesses survive and thrive in Oregon? How can our elected officials, at every level of government in Oregon, work to make Oregon more business friendly?

These questions will be addressed by speakers who operate businesses in this state and who are, or have been, candidates for public office.

Moderator:

Karen Bowerman- Dean Emeritus, College of Business and Public Administration, California State University San Bernardino and primary candidate CD5.

Speakers:

Lew Barnes: Founder and president of Summit Manufacturing, former Vietnam Marine, and candidate for State Representative District 31.
Gary Coe: Founder and leader of seven successful businesses which have employed hundreds of Oregonians including Speed’s Towing and Pacific Cascade Towncar.  He is a candidate for State Senator District 14.
Representative Matt Wingard: Oregon House of Representatives, R-Wilsonville, District 26.
Councilor Mike Kehoe: Lake Oswego City Council and recent founder of four new companies.

Are you running a business in Oregon? Come share your own views and experiences during U-Talk.

Children, teens, adults welcome.

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Oregon’s Budget Transformation

Governor John Kitzhaber has called for transforming state government, in part by proposing a new ten-year budget process that he says “is necessary to change a decade of declining employment and wages.” The Governor hired former Metro Chief Operating Officer Michael Jordan to implement this transformation, while leading and supervising all aspects of the state’s day-to-day operations as its first COO. Jordan’s charge includes reviewing outdated state systems, streamlining departments, and creating efficiencies and cost savings.

The transformation process includes a set of Guiding Principles and Outcome-Based Budgeting Principles that sound good but so far fail to address adequately at least four important concerns:

First, Government cannot and should not do everything. Determining core functions and prioritizing them should be the first step to achieving more accountability in state government.

Many state agencies don’t have a clear understanding of what their priorities should be. This concern was highlighted in a legislative hearing where the head of an agency was asked by a freshman legislator what his highest priority activities were.* Without hesitation, the agency head looked at the freshman and told him that everything his agency did was high priority.

The legislator then asked what would be cut if the agency budget ended up smaller than requested. The agency head stated, again without hesitation, that he couldn’t cut anything. He repeated that everything his agency did was a top priority.

If everything is a top priority, then nothing is a top priority.

The proper role of government in a free society clearly includes the protection of our rights to life, liberty, and property. But just as clearly, for example, it should not include provision of our jobs, entertainment, and alcohol. We should be willing to end state economic development programs, which do not create jobs so much as they pick winners and losers in the economy.

We need to end state control of liquor through the OLCC, and we should not even consider using tax dollars to fund entertainment venues such as sports stadiums. These belong in the private sector.

Of course, sticking to core functions is hard, especially because of the misguided belief that anyone’s unmet need is the proper concern of government. It is not. The average person can’t afford the time in Salem to lobby against any given program that may only cost him or her a few dollars a year. However, it is well worth the time for those who benefit from a program to spend as much time and money as needed to ensure that the millions or billions of dollars at stake move from the taxpayers to them.

The pressure is always in favor of more government, not less. To resist this pressure, lawmakers need to understand government’s proper role and the harm they do when taking money from some to provide benefits to others. Citizens need to learn why more government means less freedom and how they might meet their needs better through voluntary, private sector approaches.

Second, we need to understand why one of the Governor’s 10-Year Plan Guiding Principles—the reliance on evidence-based information to make informed policy decisions—hasn’t worked before and may not work in the future.

In the late 1980s, then-Senator President John Kitzhaber relied on this principle when he helped create the Oregon Health Plan (OHP). The Plan attempted to use medical and scientific evidence to prioritize treatment of medical conditions for Medicaid patients based on cost-benefit analysis. The problem then was (and likely will be now) that politics gets in the way.

Medical conditions that objectively should have fallen below the cutoff line in the OHP rose above the line because special interest groups successfully lobbied for their constituents. Consequently, the plan saved little, if any, money for taxpayers. As long as government provides the service, or provides the funding, this dynamic will be hard to change.

Third, achieving streamlined operations and cost savings through consolidation of agencies, boards, and commissions will be harder than it sounds.

Forces are at work in large firms and governments that cause them to produce goods and services at increased per-unit costs. Economists call these forces diseconomies of scale. They are especially prevalent when trying to combine monopolies―which defines government agencies.

Take, for example, Oregon’s attempt from 1992 through 2001 to reduce education costs by consolidating school districts. Legislation resulted in 277 school districts being consolidated down to 198. Rather than fewer districts resulting in less administrative overhead, at the end of the period there were actually more central office staff per pupil than at the beginning. Also, non-teaching staff grew faster than teachers, and real per student spending rose more than 11 percent. We should not be surprised if upcoming efforts to consolidate boards, commissions, and agencies yield similar results.

Finally, as famed management consultant Peter Drucker warned: “There is nothing so useless as doing efficiently that which should not be done at all.”

This gets us back to the first concern above. Unless we prioritize core functions, and stop doing other things, state government will expend a lot of energy, and a lot of taxpayer dollars, trying to do efficiently that which government should not be doing at all.

* House Agency Oversight and Efficiency Committee, Oregon Legislature, April 8, 1997. Rep. Ryan Deckert (D) questioning William Scott, Director, Oregon Economic Development Department.

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Executive Club: Oregon's (free market!) Environmentalist

Randal O’Toole a Senior Fellow at the Cato Institute is one of the most respected thinkers and essayists to grace our meeting lectern and we are delighted to bring him back to mark the publication of his latest work, American Nightmare: How Government Undermines The Dream of Homeownership.

In American Nightmare, O’Toole says Portland Metro is aiming to reduce Portland-area single-family homes from 65 percent to 41 percent … this is nothing short of a war on home ownership.  The author also inveighs against government subsidies for housing by illustrating how subsidies do more harm than good by actually making housing more expensive.

O’Toole contends that the elimination of both land use-regulation and subsidies would increase homeownership rates to nearly 75 percent!  Be there to meet this original thinker and enjoy what is guaranteed to be a lively, informative and, above all, a thought provoking presentation.

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Tear Down These Walls!

As a founder of Cascade, I was asked to speak at the fourth annual Oregon Tax Day Tea Party, this year held on April 14 in Clackamas County. Some 400 activists attended what turned out to be the most inspiring event of its kind since the Tea Party began organizing in 2009. For a full description and video of the event, go to www.OregonTeaParty.org.

 

I told the audience a human story from when the Berlin Wall fell in 1989. My friend Wall Street Journal editorial writer John Fund wrote about his encounter with four teenage girls while visiting East Berlin in 1984. As he prepared to board the train that would take him back to the West, John asked them what they wanted to be when they grew up.

 

“A schoolteacher, said one. A hairdresser, said another. A nurse, said the third. Only Monika, the oldest and clearly the wisest, hesitated. Finally, she sighed and said, ‘It doesn’t make any difference what we become when we grow up. We will still always be treated like children.’”

 

That statement made a profound impact on John. He noted how he could go anywhere in the world from that street corner, but these teenagers could not go 500 yards to see the bright lights of West Berlin.

 

They had to remain in “a semi-comfortable, but drab and kindergarten-like existence, in which independent thoughts were hidden from the government.”

 

John and Monika kept in touch over the next few years. Then, two days after the Berlin Wall fell on November 9, 1989, John’s phone rang.

 

There was the unmistakable sound of an overseas call. “This is Monika!” she shouted in halting English. “I am calling from Berlin West! I am over the Wall!”

 

Monika did not plan to flee East Germany. But now that the Wall was down, she could leave if the people who ran that government reneged on their promises of free elections and economic reforms.

 

John reminded Monika of their first meeting and asked if she felt she was finally being treated like a grownup.

 

“Yes,” she said. “I think everyone in my country decided for themselves to grow up overnight.”

 

I explained to the Tea Party audience that Monika knew what it was like to be treated like an adult by her government; but Americans are now being treated more like children, as the limited government our Founders gave us morphs into a behemoth. Activists like them must stand up and tear down the Walls of national programs like ObamaCare, and the Walls erected by local programs like “Smart Growth” that have overtaken Multnomah County and threaten to encroach into neighboring counties.

 

Many in the Tea Party audience were part of what is becoming known as the “Clackastani Rebellion” because of their efforts to defeat smart growth and light rail plans in cities like Damascus and throughout Clackamas County.

 

Cascade Policy Institute has helped educate Oregonians since 1991 about the benefits of freedom and liberty. We look forward to working even more closely with everyone who is committed to keeping our communities and our state from being encircled by our own, self-created Berlin Walls.

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Divorcing Lady Liberty

Numerous recent news stories have reported on high-net-worth Americans renouncing their U.S. citizenship to protect assets from high tax rates. Last Friday, a Wall Street Journal editorial suggested the U.S. government should not seek to “punish” ex-citizens through high “exit taxes.” Instead, Congress should work “to make the U.S. so appealing and dynamic again” that people will be “sorry [they] ever left.”

 

It seems unreal that citizens should find it in their interest to leave the United States of America. Our country and its material success were built by millions of the world’s “huddled masses, yearning to breathe free.” Men, women, and children have come to America for centuries in search of freedom, justice, and an upwardly mobile future that results from both. When the tax code is so punitive that Americans would relinquish willingly the rights and privileges of U.S. citizens, we know we have a problem.

 

Our tax policies should encourage entrepreneurs, investors, and individuals of financial means not only to come here but to stay. Yet, it bears remembering that our identity as Americans and our relationship with our country should have value to us beyond whether they are financially “worthwhile.” Americans have grown used to acquiring whatever we desire, but our American heritage can’t be purchased―and you can’t put a price on freedom. That’s why it’s a sorrow to see Americans choosing to go.

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John Charles talks with Victoria Taft about the Portland-Milwaukie Light Rail Project

Victoria Taft, radio host on KPAM 860, interviewed John Charles about his latest commentary, Transit Hypocrisy, which discusses TriMet’s Portland-Milwaukie Light Rail Project.

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Testimony Regarding TriMet Proposed FY 13 Budget

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.

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Legislative Testimony Regarding Public Purpose Tax

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?

 

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