Month: May 2014

Just Say No to the Oregon Opportunity Initiative

The cost of obtaining a college degree is rising rapidly, leading some people to advocate that taxpayers subsidize even more of the cost. They assume that the state will benefit economically if more of its citizens obtain higher educations.

And yet, as one researcher puts it, “One of America’s most durable myths is that the more people who graduate from college, the more the economy will grow.”[1] In fact, that conclusion may depend on how those educations are paid for. Richard Vedder, author of the book Going Broke by Degree,[2] found evidence that states which provide more higher education funding actually have slightly lower economic growth rates than states which provide less.[3] That is likely because individuals know their needs better than politicians do, so leaving the money in private hands produces better results.

Professor Vedder also concludes that 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[one] 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.”[4] This leads to even higher overall costs, just as it does in K-12 education and health care, both of which rely on a growing amount of funding from governments, rather than from consumers of the services.

Oregonians will vote on such a proposal this November. The Opportunity Initiative [Measure 86] was referred to voters by the state legislature at the request of State Treasurer Ted Wheeler.[5] It is a Constitutional Amendment allowing the state to issue General Obligation Bonds to create a permanent fund to subsidize student higher education costs. Principal and interest on the bonds will be paid back over 30 years out of the state General Fund, which means primarily out of the pockets of individual income tax payers. The fund will be invested, presumably at higher rates of return than the interest rate on the bonds, and the returns will be used to provide some form of student subsidies.

When first proposed in 2012, the initial “ask” of the legislature would have been to borrow $500 million.  The fund would be projected to grow to $6 billion in 30 years, primarily through investment earnings and some future borrowing. That “ask” has since been pared down to a possible $100 million in the first biennium.

Putting the questionable investment assumptions aside for now, this proposal is flawed for another reason. It assumes higher education costs will continue to rise into the foreseeable future. The recent housing bubble should remind us that, as good investment advisors warn, “trees don’t grow to the sky.” America’s large, growing student debt load may very well be the next great bubble. As more than one noted scholar says, America’s higher education industry “…is showing every indication of a bubble that is about to burst.”[6]

If the higher education bubble is about to burst, why should Oregon taxpayers be saddled with repaying perhaps $100 million or more in bond debt, plus interest, over the next thirty years?

What would make this bubble burst? There is a combination of possibilities, but one of the most intriguing is suggested by Opportunity Initiative chief sponsor Ted Wheeler himself. During a public talk last October, Treasurer Wheeler was asked if large donations to our universities for sports programs are properly used, and by inference if the money from the Opportunity Initiative would be properly used.[7]

The Treasurer first responded that if wealthy alumni want to donate to build sports stadiums, and the universities say they need them, he thinks that’s fine. Then, he said this:

“That said, I do criticize the university system for being very slow to adapt the opportunities around technology. 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.

[Pulling out his smartphone] “I have an entire program on my phone called iTunes University and I can listen to lectures from all around the world from some of the most noted academics in the world, and it doesn’t cost me a cent. All I have to do is have a long commute, which I do.

“And this is one example of—and I hate to use the word game-changer too much—but this undercuts the entire economic model of the university system as it currently exists today.”

To repeat, “this undercuts the entire economic model of the university system as it currently exists today.” This answer seems to undercut Treasurer Wheeler’s own arguments in favor of the measure. iTunes University is just one of many online higher education options available today, and more are coming tomorrow. [8],[9] If this technology will drive down higher education costs for students, why saddle Oregon taxpayers with perhaps $100 million or more of debt to subsidize the old, high-cost economic model? The answer is we shouldn’t.

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


 

[1]George Leef, “Higher Education: The Conventional Wisdom Is Wrong,” Forbes.com, 10-13-2013, forbes.com/sites/georgeleef/2013/10/17/higher-education-the-conventional-wisdom-is-wrong/

[2] Frank Donoghue, Richard Vedder on the Ills of Higher Education,” The Chronicle of Higher Education, 2-25-2011, chronicle.com/blogs/innovations/richard-vedder-on-the-ills-of-higher-education/28716

[3] Richard Vedder, “Going Broke by Degree:Why College Costs Too Much,”2004, pp 128-145, amazon.com/Going-Broke-Degree-College-Costs/dp/0844741973

[4]Richard Vedder and Matthew Denhart,“Why does college cost so much?”,CNN.com, 12-2-2011, cnn.com/2011/12/02/opinion/vedder-college-costs/

[5] Ted Wheeler, Oregon State Treasurer, “The Opportunity Initiative,” oregon.gov/treasury/AboutTreasury/Pages/Opportunity-Initiative.aspx

[6] Arthur C. Brooks, “My Valuable, Cheap College Degree,” New Your Times, 1-31-2013, nytimes.com/2013/02/01/opinion/my-valuable-cheap-college-degree.html

[7] 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 dot com/watch?v=l1hYXGA3CLA. Relevant question starts at 52:16.

[8] iTunes University, apple.com/education/ipad/itunes-u/

[9]“Massive open online forces,” The Economist, 2-8-2014, economist.com/news/finance-and-economics/21595901-rise-online-instruction-will-upend-economics-higher-education-massive

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Testimony to TriMet Board About WES Expansion

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

 

Board members:

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

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

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

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

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

Express Service from Wilsonville Station to Beaverton Transit Center

Operating cost/mile Operating cost/hour
TriMet Express Rail $43.74 $949.84
SMART Express Bus $   1.30 $   83.17

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

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

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

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

Sincerely,

John A. Charles

Cascade Policy Institute

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Should Portland Residents Pay Another Fee to Cover Basic Road Maintenance?

Portland Mayor Charlie Hales is proposing a new transportation tax for 2015. He claims this is needed to offset a decline in revenue.

However, the facts show a different story. Total revenue for transportation has been growing for decades. For example, from 1996-2007, Portland transportation revenue grew by 60%. According to the city auditor, that was the largest increase among all city agencies during that period.

Portland’s general fund has also been flush. Between 2003 and 2012, the amount of annual tax revenue the city received from each Portland resident increased from $2,292 to $2,656. Total property taxes grew by 27% during that time.

Despite all this money, the city’s streets are poorly maintained. The problem is that local politicians have preferred to spend vast amounts on frivolous toys like the eastside streetcar and Milwaukie light rail, rather than taking care of basic maintenance. As a result, transportation debt service has increased from 10% of discretionary spending to 20% in just the past four years. The charge card is getting maxed out.

Instead of demanding more tax dollars for shiny new objects, the City Council should maintain and improve the basic road network. If this task is too difficult, taxpayers should ask why we bother to have a city government at all.

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

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Report Questions Legality of Renewable Energy Certificates

PORTLAND, Ore. – Cascade Policy Institute issued a report today, questioning the legality of renewable energy certificates (RECs) and calling for the state Attorney General to investigate possible violations of the Oregon Unfair Trade Practices Act.

RECs are tradable commodities purporting to represent the “environmental amenities” of producing electricity from a select list of renewable energy sources. A REC is created electronically for each megawatt-hour of electricity produced by qualifying sources, and a unique number is assigned to the REC. It can then be bought or sold as a product that is either bundled with the actual electrical output of the facility, or sold separately.

However, nowhere in the transaction process are the so-called “environmental amenities” associated with each REC verified. The REC market is shrouded in secrecy; relevant data about individual RECs such as the power facility it is associated with cannot be obtained from utilities, REC brokers, or the Oregon Public Utility Commission. This is the major finding in the Cascade report entitled “Renewable Energy Certificates: A Costly Illusion.”This lack of transparency is a problem because not all “renewable power” sources are benign. Intermittent sources such as wind and solar require back-up power at all times to ensure reliability of the regional grid, and most of those sources create environmental problems such as air pollution or fish mortality. It is impossible for any consumer to know where their purchased RECs came from, and therefore impossible to know if there are any net environmental benefits.

“We believe that statements made by REC producers and brokers violate the Oregon Unfair Trade Practices Act by representing that the purchased RECs have benefits and qualities that they do not have,” Cascade’s President and CEO John A. Charles, Jr. stated in the letter to Attorney General Ellen Rosenblum.

There is no direct link in time or location between the payments a customer makes for “renewable” energy and the production of that electricity or its delivery to the customer paying for it. According to Charles, “The REC market is a Trojan Horse. Purchasers of RECs such as universities and businesses are buying these certificates to provide a ‘green glow’ for themselves, yet the alleged environmental benefits probably do not exist.”

In 2007, the Oregon legislature approved a law that would require at least 5 percent of power generated by electricity utility companies to come from “renewable resources,” like solar and wind power. This required percentage increases to 15 percent by 2015, 20 percent by 2020, and 25 percent by 2025. Instead of having to actually produce this electricity themselves, the law allows electricity companies to purchase or produce RECs.

The Cascade report recommends that the Oregon Legislature amend the 2007 statute to prohibit the use of RECs for compliance purposes if they are associated with intermittent power sources.

Click here to read the report.

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The Last Communist City: Havana or Portland?

It’s clearly a stretch to describe Portland as a communist city, but there is an eerie similarity between Portland and the real communist city of Havana.

 

Portland-based independent journalist Michael J. Totten recently traveled to Cuba to see for himself the Havana that most tourists never see. He published his fascinating account in a long column he titled “The Last Communist City.”

 

He explains what happens when “…one of the world’s richest countries…rather than rais[ing] the poor up…shoved the rich and the middle class down. The result was collapse.”

 

Among his many insights are these:

 

  • “In the United States, we have a minimum wage; Cuba has a maximum wage—$20 a month for almost every job in the country.”

 

  • “As for the free health care, patients have to bring their own medicine, their own bedsheets, and even their own iodine to the hospital.”

 

  • “Leftists often talk about ‘food deserts’ in Western cities, where the poor supposedly lack options to buy affordable and nutritious food. If they want to see a real food desert, they should come to Havana.”

 

Coincidently, last week The Oregonian published an editorial  critical of Portland’s almost fanatical (my word, not theirs) anti-Walmart policies.

 

I couldn’t help thinking that Totten’s insights about Havana should stand as a warning to those who support so-called social-investment and related policies in “progressive” Portland.

 

Read Totten’s column and then ask yourself whether Havana residents wouldn’t be much better off with a Walmart, or any similar store, in their midst.

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

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2014 Spring Newsletter

See what Cascade Policy Institute has been up to in the Spring of 2014 in our latest newsletter.

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How Jefferson Explained the Constitution to Louisiana Nuns

This week in 1804, Thomas Jefferson wrote to an Ursuline nun in New Orleans, who had asked him to clarify her religious community’s rights under U.S. law after the Louisiana Purchase. President Jefferson assured her that the American government would never interfere with the nuns’ property, ministries, or way of life.

 

Jefferson wrote, “The principles of the constitution and government of the United States are a guarantee to you that it will be preserved to you, sacred and inviolate, and that your institution will be permitted to govern itself according to its own voluntary rules, without interference from the civil authority.”

 

Two hundred ten years after Jefferson wrote that letter, a community of sisters who care for the elderly is defending in court their right to carry out their ministries in accordance with their faith. Under current federal regulations, the Little Sisters of the Poor don’t qualify for a religious exemption from the ObamaCare insurance mandate which requires most employers to provide contraception and abortion coverage.

 

Like the Ursuline nuns of Jefferson’s time, Catholic sisters today should not lose their religious freedom while working in their own ministries. We can imagine what Jefferson might think of American women having to sue the government to defend their First Amendment rights. But can we doubt he would be dismayed by how intrusive and coercive the federal government has become since the day he explained the safeguards of the American Constitution to a group of French nuns?

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

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ObamaCare Inflates Enrollment—And Premiums

By Sally C. Pipes

HealthCare.gov has officially closed and, despite months of technical hiccups, enrollment appears to have finished strong.

The Obama Administration estimates that 8 million people have signed up for coverage through the marketplaces. The president cited the figure as proof that “this law has made our health care system a lot better.”

Hardly. His enrollment numbers are artificially inflated. And the real rate of coverage may decline even further once consumers find out how much they’ll have to pay for insurance thanks to ObamaCare.

For starters, the administration’s 8 million enrollees include everyone who picked a plan—not just those who have actually paid for their coverage.

Insurers are reporting that 15% to 20% of those who have signed up haven’t paid their first premium. In other words, about 1.5 million people that the Administration counts as “enrolled” may still be uninsured.

Just because a consumer pays his first premium doesn’t mean he’ll make his second payment.

Insurance industry consultant Bob Laszewski has reported that 2% to 5% of enrollees haven’t paid their second month’s premium. If that sort of attrition continues, thousands of “enrollees” could end up uninsured before summer.

Further, many of ObamaCare’s 8 million enrollees previously had insurance—they just swapped out their existing policies for ones issued through the exchanges.

A recent RAND Corp. survey found that only one-third of exchange enrollees were previously uninsured.

The Congressional Budget Office reports that ObamaCare will spend $17 billion on exchange subsidies this year. A big chunk of that money will no doubt go to the two-thirds of exchange customers who previously secured coverage on their own.

Not exactly the wisest stewardship of taxpayer dollars.

Meanwhile, about a million of the 5 million people whose policies were canceled because they did not meet ObamaCare’s new rules remain uninsured.

The demographic composition of the exchange population also presents a problem.

Because the law forbids insurance companies from charging the old and sick more than three times what they charge the young and healthy, insurers must attract enough young, low-cost people to keep premiums down.

That hasn’t happened. Just 28% are between the ages of 18 and 34—well below the 40% the Administration said would be needed to keep ObamaCare’s exchange pools financially stable. It’s already clear that the exchange population is sicker than average.

According to a report from pharmacy benefit manager Express Scripts, exchange enrollees use 47% more specialty medications than the general insured population.

Demand for HIV meds is four times higher in the ObamaCare pool than in the existing commercial pool. Anti-seizure medication prescription rates are 27% higher.

Those drugs are more expensive. As Express Scripts puts it, “Increased volume for higher cost specialty drugs can have a significant impact on the cost burden for both plan sponsors and patients.”

Insurers will adjust to this reality by raising premiums. WellPoint predicts “double-digit-plus” rate increases across the country. In some areas premiums could go up 100%.

Cigna CEO David Cordani says his company has already brought up the coming “rate shock” with the Administration—and is pushing for changes to mitigate it.

ObamaCare’s exchanges appear to have survived their first enrollment period. But the government health-insurance platforms are far less healthy than the administration claims—and may crumble when they next open for business this fall.

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

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There’s a Sucker Born Every Minute

Last month, Oregon’s first commercial “wave energy” project near Reedsport was officially abandoned.

The lead developer, New Jersey-based Ocean Power Technologies, had been promoting a utility-scale power project featuring 100 buoys, each weighing 260 tons. That plan was downsized to 10 buoys―and then to none.

The company had previously received a subsidy of $430,000 in Oregon lottery funds, along with millions more from the federal government. Apparently, this wasn’t enough; the company announced plans to move its operations to Australia, where it has been promised $62 million in handouts by the government.

This is just the latest in a string of Oregon fiscal blunders. The state wasted more than $200 million on a non-functioning health insurance website. Another $180 million disappeared in planning studies for a bridge over the Columbia River than never got built. And Governor Kitzhaber hired an “education czar” who was compensated some $400,000 before taking off for New York after less than a year on the job.

Investors all over the world understand that Oregon is the place to come for easy money. The business plan is simple: Profits flow to private companies, while losses are bone by Oregon taxpayers.

A 19th-century circus impresario once remarked, “There’s a sucker born every minute.” He wasn’t talking about Oregon, but maybe this should be our new state slogan.

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

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Cover Oregon: Out of the Frying Pan

 

*This event is currently sold out. You can add your name to the waiting list by clicking the “Add to Waitlist” link in the Eventbrite registration box below.

 

Please join us for Cascade’s monthly Policy Picnic led by Cascade Policy Institute founder and senior policy analyst Steve Buckstein on Wednesday, May 21st, at noon.

Cover Oregon’s board has admitted its $200 million plus website failure, but the decision to move Oregonians to the healthcare.gov website could backfire big-time. Not only might the board not have the authority to pull the plug on Oregon’s health care exchange, but a federal court case threatens to deny Oregonians the tax credits that ObamaCare promised would make our insurance premiums “affordable.”  What else could go wrong?

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

Sponsored By

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