Month: June 2014

U.S. Supreme Court rules that freedom of association trumps public sector union demands

The U.S. Supreme Court today ruled in Harris v. Quinn that home health care workers in Illinois cannot be forced to pay public sector union dues because that violates their freedom of association as protected by the First Amendment. The decision should help similar workers in Oregon who are being forced to pay dues to the state’s largest public sector union, SEIU.

The Court ruled that requiring in-home health care workers to pay so-called “fair share” fees for public sector union collective bargaining costs violates their constitutional rights by compelling them to associate with the union. The Court has previously found that freedom of association is an essential part of Freedom of Speech, which is protected in the First Amendment.

Even though it is narrowly crafted, today’s decision should apply to other states like Oregon in which public sector unions are allowed to force in-home health care workers to either join their union or pay “fair share” dues. And, the arguments used by the Court to uphold the constitutional freedom of association rights of home health care workers should be expanded in future cases to workers in general who object to being forced into paying fees for union services they don’t want.

In Oregon, for example, more than 30 percent of union households would opt if they could, and some 30 percent of SEIU public employees have already opted out of membership but are required to pay “fair share” dues for collective bargaining costs. While today’s Court decision may not free them from that financial burden, it will bolster the case that their freedom of association is being violated. At some point, the Court will need to further clarify who can and who cannot exercise their First Amendment rights when faced with paying fees to an organization they would choose not to support.

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Private Lenders Could “Pay-It-Forward” in Oregon

By Everet Rummel

The Oregon Higher Education Coordinating Commission is proposing a pilot program called “Pay-It-Forward.” Oregon residents could attend an in-state public university or community college tuition-free in exchange for paying a portion of their income annually for 20 years after graduation. The program, set to cover 1,000 students, is projected to cost the state between $5 million and $20 million per year for the next 20 years before becoming self-sustaining.

Proponents of “Pay-It-Forward” want to alleviate the problem of overwhelming student debt loads and make a college education more affordable. But should taxpayers cover students’ tuition when they are already directly funding public universities and student aid programs? Instead of microscopic pilot programs that throw more public money at the problem of rapidly rising tuition, there is a potential private solution to help finance higher education.

Milton Friedman originally proposed the concept of human capital contracts (HCCs) for the purpose of financing higher education. HCCs are privately funded financial instruments through which students receive funding for their tuition. In exchange, they pledge to pay a set percentage of their income annually for a set period of time after graduation. If they are ever unemployed or unable to pay, then they pay nothing until they have an income. If the payback period ends before the student has paid back the entirety of the sum loaned, the rest of the debt is forgiven. HCCs would go far beyond publicly funded “Pay-It-Forward”-type programs and traditional student loans by incentivizing informed educational decisions, forcing institutions to compete by controlling costs, and transferring financial risk to those who are better able to bear it.

HCC rates, the percentage of income that students must pay annually, and funds loaned would vary by the school attended, program of study, and academic achievement. Students attending schools and programs whose graduates tend to do poorly in the labor market would face lower rates but fewer funds. Students with lower academic achievement may have access to less funding. Those attending more expensive schools would receive more funds and higher rates only if their expected earnings are high relative to the costs of the education. Thus, rates and funds would incentivize students to seek more bang for their buck. Institutions, no longer reliant on seemingly unlimited government (taxpayer-funded) aid, would have to rein in costs and focus on improving academic quality. In sum, the availability of HCCs alone would tell consumers a lot about the economic value of various degree programs.

Most importantly, risk and financial burden would be borne by borrowers and lenders, not the state and taxpayers. The majority of the risk would be transferred to lenders, who are in a better position than student borrowers to bear it. Meanwhile, students would be free to pursue their chosen career paths without worrying about fixed monthly payments that could ruin their future financial prospects. The risk of default would be arguably lower than what we face now. These points should be remembered as policymakers in Oregon and across the country consider the crisis of higher education debt. Perhaps the market―not the government―has  solutions. Human capital contracts may be one of them.


 

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

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Portland Should Be Fair to Taxis by Setting Them Free

By Everet Rummel

This issue affects almost all city-dwellers, and cities around the world are taking action. Some view it as their own livelihoods being at stake. It has even sparked mass protests in Europe. The issue? Whether or not cities should allow Uber, and other GPS-based ridesharing services, to operate within their jurisdictions.

Ridesharing apps like Uber and Lyft connect commuters with certified drivers willing to offer rides for a fare. The idea sounds innocent enough, but Portland and other cities strictly limit the number of taxis and for-profit drivers who are allowed to operate, how small each cab company can be, and how much or little they can charge.

Across the U.S., governments have rushed to regulate ridesharing and sometimes ban it altogether. California has warned ridesharing companies to stay clear of the airports. Virginia and Austin, Texas have banned them completely.

The European protesters claim it isn’t fair that ridesharing services can operate unregulated, while taxis are heavily regulated; the playing field isn’t level. And they’re right. But rather than cooking up expensive regulations and restricting taxis and ride-sharers in cities, which hurts customers, let’s make taxi and ridesharing drivers free to operate and earn a living. Let’s deregulate so more drivers are on the road and more customers are getting rides. As Portland and other cities consider allowing Uber to operate legally, we should keep these points in mind.


 

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

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“Pay-It-Forward” Is a Step Back

By Joel Grey

The Oregon Higher Education Coordinating Commission is considering a proposal called “Pay-It-Forward.” This pilot program would give free tuition at a state university to one thousand high school graduates each year, beginning in 2016. In exchange for free tuition, students would cede 3-5% of their paychecks over a twenty-year period. Although the program is intended to become self-sustaining, it would cost between $6.5 and $20 million each year for the first twenty years until that happened.

This is an example of a government proposal that is not well thought out. Yale tried a similar experiment in the 1970s and eventually forgave much of the debt years later. Many students overpaid for their education, while 20% defaulted. Oregon shouldn’t repeat Yale’s mistake.

Furthermore, having a third-party payer for college reduces students’ incentive to decide whether to attend college or to pursue other options, like technical schools. It also makes students less sensitive to the prices of institutions, likely increasing the cost of college over the long run.

Education should be an investment, but students and their families should invest and then reap the benefits. That way, talented students can succeed based on merit, rather than government funding students at great cost to taxpayers, with no guarantee a pilot program like “Pay-It-Forward” will work as intended.

Government simply can’t make decisions as well as the individuals who are affected by those decisions.

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

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Friedman Legacy Day 2014

Cascade Policy Institute cordially invites you to participate in this year’s Friedman Legacy Day. This annual, international event provides fans of Milton Friedman and lovers of liberty the opportunity to learn about the late Nobel laureate, to share his ideas, and to celebrate the impact they had on our country and the worldwide movement for freedom.

4 pm – 5 pm Policy Picnic on Milton Friedman with Steve Buckstein (SOLD OUT. Register below for our main event!)

5 pm – 7pm Complimentary food and beverages

We will also be holding a book fair and video showing!

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Are You Being Scammed on Your Electric Bill?

During the past decade, it has become popular for individuals, businesses, and universities to brand themselves as “green power” supporters. Some have done this by installing actual generating facilities such as solar panels. However, for most people, this is too costly, so a new option has arisen for them: renewable energy certificates (RECs).

A REC is not a physical thing. It is simply an accounting mechanism purporting to represent the “environmental amenities” associated with one megawatt-hour of electricity generated at certain qualifying facilities. Every time a megawatt-hour of power is produced, the electricity is sold as one commodity, and a REC is created as a separate commodity. The two are not necessarily sold at the same time, or to the same buyer.

What are these “environmental amenities”? No one actually knows. To take a hypothetical example: If you bought a REC associated with a new hydroelectric facility, a potential environmental benefit would be the lack of air pollution from that facility. But the hydro dam probably would have several environmental “disamenities” such as fish mortality and loss of recreational opportunities to river users. The net effect might be zero environmental gain, depending on how one values the trade-offs.

The question becomes much more complicated for intermittent sources such as wind and solar. Since those generators don’t produce any useful output most of the time, they must be continually backed up by other sources (known as “spinning reserve”). This is a requirement of the electrical grid, where electricity demand and supply must be in equilibrium at all times to avoid blackouts.

If wind and solar facilities must be backed up, then in order to quantify the “environmental amenities” of an individual REC, we would need to know exactly where the back-up came from. In order to learn more about this last year, I assigned a number of bright college students the task of identifying specific RECs (by the unique number assigned each one) and then investigating what sources (if any) were being used as spinning reserve. It turns out that finding such information is impossible. We asked electric utilities, REC brokers, and state utility regulators. All denied our requests.

The contrast between the green energy field and the “sustainable agriculture” industry on this point is stark. If you walk into almost any fine restaurant or supermarket and ask where the produce or beef came from, the information will be readily available. In fact, managers are likely to launch into an extended dissertation about the virtues of “local sourcing,” “organically grown” crops, and “humanely raised” animals.

However, if you ask similar questions about the qualities of a REC you just purchased, you will hear the sound of silence.

The evidence shows that RECs are actually a fake commodity, created out of thin air, and that consumers who purchase them are being bilked. This is all documented in a Cascade report released in May.

As a follow-up to this research, Cascade has asked Attorney General Ellen Rosenblum to investigate the REC market for fraud under the terms of the Oregon Unfair Trade Practices Act. As of this writing she has yet to respond.

In the meantime, consumers would do well to steer clear of the REC scam. A prominent circus promoter once claimed, “A sucker is born every minute.” There is no need to be part of the evidence that proves him right.

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

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Oregon’s Self-Service Gas Prohibition Probably Won’t End—But It Should

Only two states prohibit motorists from pumping their own gasoline: New Jersey and Oregon. I’m not sure what excuses the powers-that-be use in New Jersey, but here they in-effect warn that “you’ll set yourself on fire.” The ban went into effect in 1951, and the only attempt to end it failed at the polls in 1982.

The Oregonian published a provocative editorial last week making fun of our self-serve ban, but prohibitionists came out of the woodwork to make argument after argument in favor of keeping the ban.

The three most popular arguments for keeping the ban seem to be:

I don’t want to pump my own gas, so you can’t either;

The ban is a good “make-work program” that keeps people employed and tax revenue flowing; and,

Employing attendants doesn’t make our gas more expensive anyway.

First, I don’t want to pump my own gas either, but that doesn’t give me the right to prohibit you from pumping yours. If there is enough demand for station attendants, someone will fill that demand in a free market.

Second, sure, creating jobs is a good thing. But government “make-work programs” often misallocate resources, costing taxpayers more than any tax revenue they might generate.

And third, if labor costs have no impact on prices, then why not mandate one attendant for every pump? Or, mandate one checkout clerk for every customer at the grocery store? Lots of jobs will be created at apparently no cost to consumers; what could go wrong?

In short, it seems that too many Oregonians see our self-serve gas ban as something that makes our state unique. The ban probably won’t end, but it should.

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

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Seattle's $15 Minimum Wage: A Wolf in Sheep's Clothing

By Erin Shannon

On June 2 the Seattle City Council made Seattle the first city in the nation to mandate a $15 minimum wage for all workers. But far from being a victory for workers, a super-high minimum wage is likely to cause more harm than good by destroying businesses and reducing workers’ options.

Effective April 1, 2015, all businesses must pay $10-$11 per hour, with the remainder of the $15 wage phased in over seven years for small businesses (those with less than 500 employees), and three years for large businesses (those with 500 or more employees).

While supporters of the $15 wage say it will have no negative impact on the city’s employment or economy, the reality is it is already killing jobs. Some business owners in Seattle say they are holding off on opening new business or expanding their current business, delaying plans to hire new workers and even moving into neighboring cities. In SeaTac, where some employers have been paying a mandated $15 minimum wage for six months, the benefits workers used to receive have been reduced or eliminated and prices have increased for consumers.

Restaurants, in particular, will be hit hard by Seattle’s new wage. The Puget Sound Business Journal reports that one restaurant owner calls the $15 wage a “mortal threat” and has halted plans to open another location. The CEO of a restaurant chain says his company is also holding off opening new locations in Seattle, and will likely be forced to reduce employees’ health benefits. The company currently offers health care coverage to employees who work at least 25 hours per week, but that may now be increased to 30 hours per week. That company will also likely eliminate tips for servers, and instead automatically charge customers a service charge or gratuity that would be split between servers and other restaurant staff, such as kitchen workers.

And it is not just Seattle workers who are losing potential jobs and reduced benefits. In a twist, the $15 wage is impacting job creation and worker benefits in other cities.

A pizza franchise with 11 locations, six of which are in Seattle, that employs 430 workers has tabled plans to open another location in Lynnwood over concerns the new location and its new jobs would bump the company into the “big business” category. Under the new law, “big businesses” have a shorter phase-in of the high wage; they must begin paying all workers $15 over the course of three years. By

staying under the 500-employee threshold, the company remains a “small business” and has up to seven years to phase in and adjust to the new wage for its six Seattle stores. That is 70-plus jobs workers in the city of Lynnwood just lost.

The company that says it may reduce health benefits in response to the $15 wage would have to do so for all of its workers, even those outside Seattle. Federal law requires companies to offer the same health benefits to all employees. So if the company is forced to increase the threshold to qualify for health benefits in order to offset the new high wage of employees in Seattle, it must increase the benefit threshold for all employees, including those earning a lower minimum wage in other cities.

The CEO of the chain restaurant warns that many small, mom-and-pop businesses will go out of business as a result of the increased labor costs: “Successful downtown restaurants will find a way to make it work, but smaller restaurants will die.”

This sentiment is echoed by the CEO of CKE Restaurants, which owns Carl’s Jr. and Hardee’s. Andy Puzder, author of the book Job Creation, says the push for a higher minimum wage is the one of the greatest threats facing restaurants: “I think you’ll see a lot of restaurants closing. I don’t think that restaurants can operate profitably if they’re paying a $15-an-hour minimum wage.”

Some of Portland’s leaders want to imitate Seattle, but they should think again. Those who support higher minimum wages may not have bad motives, but good motives in support of bad policy still result in driving job creators out of our communities and hurting the very people they want to help.


 

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

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Understanding Oregon’s Common School Trust Lands and the Financial Crisis on the Elliott State Forest

Please join us for Cascade’s monthly Policy Picnic led by Cascade Policy Institute President and CEO John A. Charles, Jr. and attorney Katie Walter on Thursday, June 26, at noon.

The Common School Trust Lands serve as an endowment fund for Oregon’s public schools. Unfortunately, the most valuable asset within the Trust Land portfolio – the Elliott State Forest – lost $3 million during 2013. This seminar will discuss the history of the Trust Lands, the legal requirements to manage them for the benefit of students, and the crisis on the Elliott State Forest.

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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What Should Have Happened with Cover Oregon

By now, people around the country know our state’s attempt to create a health insurance exchange website was a colossal failure. Fingers of blame are pointing in all different directions; and last month the U.S. Attorney’s office issued broad subpoenas seeking information from Cover Oregon and the Oregon Health Authority about who did what, who knew what, and when.

On May 29 Governor John Kitzhaber spoke at a legislative committee hearing to announce that he blamed the prime website contractor, Oracle Corporation, for failing to deliver a working website. He asked Oregon’s Attorney General to consider suing Oracle to “get our money back.” Of course, the money he’s talking about isn’t really “our money” because we got it from the federal government. And, that same federal government is considering whether to ask Oregon for “its money” back as well.

Later in that same hearing, Oregon’s new Chief Information Officer made an interesting observation.* Alex Pettit wasn’t here when Cover Oregon began its long march toward failure in 2011. Legislators asked him if anything would have been different if he had been overseeing Oregon’s IT projects back when the ObamaCare state exchanges were being born.

Mr. Pettit discussed how he viewed such big IT projects, how he evaluated them, and how he decided if they should proceed or not. He noted that, as Governor Kitzhaber and others have admitted, Cover Oregon was a very ambitious project with a very broad scope. Pettit said that to be successful, such projects must instead have a narrow scope.

He explained that since he came to Oregon in January, he has acted to slow down other big projects until they met his criteria, even though they might be priorities of the Governor as Cover Oregon was. He then explained that in 2011 he was the Chief Information Officer in the state of Oklahoma when it applied for and received a $134 million federal grant to build that state’s health insurance exchange.

Pettit noted that his team evaluated the proposal for the Oklahoma exchange and they decided that “We did not have the capacity to do this.” And so, as he told Oregon legislators, they “sent the money back.”

If Oregon officials had made a similar decision in 2011, we wouldn’t be where we are today, having spent some quarter billion tax dollars on a project that caused nearly everyone involved nothing but grief and heartache. In the future, let’s hope that we follow Mr. Pettit’s advice when he or his successors determine that we should simply “send the money back” or, better yet, not ask for it in the first place.


 

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

* Audio of the entire Joint Committee On Legislative Audits, Information Management and Technology (5-29-14) hearing is here:http://www.leg.state.or.us/listn/archive/archive.2013i/JLAIMT-201405291400.ram

The questions leading to Mr. Pettit’s answer about what happened in Oklahoma begin at about 1:48, and his answers run to about 1:55.

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