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Why Record-Breaking Revenues Aren’t Enough

By Eric Fruits, Ph.D.

This week, Oregon is facing a one-day teacher strike, with educators demanding more money for schools. Also this week, the legislature will consider a billion-dollar-a-year sales tax on business. All this is happening in the face of record-breaking tax revenues.

Research published by the Pew Charitable Trusts shows that Oregon tax revenues are nearly 30 percent higher than the pre-recession peak. Only one other state has seen bigger growth in tax revenues.

But even a gusher in tax revenues can’t keep pace with government spending. Despite a booming economy with record low unemployment, the number of people on the Oregon Health Plan has nearly doubled from pre-recession levels. Over the same period, the annual cost of the public employee retirement system has grown by 60 percent, or double the rate of tax revenues.

Nearly every problem with state and local budgets can be traced to PERS costs and Medicaid expansion. Our budget problems are spending problems, not revenue problems.

While we recovered from the last recession, our elected leaders are making dangerous decisions today that will lead to devastation when the next recession hits. If our government can’t balance the books during a boom, we won’t survive a bust.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization.

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May 8 Should Be Declared “Fix PERS Now Day”

By Eric Fruits, Ph.D.

The Oregon Education Association is organizing a statewide walk-out May 8 related to what it says is inadequate school funding. What they’re really demanding is a $2 billion tax increase.

Districts across the state, including Portland, Beaverton, North Clackamas, Gladstone, and Eugene have canceled classes for the day, forcing working parents to stay home or line up day care for the strike. The teachers surely have their chants and songs already scripted for their rallies. But, there’s one slogan the teachers won’t be shouting. That’s: “Fix PERS Now!”

District administrators appear to be in support of the Oregon Education Association’s unauthorized strike. West Linn-Wilsonville superintendent Kathy Ludwig said, “OEA’s purpose with this rally is to send the message to all Oregonians that public school funding has been insufficient for decades and needs to be addressed.” A written statement made to the Portland teachers’ union by superintendent Guadalupe Guerrero reads: “Our educators and students deserve better. It is long overdue that we prioritize schools in Oregon.”

The claim that Oregon hasn’t prioritized public education is simply wrong. Portland Public Schools voters have approved nearly $1.3 billion in construction bonds since 2012. In 2011 and 2014, voters approved and renewed a local option property tax increase for Portland schools. Another renewal of the $95 million tax is expected to be on the ballot this year.

In Oregon, total expenditures per student were $13,037 in 2016, the most recent year for which information is available from the U.S. Census Bureau. Oregon is exactly in the middle of the state rankings of per student total expenditures. Six states, including Oregon, Washington, and California, have per student spending that is within five percent of the national average. Total expenditures include salaries, employee benefits such as health insurance and PERS, supplies, and debt service, among other things.

According to the state’s Legislative Revenue Office, annual state and local education spending in Oregon has increased by about $1.7 billion over the past ten years. This amounts to $2,350 in increased spending per student and has greatly outpaced the rate of inflation.

Despite a booming economy with increased tax revenues and funding for schools, many districts claim they are facing a funding gap. Beaverton expects to cut more than 200 teachers. Portland plans to eliminate 45 classroom teaching positions and combine many fourth and fifth grade classrooms. These announcements raise the question: Why are districts cutting staff in the face of rising revenues?

PERS and other benefits are the biggest drivers of Oregon’s education finance problems. The cost of paying for public employee retirements has doubled over the past ten years. In 2009, school districts paid approximately 15 percent of payroll to fund PERS. The latest estimates indicate next year, districts will have to pay 30 percent of payroll. The increased cost of PERS alone in the next biennium would cause the average class size to increase by two to four students per classroom.

It gets worse. In reaction to earlier PERS crises, many school districts took on additional debt to reduce their PERS obligations. The interest payments on the bonds are taking money out of classrooms. Census data indicate Oregon schools pay almost $600 per student per year in interest payments alone, making it the fourth highest state in per student interest payments.

The OEA claims it’s seeking more spending to reduce class sizes and improve graduation rates. However, the Oregon Business Council calculates PERS will consume much of the $2 billion in tax increases under consideration by the legislature. Without meaningful PERS reforms, Oregonians will face decades of multi-billion-dollar tax increases every time the legislature meets.

The frustration of teachers is understandable. They are on the front lines of education. However, walking off the job is the wrong approach and sets a poor example for students. It punishes pupils, parents, and employers for our politicians’ failure to fix PERS. It also misses the mark strategically because the legislature doesn’t have any more money, and neither do put-upon taxpayers. Parents who are forced to stay home to watch their kids on May 8 should take them on a field trip to the OEA’s rallies with signs of their own, reading, “No New Taxes—Fix PERS Now!”

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Florida Legislature Gives 18,000 More Children the Chance for a Great Education

By Kathryn Hickok

This week, the Florida legislature passed a bill that would create a scholarship program for lower-income families called the Family Empowerment Scholarship. The Family Empowerment Scholarship will provide lower-income children with scholarships equal to 95% of the state portion of funding to school districts. The Family Empowerment Scholarship is expected to be signed into law soon by Governor Ron DeSantis.

The Family Empowerment Scholarship will complement Florida’s other parental choice programs, the McKay Scholarship for children with special needs and Step Up for Students for children from low-income families. According to the American Federation for Children, which promotes parental choice in K-12 education, the parents of more than 170,000 Florida children wanted to apply for 100,000 scholarships available through Step Up for Students for the current school year. By authorizing 18,000 new scholarships in its first year, with a subsequent annual growth rate of 7,000 per year, the new Florida law will increase the education options available to low-income Florida parents.

Oregon should take a serious look at the diversity of parental choice options low-income families now have in states like Florida and across the country. It’s time for Oregon to expand the role of parents choosing―and schools delivering―better education through school choice, because every child deserves a chance for a successful school experience and a better future today.

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

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A Trio of Terrible Bills for Oregon Employers

By Eric Fruits, Ph.D.

Apparently, there is no limit to the Oregon legislature’s disdain for businesses and other employers. This disdain is demonstrated in three bills that seek to saddle employers with expensive mandates and expansive regulations that will smother job opportunities, stifle employment growth, and do little improve the everyday lives of most working Oregonians.

Paid family leave

Oregon’s legislature is currently considering HB 2005, which would turn family and medical leave in Oregon into a universal benefit that would pay out a portion of an employee’s wages while they are out of work because of a difficult pregnancy, a serious injury or illness, a family emergency, or the birth or adoption of a child.

Under the bill, also known as the FAMLI Equity Act, family and medical leave would be paid for by a state insurance program. Workers and employers would each put up to one percent of an employee’s wages in a state-run insurance fund. Employees on leave would be eligible for benefits equal to some or all of their salary. Beginning in 2022, employees would be able to take up to 22 weeks of paid leave:

  • Four weeks for pregnancy, if the employee is completely unable to work due to pregnancy or childbirth;
  • Eight weeks for medical leave, which could also be used to care for a family member who is seriously ill; and
  • Ten weeks for parental leave, for use only in the year after a child’s birth, adoption, or foster placement.

The program applies to just about any firm with one or more employees, even the self-employed. Although the proposal has been amended to provide state grants up to $3,000 to help small employers while a worker is out on leave, the program would be especially costly and burdensome for small employers who do not have the ability to shift staffing or hours to cover workers who are out on extended paid leave. It will also be costly and burdensome for employers with highly specialized workers who are difficult to replace on a temporary basis.

So far, no one knows how much employers or employees would have to contribute to the fund (the bills says “not to exceed one percent of employee’s wages”), how much it would cost to run the program, or how much it would cost to set up the program. A simple back-of-the-envelope calculation suggests this will be a very expensive program. At two percent of payroll—one percent for the employer and one percent for the worker—the cost for the average Oregon employee will be more than $1,000 a year.

In addition to payroll taxes reducing their incomes, employers will be less inclined to take on new employees, especially if those potential employees are deemed likely to take paid leave. Employees will see smaller paychecks, either directly through payroll deductions to pay for the program or in lower pay to account for costs imposed on their employer.

Medicaid payroll tax

HB 2269, also known as the Employer Health Care Responsibility Act, requires employers with more than 50 workers to spend at least 50 cents per work hour per employee for employee health care. If employers do not provide health insurance coverage, they must provide the 50 cents per hour per worker on either direct spending for worker health care services or by paying into a state government fund. The bill is a major component of Governor Brown’s tax package to support expanding Medicaid.

This tax would be in addition to the two percent sales tax surcharge on health care premiums paid by many Oregon employers under HB 2010, which was signed by the governor earlier this year.

As written, the legislation does not consider the common cases in which a worker may not have insurance through his or her employer but may have coverage through a spouse or parent. It also does not consider the cases in which a worker rejects insurance from the employer, often in exchange for higher take-home pay.

The end of independent contractors

 One way employers can avoid some of the costs of the paid family leave program and the Medicaid payroll tax would be to rely more heavily on independent contractors. However, HB 2498 could eliminate this option. This bill would reclassify many, if not most, independent contractors as employees. It says that if the contractor performs services that are “within usual course of business” of the firm hiring the contractor, then that contractor is deemed an employee of the firm.

A hairdresser renting a chair in a salon would be deemed to be an employee of the salon. Uber and Lyft drivers would be deemed employees of the ride-hailing companies. Even lawyers working part-time as outside counsel would be deemed employees of their client firms. While these newly deemed “employees” may receive benefits as employees rather than contractors, they would also lose the ability to determine when they work, where they work, and even how they work.

Well-meaning policies have a tendency to backfire, even if polling says the policies are popular. Too often, the polls fail to put a price tag on the policies. When the price tag includes substantially higher taxes and diminished opportunities for work, programs such as Oregon’s proposed paid family leave and Medicaid payroll tax bills end up harming far more people than they help.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Wind Energy is Just Hot Air

By Miranda Bonifield

TriMet recently announced its first “zero-emission” bus is ready to roll, claiming that wind-powered buses are cleaner and easier to maintain. But the reality is that electric buses are dirtier and more expensive than traditional buses.

Wind and solar energy are both known as “intermittent resources” because both kinds of energy farming have long time periods when they don’t generate any power. Unfortunately, energy can’t just be stored like other commodities—as soon as it enters the power grid, it has to travel directly to the end user. There must be a constant supply to meet demand, or customers will not receive power reliably.

During unproductive periods (for instance, when wind turbines aren’t turning) renewable energy farms are forced to rely upon ordinary fuel. But because these periods are unpredictable, the backup has to be running even when power is being generated. Research has indicated as much as a 1% increase in traditional fuel use for every .88% increase in the long-run share of renewable energy. In other words, this supposedly clean energy uses more fuel than it replaces.

It would be far more reasonable for TriMet to focus its energy on improving existing services rather than purchasing buses which are more than twice as expensive and may break down six times as frequently. The claim that wind-powered buses are more efficient for Oregonians is just a bunch of hot air.

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

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There’s No Such Thing As a Free Government

By Miranda Bonifield

April 16 was the first day of 2019 where the money Americans have earned finally exceeded the portion of our income dedicated to the support of the government. Tax Freedom Day is an annual reminder of the real cost of expanding government’s power and responsibilities. The $5.2 trillion we spend on taxes in 2019—29% of our income—will outpace our spending on food, clothing, and shelter combined.

Unfortunately, this is only what we’ll pay this year—not what the government will spend. If annual federal borrowing were taken into account, Tax Freedom Day would fall on May 8, meaning we would work nearly half of this year to support government programs.

Americans have handed the government an ever-growing share of our money in exchange for the promise of a chicken in every pot and a roof over every head. But prosperity is not preserved and poverty is not prevented by government spending. Rather, it is the everyday Americans who work and innovate every day to create value for ourselves and our communities who are responsible for the opportunities we can all take hold of.

Next time you’re asked to approve a tax increase, ask yourself how many days you’re willing to work to fuel government programs, and how many you’d like to work to support your family.

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Testimony Before the Joint Subcommittee on Capital Construction HB 5005

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. 

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

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Road Widening, Congestion Pricing Can Improve Metro-Area Drive Times

By Eric Fruits, Ph.D.

I’ve got a big family, which means we do a lot of laundry. With our old appliances, we were doing a load a day and there was a backlog of dirty clothes.

When our old washer and dryer went kaput, we decided on an upgrade. I bought the biggest, most energy efficient washer and dryer I could afford. I figured with bigger loads, we’d be doing fewer loads. But in some ways, I was wrong. Sure, the new washer and dryer could hold a lot more laundry, but we were still doing about a load a day.

However, something changed: The backlog of dirty clothes disappeared, and our utility bills decreased. Even though we are still washing clothes every day, we are washing more clothes more cheaply than we were before. Where it used to take three hours for a complete wash-and-dry cycle, now it’s closer to two hours. Those new appliances made our day-to-day lives measurably better off.

In Portland, the Oregon Department of Transportation is in the process of widening I-5 through the Rose Quarter, which has been named one of the worst bottlenecks in the country by the American Transportation Research Institute. ODOT forecasts the improvements will save more than 2.5 million hours of travel time each year and reduce crashes by up to 50 percent. For example, the current “worst” stretch (I-5 southbound, from the Going on-ramp to I-84 eastbound off-ramp), will see travel times drop 15-30 percent. Over a typical work year, that would save a commuter more than 20 hours of time stuck in his or her vehicle. Many, if not most, commuters through the Rose Quarter will be measurably better off because of this project.

Despite these anticipated benefits for commuters, opponents of the I-5 project claim that increasing highway capacity will increase congestion. They invoke a concept they call “induced demand,” arguing that wider roads “induce” people to drive more, leading to more traffic and ultimately even worse congestion than before the improvements were made. It’s much like arguing that I’m worse off because my new washer and dryer can handle more laundry than my old klunkers.

Critics of the project tend to confound traffic with congestion. Traffic is the number of vehicles or vehicle miles travelled. Congestion involves speeds or travel time. A road can have a lot of traffic and little congestion. Similarly, a road with relatively little traffic can be highly congested—such as streets around a neighborhood school in a residential area during drop-off and pick-up times.

To be sure, improvements around the Rose Quarter will increase traffic on I-5 and I-84. Some of that traffic will come from more people driving. But some of that traffic will be the result of people choosing to use the highways instead of taking arterials or residential streets, which will reduce congestion on these increasingly clogged roads. If it’s cheaper in terms of time to take a highway rather than an arterial, people will choose the highway. That’s not “induced” demand, that’s plain old vanilla demand. Lower prices lead to higher quantity demanded.

The Rose Quarter highway improvements are to be combined with a congestion pricing program that will further improve traffic speeds and travel times. Done properly, such pricing discourages driving when congestion is most likely. Anyone who has used Uber or Lyft has experienced congestion pricing with the services’ “surge pricing,” in which fares increase when demand for rides exceeds the number of drivers at a particular time. Congestion pricing smooths the timing of trips to foster a faster flow of vehicles.

The benefits of road widening are readily visible here in Portland. Last year, a newly completed auxiliary lane on I-5 southbound from OR 217 to I-205 removed a frustrating bottleneck. According to ODOT, that stretch of road went from five hours of afternoon rush-hour congestion to one hour a day of congestion, during the afternoon commute. OR 217 went from four hours of congestion to zero hours of congestion. I’m sure no one is sitting in their car on I-5 or OR 217 saying, “I really miss all that congestion.”

The Portland region is adding more than 30,000 people each year. Our transportation system needs to keep up with the influx of new residents, workers, and business activity. It’s this growth that’s inducing the demand for more and better roads, and the region needs to meet that demand.

Eric Fruits, Ph.D. is Vice President of Research at Cascade Policy Institute, Oregon’s free market public policy research organization. A version of this article appeared in The Portland Tribune on April 25, 2019.

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