Author: Cascade Policy Institute

Transportation Finance Isn’t as Complicated as Legislators Make It

By John A. Charles, Jr.

Some members of the Oregon Legislature think you don’t pay enough to travel. Therefore, they are considering a 298-page bill that would create multiple new transportation taxes.

The draft legislation, HB 2017, includes dramatic increases to vehicle registration fees, higher gas tax rates, a new sales tax on the purchase of motor vehicles and bicycles, and a statewide tax on all employees to subsidize transit.

In addition, a percentage of money currently paid by customers of investor-owned electric and gas utilities would be diverted to subsidize electric vehicle owners.

Billions of dollars would flow to various bureaucratic entities, with little accountability. Those of us paying the taxes would hardly know we’re paying them, and we would have no idea how the money was being spent.

The legislative strategy of simply “throwing money” at transportation is not going to work, because it’s already been tried. For example, TriMet riders only account for about 10% of all revenue in the FY 18 budget; the rest of TriMet’s income is derived from various backdoor taxes.

The agency’s most lucrative income source is the regional payroll tax, authorized by the legislature decades ago. TriMet has been raising its payroll tax rate almost every year since 2005 and will continue to do so through 2024. As a result, the agency now collects over $366 million annually from employers to subsidize transit operations. Yet, in the first decade after tax rates began rising, TriMet service actually declined.

Much of the new money went to pay for generous union contracts rather than the promised service improvements. The result: In 2016, employee benefits equaled 123% of wages. In other years the ratio has been as high as 149%. This is not a finance model that we should emulate.

The best way to improve any kind of service is to have a tight fit between what we pay as consumers and what we get in return. If we don’t know the real price, we can’t evaluate the purchase. And if taxpayers are being forced to subsidize unrelated services, there can be no fiscal discipline.

A better option would be to euthanize this 298-page monstrosity and work to implement highly-targeted user fees. The social costs of travel such as congestion, road wear, and noise pollution vary considerably by time of day, direction of travel, weight of the vehicle, and other factors. The user fees that we pay should account for these differences.

Gasoline taxes and vehicle registration fees are poor user fees because they are fixed, mostly invisible, and not time-sensitive. But new technologies now allow us to collect the full cost of each trip in real time by all modes of travel.

Some auto insurance companies already collect detailed driving data because they sell mileage-based policies. Millions of American drivers also own toll tags for use in modern tollways. And many transit operators use digital technology to collect variable fees based on distance traveled, type of service, and time of day.

User fees should be precisely calculated, and revenues should be dedicated to maintaining and improving the services paid for by consumers, with no cross-subsidization of other modes.

Transportation finance doesn’t have to be complicated. Legislators only make it that way when they don’t want you to know where the money is going.

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 Makes the Case for Cities and Counties to Leave TriMet

A report released Monday by Cascade Policy Institute recommends that cities and counties within TriMet’s service jurisdiction consider leaving the transit district.

The study shows that TriMet’s ongoing financial crisis is not just a temporary problem, but a permanent one caused by a failed business model. The agency has one of the most expensive union contracts in America, and the managerial obsession with rail transit is cannibalizing bus service. These problems go back decades, and it’s now too late to fix them.

Due to these factors, TriMet will face annual service reductions beginning fiscal year 2017. Those cuts will slowly destroy the agency. State law has long allowed jurisdictions to leave TriMet, and six communities already have: Molalla, Wilsonville, Sandy, Canby, Damascus, and Boring. Four of those cities created their own transit districts. Based on these experiences, the Cascade study recommends that more jurisdictions consider opting out and create their own transit districts.

Cascade Policy Institute’s report shows that the four cities operating their own public transit systems have lower labor costs, lower payroll tax rates, no long-term debt, virtually no unfunded liabilities for retirees, and better service than they previously had under TriMet.

Services under TriMet have continually declined since 2005, yet the TriMet payroll tax is at an all-time high of 0.72 percent.

“With major TriMet service cuts projected for FY 17 and every year thereafter, jurisdictions still paying the TriMet payroll tax should begin investigating options for leaving the district,” says the report.

According to Cascade President John A. Charles, Jr., “When TriMet was formed in 1969, the expectation among supporters was that creating a single public monopoly transit provider would create economies of scale. Unfortunately, what we really created were ‘diseconomies of scale.’ TriMet’s business model is now permanently dysfunctional, and the evidence from opt-out cities is that ‘smaller is better.’ Cities such as Sherwood, Tualatin, Lake Oswego, and West Linn should not wait for the inevitable collapse of TriMet; they should actively begin assessing the prospects for creating their own transit agencies, either as stand-alone districts or in partnership with nearby communities.”

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Do You Feel Exploited by Apple? ― Why Freedom Shouldn’t Stop at the Classroom Door

By Steve Buckstein

Many areas of our lives are being revolutionized by technology. Those changing the fastest are the ones subject primarily to market forces. Those changing the least are the ones controlled primarily by government.

How many of us communicate with others at a distance today the same way that we did twenty years ago? In 1992 we all had telephones at home, but very few of us had mobile or cell phones. In 1992 a few of us had personal computers, but very few communicated through email, and the first public web browser was still a year or so away.

The cell phone and personal computer revolutions came very fast, propelled by advancing technology and a capitalist market that promised great wealth to those who successfully met our seemingly unlimited consumer demand for such offerings. No one was forced to pay for any of this; no one was exploited by any of it, either. We gladly paid hundreds of dollars for the communications tools of the future. The collective value we gained likely outweighed the billions of dollars that entrepreneurs like Bill Gates and Steve Jobs earned for themselves.

Now, how many of our children still get their formal education the same way they did in 1992? Virtually all of them. The public school system is owned and run by governments and paid for by tax dollars. The adults who receive those tax dollars have a huge financial interest in making sure that competition and innovation are kept to a minimum. The revolution in personal communications that has taken place over the last twenty years is barely a blip on the K-12 education scene―so far.

One man who foresaw an online education revolution was Lewis J. Perelman. In his 1992 book, School’s Out, he predicted that our brick school buildings eventually would be replaced by what he called “hyperlearning.” Remember, this was written before most of us had even seen the World Wide Web. One aspect of “hyperlearning” is today’s online charter schools―you know, the ones the teachers’ unions are so desperate to shut down.

Another aspect of “hyperlearning” is the recent advent of the non-profit Khan Academy, which now features literally thousands of online lessons about everything from basic math to physics to economics and government. All at no cost to the learners. Online. 24/7. From any computer or smart phone, anywhere in the world. Classroom teachers who aren’t fearful of such progress are embracing this new tool to help their students. But if it rises to the level of actually competing with, rather than complimenting, traditional classrooms, look for politically powerful teachers’ unions to do what they do best: act as the status quo lobby to restrict or even outlaw such competition with their dues-paying members.

Exploited by Apple?

One secret weapon in the online education revolution may be the kids themselves. Thanks to compulsory attendance laws, most of them must attend the brick school buildings closest to their homes. Last month I was invited to talk with a class of public high school juniors about the relationship between politics and economics. After laying out my case for capitalism, including how it can enhance learning through online schools, the teacher explained that he believed more in democracy and government than in the power of the marketplace. One example he used was his feeling of being exploited by Apple because until recently it only allowed him to place proprietary applications on his iPhone, thus increasing Apple’s profits. I pointed out that he was not forced to buy anything from Apple, even its phone, if he didn’t want to. There were, and are, plenty of competitors.

I explained that in a free market, when someone sells a product and another voluntarily buys it, both sides gain value. In the Apple case, for example, if he paid $200 for his iPhone, then he wanted it more than he wanted to keep his $200. Apple, on the other hand, would rather earn his $200 than keep that phone on its shelves. Both sides won. I told the students that when Steve Jobs died last year, he was worth some $7 billion, but he didn’t exploit any of his customers to earn that money. They freely bought what he had to sell.

I then asked the 30 or so students how many of them owned any Apple products, from iPods, to iPads, to iPhones. About 25 raised their hands. I asked how many of them felt exploited by Apple. Not one hand went up, and they laughed when the teacher again said that he felt exploited. That teacher has a monopoly on those students’ time every school day this year. But in an hour and a half, I was able to give them a lesson that hopefully will stay with them when they think about the benefits of capitalism versus government control of our economy―and of our education system.

Perhaps I should have suggested the students read Capitalism and Freedom, Milton Friedman’s classic book in which he argued that economic freedom is a necessary condition for political freedom. If I am invited back I will make that suggestion, but if not, my real-world example of how they have personally benefited from capitalism may be enough to start them thinking about what is wrong with their teacher’s pro-government view, and what is right with the free market.

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

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