Month: January 2017

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Economic Tsunami

Oregon State Legislature sent this bulletin Wednesday, January 30, 2019 by devadmin

Last year, Oregon’s Public Employee Retirement System (PERS) extracted roughly $1,400,000,000 ($1.4 billion) in contributions from tax-payers to fund state employees’ pension benefit programs. Over that same period, it paid out $4,700,000,000 ($4.7 billion) in pension benefits to state employees. (See Figure 1.)

Any bookie would recognize a lame horse when they saw it. Namely, PERS had a negative cash flow of $3,300,000,000 ($3.3 billion) during that one-year period and the problem is getting worse.

One would think that a negative operating cash flow of this size, shape and demographic velocity would be seen as a bad omen and everyone would be worried. Yet, no serious reforms can even get traction because everyone is bogged down in language about fairness, safety, inclusion and the need to fulfill promises.

Yet when the trestle bridge gets overloaded because everyone wants off the island at the same time, a lot of people will get hurt.

In this environment it’s hard to project the details lying dormant within the blue-sky assumptions undergirding the PERS system. Even more difficult to grasp is the catastrophic potential that these assumptions mask when market events slowdown causing liabilities to balloon.

In a recent Oregonian article, Allen Alley, a past gubernatorial candidate, inventor and technology investor, suggested that policymakers should start looking at the actual cash flowing out of the system. Alley calculates, that the 4.1 million tax-payers will owe $225,000,000,000. ($225B) for state employee retirement benefits over the next three decades.

Although PERS, as an issue, is always present, it is treated like a heavy punching bag in the corner at the gym–it gets ignored. Unfortunately, our governor’s top two policy goals aren’t related to PERS. They are revenue, staff, and policy issues that grow government and eventually worsen the tax-payer burden while ignoring the economic reality barreling straight at all municipal, county and state governments across the US.

All public sector retirement plans, and most private sector plans, carry unheard of levels of unfunded actuarial accrued liabilities (UAAL). The public pension crisis has been intensifying for quite some time and state governments are unwilling to go to the bag. This is mainly because governors, senators, representatives, county commissioners and city council members get elected on “present day promises,” not “future unintended consequences.”

For many years, annual returns for employees and their benefit accounts were pegged at 8-percent per annum. These promises were made during a brief period when that rate seemed  reasonable but would have long-term unintended consequences. Additionally, this return-on-investment (ROI) was guaranteed by tax-payer pickups during years with lower returns.

The folly of this strategy becomes clear in a Bloomberg article, which looked at long-term returns (50-year periods) and noted average returns, for pension-fund-like portfolios, are well below 6-percent and have only generated returns of 7 percent or greater twice since 1871. (See Figure 2.)

The article continues, saying the problem is worse today for two primary reasons: 1) “Cumulative returns are lower than the averages;” 2) “An extended period of bad returns cannot be made up even with astronomical returns later.”

Bloomberg goes on to explain that the compounding of these return projections is the real fly in our collective soup bowl. According to Bloomberg most funds can never keep up with their actuarial demands following a market downturn. The capital lost and the compounding interest required on the remaining capital is too great. This would be true, even if the pension was already fully funded, which Oregon PERS is not. Following market retractions, “there is no chance existing assets are enough to pay already-contracted liabilities.”

The proverbial spilled-soup comes when one realizes that once the base value of assets starts to decline there is no scooping it back up. The shrinking asset base can’t keep up with the demand pressure from the actuarially accrued increases in liabilities. Additionally, as payouts create greater shortfalls, the overall asset base shrinks even more, further inhibiting the fund’s ability to ever get ahead of the curve.

Bloomberg goes so far as to say, “Worrying about the next five decades is pointless, because there’s also no chance the current system will survive long enough to discover what the next 50-year average returns will be.”

This is a truly dire situation created by more than 50 years of unrelenting government growth sanctioned by elected representatives. It is unconscionable to not address this inadequacy when there are thousands of folks who will be negatively affected by this tragedy if we fail to act.

Alley claims that his calculation of $225B doesn’t even account for any new employees coming into the system but focuses only on existing employees. “As a CEO of a company, you think about cash,” he said. “What’s the check I have to write and where’s that money going to come from?”

Rest assured, there are no worries in that quarter… the political majority can easily figure out how to use our slowly deteriorating social contract and government’s misused power of coercion to their own advantage. As the noted 19th-century philosopher Pierre-Joseph Proudhon outlined, the tax-payers can expect to be:

fleeced, exploited, monopolized, squeezed, hoaxed, drilled, registered, counted, taxed, stamped, measured, numbered, assessed, licensed, authorized, admonished, prevented, forbidden, reformed, corrected, punished regulated, enrolled, indoctrinated, preached at, controlled, checked, estimated, valued, censured, repressed, fined, harassed,  judged, condemned, or deported…

Without a momentous shift toward slowing the growth in government our PERS dilemma will only worsen. Additionally, significant and serious modifications to new employee standing is the only mechanism that can begin to stem the potential economic tsunami resulting from a market downturn. Without these changes Oregonians will face far more turmoil than the political elites ever imagined.

Remember, if we don’t stand for rural Oregon values and common sense – No one will!

Dennis Linthicum
Oregon State Senate 28

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What’s up for the 2018 Session?

Oregon State Legislature sent this bulletin Thursday, January 25, 2018 by devadmin

Here’s a look-see…

PERS unfunded liabilities are looming ever larger, high-school graduation rates, OHA budget over-runs, carbon emission debates, over-spending tendencies, school choice, criminal incarceration rates, marijuana problems and the opioid epidemic.

Additionally, we will be dealing with Clean Air Oregon, Carbon Cap and Trade, a potential constitutional referendum on unanimous juries, electric rate-payer protection, pharmaceutical drug transparency act and a limit on late-term abortions.

Myself and my fellow Legislators have got our work cut-out for us.

Aside from these and other issues, the Senate President added me to two new committees. Additionally, the Governor appointed me to a Special Task Force dealing with the rash of Opioid deaths by overdose.

Opioid overdoses plague rural and urban communities, alike.

Opioids such as morphine and fentanyl are the preferred clinical treatments for moderate to severe pain because of their strong analgesic (pain-relieving) properties. Effective pain management is one of the greatest challenges of modern medicine.

The increases in opioid deaths highlights the need for safer analgesics. Opioids, typically, cause death from respiratory depression induced by an overdose.

It is estimated that more than 100,000 adults suffer from chronic pain in the United States alone, and that this costs up to $635 billion per year in medical treatment and lost workforce productivity. The most commonly used drugs for pain management can have numerous side effects. For example, some cause cardiovascular complications, gastrointestinal bleeding, and renal disease.

Aside from these medicinal side-effects, opioids are extremely addictive. Opioids, both prescription and illicit, are the main driver of drug overdose deaths. Opioids were involved in 42,249 deaths in 2016, and opioid overdose deaths were five times higher in 2016 than 1999.

Oregon’s own statistics mirror the national averages. In Oregon, the opioid overdose death rate in 1999, was 2.1 persons per 100,000, while in 2016 the rate was 11.9 persons per 100,000. However, Oregon is at the high-end of the scale with regard to opioid prescriptions. There are 82.2 – 95 opioid prescriptions for every 100 people in Oregon.

A dedicated coalition is needed among the medical and pharmaceutical industries. Prescribers will need to focus on accurate data collection of distribution systems and product tracking to curb opioid abuse. Over the long-term, researchers are ever-hopeful for scientific breakthroughs in academic and pharmaceutical research for the treatment of chronic pain.

More items for investigation will be Oregon’s mandatory minimums on controlled substances, our prison and incarceration systems, local community-based re-habilitation efforts, staffing and budgetary requirements for state and local law enforcement.

Incarceration rates mandated by Oregon’s sentencing guidelines costs taxpayers hundreds of millions annually.

The biggest single problem with the system, as it is engineered today, is that it costs too much and is largely ineffective because the incarcerated individuals are rarely rehabilitated.

Here is a graphic summarizing what we see for all 50 states. (I will try to acquire Oregon specific data for next time.)

As shown in the chart above, drug addiction rates in the US (purple area/scale) are essentially unchanged from the time the War on Drugs was launched by Richard Nixon in 1972. Back then it was somewhere between 1-2% of the adult population. Today, it remains nearly the same, after 50 years of following the same formula.

Meanwhile the budgetary requirements for the nationwide system, including public safety, corrections, parole and probation has soared from a reasonable amount (green area/scale) to $20 billion in 2010 and $32 billion in the most recent year (FY 2017).

At the same time, the US prison population has exploded from 400,000 to more than 2.3 million (orange area/scale).

The current system knows no boundaries and is the perfect tax and spend machine. The licit and illicit drug industries continue to harness the power of the market by supplying drugs that are no longer scarce but remain extremely valuable and extremely dangerous.

The results are broken homes, damaged lives, homelessness and a rash of opioid over-dose deaths.

So, we clearly have our work cut-out for us.

“No government at any level, or at any price, can afford, on the crime side, the police necessary to assure our safety unless the overwhelming majority of us are guided by an inner, personal code of morality. And you will not get that inner, personal code of morality unless children are brought up in a family – a family that gives them the affection they seek, that makes them feel they belong, that guides them to the future, and that will build continuity in future generations. . . . the greatest inequality today is not inequality of wealth or income. It is the inequality between the child brought up in a loving, supportive family and one who has been denied that birthright.”

                                                                – Lady Margaret Thatcher, from her speech,                                      “The Moral Challenges for the Next Century,” March 5, 1996.

Remember, if we don’t stand for rural-Oregon values and common sense – No one will!

Best Regards,

Dennis Linthicum
Oregon State Senate 28

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Session will begin with a Budget Bang! – Part I

Oregon State Legislature sent this bulletin Tuesday, January 24, 2017 by devadmin

Oregon’s Legislative Session starts on February 1st and the biggest topic will certainly be the budget. Gov. Kate Brown released a recommended budget last month that has everyone in media gasping for breath because of a $1.7 billion shortfall.

The governor is quoted as saying, “The budget includes significant cuts at a level I find absolutely unacceptable…”

I agree–the budget proposal is unacceptable.  It is unacceptable because it merely supports the status-quo by presenting ever-growing government, more regulations and increasing taxes as the only reasonable budget expectation.

Yet, Oregon is expected to receive $1.5B more revenue this biennium than last. that is an increase of $1,500 million or $1,500,000,000 extra dollars in the state’s coffer. The story that Oregon has a shortfall is fiction. We have a budget that has grown beyond any semblance of normal.

The budget proposal has been created by assuming that Oregon’s current service levels or baseline of operations should be the standard for next year. The baseline budgeting process starts with current programs intact and then adds cost of living adjustments (COLA) combined with increases in service level goals.

Using “baseline budgeting” ideology as the operating standard doesn’t identify programs  that are inefficient or unnecessary. It also fails to address or support any significant technological choices that might transform the lives of Oregonians. It only instills more of the same for the future. This is not how our future should be planned.

During the governor’s inauguration speech there was a reference to our Oregon Trail heritage. The governor said, “And we now have two modern-day Oregon trails to choose from. One trail is to continue the endless process of slicing and squeezing, of diminishing our hopes and expectations, and shrinking our dreams of what it means to be an Oregonian. The other trail is to follow the advice of Governor McCall.  To not be guided by regionalism and factionalism.”

This is good advise.

Let me wade past the rhetoric and imagine trying to use our illustrious Oregon Trail heritage as the historic baseline mark on the landscape.  Think of the transformative technologies that have occurred. Now, ask yourself which of these modern technologies you would be willing to ignore because you were wed to the old stuff you brought from Missouri. Your Conestoga wagon, for example.

The reason baseline ideology can’t properly assess the potential efficiencies that might be gained through alternatives is because the baseline receives the funding not new ideas.  A requirement when trying to address maximum utilization from limited resources requires flexibility in weighing and ascertaining the value of various approaches.

A more flexible management approach would provide a credible rationale for reallocating resources by focusing on a systematic review and justification of the funding and performance levels in current programs.

However, if this sounds too complicated then let’s just drive our wagon down the well traveled trail of common-sense.

Since 1980, Oregon’s budget requirements have ballooned by eight-fold.  This means it has doubled three times, 2 x 2 x 2 = 8 (cf., Figure 1). In 1980 Oregon’s budget was near $10B and today the budget projection is approaching $80B.

Noticing this eight-fold growth, let’s ask some thoughtful questions:

  • Did our service requirements grow by eight-fold?
  • Did our state’s population grow by eight-fold since 1980?
  • Did your city’s population grow eight-fold?
  • Did your school district attendance grow by eight-fold?
  • Did your own personal salary or wages grow eight-fold since 1980?
  • Did the number of seniors living in your community grow by eight-fold?
  • Does your computer/cell-phone or TV cost eight-fold more than it did in 1980?
  • Did the value of your home grow by eight-fold?
  • Is criminal activity in your neighborhood up eight-fold?

Even if a couple of these questions come out within a reasonable close-call, my question is still valid: Should the cost of government services have risen eight-fold since 1980?

Please remember–if we do not stand up for rural Oregon, no one will.

Best Regards,

– Dennis

Senate District 28

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Gunsmoke and Mirrors

Oregon State Legislature sent this bulletin Tuesday, January 22, 2019 by devadmin

After the recent elections, the Democrat Party has a “super” majority in both of Oregon’s Legislative chambers. They also own the Governor’s office. This means they have a 60% majority in the legislature and can pass any tax or spending increases without pesky Republicans getting in the way.

While their goals may appear noble, admirable or desirable since they defy logic, science, and fiscal rectitude they cannot provide Oregonians with a viable future. They can only lead to a larger, more rapacious state government. Nevertheless, the majority appears willing to use a gunsmoke and mirrors campaign to mask attacks on our Constitutional rights while promoting their own Utopian agenda.

They desire a world where wealth and prosperity are abundantly available and evenly distributed. But nothing in the universe is equally distributed; not height, weight, melanin, academic abilities, artistic aptitude, creative genius or mechanical inclinations.

Today’s Utopians want free universal healthcare but keep driving the costs higher and higher while the care gets worse and worse. They want low-cost or free college education for today’s students who will end up paying for it tomorrow. They also promise jobs galore and high-tech employment for everyone, yet the market has no way to efficiently respond to this temporary, abnormal and artificial flood of competing job-seekers.

At the heart of the matter is an age-old collectivist vision delivered by government control. If you think I’ve gone overboard, read what the Utopian Robert Owen wrote in 1816:

“Society may be formed so as to exist without crime, without poverty, with health greatly improved, with little, if any misery, and with intelligence and happiness increased a hundredfold; and no obstacle whatsoever intervenes at this moment except ignorance to prevent such a state of society from becoming universal.”1

The reason Utopian dreams don’t work in the real world is because they don’t account for scarcity, human resourcefulness, compassion or commerce.

Human-beings are our only true source of wealth.

Wealth does not come from our state’s untapped natural resources or from state government. It does not come from our rivers, forests or land. These things become productive resources only through the innovation, creativity and genius of working people. Without the rich contributions of hard-working Oregonians, we would never have had lumber, crops, beef, concrete, wine, milk or cheese.

Only men and women can supply the creative genius to turn natural resources into usable goods that improve the well-being, quality and health in our lives. This means however, that Oregon must be willing to allow people to create and keep the rewards that flow from their voluntary engagement in the free-market system. Confiscating the fruits of a person’s labor will naturally remove their desire for work.

While this may sound like common-sense, I fear our governor has missed this point. The Democratic-socialist party’s legislative agenda includes enormous disincentives for productive labor, capital formation and investment.

History tells us that increasing a tax, like the “sin taxes” on inhalant products, cigars and cigarettes will decrease their consumption. Yet, no one asks what might happen to the productive industries for malt beverages and wine when taxes are applied to those products. Also, imposing higher taxes on personal, corporate, and out-of-state income will decrease the activities that produced that income, not the other way around. The same negative consequences will impact our transportation industries as higher boating fees, aviation, diesel, and gasoline fuel taxes are bandied about.

Lastly, increasing our property taxes is supposedly the price we have to pay to live in Oregon.

What’s left to tax or regulate out of existence? Ohh, yeah, …  our 2nd Amendment rights! The gunsmoke and mirrors gang is just getting started.

Their propaganda message is, “Oregon’s children are only safe in gun-free zones.” In other words, your home must become a gun-free zone. However, we know that gun control laws only work for law-abiding citizens, which by default means only law-breakers and criminals will own firearms.

Guns are not the biggest problem which citizens, and/or children, face with regard to their lives, health and safety. Have you seen the statistics for opioid overdoses or automobile fatalities? Recently, economist Antony Davies and political scientist James R. Harrigan, reported that Americans are artificially tied up in knots over violent crime—particularly crimes committed with “assault weapons.”

They note, “This concern, statistically speaking, is fairly irrational. You are far more likely to be killed by being beaten or stabbed than you are to be killed by any kind of rifle, ‘assault’ or otherwise.” Their timely podcast goes through the actual numbers, here.

Liberty and respect for the individual demands that we act in the interest of the individual – not in the interest of the state.

If we don’t stand for rural Oregon values and common-sense – No one will!

Best Regards,

Dennis Linthicum
Oregon State Senate 28

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Saving Thousands of Millions

Oregon State Legislature sent this bulletin Tuesday, January 1, 2019 by devadmin

Johnson continued, “He that is extravagant will quickly become poor, and poverty will enforce dependence and invite corruption.”

Frugality, in the dictionary, is simply economy. For the individual this means exercising prudent techniques for saving so that resources are not wasted but used judiciously to serve the most appropriate hierarchy of needs without needing to beg or borrow.

For our state, the definition would apply; except, the sources of revenue would no longer be classified as voluntary contributions (begging or borrowing) but would become forced contributions through taxation and debt-bonding.

Likewise, the state that is extravagant or wasteful will quickly impoverish itself and its citizens. Additionally, in their poverty, the citizens will be forced into dependence and the state will experience corruption throughout its domain.

Let’s look at some numbers. During the 2015-17 biennium, Oregon’s Department of Administrative Services (DAS) processed nearly $8 billion worth of procurement services. That’s big money! That is 8,000 million dollars’ worth of goods and services. Wow! Especially when you consider that Oregon only has 4.1 million residents.

That’s right! Oregon spent 8,000 million dollars on 4.1 million people. That’s just under $2,000 of stuff for every man, women and child of every category, background, country of origin, make or model.  That’s just stuff; the total outlay for all goods, services, salaries, wages and benefits came to about $9,100 in 2016, on a per capita basis.

On the other-side of the accounting ledger Oregon only collected $2,700 in taxes on a per capita basis. This is what any normal person would call living beyond one’s means. The federal printing press barely helps reduce our overall shortfall, even though that contribution is an amazing 30% of all state revenue.

Recently, the Secretary of State’s (SOS) office auditors found Oregon missed opportunities to save 5 percent to 20 percent of the state’s procurement budget. That means Oregon missed the opportunity to save 1,600 million dollars ($1.6B) on state purchases.

The audit reveals that Oregon’s current procurement systems lack the information necessary for procurement specialists to effectively evaluate spending with regard to possible opportunities for cost savings.

Understandably, the DAS specialists buy lots of stuff for many disparate agencies. They purchase for Capital Finance and Facilities, Fleet Services, Operations and Maintenance, Building Security, Custodial, Landscape, Repair and Maintenance, Planning and Construction Management, IT, Real Estate Services, Interiors, Leasing, Land transactions, Surplus Property, and Enterprise Goods & Services.

This extraordinary range of goods and services crosses multiple agency boundaries and the state’s procurement services could be effectively streamlined if there existed a single data-store for this information. The audit found that of the $8 billion spent in procurements in 2015-17, the state only has purchase-level data for about 12.5% of the transactions, or roughly $1 billion.

What about the source level information on the other 87.5% of the state level procurements reviewed by the auditors? Obviously, the auditors found this to be subpar.

SOS Dennis Richardson’s office suggested that the statewide implementation of an eProcurement system should be implemented and would provide the additional data needed to perform a full spending analysis. It is no surprise that understanding the capital cost of an asset, including its full-life cycle costs – maintenance, operating and disposal costs, along with supplier bidding and contract opportunities could result in hundreds of millions in potential savings.

After reading this audit report, several small-government proponents in Oregon State Legislature called for swift procurement changes. Sen. Kim Thatcher (R-Keizer), issued a press-release stating, “the state needs to modernize its 1990s-era system. Oregon could have saved $1.6 billion had it previously implemented the system, meaning if Oregon succeeds in implementing OregonBuys ahead of the next biennium, the state could prevent the need for any new taxes being pushed to fill a supposed budget gap.”

Rep. Bill Post (R-Keizer), echoed those thoughts, “Had the system been previously implemented in the last biennium, it could have potentially saved billions of taxpayer dollars.”

My own statement was, “We should not be raising taxes until the government’s procurement system is fixed. Some in the partisan supermajority seem to view Oregonians as ATMs rather than constituents.”

Obviously, taking people’s hard-earned money away from their families and communities, only to push loads of cash into a broken vending machine of a government, is not only senseless, it is immoral. As a legislator, I have a duty to my constituents, and I will continue to be a strong voice for government accountability and change this upcoming session.

In an era of rising taxpayer dissatisfaction, higher expectations and rapidly changing economic conditions, high-performance sourcing, procurement, and supply chain management services are crucial to our state.

Our state’s ungainly combination of legacy systems, spreadsheets, email, and yellow sticky-notes has burdened taxpayers with unnecessary costs. Many of these problems can be relieved with advanced digital technologies for sourcing and procurement. The lack of technological integration and automation in our state is a legacy built over the past 30 years. It is time for leadership so that we can make Oregon great again.

It’s time for Governor Kate Brown to trim expenses, reduce unnecessary burdens and pursue budgetary and tax moderations. These steps would empower Oregon’s citizens to live within their means while enjoying the abundance that comes from the sweat of their own brow, the strength of their hands and the creativity and innovation of their minds.

Remember, if we don’t stand for rural Oregon values and common-sense, no one will!

Best Regards,

Dennis Linthicum
Oregon State Senate 28