Category: Economy

Oregon State Legislature sent this bulletin Monday, February 20, 2017 by devadmin

In 1946, Henry Hazlitt wrote a wonderful book, Economics in One Lesson. This small, easy to read book is still widely available and ought to be read and contemplated by all. The reason is simple. Hazlitt uses easy to understand stories to gently eviscerate the public policy mistakes that the know-it-alls and political wonks use to separate taxpayers from their wallets.

Meanwhile, the policy-wonks in Oregon’s majority party are hard at work trying to stuff the Governor’s budget with money straight out of your wallet. They seem to be only looking at this current budget-cycle and not ever contemplating the long-term health of Oregon’s economy, it’s families and businesses.

One example is the crazy idea to put a $1000 tax on any car purchased before 1997. Yikes! There is another idea for a $.05 tax on every wholesale pound of coffee sold. Hearing this, I can imagine that ODOT is trying to re-engineer their GPS milage tracking device to also include a tax on every sip that you enjoy from your Dutch Bros Kicker cup.

Another shameless tactic which is fast spreading throughout Oregon’s counties is using government to provide “affordable housing.” Proponents claim this can be partially accomplished by rent control. This economic fallacy of rent control is continually embraced by pundits, politicians, editorialists, news reporters and academics as a requirement for economic development. HB 2004 is the rent control bill currently making it’s serpentine way through the twisted logic of Salem’s hallways.

Here is a portion of the bill’s contorted control language:

Thomas Sowell wrote, “History alone should be able to tell us what the actual consequences of such laws have been, since they have been around for thousands of years. Anyone who has taken a course in Economics 1 should understand why those consequences have been so different from what their advocates expected. It is not rocket science.”

The advocates make claims like, “this will ensure stable housing for workers,” or “it will stop the landlords from gouging tenants,” and finally, “land-owners should not be making tons of money during a housing crisis.”

In Oregon, the reason there is a lack of affordable housing is there is a lack of housing. This means housing is not being built. Why not? One of the main reasons is  because of existing laws which prevent housing from being built. This is a particular problem in Oregon where designated Urban Growth Boundaries (UGB) are a major component of the zoning, planning and building requirements.

High and unaffordable housing costs are not the problem, they are a symptom. The real problem is a shortage of houses.

I can illustrate this by using an example of an ice cream shop. With low cost ice cream and cheap treats, everyone wants some. If the ice cream supply were limited because of some legal requirement or some unforeseen circumstance then the local ice cream shop would quickly. Some would label this a “shortage.” However, if store owners can raise prices the will slow demand for the product.

Owners don’t do this because they are meanies and they want to gouge ice cream lovers.They do this to slow demand and their stabilize inventories. The higher price makes people think twice, reconsider their resources and/or needs and weigh any options. Just like the housing market, as prices rise, inventories stabilize and more treats are available on the street (or in the freezer.)

The high cost of housing is not something that needs fixing. Rather it is the supply of housing that needs fixing. You know that local housing is in short supply because it is becoming more expensive. When bidding wars break-out among home buyers, as is currently happening, it is a sign of a shortage. This is a not a sign of an outbreak of unbridled greed among wealthy landlords.

Supply and demand is one of the first things taught in introductory economics textbooks and you will find great examples in Hazlitt’s book. If only I could get some folks here in the capital to curl up with Hazlitt’s book, too. Now that would be an accomplishment.

Also, please let your voice be heard with regard to Oregon’s upcoming budget (2017-2019). Without any viable increases in the State’s income, non-critical services will require budget cuts over the next two years. Representatives need to hear whether your wallet is up for grabs, or not.

• Here is the Full Roadshow schedule.
• Here is the backgrounder on the current state of the budget, and Co-Chair’s proposed budget framework for 2017-2019.

Oregon State Legislature sent this bulletin Thursday, February 2, 2017 by devadmin

Last weeks article highlighted that the Governor’s released budget had everyone in media gasping for breath because of a $1.7 billion shortfall. Yet, Oregon is expected to receive $1.5B more revenue this biennium than last. That is an increase of 15 thousand million or 1,500,000,000 extra dollars in the state’s coffer.

I pointed out that Oregon’s budget has increased eight-fold since 1980 and then I posed some thoughtful questions:

• Did our state’s service requirements or population grow by 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 value of your home grow by eight-fold?

If you are like me, you are probably having trouble identifying anything in our lifetime that has grown as rapidly as government.

This has occurred mainly because we have allowed government to absorb responsibilities that previously belonged to families and individuals. Government has done this quite stealthily.

It starts with people who want to help. They become politicians. Politicians get elected to the legislature. Legislators have a job to do – legislate. Yet, even if the legislature, their committees and constituents propose solutions that sound reasonable, it doesn’t mean the legislation will work reasonably.This is exactly where we are today – Legislators are legislating and government is growing.

Our unique American form of government was designed to protect the rights of the people and ensure their individual freedom. Oregon’s constitution does not provide a mandate to micromanage, interfere and legislate away citizen’s individual choices and freedoms on a daily basis.

How much would government services cost if we had constrained government by the Bureau of Labor and Statistics – Inflation Calculator?

Using the inflation calculator, for example, $10B in 1980 is the equivalent to $29.1B today (cf., Figure 2). This means $50B dollars of the current $80B budget is in excess of the cost of inflation.

Even accounting for an increase in Oregon’s population which has grown by only a factor of 1.54 since 1980 levels, not an 8X increase, the $29.1B number would only increase by $15B, not $50B.

Again, why is Oregon’s budget pegged at nearly $80B?

Are Oregonians really that much more needy? Do we need that many more state bureaucrats shuffling paper and creating regulations?

The problem rests with the baseline budgeting methodology where after funding our last biennium’s base of operations no one has enough resources available to seek answers to different questions.

There will never be a change to any part of an agency’s inner-workings if the agency will automatically receive the same, or better, for doing the same ol’, same ol’. This is partially why Oregon’s graduation rates stay so abysmally poor – same ol’, same ol’.

ORS 291.210, requires the Legislative Fiscal Office (LFO)  to develop a projected tentative General Fund/Lottery Funds budget for the 2017-19 biennium.  A couple of bullets from that document are below:

• State personal services growth is projected at 9% for the biennium, including step increases, roll-up of current collective bargaining agreements and management salary packages, health benefit costs, Pension Obligation bond payments, and an increase in the PERS rate.
• Standard biennial inflation of 3.7% for services and supplies and 4.1% for medical costs.
• Backfill of 2015-17 one-time funds with General Fund, or fund shifts, that change 
funding sources for programs between the two biennia, total a net $626 million. This is primarily in the Human Services and Education program areas, and includes $328 million related to an increasing state responsibility for Affordable Care Act costs and other federal match changes.

These are all growth items.

We don’t face a revenue problem, we face a problem with government growth and spending. Oregon’s legislature must be willing to address our state’s spending problem and this will mean breaking through factional barriers.

Otherwise, we really are just kicking the can down the road.

We all recognize there is more squeezing that needs to be done in the state’s budget. But, if the Governor has her way, the squeeze is going to happen with our wallets. Oregon’s Governor put forward a budget proposal that is “too expansive.”  As legislators we must be committed to squeezing government, not the hardworking taxpayers wallets.

Please remember–if we do not stand up for rural Oregon values and common-sense, no one will.

Best Regards,

Dennis

Senate District 28

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

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