Measure 86 authorizes borrowing a maximum of around $4.3 billion in new debt
by Sen. Doug Whitsett
Oregon voters will be asked to decide nearly a dozen ballot measures in the November general election. In my opinion, these measures contain a number of very bad ideas. Among the worst is Ballot Measure 86, sponsored by State Treasurer Ted Wheeler.
The Measure proposes to amend Article XI of the Oregon Constitution to authorize the Legislature to borrow billions of dollars through the sale of a new series of state General Obligation Bonds. These bonds are guaranteed to be repaid by the full faith and credit of the State and Oregon taxpayers.
Measure 86 is further worded to bypass an important provision in Section 6 of Article XI. That section prohibits the state from owning or having any interest in the stock of any company, association or corporation. It is meant to prohibit the State from speculating with the peoples’ money.
The money authorized to be borrowed by Measure 86 is to be invested in equities markets by the Oregon Investment Council under the direction of the State Treasurer. In essence, the scheme is to create an endowment with the borrowed money. The earning from the speculation in stocks, bonds and other investment vehicles is to be used to provide college scholarships. The payment of the principle and interest on the borrowed billions would be the responsibility of Oregon taxpayers.
More specifically, the measure authorizes the Legislature to borrow an amount equal to one percent of the market value of all real estate in Oregon. That is currently a maximum of about $4.3 billion in new debt, according to the Legislative Fiscal Office.
Measure 86 directs the Legislature to create the Oregon Student Opportunity Fund to be used for the exclusive benefit of Oregon students pursuing post-secondary education including technical, professional and career training. The fund is to be financed primarily by money borrowed through the sale of General Obligation Bonds.
The earnings from speculating in the equities market with the fund’s borrowed money is to be used to pay for scholarships for Oregon students. The Treasurer’s plan functionally shifts the burden of paying for a college education from the student to the Oregon taxpayer.
This is not a “one time deal.” The Legislature will determine the actual amount of money to be borrowed by enacting budget bills authorizing the sale of General Obligation Bonds. However, that full amount of debt is constitutionally authorized to be maintained in perpetuity at the discretion of the Legislature with the concurrence of the Governor.
In the event that some of the invested money is lost in bad investments, the Legislature is constitutionally authorized to borrow more to replenish the body of the “endowment.” The only limit is that the total of the newly authorized debt does not exceed one percent of the market value of all of the real estate in the state.
All of the costs of repaying the borrowed money are to be borne by Oregon taxpayers. However, the measure specifically prohibits the use of ad valorem property tax revenue to either secure or pay the principle and interest on the debt. Therefore, virtually all of the debt service will be paid out of the future General Fund revenue that supports our schools, public safety and human services.
It gets even worse! In the event that the Governor declares an emergency and four-fifths of both legislative chambers concur, Measure 86 authorizes the money in the endowment to be spent for other needful things. Remember, the measure would currently authorize the Legislature to borrow up to $4.3 billion. No matter how the money is spent, Oregon taxpayers will still remain on the hook to pay the principle and interest on the debt.
Can you imagine going to your local mortgage lender with this scheme? You would be asking your banker to lend you large amounts of cash, for you to invest in the equities market, so that you could give away the investment earnings. The deal would use your neighbors’ property and future earnings to secure the mortgage, as well as requiring them to pay the principle and interest on the loans.
Further, the deal would allow you to borrow even more money if your investments did not work out. Of course, those additional loans would be secured and paid for by your neighbors. Finally, the deal would allow you to spend the borrowed money on needful things in the event of a family emergency. Your neighbors would still be obligated to pay the debt service.
I believe that your banker would laugh you all the way to the sidewalk! He might even suggest that you seek mental health counselling.
The cost to service Oregon’s existing debt is an equally compelling reason for Oregon voters to reject Ballot Measure 86. Principle and interest payments on existing debt already comprise the fourth largest component of our biennial budgets.
A series of previous amendments to Article XI of the Oregon Constitution has empowered the Legislature to incur debt through the sale of General Obligation Bonds. Thankfully, the total amount of debt authorized greatly exceeds the actual amount of money borrowed. Fiscal leaders have been successful in counselling the Legislature to cap its General Obligation Bond borrowing so that no more than 5 percent of the General Fund is required to pay the principle and interest on the accumulated debt. Nonetheless, our current biennial debt service on General Obligation Bonds is about $750 million.
The Legislature has chosen to authorize the sale of revenue bonds secured by the future income streams from both the Oregon Lottery and Oregon transportation fuel taxes, licenses and registrations.
The sale of Lottery Revenue Bonds is unofficially capped so that the principle and interest on outstanding bonds will not exceed one fourth of the state lottery revenue. Our current biennial debt service on Lottery Revenue Bonds is about $250 million. Regrettably, it is my understanding that legislative leadership and the state Treasurer have chosen to implement some “creative financing,” such as interest-only payments, in order to remain under that 25 percent cap.
The Legislature has shown little restraint in the sale of highway revenue bonds. For the past dozen years, it has borrowed money through highway revenue bond sales to build highway infrastructure that could not be paid for with current sources of income. According to the Oregon Department of Transportation, the biennial principle and interest on those outstanding bonds exceeds $550 million. This debt load will seriously impede ODOT’s ability to maintain our state highways into the foreseeable future.
The total biennial principle and interest on just these three forms of Oregon debt exceed $1.5 billion. To put that amount of money into perspective, it exceeds the entire budget for the Oregon Department of Corrections.
Oregon elected leaders must learn to limit their spending to what the taxpayers can afford to pay. Our budgets are in disarray, much like a family that has not learned to live within its means. The untenable state debt was created by past Legislatures by continuing to borrow money to pay for things and programs that the taxpayers could not afford.
Ballot Measure 86 represents yet another liberal progressive plan to spend other peoples’ money. I hope that Oregon voters will soundly reject this very bad idea on November 4th.
Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls