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An epicycle is the name for the path made by a small circle rotating around the circumference of a larger one. Nothing negative there.

But ever since pre-Copernican astronomers had to keep adding epicycles — and epicycles upon epicycles — to make their model of how the Sun and the other planets moved through the earth-centered universe fit with what they actually observed by looking at the way the planets appeared to move, epicycles now call to mind a more modern engineering term — “kludge” — which is defined in Wikipedia as follows:

A kludge (or kluge) (/klʌdʒ/, /kluːʒ/, /kluːdʒ/) is a workaround or quick-and-dirty solution that is clumsy, inelegant, inefficient, difficult to extend and hard to maintain. This term is used in diverse fields such as computer science, aerospace engineering, internet slang, evolutionary neuroscience, and government.

Epicycles come to mind when thinking about housing policy in Oregon, as we try to layer fix upon fix to a fundamentally flawed system instead of interrogating our model for how we think a housing market should work and deciding if our model and reality are at all congruent.  If one needs motivation to think about something as seemingly boring as housing policy, the poignant, powerful, and potent book “EVICTED: Poverty and Profit in the American City,” is all the motivation one could ask for. 

Two essays by Chuck Marohn, founder and president of Strong Towns, have a lot to say about the problems and consequences of how we do zoning, which is the deep structure of the dysfunction so brilliantly described in EVICTED.  These essays and the many embedded links to others — provide a movable feast on housing policy epicycles. A few hours spent with the many posts here, and a reading of EVICTED — which is hard to put down — will forever change the way you go through the world and think about the ongoing crisis in housing affordability.


POTUS: Zoning Sucks

September 27, 2016
by Charles Marohn
 
So much for all that Agenda 21 paranoia.
 
Yesterday the White House released something they called a Housing Development Toolkit. It took aim at many of the worst practices of local government, from a resistance to incremental development to mandatory parking minimums. It provided an outline for local governments looking to “modernize” their land use regulations. As a feign at bully pulpit rhetoric for policy geeks, it was a fun read.
 
The toolkit listed the benefits of “modernizing” — I keep putting that word in quotes because I find it strange yet it is the word they used — and, while many advocates are focusing on a transportation recommendation for more transit use, I actually found the report’s first observation to be more interesting and relevant:
 
Housing regulation that allows supply to respond elastically to demand helps cities protect homeowners and home values while maintaining housing affordability.
 
“Allowing supply to respond elastically to demand…..” That’s a really painful way to describe what is commonly thought of as a market. Yes, when the market is able to respond to a lack of supply and an increase of demand by building more housing, it helps bring supply and demand into balance at lower prices. Zoning regulations, especially those that seek to preserve neighborhoods under glass once they are established, distort the feedback mechanism of the housing market. I’m in.
 
What’s odd is their inclusion of “protect homeowners and home values” in that thought. I would agree that having freer markets for housing construction would bring prices down in many parts of the country. I don’t think it’s clear that we can do that and simultaneously maintain the inflated home values we are trying to artificially sustain. In fact, re-inflating the housing bubble has been the policy goal of this administration as well as the Federal Reserve leading to a string of policies that benefit current homeowners and debtors at the expense of prospective buyers and savers.
 
Of course, it could be that the Obama administration has some covert Austrian economists who are seeking to protect homeowners from government-induced housing bubbles, but I doubt it. It’s more likely that this is an attempt at a politically-happy spin on the difficult policy paradox of local zoning: Our debt economy needs inflated housing prices yet inflated housing prices have terrible economic consequences over the long term. It might be too much to hope that they would bite that one off.
 
Still, the document has a lot of things straight out of the Strong Towns playbook (it actually reminded me of Andrew Burleson’s 10 Steps to Fix a City). The first five are absolute no-brainers; if you’re not doing these things already, your city is falling behind. Here they are with some related stuff we’ve written along the way.

1. Establishing by-right development
 
    Strong Towns Strength Test
    Housing affordability is the result of articifial scarcity by Andrew Price
    A case for height restrictions by Charles Marohn
 
2. Taxing vacant land or donating it to non-profit developers (YouTube)

3. Streamlining or shortening permitting processes and timelines
 
    From the Mayor’s Office by Charles Marohn
    Stop. Inventory. Prioritize. Process. by Seth Zeren
 
4. Eliminate off-street parking requirements
 
We’ve done a ton of work on this, so much so that we have an entire landing page devoted to the topic. We also organize an annual Black Friday Parking event to draw awareness and maintain a map of cities that have eliminated their off-street parking requirements.

5. Allowing accessory dwelling units
 
    Strong Towns Strength Test
    The Challenge of Building Rental Housing by Spencer Gardner
    The Trials of Tiny Homebuilding by Rachel Quednau
    A Strong Towns Response to Homelessness by Rachel Quednau
    Affordable Housing that Might Have Been by Johnny Sanphillippo
 
The remaining five recommendations are quite a bit more wonky and are big-time subject to planner/zoner unforced error. For example, Establish Density Bonuses, which certainly can make sense in some places but is more often just a license for planners to do some awful things. If you’ve been with us any appreciable amount of time, you probably know what I think of density as a metric of success.
 
Still, for as much hype as this document is getting in the circles we frequent, I found it rather revealing — and a little depressing — for what wasn’t included. Obviously, the federal government can’t do much to make these things come about beyond bribing cities with money it doesn’t have. It could, however, make some changes to federal policy that would be really significant. How about we eliminate the distorting effects of federal housing subsidies?  How about we stop subsidizing the horizontal expansion of cities through our transportation policies? What if we balanced our obsession with growth with policies that promoted stability?
 
All of that gives this White House document the feel of looking at the splinter in your neighbor’s eye while ignoring the beam in your own. Still, I’d rather have it than not and, if it inspires more cities to start building Strong Towns, it should be seen as a positive. Given what we are all suffering through this election season, it may be a long time before we get back to even this small hill of coherency.
 
6. ENACTING HIGH-DENSITY AND MULTIFAMILY ZONING

Here’s the context that the toolkit provides for this recommendation: 

Local zoning code changes that allow for the development of higher-density and multifamily housing, especially in transit zones, can help to alleviate some of the pressure of the growing population in many city centers.

That is a true statement. That is also a statement that begins by accepting a really messed up reality for a premise, a reality created by some really messed up federal policies.

Let me rephrase the statement to highlight the inherent problem:

Local zoning code changes that allow for the development of higher-density and multifamily housing, especially in places where we’ve built expensive transit systems in an effort to induce growth and development, can help all those living in single family homes that don’t want their neighborhoods to ever change to continue to have their lifestyle subsidized by everyone else, particularly the poor.

Now, to be fair, there are areas in Washington DC, New York, Chicago and San Francisco — in Washington DC policy circles this is otherwise known as simply Civilized America — where there are neighborhoods near massive transit investments that are stuck because of zoning. The chicken/egg argument of build-it-and-they-will-come was decided in favor of build long ago. What government hath sown in these neighborhoods it must now reap and so, yes, the difficult conversations about how a neighborhood with so much public investment must be allowed to evolve and change must now be had. Better that those conversations had taken place before the massive investment, but the world is not perfect.

“This is like trying to put out a fire with truckloads of champagne, a fire that was intentionally set by the champagne distributor.”

For the rest of the country — and we could be talking about billion dollar rail investments here in Minnesota or others like Salt Lake City, Kansas City or Austin — the issue is slightly more problematic. In these places, transit investments have largely acquiesced to the commuter model (following the federal funding). In short, how do we move people from low density residential areas to high density employment areas through transit and do this as a mechanism to alleviate automobile congestion? Fiscally, this is like trying to put out a fire with truckloads of champagne, a fire that was intentionally set by the champagne distributor.

Nodes of high density (amid the park-and-rides) may help these areas be slightly less financially insane, but it also distracts from the real work of a broad thickening up that needs to happen if these cities are to become somewhat solvent over time. It’s also a convenient way to concentrate those people in ways that make us feel socially justified yet fail to make things better over the long term.

Finally, the term “density” is a trigger word for broad swaths of our population. That includes those who live in auto-oriented housing smeared across the landscape enjoying ignorance of their actual insolvency and unaware of the pending financial day-of-reckoning. It also includes planners, zoners and other meddlers of the orderly but dumb variety that believe enough in their own skills and infallibility to direct the complexity of humanity towards what they find to be a simple metric of success. Reality is a cure for ignorance but there is no easy fix for delusion.

Here’s a smattering of essays we’ve produced on this topic:


7. ESTABLISHING DENSITY BONUSES

The general concept the White House describes here is an effort to get developers to take a loss on some of their housing units — and, again, we’re talking apartment complexes and the other intense building types that would be applicable in less than 0.1% of the land mass of North America — in exchange for allowing them to recoup that loss by building a lot more units (quantity over quality development strategy).

I’ve always struggled with these schemes, not only because it’s not a market with any real feedback, but because of all the distortions it represents. If that level of housing intensity works well there, why not allow it to be built without the incentive of a bonus? If that level of intensity does not work well there, why allow it under any circumstances? Are we that out of ideas that we have to build a lot of things we don’t want, just to get a little bit of something we do?

It’s a little like rent controls, the magic weight loss pill of housing policy. Aren’t you simply acknowledging that your market is totally messed up but, for whatever reason, you are never going to take the diet and exercise kind of steps necessary to address it? You are just going to pop a regulatory pill and trust that will take the edge off the worst of it?

“Density will happen as a byproduct of success, but we must be humble enough to recognize that we really don’t know where that will be, where all those complex variables that make a place work will come together.”

I once got a tour of Vail, Colorado, from a team of the city’s planners. They told me all this money was being spent by the state and the region to improve transit and transportation systems because none of the workers in Vail could afford to live there. Workers had to live in a neighboring town and get bused in. My thought: If these rich people can’t pay enough in wages for a necessary worker to afford to live in their city, then they can wash their own dishes. Seriously, why is it now someone else’s problem to solve? If they can’t find enough workers, wages will either need to go up or housing prices will need to go down, the level of inconvenience from not having enough employees being the feedback pressure forcing the change. That’s not some libertarian creed; it’s basic supply/demand.

Outside of a few places (mentioned above) where we’ve made massive transit investments that depend on future growth to make them less financially ridiculous, we don’t need more artificial concentrations of housing. What we need is incremental growth over a broad area over a long period of time. I’ve called this thickening. Density will happen as a byproduct of success, but we must be humble enough to recognize that we really don’t know where that will be, where all those complex variables that make a place work will come together. I’m not a fan of the planner as urban god approach.

What might be an expedient band aid in a few of our largest urban cities is a weapon of fiscal mass destruction throughout the rest of the country. I’m not a fan of density bonuses as a form a bribery.

Here are some related Strong Towns essays:


8. Employing inclusionary zoning

Functionally, this is density bonuses (see above) through coercion instead of bribery. The misgivings I listed above largely apply here as well. This policy is only taken seriously becuase we’ve used zoning to freeze our neighborhoods. Instead of dealing with that problem — which would require a deep cultural conversation — we deal with it through regulation. And because we are regulating people who have money (developers), they use their influence and acquiescence in that regulatory process to limit competition and drive up prices. How perverse.

I’m not going to say that there are no instances of inclusionary zoning making the world a better place. I am going to say that, in a world of cause and effect, I’m more than a little skeptical that the net result of this approach is a market equilibrium that meets the needs of poor people. I’ll also argue that it doesn’t deal with the underlying problem, which is our abandonment of incremental development. Here are two pertinent terms that we use often at Strong Towns:

Suburban Experiment: The approach to growth and development that has become dominant in North America during the 20th Century. There are two distinguishing characteristics of this approach that differentiate it from the Traditional Development Pattern. They are: (1) New growth happens at a large scale and (2) Construction is done to a finished state; there is no further growth anticipated after the initial construction.

Traditional Development Pattern
: The approach to growth and development that humans used for thousands of years across different cultures, continents and latitudes. There are two distinguishing characteristics of this pattern that differentiate it from the Suburban Experiment. They are: (1) Growth happens incrementally over time and (2) All neighborhoods are on a continuum of improvement.

Instead of adding more regulation to development, add more options in your marketplace of developers. Here’s some related content on that this topic:


9. Establishing development tax or value capture incentives

10. Using property tax abatements

I’ll put these two together under the heading: Paying developers to pretend to solve your problems.

I realize that planners and policy wonks love these things — they work so well in theory and they vest a lot of power in the bureaucracy to make deals — but in a world where no city bothers to actually calculate return-on-investment, giveaways like these are even more problematic. And again, while they attempt to address the symptoms of bad land use, transportation and finance policies, they don’t come near addressing the underlying problem. If you want to read more on this topic, check out these essays:

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Strong Towns is a 501(c)3 non-profit membership organization.
The essays from Strong Towns are under a  Creative Commons Attribution-ShareAlike 3.0 Unported License.

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Dear Mr. President,

I am writing you on behalf of our Board of Directors and our membership regarding a potential surge in federal infrastructure spending. At Strong Towns, we have developed a unique understanding that allows us to speak with a level of clarity on this issue. Our supporters have no financial interest in whether or not more federal money is spent on infrastructure; our mission is to advocate for ways those investments can make our cities stronger.

To borrow a real estate term, America’s infrastructure is a non-performing asset. For nearly every American city, the ongoing cost to service, maintain and replace it exceeds not only the available cash flow but the actual wealth that is created.

For example, we did a deep financial study of the city of Lafayette, Louisiana. We found that the city had public infrastructure — roads, streets, sewer, water, drainage – with a replacement cost of $32 billion. In comparison, the total tax base of Lafayette is just $16 billion. Imagine building a $250,000 home and needing an additional $500,000 in infrastructure to support it. This seems incredible. But not only is it common, it is the default for cities across America.

This imbalance is caused by incentives we embed in our current approach. When the federal government pays for a new interchange or the extension of utilities, local governments gladly accept that investment. The city, while spending little to no money of their own, has an immediate cash benefit from the jobs, permit fees and added tax base. The only thing the local government must do is promise to maintain the new infrastructure, a bill that won’t come due for decades.

Here’s the catch: when we look at that bill, our cities almost always can’t pay it. Cities never run a return-on-investment analysis that includes replacement costs. Cities never even compute the tax base needed to financially sustain the investment. There’s no incentive to do it and every reason not to.

In psychological terms, this is called temporal discounting. The people running local governments, as well as the people they serve, have the natural human tendency to highly value free money today and deeply discount, if not altogether dismiss, the financial burden these projects will create in the future. We’ve been building infrastructure this way for two generations. We have created a lot of short term growth, but we’ve also created trillions of dollars of non-performing assets, infrastructure investments that are slowly bankrupting our cities, towns, and neighborhoods.

The fundamental insolvency of our infrastructure investments is the root cause of the pension crisis and the explosion in municipal debt. It is the real reason why our infrastructure is not being maintained. New growth is easy and comes with all kinds of cash incentives. Maintenance is difficult and has little upside. Cities with huge maintenance backlogs still prioritize system expansion because they are chasing the short-term cash benefits of new growth, even at the expense of their future solvency.

What do we do today? To paraphrase former Defense Secretary Donald Rumsfeld, we’re going to make investments in infrastructure with the systems we have, not the ones we wish we had. There are ways to get better results now.

  • We need to prioritize maintenance over new capacity. With so many non-performing assets, it’s irresponsible to build additional capacity. Project proposers will try to add additional capacity with their maintenance projects. If it is truly warranted, it can and should be funded locally. Cities need to discover ways to turn such investments into positive ROI projects, a process the federal government can only impede.
  • We must prioritize small projects over large. Small projects not only spread the wealth, they have much greater potential for positive returns with far lower risk. Large projects exceed their budgets more often and with greater severity — dollars and percentage — than smaller projects. A thousand projects of a million dollars or less have far more financial upside than a single billion-dollar project ever will. It’s administratively easier to do fewer, big projects, but that is a bureaucratic temptation we need to overcome.
  • We should spend far more below ground than above. Many of our sewer and water systems are approaching 100 years old. When these core pipes fail, the problems cascade throughout the system. Technology may soon dramatically change how we use our roads and streets making investments in expansion there obsolete, but water and sewer will still flow through pipes as it has for thousands of years. We should spend at least $5 below ground for every $1 we spend above.
  • We should prioritize neighborhoods more than 75 years old. We’ve modeled hundreds of cities across the country and in every one the neighborhoods with the highest investment potential are the ones that existed before World War II. These are established places where small investments have a huge impact. Most investments in neighborhoods built after World War II are simply bailouts, pouring good money after bad.

Small maintenance projects focusing on below ground infrastructure in old, established neighborhoods have the greatest potential for positive returns. These projects will put people to work, create jobs and fix failing infrastructure as well as, if not better than, the large expansion projects currently in the shovel ready backlog. These are also the kind of projects that get private capital off the sidelines and back to work building wealth in our communities. 

In addition, while we understand that a surge in infrastructure spending is not going to wait for systematic reform, there are some modest — yet transformative — reforms we can make as part of this process.

  • Require states and municipalities receiving funds to do accrual accounting. Governments must have a real accounting of their long-term liabilities, including infrastructure, on their balance sheet. The days of fake financial statements that ignore government’s long term promises needs to end.
  • Require municipalities to account for infrastructure as an accruing liability instead of a depreciating asset. Cities have an obligation to maintain infrastructure. It’s improper to pretend infrastructure is an asset that loses value as it ages. Like pensions, infrastructure is an inter-generational promise that is properly accounted for as a liability.
  • Require project applicants to do a financial return on investment. Many federal programs currently require an ROI analysis, but the emphasis is on non-monetary, social returns. These are fine as secondary criteria, but infrastructure projects need to make financial sense. Municipalities must know what kind of revenue stream is needed to maintain an infrastructure investment over multiple life cycles.

Finally, we believe you should consider the channels through which federal funds are distributed. There is strong evidence to suggest that working directly with mayors to fund local projects creates the greatest potential for innovation as well as the highest fiscal returns. Money given directly to state transportation departments should have a heavy emphasis on maintenance. We would avoid funding counties and other regional entities which, we have found, tend to build the lowest-returning of all infrastructure projects. 

Thank you for your consideration. If we can be of assistance to you or your team in this matter, please do not hesitate to contact me.

Sincerely,
Charles L. Marohn, Jr. PE AICP
Professional Engineer, Certified Planner
Founder and President of Strong Towns

Republished with kind permission of the author and Strong Towns, a membership organization. Originally published under Creative Commons Attribution-ShareAlike 3.0 Unported License.


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Housing advocates seek cap on Oregon’s mortgage interest deduction

Most of the billion-dollar housing subsidy goes to top earners. Realtors will fight to preserve the popular homeowner benefit

Oregon’s biggest – and most beloved – housing subsidy is subsidizing the wrong people.

That’s the perspective of a growing coalition of organizations looking to modify Oregon’s mortgage interest deduction, or MID, to make it more equitable for moderate- to lower-income homeowners.

These are the homeowners who need it, they say, not the state’s top 20 percent of income earners, who claim more than 60 percent of the state subsidy in terms of dollars.

“At a time when we are facing a severe housing crisis in Oregon, the biggest housing subsidy in our state is mostly giving money to the most well-off Oregonians – people who already have a home, who are in secure shelter for themselves and really do not need any help from the state to afford a home,” said Juan Carlos Ordóñez, communications director with the Oregon Center for Public Policy, or OCPP. “Reforming the MID is something that should have been done a long time ago. But Oregon’s housing crisis certainly adds urgency to this.”

The OCPP is joining the Oregon Opportunity Network, a statewide coalition of affordable housing and low-income services, in spearheading legislation for the 2017 legislative session in Salem. The two groups are joined by the Human Services Coalition of Oregon, Oregon Housing Alliance, Tax Fairness Oregon, and Habitat for Humanity of Oregon in calling for caps on the deduction and more equitable distribution of the subsidy.

Every homeowner knows about the MID, but not all reap the same benefits.

It allows homeowners who itemize their taxes to deduct from their taxable income the interest paid on mortgages up to $1 million. Considering that payments in the early years of any 20- or 30-year loans are largely interest, the amount can be substantial.

The deduction is expected to cost the state an estimated $1 billion in forgone income tax revenue for the 2017-19 budget.

While the details of the proposal are yet to be determined, the proposal lays out several modifications:

• Cap the amount of mortgage interest that can be deducted on state taxes at $10,000. At this level, proponents say, the majority of homeowners won’t be affected. A $300,000 mortgage, for example, under current interest rates would create $12,652 in interest payments its first year. (The median price for homes listed in Oregon is $319,000, but in Portland it is in excess of $400,000, according to Zillow.)

• Eliminate use of the deduction on a second home. Proponents of the changes emphasize that this would not affect rental housing, since landlords take different deductions for rental property. 
• Ultimately phase out the deduction for high-income households. 

While the proposed bill cannot obligate how the revenue generated from the cap would be spent, it does call for establishing “legislative intent” to use the tax savings on affordable housing, rental housing and homelessness prevention. 

Housing advocates say these modifications could generate at least $100 million biennially for housing needs across the state.

Another option proponents say they would consider instead of the cap would be to convert the deduction into a refundable tax credit applicable to all taxpayers, not just those who itemize their taxes. It could also make higher income brackets exempt.

“Basically the policy is upside down,” said Ruth Adkins, policy director with the Oregon Opportunity Network. “The Legislative Research Office has confirmed that Oregon’s mortgage interest deduction costs nearly a billion each biennium. And at the same time, we know we have a housing crisis across the state, but specifically folks in low- to moderate-income families, particularly in communities of color, are shut out of homeownership. And we also have a lot of current homeowners with low incomes who are facing the possibility of losing their homes due to needing help with repairs.”

Adkins said they want to see the recouped money applied to support homeownership, just at more middle- and lower-income brackets, such as starter home development and down-payment assistance for first-time homebuyers.

“We need to get this back in line with our values and what’s sensible as policy, so we can free up some revenue and invest it in homeownership for low- and moderate-income families,” Adkins said.“We need to get this back in line with our values and what’s sensible as policy, so we can free up some revenue and invest it in homeownership for low- and moderate-income families,” Adkins said.

On the other side of the argument is the Oregon Association of Realtors, which has said it would oppose any new cap on the deduction. From the Realtors’ perspective, the $1 billion subsidy is a good investment in homeownership, a logical link to the federal deduction, and an incentive for the second-home market, which benefits coastal and vacation-area communities.

The proposal would apply only to state income taxes, not the higher federal taxes, but from the Realtors’ perspective, it’s all a slippery slope. For them, and many homeowners, the mortgage interest deduction is the sacred cow of tax deductions.

The Realtors have long maintained that the deduction encourages first-time homeownership and that without it, homeownership rates would decline and could undermine the housing market.
It is also credited with keeping home prices elevated, with the market factoring the deduction as a kind of rebate on the sale price. Without it, or with it reduced, forecasters with the National Association of Realtors say, prices would decline.
•••
Mortgage interest has been a tax deduction since 1913, when the U.S. Constitution received the 16th Amendment sanctioning income taxes. It’s widely believed this was intended more as a benefit to businesses that considered interest payments as a cost of doing business, rather than for homeowners, who at the time were more likely to have paid cash outright for their homes.
That began to change after World War II, when homeownership became a pillar of the federal government. Today, homeownership rates hover around 65 percent nationally.

By the 1980s, under the tax reforms spearheaded by Oregon’s own Sen. Bob Packwood, interest deductions were scaled back. You could no longer deduct your credit card interest, for example. But the mortgage deduction remained intact as a subsidy to ensure that the dream of homeownership remained accessible to the middle class. Today, at the federal level, it’s a $75 billion a year nationwide subsidy for homeowners, even on their second home.

Realtors defend the deduction, saying the majority of people who file for it make $100,000 or less annually. In terms of actual dollars, however, the majority goes to the highest income brackets.
 “One of the weird features of the MID is because it’s based upon a deduction rather than a credit is that some people gain more benefit than others, based strictly upon the tax bracket that they’re in,” said Gerard Mildner, associate professor of real estate finance at Portland State University.
Higher-income homeowners in a higher tax bracket have a greater percentage deducted from their taxes.

“So what it does is give more of an incentive to people in high-income tax brackets to become homeowners because they’re simply borrowing at a lower after-tax rate than everybody else,” Mildner said.“So what it does is give more of an incentive to people in high-income tax brackets to become homeowners because they’re simply borrowing at a lower after-tax rate than everybody else,” Mildner said.

According to the Oregon Center for Public Policy, more than 60 percent of Oregon’s deduction goes to the top fifth of the state’s earners.

The Oregon Association of Realtors says the current policy, which echoes federal tax law, is a key incentive for homeownership at all income levels.

“We totally believe that the mortgage interest deduction is a very strong incentive for homeownership, and homeownership is the foundation for a stable financial future,” said Shawn Cleave, government affairs director with the Oregon Association of Realtors.

According to the U.S. Census, the homeownership rate was 55 percent in 1950. In 1995, it had reached 65 percent. The rate continued to climb, to 69 percent in 2004, before the housing market collapsed. The rate has declined back to 1995 levels. 

Oregon’s homeownership rate ended 2016 at just over 63 percent, making it the 15th lowest in the nation, Cleave said. 

Over the years, there have been numerous attempts to modify the mortgage interest deduction, from the national level on down. Most of those never got off the ground against the opposition of the National Association of Realtors and its affiliates, which boasts being the nation’s largest trade organization with more than 1.1 million members. In 2012, the national group successfully campaigned to amend Oregon’s constitution to prohibit a real estate transfer tax to fund low-income housing assistance.

Oregon Association of Realtors wields state and national resources through its political action committee, Achieving the American Dream Coalition. The Oregon Home Builders Association, which has also come out against changes to the deduction, is fortifying its Oregonians for Affordable Housing PAC in anticipation of the upcoming session. Combined, the two groups have raised more than half a million dollars in 2016. 

In 2015, a proposal to cap the mortgage interest deduction on second homes at $125,000 in income failed to move out of the House Revenue Committee, chaired by Rep. Phil Barnhart (D-Lane and Linn counties). Barnhart said he anticipates there will be more interest in working on this now than in previous sessions.

“I’m expecting to see several proposals for ways to improve Oregon’s housing-related tax subsidies in 2017, and I think it’s time we took a comprehensive look at these subsidies. We have to make sure housing subsidies in the tax code benefit the families who really need help with basic housing needs. We also need to make sure tax expenditures meant to encourage homeownership are having the intended impact at a reasonable cost given other priorities for scarce public dollars.”

He added that if members “continue to hear from their constituents that affordable housing needs to be a priority, I’m hopeful we’ll be able to make progress.”
•••
In small, coastal communities, the housing market is buoyed up by people who live elsewhere buying second homes. 

These communities rely on the vacation and tourism industry as their economic base, said Cleave, of the Oregon Association of Realtors. Without the deduction, “It would be a considerable reduction in purchasing,” he said.

Jerry Johnson is an economist with Johnson Economics in Portland, which specializes in working with developers and urban planning. He said that a second home mortgage is probably somewhat of an incentive, particularly for small, vacation-oriented counties.

“The elimination of the deduction on second homes would likely impact the Oregon Coast and Central Oregon, and may reduce second-home ownership marginally and/or reduce pricing. The impact would probably not be that pronounced though,” he said.“The elimination of the deduction on second homes would likely impact the Oregon Coast and Central Oregon, and may reduce second-home ownership marginally and/or reduce pricing. The impact would probably not be that pronounced though,” he said.

Regarding a $10,000 cap on interest, Johnson said it would probably not affect most homeowners, particularly first-time buyers.

“The impact of this on first-time homebuyers is likely negligible, as they would not typically have over $10,000 in annual mortgage interest in the current rate environment,” Johnson said. “This likely doesn’t have a substantive impact on homeownership rates. It would seem like the proposed change would dampen some pricing at the upper end of the market, as well as second-home sales. This could be helpful for housing costs in areas such as the Oregon Coast and Central Oregon, but these economies also benefit from the construction of second homes.” 
But buyers of coastal vacation homes don’t need a housing subsidy, say proponents of the change.

“Our goal is to not take it away from people for ordinary folks,” said Ordóñez, of the Oregon Center for Public Policy. “It’s only going to affect those at the very top of the income scale who don’t need a subsidy. To the industry, we would say – look, this is a poorly designed way of promoting homeownership. It’s not promoting homeownership. If your industry benefits from increased homeownership, you will do better under our plan, which will actually increase homeownership.”

Mildner, with PSU, said the change could dampen second-home purchases if second mortgages no longer qualify. However, those mortgages could qualify for the deduction if they’re absorbed in refinancing the initial home’s mortgage. That could also mean that home prices could dip.
“The supply will probably stay the same,” Mildner said. “But it will be a demand change, and it’s going to be a demand change to probably cause the price of homes to fall a little bit at the top end of the market.”
•••
Under Oregon’s tax code, the stated purpose of the deduction is “to promote homeownership by lowering the cost of mortgages.”

“It’s not meeting the one stated goal,” Ordóñez said. “If one stops to think about it, if that’s the goal, then you’ve designed the wrong kind of policy altogether to achieve that goal. Because we have a subsidy designed to steer most of the tax benefits to those at the top. To those who already own a home. It’s structured in a way to not accomplish the goal.

“That’s not just a theoretical argument. We know from the data that the deduction is not promoting homeownership,” Ordóñez said. “Oregon ranks poorly to some states that don’t even offer the deduction.”“That’s not just a theoretical argument. We know from the data that the deduction is not promoting homeownership,” Ordóñez said. “Oregon ranks poorly to some states that don’t even offer the deduction.”

Ordóñez was citing information from the Census’ American Communities Survey, which showed that at the close of 2015, Oregon’s homeownership rate, at 61 percent, was lower than Texas, Alaska, Washington, Florida and Wyoming, which do not have state income tax and, therefore, no state deduction.

Across Oregon, many communities are facing a housing deficit. In Portland, the housing market has not kept pace with the number of people moving here each year. In rural communities, a dire need exists for simply supplying low-income housing. The Oregon Housing and Community Services estimates that the state is short more than 100,000 units for extremely low-income Oregonians. Meanwhile, prices continue to increase. Between July 2015 to July 2016, home values in the state rose nearly 12.8 percent, according to Oregon housing bureau figures. 

“We know that in communities around the state, there just are not homes at the lower end of the market,” Adkins said. “The starter homes are just not there. Our nonprofit members who do homeownership counseling have many, many qualified families who are ready to go with steady incomes and they just cannot find anything on the market, whether it’s in a rural community or in Portland.”

Cleave acknowledges the imbalance and said it’s one reason prices aren’t likely to dip even with changes to the mortgage interest deduction. “Oregon has one of the worst supply and demand scenarios,” he said.

And that, housing advocates say, is an argument for modifying the subsidy to focus on housing options for lower- to middle-income families.

“If not now, when?” Ordóñez said. “We are facing the most severe housing crisis that this state has faced in quite a long time. And if in this type of climate you cannot take a hard long look at what is the biggest housing subsidy, then you really can’t do anything to improve public policy in this state – a policy that anybody who takes a look at it quickly recognizes that it’s a wrong-headed policy.”

“We absolutely need a lot more affordable housing,” said John Miller, a Realtors and the former executive director for the Oregon Opportunity Network.

“They’re is just a complete lack of inventory. For a Realtor who works with the entry-level market, this would be a huge help. If you’re not able to get people into their game, there’s either got to be a correction or you’ve killed your market. This would be a great benefit.”

The Oregon Association of Realtors will introduce an initiative in the upcoming legislative session for first-time homebuyers savings accounts. The initiative would be similar to programs in Colorado and Montana, Cleave said.

Regardless of that demand, Cleave maintains that the incentive is still needed to encourage first-time homebuyers in particular.

Ultimately, he said, the changes are about a money grab to plug the state’s budget deficit, namely by shoring up funding for PERS – the contentious Public Employees Retirement System.
“It’s not if it’s good policy or bad policy,” Cleave said. “The big issue is the state’s budget.”“It’s not if it’s good policy or bad policy,” Cleave said. “The big issue is the state’s budget.”

There’s no question that by the Realtors’ surveys, the vast majority of homeowners love having the subsidy; however, the National Association of Realtors’ 2015 report on home buyer and seller trends noted that in addition to the basic desire of people to own their own home, job-related relocation or a move were among the primary reasons for purchasing a home. Other primary reasons included affordability, financial security and a change in family situation. Tax benefits ranked 14 out of 16 reasons published in the survey, including “other.”

What is being proposed for the state would not affect the federal deduction.

At the federal level, lawmakers have boasted plans to implement major tax reforms in the coming year. According to some media reports, the nominee for secretary of the Treasury, Steven Mnuchin, has said people should expect “the largest tax change since Reagan,” including new caps on mortgage interest deductions.

Reprinted with kind permission of the author, the editor of Street Roots News, “For Those Who Cannot Afford Free Speech.”  Contact the author, Joanne Zuhl at joanne@streetroots.org.


A roundup of items from Common Dreams climate desk that should be of interest to any person interested in leaving a planet conducive to human habitation for future generations to enjoy.
2014 Was Hottest Year Ever Recorded.  Then It Was 2015.
Now It’s 2016.

by Andrea Germanos, Common Dreams staff writer

For the third year in a row, the world experienced its warmest year on the books, global scientists have determined.

The new assessments come from the National Oceanic and Atmospheric Administration (NOAA), the National Aeronautics and Space Administration (NASA), and the UK’s Met Office, as well as the World Meteorological Organization (WMO), which relies in part on data from those agencies. The findings also back up the declaration made earlier this month by the EU’s Copernicus Climate Change Service.

“2016 is remarkably the third record year in a row in this series,” said Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies (GISS). “We don’t expect record years every year, but the ongoing long-term warming trend is clear.”

NOAA’s calculations put the average temperature across global land and ocean surfaces at 1.69°F (0.94°C) above the 20th century average, while NASA puts the globally-averaged temperatures for the year at 1.78°F (0.99°C) warmer than the mid-20th century average.

NOAA produced the visualization [above] showing annual temperatures since 1880 compared to the 20th-century average, and the graphic below it:

Meteorologists Jeff Masters and Bob Henson, citing data from climatologist Maximiliano Herrera, also note:

From January through December 31, 2016, a total of 22 nations or territories tied or set all-time records for their hottest temperature in recorded history. This breaks the record of eighteen all-time heat records in 2010 for the greatest number of such records set in one year. Just one nation or territory—Hong Kong—set an all-time cold temperature record in 2016.
NOAA also lists as highlights of its global assessment for the year:

  • During 2016, the globally-averaged land surface temperature was 2.57°F (1.43°C) above the 20th century average. This was the highest among all years in the 1880–2016 record, surpassing the previous record of 2015 by 0.18°F (0.10°C). 
  • During 2016, the globally-averaged sea surface temperature was 1.35°F (0.75°C) above the 20th century average. This was the highest among all years in the 1880–2016 record, surpassing the previous record of last year by 0.02°F (0.01°C).
  • Recent trends in the decline of Arctic polar sea ice extent continued in 2016. When averaging daily data from the National Snow and Ice Data Center, and noting that there was an unanticipated sensor transition during the year, the estimated average annual sea ice extent in the Arctic was approximately 3.92 million square miles, the smallest annual average in the record.
  • The annual Antarctic sea ice extent was the second smallest on record, behind 1986, at 4.31 million square miles. Both the November and December 2016 extents were record small.

Reacting to the record warmth, David Titley, director of the Center for Solutions to Weather and Climate Risk at Penn State University, told the Washington Post: “We are heading into a new unknown. It’s like driving on a new road, at night, at speed, without headlights, and looking only through the rearview mirror. Hope we don’t meet Thelma and Louise along the way.

For climate advocacy group 350.org, the findings from the agencies further ground its call to keep fossil fuels in the ground—a call whose urgency is made more clear by the incoming Trump administration, which, as Common Dreams wrote, “has given signs that it will go full-speed ahead at driving further climate change. Among other things, Donald Trump has chosen climate change skeptic and “fossil fuel industry puppet” Scott Pruitt to head the EPA, while the president-elect himself falsely declared last month that “nobody really knows” if climate change is real, and has also threatened to cancel the Paris climate deal.”

And as Astrid Caldas, climate scientist with the Climate and Energy program at the Union of Concerned Scientists, writes Wednesday, “many of the Cabinet nominees in the new administration insist that yeah, there may be warming, but we don’t know the actual role of human emissions, and/or we cannot tell what is going to happen. Those are absurd statements.” She adds:

To deny scientific facts and data to make a misleading point meant to cater to one’s interests will NOT change the facts or the data—and yet, we are seeing it every day at the nominations hearings, especially when it relates to climate (not to mention for the past decade or longer). To say that “we don’t know what will happen” is an actual lie. We DO know what will happen, temperatures will keep going up. What we don’t know is the pace and magnitude of global warming—because it depends on the actual amount of emissions dumped in the atmosphere, an obviously unknown fact which depends on our energy choices, which in turn depend on the implementation of the Paris Agreement, on the fulfillment of each nation’s pledges, the successful transition to renewable energy, and the timeline of all these actions.

“2016 was the year climate change took hold of the world more clearly than ever, with serious humanitarian and environmental consequences. No part of the world can now avoid the fact that climate change is striking harder and faster than many scientists predicted, and that its impacts are taking a higher toll on the most vulnerable communities,” said 350.org Climate Impacts Program coordinator Aaron Packard. “As important as marking that the record is yet again broken, we need to loudly mark what needs to be done to hold back such destruction: we need to keep fossil fuels in the ground. To make that clear, that means no new oil, coal, or gas projects.”

“Decades of progress from scientists and engineers has made renewable energy the cheapest and cleanest source of energy in the world, creating the technological momentum that is matched by the millions of people in all parts of the world demanding climate action,” Packard continued. “Elected representatives must heed this momentum—it won’t cost the earth to keep fossil fuels in the ground, but it will cost the earth if they are dug up.”

Head in Sand Bigly
 
On Day One, Trump’s WhiteHouse.gov Scrubs Every Mention of Combating Climate Change
by Andrea Germanos, Common Dreams staff writer

Soon after Donald Trump took his oath as the 45the President of the United States, the new White House web page for his administration went up. Among the key differences from the previous administration’s—the lack of any reference to the threat of climate change.

While climate change was listed as a top issue on the Obama White House official site, the new page now lists ‘America First Energy Plan’ as among the top six issues.

The new page states: “For too long, we’ve been held back by burdensome regulations on our energy industry. President Trump is committed to eliminating harmful and unnecessary policies such as the Climate Action Plan and the Waters of the U.S. rule” That is the only use of “climate” on the page.

Screenshot from the new Trump administration’s White House siteThe Climate Action Plan refers to Obama-era climate regulations, and the Waters of the U.S. rule, as the Washington Post explains, “is an EPA action to protect not only the nation’s largest waterways but smaller tributaries that critics think should fall under the jurisdiction of states rather than the federal government,” a rollback of which could “end up benefiting some Trump-related businesses.”
The “energy plan” page adds that the new administration “will embrace the shale oil and gas revolution” and is “committed to clean coal technology,” referring to carbon capture and storage—a costly technological process that has so far proven a failure

The page adds: “President Trump will refocus the EPA on its essential mission of protecting our air and water”—though it stands to be “every polluter’s ally” if Trump’s pick to head the agency, Scott Pruitt, is confirmed.

The Obama White House site, in contrast, listed climate change as a top issue, stating: “President Obama believes that no challenge poses a greater threat to our children, our planet, and future generations than climate change.”

Addressing that magnitude, Michael Brune, executive director of the Sierra Club, said, “Minutes after he was sworn in, any illusion that Trump would act in the best interests of families in this country as President were wiped away by a statement of priorities that constitute an historic mistake on one of the key crises facing our planet and an assault on public health.”

Rather than a plan, Brune said it’s a “polluter wishlist that will make our air and water dirtier, our climate and international relations more unstable, and our kids sicker.”

At the same time, the pledges for more fossil fuel extraction are not at all surprising, said 350.org executive director May Boeve. “Trump’s energy plan is par for the course of the President’s climate denial, but it’s nonetheless alarming for the movement to keep fossil fuels in the ground.”
“Fulfilling this plan would not only set back years of progress we’ve made towards protecting the climate, but would undoubtedly worsen the devastating impacts of the climate crisis, from rising sea levels to extreme weather. This is not a plan for a brighter future—it’s a direct obstacle to a livable future, and we will do everything we can to resist it,” she said.

As New York magazine notes, also missing from the new White House site are sections on LGBTQ equality, civil rights, and healthcare.
 
Trump vs. The Planet: Climate in Crosshairs of Executive Pen
by Andrea Germanos, Common Dreams staff writer

Given what is known about his cabinet picks and plans for fossil fuel extraction and executive actions, the former reality TV star who became the 45th President of the United States on Friday appears poised to kick off a “deregulatory agenda” and take actions to fast-track climate catastrophe.

Michael Halpern, deputy director of the Center for Science and Democracy at the Union of Concerned Scientists, predicts the new administration to continue its shock therapy strategy:
A major strategy has been—and will likely continue to be—to institute radical proposals by overwhelming the public with an avalanche of activity and by attempting to distract us with the president’s cult of personality.

And given the corporate cabinet, a climate-denying transition team, and a dearth of debate on appointees, Halpern expects “significant industry influence over the role of science in government decisions.”

Such decisions could be moments away, as it appears Trump is ready to make swift use of his executive pen. Bloomberg reports Friday that his advisers have prepared a short list of energy and environmental policy changes he can take within hours of being sworn in Friday, including steps to limit the role that climate change plays in government decisions.

The list includes nullifying President Barack Obama’s guidelines that federal agencies weigh climate change when approving pipelines, deciding what areas to open for drilling or taking other major actions, two people familiar with Trump’s transition planning say.

Trump also is being counseled to suspend the government’s use of a metric known as the social cost of carbon until it can be reviewed and recalculated, and to rescind a 49-year-old executive order that put the State Department in charge of permitting border-crossing oil pipelines.
Reuters adds:

“He is committed to not just Day 1, but Day 2, Day 3 of enacting an agenda of real change, and I think that you’re going to see that in the days and weeks to come,” Trump spokesman Sean Spicer said on Thursday, telling reporters to expect activity on Friday, during the weekend and early next week.

Trump himself laid out after Election Day what he’d do on his first day in office, including allowing the Keystone XL pipeline to move forward; lifting restrictions on fossil fuel production; and canceling “billions in payments to U.N. climate change programs.”

Echoing those promises, billionaire fracking taycoon Harold Hamm told CNBC Thursday that getting rid of the Obama administration’s energy regulations would be a day-one priority, saying, “I think it’ll be immediate.” He added: “[Overregulation] is hurting everybody.”

As the Washington Post wrote, scientists were quick to see the anti-science gauntlet being laid down and quickly mobilized. From its reporting in December:

Petitions and open letters have poured out in the past couple of weeks, including a call by nearly two dozen Nobel laureates that Trump defend “scientific integrity and independence” and a petition by more than 11,000 female scientists demanding that he respect inclusiveness and the scientific process. The efforts underscore how these individuals could be at the front lines of an oncoming political clash.

Also among their efforts was a race to archive government climate data before Jan. 20—a Herculean task Wired delved into on Thursday—and earlier this month outgoing Department of Energy Secretary Ernest Moniz announced a new “scientific integrity policy” to protect at-risk policies, as Common Dreams wrote.

As Michael Slezak wrote Friday at the Guardian, “regardless of what climate deniers (yes, deniers) like Trump may say about the science, the stark reality is that it is happening now.” “We are no longer fighting to stop climate change, but fighting to stop a runaway catastrophe,” he added.

(These three articles are licensed under a Creative Commons Attribution-Share Alike 3.0 License)

With First Executive Order, Trump Strikes Blow to Obamacare
by Nika Knight, Common Dreams staff writer

President Donald Trump’s very first executive order was a move toward fulfilling his campaign promise to gut Obamacare.

The executive order, signed hours after Trump’s swearing-in on Friday, directed federal agencies to “ease the burden of Obamacare,” reported The Hill.

The Hill explained that the order was broad and unspecific, and it is unclear exactly what the immediate results of the order will be:

Trump signed the order in front of reporters at the Resolute Desk in the Oval Office, one of his first official acts as president. 

The order did not direct any specific actions, instead giving broad authority to the Department of Health and Human Services and other agencies to take actions available to them under the law to ease regulatory requirements from ObamaCare. 

It pushes agencies to target provisions that impose a “fiscal burden” on a state or a “cost” or “regulatory burden” on individuals or businesses.

“It is not clear what practical effects will come from the order,” The Hill added.
However, the New York Times observed that the order’s lack of specificity means that its ramifications could be extremely far-reaching.

“[I]ts broad language gave federal agencies wide latitude to change, delay or waive provisions of the law that they deemed overly costly for insurers, drug makers, doctors, patients or states,” wrote the Times, ”suggesting that it could have wide-ranging impact, and essentially allowing the dismantling of the law to begin even before Congress moves to repeal it.”

The order came among Trump’s flurry of other first-day decisions, which included indefinitely suspending a scheduled cut to mortgage insurance premiums, raising middle-class borrowers’ housing costs by about $500 a year, as Common Dreams reported.

“Donald Trump’s first actions as president makes clear that he’s on the side of bankers and billionaires. By raising mortgage costs and instructing federal agencies to begin dismantling the ACA, Trump is catering to the interests of Wall Street at the expense of working families,” said Stephanie Taylor, co-founder of the Progressive Change Campaign Committee.

“However, today’s historic Women’s March and nationwide protests also make it clear that the resistance has begun,” Taylor added. “The Progressive Change Campaign Committee and millions of Americans will fight Trump every step of the way.”

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

Health Care Repeal Is a Stealth Tax Break for Millionaires
Josh Hoxie, Institute for Policy Studies

Great magicians are masters of diversion. They attract our attention with one hand while using the other to trick us into thinking a supernatural act is taking place.

But even the best street performers could learn a lesson from the folks in Congress who are trying to repeal the Affordable Care Act, also known as Obamacare.

When we talk about repealing Obamacare, we almost never talk about the windfall payday it would bring to multi-millionaires and billionaires. In fact, this massive tax cut is the proverbial card hiding in the sleeve of lawmakers pushing repeal.

A new study from the Center on Budget and Policy Priorities shows the 400 richest Americans, a group whose average annual income tops $300 million each, would get a combined annual tax cut of $2.8 billion if the Affordable Care Act is repealed.

In other words, people who already have more money than they could spend in a dozen lifetimes would get a massive pile of cash.

Meanwhile, those who make less than $200,000 per year — also known as “the rest of us” — would see no benefit. That’s because the two taxes that funded the expansion in health care coverage included as part of Obamacare don’t extend to these moderate-income households.
And many of us would do worse.

In fact, about 7 million low-income people would actually see their taxes go up if the law’s repealed, since they’d lose insurance premium tax credits that were enacted as part of the bill.
So, to be perfectly clear on this point, repealing Obamacare equals payday for the wealthiest households and higher taxes for the poorest households — millions of whom would also lose their health coverage.

Remember the story of Robin Hood? It’s just like that, but backwards.

Poll after poll shows Americans have no idea how concentrated wealth inequality is today — it’s far worse than most suspect.

A report I co-authored last year looked at the 400 wealthiest individuals in the country. This group together owns more wealth than the entire GDP of India, a country with over a billion people.
The report also showed this great concentration of wealth splits largely, although not exclusively, along racial lines. The 100 wealthiest Americans, none of whom are black, today own more wealth than the entire African-American population combined.

Unsurprisingly, most of us would like to live in a much more egalitarian society. If we can’t swing it, economist and author Thomas Piketty warns, we’re heading towards a hereditary aristocracy of wealth and power, where the children of today’s billionaires will dominate our economy and our government.

As we look back at the Obama legacy, we see a number of efforts aimed at beginning to bridge that massive wealth divide. From expanding opportunities for low-income children and families to asking the ultra-wealthy to pay their fair share, progress has been made on this front in the past eight years. The Affordable Care Act was one of these efforts, and it touched directly on issues of life and death.

Don’t be fooled by the smoke and mirrors of today’s illusionists: Repealing it will directly counteract this progress. It will further concentrate wealth into fewer hands and strip low-income families of what little resources they have.

Josh Hoxie directs the Project on Taxation and Opportunity at the Institute for Policy Studies. Distributed by otherwords.org

The Oregon Center for Public Policy — an OregonPEN pick as a best nonprofit investment — has published a thoughtful report by OCPP policy analyst Janet Bauer on that considers how best to address one of the biggest funding shortfalls Oregon faces, the huge gap in funding for Oregon’s Medicaid program, known as the Oregon Health Plan.

As the new federal administration prepares to gut supports for health funding derived from taxes on high incomes, it is vital that Oregon not allow support for OHP to drop further. As an extreme “donor state” — a state that sends more to the federal government in taxes than it receives in federal spending — Oregon cannot afford to cut one an effective programs that is funded mainly through federal funds.

Oregon Should Turn to Health Industry to Fill Medicaid Budget Gap
– Janet Bauer, Policy Analyst, OCPP

It is particularly appropriate for Oregon to turn to the health care industry to fill a looming budget hole in its Medicaid program, the Oregon Health Plan. A pillar of the state’s health care system, the Oregon Health Plan insures over one million Oregonians. Unfortunately, Oregon’s Medicaid program faces a budget shortfall, in part due to a reduction in federal funds.

The Affordable Care Act, including its expansion of Medicaid, has benefitted much of the health care industry. So, it is fitting that the health care industry chip in more to support Oregon’s Medicaid program, allowing Oregonians to continue to receive the health care they need.

Medicaid: A pillar of Oregon’s health care system

It is up to states to decide whether to run a Medicaid program. Under the program, states work within broad federal guidelines to provide health insurance to certain residents with modest incomes. The federal government reimburses states for much of the cost.

Oregon’s Medicaid program, the Oregon Health Plan (OHP), provides health insurance to over one million Oregonians — more than one in four residents. Medicaid plays a particularly vital role for Oregon children: Nearly 42 percent of Oregonians under age 19 are insured by OHP.[1]

Oregon’s expansion of the Oregon Health Plan in 2014, encouraged by the Affordable Care Act, has been the key driver in the sharp increase in the portion of Oregonians with health insurance. Oregon’s insured rate jumped from 85.3 percent in 2013 to 93.0 percent in 2015, largely due to OHP’s coverage of hundreds of thousands of additional Oregonians.[2]

Picture

Medicaid is great for Oregon’s economy

Medicaid is a great deal for Oregon.
When Oregon invests in Medicaid, it triggers an investment by the federal government, pumping billions of federal dollars into the state’s economy.

How much a state receives from the federal government depends on a state’s economic circumstances and the number of people who sign up.[3]  Oregon’s federal Medicaid “match” for 2017 is about 64 percent.[4]
That means for every dollar Oregon spends in the Oregon Health Plan, the federal agency puts in $1.81 — a big bang for the state buck.

In some cases, the federal government contributes even more. The federal health agency pays for nearly all the costs for insuring certain groups of children.[5] Also, under the Affordable Care Act, the federal government currently pays 100 percent of the cost of insuring the 400,000 Oregonians added to Oregon’s Medicaid program as a result of the Act.[6] In 2017, the federal contribution for this expansion group will begin slowly phasing down, reaching 90 percent in 2020, where, under current law, it will remain. That means, in 2020, for every dollar Oregon spends on the Oregon Health Plan for that population, the federal government will chip in $9.

Overall, the federal government pays for the lion’s share of the Oregon Health Plan budget. In the 2017-19 budget period, federal funds are expected to cover about 75 percent of OHP, while Oregon contributes the remaining 25 percent.

Medicaid not only protects the health of Oregonians, it also boosts the economy by bringing in billions in federal dollars. In the upcoming budget period, federal Medicaid payments will pump about $11.2 billion into Oregon — dollars that will flow to communities throughout the state.[7] For perspective, federal Medicaid spending in Oregon in 2017-19 will be more than the economic output of Oregon’s agricultural, forestry, fishing and hunting industries over the same period.[8]


Picture

Oregonians and the health industry contribute to the Oregon Health Plan

Where does the money for Oregon’s one-quarter share of this pillar of the state’s health care system come from? At present, Oregon taxpayers are the single largest source of state funds for OHP. About 8 percent of the OHP budget comes from the General Fund, which primarily consists of state income taxes paid by Oregonians. Current estimates show that the General Fund is expected to contribute about $1.1 billion to OHP in the 2017-19 budget period.[9]

The second largest source of the state’s Medicaid share – about 7 percent of the OHP budget – is a 5.3 percent tax on hospital net patient revenue.[10] This tax on hospitals — known as a health care provider tax — is expected to bring in about $1 billion in the 2017-19 biennium.[11]

The remainder of the budget comes from smaller sources of revenue, which include tobacco taxes, tobacco settlement funds, and other funds.[12] Resources for about 6 percent of the OHP budget are not yet identified and represent a budget shortfall.

The Oregon Health Plan faces a budget shortfall

The Oregon Health Plan faces a funding shortfall of $882 million in the upcoming 2017-19 budget period.[13]

About half of the budget gap is due to the fact that, starting in 2017, the federal government will no longer pay the full cost of the Medicaid expansion. In the 2017-19 biennium, the federal government will pay 94 percent of the cost of covering the new group.[14] Even then, Oregon will still be getting a great deal for insuring hundreds of thousands of residents, and the state will need to find a way to pay for its relatively small share of the costs.

Another driver of the budget gap is medical inflation. Oregon is breaking ground in controlling what otherwise might be runaway health care costs by instituting innovative health care coordination. Nevertheless, program costs rise by 3.4 percent per enrollee per year.[15]

Yet another cause of Oregon’s Medicaid funding gap is the expiration of federal funds that have supported Oregon’s innovative efforts to coordinate care and lower overall program costs.[16] In the absence of these funds, Oregon will need to invest in these efforts with its own dollars. While undoubtedly this will be money well-spent — since coordinated care and healthier enrollees can have large budgetary payoffs — it is a factor in the shortfall.

Unless Oregon finds a way to fill the budget gap, many Oregonians will lose health benefits or access to doctors — or both — and the state will lose nearly $1.5 billion in federal match dollars.
Keeping all Oregonians healthy requires additional resourcesAll Oregonians deserve a chance to be healthy, and yet many in our state lack access to adequate health services. Some 280,000 Oregonians, including many children, lack health insurance.[17] This is due to the fact that health insurance is still too expensive for many, as well as that our health care system still excludes some state residents because of their immigration status.[18]

Having health insurance, moreover, is no guarantee of getting necessary care. Oregonians with health insurance can find that essential health services are out of reach due to cost, inadequate coverage, discrimination, limited providers, and other barriers to care.[19]

Beyond filling the present funding gap, Oregon must invest more to ensure that all Oregonians can get the health care they need. Doing so would improve the health, quality of life, and economic potential of the state’s residents and the communities they live in.

Oregon should enact provider taxes to fill the Medicaid budget hole

Oregon should cover its Medicaid budget gap by increasing and establishing additional health care provider taxes. Specifically, lawmakers should increase the existing tax on hospital revenues, reinstate a tax on managed care organizations, and consider new taxes on other types of health care providers.

Looking to health care providers to fill the Medicaid budget gap is appropriate, given that the Affordable Care Act, and the Medicaid expansion in particular, have proved to be a boon for much of the health care industry. For example, net patient revenues at Oregon hospitals jumped 7.6 percent and 8.1 percent in 2014 and 2015, respectively, since the time major federal reforms came into effect.[20] By contrast, in the two years prior to reform, annual hospital net patient revenue increased about 2 percent or less.[21]

At the same time that hospitals have seen a sharp increase in revenues, their charity care outlays have plummeted because many more Oregonians are able to pay for hospital care through newly-acquired insurance. In 2013, prior to major reforms, Oregon hospitals provided $842 million in charity care. By 2015, that number dropped to $340 million — a 60 percent decline.[22]

Charity care is a justification for the non-profit status of Oregon hospitals. Nearly all Oregon hospitals are non-profits, and as such are exempt from business income taxes and property taxes. However, even as revenue has climbed and charity care has shrunk, Oregon non-profit hospitals continue to pay no business income taxes or property taxes.

Providers themselves can benefit from the Medicaid taxes they pay. Some of the tax dollars may return to them by virtue of the generous federal match and resulting increased Medicaid spending by the state, much of it going to pay for their services to the insured.

When used to fund Medicaid, state provider taxes need to be properly designed.

While there is no limit on how much a state can raise from all providers (see Appendix A), the federal government has guidelines for how states structure provider taxes so that the revenues will qualify for the federal matching funds (see Appendix B).

In accordance with those guidelines, Oregon should:

Increase the current tax on hospital revenues

As mentioned above, Oregon hospitals have benefited handsomely from federal health reform.[23] Accordingly, the legislature should raise a significant portion of the Medicaid budget goal by increasing the state’s tax on hospitals. The American Hospital Association itself recognizes the importance of provider taxes in financing Medicaid.[24]

Oregon hospitals have contributed more to OHP than they do now. As of October 2014, the hospital tax was 5.8 percent, a level that was lowered to the current 5.3 percent rate effective April 2016, when the state determined it did not need the higher revenues at that time.[25]
Governor Brown has proposed increasing the state’s tax on hospitals, with the details of the proposal reportedly still to be worked out.[26] Her budget proposes biennial revenues from a revised tax on hospitals at $379 million, as shown in Table 1.[27]

Reinstate a tax on managed care organizations

Another option for helping to fill the Medicaid budget gap is reestablishing a tax on managed care organizations, a proposal also included in Governor Brown’s 2017-19 budget. While Oregon currently has two types of provider taxes — on hospitals and nursing facilities — most states use three or more types of provider taxes to pay for their Medicaid programs (see Appendix C).
Indeed, in the past, Oregon had a third provider tax. A tax on Medicaid managed care organizations helped to pay for health insurance for Oregon children from 2009 to 2013. During that time period, Oregon levied a 1 percent tax on the payments that Medicaid managed care companies received from the state to serve OHP enrollees. The tax was estimated to generate $40.1 million in 2011-13.[29]

While the details of the Governor’s proposed tax on managed care organizations are reportedly yet to be determined, this is a revenue source the Oregon legislature ought to pursue.
Consider new taxes on other health care providers.

Oregon should consider other sources of revenue from providers to avoid program cuts and protect this pillar of Oregon’s health care system. Indeed, other health care providers financially benefit from the state’s expanded Medicaid program.

According to federal guidance, revenue generated from a variety of health care provider types may qualify for federal Medicaid match. These provider types include intermediate care facilities (which provide comprehensive and rehabilitative services to people with intellectual disabilities), physicians, nurses, dentists, chiropractors, psychologists, emergency ambulance services, ambulatory surgical centers, and free-standing laboratory and X-ray services. Outpatient prescription drugs may also be taxed.[30]

Oregon would be in good company in turning to these providers to help finance the state’s share of Medicaid. Many states ask these types of practitioners to contribute to operating their Medicaid programs (see Appendix C).

Oregon can also tap other health industry players to fill the Medicaid budget gap

States can raise funds for Medicaid from non-providers in the health industry without federal restriction. Some states finance Medicaid through taxes on health insurance premiums and health insurance claims. Unlike taxes on Medicaid managed care payments, these kinds of taxes are not considered provider taxes by the federal government and, therefore, do not need to conform to federal rules governing provider taxes.[31]

Together with the Medicaid managed care tax, Oregon has imposed a tax on insurers in the past to pay for children’s health insurance. From 2009 to 2013, Oregon levied a 1 percent tax on health insurance premiums in Oregon, including premiums of Oregon’s Public Employees Benefit Board (PEBB) health plans. The taxes generated an estimated $129.5 million in 2011-13, as shown in Table 1.[32]

In her 2017-19 budget, Governor Brown proposes to levy a tax on health insurance premiums. Her published budget does not clarify whether it applies to PEBB plans. With the tax on managed care organizations described in the section above, the proposed premium taxes are expected to generate $151 million over the biennium, as shown in Table 1.[33]

Official estimates of revenues from a health insurance claims tax in Oregon are not available as of this writing. Table 1 includes figures for a Michigan tax of this type and an estimate of the level of biennial revenues that might be generated in Oregon — $252.1 million — should the state choose to institute such a tax.

Conclusion

Medicaid is a critical part of Oregon’s social infrastructure. Through the Oregon Health Plan, it provides health insurance to one in four Oregonians, nearly all of whom would otherwise go without coverage and struggle to get preventive and other needed care. The health care industry has benefitted greatly from the Affordable Care Act’s expansion of Medicaid.

Accordingly, it makes sense to look to the health care industry to address OHP’s funding needs.


Appendix A: No federal limit on total provider taxes

There is no limit on the total amount that a state can raise from provider taxes to pay for the state’s share of Medicaid costs.

There has been some confusion on this issue, owing to language in a federal statute that has expired. That statute contained a provision limiting the amount a state could raise through provider taxes to 25 percent of a state’s total contribution. A subsequent statute, however, sunset the limitation as of 1995. Congress has not reinstated the limit since.

An example of this confusion appeared in a document on program financing by the Medicaid and CHIP Payment and Access Commission (MACPAC), Congress’s independent policy analysis office. While the document initially the claimed that there is a 25 percent limit, the commission later issued a correction, recognizing the error:  Erratum: Please note that the statement on p. 175, “The amount of Medicaid funding that may be generated through health-care related taxes generally cannot exceed 25 percent of the total non-federal share in a given year” was in error. This was a time-limited provision in statute that has since expired.[34]

Appendix B: Federal guidelines for provider taxes

Federal guidelines specify how states can structure a tax on health providers to generate revenue that will qualify for the federal match. According to the guidelines, the tax must meet several tests:[35]

  • Broad-based. The tax must be levied on all providers within a specified class of providers, not just providers that serve Medicaid recipients. Federal law specifies 19 classes of providers used to ensure this standard. These include services of inpatient hospitals, outpatient hospitals, nursing facilities, intermediate care facilities for people with intellectual disabilities, physicians, home health care providers, managed care organizations, ambulatory surgical centers, dental centers, podiatrists, chiropractors, optometrists, opticians. They also include psychological services, therapist services, nursing services, laboratory and X-ray services provided at free-standing facilities, and outpatient prescription drugs.
  • Uniform.The tax must be the same rate for all providers within the class
  • No hold harmless effect. States cannot provide a direct or indirect guarantee that providers will receive their money back through state reimbursements for providing Medicaid services. Several “tests” determine whether states offer a direct or indirect guarantee of repaying providers. The first is whether the tax is applied at a rate below 6 percent of net patient revenues. This threshold is known as a “safe harbor,” since if met, no other test regarding distributive impacts is needed. If the tax exceeds the safe harbor threshold, a second test must be met, namely that more than 75 percent of the taxed providers do not receive more than 75 percent of the revenues from the tax through higher Medicaid reimbursement rates. If a state violates the “75/75” rule, the revenues of the tax can still go to support the program but would not be eligible for federal match.

Federal officials are allowed to waive the broad-based and uniform requirements if a state can show that the net impact of the tax is “generally redistributive” and the amount of the tax is not directly related to Medicaid payments.

Oregon’s hospital tax is currently below the 6 percent safe harbor threshold, at 5.3 percent of net patient revenues. The federal threshold has been temporarily lowered to 5.5 percent in the past.[36]

Appendix C: Types of providers that fund state Medicaid programs

States currently use taxes on a range of health industry providers to finance their Medicaid programs. The following chart shows the recent incidence of various types of provider taxes, including in Oregon.

Reprinted with kind permission of the Oregon Center for Public Policy (OCPP). OCPP does in-depth research and analysis on budget, tax, and economic issues to improve decision making and generate more opportunities for all Oregonians. Footnotes available in original.

The Price is Wrong

Why This Price Is Wrong – LeeAnn Hall, People’s Action

For most people, prescription drugs are a lifeline. For Representative Tom Price, Donald Trump’s health secretary nominee, they’re a source of profits.

Indeed, hundreds of thousands of dollars in drug and health corporation investments line the pockets of the Georgia Republican Trump picked to lead our nation’s health care policy. That’s an unacceptable conflict of interest.

Life-saving drugs are priced out of reach for far too many Americans, with millions skipping needed medications because of drug corporation price-gouging.

Take the case of insulin, which people with diabetes depend on for their survival. Drug corporations have raised the price of this medication by more than 200 percent over the past eight years. “It feels like they’re holding my kid ransom,” the mother of a diabetic son told NBC News in November.

While that mother was struggling to keep her son healthy, Price was legislating on health care in the House — and buying stock in insulin-maker Eli Lilly. That drug corporation ratcheted up the price of its insulin brand by 380 percent between 2004 and last November.

Eli Lilly wasn’t Price’s only investment. In March of last year, he also bought stock in Pfizer and health insurer Aetna. The value of all three corporations rose soon after his stock purchase.
He didn’t stop there.

In August, Price put down between $50,000 and $100,000 to buy shares in Innate Immunotherapeutics, which makes a multiple sclerosis drug. He also bought stock in Zimmer Biomet Holdings — one week before introducing a bill designed to blunt a regulation that would have hurt the company’s profits, according to CNN.

Senate Democratic leader Charles Schumer called for that transaction to be investigated as a violation of a law against insider trading. And a public watchdog group asked the Securities and Exchange Commission to investigate his other stock purchases.

Beyond raising suspicions of insider trading, Price’s pharmaceutical dealings highlight the profiteering rampant in the entire industry.

In 2015, Martin Shkreli, a former hedge fund manager and CEO of Turing Pharmaceuticals, drew national ire when he raised the price of a cancer and HIV medication from $13.50 a tablet to $750 as soon as he acquired rights to the drug. (Shrkreli has also been arrested on allegations of securities fraud.)

And last year, the drug company Mylan hiked the price of the EpiPen — which saves people from life-threatening allergic reactions — by 400 percent.

This kind of gouging has sparked widespread public outrage. Now, 61 percent of people in the U.S. agree that lowering the price of prescription drugs should be a top priority for Congress. They also want Congress to lower health care costs overall.

More than 80 percent want Medicare and other public programs that pay for prescription drugs to be able to negotiate directly with drug makers to help bring down the price — a position even Trump himself has said he supports.

Eighty-six percent want drug corporations to have to disclose how they set prices. Many others want to make prescription drugs public goods paid for by the federal government and available to all of us.

There’s no reason — at least, no good reason — lawmakers in D.C. can’t take action on these priorities.

For years, Price and politicians like him have been blocking Medicare from negotiating lower prices. His financial stake in drug corporation profiteering show us why. If Medicare negotiates more reasonable prices for medications, we get a better bargain, but Price gets hit right in the stock portfolio.

Profiteering shouldn’t be at the heart of our health care system — we need less corporate control of our health care, not more. And no one who doesn’t put people first should be in charge of setting health policy for our country.

LeeAnn Hall is a co-director of People’s Action, a national organization working for economic, racial, gender, and climate justice. Distributed by OtherWords.org.