Oregon Considers Allowing GO Bonds for Student Aid

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State Treasurer Ted Wheeler (print-quality)

SAN FRANCISCO — This fall Oregonians will vote on a ballot initiative that would create an endowment for student financial aid and allow the state to issue general obligation bonds to fund it.

"The best universities have endowments for their students and Oregon should have one for ours," said Ted Wheeler, the state treasurer.

Ballot Measure 86, the Oregon Opportunity Initiative, would amend the state constitution to create an endowment that would generate financial assistance for students pursuing post-secondary education and career training, and authorize the legislature to issue GO bonds to fund the endowment.

If voters approve the measure, Oregon would be the first state to fund student aid programs with GO bonds, according to the State Treasurer’s office.

"Oregon's economic fortunes hinge on our ability to educate and develop a workforce for the future, yet higher education in our state is expensive, student aid is anemic, and vocational training has all but disappeared," said Wheeler, a Democrat, who has been Oregon's treasurer since 2010.

The result, he said, is that students end up with unsupportable debt loads or are priced out of opportunities for post-secondary education and training.

This is not only a problem for students, but also has broader implications on the economy, he said, because younger generations are not making investments in automobiles, housing, and other products that are important to the state economy.

"The Oregon Opportunity Initiative is a long term plan to reverse these problems without raising taxes and without competing with other urgent priorities like K-12 spending," Wheeler said.

He came up with the idea more than two years ago, and started to meet with experts in education and finance. In January 2013, Wheeler introduced the idea in the legislature, where it was passed in June 2013, and referred to the Nov. 4 ballot this year.

Wheeler has been careful in taking on state debt during his tenure. Two legislative sessions ago he even recommended that the governor and state legislature not issue any additional general obligation bonds, and they took his advice.

Now, however, Wheeler believes that changing the state constitution to authorize bonds for an endowment is the best solution to Oregon's "anemic" student aid program.

According to the National Association of State Student Grant and Aid Programs, Oregon currently contributes less than half of the national average for state-based student aid per full-time college student, at $250 per student in 2012.

In 2013, the state ranked 47th out of 50 in state funding per student for overall higher education spending, according to the Oregon University System Fact Book from 2013.

Only about one out of every five students who qualifies and applies for state aid receives it, and they have no guarantee that they will get it from year to year, since the amount of funding is determined every two years.

The state's current and only option of funding its student aid program is through direct appropriations from the general fund on a biennium to biennium basis.

That means that in the state's good years, the funding amount could be higher, and in bad years, it could be lower. Students that receive funding one year, may find that there aren't enough funds to help pay for education the next year.

Ballot Measure 86 would open up legal options that the legislature doesn't have today, allowing it to create a permanent endowment fund.

The endowment would be a diversified portfolio of stocks, bonds, and other investments, and it would grow with time. It would also be locked so that the legislature couldn't use the funds for other purposes.

Bonds issued for the fund would be taxable.

The bonds would still fit under the state's conservative bond limitation requirements, with any bonding for the fund limited to a maximum of 1% of the real market value of all property in the state. Currently, that maximum is approximately $4.3 billion.

If approved, the amount and timing of any bond issuance for the fund would be determined by the State legislature.

Its next session is in 2015, during which time Wheeler hopes that they would decide to seed the fund with a generous allocation, if the measure is approved.

Wheeler did not offer a recommended amount of bonds to issue for the fund, but said it's best to seed the fund with more money earlier in order to take advantage of compound earnings.

"If the people pass Measure 86, that's what I'll fight for," he said. "Each $100 million in the fund is anticipated to create revenue stream of $5 million each year for Oregon student assistance."

In addition to the support from the majority of the state legislature, the measure has been endorsed by a wide range of organizations, from higher education to small business to labor.

Most recently, the City Club of Portland released a research report that gives a majority recommendation that Oregon voters approve the measure.

Members of the group voted Wednesday evening on whether to approve the recommendation and officially endorse the measure. Results of the vote will be released on Tuesday.

The City Club is a nonprofit, nonpartisan civic organization of more than 1,600 members based in Portland. Through public forums, citizen-based researched and advocacy, the group examines issues of importance to the Portland metropolitan region and the state.

"Bonds provide a mechanism to accomplish something the legislature has been unable or unwilling to prioritize up to this point," the city club stated in the 18-page report, released Aug. 13. "Bonds allow the state to spread the burden of repayment over many years, rather than forcing the legislature to make a large up-front allocation that could potentially reduce funding for other programs."

The City Club also said the measure would help make the state's workforce more competitive, and could provide a sustainable source of funding for higher education financial assistance for the long term.

"Even if investments in the Opportunity Fund provide minimal investment returns, the fund itself is a long-term asset due to restrictions on access to the principal," the report said.

According to the ballot summary, the only time that the fund could be accessed for other reasons is if the Governor declares an emergency and the Legislature authorizes it. If this were to occur, the legislature would have to approve a plan to replenish the fund.

While the majority of the group's study committee supports the measure, there is some opposition from two members who say potential risks and costs of the proposal outweigh potentially small returns.

"Current constitutional prohibitions are a safeguard to protect the state's financial assets," according to the minority opinion in the report. "Supporting the goal of higher education affordability does not demand support for this measure."

They also say that trying to make higher education more affordable is not the right solution for making Oregon's workforce and economy more competitive. Instead, the state should focus on investments in infrastructure or improving K-12 educational outcomes, opponents said.

Charles McGee, who chairs the committee, was among the seven members supporting the majority recommendation to approve the measure. Krystine McCants, vice chair, was among the two minority members.

Other opposition has come from the Cascade Policy Institute, Oregon's free market public policy research organization, which has called the investment assumptions of the fund "questionable" and said the interest costs to the state would be relatively expensive.

Opposition in the state legislature came mostly from Republicans. The measure passed the legislature last year with a 34-25 vote in the House, and a 20-10 vote in the Senate, with all but one "no" vote coming from Republicans.

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