Stop the venture capitalists’ theft from the Education Stability Fund.
Chuck Sheketoff
It’s no secret that the legislature is turning over cushions looking for spare change, as they prepare to confront a horrible list of Solomon-like budget choices. Their decisions could fall particularly hard on the vulnerable in society. While legislators need to support revenue solutions for the revenue problems, they may also have to make some cuts. First, however, they ought to stop the broad-daylight theft from our kids’ Education Stability Fund.
I wrote about this issue last fall, but as Oregon’s fiscal situation worsens, I’m once again pleading for the Governor, the State Treasurer, the Secretary of State and the Legislative Assembly to enforce the constitutional requirement that 18 percent of lottery revenues — and not one penny less — go to the Education Stability Fund. The diversion of money from the fund to finance inherently risky investments needs to end now.
How’d this all come about?
When the last recession struck, Oregon had no rainy day fund, forcing schools and programs to shut down. Our woes became a joke in the comic strip Doonesbury. The school closings hurt not just our kids but also Oregon’s business climate.
In response, the legislature sought and obtained voter approval to create the Education Stability Fund. The constitutional provision that voters approved in 2002 dedicates 18 percent of lottery revenues to the Education Stability Fund. That’s what voters put into the Constitution, but that’s not what’s taking place.
While the voters approved sending 18 percent of lottery revenues to the new Education Stability Fund, the legislature earmarked 10 percent of those funds to go instead to an inherently risky venture capital fund, the Oregon Growth Account (ORS 348.702), which was set up years earlier.
Reading the statute that created the Oregon Growth Account, you’d think that the venture capitalists are working to protect our schools. The statute proclaims that “[t]he purpose of the Oregon Growth Account is to earn returns for the Education Stability Fund by making investments in or by providing seed capital for emerging growth businesses” (ORS 348.702).
But that language is just a smokescreen. If those “investments” produce profits (which to date they have failed to do!), the profits don’t flow back into the Education Stability Fund. Instead, under another earmark (ORS 348.696(1)), the profits would go into yet another inherently risky venture fund, the Oregon Commercialized Research Fund, which was set up to provide grants and loans for state university research that might turn into commercial ventures.
So instead of the constitutionally mandated 18 percent of lottery revenues going into the fund, only 16.2 percent of revenues (18 percent minus 1.8 percent) gets saved for rainy days. Put another way, for every $100 million of lottery money that was supposed to go into the cookie jar to protect kids when the economy turns sour, only $90 million gets there. The remaining $10 million is siphoned off to a scheme that does nothing to stabilize funding for education during economic downturns.
It is time for the Legislative Assembly to repeal the earmarks that rob the Education Stability Fund of money that the Constitution and voters say must be saved for Oregon’s schoolchildren and for the Education Stability Fund to be paid restitution for the theft. The Secretary of State’s audit division should calculate how much money is needed to make the Education Stability Fund whole.
Legislators need to make this a priority, before they make their Solomon-like choices about the budget. The Governor wants kids’ needs to move to the front of the line, so he must get on board, too. And the State Treasurer needs to fulfill his fiduciary duty of managing the Education Stability Fund by working to stop the raid. Unlike what’s happened to the 529 college savings plans, this theft doesn’t need subpoenas or investigation. It’s in plain sight and just needs to be corrected.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org</p
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Feb 9, '09
Thank you so much, Chuck, for your constant vigilance and excellent analysis. I hope the powers that be in Salem are listening.
Meanwhile, not to go off topic but back in DC we need to push hard for a better final version of the stimulus - the "centrist" Senate version strips out emergency aid to states (which would help us avoid complete budget implosion in schools, etc.) as well as all the money for school construction. They also reduced spending on Head Start, school nutrition, and other smart investments in our kids that will not only bring relief to low-income families and help kids but will save jobs as well.
Feb 9, '09
Theft?? I do not agree with the 10% allocation to venture/private cap -- but you make it sound as if the venture capitalists are STEALING the money. The issue is with the legislators who approved steering the profits into the Oregon Commercialized Research Fund. A little over the top to accuse the venture capitalist of theft.
11:50 a.m.
Feb 9, '09
While the voters approved sending 18 percent of lottery revenues to the new Education Stability Fund, the legislature earmarked 10 percent of those funds to go instead to an inherently risky venture capital fund
Quick question, Chuck: How much money are we talking about? How many millions?
Feb 9, '09
If what you say is correct, it sounds like the legislature screwed up the intent of the bill with earmarks. That would be wrong, as adding earmarks and pork usually is.
Why does this make me think of what is going on in Washington right now with the "Stimulus" bill? If Congress would concentrate on the stimulus, this thing would have been resolved in time for them to then consider such things as support for troubled state programs, etc. (which should be judged on their own merits).
Feb 9, '09
but you make it sound as if the venture capitalists are STEALING the money
Did you even read the post? He's implying that State government is stealing money (or 'diverting') from the Educational Stability Fund, not venture capitalists. If Oregonians mandated that 18% of the fund go toward the Education Stability Fund, and that money isn't getting there because of the Oregon Growth Account legislative mandate, then yes it absolutely is theft. They're vetoing the will of the people.
Personally I have no idea how this money is being spent inside the OGA. It sounds as if it is not being directly invested in Oregon firms, but rather given to venture capital firms, and they decide how to invest it. If that is the case, then that is criminal. This scheme sounds a lot like the College Savings Plan fiasco, give the money to high minded 'investors' with an oversight board and they'll of course produce a high rate of return on the investment, right? Also, there is nothing in the legislative text stating that the money has to be invested in Oregon firms, so how is this providing growth inside Oregon?
If this money has to be invested, I'd much rather see it being directly invested in Oregon firms. If the fund already has a management board being paid by the State, there is no reason why they can't entertain proposals from the public from firms that might actually produce jobs here one day. Or even better, spent it on grants for our higher education research institutions. At least they have a proven track record of producing <u>some</u> return on investment (as well as raising Oregon's profile in the research community).
Feb 9, '09
jager "Did you even read the post?"
Yes I read the post, my issue is more with the title.
12:37 p.m.
Feb 9, '09
Kari asked how much money are we talking about.
Well, this biennium about $24 million is being siphoned off according to the December Economic and Revenue Forecast (sB.9 and B.10).
The fund is receiving only 90 percent of the resources that the Constitution allocates.
Feb 9, '09
jager--
"He's implying that State government is stealing money (or 'diverting') from the Educational Stability Fund, not venture capitalists"
then the title should be "Stop the State Goverments theft from the Education Stability Fund."
also you wrote "Or even better, spent it on grants for our higher education research institutions. At least they have a proven track record of producing some return on investment (as well as raising Oregon's profile in the research community)."
Your solution is the main problem being discussed in the post. Remeber this paragraph ? "Instead, under another earmark (ORS 348.696(1)), the profits would go into yet another inherently risky venture fund, the Oregon Commercialized Research Fund, which was set up to provide grants and loans for state university research that might turn into commercial ventures."
Why would you ask if I read the post??
Feb 9, '09
Yeah, theft. The whole philosophy is discredited, bordering on illegal. This has to be a no-brainer. I should have known much better, but I am surprised to see any dissent. How can we ridicule legislative gridlock when they are supposed to represent us and the public can't agree on the most basic self-interests. Is it a game of political chicken?
If it isn't maybe a Solomon like decision is required for the Solomon like choice. Threaten to cut the baby in two and see who really cares about education. Solomon knew how to deal with chicken.
Feb 9, '09
gl:
then the title should be "Stop the State Goverments theft from the Education Stability Fund."
Point taken. While I read the full post but not the title, apparently you fixated on the title but not the full post.
Your solution is the main problem being discussed in the post.
I should have made the distinction between an alternate implementation of some sort of growth fund that would be better than the current scheme versus what <u>should</u> happen.
My issue with the current scheme is one of direct investment versus indirect investment. If the money <u>HAS</u> to be invested (as it is currently mandated under State law), I would much rather see it directly invested in Oregon firms or given as research grants versus handing it off to some unknown 'venture capitalists' for them to make decisions on where to put it. If the name of the fund is "Oregon Growth Fund", don't you think it should at least be going to create jobs and economic opportunities within Oregon? That would at least make the current system better. There is no such mandate in the text of the law, although the governing trust board may make that a de facto requirement, I don't know.
The higher education research grants that you cite is <u>only</u> if there is some return on our investment, which is unlikely in the near-term.
But yes, by all means the legislature should address Chuck's statement by removing this clause altogether. It's bad for Oregon because it circumvents the will of the people. It's bad for Oregon because the money isn't currently being directly invested in Oregon. It's bad for Oregon because we're transferring millions of dollars to 'venture capitalists' who's track record on returns to investment are dubious at best. It's the State playing the lottery with public funds. This money is meant for primary schools, where it should remain. That is what should happen.
Feb 9, '09
jager
I think you may want to reread the post. This post is not about money being invested directly into oregon business, this is not about venture capitalists making the investment decisions. The post is about profits not flowing back into the Education Stability Fund.
Also please educate yourself and read up on the Oregon Growth Account policy, I have included the link. http://www.ost.state.or.us/divisions/investment/OGA/OGA_Policy_0608.pdf
Feb 9, '09
Which Oregon Legislative session approved ORS 348.702?
Who signed it into law?
Is it really fair to blame the venture capitalists?
Feb 9, '09
I'm admittedly speculatin' here, but I seriously doubt that legislators wake up one morning and say, "You know, I think I'm gonna give a wad of money to venture capitalists."
Somehow, I think the V.C. industry brings pressure to bear
Feb 10, '09
So just leave the "the" and the apostrophe "S" off the title. How can you care more about who might be disparaged than the fact that not doing so is dumb, dumb, dumb, dumb and cultural suicide?
I wonder how many former insurance investment product salesforce are currently working as lobbyists in Salem.
Feb 10, '09
Zarathrustra "How can you care more about who might be disparaged..."
Please do not assume to know who or what I care more about.
thanks
gl
Feb 10, '09
It was a question. I'll state a question any way I please. "You don't know what I care about" would be an answer. Fine. The question was about why, given the premise, you picked that to argue about. It's a question of priorities. I'm asking why that seems to be your priority, given that the subject is taking money from school funding and putting it in a unacceptably risky vehicle.
Feb 11, '09
The headline takes away from the priority of who allowed this and why. Good day.
Feb 11, '09
It was a Republican plan, the Dems allowed it, because they aren't looking after our interests. Why does that need multiple posts? Anyone that can be intellectually honest with themselves knows that, and anyone that can't isn't listening!
The post is about the merits of this piece of legislation, today. I would love to discuss who is responsible. I suspect we agree, though I suspect my list will be longer. Since I've been corrected that very few things don't get posted- obviously just my crap- why not run with it and start a thread, to whit?
Onze hartelijkste dank aan iedereen
(I don't get these exit salutations, but I'll give it a go!) (rw's jealous. I can read "Vlaams Belang" directly.)
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