Third Century Solutions

This Month's Edition

Oregon Transformation Newsletter


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Frank Gill

Steve Gregg

Mike Keiser

Hank Swigert

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Q and A with Dave Hunnicutt, President of Oregonians in Action

You have been the president of Oregonians in Action (a statewide property rights group) for close to 20 years and are now also the president of the Oregon Mining Association. What insights do these positions afford you on the social and economic problems rural Oregon faces?

From its creation in 1973, our state land use program has had a disproportionate impact on rural Oregonians. The lack of creativity in rural planning has resulted in a “one-size fits all” approach which doesn’t lend itself very well to a state that is as geographically diverse as Oregon. An acre of farmland in Marion County just isn’t the same as an acre of farmland in Deschutes County, for reasons that are obvious to the world, but which have escaped those in charge of our state program.

As a result, we’ve spent extensive time helping rural Oregon businesses and families at the legislature and in the courtroom deal with situations where the state rules just don’t work well for them. You learn a lot about rural Oregon when you represent rural Oregon businesses and families. Through that work, we’ve met with and worked with local elected officials in nearly every rural county to help them achieve some independence from some of the state requirements that might be appropriate in the Willamette Valley but don’t work at all outside of it.

My more recent work with OMA has been equally fascinating. DOGAMI (the Oregon Department of Geology and Mineral Industries) has identified precious metal deposits throughout southern and eastern Oregon – deposits large enough to attract commercial mining development. Of the natural resource industries, mining has the best wage/benefit package. Yet our state has treated the mining industry like a pariah, which seems odd, given that mining is a base industry.

Our society would cease to function without the products produced by commercial mining, but Oregon leaders have chosen to import materials in from other states and countries, ignoring the fact that they could be developed profitably here, creating jobs in parts of the state that did not recover from the last recession. It really is a NIMBY (not in my backyard) reaction – our state has chosen to look the other way while some kid in a developing nation gets paid ten cents an hour to work under nonexistent labor/environmental standards to mine products that we could produce in Oregon in rural counties, paying family wages to people in areas that desperately need the jobs. But hey – out of sight, out of mind I guess.

Gravis Marketing, a Florida polling firm, conducted a mid-July survey of 770 Oregon voters on the 2018 Oregon gubernatorial election. Results showed a dead heat between Gov. Brown and Knute Buehler at 45 percent each. Traditionally political scientists believe that if the incumbent is under 50 percent and tied with their opponent a few months before the election, then the challenger, in this case Rep. Knute Buehler, has the distinct advantage. Do you think Oregon is about to elect its first Republican governor in three decades?

I don’t know; having seen Republican gubernatorial candidates get so close on so many previous occasions, it’s hard to have confidence that things will be different this election cycle.

Having said that, we seem to be in a moment where the Democratic Party is moving to the left, while Republicans are electing more centrist candidates. I certainly think Knute Buehler fits that profile, and it will be hard for Governor Brown to tack to the middle, given the direction of her base and their reaction to President Trump. That leaves the door open for Buehler to make a play for what’s left of the “moderate middle.” The real question is whether there is anyone left out there who falls into the “moderate middle?” Everyone likes to claim that they’re “moderate,” but do people really vote that way anymore? I’m not sure, but Buehler will test that question.

Oregon Republicans have lost nine gubernatorial elections in a row – the longest losing streak in the nation by one party since the Civil War. However in 2002, Republican Kevin Mannix came within a few points of defeating Democrat Ted Kulongoski, and in 2010, Republican Chris Dudley came within 20,000 votes of beating John Kitzhaber. What makes Knute Buehler’s candidacy different than either of the close calls that Mannix and Dudley put up against the Democrats in those earlier races?

Buehler isn’t afraid to push the Republican base to the center. For a Republican candidate in Oregon, that seems smart to me. Neither Dudley nor Mannix had that inclination, and even if they did, they assumed that they didn’t need to move the base, so it wasn’t a priority.

But if you’re Buehler, looking at an extended streak of Republican defeats, you have to gamble that the Republican base will stick with you even though you aren’t their ideal candidate. By beating the base candidates in the primary, that gamble seems to me to be paying off.

It also helps Buehler that the left is moving farther that direction. That’s the normal trend. I remember the Republicans moving to the right in the late 90s when they had solid majorities in both the Oregon House and Senate. In 2006, the voters decided they had drifted too far from the center and they were clobbered. The question for Buehler is whether Oregon voters have reached that point with the Democrats, and whether there is a “moderate middle” to rein them in anymore.

The poverty rate in rural Oregon is over 20 percent, and in many places like Klamath Falls or the South Coast region, the poverty rate is well over 30 percent. Democrats in Oregon often give lip service to the problems of rural Oregon, but their rhetoric has done little to alleviate the suffering in those regions. What can rural Oregon expect to be different if Knute Buehler is elected?

Having worked with Representative Buehler during his time in the legislature, I expect that rural Oregon issues would receive significant attention in his administration.

What most voters don’t realize is that economic development issues are often not the result of state legislation, but are instead the product of state agency administrative rules. Congress doesn’t control the federal government any more than the Oregon legislature controls the state government. The legislative branch certainly sets the policies for the federal and state governments, but it is rare that a statute is drafted so precisely that it leaves no room for interpretation. And even when a statute meets this criterion, it still has to be implemented by a state agency or multiple state agencies, who handle the day-to-day functions of federal and state government.

The state agencies are a part of the executive branch of the government, under the direction of the governor. They’re not part of the legislative branch. That means the governor sets the policies for the agencies, not the legislature. If the governor has a “business friendly” policy, then the state agencies are tasked with implementing that policy. The difference is tremendous.

Overnight, agencies that have been hostile to projects become supportive of them. Boards and commissions are filled with leaders who share the governor’s vision. Administrative rules are amended, repealed, or replaced. And the legislature has very little to do with it. And even if they want to challenge the governor, the governor can veto any legislative effort to rein in the power of the executive.

The rise of the bureaucracy is one of the least understood but most frightening aspects of modern American politics, as it places an inordinate amount of power in the hands of the president and/or governor at the expense of the legislature. Having unelected boards and commissions make rules that have the same force and effect as bills enacted by the legislature is dangerous, but that is the system we’ve created. That means that if Buehler is elected governor, he could have a tremendous impact on rural Oregon. With him, I think it would be a big positive for rural Oregonians, but that doesn’t lessen the need to rein in state agencies.

Oregon has 11 national forests that make up 25 percent of the state’s land. Timber production on these lands is about 5 percent of what it was in the 1980s. Consequently more than 200 family-owned timber mills have closed in the last two decades in rural Oregon, and timber’s role in the state’s economy has dropped from 12 to 2 percent. Should rural Oregon expect a revival of the timber industry in some fashion if Knute Buehler is elected? What would that look like?

I don’t think that we’ll ever see a return to the days when timber was king, for the reasons set out in your question. The decline in the timber industry has been primarily the result of federal forest policy, not state forest policy. The governor’s role on that issue is important, but only as the leader of the state, not as the person with direct oversight over federal land management policies. That is the president.

Although the Oregon Department of Forestry has been more aggressive recently with new harvest limitations, and Buehler could certainly change the direction of the agency if he were elected, it is federal land management policies that have killed the Oregon timber industry. Changing those policies is the role of President Trump, not the Oregon governor.

Gov. Brown says she is neutral on Jordan Cove, a proposed LNG pipeline in Coos Bay. The investment by the Canadian company Pembina is estimated to be $10 billion, or twice the amount Amazon is investing to establish its second American headquarters. Knute Buehler’s position on Jordan Cove reported in this newsletter: “I strongly support Jordan Cove. Governor Brown has refused to support it, denying jobs, tax revenues, and hope to Southern Oregon. A governor needs to be a voice for all the state – not just a single region, party or ideology. I will push hard to advance the necessary state approvals and will lobby hard for federal approvals.”

Do you think Oregon’s 2018 election for governor will seal the fate of rural Oregon and Jordan Cove and that the project will only be built if Knute Buehler wins?

It could. Although the development and siting issues are controlled in large part by the Federal Energy Regulatory Commission (FERC), a federal agency, and there are significant areas where federal law pre-empts state law, meaning the state plays a reduced role, there is still enough room for state regulation that a hostile state administration could kill the project, as we saw with the proposed LNG terminal on the Columbia River in Clatsop County.

If Buehler is elected, we will likely see state agencies become supportive of the project and better aligned with the federal administration. That makes the project a more likely success, and it is another step for positive growth in rural Oregon.

One note of caution, however: the Wall Street Journal recently published an opinion piece from the Institute for Justice, a national conservative organization, about the abusive use of eminent domain by pipeline companies, and how they are using the authority granted them by federal law to take land from unwilling sellers for pipeline construction. There is certainly nothing wrong with Jordan Cove and other pipeline projects, but pipeline companies need to be more sympathetic and fair to the impacts caused to private property owners, a majority of them rural, who are forced to cede land for the pipeline. OIA has worked on that issue in the Oregon legislature, and we will continue to do so.

By Dr. Eric Fruits



Metro’s Affordable Housing Fiasco

“Our City has become a cesspool." Those are the words of Portland police union president, Daryl Turner. He was describing local governments' efforts to address the city's large and growing homelessness crisis.

Mayor Ted Wheeler defended the city's approach, noting that every major city, "all the way up and down the West Coast, in the Midwest, on the East Coast, and frankly, in virtually every large city in the world" has a problem with homelessness. Nevertheless, according to the Seattle Times, Portland is ranked among the 10 worst major cities in the U.S. for homelessness. Wheeler acknowledged, "The problem is getting worse."

Housing affordability is a key piece of the homelessness problem in the Portland: Housing prices have grown faster than incomes in the region. As housing prices rise and market-rate affordable housing is razed and redeveloped into luxury apartments, low-income renters are getting squeezed out of the rental market.

While the mayor blames federal housing policy for Portland's decline in affordable housing, much of the crisis has been self-inflicted by years of local policies that have made things worse.

Many point to the region's urban growth boundary (UGB) as the main culprit for the decline in affordable housing. But, the UGB itself is not the problem. The problem lies with the Metro regional government and the local jurisdictions that advise Metro. As written, the state law establishing UGBs provides for periodic expansion in line with projected increases and demand for new housing and commercial development.

However, as noted in last month's newsletter, Metro has a history of failing the Portland region on housing supply. It has made only incremental additions to the urban growth boundary for housing, instead focusing on its overarching policy of "Density at Any Cost." Some of the expansions that Metro approved were insufficient to satisfy housing demand, or in the case of Damascus, they were complete failures.

Even local politicians think that Metro does a lousy job of expanding the urban growth boundary. A poll Metro commissioned from DHM Research reports 70 percent of elected officials in the three-county metropolitan region ranked the agency as either “fair” or “poor” at “ensuring an adequate supply of land for homes through management of the urban growth boundary.”

Reasonable expansion of the region's urban growth boundary would lead to more construction of single family homes in the suburbs, relieving price pressure on urban Portland. Gerard Mildner, academic director of the Center for Real Estate at Portland State University, notes one of the ironies of the shift from a housing market dominated by single family construction in the suburbs to multi-family construction in the central city is the widespread appearance of a housingconstruction boom when, in fact, the region is experiencing a roughly 15 percent decline inhousing production.

Every apartment construction site of five stories or more warrants a tall construction crane, often requiring demolition of old structures, temporary vacation of streets for construction staging, and regular deliveries by construction vehicles. To someone driving through the city, it seems that Portland has been awash in construction activity. What goes unnoticed however, is the dearth of single-family construction on the urban fringe. Few residents are aware of the overall decline in housingproduction.

Aside from the UGB, Portland is a difficult city in which to build. In addition to regulatory and permit requirements facing builders in any city, through the process known as "design review," projects can be challenged by residents resistant to increased density in their neighborhoods. The process can be costly and time consuming.

Consider the case of the Ankeny Apartments between Sandy Boulevard and 11th Avenue, originally planned for 26 units. After five Design Commission hearings, four City Council hearings, $160,000 in additional city fees, and 18 months of delay, the project was scaled back to 18 units. In other words, the process resulted in fewer housing units, produced at a higher cost, and likely resulting in a higher rental price for each unit.

Just prior to Mayor Wheeler taking office, Portland's city council passed what it called the Inclusionary Housing Program. Under the program, which went into effect in early 2017, all new multifamily or mixed-use development with 20 or more housing units must set aside some of the units as affordable housing (or pay a steep fee).

As predicted at the time the measure was being discussed, new construction of multifamily projects dried up. In the run-up to the ordinance going into effect, developers rushed applications to build thousands of units in order to avoid the new requirements. Approximately four years' worth of permits were pulled before the deadline.

However, what happened as soon as the ordinance went into effect? "We've seen the spigot turned off so completely, so fast," said Kurt Schultz, a principal at SERA Architects, in a Portland Mercury interview.

Last year, city council approved a controversial measure introduced by Wheeler and commissioner Chloe Eudaly, who ran on a rent control platform. The ordinance requires landlords to pay as much as $4,500 in tenant moving expenses. The payment is triggered when a landlord issues a no-cause eviction (including refusing to renew a lease) or causes a tenant to move with rent increases of 10 percent or more.

Initially the ordinance was a temporary measure, but earlier this year, the council voted to make the law permanent and added even more burdens on property owners.

Because of the extra financial burdens the measure puts on landlords, it is likely that over time many units will be converted to condominiums or short-term rentals, such as Airbnbs, which are not covered by the relocation payment ordinance. Earlier this year, the owner of Holgate Manor offered $5,200 to tenants to move out to make way for redevelopment of the complex.

Sure, there are many reasons for Portland's diminishing housing affordability and many of these reasons are out of the control of local government. Nevertheless, the city and Metro have violated the Hippocratic Oath of public policy, "First, do no harm."

Their pursuit of density at any cost, coupled with kowtowing to the fringes of housing policy, has harmed more than it has helped.

Crossing Party Lines

Recently Morning Consult released their quarterly Governor Approval Rankings, and once again blue state Republicans Charlie Baker and Larry Hogan top the list. Hogan’s approval rating sits at a remarkable 68 percent – that number being backed up by another poll from Goucher College, which pegged Hogan’s approval rating at 69 percent (up from the 61 percent approval rating Goucher measured in February). Governor Hogan, who is known for being a very independent leader, also had a very public battle against non-Hodgkin's lymphoma shortly after taking office. In a state where Democrats outnumber Republicans two to one and President Trump has a disapproval rating of 70 percent, their Republican Governor is poised to cruise to reelection in November.

Hogan’s approval rating is strong across party lines at 65 percent of registered Democrats, 64 percent of independents, and 81 percent of Republicans. Voters give Hogan the highest marks around economic issues, placing more confidence in him than in Maryland’s Democratic leaders.

State’s Budget and Finances: 55 percent Hogan vs. 28 percent Democrats

Crime: 48 percent Hogan vs. 32 percent Democrats

Taxes: 47 percent Hogan vs. 35 percent Democrats

Economic Development: 49 percent Hogan vs. 35 percent Democrats

Transportation and Infrastructure: 45 percent Hogan vs. 36 percent Democrats

Democrats in the Maryland House of Delegates outnumber Republicans 91 to 50 compared to 35 to 25 in the Oregon House of Representatives. So, is Hogan a model for gubernatorial success here in Oregon?

Much like Oregon Republican gubernatorial nominee Knute Buehler, Larry Hogan has worked to distance himself from President Trump and take an independent path.

Hogan has distanced himself from the National Rifle Association, saying that he would not take campaign donations from the group. Hogan has presented himself as personally pro-life, but has made comments that he would not move to change Maryland’s current laws allowing abortion. Hogan has also made of point of presenting himself as nonpartisan and has consistently distanced himself from Republicans in Congress and the president. In polls of Maryland residents, 47 percent of those polled say Hogan has distanced himself “about the right amount” from Trump. Twenty-seven percent say he’s distanced himself too little and 9 percent say too much.

If this is the model for Republican gubernatorial success in blue states, then it seems to line up with Buehler’s strategy of being an independent thinker, keeping an appropriate distance from Trump, taking potential changes in abortion law off the table, and attempting to gain more credibility on the economy than Democratic leaders.

Come November we will see if this model can be transferred to Oregon or if voters in the Mid-Atlantic are just more open-minded about voting across party lines than voters here on the West Coast.

By Jacob Drew Vandever

By Philip J. Romero

The Free Trade Argument (Part One)

Trump’s Trade Agenda: A Five-part Series

The punditerati has been aghast at President Trump’s aggressive trade provocations toward much of the world, including not only the usual suspects such as China, but historic allies such as Europe and Canada. Economists are among the loudest wailers.

Newsletter readers generally know the standard economic arguments about trade: that free trade is essential to shared prosperity. But they also know that America’s trade with many of our partners really isn’t completely free. Notwithstanding President Trump’s bombast, he is certainly right that America has given more than it gets from trade.

Underneath all of the hyperbole, you may wonder: Why the fuss? Why does trade matter to the average Oregonian? Are the Never-Trumpers merely adding trade to their long list of grievances? Or will his policies actually bring more good than harm?

This series will attempt to find a method to apparent madness. Since the president is hardly his own best spokesman, much of this is speculation. Some of his moves make more sense than his critics admit; others fly in the face of centuries of economic experience.

Most newsletter readers understand the power of capitalism and competition. When several firms compete for your business, they are obliged to make their offerings worthwhile to you, or lose you to a competitor. Competition also forces continuous improvement: Firms that rest on their laurels will not be in business for long. (Ask Blockbuster, or almost any airline.)

To succeed in competition, everyone specializes at what they do best. You do not grow your own food or make your own clothes because you can buy better and cheaper versions from specialists.

Trade is simply specialization and competition on a global scale. If competition from a firm in Indiana forces you to improve, this will be no less true if the competitor is in India.

America’s postwar foreign policy has been premised on this conviction. But free trade is not a political winner in most countries. Local industries prefer high tariffs that artificially raise the prices of their foreign competitors’ products. This was true here long before Trump’s America. Along with slavery, tariffs were the key cleavage between American regions in our first 100 years: The South wanted free trade to sell its cheap cotton (cheap due to the zero labor costs of slaves), while infant manufacturers in the North wanted protection from more advanced European competition.

In the mid-20th century many developing nations repeated this tragic error by falling under the spell of “import substitution.” This was the belief that rapid development was only possible if native industries were allowed breathing space (in the form of tariff protections) to allow them to grow to critical mass before becoming fully exposed to foreign competition. Political sophisticates will instantly see the fallacy: “Temporary” tariff protection will become a permanent entitlement as long as its beneficiaries — coddled domestic firms — can pressure politicians to endlessly delay their withdrawal. Look no further than Canadian soft wood and newsprint producers, French dairy farmers, or American steel mills. Import substitution cost the developing world two generations of stunted growth and avoidable poverty.

By the late 20th century protectionism became more subtle — it went underground. Many poor nations — first Japan, later China — favored their own infant domestic manufacturers through what wonks call “non-tariff barriers.” At home American firms responded by automating, drying up domestic demand for mid-skilled factory workers. American manufacturing’s market share shrank, and factory jobs fell even faster due to productivity improvements from automation. American manufacturing’s output has held fairly steady, but its share of employment has fallen by more than 80 percent.

The economic arguments for free trade have been clear since Adam Smith smote the mercantilists, but policy is made by politicians, not economists. Trade liberalization offers consumers more choices of cheaper products, and the money saved can be spent on other things that drive economic growth. The choices and savings offered by WalMart alone, sourcing its offerings from the world, have boosted the American economy by hundreds of billions of dollars. Every consumer benefits, but almost imperceptibly. There is no passionate band of consumers arguing for free trade.

Free trade harms some in the economy a lot – mostly those in domestic industries that become uncompetitive behind now-removed trade protections. Those losers invest in the campaigns of sympathetic politicians. The political tug of war isn’t balanced: Free trade’s losers are concentrated and intensely motivated, while winners are dispersed and disinterested (because the stakes seem small). Guess who dominates the debate?

The 2016 election occurred after decades of this dynamic: long term trends that restructured the American economy and jobs climate, misdiagnosed as caused by trade agreements. The field was ready for a protectionist politician to ride a seething wave. Such political opportunists were Midwestern Republicans 75 years ago; then 50 years ago they were urban pro-union Democrats. In 2016, under an anomaly of political geography, a New York real estate developer parachuted into the GOP presidential field and carried rural America and the Electoral College.

The fact that the Rust Belt would have rusted almost as much if tariffs had remained high (as has been proven by researchers over and over again) did not divert our president from protectionism, or his base from loyalty to him.

Oregonians have a special interest because about one-sixth of our economy depends on foreign trade. Oregon is the second-most trade-driven state in the West. It’s not just homegrown multinationals such as Nike, but every retailer and local manufacturer whose suppliers are across borders, and every web startup whose business plan calls for a rapid scale-up into foreign markets.

The rest of this series will unpack several different strands of Trump’s trade policy. His meat-cleaver approach is more justifiable than many in the policy elite acknowledge, but its shock front will expand far wider than conventional wisdom realizes. Future columns will outline the panoply of Trump initiatives and help readers understand which are very wrong, and which mostly right.

Trump indulges in his customary exaggeration when he criticizes previous presidents for agreeing to the “worst deals ever.” He is not entirely wrong. Unfortunately, most of his cures attack the wrong diseases.