Saturday, January 24, 2015

Why Free Agency Would Improve the Level of Play in MLS

Excited about the return of the Portland Timbers?  Well, temper that enthusiasm because it appears more and more likely that the MLS is headed toward a work stoppage with the key sticking point free agency for players.

Under the current system, a player who is released by a team or whose contract runs out must enter the MLS re-entry draft and then be allocated to the highest team in the pecking order who wants him. The players want unrestricted free-agency - they want players in that position to be able to sign with the team of their choice.

The players are right.  Unrestricted free agency would improve the level of play in the MLS by allocating the best talent to the teams who will make the best use of it.  The draft system, while a decent way to ensure a level of parity is not efficient.  Teams and player are often not matched optimally.  For example, a team who has the first option on, say, a wing player who might already have a couple of decent wingers might just pick up the option to provide cover or to prevent the player from helping out a rival.  On the other hand, a team in desperate need of a winger is prevented from signing that player.

But the beauty of markets is their efficient allocation of resources. In an open bidding process, the team that expect to make the best use of the player will bid the most of the player thus ensuring the team with the highest valuation of the player gets him.  Players will be more likely matched to teams that fit their skills and teams will improve.

There are two counter arguments that I can think of.

First, a team might have a high valuation on a player because they are simply weather.  This is true in the Designated Player market but the re-entry draft does not affect that.  Salary caps or, much better, NFL style revenue sharing (or both) are the way to deal with income inequality seeping into player.  MLS has salary caps.  Problem solved.

Second, in the re-entry draft process teams can use the mythic 'allocation money' to trade picks and move up to get a player that want.  But the ability of teams to do so is limited and this method is inefficient and likely leads to many instances where the efficient outcome was not reached.

So I hope the MLS comes to its senses and grants free agency to players because the on-field product will be improved by so doing.

Friday, January 23, 2015

Fred Thompson: Capitol eyes gas tax — yet we’re 17th highest!

 Once again, Fred Thompson keeps the blog alive:

The Oregon Watchdog recently warned that “A gas tax was just approved by lawmakers a few years ago, and now it looks like they are back for more.” And asserted that “we are paying more than most states and apparently getting less.” Is that true? If it were, calls to boost the gas tax might seem profoundly wrongheaded. But the fact is that we are neither paying more nor getting less. 

These issues were explored at the 2015 Legislative Transportation Education Seminar, held January 14 at Willamette University under the auspices of the Willamette Center for Governance and Public Policy Research and the Oregon Public Policy Research Alliance. What we learned is that Oregon’s state gas tax ($.30 per gallon, non commercial vehicles, increased from $.24 in 2009) is 14th or 15th highest in the country. But most states rely more heavily on vehicle registration fees to fund transportation, about 40 percent of the total nationwide, than do we. Consequently, looking at state transportation funding, the combined cost of vehicle registration and state fuel taxes, Oregon is 27th highest in the US. On a per capita basis, therefore, the state of Oregon collects a bit less than the average state for highway maintenance and investment.

Oregon also relies less than other states on municipal and county level gas taxes to support city streets and county roads. Instead, we rely almost exclusively on state fuel taxes and registration fees to meet the needs of cities and counties (30% of state collections goes to counties and 20% to cities). Consequently, taking state, county, and municipal fuel taxes and registration fees together shifts Oregon even further down on the per capita transportation funding tables, to 32rd highest.

Of course, the US as a whole is running way behind on highway maintenance and investment. With respect to deferred highway maintenance and investment, the State of Oregon is actually a lot better off than most states. The civil engineers association ranks our state highway and bridge maintenance and replacement about tenth best in the country (giving Oregon a grade of C+, versus an average of D). Indeed, most experts (including those in the state DOT) believe that the highway trust fund will continue to meet the state’s basic maintenance and replacement needs through 2017.

That isn’t true of our cities and counties, however; their needs are large (billions) and pressing. Nor is it necessarily the case with respect to additional infrastructure investment, where arguably Oregon is a laggard. Moreover, many believe that the state currently relies excessively on debt to finance new construction and would like to shift toward current funding, which requires more cash now.

In this instance Oregon’s Watchdog asks a good question, but reaches the wrong conclusion. Not keeping up with our needs in this area is penny-wise and pound-foolish.

Friday, January 2, 2015

Fred Thompson: Stuffing Oregon's Kicker

Note: Another Dispatch from the desk of Fred Thompson:

There are 12 Christmas trees in Oregon for every person, more than in any other state. That’s one way we are special. Another is our system of state and local public finances, where, by many measures, Oregon is an outlier.  Generally, special also means better.

Nevertheless, Oregon’s system of state and local finance has one difference that isn’t particularly praiseworthy: the so-called kicker law,  which requires the state to return actual revenues in excess of the annual budget forecast to taxpayers. No other state in the country has anything quite like it. Oregon’s kicker was justified as a means of keeping the legislature from rolling over revenue windfalls to future budgets, thereby unsustainably increasing state spending. This was and is a reasonable concern, but the kicker was and is an ill-conceived fix to this particular problem. Rather, it is fundamentally inimical to the very worthwhile goal of smoothing out state and local spending, which calls for setting revenue growth in excess of long-term trends aside for a rainy day.

Oregon’s Total Revenue and Total Expenditure

 Oregon’s kicker law dates back to 1979. The voters overwhelmingly ratified the law in 1980, but the first actual kicker rebate didn't actually occur until 1985. During the 90s a surprisingly good economy generated kicker rebates nearly every biennium: 1995, 1997, 1999, and 2001. The only subsequent rebate occurred in 2007, a personal income tax rebate of $1 billion. That year the legislature diverted the business-tax kicker to the state’s rainy day fund and in 2012 Measure 85 assigned it to the public-school fund for keeps.

The dearth of personal-income-tax kicker rebates so far this century is not entirely due to a disappointing economy. That is the main reason, of course. But Oregon’s recovery has by most measures outstripped that of the nation as a whole, especially with respect to state revenue growth. Consequently, it appears that the state also highballed the official revenue forecast. In so doing, its actions were entirely consistent with the recommendations of the 2008-9 Legislative Task Force on Comprehensive Revenue Restructuring. The Task Force aimed at making Oregon's tax system more stable and adequate. It found that the secret to stability and adequacy lies in stabilizing spending growth at a sustainable rate and in using savings and short-term debt to smooth out revenue volatility. The Kulongoski administration put these findings into place via its so-called reset budget. Then, so long as the administration remains committed to the reset-budget’s long-term spending targets, funds are automatically generated for Oregon’s rainy-day fund and/or to pay down its debt (the measures also allowed for automatic borrowing if revenue fell short of the spending target).

This year it probably will not be possible to avoid a kicker rebate without legislative action. Despite the best efforts to avoid such an outcome, actual revenues look to be running ahead of the forecast. Not surprisingly kicker repeal is once again on the legislative agenda. (Of course, the legislature can always put off the distribution of a kicker rebate by an emergency vote, as it did in 1991 and 1993, without actually repealing the law.)

Moreover, some legislators are concerned with the current administration’s apparent inclination to discard the reset budget: reset principles are not highlighted in the 2015-17 budget proposal and the medium-term fiscal planning unit in the Department of Administrative Services that formulated the reset budget and put it into place has been dismantled. This is a potential threat to the state’s long-term fiscal stability and, perhaps, also underscores the ongoing need to enact the Task Force’s recommendations for improvements to Oregon’s fiscal system, including reform of Oregon's personal-income-tax kicker, into law.

Senator Ginny Burdick, Chair of the Senate Finance and Revenue Committee, is the key to these reforms. She served on the Task Force and has a longstanding commitment to both fiscal stability and kicker reform. Interestingly, California, Oregon’s neighbor to the South, recently voted Proposition 2 into law. Proposition 2 amends the California Constitution to require that the Governor make mid-term spending and revenue targets part of the state budget process, requires the state to set aside revenues each year – for 15 years – to pay down specified state liabilities, and substantially revises the rules governing the state’s rainy day fund. In other words, California’s legislature did pretty much what Oregon’s has, so far, not done with respect to kicker reform. They referred a measure aimed at making state and local spending sustainable to the citizenry. On November 4, 2014, 70 percent of Californians voted in its favor.

We need to go there too.