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Jan-18-2010 17:00printcomments

COP's: Oregon's $500 Million Welfare Program for Wall Street

Borrowing money to build offices to accommodate more staff to manage your existing debts: what a virtuous cycle that is.

Operators on Wall Street
Operators on Wall Street

(EUGENE, Ore.) - “COP’s are tax-exempt government securities used to raise funds to improve and construct buildings or purchase equipment.”[1] The State of Oregon has issued just over $1 billion in these debt instruments.

According to the State’s report on this program, total interest costs will be approximately $500 million dollars. That is $500 million dollars in interest being paid by taxpayers to creditors.

How did the State spend this money? $690 million was spent building prisons. $61 million was spent on education. $185 million went to the Department of Administrative Services for “remodeling and constructing office space.”

The DAS clearly needs more office space because its budget increased from $794 million in the 2003-2005 biennium to $1.7 billion in the 2007-2009 biennium[2]. That is a good 110% in two years.

The Governor recommended $2.6 billion for the DAS in the 2009-2011 budget[3]. $488 million of that is for debt service.

Borrowing money to build offices to accommodate more staff to manage your existing debts: what a virtuous cycle that is.

Between building prisons and offices for the DAS, Oregon taxpayers will not be seeing much value for their money; either from the $1 billion they pay in principal, or the $500 million in interest.

Unlike traditional debt instruments, creditors do not pay either State or Federal taxes on this interest income.

Taxpayers pay taxes on their income. Those taxes are used to pay interest on the State’s debts. The people who collect the interest pay no taxes at all.

According to the State’s report, interest costs for COP’s are only slightly higher than for regular bonds, but this does not include lost tax revenues, which make COP’s significantly more expensive.

$500 million dollars, straight from paychecks of Oregon taxpayers to the pockets of Wall Street investors: no risk, and tax free!

That is a pretty good deal. At least for some people.

[1] How Certificates of Participation Work for Oregon
[2] 2007-2009 Governor’s Recommended Budget
[3] 2009-2011 Governor’s Recommended Budget Business/Economy Reporter Ersun Warncke is a native Oregonian. He has a degree in Economics from Portland State University and studied Law at University of Oregon. At a young age, his career spans a wide variety of fields, from fast food, to union labor, to computer programming. He has published works concerning economics, business, government, and media on blogs for several years. He currently works as an independent software designer specializing in web based applications, open source software, and peer-to-peer (P2P) applications. Ersun describes his writing as being "in the language of the boardroom from the perspective of the shop floor." He adds that "he has no education in journalism other than reading Hunter S. Thompson." But along with life comes the real experience that indeed creates quality writers. Right now, every detail that can help the general public get ahead in life financially, is of paramount importance. You can write to Ersun at:

Comments Leave a comment on this story.

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Al Marnelli January 19, 2010 6:08 pm (Pacific time)

Ersun this was a good article and have noticed your follow up comments are also quite good. It appears you have done some good research and developed your articles so laypeople can understand, which is not an easy task, especially for economics and other financial interpretations.

Ersun Warncke January 19, 2010 12:25 pm (Pacific time)

My previous comment cleared up some of the comments by Mr. Williams, but his most recent comment was posted before I posted mine, so I will give some further clarification. This article does not discuss Government bonds. It discusses a specific type of debt instrument that is not a bond, which is specifically designed to allow governments to borrow more money, without accounting for it as debt. I wrote the article on the basis of a report that covers a particular time period. All reporting must be constrained to some particular time period. The fact that this borrowing took place over the past decade is all the more relevant because, as I mention in my other comment, the money was wasted then, and it has to be repaid now at the expense of other spending priorities. Naturally, this government borrowing and wasteful spending has not stopped. Just last biennium the State government borrowed $200 million to build a baseball stadium for the University of Oregon. Another productive investment for Oregon taxpayers that I am sure will show stellar returns.

Ersun Warncke January 19, 2010 12:18 pm (Pacific time)

Yes, municipal bonds are tax free. When you include lost tax revenue, the taxpayer is paying effective interest rates of 6-7% for a risk free loan. This is not in the taxpayers' financial interests, but oh well. COP's take the regular bad deal that is government borrowing and extend it by creating a vehicle that is not accounted for as debt, allowing the government to borrow even more, and on worse terms. This specific set of debts was taken out over the course of previous years, which means that the interest is being paid now. Do you not think that this might have something to do with the State's current budget problems?

clairence williams January 19, 2010 11:37 am (Pacific time)

Thank you for focusing on the first two words and ignoring the rest. What erodes credibility is when a business/economy reporter discusses tax-free government bonds as if it was something out of the ordinary.  What further erodes credibility is when the reporter fails to mention that the debts were incurred eight to twenty years ago.

Editor: Eight years ago is very recent history Clairence.  I used to work closely with Eric Mason as he boiled these state government stories down, and it's interesting how the accusations against the reports are very much the same.  For what it is worth, your point about the timeframe is recognized.     

clairence williams January 19, 2010 11:22 am (Pacific time)

Well, duh. Government bonds are typically tax free.  Where do you think the money would have come from if they didn't issue bonds?  COPs look like they may be more beneficial to us anyway, since they are easier to ignore and stop paying.  Perhaps that was the point of your article?  From the State: ""COPs are a financial obligation the State uses to finance essential public improvements, including state prisons and office buildings, state universities, and other critical public safety projects. Like a GO bond, a COP is, in effect, a loan from investors to the State. Unlike GO bonds, however, COPs are not backed by the full faith and credit of the State; rather, the repayment of the debt service on the COPs is subject to annual appropriation by the Legislature."" Further, from the first link above (in the story), this $Billion was borrowed from 1990 to 2002. So all this populist outrage at government excess spending at a time of economic strain should realize these debts were incurred a decade ago and more.

Editor: You begin addressing a well written article with, "well duh"... why? That kind of needless disrespect simply erodes credibility.

Jeff Kaye~ January 19, 2010 6:44 am (Pacific time)

Great article, Ersun. What an eye-opener for all Oregonians who'd like to know how their hard-earned tax money's spent. I think Leonard's plan has some merit; cut some of the gravy-slurping employees and demand results from the existing state work force. Whose brilliant idea was this "COPs" plan, and how can it be destroyed? Throwing good money after bad is, I'm sure, not what the average Oregon taxpayer would have done with their funds. Once OCTA2010 takes effect, those prisons can be converted into grow farms. Speaking of which - this just in from FOX news: SALEM, Ore — The Oregon Legislature's latest idea for a tax? Medical marijuana. The state would take over growing and distributing marijuana to patients in the medical-marijuana program under a bill introduced Wednesday. Sponsored by Rep. Ron Maurer, R-Grants Pass, House Bill 3274 imposes a $98-per-ounce tax, which would cover the state's cost of operating and securing the production center. Back to Jeff Kaye~ That tax seems high, considering other prescribed medications are not taxed at all. But if cannabis is undemonized for all adults, it'll be controlled and regulated like beer or cigarettes, which would raise considerable funds for the state.

Leonard Serdar January 18, 2010 6:08 pm (Pacific time)

These Jerks claim they have to pay over $100,000 per year to get qualified help, but still they build more State Palaces and Offices to fill with more employees. When instead a Qalified person would realize we have to cut costs, and get rid of 75% of the high priced leaders, and quit hiring employess. Cut the state employess by 50% and put the rest to work.

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