Hands Off Our School Children’s Recession Cookie Jar

October 4, 2008By Chuck Sheketoff

There’s little doubt that Oregon’s economy is sliding and that state revenues will not be adequate to meet this and the next budget cycle’s demands for public services. 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 and fodder for the front page of The New York Times.

In response, the legislature sought and obtained voter approval to create an Education Stability Fund. But shortly thereafter, a hard-up-for-cash legislature drained the meager savings in the fund to partially meet the needs of Oregon’s school children.

You’d think coming up short in a recession and becoming the laughingstock of the nation would have led to prudent fiscal management of the new Education Stability Fund. It didn’t.

The constitutional provision that voters approved in 2002 to create the Education Stability Fund dedicates 18 percent of lottery revenues to the fund.

That’s the deal that Oregon voters signed on to, and that’s what’s written into the Constitution.

But that’s not the deal we’re getting. The legislature earmarked 10 percent of the lottery revenues that constitutionally belong to the Education Stability Fund to go instead to an inherently risky venture capital fund, the Oregon Growth Account.

Making the diversion even more offensive, 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, the profits go into yet another venture fund, the Oregon Commercialized Research Fund, which provides grants and loans for state university research that might turn into commercial ventures.

Reading the statute that created the Oregon Growth Account, you might not notice the venture capitalists’ hands in the cookie jar. 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.” Its stated purpose notwithstanding, another statute diverts the Growth Account’s earnings away from the stability fund.

This raid on the Education Stability Fund thwarts the Constitution and the will of the voters. Instead of the constitutionally mandated 18 percent of lottery revenues going into the fund, only 16.2 percent of revenues get saved in this recession cookie jar for kids. 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.

Come January, as Oregon’s legislature convenes and legislators struggle with a revenue shortfall, they ought to repeal the earmarks that rob the Education Stability Fund of money that the Constitution and voters say must be saved for Oregon’s school children. The proponents of investing state dollars in inherently risky ventures need to find another source of funds and keep away from our school children’s cookie jar.

Charles Sheketoff is executive director of the Oregon Center for Public Policy, which does in-depth research and analysis on budget, tax, and economic issues with the goal to improve decision making and generate more opportunities for all Oregonians.