Investing for the long haul

Bonds for scholarships make sense, but would mean short-term sacrifice

Before a committee approved a proposal to issue bonds for a college scholarship endowment last week, Sen. Jeff Kruse put his finger on the crux of the issue facing the Legislature. Why not just put money into scholarships, the Roseburg Republican asked, rather than making payments to retire the bonds? The only way the bonding plan makes sense is if lawmakers are willing to make current sacrifices for the benefit of future Oregonians — reversing the current trend in government of spending now at the expense of those to come.

State Treasurer Ted Wheeler's proposal calls for issuing $500 million in bonds, and placing the money in an endowment that would initially yield $25 million a year for college scholarships known as opportunity grants. Payments to retire the bonds would amount to $31 million annually. With his question, Kruse drew attention to the fact that Oregon could award $6 million more in scholarships for the same net cost by rejecting Wheeler's plan.

But if lawmakers look beyond the next biennium, the numbers begin to show a clear benefit. With a portion of the endowment's investment income reinvested, by the time the bonds were repaid in 30 years the fund would be generating $40 million for scholarships each year. The endowment would then contain $810 million, an asset owned free and clear by the people of Oregon to finance scholarships in perpetuity.

Wheeler compares the difference between his plan and the current pay-as-you-go method of paying for opportunity grants to the difference between owning a home and renting it. Rent may cost less than mortgage payments in the short run. But the advantages of ownership begin to accumulate as the mortgage is paid down and equity increases. And once the mortgage is paid off, the owner has title to the property while the renter keeps writing monthly checks.

In Wheeler's vision, the $500 million in bonds would be only a start. If future Legislatures would make similar investments, the endowment fund could eventually grow to $6 billion and would generate nearly $300 million a year for scholarships. That's six or seven times the amount currently awarded in opportunity grants — and once the bonds were retired the cost to taxpayers would be zero.

The Senate Committee on Education and Workforce Development approved the scholarship endowment fund on a 3-1 vote. The proposal is likely to encounter resistance when it is considered in competition with other possible uses of the state's limited bonding capacity.

Wheeler's plan will have a hard time prevailing in that competition, especially because, as Kruse recognized, the immediate effect would be either an increase in costs or a reduction in opportunity grants. The Legislature is likely to continue as a renter, paying for today's scholarships with today's dollars, rather than investing in an asset that would be inherited by future generations.

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