RoguePundit

Future Kickers

According to our State Treasurer...

What is the kicker?  The state economist is asked to predict how much income tax revenue the State will collect every two years.  Lawmakers build a budget based on this prediction.  If the State collects two percent more than predicted, the additional revenue is “kicked” back to taxpayers.

The state economist has a really tough job in trying to get those revenue numbers right.  Flashing back to an article from June '06.

The biggest personal income tax “kicker’’ in Oregon history may be coming to taxpayers in 2007, thanks to a surging state economy, but Gov. Ted Kulongoski proposes suspending the refunds.

The projected $883 million tax refund would amount to about $175 for every $1,000 in personal income taxes paid in Oregon, state economist Tom Potiowsky said Thursday in his quarterly revenue and economic forecast.

Potiowsky turned out to be significantly low both with his revenue estimate and the size of the impending kicker.  In December, the state will be sending out checks worth almost $1.1 billion.  And remember the one-time diversion of the corporate kicker?  That roughly $300 million was available because Potiowsky's forecast of $500 million in corporate tax revenue from 2005-07 was way off.

In September of last year...

Dr. Tom Potiowsky has chosen to resign as State Economist, effective September 25, to resume his career at Portland State University. Prior to becoming the State Economist in 1999, Potiowsky was Professor and Chair of the Economics Department. Part of his work with the University will be to develop a plan to open a Business and Economic Research Center. Dr. Potiowsky will also partner with the economic consulting firm, ECONorthwest.

"I have learned a tremendous amount about our state economy, taxes, and politics," said Potiowsky. "I look forward to new challenges and bringing my knowledge back to the community through the university and consulting.

Dr. Dae Baek, Deputy State Economist, will step in as the Interim State Economist effective upon Potiowsky's departure. Currently Baek's responsibilities include providing the economic and revenue forecast for the State.  Prior to his position with the state, Baek was an Assistant Professor of Economics at Oregon State University. He received his Ph.D. in economics from Ohio State University.

Finally yesterday, we found out who Potiowsky's permanent replacement would be. 

Tom Potiowsky will become Oregon's state economist, effective on January 1, 2008, the state Department of Administrative Services announced today. 

"Tom brings superb skills to this critical position in state government, as well as great professional integrity and discipline," said Governor Ted Kulongoski.

...

Lindsay Ball, director of the state's Department of Administrative Services, said Potiowsky brings a high level of professionalism to the office of the state economist.  "As the director of Oregon's Office of Economic Analysis, the state economist manages the data-gathering and analysis of economic trends that state government uses to set policy and make decisions," Ball said.  "Dr. Potiowsky's proven professionalism and impartiality will ensure that we have reliable information to work with." 

Reliable information?  The biggest kicker in the history of the state was somehow the result of reliable information?  Maybe it's a reward for being so far off on the corporate income tax estimate that Salem didn't have to raid the personal kicker to create the rainy day fund.

Potiowsky's salary will be $116,000 per year.

Slowly Unraveling the Cover-Up

Folks up Portland way keep voting for the Goldschmidt brat pack, regardless of the molestation and cover-up, billions in debt that have enriched crony developers while burdening future generations, etc.  We're being freshly reminded of this by a state investigation into Multnomah County Sheriff Bernie Giusto.   

"It appears Giusto knew far too much detail about Goldschmidt's crime to credibly call what he knew 'rumors,' " the report said.

The draft offers the first public look at early findings that will determine whether Giusto can keep his badge--and at new revelations about what Margie Goldschmidt knew about her husband's abuse of a 14-year-old girl while he was Portland's mayor in the 1970s.

According to investigators, Margie Goldschmidt said she learned about the sexual abuse from her husband after he became governor in 1987. She also said Giusto, who was Neil Goldschmidt's police driver, found out about the girl during the governor's administration.

If true, her story directly contradicts Giusto's statement to investigators. According to the report, he said he did not learn specifics about Goldschmidt and the teenager until 1994, when Margie Goldschmidt told him about a legal settlement between her ex-husband and the girl.

Goldschmidt sexually molested the daughter of a neighbor repeatedly over a three-year period, starting in 1975.  Then over the years, he worked to keep the girl and the story quiet.  Giusto was the point man for some of that. 

We knew about Goldschmidt and Giusto over three years ago...Nigel Jaquiss earned a Pulitzer for his investigative reporting on the topic.  Yet in 2006, Giusto easily won reelection as County Sheriff, with over 61 percent of the vote in the primary and no opposition in the November election.  Yeesh.

One of Giusto's main accusers, former Goldschmidt speechwriter Fred Leonhardt, signed an affidavit and passed a polygraph regarding his claims that Giusto told him in detail in 1989 about Goldschmidt's abuse of the girl.

Investigators are focusing on whether Giusto misled the public about what he knew about the abuse and when he knew it. Goldschmidt admitted in 2004 that he had a relationship with the girl, the daughter of one of his campaign workers.

...

Several witnesses corroborated Leonhardt's account of Giusto's conduct, the report said.

One who didn't was Gov. Ted Kulongoski. The governor said Leonhardt was wrong in saying he had discussed the abuse with Kulongoski when both were in the Goldschmidt administration.

Kulongoski didn't sit for an interview with investigators, sending his lawyers instead. The governor's office later requested that Kulongoski be allowed to respond in writing to accommodate his schedule, and investigators asked for his comments in a sworn statement. The governor provided an unsigned written statement.

His spokeswoman, Patty Wentz, said Monday that Kulongoski will provide a sworn affidavit as needed.

Two years after Leonhardt's allegations were publicized (and he's a credible figure), Multco Democrats gave Governor Kulongoski 59 percent of the vote in the reelection primary.  Actually, every county but Polk gave Kulongoski the nod against Hill and Sorenson. 

Democrats have been really vocal about protecting children via the Healthy Kids Act.  But when it comes to going after those who've protected a child rapist for years, I'm sure not seeing much leadership.  But, that also goes for the Republicans.

Good Intentions, But...

innocent drinks is a fast-growing British company that produces expensive natural juices, smoothies, etc.  It prides itself on its ethics.

It all sounds a bit Miss World, but we want to leave things a little bit better than we find them. Our strategy for doing so is simple--firstly, only ever make 100% natural products that are 100% good for people. Secondly, procure our ingredients ethically. Thirdly, use ecologically sound packaging materials. Fourthly, reduce and offset our carbon emissions across our entire business system. Fifthly, lead by example at Fruit Towers by doing good things. And finally, give 10% of our profits each year to charities in the countries where our fruit comes from.

Last year, innocent started replacing its plastic bottles with those made from a type of corn starch known as polylactic acid (PLA).  Why?

1. Regular plastic bottles use finite resources (e.g. oil and gas) whereas corn is a renewable resource.
2. Our PLA is made using a totally carbon neutral process – no greenhouse gases are emitted in its production.
3. When you’ve finished with a PLA bottle, it can be composted in around 6 weeks.

That sounds great, except for a couple of things...line 2 isn't true and line 3 requires conditions that few can offer. 

(innocent) says that the bottles made from this bioplastic break down in garden compost heaps. They don't. PLA needs to be heated for several days to temperatures far above the norm in a domestic compost bin before it begins to rot. The bottles would break down in a commercial composter, but few local authorities operate one of these plants. Innocent's ethical consumers are going to find a lot of plastic bottles at the bottom of their compost heap next spring.

The company says that in households without compost bins, the bottles should be recycled along with other plastics. This is another mistake. Recycling firms need to separate the different types of plastic so that reprocessing companies can melt them down and recreate the original plastic for reuse. Innocent's PLA bottle looks and feels like a conventional soft drink container made from a plastic called PET. An Innocent bottle dropped into the plastic recycling box at home will eventually be sorted into a batch with Coca-Cola bottles made from the ubiquitous PET. The PLA will contaminate the batch, and may result in the reprocessor being unable to sell the plastic. PLA comes from the US, and recycling firms there have persuaded the bottling industry not to use the corn-based material in order to maintain the purity of recycled PET.

Innocent has also mistakenly said the new plastic is "carbon neutral". NatureWorks, the US firm that makes PLA in the heart of the corn belt, buys all its electricity from wind farms. However, the company does not claim that the farms growing corn avoid fossil fuels. They require large amounts of fertiliser based on fossil fuel; farmers use diesel to run their tractors and ship the grain to the factory; greenhouse gas emissions are substantial. Innocent didn't look carefully enough at the manufacturer's slightly ambiguous boasts on this issue; a claim that a product is "carbon neutral" is rarely true.

Who is NatureWorks?  It's a Minneapolis company that is wholly owned by Cargill...though earlier this month, Cargill announced its intent to sell a 50 percent interest in NatureWorks to Teijin Limited, a Japanese conglomerate.  FYI, NatureWorks also makes Ingeo, a resin derived from corn that can be made into synthetic fiber.  And one other thing, NatureWorks uses GM corn in its manufacturing processes, a fact which matters to some European consumers.

So, which is better overall for environment, using and landfilling PLA bottles or using and recycling PET bottles?  With all the bad PR, the answer to that question isn't as important any more.  innocent drinks has announced that it will stop using PLA later this year.

Random Nature #142

Burying the Lede:  The study in Science was entitled "The Impact of Agricultural Soil Erosion on the Global Carbon Cycle, and the related press release was entitled "Agricultural Soil Erosion is not Adding to Global Warming."  Curious how they're not trumpeting what the study actually found.

"There is still little known about how much carbon exactly is released, versus captured, by different processes in terrestrial ecosystems," said Johan Six, a professor of agroecology at UC Davis and one of the study's authors. "We urgently need to quantify this if we are to develop sensible and cost-effective measures to combat climate change."

In their new study, the researchers found that erosion acts like a conveyor belt, excavating subsoil, passing it through surface soils and burying it in hollows downhill. During its journey, the soil absorbs carbon from plant material; when the soil is buried, so is the carbon.

Erosion, therefore, creates what can be described as a "sink" of atmospheric carbon.

How big of carbon sink?  About 1.5 percent of the world's fossil fuel emissions per year.

For years, scientists have struggled to determine what happens to all of the carbon that man emits into the atmosphere (previous blog here).  We have a pretty good idea of roughly how much carbon man emits, and we can readily measure the increasing amount in the atmosphere.  Thus, we know that the atmosphere retains about 40 percent of our carbon emissions.  The rest must be being absorbed by oceans, forests, etc.   

Yet when researchers add up all of the carbon sinks they know of, they can't account for some of the carbon.  The missing carbon sink(s) may be something we don't understand and/or the result of inaccurate calculations and estimates.  The current leading theory is that northern forests are responsible for absorbing that missing carbon, but the research has been somewhat mixed thus far.  Regarding agricultural soil erosion... 

Earlier studies suggested a broad range of erosion's effects, from a sink equaling 10 percent of fossil-fuel emissions, to a source equaling 13 percent.

This study indicates that the answer is in the middle of that range.  It's also a reminder that there's a lot of faux precision out there when it comes to determining what happens to our carbon emissions.

Choices:  Deep Brain Stimulation (DBS) implants provide tiny electrical pulses to specific parts of the brain.  These devices have been used to treat conditions like severe Parkinson's disease and a spasmodic movement disorder known as dystonia.  Plus, there's ongoing testing of this treatment for obsessive-compulsive disorder, treatment-resistant depression, and traumatic brain injury.  But back to Parkinson's...

For those who suffer with the debilitating symptoms of Parkinson's disease, Deep Brain Stimulation offers relief from the tremors and rigidity that can't be controlled by medicine. A particularly troublesome downside, though, is that these patients often exhibit compulsive behaviors that healthy people, and even those taking medication for Parkinson's, can easily manage.

...

DBS implants affect the region of the brain called the subthalamic nucleus (STN), which also modulates decision-making.

"This particular area of the brain is needed for what's called a 'hold-your-horses' signal," Frank said. "When you're making a difficult choice, with a conflict between two or more options, an adaptive response for your system to do is to say 'Hold on for a second. I need to take a little more time to figure out which is the best option.'"

The STN, he said, detects conflict between two or more choices and reacts by sending a neural signal to temporarily prevent the selection of any response. It's this response that DBS seems to interrupt.

People with Parkinson's tend to be impulsive; making them even more impulsive is not a good thing.  Some Parkinson's medications have already been linked with gambling problems, possibly because they inhibit the ability to learn from negative consequences.   

Frank said the results of his experiments are a test of a basic science mechanism for how the brain makes adaptive decisions. The same basal ganglia is involved in other disorders. People who are addicts, for example, are more likely to make impulsive choices, and DBS and medication used to treat Parkinson's have been shown to cause pathological gambling to some degree.

"We may be able to use this to understand that from this more basic sciences perspective. Maybe the same circuits are involved in gamblers who don't have Parkinson's," Frank said.

He also hinted that the study might also offer clues to consumer behavior.

"I think that you can have the opposite effect, where the hold-your-horses signal is too strong in responding to decision conflict. One thing that has been shown in healthy people who have been presented with too many options exhibit is a kind of 'decision paralysis,'" he said.

For example, if shoppers are exposed to two dozen varieties of essentially the same product, research shows very few will actually make a purchase. Employees faced with too many options for 401k plans are less likely to invest in any of them, even though their employer is going to match their contributions.

Hmmm.  Obviously the goal is to implant the devices in such a way that they address motor function without impacting decision-making.

I'm Sure We Already Knew This, But...:  The following is both terribly sad and not exactly surprising.  The study, led by a professor at the University of California, San Francisco, involved women in Botswana and Swaziland.

In many parts of sub-Saharan Africa, women have little control over food supplies but are expected to feed their children and other members of the household (such as elders). The researchers conducted their study to see whether women who lack food sell sex, become sexually involved with men of a different generation, or engage in other risky behaviors.

The researchers therefore studied the link between food insufficiency (not having enough food to eat over the previous 12 months), sex exchange (exchanging sex for money, food, or other resources over the previous 12 months), intergenerational sex, inconsistent condom use, and other measures of risky sex.

Nearly one in three women reported food insufficiency. After allowing for variables such as education and income, women in both countries who reported food insufficiency were nearly twice as likely to have used condoms inconsistently with a non-regular partner or to have sold sex as women who had had sufficient food. They were also more likely to have had intergenerational sexual relationships and to report a lack of control in sexual relationships.

These findings strongly suggest that protecting and promoting access to food may decrease vulnerability of women in sub-Saharan Africa to HIV infection.

Maybe some people needed additional evidence that hunger should be addressed as part of a strategy for reducing the incidence of HIV in developing nations.

Private Fire Protection for the Affluent

A few of the rural residents in Southern California have fire protection options that we of more modest means don't.   

Bryce Carrier's cellphone rang at 3 a.m.: Help! The fire is almost to my house.

Carrier hopped into his heavy-duty red Ford F-550 and sped to northeast Poway, dodging fallen eucalyptus and heading straight toward the wind-whipped blaze. He arrived to find flames marching up an embankment toward the multimillion-dollar home.

Yanking out the hose in the back of his truck, he began applying Phos-Chek fire retardant along the perimeter of the property, the shrubs and the roof. When the flames hit the milky white liquid, they stopped.

Another home saved.

Carrier is a certified firefighter, but he doesn't work for a government agency. He's an employee of Firebreak Spray Systems, which partners with the insurance company American International Group Inc. to protect the mansions of the moneyed.

AIG's Wildfire Protection Unit, part of its Private Client Group, is offered only to homeowners in California's most affluent ZIP Codes--including Malibu, Beverly Hills, Newport Beach and Menlo Park--and a dozen Colorado resort communities. It covers about 2,000 policyholders, who pay premiums of at least $10,000 a year and own homes with a value of at least $1 million.

The gentleman who invented the system and is CEO of the company is from Sisters, Oregon. 

"We are saving homes that may average $3 million to $5 million," said Firebreak Chief Executive Jim Aamodt. "Those are the hard dollars, money the insurance company is not paying out."

AIG says the service is not a replacement for public fire departments; after all, the insurer did lose some houses. But like an air bag in a car crash, the company says, it's better than nothing.

Others say that it's just another way for the wealthy to buy their way around cash-strapped, understaffed public services. Firefighters across the region have complained this week that they simply did not have enough trucks, helicopters and airplanes.

"What we have is a dangerous confluence of events: underfunded states, increasingly inefficient disaster response, a loss of faith in the public sphere...and a growing part of the economy that sees disaster as a promising new market," said Naomi Klein, whose new book, "The Shock Doctrine: The Rise of Disaster Capitalism," looks at, among other things, the response to Hurricane Katrina.

Klein said AIG offers a glimpse into the future of what she calls "disaster apartheid," in which the affluent are better equipped for emergencies.

Talk about a brazen book plug in a news article.  If you haven't heard of her, Naomi Klein is an anti-globalization activist most famous for her book "No Logo," which some treat as a manifesto.  But rather than analyze the strengths and weaknesses of her sometimes eloquent anger... 

Capt. Dan Froelich of San Diego Fire and Rescue said he was concerned what could happen if private companies sent undertrained, ill-equipped crews into fire zones and the crews got trapped and needed rescuing.

But Maurice Luque, a spokesman for San Diego Fire and Rescue, said fire retardant could be effective.

"The stuff works really well," he said, noting that private companies are used more in eastern San Diego County.

In such places, he said, there are not many fire agencies and response times can be long. "The residents have to fend for themselves in these mountain or remote areas," he said.

Rural San Diego County doesn't have a centralize fire department, instead being dependent upon a number of independent operations.  The quality varies widely, generally dependent upon the affluence of the local community. 

There has been a push in San Diego County to merge the rural fire departments and set a common standard.  However, the $110 million price tag (an '05 estimate) has been a wee daunting.  Plus, several communities don't want to lose local control or, in some cases, see their tax dollars going to support others.  Yet to put things in a different perspective, a one penny increase in the San Diego County base property tax rate would raise $40 million.  Wow. 

Josephine County's entire base rate generates $2.9 million, though many of us pay separately for fire protection.  My Rural/Metro coverage costs $1.98 per $1,000, while our county base property tax rate is just $0.5862 per $1,000.  Of course, most of the total property tax bill we pay goes towards local schools and RCC.  Meanwhile, the Sheriff's Office alone (in its current depleted state) costs $1.51 per $1,000.  Boy are we addicted to timber funds.  Anyway...

Some Grass Fed

The USDA recently published the standards for its new grass fed marketing seal.  The following Capital Press editorial is rather enthusiastic about it, maybe because it's pretty easy to qualify for the label.

Essentially, the USDA rule states that grass and/or forage shall be the feed source consumed for the lifetime of the ruminant animal, with the exception of milk consumed prior to weaning. To qualify for the new USDA grassfed marketing seal, ranchers must provide a diet derived solely from grass or forage. The new standard prohibits animals from being fed grain or grain by-products. They must have continuous access to pasture during the growing season.

To groups like the Sustainable Agriculture Coalition, the new federal standard marks a step forward and improvement over what USDA first proposed in 2002. The initial proposal permitted large amounts of grain as an acceptable dietary component of livestock products marketed as grassfed. Sustainable Agriculture Coalition, a consortium of farmers, consumers and conservation groups, argued for a strict prohibition against any feeding of grain.

"What we were concerned with is that if USDA did a standard that was lower and more vague, that would open the door to any kind of operation that wanted to get this USDA seal of approval and to us, undercut a lot of producers who are already doing high standards under their private label," said Martha Noble, a senior policy associate to the coalition.

The new USDA standard sets "a very high bar" that should serve the interest of grassfed cattle producers and their consumers, Noble added. Importantly, the standard is voluntary. Ranchers can still extol the benefits of grassfed operations and advanced sustainable ranching practices on private labels.

There was sure a lot of rhetoric in that passage.  The editorial eventually gave short shrift to complaints by the American Grassfed Association (AGA).  So rather than continue with the editorial, let's go to those complaints.  Note that AMS is the Agricultural Marketing Service of the USDA.

- The grass fed label claim can continue to be used by anyone in the marketplace since participation in this AMS verification process is voluntary.

Growers need only submit their documentation to the USDA in order to use the grass fed label.  They must pass an inspection of their facilities and records if they also want to use the "USDA process verified" label.  That adds cost and reduces deception.

- The unrestricted supplementation of energy is allowed, as long as the feedings are recorded.  This standard does not set any restriction on amount, frequency, or type of non-forage feedstuffs.

The AMS wanted to give producers leeway regarding what is referred to as incidental supplementation, which "may occur due to inadvertent exposure to non-forage feedstuffs or to ensure the animal's well being at all times during adverse environmental or physical conditions."  Yes, that leaves plenty of leeway for abuse.

- Longterm confinement practices are allowed under this standard since "access" to pasture and frost dates are easily manipulated. 

Access to pasture isn't necessarily the same thing as living or feeding in a pasture.  The new standard stipulates that the access to pasture requirement applies from the average last frost date until the average first frost date for the location in question.  Using those dates for Grants Pass, cattle would only be required to have access to pasture for 168 days a year.

- The use of artificial hormones is allowed under this standard.

- The use of therapeutic and sub-therapeutic antibiotics is allowed under this standard.

- Artificial milk replacers are allowed under this standard including milk replacers made of bovine blood meal.

This is a battle of perceptions.  Grass fed implies healthier animals raised in more humane conditions, which hopefully results in tastier meat.  It doesn't necessarily mean natural or organic, though some people would like it to.  The USDA had to draw a line somewhere, and there's no mystery which way the USDA leans.

The AGA is going to work with the Food Alliance to develop its own certification standards.  The new USDA regs take effect on November 15.

Hydroelectric Rent

Montana has found a curious way to raise revenue. 

A Spokane-based utility has agreed to pay Montana $4 million a year in rent to use the state-owned riverbed to generate electricity at its northwest Montana dam and reservoir--a move that narrowly avoided a trial over the matter.

Avista Corp., which owns the Noxon Rapids Dam on the Clark Fork River and the Cabinet Gorge Dam just across the border in Idaho, agreed to the settlement Friday, the last business day before a trial began here Monday over the dispute.

The agreement means just one company--PPL Montana, the state’s largest private owner of hydroelectric dams--remains a defendant in the ongoing trial. Another dam-owner, PacifiCorp, of Portland, Ore., earlier agreed to pay the state $50,000 in rent for its Bigfork Dam on the Swan River.

At issue is whether private owners of dams should pay rent for the state-owned land underneath their hydroelectric dams and the rivers that generate electricity.

Attorney General Mike McGrath has argued that utilities are no different from ranchers who use state-owned land to graze cattle. Ranchers pay the state rent for the land and so should the utilities, he has said.

"If someone has a grazing lease, they pay," he said in an interview Tuesday. "If they drill oil or gas on state land, they pay a lease fee and a royalty fee."

PPL-Montana...that name brings back unhappy memories to many Montanans. 

During the bubble, Montana Power saw huge dollars signs in the form of dark fiber buried in its right-of-ways.  It was so convinced that if had found the road to riches that it sold off its dams and power plants (to PPL--Pennsylvania Power & Light), coal mines, electrical and gas transmission and distribution lines, water rights, etc. for a total of $2.7 billion.  It poured that money into 18,000 miles of fiber optic cable and changed its name to Touch America.  In the span of just four years, Montana Power went from traditional utility company to dot.com bankruptcy.  Touch America eventually sold its assets to 360networks, a Canadian firm, for $43 million. 

Since then, 360networks has sold off its Canadian assets and gone private.  Its headquarters is now in Seattle.  Montana's electrical rates, once amongst the cheapest in the nation, are now several times higher.  And, you can imagine what happened to a number of 401(k)s.  Just in case you're wondering, Goldman Sachs earned $20 million for providing that marvellous financial advice to Montana Power...whose leadership was gullible and greedy enough to believe it. 

The state is seeking $6.2 million yearly rent from PPL, McGrath said. Negotiations with that company have essentially ended, and the trial is continuing this week before state District Judge Thomas Honzel in Helena.

Rent paid on state lands go to a fund that helps fund Montana’s public schools. McGrath said the state has an obligation to maximize the profits from those lands, which includes charging rent to the power-generators.

PPL has argued they are regulated by the federal government, not the states, and have operated the dams rent-free for decades. The company also argues that the state is unfairly seeking rental payments from utilities that use state waters to turn a profit, but ignoring other water-users like irrigators or fishing outfitters.

Avista agreed to the settlement because trials carry the risk of losing, which could have cost the company more money, said Hugh Imhof, an Avista spokesman in Spokane.

“We have an obligation to serve our customers and the state was demanding $8.4 million in future rental payments,” he said. “For us, it made sense to moderate that.”

The Avista settlement, which is for ten years, still has to be approved by the state.  Avista intends to pass on the costs to its customers in Idaho and Washington, if the regulators in those states approve it.  Avista doesn't have any customers in Montana.

(Judge) Honzel already has ruled on some of the other disagreements in the case. He earlier declared that lands under the dams are state-owned and that the rivers passing through them are navigable, which means they are state waters.

Honzel also ruled that lands flooded by the dams are not state-owned and therefore the state cannot charge rent for them.

Nonetheless, Avista agreed to pay some rent for the Montana land flooded by the Cabinet Gorge Dam, which sits just west of the Idaho-Montana border. It also agreed to pay rent for land occupied by the Noxon Rapids Dam and the Clark Fork River.

McGrath said Tuesday the state charged more for the land occupied by the dam because that land directly generates income for the company. He said the state charged less for the land under the river and even less for the land flooded.

This is going to keep some lawyers busy for awhile. 

Forcing Tunnel Repairs

There have been a number of complaints over how Central Oregon & Pacific Railroad (CORP) handled the sudden closure (previous blog here) of its rail line from near Eugene to Oregon's Bay Area.  Customers got no warning, so they've had to scramble to secure other, more expensive cargo service.  With the money involved, little wonder this battle is now entering the courts.  On Monday, the Port of Coos Bay sued CORP...but what it really wants is to get the track back in service. 

The port is seeking a jury trial and demanding no less than $15 million in damages over the railroad’s decision to shut down the Coos Bay short line in September.

Documents filed in U.S. District Court do not contend the railroad had no right to close the line, but rather it didn’t give enough notice. The dispute relates to a contract signed two years ago between the port and CORP over the railroad leasing the North Spit rail spur. According to the lease, the railroad cannot “take any action to suspend or discontinue its operations on the Lease Premises, without first giving the Lessor One Hundred Eighty (180) days’ notice. ...”

CORP announced Sept. 21 it was closing the railroad immediately.

The port also is contending in court documents that when Union Pacific Railroad donated the Coos Bay Rail Bridge to the port, the agency gained control of the lease, dating back to 1994,  governing its use. The lease requires CORP to obtain a written agreement from the port before suspending or ending operations, the complaint said.

The price tag to repair the three tunnels is "only" $7 million.  But unless the amount of cargo goes up (something that expansion of the port would drive), it may not pay for CORP to make that investment.  Of course, it would be happy to accept financial help, as it's doing in moving its traffic-snarling switchyard in Roseburg up to Winchester.   

CORP, as the railroad is known, had made a convincing argument for receiving a grant worth more than $7 million under the state's Connect Oregon program to construct the switchyard. Tom Hawksworth, CORP's manager of marketing and sales, told the Douglas Timber Operators in 2006 that the railroad could increase its capacity by 30,000 freight cars annually, taking 210,000 trucks off Interstate 5 and saving gasoline and diesel.

The state funding, of which the railroad has already spent $1.4 million, is cut off at least until ODOT receives copies of the private engineering reports that CORP says led to the emergency closure of the short line.

That was written at the end of last month.  Meanwhile, Congressman DeFazio had the Federal Railroad Administration inspect the line to see if it agreed with the closure.  The inspectors have written their report, which still hasn't been made public.  But, the following press release (published Tuesday) seems to hint at what it confirms. 

Oregon’s Senator Gordon H. Smith is calling on the Surface Transportation Board to pressure Central Oregon Pacific Railroad (CORP) to repair the closed rail line between Coquille and Eugene. At a Commerce Committee hearing today, Senator Smith criticized CORP’s response to the closure and urged STB Chairman Chip Nottingham to force CORP to make repairs.

"The railroad needs to step up and meet its responsibility," Smith said at the hearing. "Put the spurs in and hold CORP accountable.  People are counting on it–-their jobs and livelihoods are counting on it."

Last month, Central Oregon Pacific Railroad closed the rail line connecting Coquille and Eugene because of safety concerns. The closure is having a massive economic impact on the region, closing lumber yards and costing local companies thousands of dollars in losses. CORP has not announced plans to repair the tunnels or whether it intends to restore service to the area. 

The Senate Commerce Committee has already approved Senator Smith’s amendment to the Railroad Safety Enhancement Act (S. 1889).  Through the amendment, Senator Smith is instructing the Federal Railroad Administration to improve its tunnel inspection and review methods so they can better prevent future line closure.  Senator Smith is working to bring the rail safety legislation for a vote before the full Senate.

The Surface Transportation Board is what replaced the Interstate Commerce Commission a few years ago. 

CORP is owned by Rail America, which earlier this year was purchased by Fortress Investment Group, the nation's first publicly-traded hedge fund (beating Blackstone by a few months).  Fortress buys companies to make a profit...by whipping them into shape and selling them again, sometimes in pieces.  That's a relatively short-term perspective, and repairing the Coos Bay Line can only be profitable in the long-term, unless the government pitches in some money. 

By the way, one of the three co-founders of Fortress is now-billionaire Wesley Edens, an OSU grad (B.S., Business, 1984).  Maybe it's not a surprise that PERS is a major investor in Fortress.  Seems a bit cannibalistic now.

And another Fortress note...remember that John Edwards resigned as a consultant for Fortress when he decided to run for president.  He'd worked there for 14 months.  From this link...

Edwards worked part-time for Fortress Investment Group, getting paid $479,512. He and his wife also had $2.7 million to $8.5 million invested in Fortress subsidiaries, according to ranges listed in his personal financial report.  And Fortress executives have donated generously to his presidential campaign--company employees have donated more than $150,000 toward his candidacy during the first six months of the year.

That salary was part of his $1.7 million in compensation.  Note that Edwards announced he was pulling his money out of Fortress a couple of months ago, after the embarrassing publicity surrounding two of the sub-prime lenders that Fortress owns...they were foreclosing on the homes of Hurricane Katrina victims.

Returning to the original article... 

The rail line closure not only put a financial crunch on industrial companies relying on rail, but the port, too, will lose money.

The project to build the rail spur, which opened less than a year ago, cost almost $5 million. The port took out a $1.2 million loan for construction and still owes $886,000 on it, according to the port’s finance director, Donna Nichols. In using the tracks, CORP was paying a tariff, which would have put about $15,000 into port coffers this year.

“The rail spur tariffs were never meant to pay the debt service. They were to pay for insurance and build the bank to pay for future maintenance,” Nichols said.

Then there’s the rail bridge. The port owes money on that, too, for phase 1 of the ongoing rehabilitation project. It originally took out a $246,000 loan for that, paying $20,000 annually over past five years.

Maybe railroad advocates should frame this in terms of global warming.  The rail traffic is less polluting than the 1,131 trucks per month it takes to replace it.  Plus, the trucks are more expensive, they cause more wear and tear on our roads, etc.

Maybe the Port has the right idea...PERS should divest from Fortress.  Maybe that would motivate them to fix the Coos Bay Line. 

Gold Salts and Rheumatoid Arthritis

Gold salts are still occasionally used to treat rheumatoid arthritis, but they're not easy on the body. 

Physicians first used injections of gold salts in the early 1900s to ease the pain and swelling associated with arthritis. But treatment came at a high cost: The shots took months to take effect and side effects included rashes, mouth sores, kidney damage and occasionally, problems with the bone marrow’s ability to make new blood cells. Recently, new treatments like methotrexate and biologically engineered drugs have replaced gold as a preferred treatment, and gold salts, while remaining effective, are usually administered as a last resort.

But Dr. David Pisetsky, chief of the division of rheumatology and immunology in the department of medicine at Duke, says "we shouldn’t dismiss gold salts so quickly. We scientists have really never understood why gold works. Now that we have a better handle on its action, we may be able to use that mechanism to create new and better gold-like drugs to treat arthritis."

Rheumatoid arthritis is an autoimmune disorder, and gold salts help lessen the inappropriate immune response.  Here's a link to the study...but the following is much easier to understand. 

Pisetsky had long been interested in a particular molecule, HMBG1, which provokes inflammation, the key process underlying the development of rheumatoid arthritis. HMBG1 is a dual-function molecule, which means that it behaves one way when it’s inside the nucleus of a cell, and quite another way when it’s released from the cell.

Pisetsky says that inside the nucleus, HMGB1 is a key player in transcription, the process that converts genetic information in DNA to its RNA equivalent. But when HMGB1 is released from the cell--either through normal processes or cell death-- it becomes a stimulus to the immune system and enhances inflammation.

“Interestingly, HMGB1 is not produced evenly throughout the body,” says Pisetsky.

“There is an unusually high amount of it in the synovial tissue and fluid around the joints – where arthritis occurs.”

Pisetsky, working with colleagues at the University of Pittsburgh and the Karolinska Institute in Sweden, stimulated mouse and human immune system cells to secrete HMGB1, then treated them with gold salts. They found that the gold blocked the release of HMGB1 from the nucleus. That, in turn, should lessen the amount available to provoke the body’s immune system, weakening the inflammatory response.

“Basically, keeping HMGB1 corralled inside the nucleus is a good thing, when it comes to arthritis,” says Pisetsky.

A heck of a lot more research is needed, but it's an intriguing bit of research.

Bailing Out the Oregon Museum of Science and Industry

The Oregon Museum of Science and Industry (OMSI) has the following statement at its website.

OMSI is an independent, non-profit 501(c)(3) organization that receives no state or local tax support and relies on admissions, memberships and donations to continue our educational mission, programs and exhibits.

Really??  From this link today...

State officials told lawmakers they have reached a new agreement to help the Oregon Museum of Science and Industry with an old state loan it has struggled to repay.

The restructuring calls for the state to forgive some of the $11.6 million debt piled up by OMSI while the Portland museum pays more than $3 million and tries to raise additional money.

About half of the remaining debt would be repaid over the next 31 years, starting with payments of $320,000 a year.

Some specifics are still to be worked out, and final details will need the approval of the museum board and the full Legislature.

The agreement was outlined to state lawmakers at a Friday hearing by the Joint Ways and Means Committee at the Capitol.

Repaying a state loan, huh?  And there was no mention of the previous agreement that the Governor vetoed in August.  Here's how OMSI reported it. 

Today (Aug 9), Gov. Kulongoski vetoed a provision of Senate bill 994 that intended to assist OMSI in the restructure of its debt with the state.

This provision provided for a state match to a $4.6 million payment by OMSI.  Combined, the OMSI payment and the state payment would provide $9.2 million to reduce the outstanding debt with the Department of Energy to a level that OMSI could service without state assistance.

SB 994 represents the culmination of several years of discussion between OMSI, the governor's office, and the Legislature on a means of resolving this construction debt.

Funny how OMSI didn't mention where it got that $4.6 million.  But, the Governor's press release on the veto did. 

The first issue is a transfer of $4.6 million from the Energy Trust of public purpose charges collected from customers of Portland General Electric to OMSI and a related disappropriation of $1.5 million that had been previously appropriated for OMSI to assist the museum with the repayment of a 1991 loan from the Department of Energy.  These provisions are in sections 2 and 3 of Senate Bill 994 and in Section 16 of Senate Bill 5549.

That's an Oregon Department of Energy (ODOE) loan being repayed with $4.6 million from the Energy Trust, whose money is supposed to go towards energy efficiency and renewable energy generation.  The OMSI building did include some very expensive energy efficiency components, but it was built before the Energy Trust was created...and isn't an appropriate investment of that money anyway. 

Note that the $4.6 million in Energy Trust money was actually transferred last year.  OMSI then made a $1.5 million loan payment to ODOE.  It was the remaining $3.1 million that was being offered in exchange for a matching $4.6 payment by the state...to the state.  To continue with the Governor's press release...

“It is critical to the future stability and success of OMSI to resolve the financial burden and uncertainty created by this outstanding loan,” the Governor wrote in a letter to Secretary Bradbury.  “Unfortunately, the use of public purpose charge funds for this purpose is inappropriate…Because I believe this use of the public purpose charge is in appropriate, I have made the difficult decision to line item veto Sections 2 and 3 of Senate Bill 994.”

...

As the letter details, the Governor’s line item veto of Section 16 of Senate Bill 5549 restores $1.5 million within the Department of Energy’s budget, which will be used by DOE to assist OMSI.  At the Governor’s request, DOE will reduce OMSI’s loan by $400,000, and the Governor will allocate $400,000 from the Governor’s Strategic Reserve Fund.  The Governor has also directed DOE to write off the accrued interest on the loan, which is approximately $3 million.

“These actions will go a long way toward bridging the current gap in OMSI funding.  Legislative leadership and the co-chairs of the Ways and Means Committee, OMSI and other interested parties have been working together and will continue to work collaboratively to bridge the remaining gap,” the Governor wrote.  “I am very thankful for the hard work and commitments made by our partners in this effort. Together we can assure the ongoing strength and viability of OMSI.”

So OMSI gains $5.3 million rather than $9.2 million in the deal.  But let's go back to why it needs money.  Here's part of a question-and-answer that OMSI came up with to justify that.

Why is OMSI asking the state for financial help?

Part of the cost of OMSI's current building was related to energy-efficiency components included in its construction. These cutting-edge features were expensive and the state agreed to loan OMSI $15.5 million through the Department of Energy. The rationale was that these features increased OMSI’s energy efficiency and made it a demonstration site for energy education to schools and the general public.

Principal and interest payments on the loan amounted to $1.1 million per year. After the flood in 1996, the state agreed to provide approximately 75 percent of the principal and interest payments (i.e., the debt service), and OMSI agreed to pay $250,000 per year. OMSI has paid every installment.

Things shifted in 2001. As a result of the state budget crisis, the state's contributions to the debt service were reduced and then eliminated. The result was increasing interest on the debt.

When the state stopped servicing the debt, OMSI kept on paying $250,000 per year.  Little wonder interest on the debt was accruing.  Continuing with the question-and-answer, which includes another coy reference to the source of that $4.6 million...

What did OMSI do to start addressing the difficulty of the debt?

Several years ago, OMSI started working with the governor and Legislature to restructure the debt. Last year, a large unrestricted contribution enabled OMSI to offer a $4.6 million loan payment to the state. We suggested that if the state could match our funds, the remainder would be at a level that OMSI could manage without state support. The response was positive and significant efforts were made by the governor and the Legislature to match OMSI's $4.6 million payment. Senate bill 994 represents that effort.

...

Why should the state be helping OMSI pay off this debt in the first place?

OMSI is a significant contributor to Oregon's education and economic development. Unlike many museums around the country, OMSI does not receive any state, city, or county support for ongoing operations. OMSI is completely self-sustaining via earned income and donations.

Nope, no money from the taxpayers.  And when it comes to being completely self-sustaining, OMSI's auditors disagree.  From the most recent audit, published on Aug 30.

The Museum has sustained operating losses in unrestricted net assets and deficits in cash flows that raise concern about its ability to continue as a going concern.  In addition, the Museum has $13,150,696 in debt to the Oregon Department of Energy (ODOE), for which it makes interest payments totalling $250,000 per year in accordance with its forebearance agreement.  The museum has signed a new forebearance agreement, effective through December 31, 2008.  Based on a press release issued by the Governor of Oregon in August 2007, the museum is anticipating state funding in the coming year of approximately $2.3 million to pay down its debt with the ODOE, as well as a potential write-down of the accrued interest.  The Museum has paid $1.5 million during the year ended May 31, 2006 towards the principal balance and it plans to pay down the additional $3.1 million from unrestricted net assets.      

Whenever auditors use the phrase "going concern," that means they think bankruptcy is a possibility.  And if it goes bankrupt...

A substantial portion of OMSI's assets are pledged as collateral securing the ODOE's debt. 

This is somewhat reminiscent of the Oregon Garden's finances before it was privatized (most recent blog here). 

Under the proposed agreement, the amount the Museum will pay on the ODOE loan rises from $250,000 to $320,000 per year, for 10 years longer.  But, at least the amount owed would be dropping.  Now if the Museum can prove it knows what self-sustaining actually means...

For all the money we're paying, the state ought to at least force OMSI to put an honest explanation of its non-profit status and debt reduction on its website.