The Fine Institution’s $7 billion offers a lesson to Oregon

The Fine Institution that I sometimes refer to here has accumulated a gigantic endowment, the result of several centuries of thrift.  I recently asked its president to name the biggest decisions that his successor would face.  He said that his successor would have to decide how best to use the $7 billion to make a difference in the world.

I should note that the $7 billion isn’t the endowment.  The endowment is much larger.  The $7 billion is merely the portion of the increase over the last 3 or 4 years that exceeded the budgeted increase in the endowment: that is, it’s not even all of the appreciation; it’s just the unexpected portion of the appreciation.

This brought to mind my post of a few days ago about Oregon’s income tax kicker, the legislature’s danegeld to the voters.  We haven’t mastered, or even begun to study, the art of what to do with unexpected wealth.  When we have more than we expected, we give it back; when we have less than expected, we cut public services.  This "heads I win, tails you lose" model of financial planning gives us jails we can’t open, schools with no music and art, and roads in disrepair. 

Although Oregon isn’t attempting to be a Fine Institution (I think it should), we could at least emulate the Fine Institution and others in that class by putting our surpluses into an endowment, away from the fingers of future legislators, where the income will produce some permanent value.  Even with such an endowment, we might never find such a large sum of unexpected money, but without some sort of state savings plan, we certainly won’t find one.