As Multnomah County chairman, Ted Wheeler killed a risky proposal for an Oregon Convention Center headquarters hotel. As state treasurer, he's been a voice of caution on excessive borrowing and the Columbia River Crossing project.  

But now Wheeler is staking his credibility on a first-of-its-kind college scholarship program that frightens investment and risk-management professionals.  

“This is one of the worst ideas in public finance I’ve ever heard of,” says Jeremy Gold, a New York actuary and economist.  

Here's what Wheeler is proposing in a 2014 ballot measure called the Opportunity Initiative: He'd have the state borrow $500 million and invest the proceeds in stocks and private equity.  

Wheeler would then distribute the profits in the form of need-based grants to Oregon college students.  

Wheeler's concept is a response to Oregon students' growing struggle to afford college. Costs are rising far faster than incomes, and so he'd like to use the state's borrowing capacity, traditionally used for roads and buildings, to reverse Oregon's disinvestment in higher education. 

"I'm asking the state to make a long-term investment in human capital, just as we do with bricks and mortar," Wheeler says. "It's absolutely an appropriate use of the state's debt capacity."

The scheme looks good on paper—the state's borrowing costs are significantly lower than the returns its pension investments have historically generated. If that relationship were to continue for the long term, Wheeler would generate many millions annually for scholarships.

“It’s not that risky,” Wheeler says. “The bigger risk is doing nothing.” 

In the illustration Wheeler uses,  the state borrows at 4.5 percent interest and earns 7 percent on its investments. 

But experts say betting future investment returns will match past returns is a dangerous gamble.  

"I have the utmost respect for Ted Wheeler," says Steven Holwerda, chief operating officer of Ferguson Wellman, a Portland investment firm that manages $3.4 billion in client funds. 

“But you can go a decade or more when what he’s proposing doesn’t work.” 

Holwerda says looking at average returns provides false security. For instance, the stock market declined three consecutive years in the early part of the past decade and plummeted more than 35 percent in 2008.  

"It's like the old story—how did a man drown in a river that is on average 6 inches deep?" Holwerda says. “It’s because one part of the river is 12 feet deep.” 

Gold is blunter.  

“Most people don’t buy stocks with borrowed money because they understand it’s too risky,” he says. 

If borrowing money to invest in stocks were prudent, governments could use the same approach to pay for everything from public safety to sanitation. 

“Nobody would ever have to pay taxes for public services again,” Gold says. 

As an example of what can go wrong, Gold offers one word: “Japan.”   

In 1989, the Nikkei index of Japanese stocks soared to nearly 40,000. Since then, the Nikkei has lost two-thirds of its value. Investors using borrowed money were wiped out.  

Wheeler says that even with the sharp market drops in 2008 and earlier in the decade, Oregon's investments have yielded returns well above the state's current borrowing costs. He says it is wrong to fixate on short-term market fluctuations when discussing a long-term asset. 

He also notes that two aspects of the Opportunity Initiative reduce the potential pain of market dips: First, the state's general fund would guarantee the $500 million in loans and pay interest on the debt. Second, the program isn't obligated to make grants every year.  

John Tapogna, an economist at ECONorthwest, thinks Wheeler is on the right track. Tapogna has studied Oregon's Public Employee Retirement System, whose obligations mirror some of the risks of the Opportunity Initiative.   

He says Wheeler's proposal represents a recognition that rather than investing in physical infrastructure, governments will increasingly need to invest in knowledge.  

"The economy has changed, and this is a fantastic investment in Oregon's future," Tapogna says.

Wheeler earned an economics degree from Stanford and an MBA from Columbia, and worked in the financial-services industry, so he is no neophyte.  

But he's also a leading contender to succeed Gov. John Kitzhaber and looking for a big achievement to call his own. 

Wheeler has already spent $49,500 from his campaign kitty on the Opportunity Initiative. He hired Fulcrum Political, a new firm run by two of Oregon's top political consultants, Mark Wiener and Kevin Looper, to build a website and launch a social media campaign.  

The investment horizon for Wheeler's Opportunity Initiative is 30 years, far longer than Wheeler's likely political career.

"The risk-reward tradeoff for Mr. Wheeler might be politically very attractive," Gold says, "but the risk-reward tradeoff for the citizens of Oregon may turn out to be very costly."

Wheeler hopes voters will help him prove skeptics wrong.

“We are creating an endowment,” he says. “It’s a long-term economic benefit to the state.”