OCPA Budget: A State Budget that Respects Your Family Budget by OCPA

OCPA BUDGET A STATE BUDGET THAT RESPECTS YOUR FAMILY BUDGET

Submitted by the

Oklahoma Council of Public Affairs, Inc. To the Taxpayers of the State of Oklahoma and Their Elected Officials

PROPOSED STATE BUDGET FOR THE FISCAL YEAR ENDING JUNE 30, 2007

About the Oklahoma Council of Public Affairs The Oklahoma Council of Public Affairs (OCPA) is a public policy research organization – a think tank – whose mission is to formulate and promote public policies consistent with the principles of free enterprise and limited government. OCPA was founded in 1993 by board chairman Dr. David R. Brown, a retired orthopedic surgeon who also serves as chairman of the Heritage Foundation, the nation’s leading conservative think tank. OCPA is governed by a board of trustees composed of 32 distinguished Oklahomans – leaders in the fields of business, medicine, law, agriculture, and philanthropy. All of these men and women have one thing in common: They care about freedom. They love Oklahoma and want to advance economic and educational freedom in our state. To that end, OCPA’s staff and adjunct scholars (19 college and university professors from around the state) are committed to delivering the highest quality and most reliable research on Oklahoma issues. Through a variety of publications, programs, and public forums, OCPA is helping to improve the quality of life for all Oklahomans by promoting sound solutions to state and local policy questions. OCPA Board of Trustees Greg S. Allen

Aaron Burleson

Paul H. Hitch

Enid

Altus

Guymon

Russell M. Perry Edmond

Blake Arnold

Paul A. Cox

Henry F. Kane

Patrick Rooney

Oklahoma City

Bartlesville

Oklahoma City

Mary Lou Avery

William Flanagan

Robert Kane

Richard Sias

Oklahoma City

Claremore

Tulsa

Oklahoma City

Lee J. Baxter

Josephine Freede

Tom H. McCasland, III

John Snodgrass

Lawton

Oklahoma City

Duncan

Ardmore

Steve W. Beebe

Kent Frizzell

Lew Meibergen

William Thurman, M.D.

Duncan

Claremore

Enid

Oklahoma City

G.T. Blankenship

John T. Hanes

Ronald L. Mercer

Lew Ward

Oklahoma City

Bethany

Enid

John A. Brock

Ralph Harvey

Lloyd Noble, II

Gary W. Wilson, M.D.

Tulsa

Oklahoma City

Tulsa

Edmond

David R. Brown, M.D.

John A. Henry, III

Robert E. Patterson

Daryl Woodard

Oklahoma City

Tulsa

Will Clark, Ph.D.

James E. Hibdon, Ph.D.

Ann Nalley, Ph.D.

University of Oklahoma

University of Oklahoma (Ret.)

Cameron University

University of Oklahoma

David Deming, Ph.D.

Russell W. Jones, Ph.D.

Bruce Newman, Ph.D.

Michael Scaperlanda, J.D.

OCPA Adjunct Scholars W. Robert Reed, Ph.D.

University of Oklahoma

University of Central Oklahoma

Western Oklahoma State College

University of Oklahoma

J. Rufus Fears, Ph.D.

Andrew W. Lester, J.D.

Stafford North, Ph.D.

Andrew C. Spiropoulos, J.D.

University of Oklahoma

Oklahoma City University (Adjunct)

Oklahoma Christian University

Oklahoma City University

Bobbie L. Foote, Ph.D.

David L. May, Ph.D.

Rex J. Pjesky, Ph.D.

Daniel Sutter, Ph.D.

University of Oklahoma (Ret.)

Oklahoma City University

Northeastern State University

E. Scott Henley, Ph.D., J.D.

Ronald L. Moomaw, Ph.D.

Paul A. Rahe, Ph.D.

Oklahoma City University

Oklahoma State University

University of Tulsa

University of Oklahoma

OCPA Legal Counsel DeBee Gilchrist # Oklahoma City

OCPA Staff Mark Nichols / President Brett A. Magbee / VP for Finance and Operations Brandon Dutcher / VP for Policy Margaret Ann Hoenig / Director of Development Brian Hobbs / Director of Marketing and Public Affairs Mary Ferguson / Executive Assistant and Event Coordinator

1401 N. Lincoln Boulevard # Oklahoma City, OK 73104 # (405) 602-1667 # FAX: (405) 602-1238 www.ocpathink.org # ocpa@ocpathink.org This document was prepared by OCPA research fellow Steve Anderson, OCPA vice president Brandon Dutcher, and independent researcher Grant Gulibon. Valuable research assistance was provided by OCPA intern Jonathan McFadden.

Table of Contents 1. OCPA Budget Message ................................................................................................................................ 3

2. Summary of FY-2007 OCPA Budget .......................................................................................................... 11

3. FY-2007 OCPA Budget Recommendations Governor .............................................................................................................................................. 13 Lieutenant Governor .......................................................................................................................... 14 Agriculture ........................................................................................................................................... 15 Commerce and Tourism .................................................................................................................... 17 Education ............................................................................................................................................ 29 Energy .................................................................................................................................................. 41 Environment ........................................................................................................................................ 43 Finance and Revenue ........................................................................................................................ 45 Health .................................................................................................................................................. 53 Human Resources and Administration ........................................................................................... 60 Human Services ................................................................................................................................. 64 Military Affairs .................................................................................................................................... 71 Safety and Security ............................................................................................................................ 72 Science and Technology Development ........................................................................................... 79 Secretary of State ............................................................................................................................... 80 Transportation .................................................................................................................................... 82 Veterans Affairs .................................................................................................................................. 84 Legislature .......................................................................................................................................... 85 Judiciary ............................................................................................................................................... 86

4. Summary by Cabinet .................................................................................................................................. 87

OCPA Budget Message Summary: Unlike the governor, OCPA is proposing a state budget that respects your family budget. Whereas the governor’s budget increases spending by 18.46 percent and provides for only $17 million in tax cuts, the OCPA Budget increases spending by 4.2 percent and provides for $899 million to be returned to the hardworking Oklahoma families who earned the money. 2.78 percent rate would now be possible had the politicians simply grown government for two years at the modest rate that a strong majority of Oklahomans say they prefer. This budget also provides for the elimination of the Oklahoma estate tax. Other initiatives in this budget include expanded school-choice opportunities for Oklahoma families, the creation of a charitable tax credit for donations to charities and religious organizations that deliver social services, and a $500 million transportation bond issue financed by existing revenues.

Every year the governor submits for consideration an executive budget and asks citizens and state legislators to give serious consideration to his recommendations. Again this year, the Oklahoma Council of Public Affairs (OCPA) is likewise submitting a proposed state budget for consideration. At a time when Oklahoma’s populationgrowth-plus-inflation rate is only 4.2 percent, and Oklahomans’ income is growing at 5.4 percent,1 the governor is proposing an eyepopping increase of $1.11 billion – or 18.46 percent – over the current year’s appropriation of $6.03 billion. This, mind you, after the politicians at 23rd and Lincoln grew the government by a whopping 12.7 percent in the current year. Unlike the governor, OCPA is proposing a state budget that respects your family budget. Whereas the governor’s budget increases spending by 18.46 percent and provides for only $17 million in tax cuts, the OCPA Budget increases spending by 4.2 percent and provides for $899 million to be returned to the hardworking Oklahoma families who earned the money.2 After all, Oklahoma families have real needs: school clothes and dental work for the kids, new brakes for the car, ever-increasing health insurance premiums – the list goes on and on. Indeed, Oklahoma families have a multimilliondollar backlog of health care, transportation, education, and retirement needs. They deserve a state budget that respects their family budget. Accordingly, this budget provides for a reduction in the Oklahoma personal income tax rate. This budget applies $700.4 million towards a permanent reduction in the overall tax rate, which would take the rate to 4.45 percent. Had policy-makers followed OCPA’s advice last year (when our proposed state budget also grew government at the rate of population growth plus inflation), Oklahomans could now find themselves with an income tax rate of approximately 2.78 percent. That is not a misprint: a

It’s the Spending, Stupid Oklahomans are a fiscally conservative people. As the sidebar on page 5 indicates, reputable public opinion surveys indicate that Oklahomans think taxes are too high and that state government is too big. Nonetheless, Oklahoma’s state budget continues to grow and grow and grow.3 Governors and legislators have usually chosen to add new programs to the state budget without considering the merits of existing programs and finding ways to fund higher-priority items by eliminating lower-priority items. As a result, the budget has grown by leaps and bounds. Until state leaders learn to exercise fiscal discipline, or until the people write fiscal discipline into the constitution, the budget will continue to expand during years of normal or superlative revenue growth, creating strong pressure on state lawmakers to raise taxes in tight years. Most people would agree that state government growth should keep up with population growth and inflation. That is a reasonable benchmark.4 In this OCPA Budget, we use a population-plus-inflation estimate of 4.2 percent.5 Unfortunately, in recent years state government growth has exceeded this populationplus-inflation benchmark. Appropriations Our friends on the left like to use appropria3

taxes, and use taxes) as well as the “voluntary” taxes (such as alcohol taxes, telephone surcharges, and cigarette taxes). This is a more direct way to measure the amount of money that is extracted annually from the pockets of Oklahoma taxpayers. Between FY 1987-88 and FY 2005-06, Oklahoma tax revenues increased from just under $3.1 billion to an estimated $6.98 billion, or by 126.9 percent – a rate 65.2 percent faster than the concurrent estimated combined rates of inflation and population growth.6 What would tax revenue growth have looked like had it been limited to the rate of population growth plus inflation? Let’s assume that tax revenue growth in a given fiscal year would be limited to the previous year’s combined rates of inflation and population growth. Chart 1 compares the actual growth of Oklahoma state tax revenue with state tax revenue growth under such a revenue limit. Calculations are made assuming that the first year of the spending limit is FY 1988-89, and that the estimated revenue limit for that year is equal to the sum of (a) the FY 1987-88 tax

tions as a yardstick for measuring state spending. But this fails to consider the money that the state removes from citizens’ pockets that never enters the appropriations process. Legislators in fact divert hundreds of millions of tax dollars every year directly to government programs. For example, the Oklahoma Teachers Retirement System (OTRS) receives nearly four percent of all sales, use, individual income, and corporate income tax revenues before those tax dollars can be appropriated. The fact that this four percent is not appropriated does not mean it has not been extracted from taxpayers. And the OTRS is only one example; many others could be cited. The ability of legislators to make any tax revenue source a “dedicated, directed” funding source for their pet projects severely limits the usefulness of using “appropriations” to measure the growth in government. Total State Tax Revenues A more valid yardstick for measuring growth in government would be total state tax revenues. This category includes all the traditional “nonvoluntary” taxes (such as income taxes, sales

Chart 1. Oklahoma State Tax Revenues: Actual vs. Estimated at Previous Year’s Inflation Plus Population Growth Rate, FY 1988-89 to FY 2005-06

Source: Oklahoma Governor’s Historical Budget Books, FY-1988 through FY-2006; OCPA calculations

Oklahoma Voters: Government Is Too Big, Taxes Are Too High Which would you rather see in Oklahoma? (Rotate) A smaller government with fewer services .................. 49% A larger government with many services ..................... 27% Undecided (vol.) ........................................................... 24% In 2005, the average tax rate for an Oklahoman was 26.5 percent of their income. This is the total tax burden for all levels of government – federal, state and local. Do you think this amount is too high, too low, or just about right? Too high ........................................................................ 53% Too low ........................................................................... 3% Just about right ............................................................. 35% Undecided (vol.) ............................................................. 9% I’d like you to consider the following campaign scenario and tell me, all other things being equal, which candidate for governor, lieutenant governor, or state legislator you would be more likely to support: (Rotate) A candidate who favors eliminating the estate tax ....... 66% A candidate who wants to keep the estate tax ............ 23% Undecided (vol.) ........................................................... 12% Do you favor or oppose repealing the death (or estate) tax in Oklahoma? (After response, ask: Would you say you strongly favor/oppose or only somewhat favor/oppose?) Strongly favor ............................................................... 42% Somewhat favor ........................................................... 15% Somewhat oppose ......................................................... 8% Strongly oppose ........................................................... 14% Undecided (vol.) ........................................................... 21% Thinking about state government spending in Oklahoma, how fast do you think state government spending should grow in comparison to the growth of average family income? Do you think government spending should increase faster, slower, or at about the same rate as family income? Faster ............................................................................. 4% Slower .......................................................................... 37% About the same rate ..................................................... 52% Undecided (vol.) ............................................................. 7% Sources: For the first three questions – Cole Hargrave Snodgrass & Associates, telephone interviews of 400 registered voters in the state of Oklahoma, January 22-24, 2006. The confidence interval associated with a sample of this type is such that 95 percent of the time results will be within +/- 4.9 percent of the true values, i.e., the results obtained if it were possible to interview all the qualified respondents. Percentages may not add to 100 due to rounding. For the last two questions – Cole Hargrave Snodgrass & Associates, telephone interviews of 500 registered voters in the state of Oklahoma, November 14-17, 2005. The confidence interval associated with a sample of this type is such that 95 percent of the time results will be within +/- 4.3 percent of the true values, i.e., the results obtained if it were possible to interview all the qualified respondents. values, i.e., the results obtained if it were possible to interview all the qualified respondents.

revenue figure and (b) the FY 198788 tax revenue figure multiplied by the combined rates of inflation and population growth corresponding to that fiscal year (here assumed to be those for 1987). It is also assumed that if actual tax revenue for a given year is lower than the amount estimated at the limit, the actual revenue figure will be used for subsequent calculations. In each of the years covered by the revenue limit, actual Oklahoma state tax revenues would have exceeded the amount permitted by the growth of the combined rates of inflation and population. For FY 2005-06, Oklahoma state tax revenues would have been $1.426 billion lower than the projected figure of $6.98 billion – a reduction of more than 20 percent – if state tax revenue growth had been limited to inflation and population growth. Total State Government Collections Another way to measure the growth of government is to look at total Oklahoma government collections. This yardstick measures the total consumption of resources by Oklahoma state government. It comprises revenues from all sources – including taxes, licenses, fees, permits, fines, forfeits, income from property, grants from the federal government, and more. Between the 1987-88 and 200304 fiscal years, the cost of Oklahoma state government (as measured by total state government collections from all sources)7 increased by 149.4 percent, from $5.499 billion to $13.713 billion. This increase outpaced the concurrent combined rates of inflation8 (57.7 percent) and statewide population growth (9.2 percent) by 123 percent.

Chart 2. Oklahoma State Government Collections vs. Inflation and Population Growth: FY 1988 - FY 2004

Source: Oklahoma Governor’s Historical Budget Books, FY-1988 through FY-2006, Schedule B; United States Bureau of Labor Statistics; United States Bureau of Economic Analysis

knowledge, legislators often pass legislation creating current-period costs – like retirement benefit improvements for teachers and state employees – with “delayed funding.” This debtwithout-funding in the state pension systems alone is rapidly approaching $10 billion. And just as with Enron’s Ponzi scheme, there will be a day of reckoning in the future if this hidden growth continues apace. In short, no matter how you slice it, government growth in Oklahoma has been excessive. This points clearly to the need for sound, conservative principles to guide the budgeting process.

On a per capita basis (for every man, woman and child in the state), Oklahoma government collections increased from $1,713 in FY 1987-88 to $3,910 in FY 2003-04, or by 128.3 percent – a rate 91.6 percent above the concurrent combined rates of inflation and population growth. Put another way, total state government collections per Oklahoma family of four increased from $6,852 in FY 1987-88 to $15,640 in FY 2003-04. One may reasonably ask, don’t new programs and service additions – some of them necessary and reasonable – account for some of this additional spending? Perhaps so, but these new program costs pale in comparison to items we need to account for on the other side of the equation. For example, Oklahoma’s state budget is full of items, programs, or whole agencies that either fall outside the proper scope of government or are not among the highest-priority needs of the state. For proof, look no further than the 2004 Oklahoma Piglet Book, published by OCPA and Citizens Against Government Waste. What’s worse, the state – much like former corporate giant Enron – carries billions of dollars of debt with no underlying assets. Unlike Enron, however, Oklahoma politicians know they can always count on the deep pockets of Oklahoma taxpayers to bail them out. With that

9 R’s of Fiscal Responsibility The idea for the OCPA Budget originated with the Freedom Budget, a proposed state budget published by the John Locke Foundation, a freemarket think tank in North Carolina. “The Freedom Budget is a concise but broad-ranging examination of every function that state government attempts to perform in North Carolina,” the foundation explains. “This is not an attempt to close billion-dollar budget gaps and finance hundreds of millions of dollars in tax cuts by ‘eliminating waste, fraud, and abuse’ or ‘rooting out duplication.’ These may be good ideas, but they will inevitably fall short of generating the savings needed to balance the budget and to 6

growth in the state’s Medicaid program. The counter-cyclical nature of this program leads to lawmakers expanding Medicaid programs to provide new entitlements (and create new dependents) in good economic times that cannot be sustained when downturns in the economy occur. This budget puts spending controls in place and removes entitlements to non-poverty recipients that will result in cost containment, and ensures the availability of quality services for the truly disadvantaged. Require More User Responsibility. It is inappropriate to require those who receive core state services, such as law enforcement or public education, to cover a significant share of the cost of those services. But for many other state agencies, their programs or services are not constitutional entitlements or responsibilities. If the state is to continue involvement in these enterprises, it would be appropriate to ask those who benefit to shoulder more of the responsibility of paying for them. Services for which this budget recommends additional user responsibility include state museums, historic sites, parks, colleges and universities, and the accommodation of prison inmates. Redirect Spending to Higher-Priority Uses. According to Article II, Section 2 of the Constitu-

invest significantly more dollars in our inadequate highway system. Our purpose was to apply a consistent set of principles to the task of setting North Carolina’s budget priorities. If policymakers follow our lead, they will need to be prepared to rethink some longstanding assumptions about what state government exists to do.” In preparing our budget, OCPA employed the criteria developed by the John Locke Foundation. Here are the foundation’s “nine R’s of fiscal responsibility.”9 Reform Entitlement Programs. State programs to provide cash assistance, medical care, or other services to the disadvantaged exist to provide a basic “safety net.” Even philosophers of limited government have justified such programs as needed to ensure order and protect public assets and spaces. But these programs must be carefully structured to minimize dependency and encourage personal responsibility. When the state pays nursing home bills for the parents of the middle class, subsidizes the day care expenses of affluent families, and perpetuates social pathologies such as out-of-wedlock births, it strays far from its constitutional moorings. One of the biggest contributors to Oklahoma’s budgetary problems is rapid

Chart 3. Total Oklahoma Government Collections Per Capita: FY 1988 - FY 2004

Source: Oklahoma Governor’s Historical Budget Books, FY-1988 through FY-2006, Schedule B; United States Bureau of Labor Statistics; United States Bureau of Economic Analysis

tion of Oklahoma, “All persons have the inherent right to life, liberty, the pursuit of happiness, and the enjoyment of the gains of their own industry.” Thus, it is incumbent upon Oklahoma politicians, when formulating tax and budget policies, to secure the people’s right to enjoy “the gains of their own industry.” The state is obligated to perform its basic functions efficiently while leaving to the people as much of their hard-earned money as possible. During a time of fiscal distress, in which policymakers find it difficult to fund obligations already in place, it makes little sense to incur new ones. Another way to apply this principle is by sorting out which expenditures within a given department or agency are central to the core mission and which are not. Reorganize State Government. Even assuming that current fiscal obligations could continue into the next year, there remain different ways of organizing the departments that carry them out. Oklahoma’s state government structure is relatively more costly than those of its neighbors. Public employees per capita in Oklahoma exceed the national average. There is unnecessary duplication of core functions throughout Oklahoma state agencies. In short, there are more efficient methods of organizing the various departments. Millions of dollars in agency expenses are hidden in cross-subsidization by other agencies’ appropriations. This budget attempts to identify areas where costs are hidden within one agency that in fact should reside in the budget of another agency. For example, staffers in the Office of State Finance budget division spend the majority of their time serving the needs of the governor’s office, including preparing the governor’s budget book. These costs should be shown in the governor’s budget, especially since the budget book is essentially a political document laying out the governor’s agenda for the coming year. OCPA believes every taxpayer dollar should be traceable and accountable. Efforts to distort agency expenditures by hiding costs limits the transparency of government. These distortions also preclude effective comparisons of agency expenditures to those in other states and in the private sector. Revive Free Enterprise. Responding to Oklahoma’s economic challenges, some policymakers have concluded that state government

should take a more active role in attracting investment and guiding development through tax credits, cash subsidies, and other incentive programs. This is a mistake. The available public policy research on state economic development does suggest that overall tax rates, especially the marginal rates on individual and corporate income, do have a measurable impact on state economic growth rates. By eliminating incentive programs, marketing subsidies, and other encroachments on free enterprise, we can consider a reduction in marginal income tax rates, as well as the possible elimination of the death and franchise tax. These tax changes would improve economic competitiveness across the board far more successfully than any incentive program for individual businesses can accomplish. The OCPA Budget puts nearly $900 million back in the hands of taxpaying Oklahomans to invest and spend as they choose. We believe this cash infusion into the economy will have a far greater impact on economic development than any incentive program for an individual industry. Restore Civil Society. Nonprofits and charities form a “third” or “independent” sector that delivers important services and benefits that neither governments nor profit-seeking businesses can deliver as effectively. The state should be careful not to supplant these institutions of civil society. Remove Advocacy, Waste, and Race-Based Programs. Laws and programs that invoke racial or ethnic discrimination violate a basic principle of moral government. All such programs should be ended immediately. Similarly, state funds should not be used to subsidize groups that advocate policies or ideas before government bodies. Taxpayers should not be forced to pay for the propagation of ideas with which they may disagree. Government is instituted solely for the good of the whole, not for special interest groups that use taxpayer money to advance their agendas. Reshape the State-Local Government Relationship. Local control of local revenues should be a central theme whenever possible in the relationship between state and local government. The diverse demographic nature of our state leads to problems in applications of some state programs. For example, a program like Medicaid should be tailored to fit the most 8

pressing needs of the disadvantaged citizens it serves. However, the health issues of southeastern Oklahoma, Oklahoma City, and the panhandle of Oklahoma are not the same. For example, any expansions of the existing Medicaid program could be both funded and targeted at the local level. The Oklahoma Health Care Authority should serve only to administrate the matching of federal funds with the local dollars. Reduce Biases in the Tax Code. Like most states, Oklahoma has developed its state tax code in a piecemeal fashion rather than using tax reform principles to build a coherent and efficient system. As a result, a variety of special rates, exemptions, exclusions, deductions, and credits litter the code. In the corporate tax code alone, special tax credits for job creation, research and development, machinery, worker training, and other expenditures limit corporate income taxes the state collects. Another problem is the income tax code’s bias against savings and investment, including the investment that families make in their children through private education, health care spending, and at-home parenting. The OCPA Budget provides the spending controls that will allow for reductions in individual taxes for everyone, thus reducing the need for these individually tailored tax breaks.

not state government’s priorities. It’s time for a state budget that respects your family budget. Endnotes 1

http://www.bea.gov/bea/newsrelarchive/2006/spi0306.htm

According to the Tax Foundation, in 2005 the average Oklahoman was forced to work all of January, all of February, all of March, and the first week of April just to earn enough money to pay the federal, state, and local tax collectors. That kind of tax burden is inappropriate for a free people in a free society. Policy-makers at all levels should seek to reduce this burden on Oklahoma families. 3

If Oklahomans are fiscally conservative, why does government continue to grow faster than citizens would like? “The answer lies in the logic of concentrated benefits and diffuse costs,” University of Oklahoma economist Daniel Sutter explains. “The full cost of rent seeking or pork barrel spending … exceeds the benefit to recipients. But typically a relatively small number of people benefit, while the costs are spread over the remainder of the population. Thus, the beneficiaries of pork barrel spending typically have a lot more at stake on this issue than the taxpayer. … As a result, the beneficiaries tend to be a lot more vocal than taxpayers when specific budget items are considered. Only the beneficiaries have enough at stake to write their legislator or attend a committee hearing or make campaign contributions based on this one issue. Taxpayers hardly notice the extra couple of dollars annually for this spending project.” See Daniel Sutter, “Why Constitutional Constraints on Government Are Necessary,” Perspective, January 2005, pg. 1. 4

Indeed, a recent statewide survey (Cole Hargrave Snodgrass & Associates, telephone interviews of 500 registered voters in the state of Oklahoma, November 14-17, 2005) asked Oklahoma voters: “It has been proposed that Oklahoma adopt an amendment to our state constitution that would restrict the rate of growth in government spending to no more than the rate of inflation plus the rate of population growth. That is, for example, if we had three percent inflation and one percent population growth, government spending could increase no more than four percent for that year. If the state received excess revenues, they would be placed in a reserve fund for emergencies and then, when the reserve fund is full, it would be returned to the taxpayers. Would you favor or oppose such an amendment?” A full 74 percent of respondents said they favor the idea, while 17 percent said they oppose it.

Conclusion Governor Brad Henry’s proposed budget for FY-2007 is alarming. It increases spending by 18.46 percent and provides for only $17 million in tax cuts. It is a state budget that does not respect your family budget. By way of contrast, the OCPA Budget increases spending by 4.2 percent and provides for $899 million to be returned to the hardworking Oklahoma families who earned the money. After all, Oklahoma taxpayers have been forced to shoulder an increasingly heavy burden in recent years. The total amount collected by state government has risen by $8,788 per family of four between FY 1987-88 and FY 2003-04. Worse yet, Oklahoma’s spending increases have been accompanied by substandard economic and population growth, relative both to the nation as a whole and to its nearest economic competitors. It’s time to allow private businesses and families, not state bureaucrats, the opportunity to use that money according to their priorities,

The Census Bureau estimates that Oklahoma’s population increased 0.7 percent from 2004 to 2005 (see http:// www.census.gov/popest/states/tables/NST-EST2005-03.xls), and the Bureau of Labor Statistics puts the inflation rate for South urban areas at 3.5 percent (see http://www.bls.gov/ news.release/cpi.t03.htm). We are familiar with, but unpersuaded by, the argument that it is unfair to use inflation as a measurement because the cost of providing government services (education and medical welfare, for example) often grows faster than inflation. In the private sector, advances in productivity help to keep prices low. But in the government’s education and medical welfare sectors, economists tell us productivity advances are virtually nil. Indeed, the left-wing Center on Budget and Policy Priorities recently acknowledged that a state government’s basket of public services is in economic sectors that are “less likely to reap efficiency and productivity gains than other sectors of the economy.” So in effect, the spending lobby is saying to taxpayers: “Because we’re so inefficient, you should reward us with more money.” We think it makes more sense to say: “Because you’re so inefficient in your stewardship of the taxpayers’ money, you

must now inject some choice and competition into your operations in order to spur productivity gains.“ 6

Inflation data for the second half of 2005 estimated using previous years’ data from the Consumer Price Index-South, United States Department of Labor, Bureau of Labor Statistics. Population data for 2005 estimated using previous years’ data from the United States Department of Commerce, Bureau of Economic Analysis. 7

A report of total collections is available at http:// www.osf.state.ok.us/06appndx_b.pdf. 8

Inflation is measured by the percentage change in the Consumer Price Index-South for the years 1987 through 2003. 9

http://www.johnlocke.org/acrobat/policyReports/ freedom_budget_2003.pdf

Summary of FY-2007 OCPA Budget Final Revenue 1. Appropriations Authorized in December 2005 Equalization Board Meeting 2. Lottery Estimate 3. Gaming Revenue for Higher Education Tuition Aid Grant 4. Excess CLO Funds Total Amounts Available from Certification Packet Revenue Changes 5. Excess Gross Production Oil Funds 6. Convert State Transportation Certified Fund into a Revolving Fund 7. Lapsed Funds - Other 8. Allow Counties to Collect Interest on County Bridges and Roads Fund 9. Excess General Revenue FY-2006: Oklahomans’ Economic Production in Excess of Board of Equalization estimates 10. Cash Flow Reserve Fund 11. Debt Refinancing Savings Freed Up by OCPA’s $500 Million Transportation Bond Total General Revenue Changes

$ 6,485,500,806 $ 117,733,501 $ 4,927,800 $ 3,915,171 $ 6,612,077,278 $ $ $ $

10,498,391 6,907,097 (600,000)

$ $

392,000,000 145,521,920

$ $

21,000,000 575,327,408

Changes to Revolving Funds/Special Cash Fund Special Cash 12. Agency Transfers to Special Cash Total Special Cash

$ $

3,500,000 3,500,000

Total Changes to Certification

578,827,408

Total Revenue Available for FY-2007 Budget

$ 7,190,904,686

Tax Cuts 1. Full Retirement Exemption to Incomes of $25K/50K 2. Eliminate Estate Tax 3. Education Tax Credit 4. Reduction in State Individual Income Tax Total Tax Cuts

$ $ $ $ $

Expenditures 1. Recommended OCPA Agency-by-Agency Expenditures 2. Funds Available for Supplementals and Special Needs

$ 6,183,408,059 $ 108,191,917

Total Recommended Expenditures

$ 6,291,599,976

Expenditures and Tax Cuts

$ 7,190,904,686

Balance / (Shortage) of Funds Available

13,900,000 85,000,000 100,000,000 700,404,710 899,304,710

—

Revenue Items 1-8, 10, 12 from Gov. Brad Henry, FY-2007 Executive Budget, pg. A-9 Revenue Item 9 from Gov. Brad Henry, FY-2007 Executive Budget, pg. A-12 Revenue Item 11 from Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 86; and OCPA, FY-2007 OCPA Budget, pg. 81 Tax Cuts Item 1 from Gov. Brad Henry, FY-2007 Executive Budget, pg. A-9 Tax Cuts Items 2-4 from OCPA, FY-2007 OCPA Budget

FY-2007 OCPA Budget Recommendations Governor “As Chief Magistrate of the State, the Governor is vested by the Oklahoma Constitution with ‘the Supreme Executive power.’”1 OCPA commends Governor Henry for increasing appropriations to his office by only 1.8 percent from FY-04 to FY-05.2 However, there are still areas where spending could be more effectively controlled. As OCPA and Citizens Against Government Waste pointed out in the 2004 Oklahoma Piglet Book, “According to travel records with the Oklahoma Office of State Finance, the state picked up a $13,743 tab for security costs for the three vacations taken by Gov. Henry between June and August.”3 This bill was so high because the governor chose to vacation not just outside the state but outside the country, which required his security team to incur additional travel expenses. In addition, the governor should stop spending taxpayer dollars for membership in the National Governors Association (NGA), a liberal nonprofit association. As the Capital Research Center points out, groups like the NGA ostensibly “help state and local government officials do a better job. But such ‘help’ includes instructing elected and appointed officials and bureaucrats in the fine arts of increasing tax revenues, expanding the police powers of government and developing new regulations, ordinances and statutes on every subject imaginable.”4 In 1997 “Alabama Governor Fob James, Jr. became the first governor ever to resign from the NGA. He announced that Alabama taxpayers were getting nothing valuable for their $100,000 annual dues. ‘Essentially what we are getting is just another liberal lobbying group,’ says Michael Ciamarra, a policy advisor to James.”5 As is the case with many state agencies, much of the governor’s actual expense to the Oklahoma taxpayer is hidden by cross-subsidies from other agencies which perform the governor’s work. For example, the Office of State Finance prepares the governor’s budget book and provides technology staff to his office

but pays for those services from its own budget. The OCPA Budget attempts to assign costs properly to each agency to increase the transparency of government. The OCPA Budget recommends the governor’s office receive its FY-2006 appropriation, adjusted upward for population growth and inflation. In addition, the governor’s office will receive increased appropriations due to reorganization of government (see the sections covering the Office of State Finance and the Office of the State Bond Advisor). Endnotes 1

Governor Brad Henry, FY-2005 Executive Budget, pg. 79.

Oklahoma House of Representatives, FY-05 Legislative Appropriations, pg. 57. 3

Oklahoma Council of Public Affairs and Citizens Against Government Waste, 2004 Oklahoma Piglet Book, pg. 7. Available at http://www.ocpathink.org/ ViewPolicyStory.asp?ID=512. 4

Sarah Foster, “‘Big Seven’ Fuel Big Government: State & Local Leaders Promote Liberal Policies Through Nonprofit Associations,” Organizations Trends, February 1998, pg. 2. Available at http://www.capitalresearch.org/pubs/pdf/ Organization%20Trends%20February%201998.pdf. 5

Sarah Foster, “‘Big Seven’ Fuel Big Government: State & Local Leaders Promote Liberal Policies Through Nonprofit Associations,” Organizations Trends, February 1998, pg. 3. Available at http://www.capitalresearch.org/pubs/pdf/ Organization%20Trends%20February%201998.pdf.

Lieutenant Governor “The Office of Lieutenant Governor was created by Article 6, Sec. 1 of the Oklahoma Constitution. … In Oklahoma and about half of the 50 states, the Lieutenant Governor serves in place of the Governor when the chief executive officer leaves the state, becomes incapacitated or resigns. Oklahoma’s Lieutenant Governor also serves as the President of the Oklahoma State Senate, casting a vote in the event of a tie and presiding over joint sessions of the State Legislature.”1 Constitutionally, or by state law, the Lieutenant Governor presides over or is a member of 10 state boards and commissions. Commission

Status

Tourism and Recreation Commission

Chairman

State Insurance Fund

Member

Film Office Advisory Commission

Chairman

State Board of Equalization

Vice Chairman

School Land Commission

Vice Chairman

Archives and Records

Member

Oklahoma Linked Deposit Board

Vice Chairman

Oklahoma Capitol Complex Centennial Commission

Member

Capital Improvement Authority

Member

Native American Cultural & Education Authority

Member

Source: http://www.ltgov.state.ok.us/ok/history/

The OCPA Budget recommends the lieutenant governor’s office receive its FY-2006 appropriation, adjusted upward for population growth plus inflation. Endnotes 1

http://www.ltgov.state.ok.us/ok/history/

Agriculture Department of Agriculture, Food and Forestry (ODAFF)

when an agency both regulates and promotes an industry. OCPA believes that instead of subsidies to favored industries, the state should provide a stable, low-tax, low-regulatory institutional environment with strong private property rights and high degrees of economic freedom that will encourage all industries.

“The Department of Agriculture is the lead agency in the state for improvement and regulation of the agricultural industry in Oklahoma.”1 While many of the agency’s functions are necessary and appropriate, we believe that taxpayers are not obligated to subsidize industries or individuals unnecessarily. Many of the tasks performed by this department should be fee-based so that the cost of the product being regulated truly reflects all the costs of bringing it safely to the consumer who purchases it. The OCPA Budget proposes that industries being regulated for consumer safety be charged fees for inspections that reflect the actual cost of the inspection. However, of equal importance is the examination of the regulatory process for any unnecessary regulations or costs. OCPA believes the regulatory process should be as efficient as possible to minimize the impact on industries and the consumers they serve. Indeed, efficient regulatory processes would be one way of ensuring minimal regulation costs to industries. For an example of the bureaucratic red tape within the department, consider Oklahoma’s pork-producing industry, in which jobs and capital investment have been moved across the state line to Texas simply because of the cost and the length of time required to obtain permits. Similarly, the promotion of any industry’s products at taxpayer expense is a questionable expenditure and should be removed from the budget. It is also a potential conflict of interest

Department of Agriculture, Food and Forestry FY-06 Budget Resources General Revenue Fund

$26,296,069

Federal Funds

$8,505,845

Revolving and Carryover Funds

$7,094,703

REAP Gross Production Tax Total

$900,000 $42,796,617

Source: Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 138.

Many Oklahomans would be surprised to learn that 38 percent of the department’s expenditures are related to forestry services. There are approximately 10 million acres of trees in Oklahoma. There are more than 6.2 million acres of commercial forests, largely owned by private landowners, across the state.3 The department also maintains a water quality division that can best be managed within the Department of Environmental Quality (DEQ). This would eliminate redundancies between the two departments in testing equipment, and would reduce the potential for conflicts of interest which occur when an agency both promotes and regulates an industry. The OCPA Budget consolidates the water testing and monitoring of all agencies to DEQ in order to gain Department of Agriculture efficiencies in operations, Sector Program % of Total FY-2005 Actual Expenditures2 but also to place regulation Expenditures Expenditures in a “one-stop shop” for Forestry Services $13,366,000.00 58% businesses and individuals. Administrative Services $5,762,000.00 16% OCPA has long pointed to the Rural Economic Food Safety/Agriculture Laboratory $5,522,000.00 15% Action Plan (REAP) as an Plant Industry & Consumer Services $5,204,000.00 14% example of the misallocaLegal/Public Information/Marketing $3,283,000.00 9% tion of taxpayer dollars. For Wildlife Services $1,721,000.00 5% example, $1.4 million in Agricultural Environmental Management $1,231,000.00 3% REAP water project funding was diverted to the “opera15

tions” of the Department of Agriculture rather than funding the rural water projects it was intended for.4 In researching the true costs of public education in Oklahoma, OCPA discovered education expenditures hidden in agency budgets throughout the state. For example, the Department of Agriculture includes a program called “Ag in the Classroom,” which this budget removes from Agriculture and transfers to the Department of Education in order to more correctly calculate the cost of education in this state. By removing unnecessary corporate welfare, reviewing programs for inefficient services, and transferring the water quality division, the OCPA Budget believes $9 million can be removed from the department’s budget base for FY-2007.

The OCPA Budget believes the removal of redundancies in governmental functions will not only reduce the cost of government but also provide better service. This budget proposes that watershed operations and water quality functions be moved to the Department of Environmental Quality (DEQ) to allow for a more comprehensive approach to controlling pollution in Oklahoma’s water while removing duplicate layers of administration. This budget removes $5.9 million from the Commission’s budget and transfers it to DEQ, less $590,000 (which represents savings in reduced administrative costs). The subsidizing of private businesses is not an acceptable use of taxpayer dollars, and we encourage the commission to look at its programs for these expenditures. Where the primary beneficiary of the commission’s service is the private landowner, this budget proposes that the landowner bear the state’s cost of any project. This budget holds the commission’s budget at FY-2006 levels after removing the $5.9 million being transferred to DEQ.

Conservation Commission “The Conservation Commission provides technical assistance, financial incentives and educational information through Oklahoma’s 88 conservation districts to promote and sustain private land conservation.”5

Endnotes

Conservation Commission FY-06 Budget Resources General Revenue Fund Federal Funds REAP Fund from Gross Production Tax Revolving and Carryover Funds Total

$7,403,928.00 $12,996,914.00

Governor Brad Henry, FY-2007 Executive Budget, pg. B-5.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-22.

Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 136. 5

$2,400,000.00 $100,000.00 $22,900,842.00

Program Expenditures

% of Total Expenditures

$6,488,000.00

36%

$5,016,000.00

28%

$3,924,000.00

24%

$2,085,000.00 $771,000.00

13% 5%

Governor Brad Henry, FY-2006 Executive Budget, pg. B-28.

Governor Brad Henry, FY-2006 Executive Budget Historical Data, pg. B-13.

Conservation Commission FY-2005 Program Expenditures6

Field Service Abandoned Mine Reclamation Water Quality/ Wetlands Watershed Ops and Maintenance Administration

Governor Brad Henry, FY-2007 Executive Budget, pg. B-5.

Source: Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 145.

Sector

Commerce and Tourism Oklahoma Capitol Complex and Centennial Commemoration Commission

state government,” and as such, is charged with improving Oklahomans’ quality of life by “supporting communities, growing existing businesses, and attracting new businesses.”3 To accomplish its stated mission, ODOC “recruits new businesses, develops economic incentives to stimulate job growth, assists existing businesses with expansion, facilitates international trade and export assistance, manages workforce development programs, and provides funding to rural Oklahoma communities for programs and activities aimed at sustainability and economic growth.”4 According to the Governor’s FY-2006 Executive Budget, ODOC acts as a “one-stop shop” for private sector businesses wishing to expand and locate in Oklahoma. Primarily funded by federal and state appropriations, it provides services in the following program areas: • Business Development. This program (also known as Business Solutions) has been reorganized during the Henry administration in order to place greater emphasis on responding to the needs of existing Oklahoma businesses.5 • Community Development. The mission of this program is to “invest federal and state funds in communities and community-based, nonprofit organizations” for the purpose of building “local capacity” and encouraging “sustainability.” It provides a number of programs for technical assistance and planning for communities, over 400 of which are preparing capital improvement plans to maintain and prioritize civic assets for repair and replacement. Such assets include water and sewer improvements, economic development infrastructure enhancements, multipurpose senior citizen center development, fire protection equipment, and street and drainage repairs. These projects are primarily funded by federal Community Development Block Grants, but money is also available through the state energy plan and other state appropriations.6 • Business Location. This program is designed to market Oklahoma as a “profitable location” for investment in manufacturing, processing and service businesses by recruiting

The Commission was formed to coordinate centennial celebrations throughout the state. The Commission encourages and supports participation from all geographical areas of the state.1 The Commission operates in conjunction with a 501(c)(3) charitable organization which provides the conduit for the private contributions for the state capitol building’s dome and which continues to operate to raise private money for centennial projects. The OCPA Budget recommends the appropriation for the commission be fixed at the amount of the bond payment and that all other commission events for FY-2007 be financed by private donations.

Oklahoma Department of Commerce The practice of offering taxpayer-subsidized incentives to companies in order to induce them to leave one state for another (or to keep a given firm in its current location) has become ingrained within state government economic development policy. However, recent events have the potential to significantly alter this seemingly settled practice. In late September 2005, the United States Supreme Court agreed to review the constitutionality of an investment tax credit given by the state of Ohio to DaimlerChrysler AG for the construction of a Jeep assembly plant in Toledo. Ohio taxpayers who brought the suit in an appeals court successfully contended that the credit favors companies expanding in the state over those that expand in another state, and that it therefore violates constitutional provisions governing interstate commerce.2 It is clear that the outcome of the Ohio case could dramatically impact the operations of other government agencies tasked with stimulating economic growth, among them the Oklahoma Department of Commerce (ODOC). ODOC was created by statute in 1986 and then revised the following year by the Economic Development Act of 1987 (HB 1444). It serves as “the primary economic development arm of 17

funding to the COGs by $10.15 million, amendnew domestic investment, encouraging and ing relevant statutes to more clearly define assisting Oklahoma companies looking to expand to do so in the state, and helping “economic development,” increasing auditing local communities and economic developand monitoring of recipients of economic develment organizations lure new businesses.7 opment funding, and using performance mea• Global Business Services. Initiatives in this sures to determine how effectively this funding is division assist Oklahoma businesses in used. developing a revenue source that is “resilient All told, over the past ten years, appropriato state economic downturns.” The program tions to ODOC increased by 44.7 percent, from searches for Oklahoma companies with $18.2 million in FY-1997 to $26.3 million in FYexport capability and prepares them to 2006. The FY-2006 spending figure actually maximize their potential in the global market. represents a 21 percent decrease from the FYGlobal Business has oversight of all Com2005 total, largely due to the removal of $9.27 merce International Trade Offices.8 million in one-time expenditures, but it also • Contracts for Commercial and Economic exceeded the governor’s FY-2006 budget request Development. of $24.627 million by 6.9 percent.10 ODOC has a two-part budget, Oklahoma Department of Commerce Budget Resources consisting of FY-05 FY-06 % Change department General Revenue Fund $18,630,677.00 $21,411,135.00 14.9 operations and Special Cash $4,707,168.00 $4,923,528.00 4.6 “pass-throughs” to substate planning Federal Tax Relief Fund $10,000,000.00 $0.00 (100.0) districts, commuRevolving and Carryover Funds $1,792,528.00 $1,700,000.00 (5.2) nity action agenFederal Funds $49,460,076.00 $78,000,000.00 57.7 cies, and a numTotal $84,590,449.00 $106,034,663.00 25.4 ber of other Source: Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 144. entities. (“Passthroughs” strikes us as an oddly descriptive phrase which calls to Ten-Year Appropriation History mind Ronald Reagan’s observation that “govFY-97 ................................................ $18,203,600 ernment is like a big baby – an alimentary FY-98 ................................................ $20,070,376 canal with a big appetite at one end and no FY-99 ................................................ $21,830,694 sense of responsibility at the other.”) The 11 FY-00 ................................................ $22,934,902 substate planning districts, or council of governFY-01 ................................................ $25,653,941 ments (COGs), were established by the OklaFY-02 ................................................ $31,175,324 homa legislature to provide “economic developFY-03 (Orig.) .................................... $30,241,666 ment leadership” and operate independently. FY-04 ................................................ $22,008,606 The COGs receive funding from state approFY-05 ................................................ $33,337,845 priations, membership dues from towns, and FY-06 ................................................ $26,334,663 state and federal grants. According to ODOC, Source: Oklahoma House of Representatives, FY-06 Legislative state appropriations to the COGs increased by Appropriations, pg. 144. 541.1 percent between FY-1998 and FY-2005, but Government has a legitimate role to play in the Department has no oversight of these funds.9 economic development policy and planning – Therefore, while some of the “pass-through” but that role should be strictly limited to the funds to COGs are used for what are termed provision of infrastructure that can be used by “quality economic development purposes,” often all businesses, such as water and sewer imthey are used for the renovation of local parks, provements, roads, and bridges. But when state golf courses, baseball parks, and other recregovernment assigns itself a leading role in ational and community facilities. Perhaps in an stimulating and directing economic developeffort to address these issues, the governor’s FYment (as it has in Oklahoma), it produces 2006 budget proposal called for reducing

economic distortions that harm all businesses in a state – including those that receive government assistance. The issues surrounding the use of the “passthrough” funds by the COGs – specifically the lack of accountability and questionable project choices – are a microcosm of the problems that have arisen because governments have expanded the definition of “quality economic development purposes” far past the provision of legitimate infrastructure. Indeed, that definition has been stretched so far as to include aid to selected businesses and industries; the construction of sports arenas, arts and cultural facilities; programs for workforce development, education and training; and myriad other incentives. While some of ODOC’s activities are geared toward the provision of traditional infrastructure that benefits all businesses, many others directly benefit individual firms and industries and are the proper responsibility of those firms and industries, not state government. For example, individual Oklahoma businesses, not state government, should commit their own resources to the search for “global business” opportunities, because the businesses themselves are the primary beneficiaries of those efforts and should not be subsidized by general taxpayers. Likewise, business recruitment should be the responsibility of voluntary associations of local businesses that would benefit from the addition of a given firm to the local economy. And with regard to projects such as senior citizen and community centers, parks, and other recreation amenities, it should be the users of those facilities who are responsible for their funding and upkeep. The economic distortions caused by the expansion of state government’s role in economic development policy are the product of several factors. First of all, the primary considerations underlying most, if not all, government investment decisions are political, rather than economic in nature. It is an unpleasant fact that not every area of a state is equally attractive to private sector businesses, and they allocate their capital so as to minimize their risk and maximize their potential return on investment. When state government makes an “investment,” however, projects that the free market would reject are often approved in order to serve the

political interests of officials in a given region of a state. While there is generally nothing sinister about this practice, it does not usually lend itself to an efficient allocation of scarce resources. Second, the political calculations involved in government economic development decisions lead to a bias in favor of projects and programs associated with the largest numbers of potential jobs created, rather than the greatest possible rates of return. Making job creation a primary measurement of a project’s economic impact may provide flashy sound bites for politicians and development officials, but it often provides an incomplete picture of a given program’s effectiveness. A good example of that mindset in Oklahoma is the state’s much-lauded Quality Jobs Program, which, since its inception in 1993, has distributed $400 million in tax dollars to 418 companies.11 The Quality Jobs Program offers quarterly cash rebates for up to 5 percent of newly created taxable wages for up to 10 years to qualifying enrolled companies in what the state determines to be “qualifying basic industries” (generally, manufacturers and certain service companies with a new payroll investment of $2.5 million or more, with a lower payroll requirement for companies in certain industries or that locate in targeted areas).12 In 2005, Senate Bill 407 modified the Quality Jobs Program to give existing recipients added incentive to bring higher-wage jobs to Oklahoma, allowing for a 6 percent payment (if economic impact warrants) on payroll for direct jobs that exceed 150 percent of a company’s average wage. The bill also added the civilian workforce at the Federal Aviation Administration’s (FAA) Mike Monroney Aeronautical Center in Oklahoma City to the list of “basic industries” in the hope of giving it an advantage in competing for new missions and consolidations.13 However, Oklahoma’s job creation rate since Quality Jobs was created in 1993 was 26.5 percent below the national average rate, and as of 2004, the state’s per capita personal income figure was 14.7 percent below the national average.14 Indeed, the structure of and changes to the Quality Jobs program illustrate several of the problems with government-controlled economic development projects. First of all, since it is government – not the private sector – that determines which industries are eligible, the 19

program has the effect of favoring one class of Oklahoma businesses over another, as well as of forcing some taxpayers to subsidize the operations of others. It also causes businesses to allocate time, money and manpower to seeking state subsidies that could have otherwise been used to improve their products and/or services. In addition, the expansion of the “basic industry” list to include the FAA facility in Oklahoma City illustrates the ever-escalating cost of a government-centered economic development strategy, as increasingly mobile businesses leap from state to state in search of the most lucrative possible incentive package. Finally, it is not clear how many of the jobs Quality Jobs is credited with creating would

have been generated in its absence (in the past, ODOC has admitted that as many as half of those jobs would have been created in any case), but regardless of the answer to this question, the program is still a lose-lose proposition for state taxpayers.15 If those jobs would have been created in any event, Oklahoma taxpayers are, in effect, paying to increase the profits of private businesses. If the jobs would not have been created in the absence of the incentives, then those jobs are not grounded in the reality of the market and are wholly dependent on continued government subsidies. According to the Pollina Corporate Real Estate Report, Oklahoma ranked among the “Top 10 Pro-Business States for 2005,” and the state bills itself as having “one of the most competitive and aggresYou Thought Subsidizing Your Competitors Was sive business incentive packages Bad? Try Subsidizing Your Former Torturers in the country.”16 However, Oklahoma’s experience leads one In a front-page story, the state’s to question whether or not a state largest newspaper reported that “top can truly be considered “prostate officials recently spent about business” when it relies on an $44,000 on a Southeast Asia trip, economic development strategy where they entertained Vietnamese that puts some businesses in the executives and Communist Party position of subsidizing the operaleaders with meals and wine.” More from tions of others, forces general The Oklahoman: taxpayers to add to the profits of But members of the Oklahoma City Vietnamese private businesses, and promotes community are offended by the trip the 17-member state policies that cause an inefficient delegation took. They say they already were slighted allocation of scarce resources. A earlier this year when the state Commerce Department state with a truly “pro-business” opposed legislation to give the former South Vietnamese climate would recognize the flag official state recognition. private sector as the primary force “We are here, we have businesses here,” said Vinh driving economic development Nguyen, chairman of the Vietnamese American Associadecision-making, with state tion of Oklahoma City. “We have students here. We’ve government performing the vital been doing good and we are helping the state of (but limited) roles of guarantor of Oklahoma’s economy. But they [Commerce Department] individual freedom, enforcer of don’t please us, they please the communists of Vietnam.” contracts, protector of private Rep. Kevin Calvey, who proposed the South Vietnamproperty, and provider of legitiese flag legislation, said he was flabbergasted and angry mate infrastructure that can be when a state Commerce Department official told him they used by all businesses. weren’t pleased with it. “The message was, ‘We don’t Regardless of its outcome, the want you to run it because it might interrupt some things Ohio case currently pending we have going with the Vietnamese government,’” said before the United States Supreme Calvey, R-Del City. “I got a little heated at that point and Court should spur Oklahoma said, ‘I’m not in the practice of disrespecting good Oklapolicymakers to re-evaluate state homans because their former torturers don’t like it.’” government’s role in economic Source: Ryan McNeill and Steve Lackmeyer, “Trip angers Vietnamese development. ODOC should community,” The Oklahoman, August 7, 2005, pg. 1. conduct a rigorous examination of 20

the programs and incentives it currently offers with an eye toward eliminating or reducing those that are not core responsibilities of government and should limit its role to the provision of legitimate infrastructure that can be used by all businesses. Targets of this examination should include programs such as the “passthrough” appropriations to the 11 substate planning districts (COGs), which currently operate in a largely unaccountable manner and fund projects which even ODOC admits are not “quality economic development.” Eliminating COG funding for all but legitimate infrastructure purposes would be a large step toward returning ODOC to its proper role. Similarly, the $1 million approved for the Oklahoma Military Strategic Planning Commission Incentive Fund, intended to protect Oklahoma military installations from closure, should be eliminated. While Oklahoma’s military bases certainly benefit neighboring communities, national security considerations, rather than economic impact, should be the primary factor in federal decision-making in this area. The savings generated by the elimination or reduction of ODOC programs could be returned to Oklahoma’s private sector economy through tax reductions. This would help to return responsibility for growing Oklahoma’s economy to the proper place – its private-sector entrepreneurs, workers, and families. The use of taxpayer dollars for corporate subsidies is inappropriate, and the OCPA Budget removes the funding for such subsidies. This budget also proposes reducing state appropriations to “pass throughs” and recommends a complete review of projects to eliminate those that fund anything but essential capital improvements for struggling communities. Additionally, this budget calls for a thorough, top-to-bottom review of Commerce Department programs. The Community Development Block Grant is a federal program to which the Oklahoma Department of Commerce has added state requirements for applying communities. Some of these requirements actually encourage communities to allow assets, such as sidewalks and water systems, to deteriorate in order to qualify for these grants. The OCPA Budget proposes that state requirements that exceed federal guidelines be removed and that the Commerce

Department staff be reduced accordingly. The OCPA Budget reduces the funding for the Commerce Department by $10 million from the FY-2006 level and encourages further review and removal of pork and corporate subsidies.

Oklahoma Historical Society (OHS) “The OHS preserves and perpetuates the history of Oklahoma and its people by collecting, interpreting, and disseminating knowledge of Oklahoma and the Southwest.”17 Each of the state’s 32 museums and sites has an individual mission statement according to the history it represents. The agency’s primary source of funding is taxpayer dollars. Appropriations amounted to $10,142,253 and funded 87 percent of the agency’s budget for FY-2005.18 A small number of these museums charge admission. However, the majority currently have free admission. The OCPA Budget recommends that a fee structure be put in place and that the admission fees received by each individual museum be left with that museum. This will let attendance decide which museums are actually “historical places of interest” and which are unnecessary pork which divert funds from higher-priority areas of government. Additionally, the incentive to improve these attractions will now fall on each site’s manager. The ability to retain the revenue generated from these improvements should lead to better management and better museums for Oklahomans and our visitors. This budget also calls for the removal of the myriad of loosely related programs receiving taxpayer dollars under the guise of OHS, such as the Humanities Council. In FY-2005 Governor Henry wisely vetoed a $500,000 increase in funding to OHS, which included a $75,000 increase in Humanities Council funding and $75,000 for a higher education exhibit at the new Oklahoma History Center.19 This budget concurs with the governor and proposes that we not only prevent funding increases but remove the funding altogether for these types of programs. This budget proposes a reduction of 10 percent from OHS’s FY-2006 appropriation. The appropriation should be reviewed annually for further reductions as the new fee structure and the removal of unnecessary expenditures eliminate the need for tax dollars. 21

J. M. Davis Memorial Commission

the services, not the taxpayer. If millions of dollars are being saved in federal fines and reduced worker’s compensation costs, then industry should be expected to reimburse ODOL for the cost of providing the services that generated the savings. The legislature raised boiler inspection fees in FY-2005. The OCPA Budget praises that increase and encourages the expansion of the concept. Some might argue that sites such as schools should not be charged a cost-based fee. However, not charging a fee amounts to crosssubsidization of the Department of Education through ODOL’s appropriations. This budget promotes transparency in government expenditures so that taxpayers can truly know what government services cost. The OCPA Budget recommends that ODOL receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

The J.M. Davis collection in Claremore is one of the largest firearms museums in the United States. “The museum houses an extensive collection of firearms, knives, swords, steins, saddles, Indian artifacts, music boxes, World War I posters and more. In FY-2004 approximately 33,000 people visited the museum.”20 The OCPA Budget recommends that fees for entrance to the museum be raised to cover all the costs of operations or that custodianship be assigned to the local government municipality, which can then decide if the economic and historical benefit justifies local funding to operate the museum.

Department of Labor The duties of the Oklahoma Department of Labor (ODOL) are as follows:21 1. The Department administers state and federal labor laws, such as child labor and wage and hour laws. 2. The U.S. Department of Labor targets those employers who have high lost workday injury and illness rates and the ODOL contacts each employer to ensure they are aware they are on the list and offers ODOL consultation services. The most recent list included 293 Oklahoma employers. This free, voluntary, non-punitive and confidential program helps small (250 or less), high-hazard employers prevent injuries and illnesses. Federal funds cover 90% of the department’s funding sources for this program. The OSHA consultant first identifies hazardous conditions and practices without the cost impact often associated with federal OSHA rulings and which ODOL estimated saved Oklahoma businesses $7.57 million in potential federal OSHA fines. 3. State statutes require ODOL to inspect boilers and pressure vessels on an annual basis. Boilers and pressure vessels must be inspected because of the extremely volatile potential of faulty boilers and pressure vessels for explosions and fires. Many boilers and pressure vessels are in highly trafficked places such as schools, churches and hospitals. Currently, 11,840 boilers and pressure vessels are registered in the state. If the services to industry are worthwhile they should be borne by the businesses who receive

Oklahoma Scenic Rivers Commission (OSRC) The OSRC was established in 1977 by the Scenic Rivers Act. The OSRC became its own agency in 2002.22 The Commission establishes minimum standards for planning and other provisions of the Scenic Rivers Act to preserve and protect the aesthetic, scenic, historic, archaeological and scientific features of the Illinois River and its tributaries. The OCPA Budget recognizes the need to protect Oklahoma’s natural resources but finds the creation of a separate agency for the express purpose of protecting a small number of streams in one region to be inefficient. This budget recommends that the tasks of the Commission be transferred to the Department of Environmental Quality with a 10 percent reduction in appropriations to reflect savings from redundancies in administration. In addition, this budget suggests that the remaining funding for enforcing the Scenic Rivers Act should be from the Oklahoma Water Resources Board Rural Economic Action Plan Water Projects Fund. This fund was created when in January 1999 the legislature met in special session to address concerns over falling oil prices. At that time legislation was approved which lowered gross production tax rates on oil production. The legislation also established several funds to receive revenues from oil 22

Oklahoma, including “50 state parks, 4 resorts, 2 lodges, 10 golf courses, 455 cabins and cottages,” a number of campsites and scenic trails, boating, and other recreation facilities. It also administers contracts with lease concessionaires, and operates a research and development division that performs “statistical research and analysis” and provides “economic development and planning assistance” to OTRD and local communities around the state. Finally, this division “administers federal Land and Water Conservation Fund (LWCF) and Recreation Trails Program (RTP) grants.”25 • Travel and Tourism. The purpose of this division is to “develop information, marketing plans, and programs designed to attract tourists” to Oklahoma. It provides information on both government-owned and private tourist attractions with the goals of promoting economic development and “awareness of Oklahoma as a travel destination.” Its activities include production of the weekly “Discover Oklahoma” television show, operation of 12 tourism information centers that serve as gateways for travelers entering the state, and provision of a Traveler Response Information Program (TRIP). TRIP “operates a tollfree call center” and website, along with a “destination database” for more than 9,000 attractions, events, and Oklahoma businesses that may be of interest to tourists.26 At the same time, this division helps local communities and organizations promote special events and attract conferences, meetings and conventions. Finally, the state’s Film Office is charged with increasing music and film business in Oklahoma. • Oklahoma Today Magazine. This division has published the official state magazine since 1956. Oklahoma Today is a bi-monthly regional publication that focuses on Oklahoma’s “culture, heritage, history, people, environment and attractions.”27 It also produces “promotional products” such as shirts, tote bags and mugs for both instate and out-of-state marketing purposes. OTRD is funded primarily by state general revenue appropriations and budgeted revolving funds, and all told, 73 percent of FY-2005 budgeted expenditures were allocated to parks, resorts and golf courses. Over the past 10 years,

production in future years when the rates are in excess of the amounts appropriated to schools and counties. One of the new funds created was the Oklahoma Water Resources Board REAP Water Projects Fund. This fund should be in excellent shape financially given the record oil prices of the last year and could bear the full funding of the Scenic Rivers Act.

Oklahoma Tourism and Recreation Department The origin of the Oklahoma Tourism and Recreation Department (OTRD) was a 1931 appropriation of $90,000 by the Oklahoma Legislature for the land where Lake Murray is located. Officially created by the Legislature in 1972, OTRD’s mission is to “enhance the quality of life in Oklahoma” by administering the state’s park system, protecting its natural resources, and stimulating economic development by developing and marketing “travel and tourism opportunities to and within the state of Oklahoma.”23 OTRD also advances this mission by conducting a public information campaign about Oklahoma’s people, attractions, and activities. OTRD is supervised by an executive director in accordance with policies developed by a nine-member Oklahoma Tourism and Recreation Commission (OTRC), which is chaired by the lieutenant governor and comprised of representatives from Oklahoma’s tourism and business communities appointed by the governor. In recent years, primarily as a consequence of a 25 percent budget cut enacted in FY-2002, OTRD has made a number of administrative and operational changes that merged seven divisions into three “functional areas of operation,” along with an administrative services division. The following are brief descriptions of the responsibilities for each program area. • Administrative Services. This division “coordinates the fiscal activities of the OTRD operating divisions, provides fiscal information, fiscal control, and payroll, personnel, purchasing and vendor payment services.” It also “interprets policy and procedures” set forth by the OTRC and “operates the Department’s central computer system and network.”24 • State Parks, Resorts and Golf. This division is in charge of public recreation facilities in 23

appropriations to OTRD have fluctuated, rising from $25.406 million in FY-1997 to a peak of $33.35 million in FY-2002, but then falling to a low of $22.616 million in FY-2004. The FY-2006 appropriation of $25.956 million represents a 2.1 percent increase over the FY-1997 amount, but a 7.4 percent increase over FY-2005. The bulk of that increase can be attributed to the effect of the recently enacted statewide employee pay raise (an increase of $983,319) and a $1 million appropriation for park maintenance and capital improvements. However, the FY-2006 appropriation ultimately approved by the legislature was more than $1 million below the amount requested by the governor. Most Oklahomans undoubtedly believe that OTRD’s overarching mission – to preserve and protect precious natural resources and promote the state’s virtues as a visitor destination – is a worthy one. However, it is not at all clear that accomplishing this mission requires Oklahoma’s state government to own and operate enterprises – such as resorts, lodges, golf courses, and magazines – that not only use taxpayer dollars to directly compete with private businesses that provide the same services or products, but also, in some cases, do so in a manner that inefficiently utilizes those scarce taxpayer resources by failing to meet critical needs in a timely fashion. Indeed, the economic distortions that result when governments expand into areas outside their limited responsibilities increase the cost of government and depress private-sector investment and job creation. These distortions manifest themselves in several ways. First of all, when governments decide to become owners and operators of facilities that are usually the proper responsibility of the private sector, one of the justifications is often that the enterprise in question will be a revenue generator for the state. However, as internationally recognized public policy consultant Wendell Cox has noted, the tax-exempt status of government-run entities means that even if they are profitable, taxpayers lose out – because those taxpayers are forced to pay higher taxes to make up for the lost tax revenues that would have been generated if the operations were privately owned. At the same time, privately owned businesses have another important advantage over their

would-be government competitors. Because business owners and investors are risking their own money, and therefore directly reap the rewards of successful operations and directly suffer losses when ventures fail, they have much more incentive to be judicious in their investment decisions than do government officials, who can simply ask for more tax dollars when a particular project loses money and receive no direct benefits when their “investments” succeed. The fact that private business owners are directly accountable for the performance of their firms also provides a powerful impetus for them to make timely capital improvements to maintain and expand their capacity to provide products and services. Governments, on the other hand, due in large part to their generally slow-moving, bureaucratic nature, often delay critical maintenance expenditures for enterprises and properties under their control. Oklahoma’s state parks, resorts and golf courses are glaring examples of how government’s difficulty in responding to problems as they arise not only causes the ultimate solution to those problems to dramatically increase in cost, but also harms current performance and future competitiveness. (One is reminded of an observation from former Gov. Frank Keating, who once compared one of Oklahoma’s government-owned-and-operated lodges to “a North Korean resort.”) Oklahoma’s state parks currently have more than $88 million in maintenance and infrastructure needs. Perhaps not surprisingly, between FY-2001 and FY-2004 state park attendance declined by 4.6 percent, from 15.1 million to 14.4 million visitors. Over the same time period, park revenues also declined slightly, from $11 million in FY-2001 to $10.8 million in FY-2004, while state appropriations to the parks rose by 22.7 percent, from $9.7 million to $11.9 million. And while the overall self-sufficiency of the parks (in terms of the percentage of park expenditures covered by park revenues) has increased slightly, the governor’s FY-2006 budget notes that while Lake Murray has an 81 percent selfsufficiency rate, other, smaller parks fare considerably worse. The governor’s FY-2006 budget also attributes (at least in part) the declining performance of the state’s resorts and golf courses to a lack of past maintenance. While Oklahoma’s state24

owned resorts increased their self-sufficiency rate between FY-2001 and FY-2004, their occupancy rate has declined “as the facilities continue to age and deteriorate from a lack of capital maintenance.” With regard to the golf courses, their usage, revenues and expenditures have declined, and “declining revenues results in lower maintenance and declining course quality.” In fact, FY-2004 saw the lowest number of rounds of golf played at state courses within the past four years – a figure that was more than 15,000 rounds below the FY-2002 level. The governor’s FY-2006 budget’s presentation of the golf course operations provides a useful illustration of the mindset that entices governments into activities that are properly the responsibility of the private sector – and why the decision to enter those activities is usually misguided. It notes that when Oklahoma originally decided to build many of its golf courses, there were few private and municipal competitors, and for a time, state courses performed well. But as competition increased, state courses were unable to maintain their advantage. Thus, the gap between the state courses and, especially, privately run courses widened even more because “competitors are able to constantly improve assets, while state golf courses have deteriorated” – to the point where “many state golf courses now sell 30 to 38 percent fewer rounds than their competitors.” Despite the problems associated with government operations that directly compete with private businesses, as many OTRD operations do, government officials are usually loath to give up control of such entities. This can be explained by a critical difference in the incentives faced by government officials who operate commercial activities as opposed to privatesector business owners. Mr. Cox notes that government officials often measure success not by profits and losses, but by whether or not they are able to increase the size and power of their agencies, which requires ever-higher levels of tax dollars – and in turn leads to decreased economic growth as those increased tax dollars are removed from the private-sector economy. It is time for OTRD to chart the opposite course, and empower the private sector to enhance tourism and recreation amenities for Oklahoma residents and visitors alike. It must begin to reduce the number of areas in which its

operations compete with and potentially crowd out investment by private businesses. In so doing, it will create the conditions for lasting economic growth in Oklahoma, as the sale or lease of golf courses, resorts, and similar properties will put new assets on the tax rolls and allow more capital to remain in the hands of consumers and business owners. Fortunately, some recent developments regarding the operations of OTRD signal that Oklahoma officials may be ready to try a different approach for future provision of some tourism and recreation opportunities. For example, perhaps in response to the factors detailed above, the governor’s FY-2006 budget proposal did call for leasing five non-resort/lodge golf courses operated by OTRD for private management and development, and for the proceeds of any such deal to be re-invested in state park maintenance and capital improvements. Two other initiatives also show great promise for Oklahoma taxpayers and the state’s economy. According to a state House press release, HB 2542, sponsored by Rep. John Carey and Sen. Jay Paul Gumm (both D-Durant) and signed into law in 2004, authorized the state Commissioners of the Land Office (CLO) “to buy up to 1,500 acres of U.S. Army Corps of Engineers land leased by the state for the Texoma Lodge and Resort” in order to make the land available for private development. In late August, the CLO and OTRD finalized a deal to purchase the Texoma Lodge and golf course, along with the Chickasaw Pointe golf course, for private development. According to a press release from Sen. Gumm, the CLO is to choose “a qualified developer and enter into a partnership for development of public and private facilities around Chickasaw Pointe and in the area of the current lodge and cabins.” By February 2006, CLO will either transfer ownership of the property or enter into long-term leases with developers, while OTRD will maintain Texoma State Park in a smaller area and current employees will be given preferential treatment for job openings within the agency. In the words of Sen. Gumm, who also noted that the land would now be on the tax rolls to produce more revenue for local roads and schools: “This is about creating jobs in my district and preserving Lake Texoma as a premier tourist destination. This new partner25

ship will also spur additional economic expansion in the area, creating even more jobs and opportunity for the people of Marshall County and the surrounding area.” Also encouraging for Oklahomans is the fact that Lt. Gov. Mary Fallin, who described the Lake Texoma deal as an opportunity to “make one of Oklahoma’s crown jewels a regional and national tourism destination,” is currently heading up the Re-evaluation, Assessment and Management Plan (RAMP) task force, which is studying ways to improve the state’s park system. One of the options that the task force, which includes OTRC members, is considering is privatization of some state parks, perhaps along the lines of the Lake Texoma deal. Oklahoma’s below-average economic performance of the past two decades, relative to both the nation as a whole and to it closest geographic competitors, illustrates that continued government growth will not generate lasting prosperity. Increasing the private sector’s role in the state’s tourism and recreation industry by leasing or selling underperforming state-owned assets to private investors will allow Oklahoma to free up more dollars for tax reductions, reprioritize the revenues government already receives to core government functions, and generate the private investment that will pay for muchneeded improvements to deteriorating stateowned properties. The OCPA Budget recommends that those state parks whose revenues are below a 30

percent self-sufficiency level be given to the local government authorities. This budget deducts $3 million from OTRD to reflect the savings upon removing these operating losses. The local economy is the recipient of the benefits of expenditures made by visitors to these parks who spend money in their area motels, restaurants, and stores. Local government entities can best decide if these parks are truly tourist draws or merely wasteful pork projects which draw relatively few tourists. This budget also suggests that the majority of park revenues should stay with the park that generates them. This provides incentives for park managers to improve the attractiveness of their parks to visitors. This budget recommends that all state golf courses be sold to private operators. Additionally, it is recommended that the proceeds from these sales be used to fund the projects labeled by OTRD as being crucial environmental issues to the parks remaining in the system. This budget recommends the liquidation of the state resorts and removes $2 million from OTRD’s appropriation. Any net revenues realized by the sale should be used to fund the projects labeled by OTRD as being crucial environmental issues to the parks remaining in the system. This budget recommends the OTRD receive its FY-2006 appropriation (after removing the $5 million discussed above), adjusted upward for population growth plus inflation.

Will Rogers Memorial Commission

Oh, Well. It’s Only Money “Misspellings, errors and a picture depicting a Confederate flag caused state tourism officials to destroy nearly $46,000 worth of event guides meant for distribution at the Oklahoma State Fair,” The Oklahoman’s Ryan McNeill reported October 5, 2004. “About 200,000 copies of the 2005 Annual Events Guide were ordered destroyed recently by newly appointed state Tourism and Recreation Director Robb Gray. He said the guide contained too many errors and pictures that invited ridicule to Oklahoma. Tourism officials are compiling a new version of the guide – minus the errors and with fewer pages – that Gray said could cost taxpayers about $30,000 more.”

The Will Rogers Memorial Commission was established in 1938 to honor the life and works of Will Rogers. The Rogers family donated the Rogers ranch home as well as many of the items on exhibit in the museum. The museum and ranch host more than 200,000 visitors annually. Admission is free and both facilities are open 365 days a year. More than 96 percent of the Commission’s budget is comprised of stateappropriated funds. The remaining funding is derived from donations and federal funding. A

reassessment of REAP. This budget recommends that the legislature redefine these expenditures to fit the original premise that small communities have lost a portion of their tax base to larger cities. Local governments typically control their expenditures to service local needs and state legislators are not involved in the direction or detail of the expenditures. This budget recommends that the formula which controls the flow of REAP money be restructured to direct the funds directly to those local governmental units that would have normally received them. For example, city governments would receive that portion which represented retail sales flow to the cities. OCPA believes that local control and responsibility for these funds correspond more closely with the original premise of REAP. This budget freezes REAP funding at FY-2004 levels until program corrections can remove the waste.

full one-third of the museum’s budget was spent on educational outreach.28 The 2004 appropriation included not only the cost of operating the museum but the purchase of a vehicle. Appropriated taxpayer dollars increased 11.3 percent in FY-2005 to total more than $882,000.29 Will Rogers was one of Oklahoma’s finest citizens, but using taxpayer dollars to subsidize this museum is not appropriate. Claremore and the surrounding area benefit from the money that the 198,000 visitors spend when they stop to visit this museum. The OCPA Budget recommends removing the appropriated dollars from the museum and assigning custodianship to the local government municipality, which will then decide if the economic and historical benefit justifies local funding to allow the museum’s continued operation without charging any entrance fee. The original gift from the Rogers family required that no fee be charged and accommodation would need to be made in the trust document for any charges. Returning the properties to the family or to a 501(c)(3) charitable organization might be the best course of action instead of asking taxpayers to provide funding.

Native American Cultural and Educational Authority Senate Bill 746 created the Native American Cultural and Educational Authority (NACEA) on September 1, 1994. The bill established a project to build a facility to include a museum, interpretive center, native languages institute and resource center.32 Oklahoma City donated land and a future portion of its Community Development Block Grant contingent on NACEA having $25 million in other funds. Congress passed federal legislation last year that provides $33 million over four years for the center. Oklahoma must provide $2 for every $1 of federal funds.33 The OCPA Budget recognizes the importance of the Native American community to the past, present, and future of Oklahoma. This budget believes that an attraction of this magnitude does not need taxpayer dollars for financing. However, funding for costs already agreed to by the Legislature cannot be withdrawn on short notice and this budget recommends the FY-2006 appropriation be continued for FY-2007.

Rural Economic Action Plan The Rural Economic Action Plan (REAP) is a grant program. REAP dollars pass through two agencies – the state auditor’s office and the Water Resources Board. The premise is that small communities lose a portion of their tax base to larger cities. To qualify for a REAP grant, a community must have a population of less than 7,500 and priority is given to communities with a population of less than 1,500.30 The Councils of Government (COGs) receive the funds and administer the programs. REAP pass-throughs gained notoriety with articles in the Daily Oklahoman citing questionable expenditures that were directly controlled by individual legislators.31 The COGS also get pass-through funds from other sources including the Commerce Department’s Office of Community Development and monies linked to REAP in the Oklahoma Water Resources Board water projects. While the OCPA Budget recognizes the need to help rural areas retain infrastructure, the number of superfluous projects requires a

Endnotes 1 2

Governor Brad Henry, FY-2007 Executive Budget, pg. B-19.

Bill Brubaker, “Court to Rule on Building Incentives,” Washington Post, September 28, 2005, http:// www.washingtonports.org/members_only/nesroundups/ september2005/092805.htm.

“Commerce Overview,” http://www.okcommerce.gov/ index.php?option=content&task=section&id=8&Itemid=100. 4

Ibid.

Secretary Kathy Taylor’s remarks to the Konawa Chamber of Commerce banquet, May 15, 2004. 6

Governor Brad Henry, FY-2006 Executive Budget, pg. B-38.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-39.

Ibid.

Oklahoma House of Representatives, Fiscal Year 2006 Legislative Appropriations, pp. 142-144. 11 Oklahoma Department of Commerce, Oklahoma Quality Jobs Program Guidelines and Application 2005, Version 2006, http://staging.okcommerce.gov/test1/dmdocuments/ QJP_Guidelines_2006.pdf. 12

“Quality Jobs,” www.okcommerce.gov.

Oklahoma House of Representatives, Fiscal Year 2006 Legislative Appropriations, pg. 143. 14

Employment growth rates are calculated using data from the Current Population Survey, United States Bureau of Labor Statistics (September 1993-September 2005). Per capita personal income growth rates are calculated using data from the United States Bureau of Economic Analysis. 15

John Perry, “Economists Debate Jobs Program, Income Gap,” The Oklahoman, July 13, 1997. 16

“Business Incentives,” http://www.okcommerce.gov/ index.php?option=content&task=view&id=267&Itemid=336. 17

Governor Brad Henry, FY-2006 Executive Budget, pg. B-42.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-38; Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 154.

19 Oklahoma House of Representatives, FY-2005 Legislative Appropriations, pg. 154 20

Governor Brad Henry, FY-2006 Executive Budget, pg. B-45.

Governor Brady Henry, FY-2006 Executive Budget, pg. B-42.

22 23

Governor Brad Henry, FY-2006 Executive Budget, pg. B-51. Governor Brad Henry, FY-2006 Executive Budget, pg. B-54.

Governor Brad Henry, FY-2006 Executive Budget Historical Data, pg. 73.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-55.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-56.

Ibid.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-55.

Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 174. 30

Governor Brad Henry, FY-2006 Executive Budget, pg. B-49.

Oklahoma Council of Public Affairs and Citizens Against Government Waste, 2004 Oklahoma Piglet Book, pp. 4-5. 32

Governor Brad Henry, FY-2007 Executive Budget, pg. B-44.

Ibid.

Education Arts Council

Career and Technology Education (CareerTech)

The Arts Council is primarily a grant-making entity which “awards matching grants to cultural organizations, schools and local governments in order to increase resources available to nonprofit organizations producing community arts and arts education programs throughout Oklahoma.”1 OCPA believes that “discussions of policy issues should begin with first principles,” as the Cato Institute’s David Boaz points out. “As my colleague Ed Crane notes, there are only two basic ways to organize society: coercively, through government dictates, or voluntarily, through the myriad interactions among individuals and private associations. … The bottom line of political philosophy, and therefore of politics itself, is, ‘Who is going to make the decision about this particular aspect of your life, you or somebody else?’”2 “Do you spend the money you earn or does some politician?” Boaz asks. “In a civil society you make the choices about your life. In a political society someone else makes those choices. … “In a free society coercion should be reserved only for such essential functions of government as protecting rights and punishing criminals. People should not be forced to contribute money to artistic endeavors that they may not approve, nor should artists be forced to trim their sails to meet government standards.”3 If Oklahomans have less money extracted from them via taxation, they will have more money available to contribute to art exhibits, symphonies, or whatsoever they may choose.

CareerTech provides customized business training for industries and prepares secondary students for postsecondary education. Oklahoma’s system serves a client base ranging from youth in high school and incarcerated youth to senior citizens. The system offers programs and services in 29 technology center districts operating through 54 campuses, 398 comprehensive school districts, 23 skill centers and three juvenile facilities.4 The system received 2.3 percent of total appropriations for FY2005, making it the eighth-largest agency in state government.5 “CareerTech focuses on career-technology and economic development through several programs. “Comprehensive School programs help students develop the technical, academic and employability skills needed to become financially independent citizens. “Technology Center programs provide Oklahoma businesses with skilled, competent employees. “Business and Industry Training programs include training customized for specific employers, open enrollment classes for adults that want to enhance their job skills on a part-time basis and bid assistance services. “Skills Centers programs help incarcerated individuals realize their potential by creating opportunities for them to experience and apply a quality education. Skills center training helps prepare inmates and juveniles for life outside the confines of prison and detention.”6 As the table on page 30 indicates, the majority of CareerTech’s expenditures support public schools. This cross-subsidization of the Department of Education does not make for transparency in government spending. Essential data that impact the amount of dollars spent per student in Oklahoma classrooms are hidden from Oklahoma citizens when this occurs. For this reason, the OCPA Budget reassigns a population-and-inflation-adjusted 74 percent of CareerTech’s budget to the Department of Education.

Oklahoma Arts Council FY-06 Budget Resources General Revenue Fund $4,243,338.00 Interagency Transfers $175,085.00 Federal Funds $589,200.00 Total $5,007,623.00 Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 12.

The OCPA Budget recommends the elimination of the council’s appropriation, with a savings of $4,243,338 in FY-2007 to redirect to higher-priority areas. 29

agency which operates non-commercial educational television, associated microwave and channels assigned by the Federal Communications Commission (FCC). Full-powered analog television stations operate in Oklahoma City, Tulsa, Eufaula and Cheyenne with translators extending service to the remainder of the state.”7 “Operations funding comes from several sources. State appropriations provide the largest percentage while funds from the OETA Foundation provide funding for programming nearly equal to that provided by state funds.” The OETA Foundation “is a non-profit organization operating for the purpose of receiving, investing and expending privately donated funds which support public broadcasting. The Foundation provides a portion of the operating budget for the network. The Foundation matched the earlier state appropriation of $5.6 million for the first phase of the conversion to DTV.”8 OETA is at a point in its existence where significant investment is required for the continuation of service. The Federal Communication Commission (FCC) is requiring conversion from the current analog to digital transmission. However, OETA will also continue analog service for the entire state for the foreseeable future. The FCC requires continued analog service until 85 percent of the households in a coverage area are able to receive a digital signal. OETA estimates that this transition may take up to 10 years. During this time, signals must be transmitted by both means and equipment must be maintained for both. The estimated cost of this phase of the conversion is $15.6 million. This cost includes replacement of the four analog transmitters in the primary service areas as well as true digital conversion costs. The final phase deals with the conversion of translators in the areas outside the range of the four full-service transmitters. This phase will cost approximately $8.1 million. The widespread availability of satellite TV service to Oklahoma’s remote rural areas has reduced the need to ask Oklahoma taxpayers to continue to finance OETA, especially taxpayers who may not approve of the perceived bias in any number of PBS news programs, documentaries, or other programming.

FY-2005 CareerTech Expenditures by Activity Local Schools Financial Suortpp 75% Business/Industry/Adult 5% Statewide Services 12% Inmate and Skills Centers 4% Administration 3% Contingency 1% Source: Governor Brad Henry, FY-2007 Executive Budget, pg. B-66

State Board of Career and Technology Education FY-06 Budget Resources General Revenue Fund $130,287,358.00 Federal Funds $24,004,846.00 Revolving Funds $6,504,294.00 Total $160,796,498.00 Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 14.

Similarly, this budget transfers an inflationplus-population-adjusted portion of the four percent of CareerTech’s budget spent on inmates to the Department of Corrections to end the cross-subsidization and improve the transparency of government. This budget recommends that the rest of CareerTech’s programs be reviewed for fee and tuition adjustments. This budget freezes tuitions and fees at the FY-2005 level for those children whose parents make less than 185 percent of the Federal Poverty Level (FPL) with a sliding scale of increases up to 350 percent of FPL. This budget recommends that tuition for student education classes (unrelated to specialized business or individual self-improvement classes) be increased over the next five years until a target of 50 percent of costs is met. Additionally, businesses seeking specialized training should bear the entire cost of that training. Individuals who enroll in self-improvement classes, such as cooking classes, should be charged a fee commensurate with the cost to provide the class. This budget recommends that the appropriations remaining in CareerTech after removing the cross-subsidization should be kept at the FY2006 level, adjusted upward for population growth plus inflation.

Oklahoma Educational Television Authority (OETA) “OETA is a federally licensed and regulated 30

multiple of 3.22, similar to the national multiple of 3.42. Yet educational attainment has been flat (at best) and productivity has plummeted.11 Consider: • According to the highly regarded National Assessment of Educational Progress (which the American Federation of Teachers calls the “gold standard” in education data), one third of Oklahoma’s fourth graders cannot read at even a basic level – they cannot understand a simple paragraph in a children’s story.12 • The numbers are even worse for Oklahoma’s minority students: Two-thirds of black fourth graders, and half of Hispanic fourth graders, cannot read at basic level.13 • Despite the fact that Oklahoma has a law requiring school attendance, there are more than 421,000 adult illiterates in the state, according to Oklahoma literacy experts. (“That startling figure prompted Gov. Brad Henry last week to throw his support behind a campaign to raise awareness of literacy programs,” The Oklahoman reported in October 2003.14) • 63 percent of Oklahoma’s high school graduates lack the skills necessary to attend a fouryear college.15 More could be said about Oklahoma’s disappointing student performance – flat ACT scores, 18-year-olds who can’t read their diplomas, the booming remediation industry in colleges and the private sector, etc. – but the overall picture is clear. Hoover Institution economist Eric Hanushek summarizes the situation well. After an exhaustive study of U.S. public education, he concluded: “The patterns of expenditure on schools tell a fairly simple story. Real spending on schools has been increasing for a long time. The spending has in broad-brush terms been happening in the way that is commonly advocated: teacher education has been increasing, teacher experience has been increasing, and pupil-teacher ratios have been falling. Yet, at least for the past three decades when student performance has been measured, there is little indication that these increases in resources have led to discernible improvements in student outcomes. “Consideration of other factors that might distort the resource outcome picture does not change the conclusions. Although cost pres-

Oklahoma Educational Television Authority FY-06 Budget Resources General Revenue Fund $4,624,059.00 Federal Funds $467,999.00 Revolving Funds $3,894,457.00 Total $8,986,515.00 Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 23.

The OCPA Budget removes $4.624 million in state appropriations from OETA, as well as saving Oklahoma taxpayers the cost of digital conversion. It should be noted that Oklahoma taxpayers continue to provide a source of funding for OETA through the favorable tax treatment that the OETA Foundation receives. This budget suggests that all OETA assets, including any bandwidth rights, be assigned to the OETA Foundation, giving OETA a firm footing to continue operations without using taxpayer funding. Oklahomans who wish to support OETA may send a donation to the OETA Foundation, P.O. Box 14190, Oklahoma City, Oklahoma 73113.

Elementary and Secondary Education The state’s commitment to common education is unmistakable. Appropriations for common education (excluding supplemental appropriations) were $2.175 billion in FY-2006, or 36 percent of all state appropriations. Common education is the single largest expenditure in the state budget.9 Conventional wisdom holds that Oklahoma taxpayers are stingy when it comes to education. This is incorrect. For a relatively poor state, Oklahoma is making a strong (though underappreciated) effort. Figures from the nation’s largest school-employee labor union show that Oklahoma ranks a reputable 19th in K-12 spending as a percentage of personal income, and ranks 15th in the nation in the share of total government revenue spent on education at all levels.10 Popular opinion holds that Oklahoma schools are “under-funded” and that spending more money on education will result in better student performance. Again, this conventional wisdom does not correspond with the available data. From 1959-60 to 1999-00, inflation-adjusted spending per pupil in Oklahoma rose by a 31

Oklahoma Voters Want Choices, Say Schools’ Problems ‘Not About Money’ Which do you believe is more important to improve public education in Oklahoma? Increase funding .................................... 25% Raising standards and accountability .... 68% Undecided (vol.) ....................................... 8%

If you had a school-age child and were given a voucher or a tax credit that would cover tuition to any of the following, which would you personally choose for your child? (Rotate) Public school .......................................... 41% Church affiliated private school .............. 38% Other private school ............................... 15% Undecided (vol.) ....................................... 6%

Which of the following comes closest to your beliefs? (Rotate) The simple fact is that our schools need more money ........................................... 41% Our schools would have enough money if they spent it appropriately instead of wasting it ................................................ 52% Undecided (vol.) ....................................... 8%

Do you favor or oppose the right of parents to home school their children? (After response, ask: Would you say you strongly favor/oppose or only somewhat favor/oppose?) Strongly favor ......................................... 40% Somewhat favor ..................................... 30% Somewhat oppose ................................... 8% Strongly oppose ..................................... 15% Undecided (vol.) ....................................... 8%

To the extent that Oklahoma’s public schools have problems, what do you think is causing the problems? Are these problems: (Rotate) Related to the amount of money available – such as low teacher salaries, too few teachers, overcrowded classes, inadequate supplies and facilities, and other problems that could be fixed with more funding .......................................... 27% Not related to the amount of money available, but rather with the lack or parental involvement, lack of discipline, ineffective teachers and administrators, inappropriate curriculum, and a bureaucratic system that wastes the money it has ........................ 63% Undecided (vol.) ..................................... 11%

In Oklahoma, the government is operating a school system which the majority of people would exit if they could afford to. Pre-kindergarten programs are becoming increasing popular in Oklahoma. In fact, Oklahoma leads the nation in the percentage of 4year-olds enrolled in pre-K programs. It has been proposed that parents be allowed to send their 4-year-olds to any public, private or church-related pre-K program. Under this proposal, those parents choosing non-public schools could then claim a tax credit worth a limited amount of the tuition they pay at the non-public school. Would you favor or oppose this proposal? (After response, ask: Would you say you strongly favor/oppose or only somewhat favor/oppose?) Strongly favor ......................................... 28% Somewhat favor ..................................... 28% Somewhat oppose ................................. 14% Strongly oppose ..................................... 23% Undecided (vol.) ....................................... 7%

Which of the following comes closest to your beliefs? (Rotate) Parents should be allowed to send their child to the school of their choice ................... 62% Children should be required to attend schools in the district in which they live ................. 35% Undecided (vol.) ....................................... 3% Do you favor or oppose giving parents tax breaks or credits to send their children to a public, private, or church-related school of their choice? (After response, ask: Would you say you strongly favor/oppose or only somewhat favor/oppose?) Strongly favor ......................................... 37% Somewhat favor ..................................... 19% Somewhat oppose ................................. 17% Strongly oppose ..................................... 21% Undecided (vol.) ....................................... 6%

Source: Cole Hargrave Snodgrass & Associates, telephone interviews of 400 registered voters in the state of Oklahoma, January 22-24, 2006. The confidence interval associated with a sample of this type is such that 95 percent of the time results will be within +/ - 4.9 percent of the true values, i.e., the results obtained if it were possible to interview all the qualified respondents.

looked at those programs that have existed for some time and which are large enough to produce real competition. In Milwaukee, for example (where children receive vouchers worth up to $5,783), the improvement in the public schools has been impressive. Students in public schools where at least two-thirds of students were eligible for vouchers scored 8.1, 13.8, and 8.0 national percentile rank points higher in math, science, and language, respectively. Although still positive, achievement gains were somewhat smaller for students in public schools where fewer students were eligible for vouchers. The story in Michigan and Arizona is similar. In both states, public schools raised achievement in response to competition. The largest achievement gains were in those public schools that faced the most competition. Hoxby also points out that there is plenty of room for improvement in our nation’s public schools. Using economic analysis and a historical examination of spending as it relates to achievement, Hoxby shows that public schools currently operate at about 50 to 65 percent of their achievement potential. Much of their productivity is currently lost due to hard and fast rules that dictate hiring practices, pay scales, and investment in philosophically appealing but unsuccessful educational methods. Dissatisfied parents who are able to move their child and money to another school create pressure for public schools to become more effective and efficient. That positive pressure benefits those students who remain in those schools. Even when it comes to money, school choice benefits public schools. The costs of U.S. private schools are, on average, 60 percent of public school costs. That means students can switch to private schools and pay less than what the state spends to educate them in public school. States and localities would continue collecting the same tax revenues they do now, but would have fewer students to spend it on, so students in public schools would enjoy more funding, not less. If smaller class sizes in public schools are a good thing, allowing more students to use private schools is the most cost-effective way to achieve it. Instead of vilifying school choice as an attack on public schools, school leaders should embrace choice as a way to get more resources for their students.

sures on teachers and special education have had some influence on the resource flows into schools, they do not change the overall conclusions. … All this suggests that resources per se are not the issue. And there is little reason to believe that future resource flows will have the desirable impact on student outcomes unless other, more fundamental factors change.”16 In an attempt to improve public education, Oklahoma has undertaken many of the same reforms and policies that have swept through the rest of the country over the past two decades. Among the most high profile are increased spending, smaller classes, revised teaching methods, and new teacher training programs. Yet after a decade of smaller classes, higher spending, and curriculum reform, there is no sign of substantial improvement in the performance of Oklahoma’s students. So if more spending and smaller classes won’t improve public education, what will? Interestingly enough, research shows that school choice improves public schools. School choice opponents, of course, claim that choice harms public schools. Research, however, shows the opposite. A study17 published by Harvard economist Caroline Hoxby addresses the question: “Do public schools respond constructively to competition induced by school choice, by raising their own productivity?” The answer: Yes, they do, and the benefits are greatest where large numbers of students are eligible for choice. The fact that choice benefits public schools – not just students who switch to private schools – is a key aspect of school choice. Because public schools improve due to competition, school choice benefits reach beyond those students who take advantage of the opportunity to attend a private school with a voucher or tax credit scholarship. Because competition forces both public and private schools to improve, choice is like a rising tide that lifts all boats. Even students whose parents don’t “shop around” for a private school will benefit because their existing public schools will get better. It’s true that some studies have shown no productivity gains for public schools when choice is introduced. But these have examined programs where choice is limited to only a small number of students or where the program is too new for effects to be visible. Hoxby, in contrast, 33

Individuals donating to a qualified scholarship program for private school education that serve low-income groups will be allowed an Education Tax Credit equal to the amount of the contribution. To qualify, a scholarship program must have in place a means-testing requirement and 90 percent of the program’s expenditures must go directly to tuition payments. Full tuition can be paid for students whose parent(s) incomes are at 185 percent of the Federal Poverty Level (FPL) or below, with the percentage of tuition paid decreasing on a sliding scale until a parental income threshold of 350 percent of FPL is reached. This program’s structure ensures only low-income children will be receiving free private-school education and creates incentives for the growth in dollars available for these children by placing no limit on the tax credit available to donors. The OCPA Budget recommends that approximately $100 million of funding should be used to offset the tax credits that will now become available to the parents of the approximately 50,000 Oklahoma children20 who are already homeschooled or in nonpublic schools. The OCPA Budget recommends the State Department of Education receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

One of the best things for public schools is to open them up to competition from private schools. Without the positive pressure of outside competition, any industry will remain content with the status quo. Everywhere we look in our economy, competition and consumer choice provide the engine that fuels change, as well as superior goods and services. It has always been this way and it always will be. The rules of economics are as natural as breathing, and basic economics tells us that choice matters. The low academic quality of many of Oklahoma’s public schools is neither flattering nor comfortable. If we are going to change things, we will have to accept this basic economic fact: Consumer choice lifts all boats. Policy-makers in many states have realized this and have embraced school choice. Indeed, when President Bush on December 30, 2005 signed the largest school choice bill in American history (providing tuition assistance for up to 372,000 students displaced by hurricanes Katrina and Rita), it put an exclamation mark on the best legislative year ever for school choice. According to the Alliance for School Choice, a record number of states introduced and passed school choice bills in 2005.18 A Proposal for Oklahoma The OCPA Budget proposes an Education Tax Credit for private school tuition, home schooling cost and/or donations to scholarship funds for low-income children to attend private schools. For every dollar of Education Tax Credit allowed, one dollar will be removed from the Department of Education’s appropriations. Since the per-student expenditure in Oklahoma is $6,554,19 the net effect of this tax credit will be to put more money per pupil into the public schools. Approximately 53 percent of dollars per student are state dollars, while one-third are local dollars which will not be affected by students leaving the public school. For parents, grandparents, or other individuals paying for private school education for a child, a tax credit of up to $2,200 per child will be available. Homeschooled children’s parents will receive the same $2,200 tax credit as individuals paying for private school education to apply to all direct education expenses. Expenditures for materials, such as textbooks and tutoring, would be included.

Higher Education Oklahoma has made it a priority to provide higher education services to its citizens. But just because the state provides those services doesn’t mean the state necessarily has to produce those services. The dominance of public institutions in Oklahoma poses a threat to the state’s independent colleges and universities and is damaging to the foundations of our democratic society. Altering the funding method for higher education in Oklahoma so that it focuses more on individuals and families and less on supporting the existing system would lead to greater efficiencies in providing educational services. In the states that subsidize higher education very heavily, students (or their parents or other financial supporters) pay only a very small fraction of the total cost. In Oklahoma for example, tuition and fees cover only 37 percent of the costs, according to the Oklahoma State Regents for Higher Education.21 34

In-state tuition at the University of Oklahoma, for example, is $146.93 per credit hour for residents and $410.03 for nonresidents.22 Assuming a normal course load of 15 credits per semester, this means resident students pay roughly $4,408 per year. At other public colleges and universities in Oklahoma tuition is even lower, with community colleges as low as $65.45 per credit hour for in-state tuition.23 By way of contrast, in-state students at one of the best known of the high-tuition state schools, the University of Michigan, pay more than twice the amount that resident students pay at the University of Oklahoma.24 The tuition-setting debate is an old one. Proponents of low (i.e., heavily taxpayer-subsidized) tuition contend that the societal benefits of extending higher education to the largest number of students is worth the cost to taxpayers. But there is also a downside to this approach. According to a report from the Federal Reserve Bank of New York, high-subsidy, lowtuition policies can actually have negative effects on human capital formation. “Although subsidizing tuition increases enrollment rates, it reduces student effort,” the study finds. “This follows from the fact that a high-subsidy, lowtuition policy causes an increase in the percentage of less able and less highly motivated college graduates. Additionally and potentially more important, all students, even the more highly motivated ones, respond to lower tuition levels by decreasing their effort levels.”25 The benefits of a college education accrue chiefly to the students who partake of it. There is no reason to tax the majority of taxpayers in the state who do not have children attending a state institution in order to subsidize those who do, especially when it is the more affluent citizens who, on the whole, are most likely to have children enrolled in the institutions.26 University of Oklahoma president David Boren recently pointed out that some states (he mentioned Colorado and Virginia, and there are others) have consciously reduced the level of state appropriations for higher education. The universities have increased tuition and have been beating the bushes for added private funding as a result. Mr. Boren suggests that reducing governmental subsidies for higher education will close the door of opportunity for many students. However,

this ignores the readily available facts that show increases in the numbers of students enrolled in state two- and four-year institutions in Colorado and Virginia. In Colorado, the number of students enrolled in public colleges and universities in 1999-2000 was 209,183. By 2004-05, despite the reduction in government appropriations, the enrollment figure had increased to 222,815. (Data are from The Chronicle of Higher Education almanac editions for 1999-2000 and 2004-05.) In Virginia, the story was the same. Enrollments increased from 292,412 to 326,758. People and institutions have a tremendous capacity to adapt to change. When students for whom a college education would be a good investment find that its cost has risen, do they (and their parents, school counselors, and others who care about their future) simply give up? Of course not. Even students from very poor families can find ways to deal with an increase in cost. There are many, many scholarships available to students with limited means. Another option is to enter into a human capital contract with lenders, who cover some or all of the cost of education in return for a promise to pay a percentage of earnings for a number of years after graduation. One company in this business is My Rich Uncle. The firm has been arranging human capital contracts since 2000. Of course, it’s worth remembering that most college students are not from poor homes and can easily afford to pay somewhat more for their college education. Looking at this question from the standpoint of efficiency, there is much to be said in favor of the policy of reducing state support for higher education. Richard Vedder, a professor of economics at Ohio University who has written and spoken for OCPA, points out in his recent book Going Broke by Degree that American higher education suffers from very low productivity. In contrast to almost every other industry, per-unit (pupil) costs in education continue rising. It keeps costing more and taking longer to educate students to any desired level of proficiency. Why is that? Mainly because colleges and universities don’t have to pass the test of the market. Students and institutions are subsidized to a considerable extent, so the schools can get 35

away with lots of needless spending and frivolous course offerings. These days, parents and taxpayers spend gigantic sums in order to produce college graduates, many of whom have lower basic ability levels than did high school graduates of 50 years ago. The advantage of putting the burden of paying for higher education on willing parties is that they can more easily say “no” and look for other options than politicians can. When people are spending their own money, they tend to weigh costs and benefits carefully. That, in turn, causes institutions to be more mindful of costs and benefits and more accountable for results. There is no argument that a college education increases the income of the diploma holder. We believe a college education should be accessible for everyone but that those who can afford to pay should shoulder more of the cost of their education – rather than ask Oklahoma’s taxpayers to foot the bill. Rather than subsidizing tuition, policy-makers should charge higher tuition and then discount it for students who cannot otherwise afford to attend. Oklahoma should announce that it will gradually raise tuition, but do so in steps so that families can increase their savings to pay the higher cost. Higher education’s budget, like the budgets of all other state agencies, needs to be reviewed for unnecessary expenditures. The operation of the Kerr Center in Poteau, Quartz Mountain Lodge, and the Faculty House restaurant near the State Capitol, for example, are questionable higher education expenditures. Other examples could doubtless be cited if one could to take the time to review higher education spending line by line. For now, consider a few examples from a March 3, 2000 article which cited payroll data from the Office of Personnel Management. One can reasonably question whether Southeastern State needs to budget $78,501 for a head coach, whether Tulsa Community College needs eight “notetakers” at $43,504 each, whether Oklahoma City Community College needs a $58,125 personnel assistant, or whether Eastern Oklahoma State College needs two publicity directors at $33,064 each.27 Oklahoma legislators should also consider providing higher education vouchers. “Suppose instead of giving money to the schools to provide education services, Oklahoma gave

money (or vouchers) directly to the students,” writes University of Central Oklahoma economics professor Mickey Hepner. “We could make the schools compete for funding by competing for students. If schools were forced to compete in this manner, they would have a greater incentive to recruit and retain students. Schools would work to improve the quality of education, to increase student services, and to enhance student life. Higher ed vouchers, in short, will make our colleges and universities more responsive to the needs of our students.”28 Better still, make the higher education vouchers redeemable at public or private institutions of higher learning. As Nobel Prize-winning economist Milton Friedman has written, “Restricting the subsidy (for higher education) to schooling obtained at a state-administered institution cannot be justified on any grounds. Any subsidy should be granted to individuals to be spent at institutions of their own choosing.” Oklahoma taxpayers would save thousands of dollars for each student that moves from the highly subsidized public system to the private system. On May 10, 2004, Colorado Gov. Bill Owens signed into law a college voucher plan which is the first of its kind in the nation. It allows students to use vouchers at public or private institutions. A step in the right direction would be for the legislature to provide funding for the Oklahoma Tuition Equalization Grant (OTEG). Legislation creating the OTEG was signed into law by Governor Henry in 2003. The OCPA Budget recommends removing the cap that limits the number of students eligible for OTEG, and that OTEG be funded by removing from Higher Education’s budget, dollar for dollar, the amount of grants utilized by students. OTEG’s state appropriation for FY-2006 was $2.3 million. The OCPA Budget recommends that OTEG receive $5.6 million for FY-2007, to completely fund the 2,800 students eligible for the grant. The OCPA Budget freezes tuitions at the FY2006 level for those children whose parents make less than 185 percent of the Federal Poverty Level (FPL) with a sliding scale of increases up the 350 percent of FPL. This increase will apply to out-of-state students in the same proportionate amounts. This budget recommends a target for tuition fees of 50 percent of costs over the next five years. 36

are approximately 100 solicitors licensed to recruit students for the licensed schools.”30 Schools licensed by the Oklahoma Board of Private Vocational Schools are the “silent service” of education. They are generally privately owned, and are mostly small institutions with a student body counted in the tens or hundreds rather than in the thousands. Their physical plants are modest in size and appearance, and they have no lobbyists roaming the halls of the capitol building seeking appropriations. However, these unnoticed and underappreciated schools render a great service to the State and its citizens. Private vocational schools provide programs ranging from short one- or two-day seminars to four-year academic degrees. About 140 of the schools are focused on education for specific careers. The results are impressive: • These 140 schools train about 15,000 students annually without state funding. If the State of Oklahoma were to educate these 15,000 students at a conservative cost of $5,000 each, excluding capital costs, it would require an additional $75 million in legislative appropriations. With capital costs included, the figure could substantially exceed $100 million.31 • The student completion rate exceeds 70 percent – which is higher than any public institution. Oklahoma City Community College admits to a completion rate of 13.6 percent, and Rose State College of 11.9 percent.32 • Thousands of private career school graduates are removed from welfare rolls, saving Oklahoma millions of dollars in welfare payments. • Licensed private career schools employ over 4,000 full-time employees, have an annual payroll of $75 million, and pay more than $500,000 annually in Oklahoma sales taxes for books, supplies, and equipment. This alone far exceeds the legislative appropriation. Licensed private career schools also pay millions of dollars in state and federal income taxes. Beginning with FY-2007, the Board’s legislative appropriation will come fully from a revolving fund supported by fees collected by the Board from licensed schools. Private career schools are an important part of job training in Oklahoma. They educate and

State Regents for Higher Education FY-06 Budget Resources General Revenue Fund $705,042,104.00 Special Cash $9,500,000.00 Job Growth and Tax Relief Fund $17,000,000.00 Higher Education Capital Revolving Fund $63,318,647.00 Oklahoma Student Aid Revolving Fund $59,318,647.00 Education Lottery Trust Fund $28,022,139.00 OHLAP Trust Fund $7,232,343.00 Tuition And Fees $567,548,475.00 Total $1,456,982,355.00 Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 28.

The OCPA Budget recommends that higher education receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Oklahoma Department of Libraries The Oklahoma Department of Libraries (ODL) provides information services and acts as a repository for government documents. The ODL provides archives and records management, a law and legislative reference branch, and public library development.29 Oklahoma Department of Libraries FY-06 Budget Resources General Revenue Fund Federal Funds Revolving Funds Total

$6,681,355.00 $3,088,648.00 $772,669.00 $10,542,672.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 31.

The OCPA Budget recommends that the ODL receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Board of Private Vocational Schools “The Board of Private Vocational Schools licenses, regulates, and sets standards for the operation of private schools that conduct occupational training.” The nearly 200 schools licensed by the Board have a total enrollment exceeding 50,000 per year. “Additionally, there 37

train a population largely unserved by public education. Because of inherent differences between public and private education, the latter offers choices not offered by public education – choices in programs, length of time to complete, program structure, level of personal attention, and location, to name a few. Many who would not attend a public institution choose private career schools because of those differences. Unlike privately owned entities licensed by other state boards (banks and funeral homes, for example), licensed private career schools perform a service normally performed by the state. In providing educational services, private career schools reduce state educational and welfare expenses, offer choice in education, and produce job-ready graduates. The benefits inuring to Oklahoma through the private career schools regulated by the Oklahoma Board of Private Vocational Schools are enormous. The very large majority of the schools are taxpaying entities, they produce taxpayers, and they accomplished this without legislative appropriation. Because private vocational schools offer vocational education at less cost and achieve better outcomes than their public counterparts, the legislature should consider providing vouchers or tax credits for students to attend these schools.

“OSSM also operates regional centers for other students talented in science and mathematics. The regional centers serve students in their local areas. … The students attend the regional centers one half of the school day while continuing to attend their local high school for the remainder of the day.”36 With the advent of computers and online classes, the wide availability of Advanced Placement courses, and the myriad of colleges available for gifted high school students, busing students to a different facility to do focused work on mathematics and science is a questionable expenditure of taxpayer dollars. Taxpayers will also be disappointed to learn that only 58 percent of OSSM graduates stay in Oklahoma for undergraduate education, and that only 46 percent of OSSM graduates are currently employed in the state.37 Something is amiss when Oklahoma’s hardworking waitresses, single moms, and truck drivers – whose own children are trapped in substandard schools – are paying taxes to supply Texas and other states with top-flight graduates. Governor Henry’s FY-2007 budget book points out that 26 states have various forms of math and science residential programs, but that some require the payment of tuition.38 Given the extraordinary effort Oklahoma taxpayers are making for OSSM students, it would not be unreasonable to require students to pay for at least a portion of their education. This could be done on a means-tested basis. The OCPA Budget recommends that OSSM receive its FY-2006 appropriation, adjusted upward for population growth plus inflation. In addition, given that policy-makers have seen fit to fund this particular school choice option, the OCPA Budget recommends that policy-makers also provide options for some of Oklahoma’s less fortunate students, as outlined on page 34.

Oklahoma School of Science and Mathematics (OSSM) “OSSM maintains a tuition-free residential high school for 144 students. Residential students represent the entire state with over half of the enrollment from smaller communities. … Maintaining a tuition-free residential high school requires significant investment. The cost per OSSM student is higher than traditional public education for two reasons. First, class sizes are considerably smaller than those of other public schools, thereby increasing the need for teachers and classrooms. Second, the students are not required to pay their educational or residential costs.”33 Actual costs per student at OSSM were nearly $28,604 in FY-2005.34 By way of comparison, official government reports indicate the cost per student is roughly one-fourth that amount in Oklahoma’s public schools. Even in Oklahoma’s elite private schools, tuition is less than half the cost of OSSM.35

Oklahoma School of Science and Mathematics FY-06 Budget Resources General Revenue Fund $7,020,313.00 Revolving Funds $12,000.00 Total $7,032,313.00 Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 35.

Oklahoma Commission for Teacher Preparation (OCTP)

9 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 8. 10

National Education Association, Rankings & Estimates: Rankings of the States 2004 and Estimates of School Statistics 2005, June 2005, pg. 53 and pg. 56, http://www.nea.org/edstats/ images/05rankings.pdf.

“The OCTP serves as an independent standards board for teacher education. This competency based system of teacher preparation includes an evaluation of teacher education programs, a teacher assessment system and professional development institutes. Fifteen other states have an independent standards board with four more considering it. All other standards boards are under the individual state’s Department of Education.”39 The professional development institute (PDI) functions of the OCTP were recently called into question. According to an Aug. 27, 2003 press release from state Rep. Thad Balkman (RNorman), “Records show the Oklahoma Education Association (OEA) was awarded vendor contracts for more than $540,000 in 2002 and more than $360,000 in 2003 for mentoring and mathematics PDIs.”40 Given that the OEA provides financial contributions to union-friendly incumbents in the state legislature, there appears to be a conflict of interest here. The OCPA Budget recommends placing OCTP in Higher Education’s budget. The universities and colleges of the state train the majority of our teachers and are in a position to monitor and mentor them without the redundancies associated with a separate organization. This budget transfers OCTP’s appropriations to Higher Education at the FY-2006 level with a 10 percent reduction for administrative savings.

“Education Spending and Performance,” chap. in Oklahoma Policy Blueprint ’04, pg. 18. Available at http:// www.ocpathink.org. 12

The NAEP figures are available at OCPA’s literacy website www.noexcuses.info. 13

Ibid.

Carmel Perez Snyder, “Drive seeks to draw attention to illiteracy,” The Oklahoman, October 19, 2003. 15

Associated Press, “Report: Most Okla. High School Students Not Ready For College,” February 15, 2005. 16

Eric A. Hanushek, “Spending on Schools,” chap. in A Primer on America’s Schools, ed. Terry M. Moe (Stanford, CA: Hoover Institution Press, 2001), pp. 85-86. 17

Caroline M. Hoxby, ‘‘School Choice and School Productivity (or Could School Choice Be a Tide That Lifts all Boats?),” National Bureau of Economic Research, Working Paper no. 8873, April 2002. 18

http://www.allianceforschoolchoice.org/ media_center.aspx?IITypeID=3&IIID=2452 19

This is the “official” number given by the Oklahoma Office of Accountability, Profiles 2004 State Report, May 2005, pg. vii. For the actual number ($11,250 per student), see Steven J. Anderson and Brandon Dutcher, Education in Oklahoma: The Real Costs, Oklahoma Council of Public Affairs, August 2005, available at http://www.ocpathink.org/PolicyAnalysis/ EdinOKtrc.pdf. 20

http://www.ocpathink.org/ViewPerspectiveStory.asp?ID=587

Governor Brad Henry, FY-2007 Executive Budget, pg. B-73.

http://www.okhighered.org/student-center/college-cost/ tuition.shtml 23

Ibid.

http://www.umich.edu/~regoff/tuition/full.html

Aysegul Sahin, “The Incentive Effects of Higher Education Subsidies on Student Effort,” Federal Reserve Bank of New York Staff Report no. 192, August 2004. Available at: http:// www.ny.frb.org/research/staff_reports/sr192.pdf

Oklahoma Commission for Teacher Preparation FY-06 Budget Resources

General Revenue Fund Interagency Transfers Revolving Funds Total

For example, the 2004 Consumer Expenditure Survey, published by the Bureau of Labor Statistics, shows that expenditure on education increases as income increases. See http://www.bls.gov/cex/2004/stnderror/higherincome.pdf.

$2,022,875.00 $3,735,285.00 $592,517.00 $6,350,677.00

Brandon Dutcher, “State government: ‘We’d like to cut your taxes, but …’” The Daily Oklahoman, March 3, 2000, pg. 11A. 28

Mickey Hepner, “Idea for the Legislature: Higher Education Vouchers,” December 13, 2004. Available at: http:// www.busn.ucok.edu/mhepner/articles/2004/20041213.htm

Endnotes 1

http://www.state.ok.us/~arts/aboutus.html

David Boaz, “The Separation of Art and State,” remarks at the Delaware Center for Contemporary Arts, May 3, 1995. Available at http://www.cato.org/speeches/sp-as53.html.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-103.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-106.

Ibid.

Cost calculations are based on an average course length of 500 clock hours of instruction at a cost of $10 per hour.

Governor Brad Henry, FY-2006 Executive Budget, pg.B-69.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-68.

Governor Brad Henry, FY-2006 Executive Budget, pp. B-107.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-75.

Governor Brad Henry, FY-2007 Executive Budget, pg. B-105.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-76.

http://www.okhighered.org/studies-reports/student-data/ 2003-2004/section5.pdf

For example, tuition at Casady School in Oklahoma City ranges from $8,370 in the primary division to $12,800 in the

upper division, according to The Education Guide for Oklahoma, 2004 Edition, a publication of the Journal Record. 36

Governor Brad Henry, FY-2007 Executive Budget, pg. B-105.

E-mail from Donna Roberts, director of public information at OSSM, March 21, 2005. Graduation and employment figures are for â&#x20AC;&#x153;students who graduated from the Oklahoma School of Science and Mathematics from the first class, 1992, through the graduating class of 2000, a total of 535 students. Students from the classes of 2001 through 2004 are still pursuing undergraduate degrees.â&#x20AC;? Updated information from Roberts was not available as the FY-07 OCPA Budget went to press. 38

Governor Brad Henry, FY-2007 Executive Budget, pg. B-104.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-110.

Oklahoma Council of Public Affairs and Citizens Against Government Waste, 2004 Oklahoma Piglet Book, pg. 12. Available at http://www.ocpathink.org/ ViewPolicyStory.asp?ID=512.

Energy Oklahoma Corporation Commission

backlog of sites to be cleaned up. As in all cases where industry is asked to bear the cost of regulation, those regulations should be reviewed for obsolete regulatory rules and procedures and the costs of regulation should be contained to the fullest extent possible. In addition, OCPA has long pointed to the Rural Economic Action Plan (REAP) as an example of the misallocation of taxpayer dollars. For example, $3 million in REAP water project funding was diverted to the “operations” of the Corporation Commission rather than being spent on the rural water projects for which it was intended.3 The OCPA Budget recommends the Corporation Commission receive its FY-2006 appropriation less the $3 million in REAP funding. The current oil and gas boom provides increased fees for regulatory duties that, along with the removal of industry subsidies, will generate enough revenue to fund the Commission’s duties.

“The mission of the Oklahoma Corporation Commission is to regulate and enforce laws and activities associated with the exploration and production of oil and gas, public utilities, the safety aspects of motor carrier, rail and pipeline transportation, and the storage and dispensing of petroleum-based fuels. The Commission oversees the conservation of natural resources to avoid waste and protect the environment.”1 Corporation Commission FY-2005 Budgeted Program Expenditures Transportation $7,967,000 Oil and Gas Conservation Division $6,957,000 Petroleum Storage Tank Division $3,983,000 Public Utilities $2,693,000 Administration $2,402,000 Data Processing $2,154,000 Administrative Proceedings $2,062,000 General Counsel $1,689,000 Consumer Services $882,000 Underground Injection Control $550,000 Total $31,339,000

Department of Mines “The Oklahoma Department of Mines is the regulatory authority for surface and sub-surface mining in Oklahoma. The Department is empowered to implement and enforce state and federally mandated programs in health, safety, mining and land reclamation practices. The agency issues mining permits and performs inspections of all mining and mining-related land reclamation activities in the state.”4

Source: Governor Brad Henry, FY-2006 Executive Budget Historical Data, pp. 262-263.

The divisions of the Corporation Commission are as follows: Consumer Services Division; Oil and Gas Conservation Program; Petroleum Storage Tank Division; Public Utility Division; Transportation Division; Data Processing Division/Web Application Project; and Office of Administrative Proceedings.2 A review of the Commission’s revenue sources reveals that only 37 percent comes from appropriations. The Commission is to be applauded for its use of user financing. However, the OCPA Budget recommends several additional areas for review. The Oil and Gas Conservation Program, the Transportation Division, and the Data Processing Division/Web Application Project contain areas where total user financing should be instituted. Oklahoma taxpayers should not be financing certain industry segments through free or under-priced services. In addition, the Leaking Underground Storage Tank Fund should be reviewed. The fund has had a large balance building up with a

Department of Mines FY-06 Budget Resources General Revenue Fund Revolving and Carryover Funds Federal Funds Total

$849,165 $877,482 $840,000 $2,566,647

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 163.

The department’s divisions include:5 • The Oklahoma Miner Training Institute, located in Wilburton, which provides classroom and on-site training for mine operators. This division accounted for 9 percent of expenditures. • The Coal Program, which monitors opera41

tions so that they are conducted to protect the environment, adjacent landowners, and the public from the effects of mining operations. This division accounted for 41 percent of expenditures. • The Non-Coal Program, which is responsible for protecting the environment, the health of miners, and the health and property of citizens who are affected by mining activities. This division accounted for 30 percent of expenditures. The OCPA Budget recommends that the subsidization of the mining industry be eliminated. Many of the department’s programs and services should be the responsibility of the mining industry. As in all cases where industry is asked to bear the cost of regulation, those regulations should be reviewed for obsolete regulatory rules and procedures, and the costs of regulation should be contained to the fullest extent possible. This budget also recommends that the Department of Mines be merged into the Corporation Commission because of the similarity of purpose and the administrative redundancies that occur. This would allow the cost of regulation that is passed on to industry to be immediately reduced. This budget recommends that the department’s FY-2006 appropriation be reduced by 75 percent and that the funds be transferred to the Corporation Commission for FY-2007. Endnotes 1

Governor Brad Henry, FY-2006 Executive Budget, pg. B-117. Governor Brad Henry, FY-2007 Executive Budget Historical Data, pp. 235-236. 3 Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 149. 4 Governor Brad Henry, FY-2007 Executive Budget, pg. B-116. 5 Ibid. 2

Environment Department of Environmental Quality (DEQ)

The Department of Agriculture maintains its own water quality division. The OCPA Budget suggests that division is best managed within the Department of Environmental Quality (DEQ). This would eliminate redundancies between the two departments in testing equipment, and also eliminate potential conflicts of interests in cases where the Department of Agriculture both promotes and regulates an industry. This budget removes $1.38 million from the budget of the Department of Agriculture and transfers it to DEQ, less $138,000 in savings in administrative costs. This budget also proposes that watershed operations and water quality functions in the Conservation Commission be moved to the Department of Environmental Quality (DEQ) to allow for a more comprehensive approach to controlling pollution in Oklahoma’s water while removing duplicate layers of administration. This budget removes $2.1 million from the Conservation Commission’s budget and transfers it to DEQ, less $210,000 in savings in administrative costs. Additionally, this budget suggests that the Oklahoma Water Resources Board be merged into the Department of Environmental Quality because of the similarity of purpose and the administrative redundancies that occur in a separate organization. This budget removes $6.57 million from the Oklahoma Water Resources Board’s budget and transfers it to DEQ, less $657,000 in savings in administration costs. The OCPA Budget recommends the DEQ receive its FY-2006 appropriation, adjusted upward for population growth and inflation, plus the appropriations for the agencies merged into DEQ, less the savings from consolidation.

The Department of Environmental Quality (DEQ) is responsible for the regulation of industrial and municipal environmental programs. The DEQ focuses its program efforts on three major areas of responsibility: air quality, water quality, and land protection. Department of Environmental Quality FY-06 Budget Resources General Revenue Fund Revolving and Carryover Funds Federal Funds Total

$8,166,580 $24,636,210 $14,314,846 $47,117,636

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 152.

“The Air Quality, Water Quality, Land Protection Divisions, Environmental Complaints and Local Services (ECLS) Division and the Customer Services Division (CSD) support DEQ’s efforts to improve the quality of Oklahoma’s environment. ECLS provides the staffing for 30 local offices across the state and is primarily responsible for complaint response, media specific inspections and/or enforcement and response to citizen requests for local services. “Within CSD, the Customer Assistance Program offers non-regulatory approaches to compliance through technical assistance to industries seeking permits to locate or operate in Oklahoma. This program also works with existing Oklahoma companies to prevent pollution, encourage recycling and meet compliance. In addition, the CSD houses the State Environmental Laboratory, which provides analytical support for the agency’s regulatory programs as well as those of other environmental agencies.”1 DEQ has done an excellent job of applying user fees to industry. However, the OCPA Budget recommends a review of all services to find and remove any corporate subsidies within DEQ’s appropriations. As in all cases where industry is asked to bear the cost of regulation, those regulations should be reviewed for obsolete regulatory rules and procedures, and the costs of regulation should be contained to the fullest extent possible.

Oklahoma Water Resources Board “The Oklahoma Water Resources Board is the lead agency in Oklahoma for water rights and water quality issues. Anyone who uses fresh water for anything other than domestic use is required to obtain a permit from the OWRB. Agency geologists and hydrologists conduct hydrologic investigations of each stream water basin and groundwater basin (aquifer) to determine the amount of water available for

Additionally, this budget suggests that OWRB be merged into the Department of Environmental Quality because of the similarity of purpose and the administrative redundancies. This would allow the cost of regulation that is passed on to industry to be reduced immediately. The FY-2006 appropriation should be reduced by 10 percent and moved to the Department of Environmental Quality’s budget for FY-2007.

appropriation according to state statute and Board rules. The staff is responsible for updating every ten years the Oklahoma Comprehensive Water Plan to assure that Oklahomans have adequate quantities of good quality water for future use. “The Board sets water quality standards and classifies Oklahoma waters with respect to their best use. OWRB employees conduct scientific studies and surveys which analyze the physical, chemical and biological parameters of our water. They also work closely with the Oklahoma Attorney General, the United States Environmental Protection Agency and other environmental agencies regarding water management issues and litigation. … “The OWRB also: • Coordinates the Beneficial Use Monitoring Program to collect ambient water quality information on Oklahoma’s surface water. • Guides water use through the issuance of stream water and groundwater permits. • Licenses water well drillers and pump installers to reduce potential contamination of the state’s groundwater resources. • Provides loans for infrastructure.”1

Endnotes

Oklahoma Water Resources Board FY-06 Budget Resources General Revenue Fund $6,573,896 Revolving and Carryover Funds $5,277,387 USGS Cooperative Program $353,950 Federal Funds $10,746,152 Total $22,951,385 Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 172.

The OWRB also “administers programs to provide funding for infrastructure repairs, maintenance and capital improvements. The OWRB provides low-interest loans to public entities including rural water districts, municipalities and public works authorities.”2 The OCPA Budget recommends that the OWRB’s duties be reviewed for any subsidization of industry and that any such subsidization be eliminated. As in all cases where industry is asked to bear the cost of regulation, those regulations should be reviewed for obsolete regulatory rules and procedures, and the costs of regulation should be contained to the fullest extent possible. 44

Governor Brad Henry, FY-2006 Executive Budget, pg. B-127.

Governor Brad Henry, FY-2005 Executive Budget, pg. B-132 - 133.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-133.

Finance and Revenue State Auditor and Inspector

officials of the same party. These audits should be contracted out to private firms, just as U.S. Securities and Exchange Commission rules require of publicly traded companies. Many quasi-government entities (such as rural water districts) and local government divisions (such as schools and cities) already contract for their own audits. Contracting out the audits serves several functions in improving state government for Oklahoma taxpayers: • Reduced conflicts of interest; • Increased damage recovery from the private audit company’s liability insurance if the audit is improperly done; • Expanded number of audited agencies every year, which helps to ensure proper spending of taxpayer dollars; • Decreased costs of audits through competitive bidding; and • Returned dollars to the private economy through additional employees in private audit firms and the resultant taxes on profits and payrolls.

As the governor’s executive budget book points out, “The Constitution (Article VI, Section 19) and/or statutes require the Auditor and Inspector (A&I) to audit the following entities: • State and County Treasurers twice each year; • Each Emergency Medical Services District; • County Solid Waste Management Operations; • State Officers who Collect Money; • District Attorney’s and District Attorney’s Council (continuous); • Department of Corrections (continuous); and • OSEEGIB (contracted out). “Unless an agency has specific legislative authority to contract its audit outside (e.g. Higher Ed., trust authorities and Commerce), the Auditor and Inspector’s office is generally responsible for auditing all state agencies.”1 However, the Auditor and Inspector’s office does not have enough auditors to do detailed audits of every agency. In addition, most agencies do not have the funds to reimburse the A&I for the cost of the audit. Therefore, the A&I is not able to audit every state agency every year. The statewide Comprehensive Annual Financial Report (CAFR) and the Single Audit both include most agencies. When the A&I absorbs all or part of the costs of auditing a state agency, those unreimbursed costs represent a subsidization of the audited agency by the A&I. Exact amounts of A&I subsidies by agency are not currently available, though the Office of State Finance did estimate, for example, that only 50 percent of the cost of the state-mandated FY-2003 audit of Parks and Tourism was reimbursed to the A&I.2 This arrangement does not promote efficiency and it masks from the taxpayer the true cost of agencies. The OCPA Budget requires agencies to pay the full cost of any audit conducted by the A&I. This will remove the cross-subsidization and restore transparency to government. The State Auditor and Inspector is an elected official who usually belongs to one of the two major political parties. The question of independence, even if only in appearance, is raised when an individual from one of the major parties is asked to audit offices of elected

State Auditor and Inspector FY-06 Budget Resources General Revenue Fund Special Cash Fund Revolving Funds Total

$5,988,786.00 $0.00 $6,100,000.00 $12,088,786.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 46.

The OCPA Budget proposes both a redirection in monies appropriated to the A&I and a reduction in the total amount appropriated. $500,000 is recommended for FY-2007 in appropriations for the A&I office for general duties, conducting competitive bids, and monitoring contracted audits, whether they are performance audits or financial audits. The remaining funding for audits and performance reviews will come from the agencies receiving the services.

Office of the State Bond Advisor According to the governor’s executive budget book, “The State Bond Advisor was established as an independent position within the Department of Central Services in 1987. SB 722 (2003) 45

established the Office of the State Bond Advisor as a separate and distinct state agency. This separate agency assures impartiality when dealing with the issuance of obligations by governmental entities. “The Office of the State Bond Advisor serves as staff to the Council of Bond Oversight and provides advice and assistance to the Governor and Legislature on matters relating to capital planning, debt issuance, and debt management. The Office also serves as staff to the Long-Range Capital Planning Commission and administers the Private Activity Bond Allocation Act. “The Office of the State Bond Advisor is the central clearinghouse for information provided to bond rating agencies, credit enhancement providers, and credit markets with respect to Oklahoma’s credit quality.”3 The Office of the State Bond Advisor is funded by appropriations and by fees derived from the proceeds of bond issues. Appropriations totaled $181,212 for FY-2006.4

of last resort’ for businesses unable to obtain coverage elsewhere in the insurance market. “The intent was for CompSource (then known as the State Insurance Fund) to be structured without liability on the part of the State beyond the amount of the Fund. CompSource has operated as an enterprise function of the State since inception. “Currently, CompSource Oklahoma is the largest workers’ compensation insurance carrier in the state, serving more than 27,000 businesses and government agencies. CompSource Oklahoma carries almost all of the State agencies’ workers compensation insurance and an increasing amount for private businesses around the state. “Total workers’ compensation premiums continue to increase and CompSource continues to write an increasing portion of those premiums.” CompSource Oklahoma writes 40 percent of the total workers’ compensation premiums in Oklahoma.5 CompSource has achieved its status of market leader in Oklahoma with a number of advantages over private carriers. CompSource is supported by indirect subsidies from Oklahoma taxpayers since it is not subject to corporate income tax, ad valorem taxes on its two business locations, or the 2.25 percent premium tax that the State of Oklahoma charges all private carriers. CompSource serves as the workers’ compensation carrier for nearly all state agencies. But instead of rating each state agency according to its claims and adjusting premiums accordingly, it rates the state as one entity. This approach not only creates cross-subsidization from agencies with low workers’ compensation claims to those agencies with high claims, but also provides no incentive for agencies to control their workers’ compensation costs. The OCPA Budget proposes that CompSource be required to adjust workers’ compensation premiums for each state agency based on the claims history of that agency, just as CompSource would do for any business. This approach should, in the long run, force those agencies with high claims to examine their business practices and put in place procedures to limit those injuries. Oklahoma state workers will get a safer environment and Oklahoma taxpayers will obtain government services at a lower cost.

Office of the State Bond Advisor FY-06 Budget Resources General Revenue Fund Revolving Funds Total

$181,212.00 $193,788.00 $375,000.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 49.

The OCPA Budget recommends that appropriations be reduced to $60,000 for the Office of the State Bond Advisor for general duties. The remaining $121,212 of the current appropriation will be reassigned to the governor and the legislature to remove cross-subsidization of those entities. Fees on bond proceeds should be raised to reflect actual costs and to remove cross-subsidization by transferring all the costs of the issuing of bonds to the agencies receiving the bond monies.

CompSource Oklahoma “The Oklahoma Legislature created CompSource Oklahoma in 1933 with an original investment of $250,000 by the State. The purpose of the Fund is to furnish Oklahoma employers a financially stable workers’ compensation insurance program at the lowest possible price while providing maximum service and assistance. In that function, they have operated as the ‘carrier 46

Office of State Finance

This budget also encourages CompSource and the Oklahoma Health Care Authority to work together to share information on doctors who may be facilitating workers’ compensation and Medicaid fraud. This budget recommends that the State of Oklahoma investigate selling CompSource and/ or its book of business. CompSource’s advantages over private insurers create a non-competitive environment and drives taxpaying private companies out of business, with an accompanying reduction in private-sector jobs.

“The Office of State Finance (OSF) is part of the Executive Branch. It is under the administrative control of the Director of State Finance who is appointed by the Governor, with the advice and consent of the Senate. The Oklahoma Budget Law of 1947 (Title 62, Section 41.3) created the Division of the Budget and the Division of Central Accounting and Reporting (Office of the State Comptroller). The other agency divisions are the Information Services Division and the Fiscal and Research Division. … “The Budget Division prepares the Governor’s budget and assists in drafting supporting legislation for the Governor’s proposals. Budget Division staff manages the state’s budget system and makes appropriate allotments and transfers as authorized by law. The division conducts fiscal policy research and analysis to improve the cost-efficiency and cost-effectiveness of current financial practices. Developing and monitoring performance measures are another integral function of this division. Budget Division personnel prepare analyses of appropriation and substantive legislation and make recommendations based on their research.”7

Consumer Credit Commission The Commission administers the Uniform Consumer Credit code and regulates the following entities:6 • Lending institutions other than banks or credit unions • Deferred Deposit Lenders • Pawnbrokers • Credit service organizations charging fees to provide assistance on credit problems • Rent-to-own stores • Health Spas • Precious Metal and Gem Dealers • Mortgage Brokers • Mortgage Loan Originators

Office of State Finance FY-06 Budget Resources

Consumer Credit Commission FY-06 Budget Resources General Revenue Fund Revolving and Carryover Funds Total

General Revenue Fund Special Cash Revolving Funds Carryover Total

$637,925 $360,847 $998,772

$11,756,515.00 $11,000,000.00 $14,500,000.00 $325,000.00 $37,581,515.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 147.

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 61.

Given that the commission’s function is regulatory, it appears that the amount of appropriated dollars (compared to fee income) is an indication of an industry subsidy. The OCPA Budget recommends that the fees be raised to be commensurate with the costs of regulation and the appropriation be removed for FY-2007 from the Commission. As in all cases where industry is asked to bear the cost of regulation, those regulations should be reviewed for obsolete regulatory rules and procedures and costs of regulation should be contained to the extent possible.

The OCPA Budget removes $603,000 of the budget division’s appropriations and transfers that amount to the recommended appropriation for the governor’s office. This will end the crosssubsidization and improve the transparency of government. “The Division of Central Accounting and Reporting (DCAR) reviews and processes claims for payrolls and payment to vendors from most state agencies. DCAR is also responsible for preparing statewide financial reports, reconciliation functions, preparation of W-2’s and 1099’s reporting to the federal government, and managing the State accounting system.”8 The OCPA Budget removes DCAR’s appropri47

Department also regulates Real Estate Appraisers and Bail Bondsmen.”10 “The Department’s major source of funding is revolving funds. Of the department’s FY-2004 actual funding, 67% was by way of revolving funds.”11 OCPA believes that instead of subsidies to favored industries, the state should instead provide a stable, low-tax, low-regulatory institutional environment with strong private property rights and high degrees of economic freedom that will encourage all industry. The OCPA Budget recommends the removal of the department’s state appropriation and that user fees be raised to reflect the costs of regulation. The department has balances in its revolving funds that will help absorb this cut until the regulated parties and the department have reached equilibrium. In addition, this budget encourages legislators to examine the allocation of insurance premium taxes. Nearly 50 percent of insurance premium taxes are diverted to various law enforcement and firefighter retirement plans. OSF estimated the amount going to these retirement plans at $145 million for FY-2006. This constantly growing funding source has resulted in questionable retirement expenditures including DROP (Deferred Retirement Option Plan) plans that bear no relation to the original purpose of these retirement plans. These funds would be better used to fund tax credits for small businesses and individuals who purchase health insurance.

ated funds and requires DCAR to recover costs via user fees for all services provided to agencies. The OCPA Budget recommends that DCAR’s appropriated funds be reassigned to user agencies by instituting a policy of billing for DCAR services. This assignment of true costs will end the cross-subsidization of user agencies and improve the transparency of government expenditures. In addition, user agencies will now have an incentive to examine the quality and cost efficiency of OSF’s services in comparison to equivalent private business services. “The mission of ISD [Information Services Division] is to provide Oklahoma State agencies with quality, cost effective and secure information technology and telecommunications products and services. ISD manages the state’s data processing and telecommunications infrastructures. ISD sets standards for these areas to ensure compatibility of voice and data communications. They manage the local area networks for OSF, the Governor and several other state agencies. They manage a communications infrastructure including a state backbone of fiber connecting the most populous areas of the state to high-speed internet capabilities. ISD also manages the State telephone system; negotiating for long-distance and local services for the majority of state agencies.”9 The OCPA Budget recommends that ISD’s appropriated funds be reassigned to user agencies by instituting a policy of billing for services. This assignment of true costs will end the cross-subsidization of user agencies and improve the transparency of government expenditures. In addition, user agencies will now have an incentive to examine the quality and cost efficiency of OSF’s services in comparison to equivalent private business services. This budget recommends that the base appropriation for OSF be adjusted upwards for population growth plus inflation. This budget leaves the current base appropriations intact in OSF but assumes that the costs will be spread among the user agencies when billing practices begin.

Commissioners of the Land Office “The mission of the Commissioners of the Land Office (CLO) is to generate maximum earnings for the various Trust beneficiaries through management of Trust lands, minerals and permanent funds and to protect the assets of the Trusts. The Trust beneficiaries are all common education institutions and the following colleges and universities: • University of Oklahoma; • Oklahoma State University; • Langston University; • Northern Oklahoma College; • Southeastern OSU; • University of Central Oklahoma; • East Central OSU; • Northeastern OSU;

Insurance Department “The Insurance Department regulates the insurance industry. Regulation protects the public by assuring a solvent insurance market and well-educated insurance agents. The 48

• • • • •

Northwestern OSU; Southwestern OSU; Cameron University; Oklahoma Panhandle State University; and University of Science and Arts of Oklahoma. “ … The Trusts managed by the CLO are: the Common School Fund, the Education Institutions Fund, the University of Oklahoma Fund, the University Preparatory School Fund, the Oklahoma State University Fund, the Normal Schools Fund, the Langston University Fund, the Public Building Fund and the Greer 33 Fund. “The CLO is also charged with the sale, rental, disposal and management of School Trust lands and assets, and of the funds and proceeds derived from these assets. The principal functions of the agency consist of the following: • Leasing lands for agricultural, commercial and grazing purposes; • Leasing lands for oil, gas and other minerals including water rights; • Investing permanent funds as authorized by law; • Sale of lands as prescribed by law; • Improving, protecting and preserving lands owned by the Trusts; and • Distributing the revenues of the various Trusts to the institutions to which the funds belong.”12 The Office of State Finance (OSF) looked at the overall portfolio of the CLO and found that the continued reliance on agricultural land as an investment medium had resulted in shortchanging the Trusts. The United States Department of Agriculture’s statistics on farm land values indicated that from 1980 to 2000 Oklahoma farm land only increased in value a total of 3.3 percent for the entire 20-year period.13 In addition, the ownership of land by a government entity such as the CLO removes that land from the ad valorem tax rolls and the rental income to CLO from the state income tax rolls. Selling all CLO lands to the private sector, and investing the proceeds, would increase returns to the Trusts as well as to counties’ ad valorem base and state tax revenues. The current method for funding the various Trusts is not an efficient system. There are significant areas where, given some legislative changes, increased revenue opportunities would be available to the Trusts. The CLO is currently allowed to invest trust assets in a mix

of stocks and bonds that is controlled by statute. The current requirements for investment not only fail to produce maximum yields for Oklahoma’s schools, but also fail to allow investments that would minimize risk. OSF calculated that if CLO had been able to use the same investment criteria as the Oklahoma Teachers Retirement System (OTRS), the total amount of funds available to the Trusts from investment income since 1992 would have been nearly 10 percent greater.14 The OCPA Budget recommends that the agricultural land investment portfolio for CLO be liquidated and reinvested under OTRS’s management. It is also recommended that the statutes limiting investment types be broadened to mirror OTRS’s guidelines. The sales of the agricultural land would immediately begin to increase investment returns for schools while reducing CLO’s staffing needs. In addition, returning these lands to local ad valorem tax rolls would provide more local money for schools, firefighters, and police services. Selling these lands to the private sector would make the rents paid on these lands taxable, thus raising revenues for the state. Commissioners of the Land Office FY-06 Budget Resources Commissioners of the Land Office Fund

$4,719,497.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 29.

This budget transfers the remaining CLO staff to the Department of Education after transferring investment management to OTRS and starting land liquidation. In addition, it reduces the budgeted appropriation to 50 percent of the FY-2006 appropriation, to reflect the removal of redundant layers of management and the reduction in responsibilities. CLO will continue to exist in its constitutional form but will have most internal functions, such as accounting and data processing, performed by the Department of Education.

Retirement Systems “The State retirement systems consist of seven defined benefit pension plans: • Oklahoma Public Employees Retirement System (OPERS); 49

• Uniform Retirement System for Justices and Judges (URSJJ); • Oklahoma Teachers Retirement System (OTRS); • Oklahoma Police Pension and Retirement System (OPPRS); • Oklahoma Firefighters Pension and Retirement System (OFPRS); • Oklahoma Law Enforcement Retirement System (OLERS); and • Retirement Plan for Full-time Employees of the Department of Wildlife (DWR). “ … There are two main types of plans in the system. OPPRS, OFPRS, and OLERS are referred to as ‘twenty and out’ plans. Additionally, within the structure of OPERS a ‘twenty and out’ plan is maintained for correctional officers, probation and parole officers and fugitive apprehension officers in the Department of Corrections as well as firefighters in the Military Department. “OPERS, URSJJ, OTRS, and DWR are defined benefit plans. These plans have a guaranteed benefit that is a function of years of service and salary. In order to be entitled to these benefits there is a requirement for a certain number of years of service before a member becomes vested. “The twenty and out plans are aimed at public services where it is in the interest of the public to have the active members made up of young, healthy individuals. These individuals often serve in areas that are defined as hazardous duty. … These plans are extremely generous in their benefits and are designed to allow retired members to go on to other careers.”15 The remaining systems are called regular defined-benefit plans. In order to be entitled to these benefits there is a requirement for a certain number of years of service before a member becomes “vested.” In OPERS, DWR, and URSJJ the requirement is eight years and in OTRS it is ten years before a member vests. The defined-benefit plan type has been almost entirely replaced in the private sector by defined-contribution plans. OTRS is a concern because the system carries an Unfunded Accrued Actuarial Liability (UAAL) in excess of $7 billion.16 A UAAL reflects the excess liability to provide benefits that have been “accrued” over the amount of assets available to pay those benefits. This accrual reflects an actuary’s best estimate as to costs

that will be incurred due to benefits that have been promised as of a certain date. It should be noted that a review of past actuarial reports of State systems indicates that, due to constantly changing factors such as lifespan, these estimates have historically understated liabilities.17 The 2004 actuarial study released on OTRS indicated that the time to pay off the UAAL was infinity, which is an actuary’s way of saying “never.”18 OTRS’s funding problem is one of the worst in the nation. This gap in funding of OTRS liabilities is considered an absolute obligation of the State, according to Attorney General’s Opinion No. 96-21. Ultimately, therefore, the responsibility for this debt will fall on the shoulders of Oklahoma taxpayers.19 OTRS currently receives a percentage of individual income, corporate income, sales and use taxes before those revenues can be used for appropriations. Even with these large and growing revenue sources, OSF estimated that at some time within the next decade OTRS will begin to cash flow negatively to the point that the only solution available to the State will be increased dedicated revenues.20 The OCPA Budget recommends the conversion of OPERS, OTRS, DWR, and URSJJ to defined-contribution systems and freezing the tax revenues dedicated to OTRS at the FY-2005 dollar amount. This will stop the accumulation of unfunded debt and force fiscal prudence on legislators who have used the retirement systems as tools to give entitlements to voting blocs. This budget also transfers the fixed amount of dedicated revenue pertaining to OTRS to the Department of Education’s and higher education’s appropriations to improve the transparency of government expenditures. OTRS is not the only system that has dedicated revenue streams in addition to employee and employer contributions. OFPRS, OLERS, and OPPRS are recipients of 50 percent of the total premium tax revenues that are received. This stream of revenue has led to the three systems establishing extremely generous benefits for their members. This budget recommends freezing revenue from the premium tax at the FY-2006 level for OFPRS, OLERS, and OPPRS. The State’s retirement systems each perform a number of the same tasks for their members, 50

subsidizing of private businesses is not an acceptable use of taxpayer dollars. The OCPA Budget recommends the Commission’s appropriation be removed and the cost of services provided be transferred to a user fee for industry. This budget also recommends that the regulatory process be re-examined for any unnecessary regulations and be required to be as efficient as possible to minimize the impact on industry and consumers.

including benefit distribution and record keeping. OSF examined the per-member per-year cost of each individual system and determined that there would be savings to each system using economies of scale if these functions were combined.21 This is made evident in the following table by the low cost of the administrative function in the State’s largest system. The savings via consolidation are obvious when one considers that OPERS already per-

State Retirement Funds’ FY-04 Administrative Costs Fund Administrative No. of Cost per Name Expense Members Member OTRS $3,417,796 131,369 $26.43 OPERS $2,825,116 69,800 $40.47 OFPRS $903,920 12,191 $74.15 OPPRS $1,350,000 6,356 $212.40 OLERS $802,026 2,191 $366.05 URSJJ $65,663 429 $153.06

Oklahoma Tax Commission

“The primary responsibilities of the Tax Commission [OTC] include the collection and distribution of approximately 75 different taxes, fees and licenses. The Commission allocates revenues to state funds and local government units, and collects and distributes local sales taxes levied by cities and towns in Oklahoma. “The Tax Commission consists of three distinct departments: Taxpayer Services, Revenue Administration and Support Services.”23 Effective July 1, 2000, legislation required the OTC to review professional license applicants for income tax compliance. This tax review is conducted before a state license is issued. The Commission established a section, the Professional Licensing Compliance Unit, to assist taxpayers with this new law. Currently these following professions are reviewed through the program: doctors, nurses, attorneys, insurance agents, teachers, architects, accountants, all medical-related licenses, engineers, abstractors, cosmetologists, process servers, all Health Department licenses, abstractors, funeral directors, and securities brokers.24

Source: FY-2004 Individual fund actuarial reports

forms these functions for the URSJJ system. Despite being by far the smallest system, the cost of administration for URSJJ is less than half the cost of the next smallest system. The OCPA Budget recommends that the retirement funds consolidate accounting and administrative functions. This savings in efficiency will help to offset the net decrease in dedicated revenues to each system currently receiving them.

Securities Commission “The Securities Commission deters and remedies securities fraud on behalf of Oklahoma’s citizens. To accomplish this mission, the agency: • Enforces the Securities, Business Opportunity Sales, Subdivided Land Sales and TakeOver Disclosure Acts; • Registers offerings and sales of securities, business opportunities and subdivided land; • Registers securities sales and adviser professionals; • Performs on-site examinations of securities professionals and issuers; and • Provides investor education.”22 The regulatory tasks the Commission provides should be included in the cost of the business transactions that they effect. The

Oklahoma Tax Commission FY-06 Budget Resources General Revenue Fund Federal Funds Revolving Funds Total

$45,626,291.00 $100,000.00 $62,807,970.00 $108,534,261.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 85.

The OCPA Budget recommends that the OTC expand this program to include commercial 51

Endnotes

driver’s licenses, bail bondsmen, and all other areas where the state issues special licenses conveying privileges. Additionally, this budget recommends the OTC receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Governor Brad Henry, FY-2006 Executive Budget, pg. B-141. Governor Frank Keating, FY-2003 Executive Budget, pg. 228. 3 Governor Brad Henry, FY-2005 Executive Budget, pg. 214. 4 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 49. 5 Governor Brad Henry, FY-2006 Executive Budget, pg. B-147. 6 Governor Brad Henry, FY-2007 Executive Budget, pg. B-144. 7 Governor Brad Henry, FY-2006 Executive Budget, pg. B-149. 8 Governor Brad Henry, FY-2006 Executive Budget, pg. B-149. 9 Governor Brad Henry, FY-2006 Executive Budget, pg. B-150. 10 Governor Brad Henry, FY-2006 Executive Budget, pg. B-152. 11 Governor Brad Henry, FY-2006 Executive Budget, pg. B-152. 12 Governor Brad Henry, FY-2006 Executive Budget, pp. B-153 – B-154. 13 Governor Frank Keating, FY-2003 Executive Budget, pg. 231. 14 Governor Frank Keating, FY-2003 Executive Budget, pg. 231. 15 Governor Brad Henry, FY-2006 Executive Budget, pg. B-157. 16 Oklahoma Teachers Retirement System, FY-2005 Actuarial Report, pg. 108. 17 Governor Frank Keating, FY-2003 Executive Budget, pg. 237. 18 Oklahoma Teachers Retirement System, FY-2004 Actuarial Report, pg. 102. 19 Governor Frank Keating, FY-2006 Executive Budget, pg. B158. 20 Governor Frank Keating, FY-2003 Executive Budget, pg. 237. 21 Governor Frank Keating, FY-2003 Executive Budget, pg. 239. 22 Governor Brad Henry, FY-2007 Executive Budget, pg. B-132. 23 Governor Brad Henry, FY-2006 Executive Budget, pg. B-167. 24 Governor Brad Henry, FY-2006 Executive Budget, pg. B-167. 25 Governor Brad Henry, FY-2005 Executive Budget, pg. 334. 2

Garnishment, Anyone? In his FY-2004 executive budget Gov. Brad Henry proposed that all state employees be required to, umm, pay their state income taxes. “To be compliant, a taxpayer must have filed an income tax return and paid any state liability or negotiated a payment plan with the Tax Commission,” Gov. Henry said. Regrettably, there appears to be quite a bit of noncompliance out there. We haven’t seen the latest numbers, but according to Gov. Henry, “for FY-2004, the fiscal impact is an increase in income tax collections of $2 million.” Is it too much to ask that all state employees – and for that matter, all elected officials – pay their taxes?

State Treasurer “The mission of the State Treasurer’s Office is to provide sound financial services (banking, investing and cash management), reunite citizens with their unclaimed property, and promote economic development opportunities in a fiscally responsible and efficient manner.”25 State Treasurer FY-06 Budget Resources General Revenue Fund Special Cash Revolving Funds Carryover Total

$4,424,498.00 $100,000.00 $1,687,763.00 $300,000.00 $6,512,261.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 90.

The OCPA Budget recommends the treasurer’s office receive its FY-2006 appropriation adjusted upward for population growth plus inflation.

Health Oklahoma Health Care Authority

tion, beneficiaries and the general public.”5 The agency is overseen by a board of directors appointed by the Governor, the Senate President Pro Tempore, and the Speaker of the House, and it also receives direction from a Drug Utilization Review (DUR) board, a Medical Advisory Committee (MAC), and a joint legislative oversight committee. The purpose of these oversight bodies is to ensure that OHCA’s decisions “best serve the beneficiaries’ needs while maintaining the fiscal integrity of the agency.”6 OHCA provides Medicaid services to recipients included in each of the following categories – those using Temporary Assistance for Needy Families (TANF), as well as the aged, blind, disabled and institutionalized.7 OHCA provides those services through either a traditional feefor-service system or through the SoonerCare Choice program – a primary care case management program under which the state contracts with primary care providers/case managers (PCP/CM) throughout Oklahoma to deliver basic health care services to eligible Oklahomans.8 Eligibility for Medicaid is determined by the Oklahoma Department of Human Services (OKDHS). In the course of purchasing Medicaid services, OHCA has the following responsibilities: • Informing individuals who are potentially eligible for Medicaid and enrolling those who are qualified. • Determining what benefits it will cover in what settings. • Determining how much it will pay for the benefits it covers and from whom it will buy those services. • Establishing standards for providers from which it will purchase covered benefits, and enrolling (or contracting with) those which meet the standards. • Processing and paying claims from fee-forservice providers and making capitation payments to primary care providers. • Monitoring the quality of the services it purchases to ensure that beneficiaries are protected from, and that taxpayers are not subsidizing, substandard care. • Ensuring that state and federal health care funds are not spent improperly or diverted by fraudulent providers.

The Oklahoma Health Care Authority (OHCA) was created by HB 1573 on July 1, 1994, and became the single designated state Medicaid agency as of January 1, 1995. Medicaid, created in 1965 under Title XIX of the Social Security Act, is “a federal and state entitlement program” that provides “medical benefits to certain classes of lower-income individuals who have no health insurance.”1 The program is administered federally by the Centers of Medicare and Medicaid Services within the United States Department of Health and Human Services, and it guarantees basic health and long-term care services to enrollees based on income levels and resources.2 As an executive agency, OHCA has the mandate to purchase Medicaid benefits and state and education employee health care benefits, to study all state-purchased and statesubsidized health care systems, and to make recommendations and changes aimed at minimizing the financial burden on the state while allowing the state to provide the most comprehensive possible care.3 It also “leads the effort” to access the maximum amount of federal funds for itself and for the Oklahoma Departments of Human Services, Mental Health and Substance Abuse Services, Health and Education; the Oklahoma Office of Juvenile Affairs, and the Oklahoma University and Oklahoma State University medical schools and teaching hospitals (all of which have a part in the administration of the Oklahoma Medicaid program). OHCA’s “revenue maximization initiatives” are scrutinized to make sure that they meet all legal requirements and do not put the state “in jeopardy of a future disallowance.”4 OHCA’s administrative duties include “providing funds to Medicaid contractors, developing Medicaid payment policies, managing programs to fight waste, fraud and abuse, maintaining operating systems that support Medicaid payments, developing cost-effective health care purchasing approaches, monitoring contracting and provider performance, promoting and preserving beneficiary rights and protections, and disseminating information to the Oklahoma legislature, congressional delega53

• Having a process in place for resolving grievances by applicants, beneficiaries and providers. • Collecting and reporting information necessary for effective administration and program accountability.9 Between FY-1997 and FY-2006, state appropriations to OHCA increased from $289.84 million to $634.79 million, or 119 percent. During the same time period, total OHCA expenditures (from all sources) rose even faster, moving from $1.208 billion to $3.359 billion – an increase of 178.1 percent. In his famous 1964 address, “A Time for Choosing,” Ronald Reagan noted that “no government ever voluntarily reduces itself in size. So governments’ programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth.”10 Medicaid is a perfect illustration of how government programs perpetuate themselves by continually expanding their size and reach. Though Medicaid was originally intended to provide health insurance to the truly indigent, the federal government and its state “partners,” such as OHCA, have been busily expanding the program’s eligibility guidelines, adding new services, and conducting “outreach” efforts aimed at enrolling more people – even those who could obtain insurance coverage without government help. In Oklahoma, for instance, a family of four with an income under $35,797 can currently qualify for Medicaid,11 and nationwide, the number of people covered by Medicaid grew by more than one-third (38 percent) between 1999 and 2004, from 34 million to 47 million.12 The OHCA section of the FY-2006 governor’s budget argues that Medicaid spending has a positive economic impact on Oklahoma – even comparing its effects to those of a manufacturing plant that brings jobs and income to the state.13 This comparison is flawed on several levels, beginning with the fact that most manufacturing plants are (even in this era of everincreasing government “investments” in “economic development”) funded by private investors, not taxpayers. But at the same time, relying on an unpredictable stream of government funding to stimulate economic activity is not a sound economic development strategy in any industry. Even worse, increasing government

health care spending dampens entrepreneurial activity by “crowding out” private sector alternatives and diminishing personal responsibility for one’s own well-being – both of which are longterm detriments to economic growth. Indeed, the unpredictable nature of Medicaid funding was illustrated during the past budget year, as Oklahoma’s Federal Medical Assistance Percentage (FMAP) – the rate at which the federal government matches state Medicaid spending – fell from 70.18 percent for FY-2005 to 67.91 percent for FY-2006.14 This means that Oklahoma taxpayers will have to provide more of their dollars in FY-2006 to get back the same amount of federal money as they received in FY2005. Since the FMAP is determined by the relationship of a state’s per capita personal income (PCPI) to the average PCPI for all states (with the federal government providing a higher match to states with lower PCPI), this development should be seen as a positive one for Oklahoma. After all, a higher state PCPI should mean that residents are relatively more prosperous, and therefore more capable of arranging for health insurance without government’s help. Instead, the opposite has occurred. Oklahoma policymakers provided millions of dollars in additional funds in the FY-2006 budget in order to adjust to the lower FMAP, and were forced to beat back a proposal by the Oklahoma Hospital Association to assess a “provider’s fee” – in effect, a new tax – on hospitals.15 While this new spending was a disappointing result for Oklahoma taxpayers, it was entirely predictable, given that the steady increases in Medicaid’s cost drivers – such as enrollment volume, service utilization, and number of covered services16 – are likely to continue to cause severe budget pressures for years to come if present policy trends continue. Indeed, recent data illustrate the rapid expansion of Medicaid enrollment volume in Oklahoma. The number of unduplicated beneficiaries enrolled by OHCA moved from 458,558 in FY-1995 to 696,743 in FY-2005 – an increase of 52 percent. The number of enrollees actually receiving services rose even faster during that time period, from 396,496 in FY-1995 to 687,451 in FY-2005, or 75 percent.17 From FY-2004 to FY2005, the number of Oklahomans enrolled increased by 4 percent and the number served 54

by 3 percent. Overall, 19.1 percent of state residents were enrolled in Medicaid at some point during FY-2004, and that figure was estimated to rise to 20.2 percent by FY-2005.18 Much of the recent enrollment increase can be attributed to OHCA’s efforts to sign up a larger percentage of the expanded pool of Medicaid-eligible Oklahomans. One of the two main groups served by OHCA, the “TANFrelated” group (pregnant women and children within 185 percent of the federal poverty line), experienced a major eligibility expansion in 1997. As a result of the expansion and subsequent “outreach,” 212,332 more Oklahoma children were enrolled in June 2005 than in November 1997. Currently, 65 percent of total Medicaid enrollees in Oklahoma are children under age 18, and a majority of all births in the state are covered by Medicaid. 19 Yet despite the aforementioned large enrollment increases for low-income women and children (to the point where nearly 75 percent of all OHCA enrollees were in the “TANF-related” category), such enrollees accounted for just over 35 percent of total OHCA expenditures in FY2005. Aged, blind and disabled enrollees, on the other hand, comprised just 20 percent of enrollees in FY-2005, but accounted for 65 percent of total expenditures in that year.20 In the coming years, this group will exert even more upward pressure on OHCA’s costs, as many members of the “baby boomer” generation will seek to avail themselves of Medicaidprovided services.

percentage of adolescents doing so rose from 23.7 percent in FY-2003 to 36.7 percent in FY2004. Similarly, the percentage of children enrolled in Medicaid receiving up-to-date immunizations is expected to increase from 65 percent in FY-2003 to an estimated 90 percent for FY-2005.21 Finally, several new OHCA initiatives have broadened the scope of services eligible for Medicaid coverage. In 2005, OHCA extended Medicaid eligibility to include coverage for family planning (under the SoonerPlan program) and breast and cervical cancer (through the Oklahoma Cares initiative).22 And as of November 2005, OHCA began accepting applications from employers seeking to participate in the Oklahoma Employer-Employee Partnership for Insurance Coverage (O-EPIC). O-EPIC, which is to be funded via proceeds of a tobacco tax increase approved by state voters in 2004 (and matched with federal funds), is touted as a “first-of-its-kind” voluntary program that will pay for a portion of the health plan premiums for employees working in qualifying Oklahoma small businesses (those with less than 25 employees). O-EPIC is the first phase of the insureoklahoma initiative, which is slated to include a “Public Product Health Care Plan” by the spring of 2006 that will allow Oklahomans to buy health insurance directly through the state.23 Gov. Brad Henry has argued that a program like O-EPIC is necessary since more than 20 percent of Oklahomans were uninsured as of FY-2003. However, as OCPA pointed out in its 2005 budget blueprint, this figure overstates the “crisis” of the uninsured in Oklahoma – especially in light of the following mitigating factors: • The state’s large Native American population has access to free Indian health centers and Indian hospitals. Many Native Americans, consequently, do not carry private health insurance. • A number of middle-to-high income individuals have, for whatever reason, made the conscious choice to forego health insurance. • The age groups most likely to be uninsured (those from 18-24 and 25-34 years of age) are also the least likely to need medical care. • Some Oklahomans who meet Medicaid’s eligibility guidelines have simply made a principled decision to refuse taxpayer-funded health insurance.24

Oklahoma Health Care Authority FY-06 Budget Resources General Revenue Fund Federal Funds Special Cash Fund Tobacco Settlement Funds Total

$603,481,864 $2,724,540,827 $18,000,000 $13,304,491 $3,359,327,182

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 98.

Data from the governor’s FY-2006 budget also indicate that utilization of medical services has also increased among some OHCA enrollees. For example, the percentage of young children enrolled in Medicaid having a “well-child” visit with a physician increased from 47.3 percent in FY-2003 to 58.1 percent in FY-2004, while the 55

strengthens the incentives for Oklahomans to work to obtain coverage on their own, thereby increasing economic growth and productivity. Otherwise, as Michael F. Cannon of the Cato Institute put it, “Offering people Medicaid in lieu of (allegedly) inferior private coverage … tells them that the way to get more is by doing less: work less, save less, cultivate less self-reliance. That is a recipe for dependency.”26 At the same time that OHCA must refocus its resources on those in real need, it should also change many of the ways it delivers Medicaid services. Two states that are currently in the process of reforming their Medicaid delivery systems are Florida and South Carolina, and both are doing so in three ways: by encouraging competition in the design of benefit packages for Medicaid recipients between private plans and networks, by allowing enrollees to choose the health insurance options that best fit their needs, and by giving Medicaid recipients defined contributions to spend themselves (which mitigates the problem of unpredictable funding streams).27 These defined contributions could be used to choose a state-approved managed care plan, preferred provider organization, or providerbased network; to participate in employerbased coverage; or, as in South Carolina’s plan, “to choose a self-directed option that would be similar to a Health Savings Account (HSA) arrangement.”28 The defined contribution feature of the Florida and South Carolina initiatives is far from an untested idea – it closely resembles the Federal Employee Benefit Health Plan (FEBHP), under which “federal workers receive a defined contribution from the government and are able to select from a menu of competing private plans.”29 It is clear that the best way to solve the problems OHCA faces is to bring market forces – choice, competition, and individual responsibility – to bear on those problems. The beginnings of such an approach may be taking shape in the form of the recently enacted Oklahoma Self-Directed Care Act, which directs OHCA “to establish self-directed care pilot programs based on consumer choice and control.”30 The Act establishes “cooperative agreements with the Oklahoma Department of Human Services (OKDHS) to implement and administer these programs and allow persons enrolled in the

Ironically, the funding source for O-EPIC – the tobacco tax increase – may threaten the program’s future if it succeeds in two of its stated objectives: reducing the prevalence of smoking and funding smoking cessation programs. The instability of O-EPIC’s revenue stream merits close scrutiny in the coming years. Instead of considering reforms that would help to put the brakes on runaway Medicaid spending in Oklahoma, the policy direction OHCA is currently following mostly amounts to mashing the gas pedal. Expanding the eligible population and offering new services will only exacerbate the fiscal problems associated with Medicaid, while continuing to weaken the sense of responsibility that individual Oklahomans have to provide for their own health insurance. Nevertheless, experience at the federal level, as well as innovative reform approaches now under development in other states, can help to solve these two problems without adding new taxes or “fees” on Oklahomans. Possible Solutions First of all, the 1996 federal welfare reform law, while not addressing the vast majority of Medicaid expenditures, did eliminate Medicaid eligibility for non-citizen immigrants. Opponents of this change were sure that the change would lead to a decrease in coverage for this group – but the opposite occurred, as those affected responded to the loss of taxpayer-funded coverage by supplying more labor, thus giving themselves a better chance of getting employerbased coverage. In fact, the increase in probability of the affected immigrants receiving employer-provided health coverage was large enough to completely offset the cutbacks, and states that offered coverage to those affected saw coverage levels for this group decrease, while states that did not saw that coverage increase.25 This example seems to indicate that Oklahoma would not have as much to fear as some might expect if eligibility guidelines were tightened, and some of those currently receiving Medicaid (especially those with higher incomes) were no longer eligible for the program. Reforming Oklahoma’s Medicaid requirements in a manner that eliminates people who could find coverage elsewhere frees up scarce resources that can be used for the truly indigent, and 56

House of Representatives “passed historic legislation to replace Oklahoma’s outdated and expensive Medicaid program with a new patient empowerment system.”32 This plan deserves serious consideration. By giving OHCA enrollees more health insurance options that are better tailored to individual preferences, and by providing incentives for those enrollees to take an active role in decisions about the types of care they receive, Oklahoma Great Moments in Medical Welfare policymakers can achieve the twin objectives of improving the health Janice Francis-Smith reported of the state’s neediest residents November 11, 2005 in The Journal and controlling the cost of MedicRecord that 3,500 “illegal aliens in aid to taxpayers. Oklahoma received $7.8 million in The OCPA Budget encourages Medicaid benefits last year, said OHCA, CompSource, and private Nico Gomez, director of governmeninsurers to cooperate to form a tal and public affairs for the Okla“watch list” for doctors who may homa Health Care Authority. The state’s be the source for fraudulent share of that total was $2.3 million. Which claims on their services. This raises an interesting question: Why should a struggling watch list could provide the single mom in Muskogee or a hardworking truck driver in impetus for cracking down on the Altus – especially those who stay off the dole as a matter of myriad of schemes that plague principle – have to pay taxes to support lawbreakers? the health and workers compenLet’s add “medical welfare for illegal aliens” to the eversation fields. growing list of things the Oklahoma Health Care Authority This budget also recommends pays for that it really ought not to. As OCPA has docuthat OHCA be required to provide mented elsewhere, that list currently includes condoms, the state legislature with a comvasectomies, and nursing-home care for wealthy Oklahoprehensive report on the health of mans who are shrewd enough to shelter their assets and their users benchmarked against income. Oh, and let’s not forget breast-reduction surgery. the rest of the state’s residents, as “Taxpayers paid $928 for breast reductions for three well as against residents in males serving time in juvenile detention, according to an surrounding states. Oklahoma investigation,” Jack Money reported May 14, 2005 in the taxpayers who care about the state’s largest newspaper. “The surgery, on three adolestruly needy expect their tax dolcent residents of the Tecumseh detention center, was not lars to be well spent, and results medically necessary, according to the Office of Juvenile are the best measure of that. System Oversight report obtained by The Oklahoman. … This budget recommends that The surgeries weren’t warranted, said Dr. John Stuernky, OHCA receive its FY-2006 approchief of pediatrics at Children’s Hospital at OU Medical priation, adjusted upward for Center. He reviewed records kept by the juvenile center population growth plus inflation. doctor, Dr. Clinton Smith of Shawnee; the surgeon, Dr. Norman Hanks of Shawnee; and the juvenile center nurse. Health Department … ‘It is concerning that these three young men were subThe mission of the Department jected to unnecessary surgical procedures for ... normal of Health is to promote, protect physiological changes of adolescence,’ Stuernky wrote. The and improve the health of all bill for the surgeries totaled about $14,200. The Oklahoma Oklahomans through strategies Health Care Authority, which juvenile affairs uses to pay for that focus on preventing disease inmates’ medical procedures, denied payment for all but and injuries. Local health service about $928.” delivery is performed by approxi-

Medicaid home and community-based program to choose the providers of the services and direct the delivery of services best meeting participants’ long-term care needs,” and OHCA was also “directed to apply for waivers necessary to allow any eligible person to self-direct their own personal care services.”31 Moreover, as this year’s OCPA Budget was in the process of going to press, the Oklahoma

mately 2,223 employees located at 69 county health departments throughout the state.33 The Department has 35 statutory programs within its control.34 The size and complexity of this many programs and employees makes evaluating the Department’s expenditures of taxpayer dollars very difficult. However, according to the 2005 edition of the United Health Foundation’s state health rankings, Oklahoma’s ranking among states fell by four places to 44th.35 This continuation of the trend of Oklahomans’ health decreasing relative to the residents of the other 49 states points to serious problems within Medicaid and

At a time when many rural hospitals are struggling financially it makes good sense to examine from both an economic and health-outcome perspective if this prototype should be expanded.36 Programs such as the Certificate of Need (CON) should be eliminated. As currently instituted, in order to build a nursing home one must obtain a CON for every bed that is to be offered. This serves only to provide an unnecessary layer of government between consumers and the free market. This limitation of the ability to compete and the reduction in consumers’ options may have helped foster the protected environment that resulted in the DOH Oklahoma Voters: Empower Patients with Choices nursing home scandal. Medicaid is a joint federal and state health program that provides Governor Keating’s health care insurance to the poor, disabled, and other groups. Over the budget noted that while past few decades, this program has been taking a larger and larger Oklahoma was the first share of the state budget. Which of the following four options do you to initiate the Children think is the best way to handle this situation? First program, which Continue the increased funding of the Medicaid program, even if that does prenatal work with means it takes money away from other parts of state government like expectant mothers, “the schools and roads. ........................................................................... 11% program has produced Continue the increased funding of the Medicaid program, but instead some disappointing of cutting other functions of state government, raise taxes. .............. 9% statistics to date. OSF Limit the costs of Medicaid by reforming the program by instituting suggests that this market-based solutions like patient choice and more healthcare program should be competition. ...................................................................................... 43% converted to a means tested program within Limit the costs of Medicaid by limiting those eligible for the the umbrella of Medicinsurance. ........................................................................................ 19% aid services. Making Undecided (vol.) ............................................................................... 19% Children First a MedicSource: Cole Hargrave Snodgrass & Associates, telephone interviews of 400 registered voters in aid program would the state of Oklahoma, January 22-24, 2006. The confidence interval associated with a sample of allow for a federal this type is such that 95 percent of the time results will be within +/- 4.9 percent of the true values, i.e., the results obtained if it were possible to interview all the qualified respondents. match on state funds. Currently the State the Department of Health’s many programs. expends over $11 million to fund the program.” The Office of State Finance (OSF) under both OSF went on to estimate that over $9.3 million Governor Keating and Governor Henry have could be saved in the first year alone.37 A review of DOH programs also indicates that pointed to examples that suggest that there are more programs should incorporate means many opportunities to overhaul or replace testing. The use of means testing would not only existing programs with more cost-effective eliminate from the programs people who can approaches. OSF suggested that the county afford services but in many cases may open up health programs in counties with lower populathe availability of additional federal funding for tions and/or low department utilization rates be the programs. County health departments in administered through the local hospitals. The particular would benefit from this change in hospital in Cordell was cited as an example. operations as some of their functions overlap The Cordell hospital runs all county health with Medicaid and/or other government programs. functions, including the federal Women, Infants The OCPA Budget recommends that the and Children (WIC) food supplement program. 58

Department of Health’s budget be fixed at the FY-2006 level until a program-by-program review is performed and meaningful performance measures of outcomes are put in place.

Endnotes 1

Governor Brad Henry, FY-2006 Executive Budget, pg. B-169. Ibid. 3 Oklahoma Health Care Authority, State Fiscal Year 2005 Annual Report, pg. 42. Available at http:// www.ohca.state.ok.us/reports/PDFlib/AR_2005.pdf. 4 Ibid. 5 Ibid. 6 Ibid. 7 Governor Brad Henry, FY-2006 Executive Budget, pg. B-170. 8 Oklahoma Health Care Authority, State Fiscal Year 2005 Annual Report, pg. 51. 9 Oklahoma Health Care Authority, State Fiscal Year 2005 Annual Report, pg. 43. 10 Ronald Reagan, “A Time for Choosing.” Available at http:// www.reaganfoundation.org/reagan/speeches/rendezvous.asp 11 Mick Hinton, “State Tries to Diagnose Waste in Medicaid,” Tulsa World, December 12, 2005. 12 Dennis Cauchon, “Medicaid Insures Historic Number,” USA Today, August 1, 2005. Available at http://www.usatoday.com/ news/washington/2005-08-01-medicaid_x.htm 13 Governor Brad Henry, FY-2006 Executive Budget, pg. B-172. 14 Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services, “Federal Medical Assistance Percentages.” Available at http:// aspe.hhs.gov/health/fmap.htm 15 Mick Hinton, “State Tries to Diagnose Waste in Medicaid,” Tulsa World, December 12, 2005. 16 Governor Brad Henry, FY-2006 Executive Budget, pg. B-171. 17 Oklahoma Health Care Authority, State Fiscal Year 2005 Annual Report, pg. 15. 18 Governor Brad Henry, FY-2006 Executive Budget, pg. B-170. 19 Oklahoma Health Care Authority, State Fiscal Year 2005 Annual Report, pg. 14. 20 Ibid. 21 Governor Brad Henry, FY-2006 Executive Budget, pg. B-170. 22 Governor Brad Henry, FY-2006 Executive Budget, pg. B-169. 23 O-EPIC Newsletter, “O-EPIC Program Update,” October 2005. Available at http://staging.okcommerce.gov/test1/ dmdocuments/O_EPIC_Newsletter_October_2005.pdf 24 Oklahoma Council of Public Affairs, State of Oklahoma State Budget for the Fiscal Year Ended June 30, 2006, pp. 47-48. 25 Michael Cannon, “Medicaid Reform: Finishing the Job of Welfare Reform,” Oklahoma Council of Public Affairs Perspective, July 1, 2005. Available at: http://www.ocpathink.org/ ViewPerspectiveEdition.asp?ID=97#608 26 Ibid. 27 Nina Owcharenko, “Florida and South Carolina: Two Serious Efforts to Improve Medicaid,” Heritage Foundation WebMemo #920, November 18, 2005. 28 Nina Owcharenko, “Florida and South Carolina: Two Serious Efforts to Improve Medicaid,” Heritage Foundation WebMemo #920, November 18, 2005. 29 Ibid. 30 Oklahoma House of Representatives, Office of Budget and Performance Review, FY-2006 Legislative Appropriations. 31 Ibid. 32 http://www.okhouse.gov/OkhouseMedia/ pressroom.aspx?NewsID=581 33 Governor Brad Henry, FY-2007 Executive Budget, pg B-182. 34 Governor Brad Henry, FY-2007 Executive Budget Historical Data, pp. 365-366. 35 Governor Brad Henry, FY-2007 Executive Budget, pg. B-182. 36 Governor Frank Keating, FY-2003 Executive Budget, pg. 255. 37 Governor Frank Keating, FY-2004 Executive Budget, pg. 148. 38 Governor Brad Henry, FY-2005 Executive Budget, pg. 267. 39 Governor Brad Henry, FY-2007 Executive Budget, pg. B-155. 40 Governor Brad Henry, FY-2007 Executive Budget, pg B-155. 2

Department of Mental Health and Substance Abuse Services (ODMHSAS) The agency’s mission is to promote healthy communities and provide the highest quality care to enhance the well being of all Oklahomans. The three principal realms of ODMHSAS activity are mental health, substance abuse, and domestic violence/sexual assault support services.38 OCPA endorses the view expressed by Governor Henry that “focuses on placing persons with mental illness in the most appropriate environment possible for ongoing care and treatment. Service providers, advocates and family members agree that placement in the ‘community’ where persons with mental illness are closer to family and friends provides the best atmosphere for success.”39 The OCPA Budget encourages ODMHSAS to expand this to partner with faithbased and other private charitable organizations to provide an even better “atmosphere for success.” We must continue to require ODMHSAS to have a clear accountability system in place for monitoring the outcomes of its services in order to know if its behavioral health care system is providing effective, cost-efficient treatment. ODMHSAS will then be better able to identify system problems and direct funds to the most effective services for the clients. ODMHSAS is both a purchaser and provider of mental health and substance abuse services. By serving both roles, ODMHSAS has a conflict of interest in evaluating its own services, and this lessens the agency’s ability to focus on accountability. Trends such as the decreasing number of inpatient hospital days40 are encouraging signs of ODMHSAS programs but additional performance measures (such as days worked per client) should be added to more accurately track the success or failure of these programs. This budget recommends that ODMHSAS receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Human Resources and Administration Department of Central Services

recommends the continuation of this approach. DCS should charge a fee commensurate with the cost to DCS of providing the service. Agencies then would be able to compare costs of other possible service providers on an equal basis. OCPA believes that competition results in a more efficient use of taxpayer dollars. This budget freezes DCS appropriations at FY-2006 levels while the process of elimination of cross-subsidization is occurring.

The Department of Central Services provides a variety of support services to state agencies. Services provided by the Department include:1 • Facilities Management • Central Purchasing • Construction and Properties Division • State Leasing • Federal Surplus Property Distribution • State Surplus Property • Interagency Mail • Risk Management • Fleet Management (formerly Motor Pool) • Alternative Fuels Program • State Recycling Program • State Inventory Management Program • Central Printing • Public Employee Relations Board • Capital Medical Zoning • State Use Committee • Capitol Preservation Commission

Employees Benefits Council (EBC) In the 2004 Oklahoma Piglet Book, OCPA and Citizens Against Government Waste pointed out that the “Employees Benefits Council (EBC) and the Oklahoma State Education Employees Group Insurance Board (OSEEGIB) are responsible for providing health insurance and ancillary benefit plans to public and education employees. As the chart below shows, the functions of these two state agencies overlap considerably. “A Senate legislative committee examining state employee benefits in 2003 found that eliminating EBC and folding its non-duplicative functions into OSEEGIB would improve the services offered to state and education employees and save taxpayers more than $3.8 million annually.”2 The OCPA Budget recommends that EBC’s functions be transferred to OSEEGIB and that $4 million be removed from general appropriations to reflect the savings to taxpayers of this reorganization. EBC does not receive direct appropriations but instead is financed by charges to state employees, which creates a labor cost to state agencies. Savings would be allocated via a per-agency appropriation reduc-

Department of Central Services FY-06 Budget Resources General Revenue Fund Public Building Fund Carryover Revolving Funds Total

$10,382,390 $1,880,645 $1,765,000 $57,850,000 $71,878,035

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 52.

An analysis of the tasks performed and the fees charged indicates that DCS is to be commended for beginning the process of eliminating cross-subsidization. The OCPA Budget

Function EBC OSEEGIB Select Alternative Health Plans ---------------------------------------------------------- X -------------------------- X Conduct Annual Benefit Elections ------------------------------------------------------- X -------------------------- X Management of Health Plans and Assets ------------------------------------------------------------------------- X Administer Section 125 Plan Benefits and Assets --------------------------------- X --------------------------Select Optional Employee Benefits ----------------------------------------------------- X -------------------------- X Management of Dental Plans and Assets ------------------------------------------------------------------------- X Management of Term Life Plan Benefits and Assets ----------------------------- X -------------------------- X Human Resource Management ---------------------------------------------------------- X -------------------------- X Public Budget Management --------------------------------------------------------------- X -------------------------- X Public Purchasing Management --------------------------------------------------------- X -------------------------- X Statutory Reporting Management------------------------------------------------------------------------------------ X Financial Assets Management ----------------------------------------------------------- X -------------------------- X Records Act Management ------------------------------------------------------------------ X -------------------------- X 60

tion based on the number of agency employees.

‘The Number of Passenger Vehicles the State Owns Is Unclear’

Horse Racing Commission

In November 2004 state auditor and inspector Jeff McMahan released a performance audit of Oklahoma’s motor vehicle fleet. “The results of this audit identify opportunities for potential cost savings approaching $21,000,000 related to the operation and management of the State’s passenger vehicle fleet,” McMahan said. “State officials need more assurances that the State’s fleet is being used efficiently.” One of the audit’s most troubling findings: “The number of passenger vehicles the State owns is unclear.” According to one inventory listing, as of December 2003 the state owned 11,365 vehicles with a total cost of $195 million. Disturbingly, there were 428 purchase requests for vehicles in 2003, and none of the requests were denied. The auditors concluded that “justifications required for vehicle purchases are insufficient or nonexistent.” The auditors also found there are 1,944 vehicles assigned to employees who commute to work in a state vehicle, of which 1,264 of the instances appear to be lawful. The audit didn’t say the remaining 680 instances were all illegitimate, but did say “it would appear that the practice of allowing employees to commute in a state vehicle is often not adequately documented and/or justified.” Though auditors did acknowledge that “keeping a vehicle clean is an important part of the overall maintenance of the vehicle,” they were troubled by “739 instances totaling $20,720, where the price of the wash/detail was in excess of $20. This included 38 instances of washes/details greater than $50 and 13 of these $100 or more.” The auditors say the state owns at least 233 SUVs. “If the State purchased 233 sedans rather than SUVs, potential savings over the life of these vehicles would have been approximately $1,800,000. We recognize there is likely a legitimate need for some SUVs; however, we believe many of the State’s SUVs could be replaced with a less costly vehicle.”

“The Oklahoma Horse Racing Commission (OHRC) encourages state horse production and regulates horse racing activities at four racetracks and gaming activities at the first three. • Remington Park in Oklahoma City • Will Rogers Downs in Claremore • Backstretch, LLC doing business as Blue Ribbon Downs in Sallisaw • Fair Meadows at Tulsa “The Commission provides the following services at these racetracks: • Law enforcement agents who conduct investigations and present evidence at hearings; • Employees who license participants; and • Employees who verify horses in the paddocks are actually the horses registered to race.”3 The Commission received $2,360,889 in taxpayer dollars through appropriations in FY2006.4 Voters who passed the legislation that opened up the four tracks currently operating were promised that race tracks would be revenue sources – not an expense for every taxpayer regardless of whether they gamble or not. The OCPA Budget finds this to be an egregious example of corporate welfare and eliminates the appropriation for FY-2007.

Human Rights Commission (HRC) The mission of the Human Rights Commission (HRC) is to “promote equality through education and enforcement in the areas of employment, housing, and places of public accommodation regardless of race, color, sex, religion, national origin, disability, and age.”5 The OCPA Budget believes that human rights violations should be punished under applicable laws. To that end, it would better serve all interests to have the HRC become a function of the attorney general’s office, which has considerably more power to prosecute and punish violators of Oklahoma’s Anti-Discrimination Act than the HRC. The removal of administrative duplication will result in a savings to taxpayers. HRC’s FY-2005 administrative expenditures were a startling 28 percent of total expenditures.6 This budget recommends that HRC’s FY-2006 appropriation be reduced by 10 percent for administrative savings and transferred to the attorney general’s office.

Source: http://www.sai.state.ok.us/

Merit Protection Commission The mission of the Merit Protection Commission is to design, implement, and enforce a dispute resolution system for state employees.7 As in the case of OPM, this function is a human resource function that should be billed to agencies at the cost to provide the service. This will eliminate cross-subsidization and improve the transparency of government expenditures.

Bureaucratic Overhead In 2004, Northeastern State University economist Rex Pjesky compared the size of Oklahoma’s state government to the national average and found that we have about 6,100 too many state employees (and no, not because we have too few local government employees). In 2006, Cato Institute economist Chris Edwards, using the latest data from the Census Bureau, calculated the number of state and local government workers in each state as a share of employment in the state. Oklahoma ranked a hefty 13th among the 50 states.

Merit Protection Commission FY-06 Budget Resources General Revenue Fund $565,684 Revolving Funds $47,500 Total $613,184 Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 70

The OCPA Budget recommends that the Commission’s appropriation be held at FY-2006 levels while the process of eliminating crosssubsidization takes place.

Sources: http://www.ocpathink.org/ViewPerspectiveStory.asp ?ID=294; http://www.ocpathink.org/ViewPerspectiveStory.asp ?ID=672

Essentially, OPM provides the human resource management for all state agencies. A check of state agencies will reveal that each agency has an internal human resource management group. Therefore, not only is there cross-subsidization but there is also the existence of potentially redundant duties. The OCPA Budget recommends the services of OPM should be valued at the cost to provide and billed to the applicable state agencies. This would bring increased transparency to government expenditures. Additionally, agencies would be able to compare costs of other possible service providers on an equal basis. This budget believes that competition results in taxpayer dollars being spent in the most efficient manner. This budget recommends that OPM’s appropriation be held at FY-2006 levels while the process of eliminating cross-subsidization takes place.

Office of Personnel Management (OPM) The Office of Personnel Management (OPM) provides “service and regulatory personnel administration functions that are efficient and effective in meeting the management needs of various state agencies. OPM maintains a classified system of employment and a fair and equitable compensation system for state employees. OPM recommends a flexible state employee pay system based on relevant market data, provides recruitment and referral services for state agencies, and assists with affirmative action program needs. OPM provides many different management training and development opportunities, including the Carl Albert Public Internship Program, a Certified Public Manager Program, the Quality Oklahoma Program, the State Mentor Program, and the State Personnel Interchange Program.”8

Endnotes

Office of Personnel Management FY-06 Budget Resources General Revenue Fund $4,633,249 Carryover $450,000 Revolving Funds $750,000 Total $5,833,249

Governor Brad Henry, FY-2005 Executive Budget, pg. 279. Oklahoma House of Representatives, FY-05 Legislative Appropriations, pg. 47. 3 Governor Brad Henry, FY-2005 Executive Budget, pg. 282. 4 Oklahoma House of Representatives, FY-05 Legislative Appropriations, pg. 145. 5 Governor Brad Henry, FY-2005 Executive Budget, pg. 283. 6 Oklahoma Council of Public Affairs and Citizens Against Government Waste, 2004 Oklahoma Piglet Book, pp. 2-3. 2

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 76.

Available at http://www.ocpathink.org/ ViewPolicyStory.asp?ID=512. For further discussion, see Brandon Dutcher, “Big Spenders Resent Spotlight on Government Waste,” Perspective, April 2004, pg. 1. Available at http:// www.ocpathink.org/ViewPerspectiveStory.asp?ID=168. 7 Governor Brad Henry, FY-2005 Executive Budget, pg. 285. 8 Governor Brad Henry, FY-2005 Executive Budget Historical Data, pg. 403. 9 Governor Brad Henry, FY-2005 Executive Budget Historical Data, pg. 405. 10 Governor Brad Henry, FY-2005 Executive Budget, pg. 288. 11 Governor Brad Henry, FY-2005 Executive Budget, pg. 289. 12 Oklahoma House of Representatives, FY-05 Legislative Appropriations, pg. 69. 13 Governor Brad Henry, FY-2005 Executive Budget, pg. 291. 14 Governor Brad Henry, FY-2005 Executive Budget, pg. 292.

Human Services Department of Human Services

environment.”4 DHS is responsible for three public institutions for people with developmental disabilities (generally ranging in age from 12 to 60 and above, suffering from multiple physical and developmental disabilities, and requiring 24 hour medical attention. The Department also runs three different waiver-based programs that offer services to the non-institutionalized developmentally disabled population.5 • Children and Family Services. This division has three primary functions – investigating reports of child abuse and neglect; providing foster care, kinship placements, and family preservation programs to children from abusive homes; and finding permanent homes for children seeking adoption.6 • Child Care. This category consists of the Child Care Subsidy Program and Child Care Licensing. Qualifying families may have part or all of their child care expenses paid by taxpayers, as parents or caretakers work, attend school or receive training. DHS subsidies vary according to the level of accreditation earned by the provider (under the socalled “Stars System,” child care facilities are assigned one, one-plus, two, or three-star ratings). The Child Care division also licenses and inspects more than 6,200 child care entities serving children ages six weeks to 12 years, as well as 114 residential and shelter facilities licensed to provide care for children unable to live at home and 62 child placing agencies for adoption and foster homes.7 • Aging Services. This division is responsible for the Congregate Meals, Ombudsman, Advocacy, and Volunteer Programs, as well as two Medicaid programs – ADvantage Waiver and Personal Care. ADvantage Waiver contracts with the Long-Term Care Authorities of Tulsa and Enid to allow for a home health care alternative to nursing home care for qualifying patients. Personal Care, in the form of aides who provide non-medical services to people in their homes, is available to those Oklahomans who meet medical eligibility criteria as determined by an Aging Services long-term care nurse.8

The Oklahoma Department of Human Services (DHS) traces its roots to 1936, when Oklahoma voters approved a state constitutional amendment creating a Department of Public Welfare. This new agency was to be responsible for “the relief and care of needy aged persons who are unable to provide for themselves, and other needy persons who, on account of immature age, physical infirmity, disability or other cause, are unable to provide or care for themselves …”1 Beginning in the 1950s, as a result of new federal requirements and legislative transfers, the Department became responsible for health care, social services, vocational, and income maintenance programs. The additions of Medicaid in 1965 and the Food Stamp program in 1977 also expanded the menu of human services options available to Oklahomans. In 1980, the Department was officially renamed the Department of Human Services, but, as noted on its website, it retained its constitutional mandate to “to promote the general welfare of the people of the state of Oklahoma … for their protection, security and benefit.”2 In carrying out this mandate, DHS administers the following programs: • Family Support Services. This category includes Temporary Assistance to Needy Families (TANF), which replaced Aid to Families with Dependent Children (AFDC) in 1996 as the public cash assistance program. TANF is a block grant program that pays for services in four major areas – cash assistance, work activities, marriage initiatives, and family formation/stabilization services. Food stamps and adult protective services are also included under Family Support Services.3 • Developmental Disabilities. Services in this category include institutional and community-based services to people with a “primary diagnosis” of mental retardation (having an IQ of 70 or below), as well as those with autism, cerebral palsy, or Down Syndrome. The goal of this division is “to enable children and adults to lead more independent and productive lives in the least restrictive 64

• Child Support Enforcement. This program area is responsible for locating non-custodial parents, establishing paternity, and collecting and distributing support payments, but it also seeks to “find more and better ways to foster positive and nurturing relationships between fathers and children.”9 As of FY-2005, DHS was the fourth largest state agency in Oklahoma, “comprising 7.6 percent of the state appropriated budget.”10 Between FY-1997 and FY-2006, state appropriations to DHS increased by 44.8 percent.11 The governor’s FY-2006 budget request for DHS included a supplemental appropriation of $22 million for FY-2005, and the recommended spending level for FY-2006 was nearly 20 percent in excess of the FY-2005 amount.12 The $481.99 million appropriation ultimately approved by the legislature was slightly less than the amount requested by the governor, but it did represent an increase of 18 percent over FY2005, and the total funds available to DHS (from all sources) increased from $1.347 billion in FY2005 to $1.68 billion in FY-2006, or by 24.8 percent.13 DHS was created in the midst of the Great Depression – a period of unimaginable human suffering to which the federal and state governments responded by dramatically expanding their size and scope to encompass all manner of social services. However, this expansion, while well-intentioned on the part of many of its architects, was ultimately unsuccessful at bringing the United States back to economic and social health.14 Indeed, it can be argued that government’s attempts (in the words of DHS’s constitutional mandate) “to promote the general welfare of the people … for their protection, security and benefit” were – and are – actually destructive of the types of efforts that would provide lasting improvement in the lives of Oklahoma’s neediest citizens. Public officials often speak of government’s need to show “compassion” to society’s less fortunate members. Their definition of “compassion,” however, is not the same one as that understood by most Oklahomans (or, for that matter, by most Americans). For all too many policymakers, “compassion” – which literally means “suffering with” – does not mean the use of one’s own money, time and talents to help fellow citizens. Rather, it means the expenditure

of ever-increasing amounts of other people’s money (i.e., tax dollars) in an attempt to deal with common problems. In fact, governmentfunded “compassion” is a double-edged sword – for whatever a state such as Oklahoma gives to one citizen in the name of “compassion” it must first take away from another in the form of taxes or fees. Little “compassion” is shown to the families and businesses – many of which are struggling themselves to make ends meet – who are forced to fund “compassionate” efforts by their governments.15 But the negative impact of government’s attempts to be “compassionate” is not limited to the tax burden those attempts require. Even greater damage is done to individual and community-based voluntary efforts to aid fellow citizens. By involving itself in an ever-broadening range of social services, governments have directly usurped the role of private institutions (such as charities, churches, and other service organizations) in fighting poverty and alleviating suffering. Indeed, governments have indirectly weakened those groups by taking, in the form of taxes and the additional working time needed to pay them, the resources they need to serve people in need. In short, government’s expansion into areas beyond its core responsibilities “crowds out” opportunities for private citizens to show real compassion for their fellow man.16 The size of DHS’s budget and the scope of its responsibilities are powerful testimony to the fact that a sizeable segment of society has come to depend on the “compassion” of government. One example of how pervasive this dependence has become is DHS’s Child Care Subsidy Program. According to the governor’s FY-2006 budget presentation, 86,600 children were in subsidized child care in FY-2004, and more than 40 percent of the families in the program had no co-pay due to their income level (making less than $900 per month).17 This outcome would seem to directly contradict the stated mission of DHS, which in part seeks to help those in need lead “more independent and productive lives.” Oklahoma taxpayers can be forgiven for asking how absolving a segment of the state’s population from a basic parental responsibility – providing for the care of their children – helps those affected to be more independent and productive. 65

By contrast, an alternative exists to this policy that would be consistent with DHS’s mission and reduce the size and cost of state government – allowing at least a portion of the money that currently subsidizes child care to remain in the private sector, rather than being taxed away. Families keeping more of their own money may be able to allow one parent to stay home, and businesses keeping more of their money may be able to raise wages for their current workers or hire new ones – thus improving the economic circumstances for many Oklahoma families. Most Oklahomans would likely agree that “the general welfare” of their fellow citizens would be better promoted by a policy that makes them

associations. The sluggish, cumbersome efforts of government agencies were woefully inadequate, especially when contrasted with the much more prompt and agile replies of private charities and service organizations. The private relief work was a powerful illustration of the superiority of voluntary collective action in solving community problems over merely waiting for government to act.18 Oklahomans have shown that they are fully capable of banding together to help their neighbors in a time of crisis without government direction – and they are certainly capable of doing so in other, ongoing situations where social services are needed. In fact, the Catalogue for Philanthropy’s Policymakers Should Empower the Highest-Quality Child Care 2005 Generosity Providers –– They’re Called ‘Parents’ Index, which Who do you think should be primarily responsible for ensuring that families measures charihave access to child care? (Rotate) table giving in Government ............................................................................................ 9% each state in Employers ............................................................................................. 19% relation to its Individual families .................................................................................. 67% personal income, Undecided (vol.) ...................................................................................... 6% ranked Oklahoma 4th among Which of the following do you believe is the best childcare situation during a the 50 states.19 child’s earliest years? However, OklaOne parent at home .............................................................................. 69% homans could Both parents working different shifts ....................................................... 4% give even more Being cared for by close relatives ........................................................... 7% time and money Being in a quality daycare center ............................................................ 8% to such causes if Staying with another mother in the neighborhood .................................. 2% state government Having a babysitter in the child’s home .................................................. 5% would stop Undecided/Depends (vol.) ...................................................................... 5% choking off real Assuming there is a limited amount of money, which is more important? compassion by (Rotate) usurping funcHaving the government give tax breaks to working families when they use tions that are the professional childcare so it becomes more affordable. ............................. 27% proper responsiHaving the government give tax breaks to working families when one parent bility of private, stays home with children when they are young. ....................................... 58% voluntary assoUndecided (vol.) .................................................................................... 15% ciations of likeSource: Cole Hargrave Snodgrass & Associates, telephone interviews of 400 registered voters in the minded citizens. state of Oklahoma, January 22-24, 2006. The confidence interval associated with a sample of this type There are is such that 95 percent of the time results will be within +/- 4.9 percent of the true values, i.e., the several steps that results obtained if it were possible to interview all the qualified respondents. Oklahoma can – not state government – primarily responsible take to enhance the role of charities, churches, for their families’ well-being. other service organizations, and individual Finally, recent natural disasters – in particucitizens in the delivery of human services. First lar, Hurricane Katrina – displayed the vast of all, DHS should be subjected to a thorough differences in response to human suffering review of its operations in order to determine the between governments and private, voluntary extent to which it currently competes with (and 66

“crowds out”) non-government entities that provide social services. At the same time, instances of waste, fraud and abuse at DHS should be aggressively investigated and eliminated. Once these reviews are completed, the derived savings should be allocated to a perchild tax credit, modeled on the federal $1,000 per-child credit, that allows more money to stay in the pockets of parents, who can then decide how best to spend it.20 At the same time, OCPA

provided by DHS, and it would be available to non-itemizing taxpayers (meaning that many lower- and middle-income taxpayers would be able to take advantage of it). Most of all, a charitable tax credit would allow for more direct citizen involvement in solving community problems, as connecting individuals more directly with the social service programs they support increases the incentive for them to more closely monitor how their contributions are spent. At present, Arizona, Colorado, Michigan and North Carolina offer similar tax credits.21 Faith-Based Initiatives ‘Good for Oklahoma,’ Should Individual Oklahomans, Be Encouraged working together, can better Faith-based initiatives – that is, spiritual or religious-based accomplish the objective of programs that address social problems such as after-school “promoting the general care for disadvantaged children, drug and alcohol counseling, welfare” of themselves and gambling addiction, and many others – have become more and their fellow citizens than can more widespread. Do you believe these faith-based initiatives state government. It’s time for are a good or a bad thing for Oklahoma? If they have no effect, that government to take a step just say so. back and let them. The OCPA Good .................................................................................. 56% Budget increases the FY-2006 Bad .................................................................................... 11% budget of DHS by adjusting No effect ............................................................................ 22% for population growth plus Undecided (vol.) ................................................................ 11% inflation. Sometimes government encourages people to contribute to charitable endeavors. When it comes to faith-based programs Oklahoma Commission such as those that address social problems such as after-school on Children & Youth care for disadvantaged children, drug and alcohol counseling, The duties of the Commisand gambling addiction, which of the following options comes sion are as follows:22 closest to your belief? 1. The Commission is charged No change is needed because they already receive a tax with the responsibilities to deduction for these donations on their state income tax that plan and coordinate with equates to a little less than 7 cents for every dollar they public and private agencies donate. .............................................................................. 26% for the improvement of serOklahomans should get a tax credit of 50 cents for every vices to children and youth dollar they donate to these groups. .................................. 19% and to report its findings Oklahomans should receive a dollar-for-dollar tax credit. .... 27% annually to the Governor, We should not allow any deductions or tax credits for this Speaker of the House, Presitype of charitable donation. ............................................... 15% dent Pro Tempore of the Undecided (vol.) ................................................................ 13% Senate, Chief Justice of the Supreme Court and to each Source: Cole Hargrave Snodgrass & Associates, telephone interviews of 500 registered voters in the state of Oklahoma, November 14-17, 2005. The confidence agency affected. The Office of interval associated with a sample of this type is such that 95 percent of the time Planning and Coordination results will be within +/- 4.3 percent of the true values, i.e., the results obtained if it collects information from were possible to interview all the qualified respondents. community partnership has also advocated the creation of a charitable boards and submits an annual report of tax credit for donations to charities and relineeded system improvements to the Commisgious organizations that deliver social services. sion and each agency affected by the report. Such a credit would be limited to charities that The Commission reviews and approves the provide services similar to those currently state’s child abuse prevention plan. This plan 67

is developed by the Interagency Child Abuse Prevention Task Force which is appointed by the Commission. 2. The Office of Juvenile System Oversight (OJSO) is responsible for independent oversight of all children’s services in Oklahoma, including the investigation of complaints of misfeasance and malfeasance. Additionally, the OJSO makes announced and unannounced visits of children’s facilities to determine compliance with established responsibilities. 3. Other services of the agency include administration of the state’s Post Adjudication Review Boards, the Child Death Review Board, the Board of Child Abuse Examination program, and the Joint Oklahoma Information Network (JOIN). Funding for the Oklahoma Area Services Information System (OASIS), an information and referral program for families of children with disabilities, and for the training of personnel who work with children and youth is appropriated to the OCCY as well. A review suggests that the investigations of misfeasance and malfeasance – as well as the enforcement of compliance at children’s facilities, the Child Death Review Board, and the Board of Child Abuse Examination program – would best serve the interests of Oklahoma’s children if these duties were performed in the Office of the Attorney General. The Attorney General has the investigative and legal experience on staff to aggressively seek protection of at-risk children. The remaining duties would most effectively and efficiently be carried out within the Oklahoma Department of Human Services (DHS). DHS provides many of the services children receive from the state and provides the enrollment function for Medicaid. The Commission’s administration and data processing services consumed 25 percent of its total expenditures. The elimination of redundant positions and services would save money without affecting the Commission’s services. In fact, the ability to draw on the many resources of DHS may well provide the Commission much greater ability to perform its duties for Oklahoma’s children. This budget transfers $360,000 to the Oklahoma attorney general’s office and $1.2 million to DHS. The total amount appropriated for these

children’s services remains at the FY-2006 level of $1.725 million,23 but there is a net increase in funds actually available for the children via the savings in administrative and support costs.

Office of Handicapped Concerns The Office of Handicapped Concerns (OHC) has the following powers and duties:24 1. To identify the needs of the handicapped on a continuing basis and to attempt to meet those needs. 2. To serve as a referral and information source for the handicapped seeking services and for agencies seeking assistance in their provision of services. 3. To generate community awareness and support of handicapped programs. 4. To advise and assist the Governor and the Legislature in developing policies to meet the needs of citizens with disabilities. 5. To assist agencies in complying with federal laws. 6. To enhance employment opportunities for people with disabilities. This budget recommends that OHC be merged into the Department of Human Services (DHS) in order to remove redundant administration. DHS is the enrollment mechanism for disabled individuals who qualify for Medicaid. DHS also provides services that the disabled use, and has staff knowledgeable on federal regulatory requirements. The OCPA Budget believes that lobbying efforts on behalf of any group should not be funded by taxpayer money. These expenditures should be redirected to services that directly benefit the handicapped or be removed from the budgeted appropriations. This budget recommends the FY-2006 appropriation level be retained for FY-2007. Given the savings in administrative costs and the redirection of lobbying monies, this funding level reflects a major increase in funding for handicapped individuals.

Oklahoma Indian Affairs Commission “The Oklahoma Indian Affairs Commission is charged with the mission of serving as the liaison between Oklahoma’s tribal population and governments and the Oklahoma State government. The Oklahoma Indian Affairs 68

Commission accomplishes this mission by maintaining consistent involvement in the areas of legislation development and tracking, policy concerns, legal issues, economic development and education.”25 The OCPA Budget recommends the elimination of the agency’s appropriation of $255,53026 and the redirection of this money to higher priorities.

homa by administering residency, internship and scholarship incentive programs that encourage medical and nursing personnel to establish a practice in rural and underserved areas. Further, PMTC is to upgrade the availability of health care services by increasing the number of practicing physicians and nurses in rural and underserved areas of Oklahoma and to increase the total number of primary care physicians and nurses in the state.”28 OCPA believes the continued difficulty in J.D. McCarty Center recruiting physicians and nurses to rural OklaThe J.D. McCarty Center (JDMC) is a pediatric homa underscores the ineffectiveness of this rehabilitation facility that evaluates and treats program. In fact, according to PMTC’s own Oklahoma’s developmentally disabled children. statistics, only “17.6% of communities requestThe OCPA Budget recommends the JDMC ing physicians received them.”29 receive its FY-2006 appropriation, adjusted Oklahoma’s rural hospitals continue to upward for population growth plus inflation. struggle financially, which inhibits their ability to build the sorts of facilities and pay the salaOffice of Juvenile Affairs ries that draw medical professionals. The OCPA “The Office of Juvenile Affairs is a state Budget recommends that PMTC’s appropriation agency entrusted by the people of Oklahoma to be removed and instead directed towards provide professional prevention, education and raising Medicaid reimbursement rates for rural treatment services as well as secure facilities for hospitals. juveniles in order to promote public safety and 27 The use of the FY-2006 amount of $5,361,49030 reduce juvenile delinquency.” in appropriations for Medicaid would generate As the following chart indicates, private more than $12 million in Federal matching detention beds are cheaper on a per-day basis, funds. The addition of more than $17.5 million even when one considers an indirect overhead annually for struggling rural hospitals would cost of 20 percent for the Office of Juvenile have a significant impact on their fiscal stability, Affairs (OJA) to monitor the facilities. The OCPA allowing for the sorts of improvements in salaBudget encourages OJA to expand the use of ries and facilities Per Diem Bed Costs that would Facility FY-01 FY-02 FY-03 FY-04 FY-05 FY-06 BWP not only SOJC $185.65 $216.28 $218.52 $206.32 $218.44 $239.59 attract COJC 225.08 240.97 199.72 181.79 187.36 206.05 medical LERC 196.81 216.60 184.36 186.46 207.88 226.36 professionUCJC (private) 128.04 129.78 als but Source: Governor Brad Henry, FY-2007 Executive Budget, pg. B-195 would increase rural hospitals’ ability to retain them. This private beds when appropriate and redirect the budget transfers PMTC’s FY-06 appropriation to savings toward rehabilitating offenders. the new rural hospital Medicaid fund and The OCPA Budget recommends the OJA eliminates this program. receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Department of Rehabilitation Services

Physician Manpower Training Commission

“The mission of the Department of Rehabilitation Services is to provide opportunities for individuals with disabilities to achieve productivity, independence and enriched quality of life.

“The mission of the Physician Manpower Training Commission is to enhance medical care in rural and underserved areas of Okla69

generosity.php?year=2005 20 Oklahoma Council of Public Affairs, State of Oklahoma State Budget for the Fiscal Year Ended June 30, 2006. 21 Naomi Lopez Bauman, “Revitalizing Oklahoma’s Charitable Sector,” Oklahoma Council of Public Affairs Perspective, December 2005. Available at http://ocpathink.org/ ViewPerspectiveEdition.asp?ID=102 22 Governor Brad Henry, FY-2005 Executive Budget Historical Data, pg. 489. 23 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 116. 24 Governor Brad Henry, FY-2005 Executive Budget Historical Data, pg. 494. 25 Governor Brad Henry, FY-2007 Executive Budget, pg. B-176. 26 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 126. 27 Governor Brad Henry, FY-2005 Executive Budget Historical Data, pg. 517. 28 Governor Brad Henry, FY-2005 Executive Budget Historical Data, pg. 535. 29 Governor Brad Henry, FY-2007 Executive Budget, pg. B-199. 30 Governor Brad Henry, FY-2007 Executive Budget, pg. B-200. 31 Governor Brad Henry, FY-2007 Executive Budget, pg. B-201. 32 Governor Brad Henry, FY-2005 Executive Budget Historical Data, pg. 544.

… The Department of Rehabilitation Services provides services to individuals with a wide range of disabilities with an emphasis on serving the severely disabled.”31 The OCPA Budget recommends the department receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

University Hospitals Authority and Trust “The University Hospitals Authority, by virtue of a Joint Operating Agreement with HCA Health Services of Oklahoma Inc., is responsible for the assurance of the provision of Indigent Care to the citizens of the State of Oklahoma. Additionally, the Authority takes an active role in the promotion and support of research and education at the University of Oklahoma Health Sciences Center.”32 The OCPA Budget recommends the authority receive its FY-2006 appropriation, adjusted upward for population growth plus inflation. Endnotes 1

“Born of the Dust Bowl: A Brief History of the Oklahoma Department of Human Services.” Available at http:// www.DHS.org/info/borndust.htm 2 Ibid. 3 Governor Brad Henry, FY-2006 Executive Budget, pp. 213-214. 4 Ibid. 5 Governor Brad Henry, FY-2006 Executive Budget, pp. 215-216. 6 Ibid. 7 Governor Brad Henry, FY-2006 Executive Budget, pg. 218. 8 Governor Brad Henry, FY-2006 Executive Budget, pp. 218-219. 9 Ibid. 10 Ibid. 11 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 125. 12 Governor Brad Henry, FY-2006 Executive Budget, pg. B-220. 13 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 125. 14 Lawrence W. Reed, “Great Myths of the Great Depression,” Mackinac Center for Public Policy, pg. 3. Available at http:// www.mackinac.org/archives/1998/sp1998-01.pdf 15 Grant R. Gulibon, “Government Doesn’t Have a Monopoly on Compassion,” Pennsylvania Manufacturers’ Association The Bulletin, March 3, 2003, pg. 4. Available at http:// www.sitestrux.com/~paman/_files/bull_03_03_03.pdf 16 Ibid. 17 Governor Brad Henry, FY-2006 Executive Budget, pg. 218. 18 Naomi Lopez Bauman, “Revitalizing Oklahoma’s Charitable Sector,” Oklahoma Council of Public Affairs Perspective, December 2005. Available at http://ocpathink.org/ ViewPerspectiveEdition.asp?ID=102 19 Catalogue for Philanthropy, The Generosity Index 2005. Available at http://www.catalogueforphilanthropy.org/cfp/db/

Military Affairs Military Department “The Oklahoma Military Department’s (OMD) mission is to preserve the state and the nation through the organization and training of the Oklahoma National Guard. To that end, OMD is committed to providing adequate training facilities for the Oklahoma National Guard.”1 “The Oklahoma National Guard provides ready units and personnel to the State and Nation in three roles: 1. Our Federal role is to support national security objectives of the United States. 2. Our State role is to protect life and property, and to preserve peace, order and public safety. 3. Our Community role is to participate in Local, State and National programs that add value to America.”2 Military Department FY-06 Budget Resources General Revenue Fund Special Cash Federal Funds Revolving Funds Total

$12,196,432 $350,000 $45,643,568 $60,000 $58,250,000

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 73.

The OCPA Budget recommends the Military Department receive its FY-2006 appropriation, adjusted for population growth plus inflation. Endnotes 1

Governor Brad Henry, FY-2007 Executive Budget, pg. B-209. Governor Brad Henry, FY-2006 Executive Budget Historical Data, pg. 585. 2

Safety and Security Attorney General

Additionally, the Domestic Violence Program funds formerly in the Department of Mental Health and Substance Abuse are transferred to the AG in FY-2006 and are included in this budget’s recommendation.

“The mission of the Office of Attorney General (AG) is to represent Oklahoma by serving and protecting citizens, government and the law. A few of the services they provide to accomplish their mission are: • Representing the state in criminal appeals; • Investigating criminal matters in the state through the Multi County Grand Jury; • Providing advice and counsel to State Officers, Boards and Commissions; • Writing opinions, upon all questions of law submitted to the Attorney General by persons or bodies with statutory authority; and • Appearing, as required by statute, and prosecuting or defending, any cause or proceeding in which the state is an interested party. “… Under state law various agencies contract with the AG’s office for legal services. Contracting with the AG guarantees that an assistant AG will spend a certain amount of his or her time working for the agency. Contracts with the AG vary from 12.5% of an attorney’s time to 100%.”1 The OCPA Budget recommends the continuation and/or expansion of this concept to include billing any agency, state officer, board or commission which has its own revenue sources, thus reducing cross-subsidization and improving the efficiency and transparency of government.

Department of Corrections The responsibilities of the Department of Corrections (DOC) include:2 • housing inmates safely and securely; • providing opportunities for inmates to become rehabilitated; • facilitating a successful transition for inmates back into society; and • monitoring inmate behavior upon release. The majority of funding for DOC operations comes from state appropriations. DOC’s FY2006 appropriation made up 63.2 percent of the state appropriated budget for Judiciary, Public Safety and Law Enforcement.3 DOC’s revolving funds come from the sale of products and services to inmates and from the sale of inmate-produced products via the Oklahoma Correctional Industries program. DOC typically receives federal grant funds for specific programs or services such as sex offender management or substance abuse treatment. Last year the revolving and Federal funds compromised about 13 percent of total funds expended by DOC.4

Attorney General FY-06 Budget Resources General Revenue Fund Federal Funds Revolving Funds Carryover Total

Community Sentencing “The Community Sentencing Act provides incarceration alternatives for certain nonviolent criminal acts. The Act established a community sentencing system that improves public safety and punishes felony offenders under a courtordered community sentence. This marks an important shift in public policy by providing cost-effective alternatives to prison incarceration while still protecting the public. Currently there are two regions, covering 77 counties. DOC’s FY2006 budget for the program is $11.5 million. “The local community sentencing system provides a continuum of sanctions that gives the court a variety of measures to change offender behavior. The array of options allows the court to match offenders with the most appropriate sanctions and establishes degrees of increased

$11,286,462 $3,208,408 $6,027,748 $30,000 $20,552,618

Source: Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 181

This budget freezes the base appropriations of the Attorney General at the FY-2006 level until the impact of the additional revenues from the expansion of contract billing can be fully assessed. This budget also transfers some functions from other agencies to the Attorney General and adds the base budget of the Human Rights Commission and parts of the Oklahoma Commission on Children and Youth budget. 72

programs, it is important that these goals be accomplished without displacing currently employed workers, and that the prison industries be responsive to the needs of their customers. • Justice Fellowship does not believe that these goals can be achieved under the current system of government-run prison industries. The solution is to replace the current programs with private industries, which are subject to market forces and pay inmates real-world wages. • Deductions from inmates’ wages should be designed to do the following (in this order): address the harm the offenders have caused any victims, contribute to support of their families, maintain contact with their families through postage and phone calls, and provide them with ‘gate money’ on their release and a modest amount to spend on personal articles from the commissary. The OCPA Budget recommends the removal of the subsidy from OCI and requiring DOC to seek bids from private industry to replace the work opportunities currently provided by OCI manufacturing. This budget fully endorses the concept of prisoners providing for their own food through the OCI agri-business division, but it also recommends a review of the cost effectiveness of OCI’s agri-business operations compared to private contractors.

control for individuals who fail to conform to the rules and conditions of their sentence. While in the community, the offender is employed, receives treatment and pays restitution and court fees. Among others, sanctions may include community service, special needs programs, and supervision or education programs. Each local sentencing system supervises its offenders with state probation and parole officers or with another qualified source of the council’s choosing. In FY-2005, there were 3,470 active participants in the program.”5 This actually represents a decline from the previous year and indicates almost no increase over the last three years despite the fact that in FY-2005 DOC’s bed capacity was at nearly 24,000, with nonviolent crime accounting for 80 percent of total new incarcerations to DOC.6 Oklahoma Correctional Industries “The Oklahoma Correctional Industries (OCI) provides training and work experience for inmates. The manufacturing division of OCI produces a variety of products including furniture, modular panel systems, furniture renovation, metal fabrication, license plates, signs, clothing and footwear, bedding, chemicals and janitorial cleaning supplies, corrugated boxes, binders, printing services and a variety of record conversion services. There are currently 25 manufacturing and service operations located within nine correctional facilities statewide. OCI also operates an agri-services division that provides DOC’s meat, milk and eggs. FY-2005 OCI sales are budgeted at $22.6 million. OCI was originally intended to be selfsupporting, with all sales revenues returned to the program to finance its operations.”7 The program has failed to become self sufficient and requires a yearly subsidy from DOC. Justice Fellowship has some useful reform guidelines8 which OCPA endorses with some minor modifications for the Oklahoma state prison system: • Prison work programs should expand opportunities for inmates to work, learn useful skills, and earn wages while developing a good work ethic. If these goals are met, the inmates will be able to pay restitution to those they have harmed, contribute to the support of their families, and develop skills that will ease their return to free society. • To maintain community support for these work

Health Care of Inmates “The state has both a moral and legal obligation to provide adequate health care for those confined under state custody. However, providing health care in a prison setting is more costly and complicated than in other settings. The nature of the prison population makes injuries and wounds more common, and inmates generally do not lead healthy lifestyles. Consequently, instances of hepatitis and other communicable diseases are much more prevalent. The cost of health care nationwide is continuing to escalate faster than the inflation rate. This cost growth is compounded by the special, and usually costly, precautions that must be taken to protect other citizens when an inmate needs treatment outside the prison facility.”9 The OCPA Budget recommends that inmates who are overweight or have other correctable lifestyle health issues be offered counseling and a plan to improve their health. If they refuse to 73

participate in improving their own health, they should be required to pay higher co-pays on health care costs related to their lifestyle choices. While this budget recognizes no savings from this initiative, it is these sorts of recipient participation measures that are needed to control cost increases in an area where DOC spent more than $45 million in FY2005.10 If it does not pose a threat to an inmate’s overall health, the current co-pays on inmaterequested care should be raised to be commensurate with the service requested. Additionally, this budget recommends that DOC expand the telemedicine program to reduce the costs of transporting and controlling prisoners on out-ofprison doctor visits.

department receive its FY-2006 appropriation, adjusted upward for population growth plus inflation. Given the savings that should occur via reallocation of inmates to work camps and community sentencing, more use of private prisons, removal of the OCI subsidy, and healthcare-cost-containment measures, it is likely that DOC will in fact see a substantial increase in funding available for critical needs.

District Attorneys’ Council The District Attorneys’ Council (DAC) supports local District Attorneys who provide local prosecution for crimes. DAC operates with a budget of more than $96 million, of which approximately $31 million is state-appropriated.13 Other DAC duties include:14 • Developing a formula to distribute stateappropriated funds to local District Attorney offices; • Providing administrative support for local District Attorneys; • Educating state leaders on the District Attorneys’ positions on criminal justice issues; and • Providing assistance to the state’s multijurisdictional drug task forces. “There are 27 locally elected District Attorneys in the state. They are responsible for prosecuting state criminal cases on behalf of the public. Their prosecution practices and the level of crime in the state have significant impacts on the Department of Corrections’ inmate population.”15 The OCPA Budget recommends that the DAC be encouraged to develop a formula to distribute state-appropriated funds to local District Attorneys’ offices that includes a component that rewards local District Attorneys for asking for community sentencing and work camps when it is does not endanger the public safety. DAC’s cooperation is essential to help alleviate the problems in the Department of Corrections caused by the large number of inmates. Oklahoma incarceration rates are at 132 percent of the national average, with only three states (Louisiana, Mississippi, and Texas) having higher rates. Only with the DAC’s participation can we achieve a better allocation to work centers and community sentencing for nonviolent offenders.16 OCPA believes the use of any appropriated dollars by any agency to lobby state officials is

Shortage of Correctional Officers OCPA has examined the budgeted Full Time Equivalent (FTE) employees allocated to DOC and discovered it is not a funding issue that is causing the shortfall of employees. In fact, DOC has funding for many more correctional officers than it currently employs. Officer staffing levels for budgeted positions, i.e., positions for which DOC was provided funding, approach a vacancy rate of nearly 18 percent.11 This points to issues beyond simply not having enough funds, as some of our elected officials have implied. It is interesting to note that private prison operators have not reported the same difficulty in finding and keeping correctional officers. According to DOC’s per bed per day statistics, private prisons provide from $3.40 to $6.59 per bed per day per prisoner in savings over DOC’s facilities.12 The simple answer to the shortage in correctional officers is to expand the use of private prisons for medium and minimum security prisoners, which solves DOC’s ongoing labor issues and decreases costs simultaneously. Department of Corrections FY-06 Budget Resources General Revenue Fund Federal Funds Revolving Funds Carryover Total

$409,433,403 $13,300,000 $61,243,672 $3,000,000 $486,987,075

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 184.

The OCPA Budget recommends that the 74

inappropriate. Though it is important for the DAC to “educate state leaders,” any dollars identified as funding anything other than statistical or other general information requested by state officials should be removed from DAC’s state appropriations. Seizure and forfeiture proceeds, along with federal grants, fund the state’s multi-jurisdictional drug task forces. The federal grants for the task forces are from the U.S. Department of Justice’s (DOJ) Byrne Grant program with the intended purpose of improving the criminal justice process. This broad purpose allows some discretion as to how funds are expended. DOJ allocates a certain amount of dollars to all states, and each state’s governor designates who oversees and distributes the grants. The governor has designated the DAC for this purpose.17 Again this year, the OCPA Budget proposes that DAC provide remuneration to Oklahoma Indigent Defense System (OIDS) for the cost of defending clients who are found innocent. The great majority of individuals charged are found guilty, so this should not have a significant impact on DAC’s $96 million budget.

Oklahoma Department of Emergency Management FY-06 Budget Resources General Revenue Fund Special Cash Revolving Funds Total

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 56.

The OCPA Budget recommends the department receive its FY-2006 appropriation, adjusted upward for population growth plus inflation after removing $654,000 of appropriations that were used in replacing the operations center underneath the state capitol.

Oklahoma Indigent Defense System “The Oklahoma Indigent Defense System (OIDS) provides representation for indigent Oklahomans charged with committing criminal acts. … OIDS provides services in three ways:”19 • legal services contracts with local firms for non-capital trials on a county-by-county basis; • staff attorneys who defend capital trial cases and those that have reached the appellate level; • staff attorneys who represent indigents in non-capital trials in the 16 counties where they are unable to contract with local firms; and • appointing conflict counsel in cases when there is not a contract firm available and OIDS has a conflict of interest. The fundamental right to a fair trial requires that OIDS have the funding necessary to provide a competent defense. In his proposed FY2004 budget, Governor Henry proposed two different funding streams for OIDS besides appropriations: “Current law requires judges to assess fees on convicted offenders for representation costs. OIDS has recently been stepping up their efforts to convince judges to assess these fees. During this effort, OIDS has proposed to Judges that they assess minimum fees on cases. Under OIDS proposal, factors surrounding the case determine the level of the minimum fee like, whether the charge is a misdemeanor or felony, and whether the case goes to trial or not.”20 The governor went on to say that “due to effective law enforcement efforts, some agencies

District Attorneys’ Council FY-06 Budget Resources General Revenue Fund Federal Funds Revolving Funds Carryover Total

$701,561 $654,000 $5,465,815 $6,821,376

$30,592,742 $25,800,000 $39,857,258 $450,000 $96,700,000

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 188.

The OCPA Budget recommends the DAC receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Oklahoma Department of Emergency Management This department is divided into four main areas: hazard mitigation, community preparedness, emergency response, and disaster recovery.18

Pardon and Parole Board

within the state have seen increases in seizure and forfeiture proceeds. DPS, OBNDD, and District Attorneys have used these funds for various law enforcement purposes. In many cases OIDS has to defend the accused who have had their property seized, thus exhausting state resources. Therefore, this budget proposes OIDS receive 75% of all seizures until OIDS’ share reaches $1 million.”21 These seizures grew from $1.9 million in FY-2000 to nearly $14 million in FY-2002.22 This is revenue used by these agencies outside of the appropriations process. OCPA endorses the concept of fairly established user fees for all state services where applicable and believes a modification of the governor’s proposal would best serve OIDS and the indigents they serve. The governor’s budget proposal only required convicted defendants to pay a fee. It seems perfectly appropriate that wrongly charged indigents should not be asked to bear the burden of their defense. However, the perverse incentive that is offered OIDS is a partial payment if their client is convicted and no payment at all if their client is found innocent. (Even though lawyers are duty-bound to zealously represent their clients, there is a dubious incentive at work here.) OCPA proposes that for every indigent client found innocent the District Attorneys Council, using money from seizure funds, reimburse OIDS for a fair and reasonable cost of OIDS’ defense. According to Governor Henry, the minimum fee payments by convicted indigents would raise between $1.3 million and $2.5 million annually.23 The fee was instituted in Senate Bill 1399 in FY-2004 and will be in effect for the full fiscal year in FY-2006. Combined with revenue received from the defense of indigents found innocent, OIDS would realize a sizeable increase in funding. The OCPA Budget proposes removing $2.2 million from the OIDS appropriation for FY-2007.

“The Pardon and Parole Board determines the best possible recommendations for the supervised release of adult felons, through a case-by-case investigative process.”24 Pardon and Parole Board FY-06 Legislative Resources General Revenue Fund Carryover Total

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 206.

The OCPA Budget recommends the Pardon and Parole Board receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Department of Public Safety Oklahoma is unique among its neighboring states in that it divides law enforcement duties across five different agencies: • Department of Public Safety (DPS), whose primary law enforcement responsibility is patrolling state highways, county roads, and interstates. • Oklahoma State Bureau of Investigation (OSBI), which investigates crimes such as murder or car theft for local law enforcement agencies and provides forensic crime laboratory services. • Oklahoma Bureau of Narcotics and Dangerous Drugs (OBNDD), whose sole responsibility is drug investigations. • State Fire Marshal, which investigates fires for the detection of possible arson and also performs inspections on public buildings to help ensure compliance with the fire code. • Alcoholic Beverage Laws Enforcement Commission (ABLE), which enforces state alcohol, tobacco, and gaming laws. Having several agencies responsible for enforcing different sections of law, and having each agency with its own appropriation, limits the flexibility of law enforcement to adjust to changing threats. For example, the terrorism threat is principally managed by the Department of Public Safety within the constraints of its budget. The removal of the administrative and financial walls created by the multiple agency structure would allow for a quick adjustment to

Indigent Defense System FY-06 Budget Resources General Revenue Fund Revolving Funds Carryover Total

$2,316,329 $100,000 $2,416,329

$15,633,001 $1,675,971 $1,920,000 $19,228,972

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 194.

tions and toxicological analysis.28 Part of CLEET’S budget is provided through the CLEET certified fund. This fund is comprised of $4 criminal penalties that are added to any criminal fine. In FY-2005 this produced $2.35 million in revenue for CLEET. Additionally, legislation passed in 2004 will generate another $1.2 million through an increase in the penalty assessment fee for FY-2005.5 CLEET has already targeted the first $1.2 million for its new training center in Ada. However, any future years’ revenue from this increase should be used to further reduce CLEET’s appropriation. The new training center is to be finished by April of 2006, which would be just in time to allow the Department of Public Safety (DPS) to begin using CLEET facilities for training its troopers. In the past DPS has funded its own trooper academies. $3.4 million was appropriated for two Highway Patrol Academies within DPS for FY-2006.29 OCPA proposes that this training should be consolidated within the CLEET facilities in order to reduce administrative redundancies and reduce costs. The OCPA Budget recommends that CLEET be folded into DPS and CLEET’s appropriation be reduced by 10 percent to reflect savings from elimination of administrative and technology redundancies. The Board of Medicolegal Investigations also has a fee charged for forensic services, which has been expanded and brought the board’s non-appropriated revenues to nearly $2 million including federal funds.30 Part of the $1.5 million fee revenue should be used to reduce the board’s dependence on appropriations. The OCPA Budget recommends the removal of $800,000 from the board’s FY-2006 base. This budget also recommends that the board be merged into DPS and its appropriation be reduced by a further 10 percent to reflect savings from elimination of administrative and technology redundancies. Public safety is government’s most important duty. Yet even law enforcement should be accountable for its expenditures just as any other agency entrusted with taxpayer dollars. The creation of multiple agencies – each with its own chief financial officer, accounting staff, data processing staff, human resources staff, and redundant technology – is an inefficient allocation of taxpayer dollars. These salary and

meet changing needs in both manpower and money. Former Governor Frank Keating, whose 30year career in law enforcement and public service included stints as an FBI agent, federal and state prosecutor, and official in the U.S. Department of Justice, looked at this existing structure and reported in 2002: “Bordering states recognize that having one central police agency allows for a more effective and coordinated effort in the fight against crime. Considering the Oklahoma City bombing and the tragic events of September 11, the state would be better served by a state law enforcement system where the chain of command is clear, communication is standardized, and support services are shared.”25 The OCPA Budget recommends the consolidation of all law enforcement agencies into the Department of Public Safety. Not only will the public be better protected, but the savings from the elimination of administration, as well as from training and technology redundancies, will allow a reduction in the percentage of the overall appropriation for law enforcement spent on support services and increase the percentage spent on actual safety and security operations. ABLE is a constitutional authority but this budget proposes moving its administrative functions, which accounted for nearly 50 percent of its expenditures, to the Department of Public Safety in order to exact savings and increase efficiencies.26 Additionally, under the umbrella of Safety and Security there are two other agencies which have overlap and/or a similarity in purpose that would meld with DPS and benefit from the same efficiencies: • Council for Law Enforcement Education and Training (CLEET), whose mission is to establish standards for peace officer certification, provide education and training programs to peace officers statewide, and establish licensing and training standards for private security officers.27 • Board of Medicolegal Investigations, which investigates deaths in Oklahoma that are sudden, violent, or suspicious. The primary goal is to determine with medical and legal certainty the cause of death. The agency conducts scene investigations, autopsies and external examinations, histological examina77

Governor Brad Henry, FY-2006 Executive Budget Historical Data, pg. 595. 27 Governor Brad Henry, FY-2007 Executive Budget, pg. B-269. 28 Governor Brad Henry, FY-2007 Executive Budget, pg. B-271. 29 Oklahoma House of Representatives, FY-05 Legislative Appropriations, pg. 203. 30 Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 208 31 Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 202.

technology redundancies would best serve Oklahomans by being transferred to “boots on the ground” enforcement personnel. Department of Public Safety FY-06 Budget Resources General Revenue Fund Federal Funds Revolving Funds CLEET Fund Total

$77,745,552 $116,100,000 $43,162,230 $1,142,218 $238,150,000

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 209.

The OCPA Budget recommends the DPS receive its FY-2006 appropriation, adjusted upward for population growth plus inflation, and that DPS look to fund other needs through efficiency-enhancement opportunities within DPS and savings from the consolidation of the various law enforcement agencies. Endnotes 1

Governor Brad Henry, FY-2005 Executive Budget, pp. 346-347. Governor Brad Henry, FY-2005 Executive Budget, pg. 348. 3 Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 177. 4 Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg 184. 5 Governor Brad Henry, FY-2007 Executive Budget, pg. B-219. 6 Governor Brad Henry, FY-2006 Executive Budget, pp. B-266-267. 7 Governor Brad Henry, FY-2006 Executive Budget, pg. B-271. 8 “Justice Fellowship’s Principles of Prison Work Reform.” Available at http://www.pfm.org/AM/Template.cfm?Section= Criminal_Justice_Issues&CONTENTID=14717&TEMPLATE=/ CM/ContentDisplay.cfm 9 Governor Brad Henry, FY-2005 Executive Budget, pg. 353. 10 Governor Brad Henry, FY-2006 Executive Budget, pg. B-269. 11 Governor Brad Henry, FY-2006 Executive Budget, pg. B-267. 12 Governor Brad Henry, FY-2007 Executive Budget, pg. B-218. 13 Oklahoma House of Representatives, FY-06 Legislative Appropriations, pg. 188. 14 Governor Brad Henry, FY-2005 Executive Budget, pg. 358. 15 Governor Brad Henry, FY-2005 Executive Budget, pg. 358. 16 Governor Brad Henry, FY-2006 Executive Budget, pg. B-265. 17 Governor Brad Henry, FY-2005 Executive Budget, pg. 358. 18 Governor Brad Henry, FY-2006 Executive Budget, pg. B-275. 19 Governor Brad Henry, FY-2006 Executive Budget, pg. B-277. 20 Governor Brad Henry, FY-2004 Executive Budget, pg. 225. 21 Governor Brad Henry, FY-2004 Executive Budget, pp. 224 – 225. 22 Governor Brad Henry, FY-2004 Executive Budget, pg. 225. 23 Governor Brad Henry, FY-2005 Executive Budget, pg. 362. 24 Governor Brad Henry, FY-2006 Executive Budget, pg. B-285. 25 Governor Frank Keating, FY-2003 Executive Budget, pp. 323-324. 2

Science and Technology Development Oklahoma Center for the Advancement of Science and Technology

potentially profitable investments; the people who are most successful at it are the ones with the most venture capital to risk. These people also have a great incentive to be right. If they are, they make lots of money; if they are not, they lose money. These people have the knowledge and the incentive to fund all profitable opportunities. The government bureaucrat is selected for different reasons, without a natural-selection mechanism for weeding out those who make bad investment decisions. The argument can be made that projects funded with the state seed capital program are either bad investments that should not be funded, or are projects that the market would have funded anyway if they are good investments.3 Like OCAST, OCPA seeks to improve the Oklahoma economy. However, instead of dramatically increasing appropriations for OCAST, we prefer broad-based tax reduction. We believe that a reduction in Oklahoma’s onerous personal income tax rate will leave more money with Oklahoma entrepreneurs to invest as they see fit. Since real economic development depends on satisfying consumer desires, we want entrepreneurs channeling as many resources as possible to their highest-valued uses. With lower taxes, individuals have higher disposable incomes and more money gets allocated through the market process. Consumers are left with more to spend on desirable items, and businesses receive more money and are able to invest in producing more of what consumers want. A strong economy rewards existing industries and is the best recruitment tool for new businesses. The OCPA Budget recommends that OCAST receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

“The Oklahoma Center for the Advancement of Science and Technology is tasked with improving the Oklahoma economy by moving technology from concept to commercialization.”1 “The mission and purposes of the Oklahoma Institute of Technology, as an institute within the Oklahoma Center for Advancement of Science and Technology, shall include: 1. Attracting, retaining, and stimulating the development of information technology, biotechnology, genetics, and emerging technologies; 2. Providing leadership development programs to prepare rural residents for leadership in a technologically enhanced economy; 3. Upgrading and enhancing rural technology to grow or attract high technology companies; 4. Facilitating joint public-private technology research and development projects using resources and facilities of public higher education institutions or private entities; and 5. Providing engineering or management assistance to new or existing businesses in bringing improved or innovative products.”2 In pursuing its mission OCAST spent more than $112 million over the last 10 years. OCPA believes that to promote real economic development, the state must change its policy focus from specific development programs to instead providing a stable institutional environment with low taxation, strong private property rights, and high degrees of economic freedom. OCAST FY-06 Budget Resources General Revenue Fund Research Support Revolving Fund Federal Funds Total

$12,400,942 $6,309,381 $117,000 $18,827,323

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 40.

Endnotes 1

OCAST seeks to promote growth by providing seed capital to firms involved in new product or process development. Yet the market provides “seed” or venture capital to firms all the time. Is there any reason to believe that government bureaucrats are better at identifying profitable investments for seed capital than the market is? Venture capitalists are experts in identifying

Governor Brad Henry, FY-2007 Executive Budget, pg. B-295.

Governor Brad Henry, FY-2006 Executive Budget Historical Data, pg. 667. 3

For a further discussion, see Benjamin Powell, “Promoting Economic Development: Government Programs or Economic Freedom,” chap. in Oklahoma Policy Blueprint, ed. Brandon Dutcher (Oklahoma City: Oklahoma Council of Public Affairs, 2002), pg. 69; also see Grant Gulibon, Growing Oklahoma’s Economy: Tax Cuts vs. Economic Development Programs (Oklahoma City: Oklahoma Council of Public Affairs, September 1999).

Secretary of State Election Board

committees but failed to adjust the Commission’s appropriation for FY-2005 to reflect the additional revenue. In fact, the appropriation was increased by 7.5 percent for FY-2005.3 The OCPA Budget recommends that principals (those who hire registered lobbyists) should pay a fee of $250 per year, that the fee for lobbyists should increase to $200 per year, and that political action committees should pay $100 per year. The Office of State Finance reported 640 principals and 400 lobbyists in FY-2004.4 This fee should generate approximately $240,000, which should be removed from the FY2006 appropriation base. This budget recommends that the Ethics Commission receive its FY-2006 appropriation.

“The mission of the Oklahoma State Election Board is to achieve and maintain uniformity in the application, operation and interpretation of the state and federal election laws with a maximum degree of correctness, impartiality and efficiency. … The State Election Board functions under the state and federal Constitutions and laws as the administrative agency for the conduct of state and federal elections and for oversight of County Election Boards. Specific functions are as follows: accepts filing fees for all state, judicial, district attorney, U.S. Senate and Congressional offices; prints and distributes state and federal ballots to each county; prints or acquires and distributes election supplies to each county; promulgates rules and regulations for the conduct and administration of elections; supervises the 77 county election boards to ensure uniformity in the application of election and voter registration laws and rules.”1 The OCPA Budget recommends that the Election Board receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Council on Judicial Complaints “The mission of the Council on Judicial Complaints is to efficiently and impartially investigate the conduct of persons occupying judicial positions. The Council will receive complaints of misconduct by any person or may institute its own investigation. The Council will determine whether complaints would be the subject of an action before the Court on the Judiciary, warrant a reprimand or admonition, or should be dismissed.”5 The Council consists of three members, each serving a five-year term, two of whom must be members of the Oklahoma Bar Association. Members are appointed by the Speaker of the House of Representatives, the President Pro Tempore of the Senate, and the President of the Oklahoma Bar Association.6 The requirements for this Council and the appointing authorities ensure that the Council will always be dominated by (if not entirely controlled by) the Oklahoma Bar Association and its members. In fact, the Council rents its office space in the Oklahoma Bar Association’s building. The OCPA Budget removes the Council’s appropriations and recommends that the members of the bar be asked to pay a fee in addition to their regular yearly dues to finance the Council.

Ethics Commission “The Ethics Commission serves as the official repository for personal financial disclosure; campaign registration and reporting requirements for state and county candidates, as well as ballot measures and committees supporting or opposing them; lobbyist registration and reports of things of value given by lobbyists and other persons; and other documents filed by campaign committees, state officers, state employees, lobbyists and other persons. It distributes forms; conducts random reviews of reports; makes registrations, statements and reports available to the public; holds hearings and subpoenas records; conducts investigations; prosecutes violations per civil proceedings in district court; enters into settlement agreements; educates the public and persons within its jurisdiction; promulgates constitutional rules and issues an annual report on its activities of the preceding year.”2 House Bill 2664, which was signed into law in 2004, levied a $100 fee on registered lobbyists and a $50 fee on registered political action

Secretary of State “The Secretary of State (SOS), created in 80

Article VI of the Oklahoma Constitution, has a number of constitutional and statutorily established duties. These include: • Serving as the official repository of executive orders and official acts of the Governor; • Filing and distributing copies of all laws enacted by the Legislature; • Serving as the repository of inter-local and cooperative agreements, including tribal agreements. • Maintaining information about all meetings held under the Open Meeting Act; • Maintaining a central registry for filing business documents on corporations and partnerships of all types; • Maintaining official registration of charitable organizations and professional fund raisers and solicitors; • Maintaining original certificates of all pardons and paroles.”7 SOS charges fees for many of these duties. Indeed, user fees accounted for more than 85 percent of the FY-2006 funding for SOS.8 Governor Henry’s FY-2005 budget recommendation was to increase fees across the entire range of services for which SOS currently charges and to completely remove appropriations from the SOS budget.9 The OCPA Budget concurs with that recommendation and removes all appropriations from the SOS budget for FY-2007. Endnotes 1

Governor Brad Henry, FY-2006 Executive Budget Historical Data, pg. 677. 2 Governor Brad Henry, FY-2006 Executive Budget Historical Data, pg. 680. 3 Oklahoma House of Representatives, FY-05 Legislative Appropriations, pg. 53. 4 Governor Brad Henry, FY-2005 Executive Budget, pg. 390. 5 Governor Brad Henry, FY-2006 Executive Budget Historical Data, pg. 684. 6 Governor Brad Henry, FY-2006 Executive Budget, pg. B-305. 7 Governor Brad Henry, FY-2005 Executive Budget, pg. 392. 8 Oklahoma House of Representatives, FY-05 Legislative Appropriations, pg. 78. 9 Governor Brad Henry, FY-2005 Executive Budget, pg. 393.

Transportation Oklahoma Space Industry Development Authority (OSIDA)

Department of Transportation The Oklahoma State Department of Transportation (ODOT) is charged with “the planning, construction, operation and maintenance of Oklahoma’s state and federal transportation infrastructure,” as Governor Brad Henry’s FY2006 executive budget points out. “This includes highways, interstates, public transit, railroads and waterways.”6 “The pressure to build new roads in Oklahoma has diverted limited resources from maintenance,” the governor’s previous budget book had noted. “This has played a large role in why our roads and bridges have received poor condition ratings from the Federal Highway Administration. According to ODOT, Oklahoma has 3,350 miles of highways rated in inadequate or critical condition. Also, 1,156 bridges are structurally deficient and functionally obsolete.”7 One of the reasons for the poor condition of our roads and bridges is that policy-makers have failed to prioritize. Among the items they have deemed more important than safe roads and bridges are: medical welfare for illegal aliens and for wealthy Oklahomans; meals and wine for Vietnamese Communists; and $100 car washes for state employees.8 Another reason for the poor condition of our roads and bridges is that policy-makers have diverted money that could have provided for the needed repairs. For example, since 1985 the money collected from fines for overweight trucks – which one would assume are a source of much of the damage to Oklahoma highways and bridges – has, incredibly, been diverted to the Oklahoma Tax Commission for reassignment. Even more alarming is the fact that, as the table on the following page shows, the money from motor vehicle registration fees is largely used to pay for unrelated areas of state government. These Oklahoma motor vehicle registration fees have become one of the larger examples of how our state government has created backdoor taxes on Oklahomans. OCPA has consistently maintained that fees which exceed the costs of providing a service are quite simply taxes. When one considers that (as the table shows) a mere 16.86 percent of the more than $585 million collected in registration fees for FY-2005

“OSIDA aspires to aid economic development in Oklahoma by stimulating the creation of space commerce, education and space related industries. With assistance from the Southwest Oklahoma Development authority, OSIDA acquired the Clinton Sherman Airpark. This acquisition was ideal for development of space industry because of the airpark’s advantages. • Infrastructure in place • Favorable weather conditions • Community support • Local business incentives • Over 13,500 feet of runway and ramp space In January 2003, Rocketplane Limited Inc. announced it would begin development of a sub-orbital aircraft in Oklahoma. Rocketplane cited OSIDA, state leaders, and the advantages of the Clinton-Sherman Airpark as the reasons for why they chose Oklahoma for this huge project.”1 However, a current fact sheet from OSIDA merely says Rocketplane “has leased a hangar at the Oklahoma Spaceport. They are currently renovating to accommodate their operations.”2 If in fact Rocketplane chose this location based on the advantages of the location and local incentives, it is difficult to ascertain the need for OSIDA’s assistance. OCPA reviewed OSIDA’s expenditures and found that salaries, benefits, and travel accounted for 87 percent of the total. With only five employees, the average salary and benefits per employee is an astonishing $92,200. Not helping matters any is the fact that OSIDA reports one of the selling points of the Oklahoma Spaceport is an “onsite golf course.”3 Investment of taxpayer funds in this endeavor would seem to make even less sense when one considers that New Mexico may have already supplanted the need for such a facility in the region. The State of New Mexico has supplied $10 million and expects three flights in 2006.4 OCPA believes a low-tax, business-friendly environment will help all businesses prosper. The elimination of waste and corporate welfare for selected businesses is fundamental to achieving that goal. This budget proposes the OSIDA appropriations of $518,3235 be eliminated as an unnecessary use of taxpayer dollars. 82

was directed to road maintenance or construction, it’s no wonder that Oklahoma’s roads are in poor shape. If legislators in previous years had simply applied conservative fiscal approaches to the collection and expenditure of motor vehicle registration funds, Oklahoma might currently enjoy some of the finest roads and lowest motor vehicle registration fees in the nation. Instead, Oklahomans are faced with a deteriorating highway and bridge infrastructure on a statewide scale. Under ordinary circumstances OCPA does not condone the increasing of state indebtedness. However, given our current infrastructure predicament, innovative ideas are needed. We have identified an existing source of revenue that could provide a short-term way to reverse the damage done by past budgetary imprudence. The Oklahoma Transportation Authority (OTA) collects motor fuel taxes under Article V Section 507 of its enabling legislation and deposits the money in a Motor Fuel Tax Trust fund. This fund is used to service the debt on OTA bonds and any deficiencies in bond reserve accounts. Residual amounts are passed on to ODOT. This residual amount has been growing steadily and is projected to exceed $37 million for 2006. This residual should no longer be given to ODOT. It should be used as the financing source for a 20-year, $500 million bond issue to immediately repair Oklahoma’s roads and bridges. Secondly, Oklahoma legislators should alter the distribution of motor vehicle registration fees to more properly reflect the actual costs of maintaining and expanding the necessary infrastructure for Oklahoma’s vehicle owners. As the table indicates, 36 percent of this fee revenue goes directly to school districts, and 45 percent goes to the general revenue fund. When you consider that more than a third9 of the general revenue fund is spent on education, you see that, in total, more than 50 percent of the motor vehicle registration fee revenue – money that should have been spent maintaining roads and bridges – has in fact been siphoned off for education. That’s why some of us were mildly amused by the argument of a retired school superintendent who last year called for a fuel tax hike on the grounds that our roads and bridges were unsafe for school buses. Schools should be funded in the education appropriation bills, not by creating hidden taxes

Motor Vehicle Revenue Apportionment % of Motor Vehicle Registration Fees Program 35.91% Various School Districts 45.29% General Revenue Fund 7.18% County Highway Maintenance and Construction Fund 3.59% Emergency County Road Fund for County Fund 3.08% Various Cities and Incorporated Towns 2.56% County Road Fund for County Fund 1.23% Oklahoma Law Enforcement Retirement Fund 0.82% Counties for the Support of County Government 0.31% State Transportation Fund 0.03% Wildlife Conservation Fund Source: Oklahoma Tax Commission, http://www.oktax.state.ok.us/ mvhome.html.

on Oklahoma drivers. Those are the sorts of education revenues – see Appendices A and B in the OCPA study “Education in Oklahoma: The Real Costs” – that the education establishment conveniently forgets to mention when decrying “inadequate” school funding. The OCPA Budget recommends that ODOT receive its FY-2006 appropriation adjusted upward for population growth plus inflation after the removal of HB 1078 funding, one-time funding for Oklahoma Capitol Improvement Authority debt service,10 and the estimated $21 million in savings generated by debt service refinancing. HB 1078 provided additional funding for highway and bridge construction and the $21 million saved by refinancing was to be directed to the same cause. That will now be unnecessary given our proposed bond issue. Endnotes 1

Governor Brad Henry, FY-2007 Executive Budget, pg. B-312. http://www.okspaceport.state.ok.us/forms/osida_facts.pdf 3 http://www.okspaceport.state.ok.us. 4 Leonard David, “Southwest Regional Spaceport Touted as New Mexico Moneymaker,” September 13, 2005. Available at http://www.space.com. 5 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 81. 6 Governor Brad Henry, FY-2006 Executive Budget, pg. B-313. 7 Governor Brad Henry, FY-2005 Executive Budget, pg. 402. 8 Brandon Dutcher, “Your Tax Dollars at Work,” The Oklahoman, December 11, 2005. Available at http://www.newsok.com. 9 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 8. 10 Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pp. 86-87. 2

Veterans Affairs Department of Veterans Affairs â&#x20AC;&#x153;The Oklahoma Department of Veterans Affairs provides medical and rehabilitative services for veterans and their families. The Department operates seven long term care centers located in Norman, Clinton, Ardmore, Sulphur, Claremore, Talihina and Lawton. The Centers provide intermediate to skilled nursing care and domiciliary care for war time veterans.â&#x20AC;?1 The OCPA Budget recommends that the department receive its FY-2006 appropriation, adjusted upward for population growth plus inflation. Endnotes 1

Governor Brad Henry, FY-2007 Executive Budget, pg. B-261.

Legislature House of Representatives

The OCPA Budget recommends that the Senate’s FY-2007 appropriation be fixed at FY2006 levels and that carryover funds be used to finance any additional needs.

The House of Representatives consists of 101 members. Members serve two-year terms. House of Representatives FY-06 Budget Resources General Revenue Fund $18,629,154.00 Special Cash Fund $0.00 Total $18,629,154.00

Legislative Service Bureau The Legislative Service Bureau (LSB) assists the legislature by providing services as directed by the Speaker of the House of Representatives and the President Pro Tempore of the Senate.

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 64.

The OCPA Budget recommends that the House of Representatives’ FY-2007 appropriation be fixed at FY-2006 levels and that carryover funds be used to finance any additional needs.

Legislative Service Bureau FY-06 Budget Resources General Revenue Fund $2,365,783.00 Special Cash Fund $50,000.00 Total $2,415,783.00

Senate

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 66.

The state Senate consists of 48 members. Senators serve staggered four-year terms.

The OCPA Budget recommends that the LSB receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

Senate FY-06 Budget Resources General Revenue Fund Special Cash Fund Total

$13,146,893.00 $0.00 $13,146,893.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 79.

Feeding the Hand that Bites You Some state legislators were justifiably cranky after being named as defendants in the “adequacy” lawsuit filed by the state’s largest labor union. But the only thing worse than being sued is … appropriating money to the plaintiff to allow him to sue you more effectively! As it turns out, the union’s lawsuit will rely in part on a report from an out-of-state consulting firm that was paid at least $296,710 appropriated by the legislature. For example, the FY-2005 appropriations bill (HB 2012) provided for money to be “transferred to the Legislative Service Bureau to contract with an independent consultant to conduct the second phase of the study of the adequacy of the State Aid Formula …”

Judiciary The Court of Criminal Appeals

Supreme Court FY-06 Budget Resources

“The Court of Criminal Appeals is composed of five judges, one from each of the Court of Criminal Appeals judicial districts. Judges are appointed for a term of six years then stand for retention by a popular vote in a nonpartisan election.”1

General Revenue Fund Revolving Funds Carryover Federal Funds Total

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 212.

Court of Criminal Appeals FY-06 Budget Resources General Revenue Fund Carryover Total

The OCPA Budget recommends that the Supreme Court receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

$2,828,160.00 $350,000.00 $3,178,160.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 186.

Workers’ Compensation Court The Workers’ Compensation Court applies the law as set out in the Oklahoma Workers Compensation Act. Its responsibility is to provide fair and timely procedures for the informal and formal resolution of disputes and identification of issues involving on-the-job injuries. OCPA continues to encourage meaningful reform of the workers compensation system.1 Simple reforms in the practices of the Court – such as timely dispute resolution through video conferencing available in multiple locations across the state, limits on attorney fees, and ombudsman programs – should be fundamental parts of any legislation to fix Oklahoma’s system.

OCPA believes that the highest priority of government is the protection of its citizens. The Court of Criminal Appeals is an essential part of that function. The OCPA Budget recommends that the Court receive its FY-2006 appropriation, adjusted upward for population growth plus inflation.

District Courts In Oklahoma, the court of general jurisdiction is the District Court. Seventy-seven district courts hear both criminal and civil cases. District Courts FY-06 Budget Resources General Revenue Fund State Judicial Fund Carryover Total

$16,000,000.00 $12,000,000.00 $1,015,000.00 $400,000.00 $29,415,000.00

$962,069.00 $46,337,931.00 $3,000,000.00 $50,300,000.00

Workers’ Compensation Court FY-06 Budget Resources General Revenue Fund Revolving Funds Total

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 191.

$4,365,564.00 $2,185,581.00 $6,551,145.00

Source: Oklahoma House of Representatives, FY-2006 Legislative Appropriations, pg. 215.

The OCPA Budget recommends that the District Courts receive their FY-2006 appropriation, adjusted upward for population growth plus inflation.

The OCPA Budget recommends that the Workers’ Compensation Court receive its FY2006 appropriation, adjusted upward for population growth plus inflation.

Supreme Court The Oklahoma Supreme Court consists of nine justices, each selected from one of nine judicial districts. The Justices stand for retention on a six-year rotating schedule. The Supreme Court serves as the court of last resort.

Endnotes 1

Governor Brad Henry, FY-2005 Executive Budget Historical Data, pg. 685. 2 See, for example, our analysis at http://www.ocpathink.org/ ViewPolicyStory.asp?ID=536#anchor204054.

Summary by Cabinet Agency Name

OCPA Recommended FY-2006 Base Appropriation

FY-2006 Actual Appropriation

OCPA Recommended FY-2007 Base Appropriation

Reason for Change

Governor

3,240,903

2,578,710

2,727,420

Lieutenant Governor

539,271

592,436

617,318

Agriculture Department of Agriculture

13,946,177

26,296,069

17,296,069

Conservation Commission

5,017,658

7,403,928

1,503,928

Commerce & Tourism Capitol Complex and Centennial Commission

536,453

3,899,630

536,453

Department of Commerce

10,000,000

26,334,663

16,334,663

Oklahoma Historical Society $

9,128,028

12,906,387

11,615,748

347,454

3,061,658

3,224,721

3,360,159

533,851

$ $

6,000,000 -

$ $

15,500,000 323,041

$ $

8,200,000 -

19,749,017

25,955,959

21,836,109

Will Rogers Memorial Commission

830,679

Redirect Spending to Higher-Priority Uses; Restore Civil Society

Education Arts Council

3,139,097

4,243,338

Redirect Spending to Higher-Priority Uses; Restore Civil Society

37,026,710

$ 130,287,358

38,581,832

J. M. Davis Memorial Commission

Department of Labor Native American Cultural Authority REAP (including water projects) Scenic Rivers Commission Tourism and Recreation Department

Career & Technology Education Oklahoma Educational Television Authority Department of Education Higher Education

$ 2,161,430,126 $ 828,480,018

4,624,059

$2,175,663,450 $ 889,433,880 87

$ 2,369,722,329 $ 926,790,103

Reorganize Government

Require More User Responsibility; Reorganize Government Require More User Responsibility; Reorganize Government

Redirect Spending to Higher-Priority Uses Require More User Responsibility; Remove Waste; Revive Free Enterprise Require More User Responsibility Redirect Spending to Higher-Priority Uses; Restore Civil Society

Reorganize Government Require More User Responsibility; Remove Waste; Revive Free Enterprise

Reorganize Government Redirect Spending to Higher-Priority Uses

Agency Name Oklahoma Department of Libraries Board of Private Vocational Schools Oklahoma School of Science and Mathematics Oklahoma Commission for Teacher Preparation

OCPA Recommended FY-2006 Base Appropriation

FY-2006 Actual Appropriation

OCPA Recommended FY-2007 Base Appropriation

Reason for Change

6,402,209

6,681,355

6,961,972

160,213

171,879

7,020,513

2,022,875

Reorganize Government

Environment Department of Environmental Quality Water Resources Board

$ $

18,723,417 -

$ $

8,166,580 6,573,896

$ $

22,521,580 -

Reorganize Government Reorganize Government

Energy Corporation Commission Department of Mines

$ $

9,239,205 -

$ $

12,354,190 849,165

$ $

10,118,439 -

Reorganize Government

Finance & Revenue Auditor & Inspector

500,000

5,988,786

500,000

State Bond Advisor

50,000

181,212

60,000

Office of State Finance

22,963,524

22,756,515

23,712,289

Insurance Department

2,231,595

Commissioners of the Land Office

4,719,497

Tax Commission $ Treasurer $ Consumer Credit Commission $

42,730,757 4,511,967 -

$ $ $

45,626,291 4,524,498 637,925

$ $ $

47,542,595 4,714,527 -

$ $

54,563,226 26,385,000

$ $

62,790,819 -

$ $

62,790,819 -

$ $

502,038,161 160,204,119

$ 634,786,355 $ 171,810,647

$ $

666,808,872 179,026,694

Reorganize Government

Human Resources and Administration Department of Central Services $ 12,234,432

12,263,035

Remove Waste; Reorganize Government

Horse Racing Commission

2,360,889

Human Rights Commission

686,563

Redirect Spending to Higher-Priority Uses Reorganize Government

Securities Commission

Health Health Department Trauma Care Fund Oklahoma Health Care Authority Mental Health Department

Require More User Responsibility; Revive Free Enterprise Require More User Responsibility; Reorganize Government Require More User Responsibility; Reorganize Government Require More User Responsibility Reorganize Government; Remove Waste

Require More User Responsibility Require More User Responsibility

Agency Name

OCPA Recommended FY-2006 Base Appropriation

Merit Protection Commission $

Reason for Change

565,684

Reorganize Government; Remove Waste

4,633,249

5,142,365

Reorganize Government; Remove Waste

(4,000,000)

4,497,011

Employees Benefits Council

(4,000,000)

J.D. McCarty Center Office of Juvenile Affairs

OCPA Recommended FY-2007 Base Appropriation

512,154

Office of Personnel Management

Human Services Commission on Children & Youth Office of Handicapped Concerns Department of Human Services Oklahoma Indian Affairs Commission

FY-2006 Actual Appropriation

Remove Waste

1,725,018

Reorganize Government

376,944

Reorganize Government

409,902,766

$ 481,991,177

503,811,750

255,530

$ $

3,259,548 92,858,160

$ $

3,792,283 98,323,348

$ $

3,951,559 102,452,929

5,361,490

26,259,305 40,223,640

$ $

27,365,925 40,549,342

$ $

28,515,294 42,252,414

Physician Manpower Training Commission $ Department of Rehabilitation Services $ University Hospitals Authority $

Remove Race-Based Advocacy; Redirect Spending to HigherPriority Uses Reorganize Government; Remove Waste Reorganize Government

Military Department Military Department

8,309,244

12,546,432

13,073,382

Safety and Security Alcoholic Beverage Laws Enforcement

3,738,839

Attorney General

6,910,264

11,286,462

12,329,369

Department of Corrections

389,393,700

$ 409,443,403

426,640,026

District Attorneysâ&#x20AC;&#x2122; Council Department of Emergency Management Fire Marshal Indigent Defense Fund

26,926,731

30,592,742

31,877,637

$ $ $

701,810 12,228,761

$ $ $

1,355,561 1,685,180 15,633,001

$ $ $

731,286 13,433,001

11,154,628

Reorganize Government

3,922,904

Reorganize Government

$ $ $ $

2,216,128 89,666,820 -

$ $ $ $

5,389,595 2,316,329 78,887,770 2,758,783

$ $ 2,413,615 $ 106,408,005 $ -

Reorganize Government

Oklahoma State Bureau of Investigation Medicolegal Investigations Board Narcotics and Dangerous Drugs Pardon and Parole Board Department of Public Safety CLEET

Reorganize Government; Remove Waste Require More User Responsibility; Reorganize Government Reorganize Government; Remove Waste

Reorganize Government Require More User Responsibility

Reorganize Government Reorganize Government

Agency Name

OCPA Recommended FY-2006 Base Appropriation

Science and Technology Development Center for the Advancement of Science and Technology $

FY-2006 Actual Appropriation

OCPA Recommended FY-2007 Base Appropriation

12,400,942

12,921,782

$ $

6,469,209 248,114

$ $

6,621,839 492,277

$ $

6,899,956 262,873

Council on Judicial Complaints $

278,826

Secretary of State

510,184

Transportation Space Industry Development Authority $ Department of Transportation $

207,022,604

$ 523,264 $ 275,148,137

$ $

265,704,359

Veterans Affairs Department of Veterans Affairs $

31,011,962

36,040,332

37,554,026

Judiciary Court of Criminal Appeals $ District Courts $ Supreme Court $ Workersâ&#x20AC;&#x2122; Compensation Court $

2,834,708 44,360,349 13,745,673 3,885,784

$ $ $ $

2,828,160 47,300,000 16,000,000 4,365,564

$ $ $ $

2,946,943 49,286,600 16,672,000 4,548,918

Legislature House of Representatives Senate Legislative Service Bureau

$ $ $

18,671,939 13,198,460 2,373,671

$ $ $

18,629,154 13,146,893 2,415,783

$ $ $

18,669,557 13,187,297 2,557,650

Total Recommended Agency Appropriations

$ 5,416,223,712

Appropriations Available under OCPA Budget

$ 5,525,504,432

$ 6,291,599,976

Funds Available for Appropriation for Agency Special Needs

Secretary of State Election Board Ethics Commission

$ 6,038,003,816

109,280,724

$ 6,183,408,059

108,191,917

Reason for Change

Require More User Responsibility Require More User Responsibility Require More User Responsibility

Revive Free Enterprise

OCPA BUDGET A STATE BUDGET THAT RESPECTS YOUR FAMILY BUDGET

“All persons have the inherent right to life, liberty, the pursuit of happiness, and the enjoyment of the gains of their own industry.” Constitution of the State of Oklahoma, Article 2, Section 2

Submitted by the Oklahoma Council of Public Affairs, Inc. To the Taxpayers of the State of Oklahoma and Their Elected Ofﬁcials

PROPOSED STATE BUDGET FOR THE FISCAL YEAR ENDING JUNE 30, 2007