Perspective - January 2010 by OCPA

January 2010 â&#x20AC;˘ Volume 17 Number 1

Perspective January 2010 Vol. 17, No. 1 Brandon Dutcher .................................. Editor Perspective is published monthly by the Oklahoma Council of Public Affairs, Inc., an independent public policy organization. OCPA formulates and promotes public policy research and analysis consistent with the principles of free enterprise and limited government.

OCPA Trustees Blake Arnold

Henry F. Kane

Oklahoma City

Bartlesville

Mary Lou Avery

Robert Kane

Oklahoma City

Tulsa

Lee J. Baxter

Tom H. McCasland III

Lawton

Duncan

Steve W. Beebe

David McLaughlin

Duncan

Enid

John A. Brock

Lew Meibergen

Tulsa

Enid

David R. Brown, M.D.

Lloyd Noble II

Oklahoma City

Tulsa

Aaron Burleson

Robert E. Patterson

Altus

Tulsa

Paul A. Cox

Bill Price

Oklahoma City

Jay T. Edwards

Patrick Rooney

Oklahoma City

Ann Felton

Melissa Sandefer

Oklahoma City

Norman

Josephine Freede

Robert Sullivan

Oklahoma City

Tulsa

Kent Frizzell

Lew Ward

Claremore

Enid

John T. Hanes

William E. Warnock, Jr.

Oklahoma City

Tulsa

Ralph Harvey

Gary W. Wilson, M.D.

Oklahoma City

Edmond

John A. Henry III

Daryl Woodard

Oklahoma City

Tulsa

OCPA Adjunct Scholars Will Clark, Ph.D.

David L. May, Ph.D.

University of Oklahoma

Oklahoma City University

David Deming, Ph.D.

Ronald L. Moomaw, Ph.D.

University of Oklahoma

Oklahoma State University (Ret.)

Bobbie L. Foote, Ph.D.

Ann Nalley, Ph.D.

University of Oklahoma (Ret.)

Cameron University

Kyle Harper, Ph.D.

Bruce Newman, Ph.D.

University of Oklahoma

Western Oklahoma State College

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

Stafford North, Ph.D.

Oklahoma City University (Ret.)

Oklahoma Christian University

James E. Hibdon, Ph.D.

Everett Piper, Ph.D.

University of Oklahoma (Ret.)

Oklahoma Wesleyan University

Russell W. Jones, Ph.D.

Michael Scaperlanda, J.D.

University of Central Oklahoma

University of Oklahoma

Andrew W. Lester, J.D.

Andrew C. Spiropoulos, J.D.

Oklahoma City University (Adjunct)

Oklahoma City University

Quentin Taylor Rogers State University

OCPA Fellows Steven J. Anderson, MBA, CPA Research Fellow

J. Rufus Fears, Ph.D. Dr. David and Ann Brown Distinguished Fellow for Freedom Enhancement

J. Scott Moody, M.A. Research Fellow

Wendy P. Warcholik, Ph.D. Research Fellow

OCPA Legal Counsel DeBee Gilchrist Oklahoma City

OCPA Staff Forrest Claunch / Executive Director Brett A. Magbee / VP for Operations Brandon Dutcher / VP for Policy Margaret Ann Morris / Director of Development Sandra Leaver / Event Coordinator Dacia Harris / Executive Assistant Clara Wright / Receptionist

1401 N. Lincoln Boulevard Oklahoma City, OK 73104 (405) 602-1667 FAX: (405) 602-1238 www.ocpathink.org ocpa@ocpathink.org

News Operation Will Help Fill a Gap By Patrick B. McGuigan Editor, CapitolBeatOK

n the mid-1990s, nearly 1,000 ends by seeking truth and providreporters covered state capitols ing a fair and comprehensive across the 50 states. Today, capitol account of events and issues.” press corps numbers have shrunk CapitolBeatOK, the online news to around 300 in all. In Oklahoma, operation which formally launches falling advertising revenue and this month, exists to inform Oklapaid subscriptions have led homans about the workings of publishers of many newspapers to their government. An independent reduce staff, causing cutbacks in and nonpartisan news service both statehouse and investigative based in the state capitol press reporting. room, CapitolBeatOK will provide Reports of the decline of newsanother set of “eyes” focused on papers have come to dominate government—providing fair, shop talk in the Society of Profesdependable, accurate, and credsional Journalists, the National ible information. We will cover the Press Club, the Tulsa Press Club, news, focusing primarily on the and other legislature, groups with executive which I am decisions, CapitolBeatOK, affiliated. I agencies, and public enlightenment, believe jourthe judiciary. and the foundation nalism is not As a public dead, but it is service and at of democracy changing. no charge, In college, I CapitolBeatOK discovered I had the soul of a will provide regular news feeds via reporter. After graduating from the Internet to interested individuOklahoma State, I went to the als and organizations, and access nation’s capital. For 10 years to our website and archive. Also in there, I edited the leading source near-term development are reports of information on the politics of in audio, video, and text formats direct democracy. When I returned through the Internet and new to Oklahoma in 1990, I worked at media, as well as placement in The Oklahoman, directing the more traditional media. I will serve editorial and opinion pages. Since as a contributing correspondent to 2002, I’ve worked in various Griffin Communications’ entities, journalistic ventures, taught at an including NEWS 9, The News On alternative school for two years, 6, News9.com, NewsOn6.com, and and served as Labor Commisthe Radio Oklahoma Network. sioner Brenda Reneau’s deputy. Moreover, watch for our work to With the rise of the Internet, the appear in Oklahoma newspapers culture of journalism has entered and to be referenced in radio and a dramatic new era. But even in television reports. the midst of transformation, some Just as OCPA contracts with things never change. The preprofessors and others to do scholamble of the code of ethics for the arly research, OCPA has conSociety of Professional Journalists tracted with me to do journalistic states: “Public enlightenment is research—to provide incisive news the forerunner of justice and the reporting on areas of broad public foundation of democracy. The duty interest. I invite you to visit us at of the journalist is to further those www.CapitolBeatOK.com.

Here’s what just a few opinion leaders are saying ... “It’s not just two or three of us whispering the name or shouting the name ‘Paul Ryan.’ A lot of us are.” Bill Bennett, the former drug czar and education secretary “Some years ago, a friend of mine, a devout supply-sider, joked about an informal group of inside-the-Beltway conservatives who’d formed a group called “Ryan for Rushmore.” If the Patients’ Choice Act is any indication of where Ryan is heading, I’m signing up.” Reihan Salam, fellow at the New America Foundation “He’s a strong economic conservative and a leading voice on budget issues, and he’s been called a rising star so often, it probably embarrasses him.” Chris Wallace / FOX News Sunday / June 21, 2009

DON’T MISS THIS EVENT – PRE-REGISTRATIONS ARE BEING ACCEPTED NOW! Call (405) 602-1667

N O N - P A R T I S A N

NON-COMPROMISING

Oklahoma Council of Public Affairs, Inc. 1401 N. Lincoln Boulevard • Oklahoma City, OK 73104 Office: 405-602-1667 • Fax: 405-602-1238 www.ocpathink.org • ocpa@ocpathink.org

Public School Results at Elite Prep-School Prices See for yourself: Oklahoma spends more than $10,250 per student By Steve Anderson

hat is the truth about per-pupil spending in Oklahoma? The state’s most powerful labor union, the Oklahoma Education Association (OEA), says we spend $7,615 per pupil in Oklahoma. The union gets this number from the National Center for Education Statistics. But I have conducted a comprehensive examination of public education spending in Oklahoma for the 2007-08 school year (the latest year for which actual data are available), and I estimate the real number is $10,257 per pupil. My study was designed to measure every cost involved in funding and operating the public education system. Instead of arbitrarily selecting or excluding a cost, I used common-sense guidelines with an independent referee—the Governmental Accounting Standards Board (GASB).1 I considered every step in the process, beginning with the collection of the funds necessary for education and following them to their end use in the system. I then isolated the local or state entity or entities that perform the function and calculated those costs.2 This allows citizens to see every cost incurred in the provision of public education. The first function in funding public education is collecting the money. After all, money doesn’t magically leave the pockets of Oklahomans and suddenly appear in the coffers of local school districts. Just as any business has to include the cost of the cashier in its expenses, I have included this essential function. In the case of public education, the main “cashier” is the Oklahoma Tax Commission; it collects and disseminates funds to the state Department of Education to pass through to the schools. In addition, the Commissioners of the Land Office, the Oklahoma Horse Racing Commission, and the Oklahoma Lottery Commission also send part of their revenues to public education. The cost to collect the money for public education at the state level is $58,431,694.3 Next I examined the administrative function, which would be the rough equivalent of the management functions in private business. Oklahoma’s system of public education has several state agencies that perform some part of the management function for the state’s public school districts. For example, the Department of Education distributes the collected funds to the school districts and provides administrative support for those districts. The Oklahoma Commission for Teacher Preparation certifies teachers and manages part of the continuing education of teachers.

The Oklahoma Teachers’ Retirement System provides the retirement benefits for public school teachers, administrative staff, and support staff. The operating costs of these agencies total $177,119,121. Now that we have the money collected and distributed, let’s look at the school districts’ direct operating expenditures. The Department of Education allocated directly to the state’s public school districts a total of $4,253,240,734 in the 2007-2008 school year.4 However, several other agencies spent money educating publicschool students, money that is not included in this total. CareerTech spent the most, with $144,390,039 on direct local secondary school support.5 “Most of Oklahoma’s career and technology education students at the secondary level are enrolled in CareerTech programs in their local schools,” according to the agency’s website. “In FY08, a total of 1,405 CareerTech teachers in 400 comprehensive public school districts served a total enrollment of 142,972. These students are in Grades 6-12 and are enrolled in one-period CareerTech programs including family and consumer sciences, agricultural education, marketing education, business and information technology education, trade and industrial education and health occupations education.” Moreover, another 17,000 high school students are “enrolled in Oklahoma’s technology centers. Most attend approximately three hours per day, either in the morning or the afternoon. Due to increased graduation requirements, centers are adapting schedules and pursuing other avenues to provide students with the flexibility they need to attend.”6 Despite the fact that a large number of students are served and significant resources are being spent directly on public education, it appears that none of these numbers are counted in the per-pupil expenditure. Several other agencies also have expenditures directly in the classroom. The Department of Agriculture spent $149,000 and the Oklahoma Arts Council spent $631,000 on classroom instruction services.7 The Oklahoma School of Science and Mathematics spent $7,369,730 educating a small number of students and providing some online instruction for other highschool-age students.8 And let’s not forget about buildings. The current period expense of these school facilities is largely in the depreciation that the buildings incurred in the 2007-08 school year. Though depreciation is a “noncash” expenditure, it is important to include it in the

yearly costs. It represents the dollar amount of that Additionally, TRS’s archaic defined-benefit plan asset—in this case the school building—that is “used typically adds debt every year which will have to be up” each year, leading to the eventual need to spend paid for at some time in the future. This debt would money to repair or replace the structure. Most citizens appear on the financial statement of a private entity, probably assume this “depreciation expense” is being but is conveniently excluded from the per-pupil costs paid for in the regular bond issues they are subjected of public schools. This debt increased by $1.4 billion to. Depreciation is only reported on the individual in 2007-08 alone, bringing the total unfunded debt financial statements of each of the 500-plus school that Oklahoma taxpayers are saddled with to $9.09 districts, which tend not to be issued on a timely basis billion.10 I have only included the current period and which are difficult to acquire for every district. In expense of $1,083,057,328, which represents the fact, Oklahoma’s largest school district, Oklahoma portion attributable to public education.11 Ignoring City, was described as recently as 2003 as being “in this additional debt in per-pupil calculations is the such disarray that auditors issued a rare disclaimer equivalent of saying that any credit card debt you that the district’s annual financial statement is unrelimight incur in one year but not pay off in that year able.”9 was actually not an Given the unreliable expense in that year. nature of these reports, one Once all these expenis forced to make an ditures are tabulated, estimate in order to include one must define the this important expenditure. number of students that As it happens, in 2006 the will be used to calculate the per-pupil expendiOEA teamed up with three ture. One might think school districts to bring an that Average Daily “adequacy and equity” lawsuit against the state, Attendance, or actual and that lawsuit claimed students served, would that the unmet, immediate be the only acceptable capital needs in Oklahoma figure for calculating exceeded $3 billion. If one per-pupil costs. However, the State Departjust takes these “unmet” ment of Education uses needs, representing assets several different numwhich have been “used up,” and applies an averbers—including Aver“Daddy doesn’t know any magic tricks. age Daily Attendance, age depreciation life of 20 Daddy knows accounting tricks.” years (which is a conglomAverage Daily Membererate of short-term assets like furniture and long-term ship, and an even more fascinating Weighted Averassets like buildings), then the depreciation expense age Daily Membership—to show school usage. For was at least $150,000,000 per year, and that’s a very my calculation I use Average Daily Attendance (ADA). conservative estimate. This makes the most sense since it is the number of Moving on to the next item, it is obvious that state students that show up on an average day and does expenditures to provide retirement benefits on behalf not include dropouts. Average Daily Membership of teachers and support personnel are a part of the (ADM) counts all students that are considered encosts of operating the schools. Yet the “official” perrolled, but considering that the Oklahoma City and pupil costs don’t include the costs of the Oklahoma Tulsa districts have dropout rates in the neighborhood Teachers’ Retirement System (TRS), nor do they of 50 percent, it is questionable how many of these include the hundreds of millions of dollars of taxes students are actually in school on a given day. The paid directly to TRS to provide retirement benefits for ADM approach gives schools a perverse sort of teachers, school administrators, and a whole host of reward for having a large number of non-attenders. ancillary personnel. Most Oklahomans don’t realize There are many other costs I did not include even that five percent of the individual income, corporate though it would have been defensible to do so. For income, sales, and use taxes go directly to TRS. I example, millions of dollars of public school costs— calculated the amount that is attributable to public such as the costs of teacher education and the costs education for 2007-08 and found the amount conveof remedial instruction—show up in Oklahoma’s niently left out was $206,370,073 of Oklahomans’ tax higher education budgets. Nor did I include the dollars. interest paid during the 2007-08 school year, even

Average Salary for All Employees, 2008 2006-2007

2007-2008

Percentage Increase

School Districts Classroom Teachers Administrative and Support Personnel

$ 37,558.74 $ 51,064.33

$ 38,371.61 $ 52,465.85

2.16% 2.74%

Education Agencies CareerTech Teachers Retirement System School of Science and Mathematics Commission for Teacher Preparation Department of Education

$ $ $ $ $

70,553.56 70,125.63 69,093.34 66,599.19 63,579.19

$ $ $ $ $

74,175.63 74,526.38 71,814.27 70,655.81 65,581.32

5.13% 6.28% 3.94% 6.09% 3.15%

Finance Agencies for Education Lottery Commission Commissioners of the Land Office Horse Racing Commission Oklahoma Tax Commission

$ $ $ $

70,208.09 67,393.17 61,498.60 56,287.17

$ $ $ $

72,792.10 69,009.98 63,595.96 58,541.79

3.68% 2.40% 3.41% 4.01%

Agencies with K-12 Education Expenditures Arts Council Agriculture

$ 64,787.02 $ 54,303.64

$ 68,991.01 $ 56,781.34

6.49% 4.56%

Source: http://openbooks.ok.gov

Endnotes

though this would have been a substantial number. School bond issues and the resultant debt generate potentially hundreds of millions of dollars of debt annually. These amounts are nearly impossible to obtain and I could not find a reasonable way to make an estimate of these amounts. In addition, there are revenues and services that flow from a multitude of sources, including groups like the Parent Teachers Association (PTA), that are used to educate public school children. These are largely unreported, so I could not include them in this study. There are also many other smaller expenditures on public school children that can be found in the budgets of higher education, juvenile affairs, and many other agencies. Suffice it to say my per-pupil estimate of $10,257 is actually low. In any case, it’s clear that government officials owe Oklahoma’s taxpayers more sunshine and transparency than they’re currently getting. The financial statement on the following page is a valuable and useful tool, but the only reason it exists is that a private think tank devoted the time and resources necessary to produce it. Taxpayers deserve better from their government. %

If anyone would like to discuss my methodology or results, I encourage you to write to me at fincpatax@hotmail.com. 2 Since much of this information is not required to be reported, these expenditures can only be gathered by reviewing records from a variety of different sources. I used the state’s Open Books website (openbooks.ok.gov) for many of the individual agency expenditures; however, local payments to schools and some ancillary benefit payments had to be traced to the entity that provided the funds. When gathering data I used Governmental Accounting Standards Board (GASB) guidelines to assess what is a current period expense and how it should be valued. If no source was available, I attempted to approximate the current period expenses using techniques that are discussed within the section of this article dealing with those costs. Some costs I did not include if their valuation was too difficult to yield reliable data; those are noted in the appropriate section. 3 This number is actually slightly low: the federal government and local entities also collects some funds for public education, but I did not include the cost of all federal and local collections. 4 http://sde.state.ok.us/Finance/StAid/pdf/AnnualReport08.pdf 5 http://www.okcareertech.org/newsroom/AnnRpt08.pdf 6 http://www.okcareertech.org/measuringup/SysOverview/DeliverySys/ DeliverySys.html 7 http://www.ok.gov/OSF/documents/bud10hd.pdf. Some of these direct expenditures on classroom instruction do not include the administrative costs resulting from those expenditures. I have calculated these costs from the individual agency’s financials and included them in the administrative costs of the total system. 8 http://openbooks.ok.gov 9 Richard Williamson, “Oklahoma City Schools’ Fiscal Statement ‘Unreliable,’” The Bond Buyer, April 4, 2003. 10 http://www.ok.gov/TRS/documents/2008%20Actuarial%20Valuation.pdf 11 I did not include the portion attributable to other teachers, such as college professors and CareerTech teachers who don’t instruct highschool students.

Steve Anderson (MBA, University of Central Oklahoma) is an OCPA research fellow and a Certified Public Accountant with more than 20 years of experience in private practice. He spent two years as a budget analyst in the Oklahoma Office of State Finance, and was formerly a state-certified teacher with 17 teaching certifications.

$ 1,083,057,327.51

$ 6,117,697,723.50 $ 4,253,240,734.00

Expenditure per Student

542,958,057.03

634,250.79

Actual 2007-08 Average Daily Membership

Totals may not add due to rounding.

596,450.09

Actual 2007-08 Average Daily Attendance

10,256.85

150,000,000.00

101,425,392.15 3,350,948.49 34,426,616.89 3,126,199.43 193,664,212.72 206,964,687.34

$ $ $ $ $ $

Total Expenditures

570,292,915.00

Unfunded Accrued Actuarial Liability (2% Biennial COLA)

570,292,915.00 $

11,408,521.00 1,252,714.00 1,301,034.00

11,408,521.00 $ 1,252,714.00 $ 1,301,034.00 $

$ $ $

79,112,989.00

79,112,989.00 $

34,596,492.00 7,044,391.00 162,261,631.00 9,514,864.00 2,609,775.00 261,190,504.00

Depreciation

34,596,492.00 7,044,391.00 162,261,631.00 9,514,864.00 2,609,775.00 261,190,504.00

$ $ $ $ $ $

$ 2,449,809,769.58 $ 2,425,257,031.00 $ 961,130,513.03 $ 929,885,151.00 $ 360,449,141.35 327,805,637.00 $ 3,771,389,423.96 $ 3,682,947,819.00

2007-08 DoE School District Expenditures

Financial, Support, and Ancillary Agency Costs Personal Services Travel Administrative Expenses Prop., Furn., Equip. & Related Debt Gen. Asst., Awards, Prog-Directed Transfers & Other Disbursements Total Financial, Support, and Ancillary Agency Expenses

General Fund Expenditures by Function as Reported by the School Districts Instructional Purchased Services Instructional Tuition Instructional Supplies Instructional Property Instructional Other Guidance and Health Operation of Noninstructional Services Facilities Acquisition and Construction Services Trust and Agency Services Debt Services Total General Fund Expenditures by Function as Reported by the School Districts

EXPENDITURES Salaries Instructional School Administration and Support Other Support Services Total Salaries

Consolidated Financial Statements

$ 70,024.31 $ $ 17,885.73 $ $ 1,464,074.10 $ $ 661,482.26 $ $

$ 181,558,192.65 $ 7,369,730.75 $

$ 156,486,828.96 $ 2,213,466.40 $

$ $ 981,489.60 $ 3,445,095.10 $ 653,043.40 $ 150,827,983.43 $ 579,217.43

$ 107,881,330.89

$ 58,966,101.20 $ 1,659,067.90 $ 4,555,187.95 $ 679,650.74 $ 42,018,403.63 $ 2,919.47

631,000.00 $ 149,000.00 $ 132,467,769.51

509,589.71

4,469.83 4,909.74 15,118.26 2,108.33 482,983.54

121,410.29 $ 149,000.00 $ 24,586,438.62

$ 25,071,363.69 $ 5,156,264.35 $

Agriculture

Department of Education

$ 24,586,438.62

Arts Council

121,410.29 $ 149,000.00

School of Science and Mathematics

$ 19,126,063.94 $ 5,156,264.35 $ $ 5,945,299.75

CareerTech Allocation

$ 5,324,917.70

$ 4,611,294.04

$ 4,024,699.67 $ 69,295.35 $ 160,409.31 $ 16,187.03 $ 334,842.12 $ 5,860.56

$ 713,623.66

Teacher Preparation

Commissioners of the Land Office

Oklahoma Tax Commission

$1,083,057,327.51 $1,328,524,685.13 $16,112,646.08

$ 105,776.29 $ 24,533.07 $ 5,987,569.14 $ 16,516.69

$ 3,920,157.91 $ 30,761,337.64 $ 7,637,552.13

$ 1,242,768.04 $ 9,616,044.66 $ 6,134,395.18

6,616.79

$ 206,370,073.09 $ 241,993,548.81 $12,268,790.35

Lottery Commission

$ 2,677,389.87 $ 21,145,292.98 $ 1,503,156.96 $ 2,677,389.87 $ 21,145,292.98 $ 1,503,156.96

Horse Racing Commission

$ 25,965.29 $ 2,675,604.76 $ 149,576.82 $ 319,416.32 $ 1,045,641.51 $ 5,617,973.93 $ 14,967.63 $ 1,003,049.64

3,473,808.81 $ 3,843,855.73 3,473,808.81 $ 3,843,855.73

Teachersâ&#x20AC;&#x2122; Retirement System

$ 35,341,198.23 $ 211,552.57 $ 75,707.83 $ 49,066.13 $ 160,409.31 $11,975,138.28 $ 46,160.34 $ 33,033.37

$ $

Expenditures for the 2007-08 School Year

Better Schools through Better Accounting

By Tom Daxon and Brandon Dutcher

etting real value for money is always a laudable goal, but even more so in today’s tough economic environment. This is especially critical in education, the linchpin of our state’s prospects for future growth. The Oklahoma economy is making strides, but we still struggle to fund government services while maintaining a competitive environment. It is especially vital for the state to get value for the money it spends on education. Three times now—most recently in this issue of Perspective—OCPA research fellow Steve Anderson, a Certified Public Accountant and a former statecertified teacher with 17 teaching certifications, has attempted to calculate just how much money Oklahomans really pay for their schools. Following generally accepted accounting principles, Mr. Anderson compiled the federal, state, and

local expenditures for Oklahoma’s public schools. He discovered that Oklahoma’s per-pupil expenditure for the 2007-08 school year—the latest year for which data were available—was not $7,615, the oft-cited “official” number. Rather, he estimated it was $10,257. If the CEO or chief financial officer of any public company disseminated misleading financial data to the same extent as Oklahoma’s education officials, they would be subject to criminal and civil prosecution. Indeed, according to Frederick Hess, a former public high school teacher and current director of education policy studies at the American Enterprise Institute, “school accounting guidelines would bring smiles to an Enron auditor.” How, you may ask, can the “official” reports be so far off the mark? It’s really quite simple. When computing expenditures,

the government’s school accounting systems simply • How many of those who start college are able to do exclude many significant costs. A few examples: so without remediation? • depreciation of buildings and other capital assets; • How well do our students perform on standardized • spending via “dedicated revenues” which are tests? funneled directly to schools without going through The approach of measuring performance, measurthe appropriations process; ing cost, and comparing performance to cost is one • retirement benefits as a cost in the year incurred; we should follow throughout government. Given the and important role education plays for our state, it is • interest on unfunded pension obligations resulting especially important that we get it right. Bringing from our repeated failure to fund benefits as they transparency to the process and holding our officials are earned. accountable are indispensable. Disturbingly, there are even more costs which could We must strive for high levels of performance in have been included but were not. For example, there every school. Most families are trapped if the local are many public-school costs that are carried on the public school fails to do its job since most parents budgets of other governhave few viable options. ment agencies, such as the And the failure to educost of remedial instruction cate has terrible conseborne by the higher educaquences. tion system. In addition, with When Mr. Anderson’s schools the whole is first study was published, more than the sum of the the Nobel Prize-winning parts. Potential employeconomist Milton Friedman ers find a well-educated (now deceased) called it labor pool highly desir“splendid.” He said it able. The availability of represented “a real public good schools is also an service.” By contrast, the important factor in president of the state’s recruiting and retaining most powerful labor union, key employees. the Oklahoma Education Every school district Association, called the should report its schools’ study “highly suspect.” performance. Every OCPA has repeatedly district should report the “As it happened, my work as an accountant challenged the union to a real cost of achieving transcended the genre.” public debate on the that performance. The matter, but to no avail. report should be audited. We should encourage our But there is more to education than spending. What major media outlets to cover these reports, comparing value do we get for what we spend? The reality of the progress and efficiency of different school disscarce resources demands that we prioritize wisely. tricts. For instance, Oklahoma has traditionally used its Oklahomans already do much for public education. resources to keep its class sizes small. Some would As our state seeks to build on the economic progress argue that we would get better results with better-paid it is making, we should consider what we can do to teachers even if we had one or two more pupils per provide our children the nation’s finest schools—and class. The point is that we face options in how to do it. Every dollar we spend, we must spend wisely. % spend any level of appropriation. We should systemTom Daxon, a Certified Public Accountant, has served as atically measure our performance against our costs Oklahoma’s elected state auditor and inspector and as secretary of finance and revenue for Gov. Frank Keating. and emphasize those strategies that get the best He was recently appointed to a task force of the Federal results. Accounting Standards Advisory Board. His latest study, We should consistently ask how we are doing. For “Enhanced Financial Reporting for State Government: example: Comparing Cost to Performance,” was published by OCPA • What is our yearly retention rate? in July 2009. Brandon Dutcher is OCPA’s vice president for • What percentage of each class graduates from policy. A version of this article originally appeared in high school in four years? “Getting Ready for Work: Education Systems and Future • What percentage of high school graduates go on to Workforce,” published in September 2009 by The Oklacollege? homa Academy.

Oklahomans Travel to Pennsylvania to Explore School Choice By Patrick B. McGuigan

group of Oklahomans interested in exploring expansive examples of school choice traveled to Philadelphia November 16 and 17. They visited Spruce Hill Christian School, talked with legislators like black Democrat state Sen. Anthony Williams of Philadelphia, and participated in long exchanges with people who have made inner-city education reform a reality. Oklahomans who made the trip include state Reps. Lee Denney (R-Cushing) and Jason Nelson (R-Oklahoma City) and state Sens. Brian Bingman (RSapulpa), John Ford (R-Bartlesville), Dan Newberry (RTulsa), and Gary Stanislawski (R-Tulsa). Also making the trip were former state Rep. Susan Winchester, Ginger Tinney, Michael Carnuccio, Bill Price, David Hand, Tom Daxon, and Matt Robison. The group visited “choice” schools in the Keystone State, talked with organizers of Pennsylvania’s tax credit program, interacted with a bipartisan mix of lawmakers and activists, and had the opportunity to press for details on how the program works in practice. The trip was notable not only for its visionary and hopeful spirit, but also for the practical and down-to-earth details on how the choice program is actually working in Pennsylvania. Many of the handouts the Oklahomans received focused in great detail on the ways the choice program works, both for beneficiaries and participating businesses. The linchpin for reform in Pennsylvania has been the Educational Improvement Tax Credit (EITC) program, enacted in 2001. As of 2009, some 38,000 students are served. The average scholarship amount is $1,022, and beneficiaries range from kindergarten to 12th grade. EITC sparked an explosion of Scholarship Organizations (SOs), philanthropies that are drawing some of the state’s most economically and socially challenged youngsters into successful educational environments. SOs may not limit support to a single school, must meet state compulsory attendance regulations, and must comply with anti-discrimination laws. The EITC program allows a tax credit on state corporate income taxes for contributions either to SOs

or to Educational Improvement Organizations (EIOs) that support innovative public school programs. The credit can’t go beyond 75 percent of the value of a company’s contribution, but that can rise to 90 percent if two consecutive gifts are made. The maximum value of the credit per company is $300,000. According to the Indianapolis-based Friedman Foundation for Educational Choice, in 2009 the total of all the credits awarded was $53,600,000. One featured program the Oklahomans learned about on their trip was the Hope Partnership for Education, a middle school and adult education center serving an impoverished neighborhood in north Philadelphia. Average family income in the area is $19,000, with most residents either black or Hispanic. More than half the local people live below the poverty line. The school uses the Nativity Miguel model that includes extended day programs and an open door policy toward kids who have struggled in traditional school settings. The graduation rate for kids working their way through the Nativity Miguel model is 89 percent, in comparison to 50 percent nationally for all black students, 53 percent for Hispanics, and only 68 percent overall. Although run by Sisters of Mercy and the Society of the Holy Child Jesus, Catholic orders, the educational program is not religious. Some schools with EITC students are religious, with the benefits following the child, not the system. The REACH (Road to Educational Achievement through Choice) Foundation of Harrisburg, Pennsylvania, highlights the ways choice has blossomed in the state—ranging from boosts to private schools through the scholarship program, charter schools, and “cybercharters” created by parents, teachers, community activists, colleges, and universities. Students accessing homeschool consortia have also become part of the program. One SO blossoming as a result of the Pennsylvania reform is the Children’s Scholarship Fund Philadelphia. The group focuses its efforts on pre-K to 8 beneficiaries, and predicates its scholarships on the active involvement of parents, requiring a minimum parental contribution of $500 per year or 25 percent of

A better life for more and more students

the cost of tuition (whichever is greater). The average annual family income of beneficiaries is $29,000. Evie McNiff, president of the group’s board of directors, says, “We began this program using three simple and unchanging principles—hope, opportunity, and success. We believed then as we do now that when families are given hope in the form of educational opportunity, they can achieve success.” The Pennsylvania trip was sponsored by the Friedman Foundation, a group that is leading the way in forging practical coalitions—building bridges among choice advocates and fostering close ties with grassroots black and Latino activists, Catholic school organizations and Christian academies, Jewish groups, and others. Leslie Hiner, Friedman’s vice president of programs and state relations, told me she was impressed by the level of inquiry by the Oklahoma participants. “It was obvious to me that the Oklahomans who attended the Pennsylvania fact-finding trip were not looking for platitudes or stories to make them feel good, although they appeared to be impressed by what they learned. Their clear priority seemed to be to uncover the secrets of success in Pennsylvania and to learn valuable lessons that could be useful in improving educational outcomes in Oklahoma.” Of the Oklahomans, Matt Robison was enthusiastic in his response to the Pennsylvania visit, but cautious when it came to its near-term policy implications for the Sooner State. “The trip left vivid impressions with me,” said Robison, vice president of small business and workforce development for The State Chamber. “The element of choice, the ability of a parent to choose the school setting that is best for his or her child, is absolutely essential to the future of schooling in our state and in our cities. Bottom line: I was impressed with what I saw.” Robison is cautious about how far Oklahoma might go this year in diversifying delivery of educational services. “Certainly, Pennsylvania is different from Oklahoma. The concept operating successfully there is wonderful. Figuring out how to bring a similar dynamic to life here is a relevant conversation. No one size fits all, and they have a different situation than ours, but this much is clear: an environment that honors the ability of a parent to make an educational choice is huge.” The current revenue crunch in Oklahoma could make it tough to advance the ball for any reform based on tax credits, Robison acknowledges: “This is a really tough year to talk about anything that might disrupt the status quo, but it’s a conversation that is essential.” Michael Carnuccio, a former state legislative staffer

now serving as senior advisor for Oklahomans for Responsible Government, said one of the most memorable things he heard during the Pennsylvania visit came from one of the leaders of REACH, who said, “We have a responsibility to educate the public, but not to public education.” The focus on people and their needs rather than a system and its needs is certainly appealing to those who have supported greater emphasis on students. A cluster of Oklahomans who have advocated educational choice for years has begun to attract positive reviews within the national movement. Prominent Oklahoma City attorney Bill Price, chairman of an Oklahoma school-choice coalition which meets regularly, was recently recognized by the Friedman Foundation as an “emerging leader” in the national movement (see http://bit.ly/8hHgWu). Price reflects, “I see a confluence of events in Oklahoma today that could create a unique opportunity for major reform—a public awareness that our schools are failing our children, and for the first time since statehood, a legislature more likely to stand up for parents and students than for the institutional forces that have thwarted reform in the past.” Concerning that school the Oklahoma group visited in Pennsylvania, Price said, “You can see it in the eyes of all the students we saw—they are truly excited to learn. These schools don’t cherry-pick their students or their parents. Some scholarship organizations have huge waiting lists and fund scholarships by lottery, a perfect control experiment, and have tracked the winning kids’ much higher level of academic performance.” Price concluded, “The tax credit scholarship program in Pennsylvania is now almost universally popular, even among those who initially opposed the law. Businesses, parents, and nonprofit groups now see its enormous benefits and are funding 200 scholarship organizations which enable even the neediest students to go to the best schools, most of which grew into existence to meet this new demand. The Pennsylvania program proves that competition does work in education. The public sees these positive results and puts pressure each year on the legislature to expand the program and offer the opportunity for a better life to more and more students.” Here in Oklahoma, an odd coalition of teacherunion cronies and bipartisan rural legislators have, thus far, kept broad school reforms, including choice programs, from advancing. Could this be the year the state legislature looks at the future and embraces it, rather than seeking to maintain the failed status quo? % Pat McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK.com.

The Medicaid Nuclear Option By Michael Franc

he legislative process inevitably fathers uninBut not under the House bill. tended consequences. The more complex and It creates a new entitlement to health benefits ambitious the legislative endeavor, the more numerfunded with generous federal subsidies. How generous are its by-blows. ous? For those at the lowest income levels, these Recently, Heritage Foundation analysts Dennis subsidies will be worth more than $20,000 a year for a Smith (who ran the federal Medicaid program for family of four. seven years in the Bush administration) and Ed However, the 60 million U.S. citizens who currently Haislmaier uncovered a doozy in the House’s healthreceive health coverage under Medicaid—plus the 15 care-reform bill: a previously unnoticed unintended to 20 million additional individuals the states would consequence that could hike federal spending by well be required to cover under the House bill—would be over half a trillion dollars in just the first few years ineligible for these new subsidies. Why? Speaker after its enactment. Buried amid the bill’s technical Pelosi and her allies recognized that giving Medicaid gobbledygook are several provisions that, acting in patients unfettered access to these subsidies would concert, could induce many, if not most, states to bust the federal budget. The new federal subsidies, terminate their Medicaid programs and stick Uncle you see, will cover almost 100 percent of a low-income Sam with the full cost of providing health care to individual’s health-care costs, considerably more than some 60 million lowwhat Uncle Sam covers income Americans. under Medicaid (typically As Smith and ranging between 50 and ObamaCare could induce Haislmaier explain, 83 percent of costs). In Oklahoma and other states to take “Congress is about to set addition, technical rethe rational and reasoned off a chain reaction that it quirements, known in the approach and simply terminate has not planned for and trade as “maintenance of will not be able to coneffort” provisions, would their Medicaid programs. tain. preclude states from Oklahoma could shift more than “The health-care offsetting the cost of these $2.7 billion of Medicaid costs to the legislation currently in new federal mandates by feds, and use that money to Congress not only imscaling back their current poses new costs on states Medicaid programs at the balance the budget and cut taxes. through expansion of the margins. Medicaid program; it also To review, then, here’s preempts state authority in management of the the situation created by the House health bill: program. Faced with becoming merely an agent of 1. It increases the fiscal burden on the states of the federal government, states will likely take the remaining in Medicaid. rational and reasoned approach of simply ending the 2. Its “maintenance of effort” requirements bar states state-federal partnership known as Medicaid.” from taking incremental steps to reduce their fiscal But hold on just a minute. States have long compain. plained about Uncle Sam’s heavy-handed role in 3. It creates new federal health subsidies for lowMedicaid. Yet, to date, they’ve never pulled the trigger income people that are far more generous than and opted out, and for a very understandable reason. Medicaid benefits but can’t be given to anyone Opting out would mean leaving literally billions of enrolled in Medicaid. federal Medicaid matching dollars on the table and Put them all together and these provisions actively picking up the full cost of providing health services to encourage states to exercise what we might dub the their Medicaid populations. As burdensome as “Medicaid Nuclear Option”—opting out of Medicaid Medicaid mandates and other federal regulations lock, stock, and barrel. may be, the trade-off (the advantage of being able to The option has no downside, either fiscal or moral. design more efficient state Medicaid programs vs. the States can shift all their Medicaid costs to Washingburden of having to assume their full costs) has ton and use the savings to balance their budgets, always convinced states to remain in the program. expand other services, or cut taxes. Plus, today’s Better to stay hooked up to the federal cash spigot, Medicaid recipients would be in a position to purthe thinking goes, and endure all the burdens that chase the same private health plans as their middleaccompany it. class neighbors.

billion in spending to the feds. And because of the generosity of the proposed federal subsidies, the total cost to Washington, D.C., would be even greater, approaching $1 trillion. These costs, moreover, would continue to skyrocket in subsequent years. California alone would be in a position to offload a cool $126 billion (its share of the current MediCal program over that period) to federal taxpayers. In Texas, the shift would total $60.7 billion; in Oklahoma, more than $2.7 billion. And so it goes. This is but one more of the rapidly expanding number of unintended consequences latent in the massive health-care bills being conjured up by Congress. The Congressional Budget Office ignored—or, more likely, just plain missed—this one in estimating the cost of the House bill. But when the official scorekeeper on Capitol Hill can miss a $725billion item hidden in the thousands of pages of dense legislative text, you can’t help wondering what other ticking time bombs remain undiscovered. %

If you are a governor trying to close gaping state budget holes, what’s not to like about that deal? Smith and Haislmaier conclude: “By piling billions of dollars in new costs onto states and imposing greater federal control over the states, Congress is recklessly increasing the likelihood that states will exert their own authority as sovereign units of government and end their participation in Medicaid entirely. “The savings to state budgets are so enormous that failure to leave Medicaid might be viewed as irresponsible on the part of elected state officials. The federal government, however, would be left holding a trillion-dollar-plus tab.” Indeed, at least one Medicaid director, Washington state’s Doug Porter, has already hinted that his state would jump ship. Porter said: “I can foresee a situation where states would say, ‘I don’t have enough in general funds to put up my share of this new expanded Medicaid program, and I have to get out of the Medicaid program.’” Smith and Haislmaier calculate that if all 50 states were to exercise the Medicaid Nuclear Option, between 2013 and 2019 states would shift up to $725

Michael Franc (J.D., Georgetown University) is vice president for government relations at The Heritage Foundation.

Just Say No to Oklahoma Tax Hikes By Brandon Dutcher erhaps you’ve seen various straight-news stories in Oklahoma about state budget cuts, furloughs, and “revenue shortfalls of near-catastrophic proportions” (how’s that for objectivity?). But with all this reportage on the state budget, where’s the concern for your family budget? After all, it’s not just state agencies which have budget woes and a perpetual “backlog of unmet needs.” Oklahoma families have our own backlog of unmet needs, and our own revenue shortfalls and budget cuts. For many Oklahomans—especially the thousands who have lost their jobs since the recession began—the family’s rainy-day fund is running low. So with budget problems mounting at 23rd and Lincoln, and The Journal Record reporting that “a few progressives have whispered the words ‘tax increase’ as a possible way to right the budget,” taxpayers need to be vigilant. To their credit, Governor Brad Henry, House Speaker Chris Benge, and Senate President Pro Tem Glenn Coffee are all saying tax hikes are not an option right now. That is good to hear. As OCPA economists Scott Moody and Wendy Warcholik

pointed out in these pages last month, the average Oklahoman already works longer to pay federal, state, and local taxes than to pay for food, clothing, and shelter combined. And the Obama-Reid-Pelosi regime is poised to make matters worse. Enough is enough. Still, we would be wise to remember Ronald Reagan’s words: Trust but verify. Oklahoma taxpayers would breathe a little easier if our elected officials would sign the Taxpayer Protection Pledge sponsored by Americans for Tax Reform. I encourage them to visit atr.org and pledge to the taxpayers of their district and to all the people of Oklahoma: “I will oppose and vote against any and all efforts to increase taxes.” Currently, fewer than 20 percent of Oklahoma’s legislators have made that promise. The rest are keeping their options open, reserving the right to take more of your money and give it to bureaucrats. Oklahoma’s budget situation seems to get worse every month, and things could really get ugly if things like SQ 744 and Obama’s Medicaid expansion come to pass. The pressure to raise taxes will mount. Now is the time to just say no. %

Opting Out of ObamaCare By Christie Herrera

t’s been several weeks since Senate Majority Leader This strikes at the heart of the individual mandate— Harry Reid floated the idea that states could “opt a provision in both the House and Senate bills—that out” of the government-run health insurance plan. But the Cato Institute estimates would force 100 million it’s been nearly a year since a growing coalition of Americans to lose their existing coverage. lawmakers in 24 states began crafting an opt-out In Massachusetts, a state that has had an indistrategy of its own. vidual mandate since 2006, more than 200,000 resiThe differences are clear. Mr. Reid’s opt-out providents remain uninsured, and health insurance premision is no opt-out at all. It began as a last-ditch effort ums for those forced to purchase coverage cost nearly to revive the Medicare-modeled public plan and $4,000 more than the national average. appease advocates of single-payer health care. And Fourteen states have already filed the Freedom of it shows. Choice in Health Care Act—Arizona’s measure will The Senate’s opt-out clause is just a detour on the face voters there on the 2010 ballot—and an addiroad to socialized medicine. It’s unlikely that state tional 11 states have already announced their intenlegislatures will have the political fortitude to reject tions to do so. In Oklahoma the legislation is being the public plan. Ones that do will still be forced to filed by state Reps. Mike Ritze and Mike Reynolds open Mr. Reid’s door No. 2 to find an unprecedented and state Sen. Randy Brogdon. requirement to purchase health On its face, the constitutional coverage, an economy-crippling amendment would strike down employer mandate, and massive any state law designed to prohibit Our federal system tax hikes to pay for Medicaid direct payment for medical care expansion and a host of new or one that would require an empowers states to government programs. individual mandate. These are protect the liberty of But while Mr. Reid’s illusory real threats at the state level—13 scheme has been in the headstates introduced single-payer their people. lines, behind the scenes state bills during the 2009 legislative legislators are pushing a real session, and an individual manopt-out plan that would preserve date was enacted to thunderous the freedom of individuals to make their own health bipartisan applause in Massachusetts. care choices. Now states are facing a looming health care overLast January, the American Legislative Exchange haul from Congress that would, among other unsaCouncil, a bipartisan group of conservative lawmakvory elements, require an individual to purchase ers, drafted the Freedom of Choice in Health Care Act. government-defined insurance. And in the event of The state constitutional amendment—modeled after federal passage, states may be able to use the the narrowly defeated Proposition 101 on the 2008 Freedom of Choice in Health Care Act as a legitimate Arizona ballot—would not only protect patients’ rights way to opt out of a federal individual mandate. but may also provide a mechanism for states to opt It’s a legal battle that has been fought before and out of a federal requirement to purchase health won before. Clint Bolick, legal adviser to the Arizona insurance. effort, maintains that our federal system empowers The Freedom of Choice in Health Care Act accomstates to protect the liberty of their people and the plishes two goals. First, it preserves the right of federal government has limited power to violate those patients to pay directly for medical care, which is protections. Recent Supreme Court cases have not illegal in some single-payer countries like Canada. only upheld this conclusion but also have permitted Single-payer horror stories tell us that when the states to opt out of certain provisions of federal law. government pays for medical care, bureaucrats make State lawmakers aren’t waiting around for Mr. Reid decisions based on the bottom line—resulting in to present them with false choices that saddle them waiting lists and rationing. When patients control with higher taxes, bloated government programs, and health care dollars, they retain the right to decide which worsening patient care. They know the time for state doctor to see and what medical treatments to get. constitutional protection is now. % Relevant to the federal debate, however, is the Christie Herrera (M.S. in political science, Florida State Freedom of Choice in Health Care Act’s second University) is director of the Health and Human Services provision—that individuals can’t be fined for failing to Task Force at the American Legislative Exchange Council. For more information, visit http://bit.ly/NHkRx. purchase government-defined insurance.

2010: Happy New Year! By Brett A. Magbee

ver think about how refreshing it is to start a new year? It’s when all the New Year’s resolutions begin. A new year is like a new beginning when people have a lot of hopes for the future and therefore make a lot of promises. It’s a time when they believe that nothing can stop them from accomplishing what they have set out to achieve. Well, as the staff of a free-market think tank we feel that way too! The year ahead is certainly going to have a lot of challenges. It always does. But something tells us that there are going to be a lot of positive things happening this year too! Yes, we understand that big-government proponents will still be making a full frontal assault against our personal liberties. But something quite remarkable is happening among our citizens. It’s an awakening of sorts—an understanding, if you will—that it’s become an all-or-nothing game.

Since 1993, OCPA has been pointing out that there are only two ways that government ends up: (1) dictating the terms and conditions for every individual’s existence, or (2) serving individuals by unleashing the power and might of capitalism. And there is always a tug of war between those opposing philosophies. We believe that most Oklahomans would rather have charge of their own destiny than ask a bureaucrat for permission. It’s with that knowledge that we remain positive about 2010. So as you hear about more plans to grow more government, take a deep breath, get out your checkbook, and make a difference in the end-game by supporting the work of OCPA, Oklahoma’s own free-market think tank. In fact, why not make a resolution to support us monthly? It’s a great way to start off the New Year— helping us drive big-government proponents crazy. %

OCPA executive director Forrest Claunch speaks at the Kingfisher Rotary Club in December. Claunch discussed an array of policy issues and urged members to re-read the U.S. Constitution for guidance on how to view the proper role of government.

Alison Acosta Fraser, director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation, discusses budgetary policy at a recent meeting at OCPA headquarters.

Former state Rep. Susan Winchester is pictured here at a meeting in OCPA’s Avery Boardroom.

Each year OCPA is host to a wide variety of free-market groups. The Avery Boardroom brings opinion leaders and policy makers together to find common ground on important issues critical to Oklahoma’s future.

NONPROFIT ORG. U.S. POSTAGE PAID OKLA. CITY, OK PERMIT NO. 2573

Change Service Requested

Oklahoma Council of Public Affairs 1401 N. Lincoln Blvd. Oklahoma City, OK 73104

Perspective is published monthly by the Oklahoma Council of Public Affairs, Inc. No substantial part of the activities of OCPA includes attempting to influence legislation, and OCPA does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

“We try to convince politicians to stop wasting our money and stealing our freedom, but a more permanent solution may be to incarcerate them.” John Hood, president and chairman of the North Carolina-based John Locke Foundation, on his think tank’s foray into investigative journalism

“A permanent national recession.” The management consulting firm McKinsey and Company, in a 2009 report saying our nation’s failing public school system imposes a permanent drag on the economy

“In a season where our country is drifting all too swiftly in the direction of socialism, this is precisely the book everyone needs to read.” Dr. Sam Storms, senior pastor of Bridgeway Church in Oklahoma City, recommending Jay W. Richards’ book Money, Greed, and God: Why Capitalism is the Solution and not the Problem as the top book of 2009

“This is an opportunity to restructure government into a more efficient and effective system of providing for the public.” Oklahoma Senate President Pro Tem Glenn Coffee (R-Oklahoma City), discussing the state budget crunch

“Because what these school districts and unions and otherwise have said: ‘We aren’t special interests, we’re extra special. We’re supposed to get all the money and everybody else can just divide up the crumbs.’...It’s clear to me they don’t care about anybody but themselves.” Democrat Governor David Paterson of New York

E “The public education system could realize massive cost savings if state government would encourage people to participate in private and homeschool education through the provision of a property tax refund, which often is proposed at $4,000 per year.” State Rep. Jason Murphey (R-Guthrie)

“This is not a contest for one political party, one sector of our economy, or one segment of the population. We all stand to lose as crony capitalism drains the life from our economy; but we all stand to gain from the fruits that genuine, vigorous, free market competition provides.” Congressman Paul Ryan, in a recent Forbes.com article decrying the rise of crony capitalism