February 2010 by OCPA

February 2010 â&#x20AC;¢ Volume 17 Number 2

Perspective February 2010 Vol. 17, No. 2 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 1401 N. Lincoln Boulevard Oklahoma City, OK 73104 (405) 602-1667 FAX: (405) 602-1238 www.ocpathink.org ocpa@ocpathink.org

Newberry Bill Advances Scholarships for Parental Choice By Patrick B. McGuigan n an attempt to expand the choices available for parents of elementary and secondary students, state Sen. Dan Newberry (R-Tulsa) this month introduced the Oklahoma Equal Opportunity Education Scholarship Act. Senate Bill 1922 would allow individual income tax credits (with some limitations) of up to $1,000 a year for individuals, and $2,000 for couples, for contributions made to eligible scholarship-granting organizations. There would be no limit on the statewide total of such individual contributions. The total value of credits available to businesses would be limited to $10 million a year (and $100,000 per business). The tuition scholarships would be limited to families making up to 300 percent of “the income standard used to qualify for a free or reduced school lunch.” Grants for special-needs students also would be allowed. Scholarships could only be used at accredited schools with accountability in place, and with standards to conduct criminal background checks of teachers and staff. SB 1922 comes in a context that is both hopeful and challenging to choice. “Challenging” is a revenue crunch for state government flowing from tax receipts far below last year’s projections from the Board of Equalization. The national recession reached Oklahoma with a vengeance. “Hopeful” is the increasingly diverse base of support for experimentation in delivery of educational services, and the determination of state leaders to assure continued support for education. Further, former state Sen. James Williamson (R-Tulsa) was a sponsor of the tax credit for choice measure in 2008, when the dam

broke dramatically in favor of his proposal. The debate proceeding that vote was one of the most elevating in recent memory. Last month, Williamson was named a senior policy advisor in the state Senate. An ardent conservative enjoying cordial relations with former colleagues on both sides of the aisle, he could bring an “X factor” into the equation as Newberry’s proposal comes under scrutiny. Several members of the Senate, Democrats generally considered liberal, not only favored the Williamson bill in March 2008 but spoke eloquently in its favor. The most persuasive of these was the venerable Judy Eason-McIntyre (DTulsa). She defied long-time allies, expressing her admiration to Williamson for pushing an idea that would have, in that case, largely benefited minority children in the two largest cities. Newberry’s sponsorship comes in the midst of a new era in choice debate. As support intensifies in urban areas across traditional partisan lines, supportive legislators from outside urban regions are more visible. African-American officials from both cities, including legislators like Eason-McIntyre and state Rep. Jabar Shumate (also a Tulsa Democrat), remain active in the cause. All in all, this could be the year the state Legislature dramatically advances options for parents seeking better educational opportunities for their children. % Patrick McGuigan is editor of CapitolBeatOK. He works under a contract with OCPA to provide incisive, accurate, and timely news coverage of Oklahoma state government. Visit www.capitolbeatok.com for in-depth reporting on the latest developments in state government.

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

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What Is Seen and What Is Not Seen By Frederic Bastiat

If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: “It’s an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?” Now, this formula of condolence contains a whole theory that it is a good idea for us to expose, flagrante delicto, in this very simple case, since it is exactly the same as that which, unfortunately, underlies most of our economic institutions. Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs’ worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen. But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen. It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six

n the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them. There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil. The same thing, of course, is true of health and morals. Often, the sweeter the first fruit of a habit, the more bitter are its later fruits: for example, debauchery, sloth, prodigality. When a man is impressed by the effect that is seen and has not yet learned to discern the effects that are not seen, he indulges in deplorable habits, not only through natural inclination, but deliberately. This explains man’s necessarily painful evolution. Ignorance surrounds him at his cradle; therefore, he regulates his acts according to their first consequences, the only ones that, in his infancy, he can see. It is only after a long time that he learns to take account of the others. Two very different masters teach him this lesson: experience and foresight. Experience teaches efficaciously but brutally. It instructs us in all the effects of an act by making us feel them, and we cannot fail to learn eventually, from having been burned ourselves, that fire burns. I should prefer, in so far as possible, to replace this rude teacher with one more gentle: foresight. For that reason I shall investigate the consequences of several economic phenomena, contrasting those that are seen with those that are not seen. The Broken Window Have you ever been witness to the fury of that solid citizen, James Goodfellow, when his incorrigible son has happened to break a pane of glass?

francs to some use or other for which he will not now have them. Let us next consider industry in general. The window having been broken, the glass industry gets six francs’ worth of encouragement; that is what is seen. If the window had not been broken, the shoe industry (or some other) would have received six francs’ worth of encouragement; that is what is not seen. And if we were to take into consideration what is not seen, because it is a negative factor, as well as

what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken. % Frederic Bastiat (1801-1850) was a French economist, free-trade activist, and member of the French legislature after the Revolution of 1848. This article is excerpted from the first chapter of Selected Essays on Political Economy, translated by Seymour Cain and edited by George B. de Huszar, published by the Foundation for Economic Education.

How Many Oklahomans Does It Take to Fund One Government Job? By J. Scott Moody and Wendy P. Warcholik It takes 17 Oklahomans in the private sector to fund one Oklahoma state government job. In total, for 2008, there were 85,716 state government workers (including higher education) in Oklahoma, earning $4,131,154,000, or an average of $48,196 per job. As a result, it would take a total of 1,441,023 privatesector jobs to fund Oklahoma’s state bureaucracy— slightly more people than were employed in the private sector in 2008 (1,301,887).1 Oklahomans are paying dearly for these 85,716 state government employees in the form of higher taxes. According to recent OCPA research, Oklahoma state government has 27,548 too many jobs2 when compared to the state employment average nationwide. Eliminating these jobs would have saved Oklahoma’s taxpayers up to $1,312,834,006 in 2008.3 That’s state government. How about local government? It takes 29 Oklahomans in the private sector to fund one Oklahoma local government job. In total, for 2008, there were 194,363 local government workers in Oklahoma earning $8,957,930,000, or an average of $46,089 per job. As a result, it would take a total of 5,485,774 private-sector jobs to fund Oklahoma’s local bureaucracy—or 4.2 times the number of people currently employed by Oklahoma’s private sector in 2008.4 As with the state government, Oklahomans are also paying dearly for these 194,363 local government workers. Oklahoma local government has 34,846 too many jobs when compared to the local employment average nationwide. Eliminating these jobs would have saved Oklahoma’s taxpayers up to $1,598,435,949 in 2008. Oklahoma’s state and local government employees earn $13,089,084,000, making state and local government the largest industry classification in the state. Government payrolls are larger than other industry classifications such as manufacturing ($12,000,040,000), health care and social assistance ($8,928,878,000), retail trade ($6,255,275,000), professional and technical service ($5,124,178,000), and even U.S. government

civilian/military ($7,081,135,000). Moreover, Oklahoma’s 280,079 state and local government employees constitute the largest industry classification in terms of employment. In this case, it is larger than manufacturing (159,025), retail trade (222,373), health care and social assistance (204,353), and administrative and waste services (141,594). % Endnotes 1 This may appear nonsensical at first glance. However, keep in mind that this counts only taxes that are directly paid by individuals and does not include taxes paid by businesses, taxpayers with higher than average incomes, revenue from matching federal funds (such as Medicaid), or taxes paid by non-residents or retirees. In short, this exercise is meant to illustrate the simple concept that all money spent by government must first come from taxpayers, and that government employees really are “servants of the people.” 2 Based on total employment (full- and part-time), not FTEs. OCPA’s economists use Bureau of Economic Analysis (BEA) data to compare government employment to private-sector employment in Oklahoma, and private-sector FTE data are not available from BEA. 3 For more information on Oklahoma’s compensation and employment ratios, see “Oklahoma’s Government-Employment Problem Persists” at http://bit.ly/bnYRnz. 4 See endnote 1 above. Methodology In order to calculate the amount of taxes paid, this study utilizes the information provided by “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” published by the Institute on Taxation and Economic Policy (ITEP), a liberal think tank based in Washington D.C. ITEP uses a “family income” (FI) concept which is likely very similar to the “adjusted gross income” (AGI) concept used on federal and state individual income tax forms. In order to derive FI, the average privatesector wages and salaries ($37,859) were increased by 30 percent to approximate AGI (according to the Internal Revenue Service, wages and salaries constitute about 70 percent of AGI). The resulting average FI was $49,216 per job in 2008. The ITEP analysis shows that the effective tax rate for a taxpayer earning $49,216 is 8.9 percent—split 5.7 percent for state taxes and 3.2 percent for local taxes. Overall, the average private-sector job paid $2,802 in direct state taxes and $1,579 in direct local taxes in 2008. Dividing the average state-government compensation per job ($48,196) by $2,802 yields 17 average private-sector jobs needed to sustain a single state-government job in 2008. Dividing the average local government compensation per job ($46,089) by $1,579 yields 29 average private-sector jobs needed to sustain a single local government job in 2008.

Historical Bullies Intimidate Teacher By Ben House

where he was enrolled as a freshman. This was not ave you ever had the experience of being afraid simply a matter of bringing along a copy of his school to walk down a certain street because a bully records, an ACT score, and writing a check as in our there intimidated you? I have long since outgrown day. Most of his education had consisted of being that fear, but I am still intimidated. homeschooled by his father, with some time spent in a It is not a street that intimidates me. It is the past. It private school for boys. (Sandie was the only boy in a is history that intimidates me. I dread the 19th century, house full of sisters, so his parents wanted him to the 18th century, the 17th century, and so on. Like a have opportunity to develop manly qualities.) So gang, like bullies, all too many figures from those before he could be admitcenturies threaten me and ted as a freshman, he was belittle me. given a “rigorous examiI confess that Sandie nation in Greek, Latin, and Pendleton intimidates me. mathematics” by a group Sandie Pendleton—his of professors. full name was Alexander One of the examining Swift Pendleton—is in all professors asked Rev. respects a very minor Pendleton why he sent this historical figure. His “delicate looking child to father, William Nelson face us alone.” The father Pendleton, was an orreplied, “I knew that he dained Episcopal minister was well prepared, and with a military backmy son must learn to ground. General depend upon himself and Pendleton’s son, Sandie, not on me. I wish him to be joined the Confederate a good scholar, but still army in 1861 at age 21. more a strong, self-reliant He had a brilliant but man.” short career as a staff As I said, I am intimiofficer under General dated, I am bullied, I am Thomas J. “Stonewall” afraid of this “delicate Jackson. In 1864, just a looking” college freshman few days before his 24th in Lexington, Virginia, birthday, Sandie from the year 1853. Sandie Pendleton died from Pendleton was 13 when he wounds received at the entered Washington battle of Fisher’s Hill. A This teenager could College. few months after his If this 13-year-old death, his young wife challenge me in almost stepped out of the past gave birth to a son who any area and make and walked into my office was given his father’s to face me alone, I could name, but died the next mincemeat of my state not give him a rigorous year. teaching certificate. examination in Latin, As fascinating as his Greek, and mathematics. military career was, I say that not as a college Pendleton’s intimidating freshman, or as a 13-year-old, but as one whose years challenge to me precedes his short, tragic, but brilare multiples of 13, as one who has a college underliant service as a staff officer. graduate degree, a Master’s degree in education, In 1853, Rev. William Nelson Pendleton accepted a many hours beyond a Master’s degree, more than two call to serve as rector of Grace Episcopal Church in decades of teaching experience, and a personal Lexington, Virginia. Like any family moving to a new library of several thousand volumes. I am, in our town, one of the first tasks was to enroll Sandie in modern dark age, a well-educated man, or at least I school. Rev. Pendleton took Sandie to Washington have been told that. College (now called Washington and Lee University)

I could not teach this kid anything, except maybe 20th century history—in English. He could not be enrolled in my school, even though we pride ourselves on our academic standards. I would have to give him an application to teach here, not attend here. In this classroom, this teenager could challenge me in almost any area and make mincemeat of my state teaching certificate. I would not be so bothered if Sandie Pendleton were the lone, or at least rare, case of genius. We all read of those rare and gifted people who can calculate incredible square roots in their heads or who can memorize whole passages with one reading, but Sandie Pendleton was no genius. He was smart; he was gifted; but he was not unusual for his time. Turn any corner in the past centuries, step into any classroom, glance at any textbook or writing assign-

ment, check out any list of assigned readings, and the same patterns appear. Ministers, teachers, politicians, doctors, lawyers, military officers, and many a common laborer and farmer had educational experiences that make our modern degree factories look like kindergarten. Even though 13-year-old Sandie Pendleton intimidates me, I keep stepping back into those centuries, knowing I am going to be humiliated again. For many of us who are teachers today, one of our main callings is to call attention to how far we have fallen and make a few steps on the journey back. My hope is for children, grandchildren, and great grandchildren who can regain what Sandie Pendleton once had. % Ben House is an administrator and teacher at Veritas Academy in Texarkana, Arkansas. He has been a teacher in both public and private schools for 30 years.

Study Points Up Higher-Ed Shortcomings rately distinguish free markets from centralized planning. So what does college do? It pushes opinion leftward on the most polarizing social issues. • College makes people more likely to support samesex marriage and abortion on demand, and less likely to support school prayer and the American work ethic; • A college degree moves a person toward the Democrat/liberal side of the political spectrum, while greater civic knowledge moves a person toward the Republican/conservative pole of the spectrum; and • College professors are more likely than non-professors to believe that America corrupts otherwise good people, that the Ten Commandments are irrelevant, and that educators should instill more doubt among students. In short, the findings in “The Shaping of the American Mind” sharply illustrate the real-world failure of a college degree and the politicized nature of higher education. For a copy of the report, visit AmericanCivicLiteracy.org. —Intercollegiate Studies Institute

What students are actually learning in America’s colleges may astonish you. On February 10, the nonprofit, nonpartisan educational organization the Intercollegiate Studies Institute (ISI) will release its fourth annual report assessing how well America’s colleges and universities are preparing graduates for lives of informed and responsible citizenship. This year’s groundbreaking National Civic Literacy Report, “The Shaping of the American Mind,” clearly shows that college fails to give graduates a grasp of essential elements of American history, government, and economics. The study also measures for the first time the impact that earning a bachelor’s degree has on forming public opinion. Among the findings in this scientific study: • More than one-third of college graduates cannot identify the three branches of government; • Only 24 percent of college graduates know that the phrase “government of the people, by the people, for the people” comes from Lincoln’s Gettysburg Address; and • Only 17 percent of college graduates can accu-

CompSource Sale a Good Start to Workers’ Comp Reform? By Patrick B. McGuigan

measure is state Sen. Cliff Aldridge. The two men pproximately one third of workers’ compensation chaired a task force that recently finished a massive insurance policies in the Oklahoma market are report looking at all aspects of the issue. written by CompSource, best described as a publicThat nine-member task force heard from all sides, private hybrid. It is neither a government agency nor including defenders of the status quo. Those “leave it a private company, but a bit of both. If you’re conalone” folks, including CompSource’s leadership, fused by that, join the club. believe that only government can fill the role of When I served in state government, as Brenda “insurer of last resort”—the professed purpose of Reneau’s deputy commissioner at the Oklahoma CompSource. Department of Labor, the Yet to many informed oddness of CompSource’s Will private insurance critics, the status quo seems structure was a frequent topic dysfunctional. CompSource of discussion and frustration. companies do a better job has high net losses and faces To be sure, the state Labor than a government agency? serious near-term threats to Department staff encouraged solvency—despite its semi(and in some cases ordered) monopoly in the market, as well as tax and other small businesses to get required insurance coverage advantages that no private business gets. through CompSource or from private-sector providers. At this point, it seems most likely that CompSource A major problem is that, like the U.S. Post Office, will either be sold as Sullivan and Aldridge advocate, CompSource acts like a private business when that is with the money going to the state treasury, or best for its interests, and like a government agency “mutualized”—with existing policy holders as the new when that is most convenient. But it’s pretty clear it’s a owners, as Oklahoma City Republicans David Dank government agency in one crucial sense: and Jason Reese prefer. CompSource employees are treated as state employThere appear to be problems with mutualization, ees for purposes of employment benefits. primarily the impairment of income that would be After many years of advocating reform of entailed for an entity that already has problems with CompSource, conservative Republicans seem well loss ratio and operating income. At least one strong positioned this year to change its structure. House Bill conservative at the state House, Dank, has advanced 2662, by state Rep. Dan Sullivan of Tulsa, would sell legislation to promote CompSource mutualization. CompSource to the private sector. Also supporting the

State Analyst Echoes Tax Foundation Critique of Film Production Incentives By Patrick B. McGuigan “Movie Production Incentives: Blockbuster Support for Lackluster Policy.” A non-partisan, nonprofit organization, the Tax Foundation has monitored and reported on fiscal policy at all levels of American government since 1937. William Luther, an adjunct scholar at the Tax Foundation and author of the report, said in a press release, “Motion picture incentives are often touted as ‘job-creating’ programs, but they create mostly temporary positions with limited upward mobility. The only thing these incentives create is the need for ongoing credits and subsidies. As other states sweeten their incentives, productions move on.” Only five states offered such incentives in 2002. Today, of the 44 involved in some way, the foundation says “28 states and Puerto Rico offer tax credits for film production—credits that are refundable in 15 of those states. Eighteen states offer direct cash rebates to production companies, and Texas, Tennessee, and the District of Columbia offer grants to filmmakers.”

[Editor’s note: This article appeared January 16, 2010 on CapitolBeatOK.com.] A new study from the Tax Foundation questions the effectiveness of incentives provided to encourage motion picture filming and/or production around the country. A total of 44 states, the District of Columbia, and Puerto Rico offer significant movie production incentives, the foundation says, but limits on such programs could be coming. David Blatt of the Oklahoma Policy Institute (OPI) commented on the film tax credit issue in an interview with CapitolBeatOK. He said, “In general, the report points to the fact that a lot of tax credit programs are simply not well evaluated. Many of them are not reaching their professed goals in an efficient manner.” Blatt said that while he was not sure all the problems found in the Tax Foundation analysis are duplicated in Oklahoma, he hopes legislators will carefully examine the effectiveness of such programs here. The report, issued January 14 in Washington, D.C., is

Several weeks ago, Michael McNutt of The Oklahoman reported that task force members believe sale of CompSource could bring between $200 million and $350 million into state coffers. Anyone who has paid attention can tell you this is a great year to look at even one-time boosts to the state treasury without new taxes. Privatization of the workers’ comp market for “last resort” needs has been achieved in Texas and a few other states. The results of several studies demonstrate that private insurance companies will do a better job than a government agency. Back in 1995, Michigan sold its state-run “Accident Fund” for $262 million. The Mackinac Center for Public Policy found that “the sale of Michigan’s Accident Fund was a slam-dunk for the state financially. It generated a large, one-time revenue hike for the state treasury, while it increased, by all indications, the quality of services provided to the fund’s many customers.” The Michigan experience seems apt, as the conversion came during a recession. The Mackinac study contends it might be more accurate to call the new fund “semi-private” because the owner, Blue Cross Blue Shield of Michigan, retained some tax advantages. But those were probably offset, Mackinac’s Michael D. LaFaive reasoned, by countervailing burdens to insure companies regardless of health. Nevada followed Michigan, and again the results were hopeful. Lower premiums, better coverage, and reduced bureaucracy have been the fruit of reform in those states and in West Virginia and Texas. A sale to

the private sector, tailored to Oklahoma’s conditions and needs, seems the better part of wisdom. In a recent “advertorial” on this issue, published in The City Sentinel newspaper, Marlin Oil Corporation, led by the venerable Ralph Harvey, commented: “The cost and focus of workers compensation insurance remains one of the most challenging problems for the state as Oklahoma businesses try to find ways to grow and prosper. Premiums are higher than in surrounding states, and the system in general has a bias in favor of litigation rather than neutral administration of settled principles of law.” That’s why the CompSource solution ultimately must be approached within the context of the entire workers’ compensation insurance system. The task force leadership has set a goal of resolving the issue, one way or another, by the end of 2011. Legislation passed in the next few months will likely trigger a “friendly” lawsuit, with the state Supreme Court exercising original jurisdiction to clarify whether or not CompSource assets belong to the state. Everyone in small business, the engine of the Oklahoma and national economies, should support the process that has begun so well. It’s hard to quarrel with one of Ralph Harvey’s conclusions in this matter: “Government needs to get out of the insurance business, and let the private sector do the job.” % Patrick McGuigan is editor of CapitolBeatOK. He works under a contract with OCPA to provide incisive, accurate, and timely news coverage of Oklahoma state government. Visit www.capitolbeatok.com for in-depth reporting on the latest developments in state government.

OPI’s Blatt told CapitolBeatOK, “Certainly very serious concerns have been raised about the wisdom and effectiveness of the programs in Iowa and Kansas. I have a pretty strong suspicion some of the same problems have existed here as in those other states.” A Tax Foundation summary of Luther’s report said: “In addition to tax credits, cash rebates, and grants, film production companies receive other preferential tax treatment: 30 states offer sales tax exemptions, and six states offer fee-free locations for the use of police officers to stop traffic.” “Some states are suspending their MPI [movie production incentive] programs due to budget pressures and revelations of mismanagement. Kansas has suspended its film tax credit program, and an Iowa panel appointed by Gov. Chet Culver after findings of program abuse [recently] recommended eliminating the state’s film tax credit.” Blatt reflected, “The question that does not get asked

often enough is whether or not these programs are cost efficient and if they have a real economic benefit or not. Often with incentive and credit programs you wind up having only companies who don’t really need the benefits being the only ones who can get these deals at taxpayer expense.” Blatt concluded, “I hope the report will have the effect of forcing legislators and others in government to look very carefully at what actually works and to be very disciplined before using scarce resources in such a manner. Obviously in the terribly difficult circumstances we face, everything the government does is under close scrutiny. I think that kind of scrutiny should be given to the state’s film incentives program.” Strong advocates for MPIs and other incentives have included governors in Florida, Michigan, New Mexico, Oregon, Ohio, and Texas, while rare critics have included Mitch Daniels of Indiana and, most recently, the governors of Iowa and Rhode Island. %

n 1991, reeling from the economic pain of the energy bust, Oklahomans voted higher taxes on themselves to fund what they hoped would be a transformational leap forward in the quality of public schools. Proponents of HB 1017, which included some of the state’s most prominent business and civic leaders (in addition to the usual education functionaries), held out the prospect of educational excellence ushering in a new era of prosperity. That hasn’t happened. So what can we learn from 1017, and how can we prevent a similar result from future reform efforts? In the 1970s, Arab countries embargoed oil and drove up prices dramatically. In most of the United States, the result was a severe recession. But in Oklahoma, a traditional energy state, just the opposite occurred. The economy boomed and per capita income rose sharply. Money poured into the state’s coffers—so fast that some even wondered if the state could spend it all. In 1981 the markets and reality reasserted themselves. The price of oil peaked and began to decline. In 1982, Penn Square Bank failed. Others would follow. Just as the state had been awash in new revenue with energy prices skyrocketing, the state now began to look for ways to balance its budget. The heady days of the oil boom were past and, for Oklahoma, it would get worse. It was in this setting that many Oklahoma leaders began to see what they thought might be a long-term solution: outstanding schools. In 1989, a blue-ribbon citizens panel, Task Force 2000, recommended sweeping changes in Oklahoma’s public schools. Most of the recommendations were eventually incorporated into HB 1017, which the legislature passed and Gov. Henry Bellmon

signed in 1990. However, opponents, led by the Oklahoma Taxpayers Union, circulated petitions that allowed citizens to vote on whether to repeal the law. In 1991, 54 percent of Oklahoma voters, in a huge turnout, voted against repeal of 1017. 1017 became the cornerstone of school policy and remains so to this day. However, the hopes of its supporters for an outstanding school system and resulting prosperity never materialized. Good Intentions 1017 did not fail because it was not a noble effort. 1017 was one of the relatively few transformational changes made by a state in the past half century. It was also one of the most noble. In contrast to some other major changes (e.g., California’s transformational Prop 13 that limited property taxes, whose mantra was “We’re mad as hell and we’re not going to take it anymore!”), 1017 offered a message of hope and an appeal to sacrifice for the future and the common good. About the same time Oklahoma put 1017 into effect, its neighbor and fellow energy state, Colorado, passed perhaps the strictest budgetary limitation ever, the so-called taxpayer bill of rights (TABOR). It would be difficult to conjure up a more apples-toapples test of the impact of public policy on economic performance. Shortly after TABOR and 1017 took effect, Colorado began to boom while Oklahoma renewed its downward slide. What can we learn from this experience? Let’s look first at what 1017 did. Contrary to the claims of some detractors that 1017 was simply a big tax increase, 1017 initiated a long list of significant changes in Oklahoma’s public schools. 1017 did increase education spending, but it also channeled

much of the additional money into launching or expanding what appeared to be promising opportunities, including: • Smaller class sizes (for a time, the smallest in the nation, on average); • Early childhood education, placing Oklahoma in the vanguard of a nascent movement; • Accountability and assessment, before mandates from the federal government; • Guidance counselors for every high school; • School librarians for every high school; and • A high-profile boarding school for the especially gifted and talented. 1017 and a companion measure also encouraged smaller school districts to consolidate and some did. According to a report released by the Oklahoma Senate staff, Oklahoma’s number of school districts fell from 604 to 549, largely because of 1017. How did 1017 pay for these things? Primarily by raising taxes. 1017 increased the sales tax from 4 percent to 4.5 percent, increased the corporate income tax rate from 5 percent to 6 percent, and added a new top rate for individual income taxes of 7 percent (previously the top rate was 6 percent). The new 7 percent rate generally kicked in at $21,000 of taxable income for those filing joint returns and at $10,000 for single filers. Other legislation granted a new sales tax rebate to lower-income taxpayers. Though 1017 did not go as far as some proponents wished, the higher tax rates did take effect and most of the proposed reforms were implemented. Average class sizes decreased. Early-childhood education programs took hold and Oklahoma soon became recognized as a national leader in this area. The Office of Accountability was established and continues to publish reports. New guidance counselors and librarians were hired. A new Oklahoma School of Science and Mathematics was established in Oklahoma City. Yet despite the planning, the promises, and the enthusiastic support of a majority of Oklahomans, Oklahoma has yet to see the level of prosperity or educational excellence that was envisioned. A Tale of Two States Let us look first at the mechanisms 1017 used to raise revenue to pay for its new and expanded initiatives. In 1990, Colorado and Oklahoma, both landlocked energy states, had rather similar tax policies. Both had relatively low property taxes, relatively high consumption taxes, and almost identical income taxes (Oklahoma’s top rate topping out at 6 percent and hitting that rate quickly, and Colorado’s flat rate of 5.75 percent). The economies in both states were hit hard by the energy bust but both appeared to have bottomed out and were showing signs of recovery.

After the passage of 1017 in Oklahoma and TABOR in Colorado, the picture began to change. Colorado’s flat rate immediately dropped to 5 percent and periodically shed a small additional percentage for several years. Oklahoma’s top rate, still hitting most taxpayers, was now at 7 percent. Oklahoma’s economy faltered and the state continued to slide in rankings of per capita income relative to other states. In Colorado, officials often found it difficult to fund all the services they considered essential, but the economy shrugged that off and boomed. Eventually, Colorado voters heeded the cries of the education establishment and relaxed the TABOR provisions. Meanwhile, Oklahoma leaders, alarmed at the poor performance of Oklahoma’s economy, began reducing income tax rates. However, the damage was already done to Oklahoma’s competitive position. Oklahoma’s first mistake was to raise taxes—especially raising the wrong tax (the income tax) in an especially harmful way (raising the marginal rate). However, if Oklahoma’s schools had emerged into excellence as 1017 proponents envisioned, the state might have weathered its tax policy mistake in better shape. Unfortunately, the excellence never materialized. In fact, relative to other states, Oklahoma actually regressed in some important measures. Perhaps more galling, Colorado actually outperformed Oklahoma in most measures of progress in education. Probably the most widely watched measure of educational progress is the National Assessment of Educational Progress (NAEP), otherwise known as “The Nation’s Report Card.” The chart below shows average scores for reading and math for Oklahoma, Colorado, and the United States: NAEP Average Scale Scores Oklahoma 1992 2007 4th Grade Reading 220 217 4th Grade Math 220 237 8th Grade Math 268 275

Colorado United States 1992 2007 1992 2007 217 224 217 221 221 240 220 240 272 286 268 281

Source: http://nces.ed.gov/nationsreportcard/naepdata/

While the gap is not wide, we can see that Oklahoma, after 1017, did not keep pace with Colorado or the rest of the country. Obviously there are other ways of looking at data and other data sets that could be considered, but it is impossible to find a consistent pattern of superior performance by Oklahoma’s post-1017 public schools. Spend Wisely One of 1017’s major objectives was to reduce the number of students in Oklahoma classrooms. While there are differing opinions among researchers on the subject, there is evidence that smaller classes bolster

educational achievement but that the improvement is strongest in the very early grades and among students with socioeconomic disadvantages. Since reducing class size is very expensive, some observers think a better strategy is to improve teacher pay. It costs the same to pay four teachers $50,000 per year as it does to pay five teachers $40,000 per year. There is also strong evidence that a state with limited resources will get better results using its money to hire the best teachers, even if it means more students per classroom. Even more disappointing, Oklahoma has won national accolades for its support of early childhood education, but has little to show for its investment other than awards from organizations promoting their form of early childhood programs. The theory is that crucial neural development occurs in young children before they start school and that by nurturing this development the children will better succeed in school. Through 1017 and subsequent efforts, Oklahoma became a leader in early childhood programs. This is an area where Oklahoma’s policies have deviated from other states. These programs should now be paying dividends, but the dividends have yet to appear. Despite being a state that has emphasized early childhood programs and, as our state superintendent of public instruction recently noted, been ranked number one for the last six years, we are not seeing system-wide progress. If our form of early childhood education is effective, we should now be seeing Oklahoma break out of the pack in terms of positive outcomes. We have not done so. If anything, we have slipped back. We must either conclude that the underlying theory is incorrect or that Oklahoma’s application is flawed. It may also be, as with reduced class size, that while some benefits accrue, they come at the expense of what would be more effective strategies. As a relatively poor state, Oklahoma must choose its areas of emphasis carefully, especially if that emphasis requires fiscal outlays. It could very well be true that Oklahoma’s early childhood programs are effective, but that other states that place resources on programs other than early childhood simply get a better return on their investment. The purpose of this article is not to assail current practices in Oklahoma education, and it certainly is not to assail the noble motivation behind 1017. Rather, it is to note that any public policy initiative should be rigorously scrutinized to determine if it is getting the desired results. We should all hope that another effort to improve Oklahoma’s schools will materialize, but one that will obtain better results. In previous articles and reports, OCPA has highlighted the need for better accounting and financial

reporting in state government. Last month in these pages OCPA research fellow Steve Anderson documented the sometimes misleading presentations of cost that result from our current methods of accounting and budgeting. I myself have written previously about the desirability of reporting on the performance of government programs in conjunction with their cost. No better example can be found than the case of 1017. In 1017, Oklahomans voted to make personal sacrifices to improve the education of Oklahoma’s children. Policymakers owe it to the taxpayers willingly making those sacrifices to get the best possible return on their investment. Our best hope of improving that return will come if we insist on setting goals and objectives for each initiative, measuring both the cost and the results of each, and being willing to make corrections and improvements once we are under way. We should not lose the spirit and determination to make this a better state, but we must ask for better accountability in public spending. % Tom Daxon is a former Oklahoma state auditor and inspector and a former secretary of finance and revenue for Gov. Frank Keating. A Certified Public Accountant who holds both an undergraduate and a master’s degree from Oklahoma State University, Daxon is the author of two recent OCPA studies on financial reporting in government and one on comprehensive health care reform.

Governors Propose Constitutional Spending Caps On December 28, 2009, Amy Merrick of The Wall Street Journal reported (“Pawlenty Pushes Caps on Spending”) that Minnesota Gov. Tim Pawlenty “is calling for strict spending limits as states and the federal government confront enormous deficits. … Mr. Pawlenty has proposed an amendment to the Minnesota constitution that would limit spending during any two-year budget period to the amount of revenue collected during the previous budget cycle. … Mr. Pawlenty’s state proposal has some similarities to the Taxpayer Bill of Rights amendment passed in Colorado in 1992. That amendment limited state spending growth to inflation plus population increases. Excess revenue was returned to taxpayers via rebate checks.” On January 6, 2010, the Associated Press reported (“Texas Governor Calls for Discipline in State Spending”) that Texas Gov. Rick Perry “proposed constitutional amendments Wednesday that would require a supermajority of the Legislature to raise taxes and to cap the growth of state spending at a level tied to inflation and population growth. Perry said his proposals would solidify the ‘state’s commitment to fiscal discipline.’” —Brandon Dutcher

Oklahoma Can’t Afford Not to Have School Choice By Adam B. Schaeffer

n his State of the Union address last month, Presistate education spending increasing even during this dent Obama proposed spending another $4 billion serious recession, and amidst plummeting tax revannually on K-12 public education. He did not mention enue, with the assistance of federal stimulus funds. that state, local, and federal governments already The White House reports that elementary- and secspend well over twice what they did in 1980, or that ondary-education spending at the state level inthere has been no discernible improvement in student creased from just over $228 billion in 2007-08 to $236 achievement during that period. billion the next, leveling off at $235 billion for 2009-10. Especially in the current economic climate, the And yet student achievement has been stagnant president would have been better served backing a since the 1970s. There is little evidence that increased policy with a proven record of improving achievement spending, especially at the federal level, has any and saving money: school choice. impact on long-term student State budgets (including outcomes. Indeed, a recent, Even small and Oklahoma’s) are in sorry shape. rigorous, government-sponsored restricted schoolAnd the near future looks even study of the federal Head Start bleaker than the present. program—the Holy Grail of choice programs As unemployment remains public programs aimed at save taxpayers high and home prices continue to boosting long-term student millions of fall or stagnate, states are facing achievement—discerned no dollars a year. an estimated shortfall of $180 positive effect on student outbillion for 2011 and another $120 comes past the first grade. billion for 2012. Compounding the growing problems at Meanwhile, 10 similar studies show decisively that the state and local levels, federal stimulus funds used school choice works. Nine of the studies found statistithis year and next to close shortfalls will evaporate. cally significant positive impacts on at least some K-12 schooling is the biggest item on state and local students. None found a negative effect. The latest budgets. Judging by the 2005-06 totals from the Naresults from the Washington, D.C., voucher program tional Center for Education Statistics (NCES), state and show that children in the program for three years read local governments now spend well over $500 billion more than two grade-levels ahead of those who each year on public K-12 education. applied but didn’t win the voucher lottery. State governments spent 35 percent of their general Even small and restricted school-choice programs funds on K-12 education in 2007, according to the save taxpayers millions a year: $32 million under an National Association of State Budget Officers. In contrast, existing program in Milwaukee; $39 million in Florida; Medicaid—which is continually singled out as a problem- and more than $531 million in Pennsylvania. Larger atic state-budget item, even though most Medicaid funds programs that give all families access to vouchers come from the federal government—accounted for just 17 could save billions of dollars every year while greatly percent of general-fund expenditures. improving education. The amount we spend on education has increased The evidence is staring policymakers in the face: dramatically and consistently over the past century, States, local governments, and taxpayers can’t afford with a 25 percent increase in per-pupil expenditures, in not to have school choice. % constant dollars, between 1995 and 2005 alone. This Adam B. Schaeffer (Ph.D., University of Virginia) is an upward trajectory shows no sign of flagging, with total education-policy analyst at the Cato Institute.

An Unintended Consequence Worth Praying For “Oklahoma may or may not finish this fiscal year in the black,” I wrote last summer in Urban Tulsa Weekly, “and the consensus seems to be that next year’s budget situation will be worse. … And there’s one proposal—an item on next year’s crowded ballot—that is certain to cause headaches. Leaders of the state’s most powerful labor union, the Oklahoma Education Association, are asking taxpayers for an additional $850 million annual bailout. It’s called the HOPE initiative

[SQ 744], a proposed constitutional amendment that would require the Legislature to increase per-pupil spending to the regional average. “‘Whoever digs a pit will fall into it,’ the proverb says, ‘and he who rolls a stone will have it roll back on him.’ Wouldn’t it be ironic if the teacher union’s irresponsible ploy forced legislators to save money via school choice?” —Brandon Dutcher

Take Heart, Conservatives: The People Are with Us By Michael Carnuccio

have been named the new president of OCPA, and it is an honor to be leading an organization dedicated to educating Oklahomans consistent with the principles of free enterprise, limited government, and individual initiative. I say this not only because of my own passions and beliefs, but because they are shared by the majority of Americans. Make no mistake, this has been and will always be a center-right nation, and Gallup and others tell us Oklahoma is one of the most conservative states in this nation. Allow me to explain. Polling data have become a driving force behind the modern policymaking process. However, such research is not appreciated or applied the same by all involved in the “sausage making process” that occurs at 23rd and Lincoln or between Independence and Constitution Avenues. For some, polls are a The valuable reactive tool, providmajority ing support for policy, rhetoric, and posturing; while for others, wants less polls serve to predict movegovernment, ment of the voter and thereby not more. provide direction for policy formulation and decisionmaking. At any moment citizens may be inundated by multiple polls telling them how to think about their government by reason of the opinions of their fellow countrymen. The challenge is not to take polling data simply at face value, but to remember that opinions on any one issue or individual are not free of influence from many other factors. In short, we cannot operate in a vacuum. Presidential or gubernatorial approval ratings provide for good talking points, if taken out of context. However, when applied over time such polling reveals movement among the citizenry and may even define mandates for or against large policy items. While all polling topics and questions have value, the most important is most often overlooked. Take a recent Washington Post-ABC News poll, for example, conducted by telephone January 12-15, 2010, among a random national sample of 1,083 adults. Like most present-day polls, the focus was mainly on opinions of the president and major policy items of the day. Once again, the most important question to the American people was buried as the

40th question asked and reported. The question was straightforward: “Generally speaking, would you say you favor smaller government with fewer services or larger government with more services?” The results are enlightening. Simply put, the majority wants less government, not more. In the last seven months, the number of citizens who want a smaller government providing fewer public services grew four percent, to just fewer than six out of every ten Americans. Allow me to suggest that the tea parties and the crowded congressional town halls may not be appreciated enough by our elected leadership. That being said, these data tell us so much more. First, this is not simply a reaction to our current president or any of his policies. This is an indictment of the growth of government. Nineteen times respondents have been asked in nearly two decades, and nineteen times the answer has been the same. Since the poll’s inception halfway through then President George H. W. Bush’s final year in office (1992), an election year at that, over half of the American people have maintained that they want government on a diet. Second, at no point in this poll’s history have those wishing for growth in government and an expansion of social programs been in the majority in this country—no matter who was in office or what the Congress was doing. The American people know what they want and are passionate about it, as evidenced by the fact that those having no opinion on this subject have never been more than one out of every ten Americans (currently it’s just four percent). Finally, research tells us these findings would move even more to the right if focused on our great state. As president of OCPA, my goal is to empower this organization to achieve its core mission: echoing this call to our core American values of limited government, free enterprise, and individual initiative. I submit to you that we are not alone is this endeavor. The people are with us. % Michael Carnuccio (M.A., Oklahoma State University) is OCPA’s president.

Focus … Focus … Focus By Brett A. Magbee here is no more important principle for success in life than focus. Most athletes will tell you that even with all the physical preparation possible, if you are not intensively focused during each second of the game, you can be blindsided by an opponent. In life, as in sports, it just takes a split second for the opponent to gain the advantage. Part of having focus is imagining what your opponent could do before he does it. Seeing the game play through to completion in your mind, over and over again. Thinking about what your opponent might do and how you will respond. Anticipating his actions before he even moves is an important part of the process of focus. As a free-market think tank, we know big-government types well. We have seen them operate throughout history and know most of their “plays.” There is the “compassion” play, which is an attempt to convince us how concerned they are about our welfare.

Then there is the “emergency” play, an attempt to convince us that some calamity is about to befall us. Oh, and let’s not forget one of the most frequently used plays, the old “it’s for the children” ploy. They have many others too. Ultimately, all their plays add up to more governmental control over the lives of you and your loved ones. OCPA is focused on bringing free-market ideas into the public arena each and every day to counter the attempt of big-government proponents to blindside citizens with intrusive laws, burdensome regulations, and repressive taxation. We need your help. There is great hope that 2010 can be a victorious year for freemarket ideas. It will take all of us pulling together to make it happen. So we need people to support OCPA with $25, $50, or $100 monthly throughout the year. This will help us keep our focus on the important work which lies ahead. Thank you for being part of the team! %

The OCPA Board of Trustees meets in the Avery Boardroom to review plans for the new year and hear about some exciting new projects which expand OCPA’s outreach and effectiveness.

In any given week the media can be found interviewing OCPA staff, adjunct scholars, or researchers on a wide array of timely and important state issues. On this day, News 9’s Alex Cameron interviewed Tom Daxon, the author of three recent OCPA studies.

U.S. Senator Tom Coburn addresses opinion leaders at a recent meeting at OCPA headquarters.

Issues are what makes OCPA “tick,” and few issues are of greater importance than education reform. Here OCPA trustee Bill Price leads a meeting of the Oklahoma school-choice coalition, which he chairs. OCPA trustee John Henry also participated.

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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.

“I think we have more machinery of government than is necessary, too many parasites living on the labor of the industrious.” Thomas Jefferson, in an 1824 letter to William Ludlow

“It’s clear that we need to educate kids, incarcerate prisoners and protect the public safety. But in good times, I do think that it’s true that government is subject to ‘mission creep.’ When the revenue is flowing maybe there’s a trend to drift into areas that are outside of the core mission or missions of government. What happens when things are going well is that things that are ‘nice to do’ become new programs, but in hard times or tight times, it’s time to look at maybe pruning the tree of government.” Democratic state treasurer Scott Meacham, in a recent interview with CapitolBeatOK editor Patrick McGuigan

“I believe government’s core functions include protecting our most vulnerable citizens from exploitation and ensuring all children have access to a quality education, particularly those with special needs.” State Rep. Anastasia Pittman (D-Oklahoma City), discussing her proposed legislation which would provide school vouchers for special-needs students

“No child in Virginia should have her future determined by her place of birth or ZIP code.” Gov. Bob McDonnell (R-VA), discussing school choice in his Jan. 16 inaugural address. McDonnell appointed schoolchoice advocate Gerard Robinson, former president of the Black Alliance for Educational Options, to his Cabinet as the commonwealth’s Secretary of Education.

“And certainly there are some public services that can be viewed as nonessential that can be scaled back or eliminated when revenues are scarce.” David Blatt, director of policy for the liberal Oklahoma Policy Institute, in a January 19 blog post

“If it looks like it [SQ 744] has momentum and may pass, I may speak out more publicly than I already have.” Oklahoma Governor Brad Henry, remarking to The Oklahoman that he opposes the so-called HOPE initiative being pushed by the Oklahoma Education Association

“The question is how to solve problems. It’s not bailouts. What made America great? Free markets, free enterprise, manufacturing, job creation. That’s how we’re gonna do it, not by enlarging government.” U.S. Sen. Scott Brown (R-Mass.), in a January 20 interview with columnist Peggy Noonan