FEBRUARY 2017
OKLAHOMA COUNCIL OF PUBLIC AFFAIRS
Kansas Tax Reforms Have Job Growth Blooming
In Case You Missed It At the Department of Energy, Rick Perry could prevent future Solyndras.
Let’s use TSET money to provide health care for Oklahoma’s most vulnerable.
bit.ly/2ip57Ks
bit.ly/2jom2LD
OCPA trustee Tom Coburn says people should have the freedom to make choices as health care consumers. bit.ly/2jchQ4H
After an inquiry from OCPA, Northwestern Oklahoma State University took action to protect the free-speech rights of students and faculty.
The Oklahoma Bar Association president’s attack on fellow lawyer Scott Pruitt is just the latest reminder of the group’s politicization.
bit.ly/2j5uiRg
bit.ly/2joon9t
bit.ly/EnglandStatement
A four-day school week isn’t a sign of the apocalypse.
Like President Obama, Oklahoma’s higher education officials have great faith in the “stimulus” effects of government spending.
bit.ly/2jBPpKB
A GOP campaign consultant advised Joy Hofmeister to feign conservative views and then do the bidding of the education establishment. bit.ly/2iyHbBf
Mission Academy, a “sober high school” which participates in Oklahoma’s private-school voucher and tax-credit scholarship programs, is rescuing young people.
bit.ly/2jAZ8QP
Let’s provide school choice for Oklahoma’s foster kids. bit.ly/2ihKYYx
PERSPECTIVE
Law professor Andrew Spiropoulos shines a spotlight on Oklahoma’s “ruthless and self-serving education establishment.”
OCPA president Jonathan Small says Oklahoma’s most vulnerable children don’t have time to wait for the government’s education system to fix itself.
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Brandon Dutcher, Editor Alex Jones , Art Director
OCPA Trustees
OCPA Researchers
Blake Arnold • Oklahoma City
David McLaughlin • Enid
Perspective is published monthly by the
Glenn Ashmore • Oklahoma City
Lew Meibergen • Enid
Oklahoma Council of Public Affairs,
Robert D. Avery • Pawhuska
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Thomas Schroedter • Tulsa
in Perspective are those of the author,
William Flanagan • Claremore
Greg Slavonic • Oklahoma City
and should not be construed as
Josephine Freede • Oklahoma City
Charles M. Sublett • Tulsa
Ann Felton Gilliland • Oklahoma City
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of free enterprise and limited government. The views expressed
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Gene Love • Lawton
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PERSPECTIVE // February 2017
bit.ly/2j5sasu
David Madigan • Lawton
CHAIRMAN EMERITUS
Tom H. McCasland III • Duncan
David R. Brown, M.D. • Oklahoma City
Steven J. Anderson, MBA, CPA Research Fellow Tina Dzurisin Research Associate Trent England, J.D. Dr. David and Ann Brown Distinguished Fellow for the Advancement of Liberty Jayson Lusk, Ph.D. Samuel Roberts Noble Distinguished Fellow J. Scott Moody, M.A. Research Fellow Andrew C. Spiropoulos, J.D. Milton Friedman Distinguished Fellow Wendy P. Warcholik, Ph.D. Research Fellow
Kansas Tax Reforms Having Positive Economic Impact
By William Boyes and Stephen Slivinski
The tax reforms enacted in Kansas over the past few years have sparked a national discussion that primarily focused on budget deficits and less on the economic impacts of the reforms. While budget deficits did occur in Kansas following the tax reform, state government spending contributed critically to the deficits. Simply put, Kansas cut revenue while simultaneously increasing expenditures. In a new study published by the Kansas Policy Institute, we clarify the data on job growth in Kansas and determine whether the tax reforms enacted in Kansas impacted the state’s job growth. To date,
much criticism has been aimed at the so-called “pass through” income tax exemptions, which allowed businesses that are structured in a certain way to exempt their income from the income tax. This was but one of the provisions in a multi-year and wide-reaching set of reforms passed in 2012. While more data analysis in the coming years will provide for a more complete analysis, there is substantial evidence to date that this tax reform delivered quite a bit of bang for the buck. Job growth is critically dependent on new business formation. Several studies have found that start-ups and young firms
drive overall job creation. A key academic study found that “firm births contributed substantially to both gross and net job creation.” The U.S. Census Bureau defines an establishment as “a single physical location where business is conducted or where services or industrial operations are performed”; they define a firm as “a business organization consisting of one or more domestic establishments that were specified under common ownership or control, with the firm and the establishment being the same for single-establishment firms.” For example,
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new establishments could be a new biotech start-up, a proprietor opening a new restaurant, or even a new Wal-Mart location. In Kansas, with the exception of 1979 and 1984, the total number of jobs created would actually have been negative if not for the job creation from new establishments. This phenomenon is not unique to Kansas. The United States would not have had a single year of positive job growth since 1977 if not for jobs created by new establishments. This economic dynamism is a good thing: states that are more dynamic—have more of this “economic churn”—actually have greater economic growth rates, as reported by Dr. Arthur P. Hall of the University of Kansas. Investors and business owners—and certainly state policymakers—do not know which bets will pay off at the beginning, however. So, the economic policy strategy that has the best chance of increasing net job growth is one that, to borrow an old saying, allows “a thousand flowers to bloom” and maximizes the chances a company will succeed and grow and employ more Kansas workers. Meanwhile, pass-through firms—like sole proprietorships, S-corporations, joint partnerships, and many LLCs—accounted for 46 percent of the for-profit privatesector Kansas workforce in 2014 based on U.S. Census County Business Patterns data, which use Bureau of Labor Statistics (BLS) data that exclude proprietors; pass-through firms may well employ the majority of the for-profit private sector workforce if full-time proprietors are included.
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PERSPECTIVE // February 2017
As we mention in our study, most pass-through firms are small. Thus, the reality of the amount of job creation due to new establishments and the proportion of overall employment growth attributed to pass-through firms suggests that many new establishments are also pass-through firms. This should have real consequences in terms of how employment changes can be influenced by tax policy in Kansas. Analysis of employment outcomes that followed these tax policy changes needs to take into account employment growth across the entire spectrum of job losers and job creators, particularly among new firms and pass-through firms. Making sure that Kansas is being compared to other states that are economically similar is also important. It is also vital that policy changes are viewed over the long term and include a recognition of relevant trends that exist notwithstanding the policy change. Finally, in tax policy, patience is a virtue. It can take upwards of five years for tax policy’s effects to be fully seen. It could take even longer if the initial change was diminished shortly thereafter as was the case in Kansas; the 2012 tax plan was reduced in 2013 and modified again in 2015. It is essential that the pass-through exemption be allowed to exist long enough for measurable results to be collected, and tested. Moreover, legislators should keep in mind that the businesses in Kansas are also planning with an expectation of consistency in the tax rules over a long time period so they can make stable long-term business plans going forward. Dramatically changing the tax treatment of pass-through firms could have adverse
economic consequences by upsetting the growth potential of these new firms.
Many Criticisms of the Kansas Reforms Are Misguided These considerations are often lost in the reporting on the Kansas reforms. Our study is an attempt to add more context, nuance, and factual basis to the discussion and to connect readers to the economic logic and importance of the tax policy reforms. This is important because much of the discussion over economic growth in Kansas after the tax cuts of 2012 were enacted is misguided—hobbled by a misunderstanding of what the tax cuts were trying to accomplish and a reliance on incomplete data. Additionally, much of the discussion fails to take into account the fact that most job growth in Kansas has been—and will continue to be—from pass-through businesses (i.e., sole proprietorships, S-corporations, limited liability corporations, and joint partnerships). In fact, the 36,135 jobs created by passthrough entities in Kansas represent 82 percent of all private sector jobs created in 2013 and 2014, the latest data available from the U.S. Census Bureau, and the growth is more than three times as great after tax reform than before. Using these Census data and other appropriate private-sector data, our analysis indicates that the impact of the tax reforms has been positive. Kansas comes out on top or at least shows strong growth in almost every relevant state comparison of the most comprehensive private-sector job growth metrics. Kansas also matches up well with other states, even when the
There is substantial evidence to date that the Kansas tax reform has delivered quite a bit of bang for the buck. Kansas comes out on top or at least shows strong growth in almost every relevant state comparison of the most comprehensive private-sector job growth metrics.
less-comprehensive data often used to make comparisons are adjusted for the size of the state. It is also important to consider the source of job creation data, the structure of a state’s economic make-up, and a state’s population when comparing job numbers. In short, just as it would not be appropriate to compare student achievement for the Kansas City and Blue Valley school districts for obvious demographic differences, it is not appropriate to compare certain states just because of geographic proximity. The monthly employment numbers from the Bureau of Labor Statistics (BLS) use a different methodology to count employment than does a more comprehensive, but less frequent, analysis from the Bureau of Economic Analysis (BEA). For instance, the BLS data estimates that in 2015, Kansas had an employed private-sector workforce of nearly 1.4 million, while the BEA data puts it at 1.9 million. So while the BLS data warrants monthly media coverage, our study puts more emphasis on the BEA analysis as it better captures those employed by proprietorships and in farm employment. Our study also uses new data from the Kansas Department of Revenue (KDOR) to clearly demonstrate that tax evasion or strategic corporate tax planning has not been widespread. KDOR records also make clear that the total value of the tax cuts from 2012 was primarily driven by lowering the income tax burden on individual wage earners. This is yet another overlooked aspect of the tax cut, as 71 percent of the overall tax relief went to
individual taxpayers and 29 percent went to pass-through businesses through the income tax exemption. A final data point from KDOR also makes clear who is benefitting from the pass-through exemption. Median family income in Kansas is around $52,000, and 88 percent of the filers in 2014 with business income had Kansas adjusted gross income that year of less than $50,000. While there is still more analysis to be done and more data are to be released over the coming years, we believe the preliminary signs indicate that tax reform in Kansas has had and, more importantly, will continue to have, a positive impact on state job growth.
Kansas Tax Reform Paying Real Dividends—But We Didn’t Cut Spending President-elect Donald Trump should learn from Kansas’ mistake on incometax reduction—don’t reduce revenue and increase spending. That’s the real problem with the Kansas budget. There was never an expectation that spending wouldn’t have to be adjusted to accommodate revenue reductions, but Democrats and many Republicans refused to make government more efficient, so spending and taxes were increased in 2013 ... and again in
William Boyes is professor emeritus and founding
2015. Kansas spent 27 percent more
director of the Center for the Study of Economic
per resident in 2015 than the states
Liberty at Arizona State University. Stephen
without an income tax.
Slivinski is a senior research fellow at the Center. This article is adapted from their January
The income tax exemption on pass-
2017 study “A Thousand Flowers Blooming:
through income for proprietorships,
Understanding Job Growth and the Kansas Tax
partnerships, sub-S corporations, and
Reforms,” published by the Kansas Policy Institute and available at www.kansaspolicy.org.
LLCs is paying real dividends. U.S. Census data show that pass-through businesses actually created the majority of new jobs in 2013 and 2014 (the most recent data for employment by legal organization). And while Kansas continues its decades-long tradition of trailing the national average on job growth, Kansas is performing closer to the average since taxes were reduced. —Dave Trabert, president of the Kansas Policy Institute, in a letter to the editor published January 10 in The Wall Street Journal
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No, the Sky Is Not Falling in Kansas By Steve Anderson
If you’ve read anything lately from liberal think tanks or journalists about tax reform in Kansas, you may think there has been a “failed Kansas experiment.” Many folks are saying that Gov. Sam Brownback’s 2012 income-tax cuts—which started the state towards a statutory goal of no individual income tax while immediately wiping out the income tax on small business—have not resulted in job growth and have caused state services to suffer. They say the state is in a disastrous revenue decline, services are being eliminated for needy citizens, education funding has been cut, and roads are in disrepair. The facts tell a different story. As someone who served as budget director for Gov. Brownback, let me give you a view of the Kansas experiment you won’t hear from our friends on the left.
Why Did Kansas Embark on Tax Reform? Kansas is still only at the very beginning
of this complete change in direction for the economy. Why did Kansas embark on this new path? For one thing, citizens had been voting with their feet. Kansas had been losing population relative to the remaining states at one of the fastest rates in the nation. And who was leaving was just as troubling as the sheer numbers leaving: nearly $4.5 billion in annual adjusted gross income (AGI) since 1992 left with those productive individuals, according to Internal Revenue Service migration data that you can view at HowMoneyWalks. com. Remember, prior to the 2013 tax year, Oklahoma, Colorado, and even Arizona had a significantly lower tax rate than Kansas—and Texas and Florida did not tax incomes at all. The flow of wealth to Kansas was all from higher-tax states. The lesson that cannot be ignored is that taxes do matter when there is a significant difference in income to the individual concerned. Even more troubling for
DOLLARS IN ADJUSTED GROSS INCOME SINCE 1992 GAINED WEALTH FROM $176.43 million
LOST WEALTH TO
California
$1.46 billion
Texas
$131.65 million
Missouri
$971.72 million
Florida
$104.34 million
Nebraska
$578.07 million
Colorado
$99.02 million
Iowa
$432.61 million
Oklahoma
$85.97 million
Illinois
$403.56 million
Arizona
Source: http://www.howmoneywalks.com/irs-tax-migration/
TRANSPORTATION SPENDING (MILLIONS) Category
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Maintenance Preservation Modernization Expand/Enhance Communication Local Support Public trans. Sub-total
$144 $159 $256 $199 $12 $195 $11 $976
$147 $162 $261 $204 $14 $171 $11 $970
$143 $157 $253 $197 $9 $172 $11 $942
$133 $146 $235 $183 $13 $194 $14 $918
$133 $235 $131 $238 $9 $193 $20 $959
$130 $366 $115 $259 $11 $114 $43 $1,038
$133 $398 $67 $248 $6 $107 $15 $973
$126 $378 $28 $272 $7 $140 $20 $970
$134 $433 $20 $345 $6 $152 $17 $1,105
$118 $329 $38 $370 $4 $190 $20 $1,069
Admin/Planning Debt Service Total
$58 $129 $1,163
$64 $124 $1,157
$68 $108 $1,118
$70 $148 $1,136
$63 $158 $1,180
$64 $136 $1,238
$70 $136 $1,178
$56 $144 $1,170
$53 $163 $1,321
$54 $181 $1,304
Source: KDOT; Comprehensive Annual Financial Reports (CAFR); modified accrual basis.
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PERSPECTIVE // February 2017
Kansas was that these same migration data showed since 1985 nearly 80,000 earners had left the state—with one-third of those going to no-income-tax Texas. The diminishing population and a transfer of wealth to lower-tax states was a trend we knew had to stop. A tax system that rewarded those with lobbyists on their payroll was a policy that had to change. In FY-2012—the year the tax cut passed—the amount of special exemptions, deductions, and credits was $8.3 billion. That’s $8.3 billion that did not make it to the state coffers. As a result, only about $6.0 billion was available for appropriations. This tax policy was not successful. As Allysia Finley wrote in an October 26, 2014 piece in The Wall Street Journal (“Why Kansas Drives Liberals Crazy”): “Economic growth in Kansas has trailed the Great Plains region and nation for decades. Between 1982 and 1997, Kansas’ private GDP growth ranked 43rd in the country—ahead of only West Virginia, Oklahoma, Montana, Louisiana, North Dakota, Wyoming, and Alaska. While some of those states have since boomed, Kansas has plodded along. Between 1997 and 2012, Kansas’ private economy grew by 4% a year compared with 4.3% nationally, 4.9% in Colorado and Nebraska, 5.3% in Oklahoma, and 6.1% in Texas.” We concluded, sensibly, that fighting every special-interest lobby over their particular piece of the pie was a losing strategy. But focusing on eliminating the value of those special giveaways by eliminating or reducing the income tax was a doable goal. And, as William Boyes and Stephen Slivinski point out in the preceding pages, citizens are already starting to reap the benefits.
Education, Transportation Spending Not Suffering Even so, liberal think tanks and journalists have bombarded citizens with a litany of half-truths and some outright
fabrications. Let’s start with the claim that K-12 public education funding has been cut. It hasn’t. Using financial data from the Kansas State Department of Education, David Dorsey of the Kansas Policy Institute pointed out in October 2016 that “Per-pupil spending once again exceeded $13 thousand in the 2015-16 school year
and the 2016-17 year is expected to be another record year for total and per-pupil expenditures.” Granted, he writes, “after four consecutive years of record spending, per-pupil funding dipped to $13,015 in 2015-16. However, the decrease can be explained by two factors. First, schools increased their cash reserves by $57.6
STATE TOTALS (USD D0999) BASIC DATA School Year
FTE* Enrollment
State Aid
Federal Aid
Local Revenue
Total Expenditures**
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017**
446,874.0 447,615.1 453,324.3 454,865.7 456,000.5 457,896.6 461,088.3 463,266.4 462,594.7 463,300.0
3,131,495,347 3,287,165,278 2,867,835,438 2,961,769,735 3,184,163,559 3,198,060,481 3,267,998,852 3,968,905,979 3,950,412,825 4,008,000,000
376,985,620 413,624,558 726,587,277 666,576,422 447,417,409 460,323,467 485,563,067 510,199,401 485,268,953 500,000,000
1,940,052,328 1,965,551,201 1,997,207,913 1,958,698,173 2,139,429,840 2,194,086,843 2,221,955,762 1,607,033,684 1,587,372,742 1,582,000,000
5,446,453,325 5,666,731,992 5,589,549,135 5,587,044,331 5,771,010,808 5,852,470,791 5,975,517,681 6,079,997,660 6,020,616,320 6,090,000,000
Amount Per Pupil School Year
State Aid
Federal Aid
Local Revenue
Total Expenditures
Total % Increase
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017***
7,008 7,344 6,326 6,511 6,983 6,984 7,088 8,567 8,540 8,651
844 924 1,603 1,465 981 1,005 1,053 1,101 1,049 1,079
4,341 4,391 4,406 4,306 4,692 4,792 4,819 3,469 3,431 3,415
12,188 12,660 12,330 12,283 12,656 12,781 12,960 13,124 13,015 13,145
5.45% 3.87% -2.61% -0.38% 3.04% 0.99% 1.40% 1.27% -0.83% 1.00%
*September 20th Full-Time Equivalency Enrollment (includes 4 yr old at risk). Beginning with the 2005-2006 school year, enrollment includes February 20 FTE enrollment for military districts based on KSA 72-6464. For the 2015-16 and 2016-17 school years, districts are operating under the Block Grant and will not include February 20 FTE enrollment. **Total expenditures include the following funds (less transfers): General, Supplemental General, At-Risk 4 Yr Old (beginning 2005-06 and thereafter), At-Risk K-12 (beginning 2005-06 and thereafter), Adult Education, Adult Supplemental Education, Billingual Education, Virtual Education (beginning 2008-09), Capital Outlay, Driver Training, Extraordinary School Program, Food Service, Professional Development, Parent Education Program, Summer School, Special Education, Vocational Education, Area Vocational School, Special Liability Expense, School Retirement, KPERS Special Retirement Contribution (beginning 2004-05 and thereafter(, Contigency Reserve, Textbook and Student Material Revolving, Bond and Interest #1, Bond and Interest #2, No-Fund Warrant, Special Assessment, Temporary Note, Cooperative Special Education, Unbudgeted Federal Funds, Gifts and Grants (beginning 2002-03 and thereafter), and District Activity Funds (beginning 2011-12 and thereafter). ***Estimate Local revenue is computed by determining the total expenditures minus state and federal aid. It is not unusual for a district to accumulate monies in its capital outlay for large projects and spend the money in one year. During that year, expenditures will be higher than usual and may drop the following year. Also, in those districts where the voters have approved for a bond issue, the expenditures would be higher in the year that the district begins making bond payments.
million to a record $911 million. In other words they chose not to spend that money, which would have increased per-pupil spending last year by $125 per student to $13,140, which would have been another all-time high. The other factor to consider is the delayed payment to KPERS. According to budget director Shawn Sullivan the delayed amount is $97.4 million. Had that payment been made, it alone would have increased per-pupil spending to $13,225.” Moreover, as the table on page 6 indicates, spending on transportation projects in 2015 and 2016 was the highest in the last 10 years. Not only was spending up, but the Kansas Policy Institute noted that “the condition of interstate highways and bridges remains above minimum KDOT standards and is consistent with previous years. Other state highways are actually in their best condition since at least 2009.” If it’s a budget problem you’re looking for, note that almost without exception state agencies were growing their fund balances at astronomical rates. The Kansas Policy Institute discovered through an open-record request that “statewide carryover cash has grown by more than 172 percent since fiscal year (FY) 2003 (from over $918.5 million in FY 2003 to just over $2.5 billion in FY 2016). In short, carryover cash balances have come to make up much higher percentages of the state’s operating budget than historical norms might dictate.” Steve Anderson (MBA, University of Central Oklahoma) is an OCPA research fellow. A Certified Public Accountant with more than 30 years of experience in private practice, he is currently a partner at Anderson, Reichert & Anderson LLC. Anderson spent two years as a budget analyst in the Oklahoma Office of State Finance, and most recently served as budget director for the State of Kansas. At one time he held 17 state teaching certifications, ranging from mathematics to physics to business.
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Don’t Means-Test School Choice By Greg Forster
Limiting school choice programs to low-income households is bad for low-income households. It hurts the rest of us, too, and that matters. But the people it hurts the most are the people who most need better schools, and that’s what matters most. Nobody needs school choice more than poor people, because nobody is served more terribly by the government school monopoly. That’s why Milton Friedman used to say that school choice “ought to have been a Democratic issue” rather than a Republican one. It’s also why, in the past generation, it has increasingly become a Democratic issue—at least in many state capitals, where the teacher unions have less power, progressives and Democrats not in thrall to the unions have become critical allies in the school choice coalition. Poor families don’t need a bigger, fatter government bureaucracy. No matter how much money we throw at the broken monopoly school system, year after year, increases in spending consistently fail to produce better results. Poor families need power over their children’s education. They need school choice, which puts parents where they belong—in charge. Sometimes the worst thing you can do for the poor is “help the poor.” What we want to do is tear down the walls that prevent poor people from making themselves into non-poor people. That’s what “helping the poor” ought to mean. But all too often, it really means building walls between poor and non-poor people, reinforcing the divide rather than tearing it down. Throwing middle- and upper-income people out of school choice programs is a classic example of hurting the poor by “helping” them. It creates a sharp, government-enforced division between two separate and very unequal populations. On one side of the wall are poor people, who receive school choice; on the other are non-poor people, whose tax dollars provide them with school choice. The first and most important way this hurts poor people is by denying them access to educational innovation. The real promise of school choice, and the only serious hope for delivering better education to the poor, is not in moving students from existing public schools to existing private schools. It’s driving an educational revolution in which educational entrepreneurs reinvent school from the ground up. As Milton used to point out, education is the only thing our society still does in essentially the same way it did it in the 19th century. Medicine, transportation, communication, manufacturing, entertainment—all have been radically transformed, on balance much for the better. But education? For the most part we’ve still got 30 kids in a room, in a building they were assigned to based on where they live, sitting at desks, in
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PERSPECTIVE // February 2017
rows, looking at a teacher writing on a board. These days it’s a white board instead of a black board. Compare that to the difference between a telegraph and a smart phone. I’ll make one concession. The end of the government school monopoly’s policy of racial segregation was a huge step forward—although I would argue that’s less a change in education and more the removal of ethnic injustice from the delivery of education. And of course, the government school monopoly still perpetuates segregation de facto by assigning students to schools based on where they live. The empirical research shows school choice produces greater ethnic integration in schools; it is the only education policy that has reliably and sustainably done so. Other than that, educationally we’re stuck in the 19th century. That’s why existing private schools are, to be blunt, not that much better than public schools. The data show that they’re better, but only moderately so. They’re not, on the whole, dramatically better. The dominance of the government school monopoly (about 90 percent of all students) makes it seem implausible that anything radically different could be worth trying, so few try it. And what did 19th century America do a really lousy job at? Providing opportunity to the poor. The government school monopoly wasn’t created to facilitate social mobility; quite the opposite. Go back and read the history. The people who created the government school monopoly didn’t talk about opportunity and advancement for the poor. They talked about how the poor needed to be better prepared to spend their lives in the station into which they were born—better
Could the entrepreneurs of previous generations have invented and successfully brought to market the telephone, the car, the airplane, or the computer if they had known in advance that they would only be allowed to sell them to poor people? Even poor people with vouchers?
prepared to do the kinds of jobs that are appropriate for, you know, that kind of people. Our rigid, standardizing, factory-like schools are well designed to teach young people to know their place and stay in it. That’s yet another reason we need a radical revolution to reinvent schools. Educational entrepreneurs are ready for the challenge. But they can’t do it if they don’t have a client base to serve that is large, reliable, and looking for the kind of revolution they can deliver. Could the entrepreneurs of previous generations have invented and successfully brought to market the telephone, the car, the airplane, or the computer if they had known in advance that they would only be allowed to sell them to poor people? Even poor people with vouchers? The more students are eligible for school choice, the more stable that population is, and the more hungry for innovation it is, the more school choice will empower educational entrepreneurs to reinvent schools. And the people who will benefit most from that are the people who have the most to gain—the poor. Another reason—almost as important—why it hurts the poor to throw middle- and upper-income people out of school choice programs is that it cripples the political coalition supporting and protecting choice. It limits the number of people who have strong reasons to invest in supporting school choice as voters and activists. And it ensures that such support as school choice does have is drawn from the weakest part of society. Choice programs need to be well designed to succeed, as the failure of a badly designed program in Louisiana has recently reminded us. Implementation also matters; Florida’s A+ voucher program was badly sabotaged by ridiculous procedures that the state bureaucracy created for parents who might want to participate. Strong political support, from the start, is essential for high-quality program design and implementation. This is what Milton had in mind when he used to say “show me a program for the poor, and I’ll show you a poor program.” Policy gets made in a political environment—there’s no escaping it. A policy designed to attract few supporters, and from the politically weakest part of society, is going to be badly hindered from the start. That’s the short-term political problem. There is also a longterm political problem. Like all means-tested programs, school choice divides society into two groups whose interests are at odds with each other. One side gets all the benefits, and pays little or nothing—certainly it pays much less than it receives. The other side pays the bills and gets nothing, other than the power and control that comes with paying the bills.
Milton Friedman used to say “show me a program for the poor, and I’ll show you a poor program.” Policy gets made in a political environment—there’s no escaping it. A policy designed to attract few supporters, and from the politically weakest part of society, is going to be badly hindered from the start. This is not a formula for a society in which walls are torn down so poor people have the opportunity to make themselves into non-poor people. It is a formula for a society in which the walls only get higher and thicker. “If we’re going to pay the bills for these people who can’t take care of themselves,” the non-poor say, “we have a right to arrange things the way we want them. And what we want is for people who can’t take care of themselves to stay away from our kids.” And that’s not the worst of it. This kind of system divides society into two groups whose economic interests are directly opposed to one another. The worst of it is rising levels of mutual hostility, much of it along ethnic, religious, or other tribal lines. In the school choice programs that already exist in most states, poor parents have proven that they can take care of themselves. They make better choices for their children than the government monopoly does. All we need to do is tear down the dividing wall that keeps them from improving their lives. Means-testing school choice keeps that wall in place. Greg Forster (Ph.D., Yale University) is a senior fellow with EdChoice. He is the author of six books, including John Locke’s Politics of Moral Consensus (Cambridge University Press, 2005), and the co-editor of three books, including John Rawls and Christian Social Engagement: Justice as Unfairness. He has written numerous articles in peer-reviewed academic journals as well as in popular publications such as The Washington Post and the Chronicle of Higher Education.
www.ocpathink.org
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School Choice Programs Save Taxpayers Money By Martin F. Lueken
There are no more important beneficiaries of educational choice than the families and students who need K-12 options and opportunity. They are the reason we fight to expand choice in every state, including Oklahoma. An important element of this conversation, however, is the fact that not only do school choice programs empower parents and change students’ lives for the better, but they also save taxpayers money. In a new report published by EdChoice, “The Tax-Credit Scholarship Audit,” we looked at 10 tax-credit scholarship programs in seven states between 1997 and 2014. These programs serve 93 percent of all students participating nationwide. Tax-credit scholarships allow individuals and sometimes businesses to reduce their state tax liability by making a private donation to a nonprofit organization that in turn provides scholarships for children to attend private schools of their choice. What we found is striking: These programs have saved taxpayers at least $1.7 billion since their inception—and that number doubles depending on the number of students who would have enrolled in public schools if not for the program’s financial assistance. Tax-credit scholarships save money because public schools no longer have to pay much of the cost to educate students who use them, and schools can adjust for the remaining costs over time. Students are able to apply their scholarship funds toward a private school of their choosing, and our research indicates that parents who choose are overwhelmingly more satisfied than parents who don’t. It’s true that the programs reduce state tax revenues, but the savings, as our study shows, are far greater than that lost revenue. It’s a true win-win for taxpayers and families. Nationwide, more than 1.2 million tax-credit scholarships have been awarded to students to attend private schools in the nearly two decades since such programs have been available. The only troubling finding in our new report is a not a new finding: We know that school choice programs save money, but it’s often difficult to ascertain whether that money is being saved, reapplied within a state’s K-12 education budget, or spent elsewhere. Policymakers in every state have a real opportunity to show
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Read “The Tax-Credit Scholarship Audit” and download a copy at bit.ly/edchoiceReport.
taxpayers not just that their money is being well spent, but where any savings from school choice are being directed, especially if those funds are being used to bolster student learning in other areas. At the end of the day, we believe every student in America, regardless of ability to pay, deserves to have access to a quality K-12 education that meets his or her needs. Tax-credit scholarships are one piece of the pie, but we can clearly see from this new report that they are being successfully utilized to help students and save taxpayers money at the same time. Martin F. Lueken (Ph.D., University of Arkansas) is director of fiscal policy and analysis at EdChoice.
Non-Teaching Staff Surge Prevented Oklahoma Teacher Pay Raises By Benjamin Scafidi
Oklahoma state law tries to hold down administrative expenses in public schools. That is a great idea in theory, but does it result in the hiring of more teachers instead of hiring other staffers? The short answer is no. According to data reported by the Oklahoma State Department of Education to the U.S. Department of Education, from the 1991-92 school year to 2014-15, the increase in teachers (12 percent) in Oklahoma public schools has not kept up with the increase in students (17 percent). However, the increase in “all other staff” (folks who are not lead teachers) has increased 36 percent. That’s more than twice as fast as the increase in students. In the 1991-92 school year, teachers constituted 54 percent of all Oklahoma public school employees. By 2014-15, teachers were only 49 percent of public school employees. It is worth noting that the national staffing surge in public schools began as far back as 1950. And these large increases in staffing—relative to the increases in students—have not been associated with gains in student achievement. These staffing decisions have had a tremendous opportunity cost. Let’s suppose that Oklahoma’s increase in “all other staff” (non-teachers) had simply matched the 17 percent increase in students over this 23-year period. Oklahoma public schools would have had at least $255 million per year in annual recurring savings (and that’s a cautious, conservative estimate). With $255 million per year, Oklahoma could give each teacher a pay raise of more than $6,000. Another option: Oklahoma could reduce class sizes by giving a $7,000 scholarship to more than 36,000 students, thus allowing
them to attend the school of their family’s choice. There are other policy options. The point is that there is an opportunity cost associated with this staffing surge. I have studied this issue extensively for years and have found that the hiring of all of these extra “other staff” cannot be blamed solely on federal and state mandates, as the pattern of this staffing surge has not been uniform across states or across school districts within Oklahoma. If mandates from on high had been the sole cause of this staffing surge, then uniform patterns of increased staffing would be present across states and across school districts within states. So, what job types are primarily responsible for the increases in “all other staff”? Unfortunately, data reported to the federal government do not allow me or anyone to accurately answer that question. The Oklahoma State Department of Education has the job files necessary to do such an analysis. In the interest of transparency, the department should provide those files to outside researchers so they can analyze what job types led to the decades-long staffing surge in Oklahoma’s public schools. Then Oklahomans can decide for themselves if they think these staffing increases are a wise use of resources—or if they would prefer teacher pay raises instead. Benjamin Scafidi (Ph.D., University of Virginia) is director of the Education Economics Center in the Coles College of Business at Kennesaw State University. The views expressed here are his alone.
www.ocpathink.org
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Oklahoma’s Prison Crisis:
The Enormous Cost of Doing Nothing
By Jonathan Small and Trent England
Oklahoma’s prisons are in a state of emergency—fiscally and literally. Already dramatically over capacity, Oklahoma’s prison population is projected to grow by 25 percent over the next decade, at a cost of nearly $2 billion to taxpayers. Since it’s unlikely the government or taxpayers are willing or able to come up with that $2 billion, one of two things will likely happen: Oklahoma’s prisons will break—a truly frightening prospect for public safety—or Oklahoma will fix the criminal justice system that is breaking its prisons. The conservative, responsible, morally sound decision is to fix the criminal justice system. Conservatives have long focused on personal responsibility and accountability for individuals who break the law. In recent years, conservatives nationally have championed responsibility and accountability for government when making criminal justice policy because of the enormous cost of incarceration to taxpayers and families. Conservative criminal justice policy is, at its core, a return on investment question: What return are taxpayers getting for the money they spend on prisons? For Oklahoma taxpayers, the return on their prison investment is negative. At a time when crime rates continue to fall both statewide and nationally, Oklahoma has the second-highest incarceration rate in the country, 70 percent higher than the national average. Yet Oklahoma is not 70 percent safer than the rest of the country.
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PERSPECTIVE // February 2017
Oklahoma is locking up more of its citizens than almost anyone else with little but mounting bills and overflowing prisons to show for it. Most states have found a better approach. So can Oklahoma. More than 30 states across the country, including conservative ones like Texas, Georgia, Mississippi, South Dakota, and South Carolina, decreased prison populations and crime between 2009 and 2014. In contrast, Oklahoma saw a nine percent increase in its prison population and a 20 percent increase in annual prison admissions since 2011. The reason? Unlike most states, Oklahoma’s prison system is overflowing with nonviolent offenders. Fully 75 percent of Oklahoma’s inmates were sentenced for nonviolent offenses. These are not hardened criminals. More than half of those sentenced for nonviolent offenses
have zero or one prior felony convictions, and the vast majority have no history of violent crime. Oklahoma continues locking up low-level nonviolent offenders as felons despite criminological research that shows that this approach is ineffective. In fact, for some offenders, including drug offenders and first-time offenders, prison actually increases the likelihood of reoffending. Aside from the problem that prison growth poses for taxpayers, these statistics reveal troubling government overreach into the lives of Oklahomans who are struggling to treat their addictions and get back on their feet. While the recent passage of State Question 780 was a step in the right direction, this policy change will only slow the growth of Oklahoma’s prison population. Along with the reforms passed in the 2016 legislative session, State Question 780 reduced the growth by 3,000
Felony Criminal History for Nonviolent Newly Sentenced Prisoners, FY 2015 2,500 2,000 1,500 1,000 500 0
No Prior Convictions
1 Prior Conviction
2-4 Prior Convictions
5-9 Prior Convictions
10+ Prior Convictions
Source: Data from the Oklahoma Department of Corrections; analysis by the Crime and Justice Institute at Community Resources for Justice
Oklahoma Baseline Prison Projections Including Recent Reforms 40,000
35,798
30,000 28,580 20,000
10,000
beds out of 10,500 originally projected over the next decade. Many low-level, addiction-driven drug and property crimes will continue to drive prison growth without further reform. In response to ongoing overcrowding and dramatic growth projections, the Corrections Department requested almost $1.65 billion from the state for next fiscal year, which would be a tripling of the agency’s budget. Of that $1.65 billion, $850 million would build or lease two 2,000-bed medium security prisons, one for males and one for females. An additional prison would be needed by 2022 for continued growth, as shown in the nearby graph of the projected population. A decade ago, Texas was facing the same situation. Instead of asking taxpayers for more money for prisons, Texas invested in evidence-based alternatives for nonviolent
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offenders, with a focus on recidivism reduction rather than incarceration. Since Texas made this change in 2007, its recidivism rate is down 25 percent, crime rates are at the lowest level since 1973, and nearly $2 billion was saved in averted prison costs. Tough-on-crime states like Texas have demonstrated there is clearly a better way to rehabilitate nonviolent offenders. This is a critical time for Oklahoma’s criminal justice system. If the state continues to lock up the wrong people at the rate it is today, Oklahoma will pay deeply—both fiscally and morally. Hoping to curb these fiscal and societal costs, Governor Mary Fallin established the Oklahoma Criminal Justice Task Force to promote public safety while reducing the prison population. This group brings together the full spectrum of criminal justice stakeholders, including
representatives from the business and faith communities, law enforcement, legislators, judges, district attorneys, agency heads, and advocates for crime victims. Undoing a crisis 30 years in the making will not be easy, but continued budget challenges and an ever-growing prison population do not give state leaders the luxury of a slow, incremental change. Knowing Oklahoma must act aggressively now to avert crisis, the task force will issue recommendations in time for legislation to be considered in the 2017 session. In next month’s issue of Perspective, we’ll have an analysis of the Task Force’s proposed recommendations and their potential impact. Jonathan Small, CPA, serves as President at the Oklahoma Council of Public Affairs. Previously, he served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. He holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant. Trent England serves as Vice President for Strategic Initiatives at the Oklahoma Council of Public Affairs, where he also is the David and Ann Brown Distinguished Fellow for the Advancement of Liberty and directs the Center for the Constitution & Freedom and the Save Our States project. He also hosts a radio program, The Trent England Show, from 7-9 a.m. every weekday on Oklahoma’s AM 1640, “The Eagle.”
www.ocpathink.org
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For Many Oklahoma Farmers, Trade Is a Big Deal By Jayson Lusk
Trade has emerged as one of the hot-button issues in modern politics. To be sure, much of the discussion has centered on the impacts of trade on manufacturing jobs; however, it is important to consider the impacts of trade—and potential changes in trade policy—on other sectors of the economy. For U.S. agriculture, trade is a big deal. United States Department of Agriculture (USDA) data show that the U.S. exports about 20 percent of all agricultural output both in terms of volume and in terms of dollars. Moreover, the share of agricultural output that is exported is much higher for certain commodities that are particularly important for Oklahoma farmers. For example, in 2013, about 80 percent of the U.S. cotton crop, 60 percent of the U.S. pecan crop, 57 percent of the U.S. sorghum crop, and 55 percent of the U.S. wheat crop was exported to other countries. While trade may have had deleterious effects on certain kinds of manufacturing jobs, these data make it clear that for wheat and cotton farmers, trade is critical as most of their ultimate customers reside outside the United States. Wheat is Oklahoma’s primary cash crop, planted on more than 5 million acres, providing an average of more than $634 million per year in revenue from grain sales to Oklahoma farmers over the past decade. Some of the biggest buyers of U.S. wheat are in countries, including Mexico, Nigeria, Philippines, Colombia, China, Egypt, and Yemen, where hunger is a real concern and where their citizens rely on our agricultural productivity to put food on the table. All commodities combined, China is the biggest buyer of U.S. agricultural products. Yes, they send us cheap toys and electronics, but in return we send them soybeans, pork, and wheat. When the U.S. has become ensnarled in agricultural trade disputes in the past, the outcomes have not always turned out well for U.S. farmers. In one recent example, the U.S. government was ordered by the World Trade Organization (WTO) to send Brazil $300 million to settle a dispute over the effects of U.S. farm subsidies on cotton prices. The U.S. similarly lost another case in the World Trade Organization over its rules to require country-oforigin labeling on meat. It is of course true that U.S. farmers face competition from foreign producers, but overall the U.S. is a net
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PERSPECTIVE // February 2017
exporter of agricultural products. Restrictions on trade typically do more to harm U.S. agriculture than to help. None of this has stopped some calls, even from within the agricultural community, for some protectionist measures. The aforementioned country-of-origin labeling law is one controversial example. The labeling law, which was first passed by the U.S. Congress in 2002, was presumably meant to promote U.S. beef and pork relative to imports from Mexico and Canada. However, research has repeatedly shown that the mandatory labels imposed costs on the sector that were not sufficiently compensated for by increases in consumer demand, and complaints by Canada and Mexico with the WTO ultimately led the U.S. to repeal the law (or else they would have been subject to retaliatory tariffs). Coincidentally, the mandatory labeling laws were repealed at about the same time cattle prices started to fall in the U.S. around the first of 2016. This combination of events led many cattle producers to blame the WTO for falling cattle prices. Yet there is little evidence to support the claim that the repeal of country-oforigin labeling depressed cattle prices. Rather, prices fell because producers have more cattle to sell. A fed steer cannot be created overnight. After coming through a period of drought and high feed prices, which led producers to sell off some of their herd, conditions began to change a couple of years ago and producers began to add more inventory. All these additional cattle began hitting the market (largely by chance) at about the same time the mandatory labeling laws were repealed. More broadly, the U.S. exported about 10 percent of its beef production, $5.6 billion worth, in 2015. Whatever becomes of U.S. trade policy in the next few years, these data indicate that U.S. farmers’ wallets and livelihoods are heavily dependent on their ability to reach willing customers in other countries. Agricultural economist Jayson Lusk is the Samuel Roberts Noble Distinguished Fellow at OCPA. The author of The Food Police: A Well-Fed Manifesto about the Politics of Your Plate (Crown Forum, 2013), Dr. Lusk is Regents Professor and Willard Sparks Endowed Chair at Oklahoma State University.
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@OCPAthink 1. Former Oklahoma City mayor Kirk Humphreys speaks at a recent meeting of the Oklahoma School Choice Coalition. 2. Robert Ruiz, director of Choice Matters, speaks at the December 1 meeting of the Oklahoma School Choice Coalition. Choice Matters is a parent organization established to educate and motivate Oklahoma parents on the educational choices available for their children and to serve as a resource to them. 3. Bill Shapard, founder and CEO of SoonerPoll, speaks at the center-right coalition meeting on December 8. The meeting is held monthly at OCPA. 4. U.S. Sen. James Lankford (R-Oklahoma) discusses the problem of government waste at a December 2 meeting at OCPA. 5. Erika Reyes and OCPA’s Estela Hernandez are pictured here at a recent dinner event in Oklahoma City hosted by the American Federation for Children. 6. OCPA trustee Bob Sullivan was a featured panelist at a recent dinner event in Oklahoma City hosted by the American Federation for Children. 7. OCPA trustee Dana Weber was also a featured panelist at the recent American Federation for Children event. 8. Trent England interviews conservative MEP Daniel Hannan at OCPA on November 4, 2016. Be sure to listen to The Trent England Show weekday mornings from 7:00 to 9:00 on AM 1640 The Eagle, with the TuneIn app on your phone, or at KZLSAM.com. For more information and exclusive content, sign up for Trent’s weekly email at ocpathink.org/tes-email.
www.ocpathink.org
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QUOTE UNQUOTE “Colleges spend hundreds of millions of dollars on diversity. ... But in what appears
“The reality is that a reduction in the gender pay gap would
to be the height of deviousness and deceit, [college] administrators allow sports,
come at a huge cost: several thousand more women will be
the most visible part of most colleges, to be the least diverse and least inclusive. One
killed each year working in dangerous occupations.”
has to wonder just how serious academicians are about diversity and inclusion.” Walter Williams
Economist Mark J. Perry, in a recent post (“‘Equal Pay Day’ this year was April 12—the next ‘Equal Opportunity Fatality Day’ will be on February 19, 2027”) on the blog of the American Enterprise Institute
“ ... uninformed, ignorant, racist pieces of ----.” An Owasso High School teacher, describing to his students some Oklahoma state lawmakers who favor school vouchers. According to a report on FOX 23, the teacher was disgusted with the Nov. 8 election results in Oklahoma.
“This is what it looks like when Republicans fight back.” Congressman Jim Bridenstine (R-OK), discussing Donald Trump’s victory
“Is there a teacher shortage today? There is only one answer to this question. There is still an appalling lack of trained teachers throughout the country. ... The public will gladly pay the bills when it appreciates the gain from reasonable investment in good schools.” National Education Association, October 1921. Since that time, writes education researcher Mike Antonucci, “we have almost quintupled the number of teachers, more than quintupled the average teacher salary in inflation-adjusted dollars, and also cut the student-teacher ratio in half.”