Perspective - June 2015

June 2015

OKLAHOMA COUNCIL OF PUBLIC AFFAIRS

Underpaid?

Join the Club Oklahoma teachers rank low in 50-state compensation rankings.

They’re not alone.

In Case You Missed It OCPA research fellow Steve Anderson explains how to bring higher-value crops and livestock production—not to mention doctors—to rural Oklahoma.

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OCPA president Michael Carnuccio says Oklahoma’s political leaders don’t have a revenue problem—they have a prioritization problem.

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Purdue University president Mitch Daniels says university regents need to be more than rubber stamps.

Johns Hopkins voted to ban Chick-fil-A from campus, saying the restaurant’s presence would be a “microaggression.”

OCPA distinguished fellow Andrew Spiropoulos thinks it’s shameful that Oklahoma school administrators are trying to destroy the Lindsey Nicole Henry Scholarships.

OCPA’s Jonathan Small says Oklahoma should provide judges with discretion to depart from mandatory minimumsentencing guidelines for nonviolent offenders.

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With “free” federal dollars often coming with strings attached, OCPA’s Trent England says it’s time for transparency.

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North Dakota cut its income tax again.

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You might be surprised to learn what type of school Oklahoma parents want for their children.

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A single mom in Tulsa is grateful for the scholarship enabling her hearing-impaired son to attend Happy Hands Education Center.

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PERSPECTIVE OCPA Staff

OCPA Trustees

Brandon Dutcher ...........................................Editor

Blake Arnold • Oklahoma City

David McLaughlin • Enid

Robert D. Avery • Pawhuska

Lew Meibergen • Enid

Lee J. Baxter • Lawton

Ronald L. Mercer • Bethany

Alex Jones .............................................Art Director

OCPA Researchers

Steve W. Beebe • Duncan

Lloyd Noble II • Tulsa

Michael Carnuccio ...................................................President

G.T. Blankenship • Oklahoma City

Mike O’Neal • Edmond

Brandon Dutcher .................................Senior Vice President

John A. Brock • Tulsa

Bill Price • Oklahoma City

Trent England ..........Vice President for Strategic Initiatives

David R. Brown, M.D. • Oklahoma City

Patrick T. Rooney • Oklahoma City

Dacia Harris ..................................Communications Director

Paul A. Cox • Oklahoma City

Melissa Sandefer • Norman

Rachel Hays .........................................Development Director

William Flanagan • Claremore

Thomas Schroedter • Tulsa

Alex Jones .....................................................Creative Manager

Josephine Freede • Oklahoma City

Richard L. Sias • Oklahoma City

Ann Felton Gilliland • Oklahoma City

Greg Slavonic • Oklahoma City

John T. Hanes • Oklahoma City

Charles M. Sublett • Tulsa

Ralph Harvey • Oklahoma City

Robert Sullivan • Tulsa

John A. Henry III • Oklahoma City

Lew Ward • Enid

Henry F. Kane • Bartlesville

William E. Warnock, Jr. • Tulsa

Robert Kane • Tulsa

Daryl Woodard • Tulsa

Gene Love • Lawton

Daniel J. Zaloudek • Tulsa

Renae Page ................................................Executive Assistant Jonathan Small ................................Executive Vice President Hannah Wallis ............................Communications Associate Teresa Yoder ........................................Director of Operations

Steven J. Anderson, MBA, CPA Research Fellow Tina Dzurisin Research Associate Trent England Dr. David and Ann Brown Distinguished Fellow for the Advancement of Liberty Jayson Lusk Samuel Roberts Noble Distinguished Fellow Matt Mayer, J.D. Research Fellow J. Scott Moody, M.A. Research Fellow Andrew C. Spiropoulos, J.D. Milton Friedman Distinguished Fellow Wendy P. Warcholik, Ph.D. Research Fellow

Tom H. McCasland III • Duncan

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. The views expressed in Perspective are those of the author, and should not be construed as representing any official position of OCPA or its trustees, researchers, or employees.

Uniform State Rules Make Sense For Uber, Lyft No one would accept “local control” as a defense of government corruption. The purpose of government is justice—when one part of government forgets that, we look to another to step in.

Sometimes the line between out-and-out corruption and self-serving regulations is blurry. Just look at the fight over new, technology-driven car services like Uber and Lyft.

If a city official accepts money from one group of businesses in exchange for shutting out their competition, those acts would constitute bribery and abuse of power. Yet if the same city official receives political support from those same businesses and then crafts regulations that hinder their competition, what then? The politician might even selfservingly believe he or she is just trying to keep ignorant citizens from making risky choices.

In Oklahoma City, many of the officials involved in adopting regulations targeted at Uber and Lyft admitted they never even tried those services for themselves.

Unsurprisingly, the city’s new rules fail to recognize the dramatic difference between taxi services and what is offered by the high-tech upstarts.

Now the Oklahoma legislature has weighed in with House Bill 1614 (awaiting the governor’s signature as this issue went to press), a measure which would establish uniform regulations for companies like uber and Lyft across all of Oklahoma. Opponents say the idea violates “local control.” Of course, what they really want is just control.

In our constitutional system, the state is the primary level of government. Oklahoma’s state legislators have a duty to stand up for citizens against federal overreach. They have

the same duty to stand up for citizens against abuses by local governments (we have written similarly about city regulations targeting oil and gas businesses).

“Local control” is often the right way to make and carry out public policy. In this instance, however, establishing statewide uniform rules for services like Uber and Lyft is the best way to expand transportation options for all Oklahomans.

Trent England Trent England (J.D., George Mason University) is vice president for strategic initiatives at OCPA, where he also serves as the Dr. David and Ann Brown Distinguished Fellow for the Advancement of Liberty. A former legal policy analyst at The Heritage Foundation, England has contributed to two books, The Heritage Guide to the Constitution and One Nation under Arrest: How Crazy Laws, Rogue Prosecutors, and Activist Judges Threaten Your Liberty. His writings have appeared in The Wall Street Journal, the Christian Science Monitor, and numerous other publications.

www.ocpathink.org

3

Competitive Health Care Markets Spur Price Deflation Between 1998 and 2014, the price of medical care services in the U.S. (as measured by the Bureau of Labor Statistics’ Consumer Price Index [CPI] for Medical Care Services) has increased by 88.5 percent, or roughly twice the 45.8 percent increase in consumer prices in general over that period (see table on page 5).

On an annual basis, medical care costs in the U.S. have increased more than 4 percent per year compared to an average inflation rate of only 2.4 percent over the last 16 years. Probably the only consumer product or service that has increased more than medical care costs over the last several decades would be college tuition and fees, which have increased more than 7 percent annually since 1998.

One of the reasons medical care costs in the U.S. have increased almost twice as much as general consumer prices since 1998 is that a large and increasing share of medical costs is paid by third parties (private health insurance, Medicare, Medicaid, Department of Veterans Affairs, etc.). Only a small and shrinking percentage is paid out of pocket by consumers.

According to data from the Census Bureau, almost half (47 percent) of health care expenditures in 1960 were paid by consumers out of pocket. By 1990 that share had fallen to 20 percent and by 2009 to only 12 percent. It’s no wonder that health care costs have risen as the share of third-party payments has risen to almost 90 percent and the out-of-pocket share approaches 10 percent. Consumers of health care have no incentive to monitor prices and be cost-conscious buyers of medical services when they only pay 10 percent themselves, and the incentives of medical care providers to hold costs down are greatly reduced knowing that their customers aren’t

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PERSPECTIVE • June 2015

price-sensitive.

How would the market for medical services operate differently if consumers were paying out of pocket for medical procedures in a competitive market?

Well, for some answers we can look to the $7.5 billion U.S. market for elective cosmetic surgery. In every year since 1997, the American Society for Aesthetic Plastic Surgery has issued an annual report on cosmetic procedures in the U.S. (both surgical and nonsurgical) that includes the number of procedures, the average cost per procedure (starting in 1998), the total spending per procedure, and the age and gender distribution for each procedure and for all procedures.

The table shows the five most popular surgical procedures and five most popular nonsurgical procedures for 2014, the number of each of those procedures performed last year, the total expenditures for each procedure, the average price per procedure both in 1998 and 2014 (in current dollars), and the percent increase in price since 1998 for each procedure.

Of the 10 most popular cosmetic procedures last year, none have increased in price since 1998 more than the 45.8 percent increase in consumer price inflation (the price for the hyaluronic acid procedure wasn’t available for 1998). This means the real price of all of those procedures has fallen over the last 16 years.

For three of the top five nonsurgical procedures in 2014 (botox, laser hair removal, and chemical peel), the nominal prices have actually fallen since 1998 by large double-digit percentage declines (-23.6 percent, -31.2 percent, and -30.1 percent). That is, those prices have fallen in price since 1998, even before making any adjustments for inflation.

Rank 1 2 3 4 5

1 2 3 4 5

Top 5 Cosmetic Surgeries, 2014 Lipoplasty (liposuction) Breast augmentation Eyelid surgery Tummy tuck Nose Surgery Top 5 Nonsurgical Procedures, 2014 Botox injection Hyaluronic acid Laser hair removal Chemical peel Laser skin resurfacing

Number Expenditures (millions) 1998 Prices 2014 Prices 342,494 $1,061.3 $2,562 $3,099 286,694 $1,079.8 $3,001 $3,848 165,714 $493.9 $2,187 $2,981 164,021 $924.7 $4,058 $5,638 145,909 $694.1 $3,304 $4,767 Average

%CHG 21.0% 28.2% 36.3% 38.9% 44.3% 33.7%

3,588,218 1,696,621 828,480 484,053 417,034

Overall CPI CPI: Medical Care Services

$1,162.1 $1,004.5 $257.4 $277.8 $932.6

$424 NA $452 $821 $2,276

$324 $592 $311 $574 $2,284 Average

-23.6% NA -31.2% -30.1% 0.4% -21.1%

162.8 246.5

237.4 464.6

45.8% 88.5%

Sources: American Society for Aesthetic Plastic Surgery and Bureau of Labor Statistics

Most importantly, none of the 10 cosmetic procedures shown in the table have increased in price by anywhere close to the 88.5 percent increase in medical care services since 1998. The 33.7 percent average price increase since 1998 for last year’s top five surgical procedures isn’t even close to half of the 88.5 percent increase in the cost of medical care services over the last 16 years.

Of the other dozen or so cosmetic procedures not displayed in the table, but for which there are prices both in 1998 and 2014, only three procedures increased in price by more than the 45.8 percent increase in general prices, but the price increases were all below the 88.5 percent increase in the cost of medical services: chin augmentation (+69.7 percent), upper arm lift (+65.3 percent), and buttock lift (+46.7 percent).

The competitive market for cosmetic procedures operates differently than the traditional market for health care in important and significant ways. Cosmetic procedures, unlike most medical services, are not usually covered by insurance.

Patients paying out of pocket for cosmetic procedures are cost-conscious, and have strong incentives to shop around and compare prices at the dozens of competing providers in any large city. Because of that market competition, the prices of almost all cosmetic procedures have fallen in real terms since 1998, and some nonsurgical procedures have even fallen in nominal dollars before adjusting for price changes. In all cases, cosmetic procedures have increased in price by less than the 88.5 percent increase in the price of medical care services between 1998 and 2014.

If cosmetic procedures were covered by insurance, Medicare, and Medicaid, what would have happened to their

prices over time?

Basic economics tells us that those prices would have most likely risen at about the same 88.5 percent increase in the prices of medical services between 1998 and 2014. And perhaps another economic lesson here is that the greater the degree of market competition, price transparency, and out-ofpocket payments, the more contained prices are, in health care or any other sector of the economy. On the other hand, the greater the degree of government intervention, opaque prices, and third-party payments, the less contained prices are, in health care or any other sector of the economy.

Mark J. Perry Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem, where this article first appeared. The author thanks Vincent Geloso, whose writing on this subject inspired this article.

www.ocpathink.org

5

Underpaid?

Join the Club

They work long hours, often spending a great deal of personal time reading and marking up papers. Sometimes they spend their own money for books or supplies. Why do they persevere? Because they believe Oklahoma must have an educated citizenry. And yet, compensation for these dedicated professionals ranks a lowly 38th in the nation. God bless Oklahoma’s journalists.

We bring up this topic of journalist compensation in order to provide some desperately needed context to the oft-heard complaint that teacher pay in Oklahoma falls near the bottom in 50-state rankings (a complaint, by the way, which Steve Anderson challenges on the facing page). While we certainly believe that good teachers deserve to be paid more—while bad teachers deserve to be paid less—our response to complaints of low pay is twofold.

First, it must be pointed out that Oklahoma is a relatively low-income state. In 2013, Oklahoma had the 32nd highest private-sector compensation in the country. So it should come as no huge surprise that, according to the latest data from the Bureau of Labor Statistics, our elementary, middle, and secondary school teachers ranked 47th nationally in pay.

But it’s not just Oklahoma’s teachers who rank near the bottom. So do Oklahoma’s accountants (36th), pharmacists (39th), and chief executives (39th). For that matter, so do our butchers, bakers, and candlestick makers (46th, 49th, and 30th).

Indeed, so do nearly all of the most common occupations in the state (based on total employment) in 2014: general and operations managers (36th); secretaries (47th); general office clerks (39th); janitors and cleaners (43rd); cashiers (45th); bookkeeping, accounting, and auditing clerks (44th); truck drivers (39th); registered nurses (41st); waiters and waitresses (36th); nursing assistants (46th); maintenance ad repair workers (44th); stock clerks (39th); and licensed practical nurses (40th).

The bottom line: Most Oklahomans receive lower pay than their counterparts in other states. Few of our occupations are near the top in the 50-state rankings. We simply cannot afford to compensate teachers like, say, Connecticut.

Second, while it’s true that incomes are lower in Oklahoma than in other states, so is our cost of living. According to the ACCRA cost of living index, Oklahoma’s cost of living ranges from 3.8 percent (Lawton) to 16.2 percent (Norman) below the national average in 2013.

In fact, of the 12 areas surveyed in Oklahoma, the average cost of living was 10 percent below the national average. This means Oklahomans can buy more goods and services—such as homes, cars, and health care—with their income. It is cheaper to live in Oklahoma, so it’s not reasonable to expect Connecticut-style pay scales for teachers.

In short, the conversation surrounding teacher pay is often too simplistic. Context is important.

J. Scott Moody & Brandon Dutcher OCPA research fellow J. Scott Moody (M.A., George Mason University) serves as chief executive officer of State Budget Solutions. Formerly a senior economist at the Tax Foundation and a senior economist at the Heritage Foundation, he has twice testified before the Ways and Means Committee of the U.S. House of Representatives. Moody is the co-creator of the Tax Foundation’s popular “State Business Tax Climate Index.” His work has appeared in Forbes, CNN Money, State Tax Notes, The Oklahoman, and several other publications. This article is an updated version of an analysis published in 2008.

Brandon Dutcher (M.A. in public policy, M.A. in journalism, Regent University) is senior vice president at OCPA. He’s the editor of the book Oklahoma Policy Blueprint, which was praised by Nobel Prize-winning economist Milton Friedman as “thorough, well-informed, and highly sophisticated.” His articles have appeared in Investor’s Business Daily, Forbes.com, WORLD magazine, the Tulsa World, The Oklahoman, and 200 newspapers throughout Oklahoma and the U.S.

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PERSPECTIVE • June 2015

Oklahoma Is Not 49th in Teacher Pay

By Steve Anderson

Oklahoma’s teachers are near the bottom in 50-state pay rankings.

But so are our accountants, pharmacists, and CEOs. For that matter, so are our butchers, bakers, and candlestick makers.

We’ve all been told that Oklahoma’s teachers are some of the lowest paid in the union.

News reports over the last several months indicated that Oklahoma’s average teacher salary—$44,128, according to estimates from the National Education Association (NEA)—is the lowest in the region and 49th nationally.

But it turns out that’s not the whole story. Would you believe this data set excludes more than $300 million of taxpayer-funded payroll?

To understand and compare salaries, one has to examine the various components of that salary number. Actual teacher “pay” is only part of what is included in compensation.

Consider retirement funding. Both Arkansas and Oklahoma, for example, have defined-benefit plans with large unfunded liabilities. In order to ensure that current teachers have a fully funded plan when they retire, both states make large payments to their retirement systems via employer contributions (which taxpayers ultimately fund, of course).

The difference is that Arkansas chooses to run its full payment to the teacher retirement system through payroll by contributing 14 percent of a given teacher’s salary towards retirement.

Oklahoma uses a different approach.

Oklahoma makes a partial contribution through payroll of 9.5 percent of salary, and in addition the State of Oklahoma contributes 5 percent of its revenues from sales taxes, use taxes, corporate income taxes, individual income taxes, and lottery revenues directly to the teachers’ retirement system.

This amounts to $305 million in state taxpayer funds plus another approximately $20 million in federal taxpayer funds.

What this means is that Oklahoma makes a total contribution of 17.2 percent of payroll to the retirement system. The NEA methodology only counts the 9.5 percent because it does not flow through

payroll and therefore is not counted as compensation.

In sum, an apples-to-apples comparison would show that Oklahoma teacher salaries are actually $51,869. That would put Oklahoma closer to the middle of the pack nationally.

To its credit, the NEA itself acknowledges that “compensation systems at the district level include more than salaries alone. Unfortunately, it is difficult to quantify and categorize the employee benefits—both monetary and nonmonetary—associated with public school employment. Add the fact that each state is made up of individual school-district employers and it becomes apparent that salary statistics alone should not be the basis for evaluating state or district compensation” (emphasis in original).

In a recent letter to the editor of The Oklahoman, Ken Murphey of Kingfisher wrote: “I come from a family of teachers, including my parents, two siblings and one of my children. … I don’t think teachers, including teachers in Oklahoma, are underpaid. An average salary that exceeds $44,000 for nine months of work in our low cost-of-living state isn’t too bad.”

Indeed, the NEA acknowledges that “variations in the cost of living may go a long way toward explaining (and, in practice, offsetting) differences in salary levels from one area of the country to another.”

In any case, taxpayers and policymakers need to have a complete, accurate picture before making decisions about teacher compensation.

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.

www.ocpathink.org

7

From Farm to Fork: Government Policies Distort Food and Agricultural Markets

Last year Congress passed a new farm bill (officially called the Agricultural Act of 2014). Debate over the bill was particularly contentious, and two of the primary points of conflict had to do with the size of the food-stamp program (Supplemental Nutrition Assistance Program, or SNAP) and the move away from traditional direct payments and commodity programs toward subsidized crop insurance.

Adding to the controversy is the fact that, ironically, one set of government policies which has arguably most affected agricultural markets in recent years is not even contained in the farm bill but rather is administered by the Environmental Protection Agency: biofuels policies. While direct subsidies to ethanol producers ended at the beginning of 2012, the Renewable Fuel Standard (RFS) requires increasing amounts of transportation fuel (up to 36 billion gallons by 2022) to come from renewable sources, particularly corn-based ethanol.

While much has been written on the merits (and demerits) of “farm subsidies,” we don’t know much about the impacts of individual programs, such as SNAP or crop insurance or the RFS, on prices of retail foods and individual farm commodities. Moreover, given the differences in commodities grown in each U.S. state, and the differences in the flow of SNAP and crop insurance subsidies to different states, one might expect significant regional differences in the impact of these programs.

I took up these issues in a new research paper, “Distributional Effects of Selected Farm and Food Policies: The Effects of Crop Insurance, SNAP, and Ethanol Promotion,” published by the Mercatus Center at George Mason University. Using an economic model that links production of crops with retail food categories, the study traces the effect of crop insurance, SNAP, and ethanol promotion on producers and consumers “from farm to fork.”

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PERSPECTIVE • June 2015

It turns out that all three programs significantly distort food and agricultural markets and create winners and losers via government policy. The study explains the economic model in detail, outlining how and why each program interacts with food prices on a national and state-based level. Let’s consider each briefly.

Subsidized Crop Insurance In 2013, 295 million acres (83 percent of insurable cropland) were insured under the federal crop insurance program, and 90 percent of enrolled land was for corn, soybeans, wheat, cotton, and pasture, rangeland, and forage. Policies are sold and serviced through private insurers, but the federal government insures company losses, reimburses administrative and operating costs, and establishes guidelines and premium rates. Producers only pay a portion of the premium while the government pays the rest.

The results of my research reveal a net economic benefit of $932 million per year would arise from the removal of

subsidized crop insurance. Despite these potential benefits, the analysis reveals one reason why they persist: virtually every aggregate group benefits from the existence of crop insurance subsidies. Food consumers benefit from lower food prices and agricultural producers benefit from the subsidy.

The costs of the policy are “hidden� in the form of a higher tax burden. Consumers would pay higher food prices if subsidized crop insurance were removed, but the benefit to taxpayers more than compensates for the higher food prices.

Taxpayers have to pay about $1.80 for every $1 in benefit seen via lower prices for the food consumer.

Removal of subsidized crop insurance would have different effects across the United States. Consider, for example, California, which generated about $32.6 billion in annual food-related agricultural output from 2008 to 2012, and Oklahoma, which generated about $5 billion over the same time period. Despite the fact that California generates six times more agricultural output than Oklahoma, Oklahoma farmers received almost the same amount of crop insurance subsidies ($192 million vs. $233 million) in 2013. Moreover, the states are radically different in terms of the types of agricultural commodities grown. Just under 70 percent of the value of all food-related agricultural output in California comes from fruits, vegetables, and tree nuts; for Oklahoma, the figure is only 1 percent.

As a result, the removal of subsidized crop insurance is projected to benefit California producers by $142 million, while Oklahoma farmers lose $92 million. Removal of subsidies is projected to increase vegetable (a major California crop) prices by 1.4 percent and wheat (a major Oklahoma crop) prices by 7.9 percent. The implicit subsidy lost by California producers of vegetables is only 0.16 percent, whereas the implicit subsidy lost by Oklahoma wheat farmers is 18.5 percent.

Thus, California vegetable producers gain an effective price advantage of 1.4%-0.16% = 1.24%, whereas Oklahoma wheat producers experience an effective price loss of 7.9%-18.5%=10.6%. Even these results mask within-state heterogeneity. For example, despite the fact that Oklahoma wheat farmers are net losers, Oklahoma cattle producers benefit by $5 million per year. Overall, Oklahoma taxpayers would gain $86 million per year, while the state, as a whole, would lose $33 million annually from the removal of subsidized crop insurance.

SNAP The 2014 farm bill allocated most of its funding to SNAP. Funding for SNAP has increased dramatically over the last decade, rising from $33 billion in 2007 to nearly $80 billion in 2013, while the number of participating households increased from 26 million to 47 million.

I find that, depending on how SNAP recipients allocate their SNAP dollars, the removal of SNAP is projected to generate net economic benefits ranging from $12.7 billion

to $42.8 billion, with the benefits accruing to taxpayers and SNAP nonrecipient consumers, who will pay lower prices.

Debate has focused on whether SNAP is purely a cash transfer from wealthy to poor Americans, or instead alters how consumers allocate their budget toward food. This research shows that SNAP payments have an inflationary effect on food prices, which undercuts some of the benefit of the transfer and drives up food costs for nonrecipients.

SNAP may be included in the farm bill in part to support agricultural commodity prices for producers, but the evidence in this study concludes that it is an inefficient form of support: for every dollar spent by taxpayers, farmers benefit only one cent. The net benefit to Oklahomans from the removal of SNAP is estimated to be around $440 million.

Promotion of Ethanol A variety of government policies have served to increase demand for corn-based ethanol. One major concern for consumers is the effect of these policies on food prices. I find that reduced demand for corn-based ethanol would reduce food prices, especially meat prices. If demand for ethanol falls (perhaps as a relaxation of the RFS), consumers will benefit by paying lower food prices, but producers, particularly corn producers, are harmed. Reduced demand for corn-based ethanol would benefit wheat and cattle producers, two major Oklahoma commodities.

The Takeaway Whatever the merits of farm subsidies and food stamps, these federal programs have economic consequences that distort food prices, create inefficiencies, drive up taxes, and create winners and losers. There may be other countervailing reasons why one might support such policies, but we ought to at least understand the economic consequences that food and farm create.

Jayson Lusk 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.

www.ocpathink.org

9

Choice Is the Real Accountability For “accountability” in education, the 2015 legislative season is turning out to be the best of times and the worst of times.

In Washington, D.C., accountability measures in the federal education law are facing stronger opposition than they have before. In the states, however, accountability measures are gaining impressive new ground. That’s not because the political landscape is more favorable to school accountability at the state level. It’s because the federal government has a failed model of accountability based on centralized command and control, while the states are empowering parents to hold schools accountable for performance.

When Congress created the Department of Education, it specified by law that the department was not to interfere in curriculum and pedagogy. But the flow of federal money to local school districts has nonetheless created an ever-growing federal influence over schools. He who pays the piper calls the tune.

That influence was increased with the No Child Left Behind (NCLB) Act in 2001, which explicitly made accountability for performance a federal concern. It was increased again when the Obama administration began making more aggressive use of the tools NCLB had given it, such as through the Race to the Top initiative, which offered states extra money to adopt policies the administration favored.

I was initially a supporter of NCLB. Test-based accountability programs adopted by a number of states in the 1990s had produced encouraging results. And I figured if the federal government is going to throw tons of money at schools anyway, it might as well get something in exchange.

I still think some of the new requirements of NCLB were good ones; most valuable has been the mandate that states participate in the Nation’s Report Card—a low-stakes and unobtrusive measurement of student outcomes that provides invaluable research data—as a condition of federal funding.

On the whole, however, people now realize that NCLB was a failure.

Ambitious performance targets were set, but not met. Most embarrassing was the preposterous goal—which sensible NCLB supporters always knew was impossible—to have all students achieve proficiency by 2014. You may have noticed how well that idea has turned out.

There are two schools of thought about the failure of

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PERSPECTIVE • June 2015

Rather than technocracy, we need accountability to rest in the hands of people who have natural and organic connections to the educational activities they regulate. In short, we need parents.

NCLB. One holds that NCLB didn’t go far enough. It didn’t create a strong enough regulator, didn’t punish failing schools effectively. A bigger, stronger, more all-knowing and all-powerful central authority is needed. This is the idea behind the Obama administration’s more aggressive use of NCLB tools, including Race to the Top and other overbearing initiatives.

We see now where that path leads.

Suburban mothers—a politically powerful demographic, and one that is highly motivated when the well-being of its children is at stake—never really bought into test-based accountability.

They are now driving a major national backlash against Washington’s aspirations to greater power over schools. As the federal education law comes up for renewal, even the most modest accountability provisions are in political jeopardy.

The other school of thought, to which I subscribe, is that accountability generally should not come from a central authority that grades schools based on test scores. Such systems can produce benefits where they are implemented locally, in places where the environment to support such a system is highly favorable—as the state programs from the 1990s showed. In general, however, a single standardized test wielded by a single central planner is too blunt an instrument.

Not only do parents reject test-based, command-and-control accountability; educators reject it. They don’t accept the system as legitimate, and don’t expect that it will actually reward better performance. So, at best, they ignore it. At worst, they “fight fire with fire” by cheating on the tests.

We need a better way to hold schools accountable. Rather than a one-sizefits-all measurement of performance, we need accountability that is customized to every child. Rather than a distant central regulator, we need decentralized authorities that are close to the schools and (even more important) to the children. Rather than technocracy, we need accountability to rest in the hands of people who have

If a doctor or grocery store or restaurant gives you bad service, you hold it accountable by taking your business elsewhere.

We do this because it respects the freedom and dignity of the customer—and also because it works.

natural and organic connections to the educational activities they regulate.

In short, we need parents. They know how their schools are doing better than distant regulators in Washington or even in state capitals. They can consider not only test scores but how schools are performing on crucial qualitative dimensions like character formation and soft skills. And if they know their schools better, they definitely know their children better. They know their own children’s unique needs. And they are far better motivated to hold schools accountable than central regulators, whose motives are always political and often selfish.

That’s why school choice is having (yet another) successful year in the state legislatures. Nevada just became the 25th state to enact a private school choice program. As of this writing, four other programs have been enacted or expanded this year, and more victories are expected before the legislative season closes.

We’re familiar enough with this principle of accountability in other contexts. If a doctor or grocery store or restaurant gives you bad service, you hold it accountable by taking your business elsewhere. We do this because it respects the freedom and dignity of the customer—and also because it works. Schools are almost the only type of organization we don’t hold accountable in this way.

The fact that school choice involves public dollars is no reason to shun this morally right and highly effective approach to accountability. We give people food stamps and then let them choose where to buy their food instead of running state-owned grocery stores and creating a federal grocery regulator. One of the best policy improvements in recent history was the change in housing subsidies from government-owned “housing projects,” which were consistently horrific, to what are called “Section 8 vouchers,” which subsidize housing but let people choose where to rent.

Does school choice work as an accountability tool? You

bet. A large body of high-quality research finds that these programs improve educational outcomes not only for participating students, but at nearby public schools. Out of 23 studies, 22 found that school choice improved academic outcomes in public schools. The remaining study found no visible difference. No empirical study has ever found that school choice harmed public schools.

There’s no reason we can’t hold schools accountable at least as effectively as we hold grocery stores accountable.

We just have to treat parents not as troublesome political obstacles who get in the way of the experts, but as human beings who know and love their children, and are capable of making choices about their children’s well-being at least as wisely and well as they make choices about groceries. That’s accountability that works.

Greg Forster Greg Forster (Ph.D., Yale University) is a senior fellow with the Friedman Foundation for Educational Choice. He is the author of six books, including John Locke’s Politics of Moral Consensus (Cambridge University Press, 2005) and Joy for the World: How Christianity Lost Its Cultural Influence and Can Begin Rebuilding It (Crossway Books, 2014). 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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A Three-Step Plan to Prevent Welfare Fraud Fraud of state welfare programs including Medicaid and food stamps is far too common, and the Foundation for Government Accountability (FGA) has released a report documenting cases of abuse and how state legislators can stop it.

Let’s take a look at just a few of the many egregious cases where taxpayers are on the hook for millions of dollars in welfare scams.

Just last year in Arkansas, the Department of Human Services removed almost 5,000 enrollees from the state’s Medicaid expansion after learning that they were ineligible to receive these benefits in the first place. Some of these enrollees where receiving both Medicaid and Obamacare subsidies.

In Illinois it was determined that the state had paid out $12 million worth of Medicaid benefits to dead people. A report by the Auditor General’s office noted that between 15 and 20 percent of Medicaid cases were overdue for an annual review, a review that could have helped identify the improper payments to deceased Illinois citizens.

In Minnesota, an audit found that nearly 17 percent of the records reviewed were not eligible for the Medicaid program.

Auditors found that by simply matching applicants to other existing state databases they were able to identify recipients who had drastically underreported their income levels, in many cases by up to $70,000 per year.

The problems in each of these states could have been prevented with the implementation of better safeguards. The FGA plan to stop these scams is simple. As FGA CEO Tarren Bragdon noted, “the states have a responsibility to ensure taxpayer dollars are being properly managed, especially when very limited resources are being diverted away from the truly needy and into the hands of fraudsters and criminals.”

How can legislators protect taxpayers and state resources?

First, states should do a better job of screening people at the front door. If states used enhanced data-matching technology, it would enable them to verify and crosscheck income, residency, identity, employment, citizenship status, and other important eligibility criteria.

When discrepancies arise, states can suspend eligibility determinations until the discrepancies are resolved and applicants are given an opportunity to produce sufficient evidence to establish their eligibility.

Arkansas could have avoided paying benefits to Medicaid enrollees who were also receiving Obamacare assistance by using a more rigorous screening process. By matching applicants to other available databases, the state could have

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saved taxpayer dollars and ensured they were enrolling only those citizens truly eligible for assistance.

Second, it’s key that states take a proactive role in regularly reviewing the eligibility of their program enrollees to be sure they aren’t paying people for services they no longer need. By extending the data-matching technology a state uses to check program applicants, they can easily review the eligibility of program enrollees.

For instance, data show that nearly half of Americans who fall into poverty for at two months will leave poverty within four months. The vast majority of those individuals will exit poverty altogether within a year.

Federal law only requires states to perform eligibility checks once a year, but by reducing the amount of time between these reviews, states can catch expense eligibility errors sooner, saving their taxpayers hard-earned dollars and ensuring that only the truly needy get the assistance they need.

Had Illinois been employing these practices, they no doubt would have caught some of the $12 million in improper payments to deceased enrollees.

Finally, in order to deter defrauding of Medicaid, food stamps, and other welfare programs, it is critical that states prosecute those who abuse and scam the system. Each case of fraud and abuse should be prosecuted by the proper authorities and every dollar of improper payments should be recovered. Those individuals who have committed fraud in one public program should be removed from all government support.

Regular oversight hearings by state lawmakers would ensure they are receiving regular updates on the progress of these anti-fraud initiatives.

These examples of wasteful spending by states “threaten the long-term stability of these programs, and in most cases they can be prevented relatively easily,” Bragdon says.

Kristina Ribali Kristina Ribali is the senior coalitions director for the Foundation for Government Accountability, a nonpartisan think tank equipping policymakers with principled strategies to replace failed health and welfare programs nationwide.

@OCPAthink The Advance Center for Free Enterprise continues to move toward completion, overlooking downtown Oklahoma City adjacent to the Oklahoma Council of Public Affairs. The 6,500-square-foot multi-purpose facility, resting on the north side of NE 13th Street west of Lincoln Boulevard, will offer meeting space, a catering preparation room, coat check, and spacious foyer. The Center will provide OCPA with an increased capacity to host policy discussions with state and national leaders, as well as offer events targeted toward Oklahomans for education, socializing, and celebration. “I should be done in late June,” says Sheldon Lambrecht of Miller-Tippens Construction Company.

“We have requests for space all the time,” says OCPA development director Rachel Hays. “It will be the only (event center) of its size anywhere around here. We’ll use it for our events like policy discussions, but it will be available to the public for events that match our principles.” OCPA is offering people the opportunity to sponsor one or multiple bricks for the project and have a permanent presence at the Center. Bricks can be purchased for $250 each, may be combined with more bricks for greater impact, and can accommodate up to three lines of text in each piece. For more information on the project or to sponsor one or more bricks, contact Rachel Hays at 405.602.1667.

—Jay Chilton

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By Trent England

The Supreme Court is once again weighing a dispute about the Affordable Care Act, better known as Obamacare.

Previous cases asked whether the Act violates the Constitution, but the current case, King v. Burwell, is different.

Those who brought the lawsuit challenge the federal government’s interpretation of the statute itself. The Supreme Court heard arguments in the case on March 4; a decision is expected by the end of June.

Supporters and opponents alike describe Obamacare as a “three-legged stool.” The first leg is the set of commands to insurance companies to include certain features and disregard certain risks (i.e., preexisting conditions) when selling their products. On its own, this would destroy the health insurance market. Why purchase insurance now if you can wait and buy it once you get hurt or become sick? Hence the second leg is the individual mandate—the command to individuals to buy health insurance or else pay a fine. Four years ago, the Court upheld the mandate in NFIB v. Sebelius.

The mandate (leg two) solves the problem for insurance companies (created by leg one), but not for consumers.

Despite its title, the law drives the actual cost of health insurance up and out of the reach of many Americans. The third leg is subsidies so that those Americans are able to pay their monthly health insurance premiums. This new, massive federal entitlement is the subject of King v. Burwell.

The Lawsuit In order to control the health insurance market and manage the subsidies, Obamacare also establishes a model

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for government-run health insurance exchanges. The Act’s authors seem to have assumed the states would all go along, but did include a backstop provision for a federal exchange.

In fact, the federal exchange became critical to implementing the entire scheme when many states refused to do anything in support of the unpopular law. The Obamacare statute says subsidies shall be provided “through an exchange established by the State.” To keep the three-legged stool standing, the IRS ignored this phrase and interpreted the statute to allow subsidies to flow through the federal exchange.

Four people in Virginia sued the federal government, challenging this interpretation. For these petitioners, if the subsidies are struck down, the mandate also would not apply because of an Obamacare safety-valve provision limiting out-of-pocket costs. Without the subsidies, these four people (and many more across the country) would be exempt from the individual mandate. If the petitioners in King v. Burwell are successful, they will damage two of the three legs that hold up the Obamacare scheme. During the oral arguments on March 4, justices raised two constitutional issues that show—for better or worse—what the decision in this case could mean.

Phony Federalism Federalism is the constitutional division of powers between the federal and state governments. Under that system, federal power is limited to a few truly national purposes. The rest of the power, nearly all the day-to-day governing, is left to the states. Just how far Obamacare turns this system on its head

President Obama signing the Patient Protection and Affordable Care Act on March 23, 2010.

became clear in questioning by Justices Sonia Sotomayor and Anthony Kennedy.

Justice Sotomayor claimed enforcing the statute and striking down the IRS interpretation would be “coercive” because states would either have to set up state-based exchanges or face an insurance market “death spiral.” Justice Kennedy picked up on this point, suggesting it is unfair for people in a state to pay taxes to support subsidies that are unavailable in their state. Oklahoma Attorney General Scott Pruitt was in the courtroom during the oral argument; he responded to these suggestions in a Wall Street Journal article.

The states are not children that the federal government must paternalistically “protect” from the consequences of their choices by rewriting statutes. In our constitutional system, states are free to make decisions and bear the political consequences, good or bad, of those choices.

Faithful statutory interpretation by executive agencies and judges is essential to maintaining the separation of powers. If the Court accepts the IRS reinterpretation of Obamacare, the judicial and executive branches will have usurped legislative power. Maintaining separation of powers, including the distinction between federal and state governments, is essential to representative government. These structures are far from arbitrary, as James Madison described in Federalist No. 51. Rather they connect “the interests of the man … with the constitutional rights of the place,” and turn “the private interests of every individual [into] a sentinel over the public rights.”

While on its surface King v. Burwell is about the meaning of a few words in a statute, the forthcoming decision may— or may not—profoundly alter the balance of Obamacare, federalism, and the separations of powers.

‘Helping’ Congress No doubt the Obamacare statute was hastily pasted together, and its implementation has hardly gone as its supporters hoped. But should the Supreme Court step in and iron out perceived imperfections? The Obama administration’s argument and questions from the liberal justices painted a picture of catastrophic and unconstitutional consequences if the IRS interpretation is overturned. Justice Antonin Scalia, in response, asked the petitioners’ attorney whether the Court has ever disregarded the clear text of a law in order to prevent harmful consequences or avoid striking down an unconstitutional provision. The answer was no.

Trent England (J.D., George Mason University) is vice president for strategic initiatives at OCPA, where he also serves as the Dr. David and Ann Brown Distinguished Fellow for the Advancement of Liberty. A former legal policy analyst at The Heritage Foundation, England has contributed to two books, The Heritage Guide to the Constitution and One Nation under Arrest: How Crazy Laws, Rogue Prosecutors, and Activist Judges Threaten Your Liberty. His writings have appeared in The Wall Street Journal, the Christian Science Monitor, and numerous other publications.

This piece originally appeared in The Torch, a publication of The Liberty Foundation of America. Find out more at libertyfound.org.

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QUOTE UNQUOTE “Drawn by warm year-round weather and the absence of a state income tax, scores and scores of touring pros, TV golf executives, tour caddies, and per diem PGA Tour officials choose to set up housekeeping in the Sunshine State. ... As for players in Florida, the list is endless and includes Woods, Nicklaus, and Palmer. The center of Arnold’s universe may be Latrobe [Pennsylvania], but his official residence is a modest townhouse in Bay Hill, an Orlando golf community ...”

Michael Bamberger, Men in Green (Simon & Schuster, 2015)

“It is only thanks to cheap, plentiful, reliable energy that we live in an environment where the water we drink and the food we eat will not make us sick and where we can cope with the often hostile climate of Mother Nature.”

Alex Epstein, The Moral Case for Fossil Fuels (Penguin Group, 2014)

“$4,521” The average private school tuition in Oklahoma for elementary schools, according to PrivateSchoolReview.com .

“30 percent.”

The percentage of teachers nationwide who describe themselves as engaged in their work, according to a recent Gallup survey. A startling 57 percent of teachers say they were not engaged, and 13 percent admit to being “actively disengaged.”

“We have a moral duty to have an efficient government. The tax money belongs to the taxpayers. It doesn’t belong to the bureaucracy, and government is not a welfare system.”

Illinois Gov. Bruce Rauner

“Any rural counties would love to have an opportunity for something like that. I’m glad they’re kind of thinking outside the box.”

Lyle Roggow, president of the Duncan Area Economic Development Foundation, commenting on a proposal to create Rural Opportunity Zones