PERSPECTIVE June 2014
OKLAHOMA COUNCIL OF PUBLIC AFFAIRS
In Case You Missed It Undertaxed Oklahomans who fear they’re not paying their fair share need not fret: An Oklahoma statute (§60-383) allows for voluntary gifts of cash to the government. tinyurl.com/3z74zy4
Thirty baccalaureate degree programs at the University of Oklahoma each produced fewer than 10 graduates in 2011-12. In percentage terms, 31% of bachelor’s programs at OU each produced fewer than 10 graduates. tinyurl.com/pj4557y
More homes are going up in Houston than in all of California. tinyurl.com/pqyyqkv
OCPA research fellow Steve Anderson says there are two versions of the Kansas tax-cut story: the media’s version, and reality.
In OCPA’s latest mini-documentary, an autistic child tells of being kicked and stomped at school, and of considering how to kill himself. ocpathink.org/videos/295
tinyurl.com/nqhtyu4
Oklahoma’s education establishment views school choice as an existential threat. One chart explains why.
Oklahoma’s college graduation rates should concern policymakers. ocpathink.org/articles/27141gPDnYg
ocpathink.org/articles/2694
Author Travis Brown and Heritage Foundation chief economist Stephen Moore say it’s time for Oklahoma to get rid of its penalty on work, the state income tax.
An Oklahoma educator who’s paid $259,821 to oversee a failing school district says it’s time to “show respect for Oklahoma educators.”
ocpathink.org/articles/2688
bit.ly/1hVcJdL
PERSPECTIVE OCPA Staff
OCPA Trustees
Brandon Dutcher .................................................. Editor
Blake Arnold • Oklahoma City
Tom H. McCasland III • Duncan
Daryl Woodard • Tulsa
Robert D. Avery • Pawhuska
David McLaughlin • Enid
Daniel J. Zaloudek • Tulsa
Lee J. Baxter • Lawton
Lew Meibergen • Enid
Steve W. Beebe • Duncan
Ronald L. Mercer • Bethany
OCPA Researchers
G.T. Blankenship • Oklahoma City
Lloyd Noble II • Tulsa
John A. Brock • Tulsa
Mike O’Neal • Edmond
Clint Colbert .................................................... Office Manager
David R. Brown, M.D. • Oklahoma City
Bill Price • Oklahoma City
Brandon Dutcher ............................. Senior Vice President
Paul A. Cox • Oklahoma City
Patrick T. Rooney • Oklahoma City
Kelly Hughes ........................ Communications Associate
William Flanagan • Claremore
Melissa Sandefer • Norman
Dacia Harris .............................. Communications Director
Josephine Freede • Oklahoma City
Thomas Schroedter • Tulsa
Ann Felton Gilliland • Oklahoma City
Richard L. Sias • Oklahoma City
John T. Hanes • Oklahoma City
Greg Slavonic • Oklahoma City
Brittoni Bobek ...................................................................... Intern Brian Bush ...................................... Executive Vice President Michael Carnuccio .................................................... President
Rachel Hays .................................... Development Assistant Rebecca Hobbes ................................................................ Intern
Steven J. Anderson, MBA Research Fellow
Tina Dzurisin
Research Associate
Vance Fried, J.D. Research Fellow
Jayson Lusk
Samuel Roberts Noble Distinguished Fellow
Matt Mayer, J.D. Research Fellow
Ralph Harvey • Oklahoma City
John F. Snodgrass • Ardmore
J. Scott Moody, M.A.
Jennie Kleese ............... Development Events Manager
John A. Henry III • Oklahoma City
Charles M. Sublett • Tulsa
Maysen Mackie .....................................................................Intern
Henry F. Kane • Bartlesville
Robert Sullivan • Tulsa
Andrew C. Spiropoulos, J.D.
Karma Robinson ...... Vice President for Development
Robert Kane • Tulsa
Lew Ward • Enid
Jonathan Small .............................Vice President for Policy
Gene Love • Lawton
William E. Warnock, Jr. • Tulsa
Research Fellow
Milton Friedman Distinguished Fellow
Wendy P. Warcholik, Ph.D. Research Fellow
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.
Frank Lucas Talks Farm Policy
OCPA’s Brian Bush recently sat down in the OCPA library with Oklahoma Congressman Frank Lucas to talk about the farm bill, crop insurance, and more. BUSH: Congressman Lucas, thanks for making the time to return to OCPA today. LUCAS: Thanks for having me, Brian. It’s good to be back. This institution is continuing to make valuable contributions to Oklahoma’s public life. I always enjoy reading Perspective each month. BUSH: As chairman of the House Agriculture Committee, you are most known for your work on the farm bill. Let’s start by discussing what exactly the “farm bill” is. LUCAS: Put simply, the “farm bill” is the legislative instrument that regularly sets the policy of the United States towards the hard-working families that produce the food we eat and drink and the fiber we wear. BUSH: As you know, we at OCPA value a free-market approach, so we generally prefer less government interfer-
ence in the marketplace whenever possible. When did the federal government become involved in production agriculture, and why? LUCAS: The “farm bills” Congress considers from time to time today are a legacy that dates back to George Washington’s first proposals in the late 1700s to form a “national board of agriculture.” By the 1820s Congress and most of the state legislatures had standing agriculture committees overseeing work being done mostly by the Patent Office at that time related to farming and ranching in this country. President Lincoln created the U.S. Department of Agriculture (USDA) in 1862, and between that time and the 1930s several different pieces of agriculture legislation—“farm bills” before we called them that—passed Congress and were signed into law. These measures dealt with everything from agricultural research, meat inspection, and extension agents for educating producers to agriculture loans, farmer cooperatives, and commodity market regulations.
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Of course, the Great Depression and the resulting 1930s “farm bills” under FDR saw radical centralization and command regimes put into place to try to stabilize production agriculture in this country during some pretty traumatic times. After that most “farm bills” built on the New Deal-era programs of quotas, allotments, etc. Once Republicans took control of Congress in 1994 for the first time since the Truman Era, we started moving federal agriculture programming away from central planning and towards a market-oriented, entrepreneurial situation where farmers and ranchers have a “safety net” that keeps them producing food and fiber for all of us to consume during bad times, but that during good times doesn’t expose the taxpayers. It’s a tricky balance, but one we’re starting to see success in achieving. You’ll note that while most of the agriculture sector in this country is experiencing several years of prolonged drought, the taxpayers aren’t being asked for ad hoc, costly bailouts. The safety net we’ve crafted over the course of the last couple of farm bills is doing what it should do—helping us survive the bad times so that we can farm and ranch again during good times. And since we all eat, we all benefit from that. I think your last question was, “Why has the federal government always had an abiding interest in production agriculture?” Recall that the Preamble to the Constitution points out that one of the reasons the Union was formed was to “provide for the common defense.” A critical part of that responsibility lies in ensuring that we are able to produce our own supply of food and fiber. If we can’t do that, we’re not secure—far from it! We can go without certain products and luxuries during times of war and hardship, but we have to have a certain number of calories each and every day. The Founders knew it, and today we need to remember it. BUSH: You’re the first Oklahoman in history to chair the House Agriculture Committee, and our state is often cited as one of the most conservative states in the union. Were you able to bring those conservative principles to bear on the 2014 farm bill process? LUCAS: Oh, yes. Some of your readers will recall that the 2014 farm bill should have been finished in 2012, when the 2008 law expired. In July of 2012 I was able to lead the Committee to pass, on a large bipartisan vote, a “farm bill” that would save taxpayers $35 billion in mandatory—a very important word, as mandatory programming is what is growing our deficit so dramatically—money. That bill would have repealed the last of what people traditionally view as “farm subsidies,” a program called Direct Payments, along with more than 100 other government programs. It also would have reformed food stamps to the tune of $16 billion—keep in mind that we haven’t been able to touch food stamps since Bill Clinton was in the White House! Unfortunately that bill was never allowed to come to a vote on the House floor.
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PERSPECTIVE • June 2014
In May of 2013 my Committee passed—again, by a large, bipartisan majority—a “farm bill” that would save taxpayers almost $40 billion in mandatory money by repealing Direct Payments and more than 100 other programs, and by reforming food stamps to the tune of $20 billion. Unfortunately, for varied reasons, this bill didn’t receive enough support to pass the House. We actually ended up having to pass the Nutrition Title in a separate piece of legislation in order to get to a conference with the Senate. It’s really a shame—had the House passed this version of the “farm bill,” conservatives like myself would have been in a much stronger negotiating position vis-á-vis the Senate Agriculture conferees. Still, we were able to achieve significant conservative victories in the 2014 “farm bill” that was signed into law not too long ago. Direct Payments are gone; no longer will payments go out to people who do not produce food or fiber. Almost 100 different government programs were repealed or consolidated, helping make the total savings to the taxpayers in the new farm law over $23 billion. And food stamps were reformed to the tune of $9 billion; we also ended food stamp advertising and recruiting both at home and abroad, and empowered states to begin new work programs requiring able-bodied adults to put some sweat equity into receiving assistance. BUSH: There seems to be some dissatisfaction with what ultimately came to pass as the new farm bill. Even some of us here at OCPA wonder if we might have missed a great opportunity to enact even more positive change. You have been in Congress long enough to know you can’t please everyone, but why are some groups who are generally conservative or at least free-market-oriented unhappy right now? LUCAS: It has certainly been an interesting process. I personally began work on this farm bill more than four years ago, and the committee itself worked in earnest for two and a half years. We began that process with plans to make significant improvements, and I am proud that many of them made it into the final product. However, the bill that was eventually signed into law did not contain all of those ideas. That is partly due to the learning curve many of the new members of Congress had in getting up to speed on farm policy, since many of them were not in Congress when we last passed a farm bill. In addition, I was not willing to let this important legislation be one more victim of Congressional inaction. Our efforts to make sure the bill moved through the process meant that it was one of the only bills moving at the time. Our goal was to get as far as we could toward free-market reforms while also knowing that we had a hostile Senate and White House that would simply not allow us to go as far as we would like. In spite of those limitations, I am proud that the latest CBO numbers show they expect us to save even more than we originally thought—$24 billion more, in fact.
BUSH: Should we have waited to pass a new farm bill until the makeup of Congress was more conducive to enacting a higher level of those free-market reforms? LUCAS: Absolutely not. Inaction on the part of Congress would lead only to food stamp abuses continuing unchecked. Inaction would mean that taxpayers would continue to pay for food stamp advertising and recruiting both in the United States and in foreign countries, and that even the deceased could continue to receive food stamps. And perhaps most worryingly, inaction would result in the outdated, New Deal-era permanent agriculture laws, which I have attempted to repeal, becoming law of the land once more and requiring USDA to reestablish a centralized, command-andcontrol regulatory regime that would throw markets into chaos and do immense harm to farmers and ranchers as well as taxpayers. Voting for the new farm law was a vote in support of reducing the deficit, repealing levels of bureaucracy and overregulation, and reforming a major entitlement for the first time in a generation. I’m proud of the work we did at the Ag Committee. If every committee in Congress provided the level of deficit reduction that we did, our nation’s fiscal house would be drastically improved. BUSH: Are there any areas where you agree with those socalled critics? Would you say there is still work to do on farm policy? LUCAS: Yes. The food stamp reforms I proposed in 2012 and 2013 that the House failed to act upon should be reconsidered. We have to protect the taxpayers from state governments that are trying to mine the U.S. Treasury by taking advantage of loopholes in federal law. And we have to repeal the unworkable, 1940s-era permanent farm laws that could throw production agriculture into chaos and cost the taxpayers unthinkable amounts of money. We should continue to empower America’s farmers and
ranchers to do just that—farm and ranch. That means continuing to guard against attempts by agencies like the EPA to regulate production agriculture right out of existence. That means ensuring that the hugely successful privatepublic partnership that is crop insurance is able to continue to flourish and provide American farmers and ranchers with a market-oriented safety net. BUSH: I’m glad you brought up crop insurance. Producers pay part of the premium, and the government pays part of the premium. Many outside the ag sector wonder why taxpayers pay for any part of the crop insurance premiums at all if they themselves aren’t farmers and ranchers. In their minds, yes, agriculture is risky, but so are other industries. LUCAS: Firstly, I would remind you that we as taxpayers don’t just subsidize crop insurance. We also help pay for flood insurance and terrorism reinsurance, for example. Producers pay a significant amount of the premium out of their own pockets—over $4 billion a year. Crop insurance sees private enterprises engage with farmers and ranchers to use market innovation and demands to create new products for purchase and distribution. Losses are incurred by the crop insurance companies, while any actuarial gains are credited to the U.S. Treasury. So in the long term, crop insurance actually makes money for the taxpayer. Risk is and always will be a factor in production agriculture. Each producer has to make decisions about how to best manage and mitigate that risk. The safety net that the “farm bill” has put into place is needed because agriculture is one of the few industries that produces something without which our society cannot possibly function. We can go without a lot, but we have to eat. Plain and simple. We all have a vested interest in supporting production agriculture in this country. You may not know that roughly 250,000 farms and ranches produce 80 percent of the food supply in this country. That is a remarkably thin “green line” to which we all owe a great deal. Many Americans today are
In an ideal world, we would prefer discussing the food stamp program separate from farm policy. www.ocpathink.org
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A Free-Market Vision for Agriculture Policy By Daren Bakst
Agriculture has changed dramatically over the past 80 years, yet farm and commodity programs are Depression-era relics that are grounded in central-planning philosophies. Even some policymakers who claim to be strong proponents of free markets and limited government tend to forget these core beliefs when it comes to these programs. Agriculture policy is not just limited to these traditional farm and commodity programs that limit choice, stifle innovation, drive up consumer prices, and cost taxpayers billions of dollars a year. It also includes food safety, international trade, environmental policy and property rights, research and innovation, and general issues applicable to all sectors of the economy, such as labor policy. There are alternatives to agriculture beyond the status quo of central planning and subsidies. The same free-market solutions that have allowed this nation to flourish are just as applicable to agriculture as they are to other sectors of the economy. The following are 10 guiding principles for agriculture policy. [These principles are fleshed out in a new issue brief, “10 Guiding Principles for Agriculture Policy: A Free-Market Vision,” available at heritage.org.] 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Markets, not government incentives and controls, should inform farming decisions. Free markets promote food affordability. Subsidies are not necessary for farmers to succeed. Property rights are the cornerstone of American agriculture. Problematic regulations affecting agriculture should be fixed or eliminated. The regulatory burden on the agriculture sector should be minimized and sound regulatory approaches used. Obstacles to agriculture research and innovation should be removed. Free trade in agriculture benefits farmers and consumers. Individual dietary decisions should be respected. Agriculture policy should not promote special interests.
A free-market vision for agriculture starts with having principles that recognize the flaws of government intervention while embracing freedom and individual rights. These broad-based principles, if applied, can help change agriculture policy from an area of excessive government control to an area of individual freedom.
Daren Bakst is a Research Fellow in Agricultural Policy at The Heritage Foundation.
not cognizant of where their food comes from; even more are, thankfully, largely unfamiliar with the horrors of food shortages. The gap between those who produce our food and those who consume it continues to grow—this makes it all the more important that we have a safety net in place to see America’s family farmers through the bad times. BUSH: Of all the criticisms leveled against current ag policy, I hear two of them most often: crop insurance and other farm subsidies only help “Big Ag,” not family farms, and the crop insurance safety net is becoming a hammock. As a farm boy myself, I have an opinion on those, but let me just ask you—are those fair criticisms?
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LUCAS: No, although this is a persistent myth because more and more Americans do not really understand how production agriculture operates—they are further and further removed from the source of what is on their plate and in their glass. The fact of the matter is that 96 percent of the 2.2 million farms in this country are family-owned. These families were very much “at the table” and a part of the process during the writing of the new farm law. Also, remember that the last of the traditional “farm subsidies”—direct payments—are abolished by the new farm law. Secondly, the new law’s safety net programs only offer assistance to farmers and ranchers who suffer significant losses and who actually produce food and fiber for the country to eat, drink,
and wear. Finally, the new farm law caps assistance for any farmer, limiting exposure to the taxpayer and ensuring that the program is not abused. BUSH: For a while during the negotiation process, you were able to separate ag policy from the food stamp program, but ultimately the two came back together to look more like previous farm bills. Why are food stamps even a part of the “farm bill”? LUCAS: The short answer is that this legislation authorizes every program administered by the USDA. SNAP, or food stamps, is a USDA program. During the Great Depression the USDA distributed food and commodities to those in need. In 1938 the first Food Stamp program was created and administered by the USDA. In 1959 the Eisenhower Administration was authorized by Congress to administer food stamps under the authority of the Secretary of Agriculture. President Kennedy’s first executive order initiated new pilot food stamp programs in 1961—again, administered by USDA. Finally, the Food Stamp Act of 1964 was signed into law, affirming the program’s place at the Agriculture Department; the 1977 food stamp legislation likewise kept food stamps firmly under the jurisdiction of the USDA. By passing the new farm law, the first major reforms to SNAP since the 1990s have been enacted. New state pilot programs allowing work requirements are going into effect. Exploitative loopholes are being closed and new efforts at curbing fraud and abuse are under way. Recruiting and advertising for food stamps are now prohibited. None of this would have been possible without the new farm law.
BUSH: Any final thoughts on the farm bill process as a whole? LUCAS: My job is certainly not finished, and I plan to keep very close watch on the USDA to make sure they carry out what we put into law. I will hold them accountable because it is critical that we enact these reforms while continuing to press on toward even more—not just in five years when we write another farm bill, but right now as we work through other legislation that impacts these programs. Washington needs to remember that farm policy and rural America are inextricably linked to the rest of the American economy, and we must make smarter decisions across the board. For example, the Renewable Fuel Standard has been a huge mistake in energy policy, as the ethanol requirement has dramatically distorted the market and adversely impacted feed prices for livestock producers. Those mistakes result in high food costs, high taxes, and government overreach that all hurt the people of this country. While the political realities in Washington limited this effort to finding a full consensus on the farm bill, and while I certainly would have liked to enact even more significant changes to these programs, I am very pleased that this bipartisan law was achieved through the open processes and regular order that the voters demanded in the 2010 and 2012 elections. It is a great first step in “walking the walk” of restoring conservative, constitutional principles to the work we do on your behalf.
BUSH: Would you prefer to separate them in the future? LUCAS: In an ideal world, we would definitely prefer discussing the food stamp program separate from farm policy. In fact, I favor that theory tremendously. However, sometimes those theories get tested during the process, and this time around, we realized it was actually better for producers and agriculture policy in general to consider them together as we had done in the past. The reason we brought the two back together in the long run was that President Obama, Harry Reid, and their friends in the Senate were simply not going to give the agriculture community a fair shake, and they would prefer to increase the food stamp entitlement programs while hurting the people who actually produce the food. By keeping them together, we were able to achieve significant savings in the food stamp programs as well as a true work requirement program for able-bodied adults, an incredibly important step, while also reducing and eliminating many non-market-based producer payment programs. This approach meant everyone participated in the reforms, not just one group or the other, and we improved both areas even if we did not get all of the reforms we may have wanted. Hopefully we will have a better political environment in the future that will allow us to consider ideas like separating the two.
Congressman Frank Lucas is a fifth-generation Oklahoman whose family has lived and farmed in Oklahoma for more than 100 years. Lucas represents Oklahoma’s Third Congressional District, which includes all or portions of 32 counties in northern and western Oklahoma, stretching from the Oklahoma panhandle to parts of Tulsa, and from Yukon to Altus in the southwest. Congressman Lucas serves as the Chairman of the House Committee on Agriculture.
Brian Bush (J.D., University of Oklahoma) is OCPA’s executive vice president. He formerly served as director of government relations at Oklahoma Christian University, and also served as an assistant district attorney in Oklahoma County.
www.ocpathink.org
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Yes, Oklahoma, There Is Bloat in Public Schools By Greg Forster
In Oklahoma, defenders of the government school monopoly are trying out a new tactic in their never-ending struggle to convince you that the system isn’t wasting huge amounts of money. Don’t believe it. In Oklahoma, as in every other state, the government school system is chock full of wasteful bloat. The latest tactic is to highlight a misleading statistic on administrative costs. Last month, a coalition of special interest groups representing Oklahoma school administrators began pushing out a press release trumpeting that only 3.5 percent of public school spending in Oklahoma public schools goes to administration. What a bargain! No bloat to be cut here! is the unspoken message. The figure is accompanied by quotes from these interest groups. They lament the huge number of students they are required to serve for such a pittance. And they claim that education reforms enacted in Oklahoma have increased the burden on school administrators. We need more money if you seriously expect us to fix the schools! is the unspoken message. First let’s take a look at that administrative costs figure. Suspiciously, right after announcing the figure, the administrators’ press release rushes to say something that appears irrelevant to the point: Section 18-124 of Title 70 of the Oklahoma Statutes defines administrative costs in public schools and establishes caps on the amount of the funds districts can use to pay for central office administrators and staff. These costs are typically referred to as ‘administrative costs’ in rhetoric regarding education funding. Why this fussy attention to the definition of what counts as “administrative costs”? It could be because states have
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PERSPECTIVE • June 2014
Only half of Oklahoma’s public
education
employees are teachers.
an incentive to tweak their official definitions in ways that reduce the amount of spending that gets called “administrative.” They look a lot better when that number is lower, and most people don’t stop to check the definitions. The data-gathering arm of the U.S. Department of Education sets its own definitions for categories of spending. This is useful for making valid comparisons across states, but it also reduces the danger of shenanigans in the definitions. Where government agencies are collecting data on government systems you can never fully escape self-serving incentives, but in my experience the federal education data professionals have a reasonably good track record of playing it straight. So it’s useful to turn to their data and see what they say Oklahoma spends. According to the most recently available federal budget data, 8 percent of
Oklahoma public education spending went to administration in 2010-11. That includes 5 percent ($266,368,000) for administration in local schools and 3 percent ($165,215,000) for administration at the district and state levels. That’s roughly in line with the nationwide figure, which is 7 percent for administration at local, district, and state levels. However, there are even more eyecatching numbers elsewhere in the public school budget. Most Oklahomans would probably be shocked to learn that only 51 percent of public education spending in their state goes to what is supposed to be the core function of schools: instruction. The rest goes not only to administration but to a variety of “support services” and “other expenditures” like guidance counselors, nurses, buses, and cafeterias. This imbalance is also reflected in the
education workforce. Only half of Oklahoma’s public education employees are teachers. In fact, the most up-to-date staffing statistics reveal that, after hovering just above the half-teachers mark in recent years, Oklahoma has now fallen a tiny bit below it in 2011-12. Only 41,349 of the 82,719 FTE public education employees in Oklahoma are teachers. The rest are administrators, aides, guidance counselors, nurses, bus drivers, cafeteria workers, etc. (On all these figures, Oklahoma is roughly in line with the nation at large.) Why carry all these inessential services on the public payroll? I’ll admit that schools need some administrators and nurses. And I always smile when I see the line for “attendance support services”; that’s what we used to call truant officers. There’s no better way to “support” kids playing hooky than to drag them back to class. On the other hand, we waste a lot of money employing workers whose services are less central. The army of government guidance counselors is crowding out families, churches, and other cultural institutions
who used to raise our children. And why employ a legion of cafeteria workers and bus drivers? We could save millions, and get better quality, by contracting for these services with providers in the private sector. Or does government have a special expertise in these areas I’m not aware of? Of course, we already know the answer to the question “why carry all these inessential services on the public payroll?” It’s so their unions can keep the dues money rolling in. The unions, in turn, ensure political protection for their monopoly by mobilizing their members as voters in elections for legislatures and school boards. Politicians in both parties and the government school unions look out for each other, and everyone wins—
except for the rest of us. I’ll offer the public school administrators a deal. I’ll support permanently doubling the amount of money we spend on administrators. In exchange, they have to support one of the following two proposals: Schools must contract all non-educational services from private providers, or (even better) parents get education savings accounts that enable them to choose any school, public or private, for their children. I think I know what the administrators will say to that deal—and that’s all you really need to know about whether it’s worth throwing more money at the government school monopoly.
Greg Forster (Ph.D., Yale University) is a senior fellow with the Friedman Foundation for Educational Choice. His research has appeared in the peer-reviewed publications Teachers College Record and Education Working Paper Archive, and his articles on education policy have appeared in the Washington Post, the Los Angeles Times, the Philadelphia Inquirer, the Chronicle of Higher Education, and numerous other publications.
www.ocpathink.org
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At $12,206 Per Student, Oklahoma’s Total Education Revenues at an All-Time High By Jonathan Small
In an OCPA blog post in March I noted that, according to the Oklahoma State Department of Education, per-pupil available revenues have reached an all-time high of $12,206. (To calculate per-pupil available revenue, one simply divides the total available revenue by the total enrollment.) As I said at the time: It’s important to understand that the current system of public education in Oklahoma is a partnership between the state of Oklahoma and local school districts. Both are authorized by the Oklahoma constitution to provide revenue for the various expenses of common education. Our system of financing common education is somewhat unique, and differs from other government programs where state dominance and state funds comprise the majority of the program. Programs such as Medicaid, transportation, welfare assistance, and others operate primarily on state and federal funds, without the arrangement or expectation of local revenue involvement. Given this relationship, analyzing total available revenue perpupil is vital if one wants a clear revenue picture.
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This $12,206 figure is actually low, because it doesn’t count the significant investment by the state in the Oklahoma Teachers Retirement System (TRS). For decades, lawmakers overpromised benefits and underfunded the TRS. This neglect resulted in the TRS being one of the worst-funded state pension systems in the United States. Over the last several years, while making significant increases to common education, lawmakers also significantly increased contributions to the TRS. The state dedicated $128.9 million to TRS in fiscal year (FY) 2003 and $300.5 million to TRS in FY-2013, an increase of $171.6 million or 133.17 percent. Only in government can you argue that money going to teacher retirement benefits doesn’t count as revenue available for education. (Try making that argument to anyone running a private school.) Even so, our analysis struck a nerve with many liberals, tax consumers, and various Oklahomans who simply refuse to believe that, overall, public education’s available revenue actually exceeds that of the former record-high amounts prior to the recession. Some have tried dismissing our analysis by pointing to all
of the various uses of the available revenues, some of which aren’t related to the schools’ operating budgets. But of course we’re not talking about school operating budgets, and never said we were. We’re talking about total available revenues. In a policy environment that too often favors the interests of tax consumers, OCPA is looking at things from the perspective of the tax payers. How much money has been extracted from them and is now available to the government’s monopoly education system? What matters most is not whether available revenues are directed towards this particular program or that particular expenditure item. What matters is: How much revenue is available for public education in Oklahoma? This is hardly a novel analysis. State agencies, for example, are required annually to submit budgets to the state’s Office of Management and Enterprise Services and must budget all available funds, regardless of the source.
Private-sector companies are evaluated based on all available revenues as a whole. In fact, the Enron scandal had its basis in efforts by the company and its accountants to conceal portions of its companies’ operations and transactions from the public. Looking at the whole picture is the only way to make a wise decision about what is actually needed in public education in Oklahoma. Looking only at cherry-picked line items will lead to erroneous analysis and a continuing evaluation of the activity in public education in silos, which leads to so many of the problems we face today. Policymakers, public school teachers, public school
administrators, parents, and taxpayers should not be afraid to analyze completely where all $8.2 billion in available revenues is going in common education. OCPA believes that if we conduct such an analysis, we can refocus common education on the core areas of education, significantly improve student performance and parental satisfaction, and pay higher salaries to those teachers who have earned it. We believe that Oklahoma taxpayers cannot be faulted for asking the question: How is it that $12,206 in total available revenue is not enough to provide an education?
Jonathan Small, C.P.A., is the vice president for policy at OCPA. He previously served as a budget analyst for the Oklahoma Office of State Finance, a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department.
www.ocpathink.org
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The Seen and the Unseen: Educational Revenues and Deadweight Loss By Wendy P. Warcholik
Jonathan Small’s nearby article on education revenues, as dramatic as it is, only examines the direct cost of education on taxpayers. But also very significant are the indirect costs—all of the lost opportunities brought about by the very process of transferring resources from the private sector to the public sector via taxation. This is what economists call “deadweight loss.” The bigger questions then is: Do the gains from our current educational system outweigh the deadweight loss of such a high level of taxation? This article explores how to begin this important conversation. It is well established that people respond to tax incentives and disincentives. For example, they may buy a larger house than they otherwise would because they can deduct the mortgage interest from their federal income taxes. Since the behavior is tax-induced, it harms the economy; if not for the tax break, the taxpayer would have made other choices about how to use the extra money. “Deadweight loss” is a term used by economists to describe economic activity forgone by consumers and producers because of the higher relative price of goods as a result of the tax. Taxpayers may respond to the proposed higher tax rates by reducing their work effort, lowering their consumption, or even leaving the state in order to avoid the higher tax bill. In other words, the very process of transferring resources from the private to the public sector results in a permanent loss of current and future economic output. The nearby chart graphically shows how economists are able to estimate deadweight losses where Quantity (Qe) and Price (Pe) show the market equilibrium. The addition of a tax has the same effect as an artificial price increase. The new price point of intersection with the Demand (P+Td) and Supply (P+Ts) curves is at Quantity (Qt). The rectangle formed by the new intersection is the revenue gained by the tax. The resulting triangle represents the deadweight loss—the value of trade that would have occurred without the tax, but is now forgone because of the tax. Deadweight loss can be estimated by calculating the area of the triangle. However, estimating the deadweight loss is subject to the degree to which taxpayers change their behavior. If, in fact, taxpayers buy significantly more expensive homes because the mortgage interest is deductible, then the deadweight loss is large. Economists refer to this as the “tax elasticity” (TE). The example given above is an example of “high tax elasticity.” Graphically, TE is shown by the steepness and curvature of the supply and demand curves. Based on this standard economic methodology, Harvard economist Martin Feldstein pioneered the empirical estima-
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tions of deadweight loss. As he wrote in 1997 in the National Tax Journal: The appropriate size and role of government depend on the deadweight burden caused by incremental transfers of funds from the private sector. The magnitude of that burden depends on the increases in tax rates required to raise incremental revenue and on the deadweight loss that results from higher tax rates. … Recent econometric work implies that the deadweight burden caused by incremental taxation (the marginal excess burden) may exceed one dollar per one dollar of revenue raised, making the cost of incremental government spending more than two dollars for each dollar of government spending. In two exhaustive studies (National Bureau of Economic Research working papers published in 1993 and 1995), Feldstein finds, based on actual taxpayer behavior derived from IRS data, that the TE is 1.28. That is, a 1 percent change in marginal tax rates yields a 1.28 percent change in taxable income.
OCPA research fellow Wendy P. Warcholik (Ph.D., George Mason University) formerly served as an economist at the U.S. Department of Commerce’s Bureau of Economic Analysis, and was the chief forecasting economist for the Commonwealth of Virginia’s Department of Medical Assistance Services. She is a co-creator (with J. Scott Moody) of the Tax Foundation’s popular “State Business Tax Climate Index.”
Sparks Flying: Reflections on Party Purity and Discretionary Wisdom By Patrick B. McGuigan
In America at least, political parties exist to operate as grand coalitions, bringing together diverse interests in pursuit of broadly shared goals within a republican framework of separated powers. In Europe, on the other hand, parties tend to be more pure. That’s why there are so many parties in European democracies, and why those governments have become increasingly dysfunctional. The late Paul M. Weyrich, no conservative slouch but nonetheless a man interested in seeing conservatives govern after generations in the policy wilderness, told me a funny story early in my 10 years of work with him during the 1980s. We were discussing the tendency in politics among kindred spirits to emphasize subtle policy differences rather than unifying principles. Paul’s tale was set in the “Old Right” days of the 1960s. Two hard-core conservatives are having their customary Friday evening drinks at a D.C. watering hole. They decried the latest failure of fellow conservatives in Congress to stop this or that advance of Lyndon Johnson’s “Great Society” program, certain to bring debt and social turmoil to the nation. After cataloguing the sins of every voting leader in both the House and Senate, the older of the two gentlemen said to his somewhat younger colleague: “You know, there are only two true conservatives left in Washington, and that’s me and you.” Pausing for effect, he stares at his friend and adds, half-joking: “And I’m not so sure about you.” I am reminded of a faction of conservatives who once grew frustrated with conservative state Rep. Leonard Sullivan. The charge of “RINO” (Republican In Name Only) was laid at Sullivan’s feet.
Many conservatives took seriously the proposition that Sullivan—the guy who held University of Oklahoma law school leadership accountable for empowering Anita Hill when she went after Clarence Thomas in 1991—was a RINO. Most recently, we see this tendency in divisions nearing resolution in the June 24 Republican primary for the U.S. Senate seat that Tom Coburn will vacate at year’s end. Some conservatives prefer U.S. Rep. James Lankford, R-Oklahoma City. (Lankford is not a“RINO,”and when he is tagged as such the term has lost its meaning.) Other conservatives believe former Oklahoma House Speaker T.W. Shannon, RLawton, is the best choice. And one can make a case for Randy Brogdon, the former state senator in the U.S. Senate race, who ran impressively against Mary Fallin in the 2010 gubernatorial campaign but who will probably finish third in the federal race this year. It is easy to sympathize as each of the candidates makes a case against the others. Adding to confusion, rather than clarity, is the at times overwhelming sequence of advertisements from national independent groups, stressing the saintliness of their preferred candidate while decrying the sins of the other(s). To be sure, voters have to choose how to lift up conservative principles. In the end, the decision for voters is who among these three will best advance the conservative agenda. Who will best uplift the conservative cause of limited government and personal liberty? Primary voters are grappling not with fundamental differences, but shades of difference—nuances among fellows who vote the “right” way 90 percent of the time or more.
The Republican tendency to emphasize differences rather than similarities came to mind as I observed its mirror image, in the collapse of leadership prospects for a Democrat I respect, state Sen. John Sparks of Norman. This spring, he was on track to become the Democratic leader in the state Senate, replacing Sen. Sean Burrage, D-Claremore. Those of us in the Capitol press corps frequently interacted with Burrage and Sparks these past few years, in stand-up interviews in the hallways or in cordial but sometimes contentious interviews in Burrage’s office. Sparks gave as good as we reporters gave, shooting back at questions from me or others as he made pointed criticisms of one or another decision of the Republican Senate majority. No shrinking violet, he assailed GOP priorities on issues as varied as taxation, spending, education, and government employee pay. Still, his jabs were usually thoughtful and issues-driven, not purely partisan. When Sen. Sparks was named minority leader-designate in February, he proudly declared, “The Democratic Caucus provides contrast where it is needed: we ask the hard questions; we shine light on the dark spaces; and we hold the Republicans accountable. I look forward to working with my fellow Democrats as we continue our efforts to create opportunity and promise for hard-working Oklahomans and their families.” Burrage hailed his longtime friend as “a loyal, hard-working, and effective lawmaker.” Gov. Mary Fallin praised Sparks, saying, “Republicans and Democrats alike want to make Oklahoma a stronger, more prosperous state for our citizens to live, work, and raise a family.” It was hard
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Oklahoma Democrats removed from party leadership a senator whose advocacy of the energy business put him square in the tradition of former U.S. House Speaker Carl Albert and former U.S. Senator Robert S. Kerr. to disagree with any of that. Then, in March, came rising tensions around the important debate over energy policy and taxation of drilling activity. In a newspaper essay, Sparks laid out his position on drilling taxes, writing, “It’s bewildering that some of Oklahoma’s most high-profile elected officials are trying to raise taxes on oil and gas under the pretense that the industry needs to pay its fair share.” Once upon a time, the tax on oil and natural gas wells was 7 percent at the well-head. Then came the Great Recession and accompanying challenges for what is sometimes called, in the Okie vernacular, “the oil and gas bidness.” The Legislature of that era, working with Democratic Gov. Brad Henry, fashioned an incentive for then-experimental horizontal drilling technology, dropping the rate to just 1 percent for the first 48 months of activity. The rate for horizontal wells then returns to the rate for all other wells, the traditional 7 percent. The debate that heated up in March and continued through April and May was whether to let the rate go back to 7 percent or somewhere in between. Some like keeping it at 1 percent, which has fed an historic boom in drilling; many in the industry want to raise it to 2 percent; and a few say the rate could be as high as 5.3 percent. In that debate, the Oklahoma
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Council of Public Affairs (OCPA) was sympathetic to the lower rate or rates; the Oklahoma Policy Institute pressed for the higher rate or rates. It’s an argument, so there’s been a lot of debate. Sparks, the loyal, hard-working, and effective Democrat, laid out a position closer to most voices in the industry than to tax consumers or their allies. The case for a higher rate was made in arguments that the incentive “cost” the state $161 million last year, and that would rise to $251 million this year. The opposite argument was made from the industry side, with independent producers pointing out the energy business is paying more than $800 million in gross production taxes every year, and accounting for 25 percent of all taxes paid in Oklahoma. Senate Democrats threw Sparks overboard. They replaced him with state Sen. Randy Bass of Lawton. While giving a tip
of the hat to the oil and gas business, Bass said “we also understand the serious needs facing our state, particularly in education.” The Senate Ds were apparently upset that Sparks had made himself a player in energy tax negotiations, rather than letting “those discussions unfold before staking out a definitive position.” So, Bass said, they decided “we needed to go in a different direction to move the caucus forward.” Let’s be honest. The decision that was made was to remove from party leadership a guy whose advocacy of the energy business put him square in the tradition of former U.S. Sen. Robert S. Kerr, former U.S. House Speaker Carl Albert, and former Gov. Brad Henry. At the risk of stating the obvious, this is an odd way to advance the interests of a caucus that presently has 12 members, in a chamber of 48.
Patrick McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK.com. He is the editor of seven books on legal policy, and the author or co-author of three books, including Ninth Justice: The Fight for Bork. Last year the Washington Post political blog, “The Fix,” designated McGuigan one of the three best political reporters in Oklahoma.
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@OCPAthink 1. U.S. Congressman Jim Bridenstine (center) is pictured here with OCPA’s Brian Bush (left) and Michael Carnuccio at an OCPA members’ event April 17 at the Tulsa home of OCPA trustee Charles Sublett. 2. At the OCPA members’ event, state Sen. Nathan Dahm (center) chats with a group including state Rep. Tom Newell (right). 3. OCPA’s Jonathan Small tells Oklahoma City’s FOX 25 that Oklahoma taxpayers are being forced to spend too much for health care. To see the news story, visit tinyurl.com/k79g923. 4. At a breakfast meeting April 24 at OCPA, representatives of various Oklahoma scholarship-granting organizations discussed Oklahoma’s tax-credit scholarship program [see page 17]. Pictured here are (from left) state Sen. Bill Brown, state Sen. Dan Newberry, and Rev. Brian O’Brien, president of Bishop Kelley High School in Tulsa. In the background is Dave Bond, CEO of OCPA Impact.
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OCPA’s Action Partner Is Making an Impact By Dave Bond
In November 2013, OCPA Impact launched as the 501(c)(4) action partner of the Oklahoma Council of Public Affairs. OCPA Impact’s mission is to motivate Oklahoma lawmakers to remove barriers to job growth, business growth, and individual opportunity that are still facing families and job creators in our state. Oklahoma can become the best state in America in which to create jobs and provide for a family. But we must keep expanding economic freedom in Oklahoma and reducing the burden of state government on taxpayers. OCPA Impact is designed to be the megaphone for Oklahomans to send this message to their state lawmakers. Those interested in learning more about OCPA Impact or becoming involved with the organization’s efforts are encouraged to visit www.ocpaimpact.com. There, they can sign up to receive action alerts about opportunities to impact the debate at the Oklahoma Capitol on issues of economic growth and economic freedom.
In February, OCPA Impact worked with Americans for Prosperity’s Oklahoma chapter and the Tulsa 912 Project to host the first “Growth and Opportunity Summit” in Tulsa. The event focused on ideas to grow Oklahoma’s economy, such as reducing Oklahoma’s penalty on work—the state income tax—and restraining the burden of government spending on taxpayers. Speakers included Travis Brown (pictured here), author of How Money Walks, as well as U.S. Congressman Jim Bridenstine and Oklahoma Attorney General Scott Pruitt.
OCPA Impact worked with low-tax champions in the Oklahoma Legislature, including state Rep. Leslie Osborn and state Sen. David Holt, to arrange for Grover Norquist of Americans for Tax Reform to visit with legislators on April 15, “Tax Day,” about keeping the state’s gross production tax rate low on oil and natural gas drilling. Mr. Norquist is pictured at the state Capitol with Dave Bond, CEO of OCPA Impact.
To learn more about OCPA Impact or to become involved with the organization, visit www.ocpaimpact.com. 16 PERSPECTIVE • June 2014
OCPA FREEDOM PARTNERS
OCPA Helps Launch Opportunity Scholarship Fund OCPA long ago saw the need for parents to have more options for their children’s education. For years, we have studied what is happening in other states and what results were being produced by those efforts. The conclusion has always been clear: the best way to ensure access to quality education for all students is for parents to have the strongest voice in where their children go to school. But that ultimately leads to the reality that not everyone can afford to choose. Parents who have enough money have always been able to choose whether to send their kids to public schools or private schools, but there were simply no choices available for parents who couldn’t afford private school tuition. And the parents who can’t aff¬ord to send their kids to private schools are often the ones who need it the most—they are often stuck with a bad school because of their street address. A myriad of options exist in other states to help make choice more affordable for parents. And thanks to a relatively new taxcredit scholarship law (the Oklahoma Equal Opportunity Education Scholarship Act, signed into law by Gov. Mary Fallin in 2011), Oklahomans now have access to one of the most exciting tools for school choice in the country. The law enables the creation of scholarship-granting organizations, which can give scholarships to students in families who meet certain criteria. And the news gets even better: OCPA is announcing the creation of Oklahoma’s first statewide scholarship-granting organization: the Opportunity Scholarship Fund. Receiving a scholarship will be a life-changing opportunity for many families. Once a student gets a scholarship, the student and his or her siblings remain eligible until graduation or until age 21. The size of the scholarship varies with need and a number of other factors. The ceiling is $5,000 or 80 percent of what the local district pays per-pupil (students with an IEP are eligible for more). This results in a partnership where the scholarship provides assistance, but parents also bear some part of the tuition. Students can use these scholarships to attend any accredited
private school in Oklahoma that signs up with an established scholarship-granting organization, has an antidiscrimination policy, and meets a few other rules under the law. Interested families should apply for an OSF scholarship through one of the private schools associated with OSF. Donors to scholarship-granting organizations get incredibly favorable tax treatment under this law. In addition to the traditional federal and state tax benefits of giving to a nonprofit organization, donors receive a tax credit equal to 50 percent of the donation to be applied to their state income taxes owed. Better still, new legislation signed last month by Gov. Fallin will increase the credit to 75 percent for donors making a threeyear commitment. An individual can give up to $2,000 and receive a $1,000 tax credit, a married couple filing jointly can give up to $4,000 and receive a $2,000 tax credit, and a corporation can donate up to $200,000 and receive a $100,000 tax credit. Certain restrictions apply, and donors should consult a tax professional to get all the details.
Qualifying for scholarships is easier than you might think. Families need only meet one of two criteria: 1. Annual family income of up to 300 percent of eligibility for the free and reduced price school lunch program. (This equates to roughly $130,000 for a family of four.) or 2. Live in a public school district designated as “in need of improvement.”
www.osfkids.org www.facebook.com/osfkids www.twitter.com/osfkids
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OCPA’s Sister Organization Is Having Nationwide Influence Liberty Foundation president and CEO Michael Carnuccio recently appeared on FOX News to discuss competitive federalism. By Cassandra Howard
OCPA’s sister nonprofit organization, The Liberty Foundation of America (LFA), is a 501(c)(3) entity that seeks to aggressively educate policymakers and citizens on free-market principles and ideas by targeting our activities in key states to help shape the debate on America’s future. Our unique skill set is to leverage strategic assets from across America to secure and strengthen the free market in state fights over energy, jobs, agriculture, and other key issues. Recently, LFA commissioned and released surveys of 600-900 likely voters in Alaska, Arkansas, Colorado, Florida, Iowa, Louisiana, Michigan, North Carolina, Ohio, and Wisconsin on the upcoming U.S. Senate and gubernatorial races. The outcomes of these races will have a profound impact on the policy direction of America and the policies implemented over the next several years. Keeping our finger on the pulse of these races is critical to ensure we are prepared to promote free-market policies. In addition, LFA releases monthly statistics which continue to indicate that Right-to-Work states are showing higher employment growth than forced-unionization states. See page 19 for our latest data. LFA’s Friends of Freedom Dinner and Economic Outlook Summit, which will be held June 12-13 at the beautiful Broadmoor
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Hotel in Colorado Springs, aims to bring top policymakers and business leaders together to identify current and future challenges and how best to overcome those obstacles to economic prosperity. Our Thursday dinner keynote speaker, Super Bowl-winning quarterback and five-time NFL MVP Peyton Manning, will speak on leadership. On Friday, attendees will get a detailed briefing on the state of play on the 2014 U.S. Senate and gubernatorial elections, followed by leading energy business leaders, such as John Richels of Devon Energy and Karen Wright of Ariel Corporation, discussing the future of the oil and gas industry in America. The event will conclude with a presentation by emerging national leaders, including Oklahoma Lt. Gov. Todd Lamb, on the top issues in key states, and a lunch address on the historical importance of energy in making America a global powerhouse. This powerful event follows our successful 2013 summit with former President George W. Bush, U.S. Senator Ted Cruz, and Hillsdale College President Larry Arnn. For more information about The Liberty Foundation, visit libertyfound.org or contact Cassandra Howard at 405-602-2524.
OCPA FREEDOM PARTNERS Right-to-Work States Dominate Economic Recovery 0%
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Nevada Utah North Dakota Arizona Idaho Texas Colorado Montana Alaska Wyoming South Dakota Florida New Mexico Washington Nebraska Oklahoma Oregon Georgia Minnesota Only Forced Unionization state in Top 20 not from Virginia the South or West Louisiana Kansas Arkansas Tennessee North Carolina Iowa Wisconsin Second Forced Unionization state South Carolina in Top 30 not from New Hampshire South or West California Kentucky Delaware West Virginia Maryland Mississippi Hawaii Indiana 1990 Alabama 1990 to Missouri to March 2010 2014 Vermont Notice the explosion Maine Right-to-Work states Percentage Change in in jobs in the past Employment Massachusetts Forced-Unionization states four years as those Pennsylvania states became Right-to-Work New York Top 10 rank in oil or gas production in 2012 states. Illinois Ohio Sources: U.S. Department of Labor, Bureau of Labor Statistics and Michigan U.S. Energy Information Administration. New Jersey Rhode Island Connecticut
Right-to-Work states have increased their employment totals far better than ForcedUnionization states, holding nine of the top 12 spots in employment growth since 1990. By contrast, Forced-Unionization states hold all but one of the 12 worstperforming positions, the only exception being Michigan which became a Right-to-Work state in 2012.
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1401 N. Lincoln Blvd. Oklahoma City, OK 73104 Tel: 405.602.1667 Fax: 855.819.0085 ocpathink.org
QUOTE UNQUOTE “Part of the problem is that for too long Republican legislative leaders have carelessly placed members with close ties to the failed education establishment in important committee posts concerning education funding and management.”
Andrew Spiropoulos, OCPA’s Milton Friedman Distinguished Fellow, explaining why lawmakers continue to pour more resources into education even in the absence of improved student performance
“Fifteen years from now more than half of the universities will be in bankruptcy, including the state schools.”
Harvard business professor Clayton Christensen, quoted last year in the Silicon Valley Business Journal
“My change of heart boiled down to this: I realized my opposition to opportunity scholarships was based on prioritizing adult interests above those of kids. As a former union leader, I made maintaining union influence and power a greater priority than meeting the educational needs of parents and students. But seeing firsthand the positive impact that D.C.’s federally funded voucher program had on many families—especially those of color and limited means—compelled me to rethink my position.”
Former union president George Parker, a 30-year veteran teacher in the D.C. school system
“But I think far more significant is the production in journalism schools of the liberal mindset that government is god.”
University of Texas journalism professor Gene Burd, who is retiring this summer after 42 years at UT
“Within limits, the system of progressive taxation is defensible and effective. Beyond a certain point, however, it dulls incentives, and may destroy the principal source of funds for new enterprises involving exceptional risks.”
Harold G. Moulton, the first president of the liberal Brookings Institution