Perspective - March 2015

Conservatives often say they want lower taxes and smaller government. Our neighbors to the north are actually governing that way.

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In Case You Missed It Martin Luther King III, a supporter of tax-credit scholarships, once told OCPA that we must “increase equal access to private education.”

Here’s how Gov. Mary Fallin and state lawmakers can put more money in teachers’ pockets in 2015. ocpa.us/1umo2Cg

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OCPA’s Trent England reminds us why the Constitution matters. ocpa.us/1wp2swA

OCPA president Michael Carnuccio says the Obama Administration’s latest violation of the president’s health law could have negative consequences for community banks and other Oklahoma employers.

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Supporters of early-childhood education should favor school choice.

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Despite the pleas of the proObamacare hospital lobby, Oklahoma’s political leaders refuse to borrow money from other countries like China in order to put more able-bodied adults on welfare.

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One local superintendent in Oklahoma—a vocal defender of our state’s public school system—says “we have some really bad administrators and some really bad teachers who shouldn’t be able to get a job.”

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OCPA distinguished fellow Andrew Spiropoulos says we should consolidate our existing welfare programs into generous cash grants.

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In Oklahoma’s education system, where is the money going?

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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

Lauren Aragon.................................................................Intern

G.T. Blankenship • Oklahoma City

Mike O’Neal • Edmond

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

John A. Brock • Tulsa

Bill Price • Oklahoma City

David R. Brown, M.D. • Oklahoma City

Patrick T. Rooney • Oklahoma City

Paul A. Cox • Oklahoma City

Melissa Sandefer • Norman

William Flanagan • Claremore

Thomas Schroedter • Tulsa

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

Josephine Freede • Oklahoma City

Richard L. Sias • Oklahoma City

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

Ann Felton Gilliland • Oklahoma City

Greg Slavonic • Oklahoma City

John T. Hanes • Oklahoma City

John F. Snodgrass • Ardmore

Ralph Harvey • Oklahoma City

Charles M. Sublett • Tulsa

John A. Henry III • Oklahoma City

Robert Sullivan • Tulsa

Afton Paris ........................................................................Intern

Henry F. Kane • Bartlesville

Lew Ward • Enid

Jonathan Small ................................Executive Vice President

Robert Kane • Tulsa

William E. Warnock, Jr. • Tulsa

Gene Love • Lawton

Daryl Woodard • Tulsa

Tom H. McCasland III • Duncan

Daniel J. Zaloudek • Tulsa

Clint Colbert ....................................................Office Manager Brandon Dutcher .................................Senior Vice President

Rachel Hays .........................................Development Director Alex Jones .....................................................Creative Manager

Hannah Wallis ............................Communications Associate Teresa Yoder ........................................Director of Operations

Steven J. Anderson, MBA, CPA Research Fellow Tina Dzurisin Research Associate 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

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.

Larry Arnn

John Bolton

William F. Buckley

George W. Bush

Charles Krauthammer

Jeb Bush

Dinesh D’Souza

April 1 • Oklahoma City For more information, contact Rachel Hays at 405.602.1667 or rachel@ocpathink.org

Mitch Daniels

Jim DeMint

J. Rufus Fears

Steve Forbes

Mike Huckabee

Brit Hume

Laura Ingraham

Ed Meese

Tommy Franks

John Fund

Frank Keating Jeane Kirkpatrick

Artur Davis

Newt Gingrich David Horowitz

Art Laffer

Rich Lowry

Russell Moore Stephen Moore Peggy Noonan

Marvin Olasky

Bill Owens

Sarah Palin

Star Parker

Michael Reagan

Paul Ryan

Joe Sobran

Thomas Stafford

John Stossel

Cal Thomas

Clarence Thomas

Scott Walker

Malcolm Wallop

John Walton

J.C.Watts

Allen West

Walter Williams

Past OCPA speakers are pictured above.

Steve Anderson Steve Anderson (MBA, University of Central Oklahoma) is an OCPA research fellow. A Certified Public Accountant with more than 30 years of experience in private practice, he is currently a partner at Anderson, Reichert & Anderson LLC. Anderson spent two years as a budget analyst in the Oklahoma Office of State Finance, and most recently served as budget director for the State of Kansas. At one time he held 17 state teaching certifications ranging from mathematics to physics to business.

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PERSPECTIVE • March 2015

The state of Kansas is on a “march to zero.” The state’s political leaders have decided to eliminate the state individual income tax for all income earned in Kansas.

As Governor Sam Brownback reiterated this year in his State of the State address, “we will continue our March to Zero income taxes. Because the states with no income tax consistently grow faster than those with high income taxes.”

Why are the political leaders in Kansas doing this?

Well, they saw 50 years of population growth that was consistently less than in the vast majority of the other states. They saw even more worrisome data showing huge amounts of capital leaving for low- or no-income-tax states. The status quo was no longer an appealing option.

The lessons of the past, and what could be done to stem the tide, dominated my first meeting with then newly elected Gov. Brownback in November 2010, prior to my appointment as his budget director. Governor Brownback made it clear that reducing the tax rate was important, but he was insistent that “if you don’t pull it up by the roots it will regrow.”

That mindset was shared by many state lawmakers. So began the effort to eliminate the individual income tax.

The more difficult question was: How could Kansas accomplish it?

Of the states that have individual income taxes, only Alaska has successfully eliminated its individual income tax. (Eight other states have never had one.)

After oil was discovered on Prudhoe Bay, the sheer amount of “oil taxes,”

What’s the right size?

“Political candidates and elected officials in Oklahoma often talk about ‘right-sizing’ state government,” OCPA president Michael Carnuccio wrote recently in The Journal Record. “The phrase is a staple of campaign materials, public speeches, and more.”

But what is the right size?

Logic permits three possibilities: (1) government should be smaller than it is now; (2) government should be the same size it is now; or (3) government should be larger than it is now.

Implied in the political rhetoric is “smaller.” But in reality, government continues to grow larger.

With total state spending now at record-high levels, Carnuccio believes it’s time for conservative policymakers to focus on making state government smaller than it is now.

As Roger Humber wrote recently in a terrific essay (“A Guide to Proper Conservative Legislating”), conservatives should “remember that reducing the size of government is not merely an exercise in the reduction of public expenditure; it is a moral imperative that distinguishes them from their opponents.”

Our own state constitution says Oklahomans have an “inherent right” to “the enjoyment of the gains of their own industry.” Professed conservatives have a moral imperative to carry out that mission statement.

Not only is this good policy, it’s also good politics. SoonerPoll survey data have shown that, by a two-to-one margin, Oklahomans say they would “rather pay lower taxes and have a smaller state government that provides fewer services” than “pay higher taxes to support a larger state government that provides more services.”

—Editor

coupled with low population, allowed Alaska to eliminate its income tax. No other state had ever attempted to do so.

Kansas had the typical structural imbalances in its finances that plague many other states marked by out-ofcontrol spending growth. Among those spending increases were politically crafted built-in escalators in Medicaid, pensions, and K-12 spending that seemed to tie the hands of smallergovernment supporters.

In addition to those fundamental expenditure issues, Kansas’ revenue stream had been constricted by 50 years of tax policy emphasizing special interests rather than a free-market approach. Tax policy was marked by a multitude of income and sales tax credits, exemptions, and deductions.

Not only had this approach failed to correct Kansas’ economic woes, these “giveaways” had reached a staggering impact of $8.3 billion on the state’s revenues.

The revenue and expenditure issues combined to create a situation where the state was constantly increasing income and sales tax rates to offset the special-interest tax breaks, and shifting the source of state revenue from consumption taxes to production-based taxes. The state’s Legislative Division of Post Audit noted in 2010 that “the

percentage of State revenues provided by income taxes tripled between 1960 and 2009, rising from 15% to 45% of the total. During the same period, the percentage of State revenues from sales and excise taxes declined from 71% of the total to 49%. This reduction occurred even though the State’s sales tax rate more than doubled, from 2.5% in 1960 to 5.3% in 2009.”

How We Did It In order to have any chance of success with our ambitious “march to zero” agenda, we first had to win broad-based legislative and citizen support. Our first move on the tax-reduction front was to propose an income-tax-free zone in certain rural counties.

The Rural Opportunity Zone (ROZ) was a low-cost-to-the-state approach to helping those Kansas counties that had lost significant population over the last decade. The ROZ created a five-year state income-tax exemption for anyone from out of state who moved to one of these rural counties.

Additionally, there was an option for counties to provide student loan payments in equal shares over a maximum term of five years for ROZ-qualified individuals. The annual payments are equal to 20 percent of the individual’s outstanding student loan

balance up to a maximum of $15,000.

That feature was intended to target recent college graduates, a subset of the population much needed in rural areas because of their income and age demographics.

There was immediate anecdotal impact from the ROZ that reinforced the belief that income taxes matter to individuals and businesses. Counties that moved aggressively to promote and use the ROZ as an economic tool were so successful that in the next legislative session several counties that were on the cusp of the population-reduction qualification were added to the ROZ program.

The most important function of the ROZ may have been how it set the tone for the state’s bold tax reduction, a reduction which some people call the largest proportional tax cut in modern U.S. history.

This tax cut collapsed the threebracket system into two and lowered rates. The top personal income tax rate will drop to 3.9 percent for 2018, down from 4.9 percent. To continue and finish the march to zero, the law also put in place a plan to use all revenues in excess of two percent growth per year to buy down the rates until they were eliminated. The most aggressive part of the tax plan exempted the owners

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To have a vibrant free-market economy, the government must extract from the private sector only the amount of funding that is needed. of 191,000 partnerships, sole proprietorships, and other businesses from income taxes.

These business owners were overwhelmingly small operations but had the potential to fuel significant growth.

Small businesses create more than 50 percent of nonfarm private Gross Domestic Product and 75 percent of the net new jobs in our economy. It was our belief that, over time, leaving funds in the hands of these small business owners would reset the course for Kansas. There is evidence that this is beginning to take place. For the second straight year Kansas has had record business formation, and job growth has begun to reflect that trend.

Many liberals and their friends in the media have portrayed the Kansas tax cuts as having a disastrous impact on the state’s revenues. They have even generated or cited completely false data.

For example, the Kansas Center for Economic Growth (KCEG), a liberal think tank, attributed to tax cuts a $700plus million reduction in state aid for property tax relief and city/county revenue. That turned out to be a fabrication. The source for KCEG’s data was a paper published by KCEG, which says, “Cities and counties across the state have lost more than $700 million since 2008 from lawmakers defunding of two important sources of local support …” In reality, the

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PERSPECTIVE • March 2015

tax cuts did not go into effect until 2013. The source of this “lost” revenue was a statute passed in 2002 that had not been funded since 2002! These sorts of misstatements echoed through the blogosphere and even the mainstream media, creating a false perception of what the impact of the tax cuts was in Kansas.

The reality is that there has been a reduction in revenue to the state; interestingly, however, the reduction is actually less than our original revenue estimations. Those in the Kansas legislature and the administration understood that when you reduce taxes it will impact revenues. We embraced it. Remember, conservatives typically don’t want the government to have more money to spend [see sidebar].

To have a vibrant free-market economy, the government must extract from the private sector only the amount of funding that is needed. Elected officials like to talk about achieving efficiencies, eliminating waste and fraud, and focusing on core services. What we found in Kansas is this: those things become realities when you reduce the amount of money that makes its way to the state treasury.

So the march to zero continues. “There may be some who consider this course too bold,” Gov. Brownback said in his State of the State address this year. “Well, I’m the sort of guy who would have sent Alex Gordon from third base.”

An Economist Looks at Teacher Shortages Oklahoma’s shortage of public school teachers has been much in the news lately. Those in the education establishment say that solving the problem will require increased funding and greater teacher satisfaction (by limiting class sizes, for example).

Many of the articles being written about Oklahoma shortages seem to assume that the solution will be found at the intersection of money and teachers. However, the most basic explanation of temporary shortages is that prices don’t match the demand and supply of goods (such that if English teachers are in abundant supply compared with math teachers, salaries will be lower for English teachers than for math teachers).

Unfortunately, the simple economic dictum that markets aren’t clearing does not adequately address what is going on in the schools.

The superintendents, other education bureaucrats, and teachers’ unions ultimately do not compete with one another. Instead, the teacher unions enforce collusion among these groups such that they form an industry or monopoly—the education establishment.

In the education-establishment monopoly, prices don’t adjust to market conditions. Further, when the establishment has the power to expropriate property (via taxation) for refusal to pay for education (output), the power is not in the hands of the consumers (parents/taxpayers/children).

Rather, the power is in the hands of the establishment which receives the rents. The consumer is certainly not empowered to effectively solve the shortage problem, especially when it

is beneficial for the establishment to make policy decisions that create these so-called shortages.

The only real solution is to break up the monopoly by expanding schoolchoice opportunities.

One local superintendent recently told Oklahoma lawmakers that “the teacher shortage is about kids.”

But again, ever the economist, I am suspicious that the shortage might indeed be the result of the policies of the education establishment.

In fact, the first article that comes to mind is the highly lauded work of economists Andrei Shleifer (Harvard) and Robert W. Vishny (Chicago) published 22 years ago entitled “Pervasive Shortages Under Socialism.”

The authors address the relationship between rent-seeking bureaucrats and shortages. They write: “We argue that an important reason for pervasive shortages is self-interested behavior by the ministry bureaucrats who set the planned prices and output. These bureaucrats intentionally plan shortages in order to invite bribes from rationed consumers.”

I don’t use this quote to insinuate that education bureaucrats “intentionally” manufacture shortages. Rather, the system has been designed such that it exhibits socialist characteristics and produces results similar to socialist entities.

It makes perfect sense that those producing a public good— superintendents and their partners they collude with, teachers’ unions— would scare consumers (the public) by creating a crisis to extract higher rents (increases in teacher pay, more lavish fringe benefits, more planning days in

proportion to teaching days, smaller classes, and so on).

The concept of pervasive shortages to extract rents is built upon the rentseeking literature of notable economists like Gordon Tullock, Anne Krueger, and Richard Posner, where rent seeking is defined as lobbying for benefits (rents) through the political arena.

So, what then is the relationship between the rent-seeking superintendent and socialism? That’s easy—the superintendent represents the public school, which, in turn, exhibits a key tenet of socialism: the education bureaucrats do not directly keep the profits as there are no direct profits in public education. So, they must turn to other methods to extract privileges or rents.

Could that be what’s going on in Oklahoma?

Wendy Warcholik Economist Wendy P. Warcholik (Ph.D., George Mason University) is an OCPA research fellow.

She 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.”

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If public schools lose 60 students total because of a school choice program, the education establishment will do everything it can to put a stop to it. But Oklahoma public schools lose 60 students every day as dropouts. The annual cost to taxpayers is a staggering $800 million—each and every year.

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.

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PERSPECTIVE • March 2015

In Oklahoma, more than 10,500 students fail to graduate in every high school class. That’s more than 60 dropouts on every single school day.

More than 53,000 students failed to graduate in the five years between 2006 and 2010.

The personal costs of these educational failures are enormous, but so is the social cost to all Oklahomans.

Dropouts are much more likely to be dependent on public programs, pay less in taxes, and commit crimes. A conservative estimate puts the public costs of Oklahoma’s dropout problem at almost $800 million every year.

If public schools lose 60 students total because of a school choice program, the education establishment will pull out all the stops to do something to put a stop to it. But Oklahoma public schools lose 60 students every day as dropouts.

And what does the establishment do?

They keep demanding the same old “solutions” that have failed to produce

any results for children over the 50 years we’ve tried them.

Students who leave public schools through school choice are leaving in search of a better education. Students who drop out are in search of no education. They have concluded—on the basis of what “education” looks like in their public schools—that education isn’t worth their time.

With school choice, the establishment howls about even a dollar being “lost” from the government school system because parents were put in charge.

How about the billions of taxpayer dollars lost because the schools the establishment is so eager to protect from reform fail so many thousands of children? When anything other than school choice is on the table, money is no object. The solution is always to dump more taxpayer funding into the same broken government school system that has already squandered so many trillions of dollars in funding increases.

The math behind these numbers is pretty dismal. The U.S. Department of Education reports that Oklahoma’s averaged freshman graduation rate was 78.5 percent in 2009-10, the most recent year for which it reports statelevel figures. The national rate was 80 percent, so Oklahoma is a little behind the country as a whole. (The fact that these figures are five years old is a reflection of the current administration’s attitude about transparency; a decade ago these sorts of figures were available with a much shorter lag.)

Oklahoma graduated 38,503 students in 2009-10. Arithmetic tells us that this implies 10,545 additional students ought to have graduated that year, but didn’t.

There is a small amount of error in that figure; thankfully, children are not (yet) implanted with tracking chips to allow the federal government to monitor their movements with complete precision.

But the “averaged freshman graduation rate” is a good calculation based on reasonably solid data.

Go back over the previous five years and you’ll find Oklahoma’s graduation rate has been pretty stable. It was 77.8 percent in 2005-06. Run the numbers on graduates and graduation rates for each of those years and you’ll get a total

the lost formation of character, cultural literacy, and good citizenship?

Taxpayer costs are only a small part of the costs of dropouts, but they are more easily calculable. High school dropouts are consistently more likely to use a variety of government assistance programs. Because they make lower salaries, they also pay less in taxes. So costs go up and revenues go down.

Dropouts are also more likely to commit crimes and go to prison. The personal costs to crime victims are, again, hard to calculate. But the costs of incarceration we can estimate reasonably well.

Some scholars place the taxpayer cost of dropouts very high. In 2012, a team of researchers led by Clive Belfield of Queens College estimated the costs at $235,000 per dropout. That number is on the high side. One reason is that the research it was based on focused on the most disadvantaged youth, whose costs will be higher. Youth in the category Belfield looked at represent about 17 percent of young people, whereas about 20 percent of young people actually drop out nationally, and 22 percent in Oklahoma. Moreover, Oklahoma’s dropouts may be less disadvantaged than the populations Belfield focused on.

How do we measure the lost formation of character, cultural literacy, and good citizenship? dropout count of 53,089.

How much does it cost Oklahoma that its schools fail so many students every year? A total account of costs to the general public would be more than we could calculate. Who can estimate the value of the innovations that were never created? How do we measure

To be safe, in estimating the cost of Oklahoma’s dropouts I have relied on a more conservative figure. Last year, Michael McShane of the American Enterprise Institute reported in the journal National Affairs a calculation he had produced along with Patrick Wolf of Georgetown University. McShane

and Wolf place the cost at $90,000 per dropout. (As with Belfield’s figure, this is what economists call the “present value” of each dropout’s additional costs over an expected lifetime.)

Then, to be even more safe, I adjusted the figure for Oklahoma’s local economic conditions. McShane and Wolf’s figure is for the nation as a whole. Sperling’s Best Places estimates the cost of living in Oklahoma is 84.2 percent of the national average, so I went with a cost estimate of $75,780 per dropout in Oklahoma. While this is a rough method, it increases the safety of the estimate. I am unlikely to be overestimating the taxpayer costs of Oklahoma dropouts.

Multiply taxpayer costs of $75,780 per dropout by Oklahoma’s 10,545 dropouts per year, and you get a grand total just a bit shy of $800 million. That’s each and every year. The total cost of those 53,089 dropouts over the last five years is a staggering $4 billion.

The good news is, we do know of an effective solution. A 2010 study found that among students who applied for school vouchers in Washington, D.C., those who got vouchers had a graduation rate of 82 percent while those who lost a lottery and didn’t get vouchers had a graduation rate of 70 percent. A 2012 study found that students using vouchers in Milwaukee were more likely to graduate from high school and also to enroll in college.

School choice doesn’t just help the students who leave public schools, it helps the students who stay. School choice changes the game for public schools, confronting them with the need to improve lest they lose their students.

That’s why 22 out of the 23 empirical studies on this subject find school choice improves public schools.

If we want fewer students to drop out of schools, we will need to help more of them leave school in another way—to seek an education that is worth sticking around for.

High-Quality, Low-Cost College for Oklahomans

Frank Keating & Brandon Dutcher Frank Keating was governor of Oklahoma from 1995 to 2003. His 30-year career in law enforcement and public service also included service as an FBI agent, U.S. Attorney and state prosecutor, and Oklahoma House and Senate member. He served Presidents Ronald Reagan and George H.W. Bush in the Treasury, Justice, and Housing departments.

He now serves as president and CEO of the American Bankers Association.

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 • March 2015

As Oklahoma lawmakers begin their annual wrestling match with the state budget, they have an opportunity to consider innovative and more efficient ways to deliver basic services.

One such innovation, Western Governors University (WGU), was created 17 years ago by a bipartisan group of governors in the western United States. Frank Keating was Oklahoma governor at the time. His friend, Utah Governor Mike Leavitt, insisted on bipartisan partnership.

All agreed that the focus must be on uncompromised excellence with a special focus on science, technology, English, and math. And that’s what was done.

Today, WGU students are pursuing online degrees in education, business, information technology, and health fields.

“WGU does not receive any state government subsidy and is totally dependent on student tuition for funding,” says Vance Fried, the Riata Professor of Entrepreneurship at Oklahoma State University. “Yet WGU’s tuition is substantially lower than in-state tuition at Oklahoma’s public regional colleges.”

Fried points out that WGU’s annual tuition is around $4,000. “Compare this to the University of Central Oklahoma, for example, where in-state tuition is $7,230 (tuition and mandatory fees for a business undergraduate taking 30 hours in a year). In addition, the state gives UCO about $8,460 to subsidize each in-state student.

“So a student saves $3,230 ($7,230 $4,000) by going to WGU, and Oklahoma taxpayers save $8,460. Indeed, WGU is so much cheaper that the state could pay the student’s full tuition and still save $4,460 ($8,460 - $4,000).”

But what about quality? Well, last year the National Council on Teacher Quality ranked WGU’s secondaryteacher-preparation program as the best in the nation. By way of comparison, Oklahoma’s top performers were the University of Oklahoma (tied for 57th) and Northwestern Oklahoma State University (tied for 87th).

In 2013, WGU conferred more degrees in STEM education than any other institution in the nation.

Unsurprisingly (given that WGU is competency-based), surveys of employers who have hired WGU graduates show that 99 percent say they meet or exceed their expectations.

For far too long, our annual state budgeting process has been one of constantly robbing one function to increase another, with the result that both often deliver poor service to the taxpayers.

We continue to plow ahead spending vast sums on service-delivery models that often date to 1907. And we continue to subsidize several institutions where fewer than a third of the students manage to graduate, even in six years.

Is this a wise use of resources? The dollars that policymakers extract each year from taxpayers are precious. Isn’t it time they looked for better and more efficient ways to spend them?

For example, policymakers could simply provide vouchers to encourage students to attend WGU and similar high-quality, low-cost schools.

Or, following the lead of Indiana, Texas, Washington, Tennessee, and Missouri, they could enter into partnership with WGU. Making college tuition-free for some Oklahomans while simultaneously saving the state money seems like a win-win to us.

Oklahomans Deserve Affordable College Options In the article on the facing page, which was also published in The Oklahoman, Frank Keating and Brandon Dutcher make a case for high-quality, low-cost education at places like Western Governors University.

University of Central Oklahoma business-school dean Mickey Hepner took issue with the article. Hepner says Keating and Dutcher used “erroneous and misleading information,” specifically, that they “understated the cost of a business degree from WGU and overstated the cost of a degree from the University of Central Oklahoma.”

Since it was my cost information that Dutcher and Keating relied upon in their article, allow me to say that the information is neither erroneous nor misleading.

The disputed cost information was used to compare value between colleges operating under different models. UCO was used as the example of a school operating under the traditional model simply because it is Oklahoma’s bestknown regional college. The point wasn’t that UCO’s quality is poor, but rather that quality education can be delivered at a much lower cost.

Hepner points out correctly that WGU tuition for a year is $6,000. However, $6,000 is for all the courses a student wants to take over 12 months. That’s three-plus semesters at a traditional school. So, for comparison purposes I restated WGU’s tuition to a two-semester basis, or $4,000.

Hepner also takes issue with my claim that the state gives UCO about $8,460 to subsidize each in-state student. He says “the number is much less—closer to $3,600 per student.”

I would agree that my number is imprecise. Unfortunately, you can’t compute a more precise number from publicly available data. Hepner’s use of average state subsidy per student gives a precise number, but it’s the wrong number. It is an average for all students, including out-of-state students.

Further, it treats part-time students as equivalent to full-time. As a result, average state subsidy per student is significantly lower than average state subsidy for in-state undergraduate students (FTE).

My $8,460 number is the difference between out-of-state tuition and in-state tuition ($15,690 - $7,230 for UCO). In education research this differential is viewed as a good, albeit rough, proxy for the amount of state subsidy per student. It follows the basic logic underlying the way tuition is set in public systems. Out-of-state tuition is set slightly above full cost because states generally do not subsidize out-of-state undergraduates. In-state tuition is then derived by reducing out-of-state tuition by the amount of the state subsidy, which is generally 50 to 60 percent of cost.

No matter whether you take my state subsidy number or Hepner’s, Keating and Dutcher’s point is correct. WGU is dramatically cheaper than UCO. This is because it operates under a different model than UCO. Data disagreements aside, all three gentlemen seem to agree on the basic issue.

Oklahoma should provide vouchers to Oklahomans attending private colleges. As Vance H. Fried is Riata Professor Hepner has written previously for OCPA, of Entrepreneurship at Oklahoma “more competition in Oklahoma’s higher State University and an adjunct education system would be beneficial. … All scholar at the Cato Institute. He is we have to do to reach this more competitive, the author of the book Better/Cheaper innovative, and simpler future is to let the College. His latest report is “College money follow the students.”

2020,” published by The Heritage

Vance Fried

Western Governors University holds its summer 2014 commencement at Energy Solutions Arena in Salt Lake City, Utah.

Foundation.

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Let’s Protect Patients’ Rights Many policy issues will be considered by the Oklahoma legislature during the 2015 legislative session. There is no doubt that health care will be a key topic of discussion. As health care costs continue to grow and the Affordable Care Act (ACA, also known as Obamacare) changes how people get medical care, everyone is looking for policy reforms and innovations that can make high-quality health care a reality for more people.

While there are several contrasting opinions on health care and the ACA, there are also some common-sense things we can do this year.

Many patients, doctors, employers, and providers are less than thrilled with the current system. Doctors and patients often say they feel as if they are merely a number in a long waiting line. They worry that costs will continue to increase without an end in sight.

They often feel that our health care system is over-reliant on unnecessary

nation are now providing people with family and primary care services for less than the cost of a phone bill per month, all while still providing excellent care. For one-time surgical procedures, direct-care arrangements are making the experience for the patient, doctor, and often the paying employer more efficient, at a lower cost with higher quality.

Direct care arrangements reassure patients that they will be affordably cared for, not just covered. These arrangements are facilitating and expanding something patients and doctors both long for: a direct doctorpatient relationship. They offer affordable options with predictable costs.

Direct-care arrangements are also making the process of acquiring health care a simple and manageable experience, even removing inappropriate bureaucracy and the middleman when one is not necessary.

Direct-care arrangements reassure patients that they will be affordably cared for, not just covered.

citizens are free to purchase multiple goods and services without such exchanges being deemed insurance, the direct purchase of medical services and products should be no different.

To protect the rights of doctors, patients, employers, and other providers, lawmakers need to provide statutory protections clearly separating direct-care arrangements from insurance restrictions.

Let’s make sure Oklahomans are affordably cared for, not just covered.

Oklahomans’ lives depend on it.

Ervin Yen & Jonathan Small Ervin Yen (M.D., University of Oklahoma) represents District 40 in the Oklahoma Senate.

Born in Taipei, Taiwan, at the age of four he came to America with his family after the

bureaucracy or middlemen, both of which make getting services needlessly complex and expensive.

National attention—from John Stossel, CNBC, and a host of others— has turned to Oklahoma because of the growth of direct-care arrangements here in the state. Direct-care arrangements between doctors, patients, and employers work similarly to many of the other services consumers routinely buy. In a direct-care arrangement, the doctor charges a prospective patient a set monthly fee for services or a one-time fee for a procedure.

Doctors in Oklahoma and across the

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PERSPECTIVE • March 2015

Moreover, direct-care arrangements are freeing patients and even employers to better allocate resources for health insurance, stabilizing costs so that resources can then be used at times when health insurance is more appropriate.

Given these outcomes, direct-care arrangements should be encouraged throughout the country. But some are attacking this patient-doctor relationship, asserting that direct-care arrangements should be regulated by state insurance departments as insurance.

Such a notion is ridiculous. Just as

Communists took over China and several of his relatives were imprisoned. At the age of nine he became a naturalized U.S. citizen, along with his parents and two siblings. Dr. Yen has worked as a cardiac anesthesiologist at Saint Anthony Hospital and Integris Baptist Medical Center for more than 20 years.

Jonathan Small serves as OCPA’s executive vice president. Previously, he served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department.

He holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.

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@OCPAthink 1. Work continues on the new Advance Center for Free Enterprise, located to the west of OCPA’s main office. The Center will host lawmakers, executive-branch officials, and policy staffers for training sessions on how to apply core principles to difficult public-policy issues. The Center will also be a valuable resource for students, as OCPA partners with schools and nonprofit organizations to host programs teaching students the principles of liberty and the importance of our freeenterprise system.

2. Kansas Gov. Sam Brownback (at head of table) meets with some Oklahoma lawmakers prior to his recent State of the State address. OCPA’s Jonathan Small also attended the meeting.

3. OCPA’s Brandon Dutcher served as emcee for the first annual convention of the Free Market Medical Association, held last year in Oklahoma City. Oklahoma is a leader in the burgeoning free-market-medicine movement (see facing page).

4. Surrounded by state lawmakers at a recent press conference, OCPA executive vice president Jonathan Small explains to state-capitol reporters that subjecting tax cuts to State Question 640 would result in a massive tax increase for Oklahomans.

Fortunately, the Oklahoma Supreme Court later ruled that the constitutional provision does not apply to tax cuts.

www.ocpathink.org

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Still a few locations coming up.

Learn more at OCPAthink.org/first-principles.

Watch the first part of THE RULE OF LAW AND LIBERTY on our website now and stay tuned for Why States Matter online later this month.

What is “federalism”? How is it different from “states’ rights”? Why is it the most important and most creative structure in the Constitution?

Come learn the answers plus get a special legislative-session briefing at the second program in OCPA’s four-part series, “The Rule of Law and Liberty.”

Visit our website or call 405.602.1667 for details and to register. You can also request a presentation in your own town.

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PERSPECTIVE • March 2015

The People Vote with Their Feet TOP

9.66%

NORTH DAKOTA ENERGY BOOM

NEXT

8.87%

WASHINGTON, DC GOVERNMENT BOOM

LAST

-0.21%

WEST VIRGINIA OBAMA’S WAR ON COAL

11 OF TOP 15 STATES (EXCLUDING WASHINGTON, DC) ARE RIGHT-TO-WORK STATES 13 OF THE BOTTOM 15 STATES ARE LONG-TERM FORCED UNIONIZATION STATES

2.90% AVERAGE GROWTH

3.60%

AVERAGE GROWTH RIGHTTO-WORK STATES (EXCL. DC)

OBAMA

ROMNEY

TOP 25 STATES THAT VOTED FOR OBAMA:

TOP 25 STATES THAT VOTED FOR ROMNEY:

11/25

14/25

BOTTOM 25 STATES THAT VOTED FOR OBAMA:

BOTTOM 25 STATES THAT VOTED FOR ROMNEY:

16/25

9/25

2.03% AVERAGE GROWTH FORCED UNIONIZATION STATES (EXCL. DC)

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

www.ocpathink.org

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QUOTE UNQUOTE “Based on the success we have enjoyed enacting pro-growth policies like those championed by ALEC, our state is moving forward with a bold tax reform plan that will represent the most significant tax cut in state history and chart a course toward the gradual elimination of the state income tax. It will give Oklahoma one of the lowest overall tax burdens in the entire country, making us a more competitive state for those looking to move jobs here. This is the conservative centerpiece of our pro-jobs agenda that will let working families keep more of their hard-earned money and provide a higher quality of life for all Oklahomans.”

Governor Mary Fallin, 2012

“Nothing is more certain than that a general profligacy and corruption of manners make a people ripe for destruction. A good form of government may hold the rotten materials together for some time, but beyond a certain pitch, even the best constitution will be ineffectual, and slavery must ensue.”

John Witherspoon

“Yes, President Obama has made the problem much, much worse, but the scary truth is that the national debt keeps rising inexorably no matter who or which party is in office.”

Heritage Foundation chief economist Stephen Moore

“In health care, those people whose idea of justice is telling citizens that we should grab as many federal dollars as we can are appealing more to self-interest than right reason.

If they thought more seriously about human dignity and less about crass appeals to self-interest, they’d be more concerned, as was Franklin Roosevelt, about how making able-bodied adults dependent upon the state destroys the human soul.”

OCPA distinguished fellow Andrew Spiropoulos