Perspective - May 2014 by OCPA

PERSPECTIVE May 2014

OKLAHOMA COUNCIL OF PUBLIC AFFAIRS

In Case You Missed It OCPA vice president for policy Jonathan Small tells FOX 25 in Oklahoma City that free-market medicine could save Oklahoma policymakers $20 million annually. tinyurl.com/n7tbqu4

OCPA president Michael Carnuccio is disappointed that Oklahoma political leaders who promised not to raise taxes are now planning to do just that—even though Oklahoma’s government revenues are already at an all-time high. ocpathink.org/articles/2689

A George Soros-funded think tank is very unhappy with conservative public policy in Kansas.

On the OCPA blog, 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. ocpathink.org/articles/2688

Economist Jayson Lusk, who serves as OCPA’s Samuel Roberts Noble Distinguished Fellow, says it’s time to give states more power to make their own farm policies.

Wisconsin Gov. Scott Walker has enacted $2 billion worth of tax cuts so far. tinyurl.com/ngk87uk

Law professor Andrew Spiropoulos, who serves as OCPA’s Milton Friedman Distinguished Fellow, says we need to move away from an ossified education bureaucracy and instead pursue the path of creative disruption. tinyurl.com/mqq9366

ocpathink.org/articles/2677

On KFOR’s FlashPoint, OCPA senior vice president Brandon Dutcher says it’s time to fund parents, not bureaucracies.

onforb.es/1gPDnYg

OCPA research fellow Matt Mayer says Right to Work states are dominating the economic recovery.

tinyurl.com/ngk87uk

tinyurl.com/mqbmlm6

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

Karma Robinson ...... Vice President for Development

Henry F. Kane • Bartlesville

Robert Sullivan • Tulsa

Andrew C. Spiropoulos, J.D.

Jonathan Small .............................Vice President for Policy

Robert Kane • Tulsa

Lew Ward • Enid

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.

MEMBERS’ EVENT

Larry Arnn

John Bolton

COME MEET DINESH D’SOUZA

William F. Buckley

George W. Bush

at the Oklahoma City premiere of his new movie, AMERICA

June 6, 2014 • Oklahoma City Jeb Bush

Artur Davis

Mitch Daniels

For more information, contact Jennie Kleese at 405-602-1667

Jim DeMint

J. Rufus Fears

Steve Forbes

Tommy Franks

John Fund

Newt Gringrich

David Horowitz Mike Huckabee Laura Ingraham

Frank Keating

Jeane Kirkpatrick Charles Krauthammer

Rich Lowry

Ed Meese

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

John Walton

J.C. Watts

Allen West

Walter Williams

Art Laffer

Past OCPA speakers are pictured above.

Rich UNCORRECTED PROOF - NOT FOR DISTRIBUTION

School Choice Saves Money for State, School District Budgets By Benjamin Scafidi

The public education establishment routinely argues that school choice programs, where the money follows the child, harm students who remain in public schools. They suggest that students who remain in public schools are worse off because there will be fewer resources available for their education once some children depart public school districts via school choice. That is, there will be fewer students and, consequently, fewer taxpayer dollars to cover the substantial fixed costs of running a school. Instead, research shows that all forms of private school choice tried in the United States have led to improvement in academic outcomes for students who remain in public schools or have led to no effect on academic outcomes for students who remain in public schools. Thus, the evidence on academic outcomes is one-sided. Greater school choice does not harm academic outcomes for students who remain in public schools.1 That said, education policy debates are often about money and who controls it. Given that reality, this article examines the fiscal effects of school choice on the state of Oklahoma’s budget and on the budgets of local school districts. Specifically, we’re examining Education Savings Accounts (ESAs), which have been proposed in Oklahoma. An ESA allows parents to bank a portion of their child’s per-pupil funding and use it for private school tuition, online learning, tutoring, and other options.

As shown below, the fiscal effect of Education Savings Accounts on the state budget is relatively straightforward. However, the fiscal effect on local school districts requires more analysis. The proper way to think about this latter issue is not whether public school districts have in the past reduced costs when students in large numbers left the districts for any reason. The issue is whether they are able to reduce costs when students leave. Evidence that school districts increased expenditures when the number of students they served significantly decreased does not necessarily mean that they cannot decrease expenditures when students leave. Perhaps they did not have to reduce expenditures when students left because one or more levels of government chose not to reduce taxpayer funding, so districts did not reduce expenditures. The key question for this analysis is the following: If a significant number of students left a public school district for any reason from one year to the next, then is it feasible for the district to reduce some of its expenditures commensurate with the decrease in its student population? The answer that comes from analyzing the finances of large and small school districts that lost students is “yes.” In my research, I have discovered that both the large school districts and the small ones were able to reduce a combination of instructional and support expenses at a higher rate than the

losses in students. Thus, these costs were variable, even in the short run.2 In the interest of creating an overestimate of fixed costs, I treated the following as fixed costs in the short run: expenditures on capital, interest, general administration, school administration, operations and maintenance, transportation, and “other” support services. Of course, if a significant number of students left a school district from one year to the next, some of these costs could be reduced immediately. While I treat these expenditures as fixed costs in the short run for the present analysis, all of these costs are variable in the long run. Public schools can make new strategic decisions in these areas in response to permanent changes in their student counts. Thus, after a few years of a new school choice program, when enrollment trends become apparent, all taxpayer funds devoted to K-12 education can “follow the child” to the schools their parents deem better. All other cost categories—instruction, student support, instructional staff support, enterprise operations, and food service—were able to be reduced commensurately or more than commensurately than the reduction in students in each of the school districts analyzed in the report. The school districts experienced decreases in their student populations for non-schoolchoice reasons, and student achievement did not decline.

Greg Forster, “A Win-Win Solution: The Empirical Evidence on School Choice,” Friedman Foundation for Educational Choice, April 17, 2013, http://www. edchoice.org/Research/Reports/A-Win-Win-Solution–The-Empirical-Evidence-on-School-Choice.aspx. 2

Benjamin Scafidi, “The Fiscal Effects of School Choice Programs on Public School Districts,” Friedman Foundation for Educational Choice, March 2012, http://www.edchoice.org/CMSModules/EdChoice/FileLibrary/796/The-Fiscal-Effects-of-School-Choice-Programs.pdf.

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Average Fixed and Variable Costs in Oklahoma Public School Districts The most recent data available on the spending categories used in the analysis for Oklahoma public schools are for Fiscal Year (FY) 2010. Data on spending categories are reported by the state of Oklahoma to the National Center for Education Statistics at the U.S. Department of Education. These data can be found in table 208 of the 2012 Digest of Education Statistics. The number of students in Oklahoma for that year was 654,802, which is also found in that document.3 In FY 2010, Oklahoma public schools spent $8,651 per student. Of that total, I estimate that $5,947 per student are variable costs. The remaining $2,704 are short-run fixed costs. Thus, Oklahoma public school districts spent on average $5,947 per student on instruction, student support, instructional staff support, enterprise operations, and food service. And, Oklahoma public school districts spent an average of $2,704 per student on capital, interest, general administration, school administration, operations and maintenance, transportation, and “other” support services. Based on these figures, 68.7 percent of spending in Oklahoma public schools can be thought of as short-run variable costs, while the remaining 31.3 percent are short-run fixed costs. In the long run, all costs are variable. There are three important issues to keep in mind about this analysis. First, if anyone suggests that all or most of the $8,651 that taxpayers spend

per student are fixed costs, then the state of Oklahoma should not fund enrollment growth in Oklahoma public schools— because all or virtually all public school costs are fixed. Second, there is strong evidence that the above analysis is an overestimate of short-run fixed costs. Specifically, school district administration grew dramatically in Oklahoma public schools according to data the state reports to the U.S. Department of Education. Using the time period available, FY 1998 to FY 2011, Oklahoma public schools increased employment in school district administration by 49 percent, while the number of students in Oklahoma public schools increased by only 6 percent. In my analysis, school district administration is treated as a fixed cost, a cost that does not fluctuate with workload. In Oklahoma public schools, school district administration employment increased more than eight times faster than its student population from FY 1998 to FY 2011. If anyone suggests that fixed costs are more than $2,704 per student, then the state of Oklahoma should study why these “fixed” costs are increasing faster than the increases in public school students—if these costs were truly “fixed,” then they should not be increasing at all as the number of students change. Third, a premise of the analysis here is that public schools should retain $2,704 per student for a couple of years when that student has left to attend a school that his or her parents deem better. In what other walk of life

does one get paid for customers one no longer serves? I am not aware of a single example. Fiscal Effects of Education Savings Accounts on the State Budget Legislation which failed this year but which will be considered again next year in Oklahoma provides Education Savings Accounts (ESAs) to low-income and working-class Oklahoma families. Specifically, children who qualify for a free or reduced price lunch (FRL) receive an ESA equal to 90 percent of per-student state taxpayer funding. Families with incomes between 100 and 150 percent of FRL income thresholds receive 60 percent of state per-student taxpayer funding in their ESAs. Families with incomes between 150 and 200 percent of FRL receive ESAs equal to 30 percent of state per-student taxpayer funding.4 In general, as the idea has been proposed in Oklahoma, students eligible for ESAs must have been previously enrolled in an Oklahoma public school. Exceptions include children of military families and pre-kindergarten and kindergarten students. Students who were previously enrolled in an Oklahoma public school who move to an ESA clearly save state taxpayers money. Each of these students would have been receiving 100 percent of state per-student funding if they had remained in a public school, but under the ESA program these students use only 30 to 90 percent of state funding—a substantial savings to the state budget.5 Given the reality that at least some

Typically, state Department of Education public school spending data do not correspond exactly to spending data these same state Departments of Education report to the federal government. I use the state-reported data from the U.S. Department of Education because they allow an apples-to-apples comparison of spending across states. If anyone wishes to use more current data on Oklahoma to replicate the analysis in this brief, they should make sure their data source is consistent with the FY 2010 data used here. In particular, some state Departments of Education omit some spending when reporting data on their own web sites relative to what they report to the federal government. 4

For more information about ESAs generally, please see: Matthew Ladner, “The Way of the Future: Education Savings Accounts for Every American Family,” Friedman Foundation for Educational Choice, September 27, 2012, http://www.edchoice.org/Research/Reports/The-Way-of-the-Future--EducationSavings-Accounts-for-Every-American-Family.aspx. 5

But what about students from military families and pre-K and kindergarten students who may not have attended a public school in the absence of the ESA program? It is highly unlikely that these students—together with public school students who access ESAs—will cost the state of Oklahoma extra taxpayer funding. A simple example demonstrates the unlikely nature of a budgetary cost: Suppose all public school students who accessed an ESA were eligible for FRL. That is, no students who live in families with incomes above the FRL threshold access an ESA. If this were the case, then the state of Oklahoma would save “only” 10 percent per student in state education funding. Under this unlikely scenario, the state of Oklahoma would experience an increase in costs if and only if more than 10 percent of ESA recipients were from military families, pre-K, or kindergarten and would have attended a private school in the absence of the ESA program.

www.ocpathink.org

UNCORRECTED PROOF - NOT FOR DISTRIBUTION ESA recipients will be receiving only 30 percent or 60 percent of state funding, it would take a very large percentage (well above a majority) of ESA families to be from the military or with very young children who would not have sent their children to a public school in the absence of the ESA program in order for this program to cost the state additional funding. Of course, at least some military, pre-K or kindergarten students would have been enrolled in a public school in the absence of the ESA program—and receiving 100 percent state funding. Given these points, it appears certain that the ESA program will save Oklahoma state taxpayers a large amount of funding. Fiscal Effects of Education Savings Accounts on Local School Districts Using the analysis described above, 68.7 percent of spending in Oklahoma public schools can be thought of as short-run variable costs, while the remaining 31.3 percent are short-run fixed costs. If school districts lose an average of more than 68.7 percent of total funding—federal plus state plus local funding—from students who access ESAs, then students who remain in public schools may have fewer resources available for their education. (As discussed above, there is no evidence that their education is harmed academically.) Is it possible that creating ESAs in

Oklahoma would lead to more than 68.7 percent of federal plus state plus local funding per student leaving school districts as students accessed the ESAs? The following simple equation will help readers answer this question: Percent state funding leaving public schools = 0.90 * (% FRL students accessing an ESA) + 0.60 * (% 100% to 150% FRL students accessing an ESA) + 0.30 * (% 150% to 200% FRL students accessing an ESA) Suppose that 70 percent of the students who access an ESA are FRL students, while 15 percent of students come from families earning 100 to 150 percent of FRL and the remaining 15 percent come from families earning 150 to 200 percent of FRL. This is a cautious assumption, as it assumes 70 percent of the students accessing an ESA would be obtaining the highest ESA ratio of state funding. Plugging these percentages into the formula above yields: Percent state funding leaving public schools = 0.90*(0.70) + 0.60*(0.15) + 0.30*(0.15) = 0.765

Under this example, the percent of state funding that would follow students into an ESA would be 76.5 percent. State funding comprised 47.8 percent of public school funding in Oklahoma in FY 2010—the most recent year with available data—according to the National Center for Education Statistics at the U.S. Department of Education (2012 Digest of Education Statistics, table 203). Thus, under the cautious assumptions above, 76.5 percent of state funding—which is 47.8 percent of total public school funding—would follow students into an ESA. This yields 0.478 * 0.765, or 36.6 percent of per student funding, on average, following students into an ESA—which is well below the estimate of variable costs per student. Thus, public schools would be retaining 63.4 percent of per student funding—for students they no longer serve. In this numerical example, public schools would be retaining fixed costs plus a lot more when students leave via an ESA. Thus, students who remained in public schools would have even more resources available for their educations when some students leave via an ESA—because public schools retain 63.4 percent of the funding dedicated to the students whom they no longer serve. 6 To be clear, I am not advocating that less than 100 percent of taxpayer

There are two complications that must be considered regarding the above equation. First, it ignores federal funding. Federal funding for local public school districts comes from many different pots and virtually all have complicated “hold harmless” provisions. That is, it is not clear that school districts lose much, if any, funding from some or all pots of federal funding when they lose students to other school districts or via an ESA. In FY 2010, Oklahoma public schools received almost $1,500 per student in federal funding—about 17 percent of funding per student (table 203, 2012 Digest of Education Statistics). Given the end of federal stimulus funding, it is likely that this amount is somewhat lower at present. It is worth mentioning that prior to the federal stimulus, Oklahoma public schools received about 12.4 percent of state funding from the federal government—just over $1,000 per student (table 173, 2009 Digest of Education Statistics). Given hold harmless provisions in federal funding, public school districts will retain most federal funding for students who leave via an ESA. Suppose that going forward, Oklahoma public schools retain $800 per student of federal funding when these students leave via an ESA. Using the above example, it would remain the case that Oklahoma public schools would be retaining well above fixed costs per student under the Oklahoma Education Savings Account Act when students access ESAs. However, there is a second complication. Taxpayer funding will now be going to military families and to families with kindergarteners, for example, who may have sent their children to a private school even without an ESA. Considering the two complications together, even if a school district lost all federal funding for students who left via ESAs and if a significant percentage of ESA recipients were military families, kindergarteners, or prekindergarten students who would not have been enrolled in a public school even without an ESA, the ESA program will lead to even more resources for students who remain in public schools. For example, suppose public school districts currently receive 10 percent of their funding from the federal government. If they were to retain none of that funding for students who left via an ESA and 20 percent of ESA students were (a) military families, prekindergarten, or kindergarten students and (b) who would not have been in a public school if the ESA program did not exist, then public schools would still retain funds in excess of the cautious estimate of short-run fixed costs. Thus, there would be even more resources available for students who remain in public schools—even under these very implausible assumptions. Please note that at least some military, prekindergarten, or kindergarten students who access an ESA would have been enrolled in a public school if the ESA program did not exist. Therefore, these students would have been a cost to school districts if the ESA program was not present. And, federal funds tend to have complicated “hold harmless” provisions that limit losses of federal funding as school districts lose students—for any reason.

PERSPECTIVE • May 2014

Change in FTE Students and FTE School District Administration Employment: Oklahoma Public Schools, FY 1998 to FY 2011 60%

49%

50% 40% 30% 20% 10%

0% Students

School District Administration

Source: National Center for Education Statistics, U.S. Department of Education, Common Core of Data for fiscal years 1998 and 2011. School District Administration employment is defined as LEA (local education agency) Administrators and LEA Administrative Support Staff.

funding be placed in students’ ESAs. As a matter of principle, I believe the money—all of it—should follow the child to the school his or her parents deem best. When you stop shopping at Target and move to Wal-Mart, does Target get to receive some of your future spending? The free enterprise system has led to tremendous innovations and breathtaking increases in human well-being over the past 250 years. It would be great to bring free enterprise to our K-12 education system by allowing parents to choose the best educational settings for their children. That said, I understand that some costs are fixed in the short run, for a year or two or three. In the first few years of a new school choice program, it may make sense to allow public schools to retain some funding for students they no longer serve. However, in the long run, all costs are variable—and all taxpayer funds per student could be put into ESAs. Public school districts will make new strategic decisions on staffing and other items—as is done in all other enterprises—when their customer base changes.

Conclusions 1) The design of the Education Savings Account program ensures that state taxpayers will save substantial funding as some students access Education Savings Accounts. 2) Under very cautious assumptions, Oklahoma public school districts will retain substantial funding well over estimates of fixed costs per student as some students access Education Savings Accounts. Specifically, my cautious estimate of average short-run fixed costs for Oklahoma public school districts is 31.3 percent of total per student funding—federal plus state plus local funding. Under Oklahoma’s proposed Education

Savings Account program, public school districts would retain an average of 63.4 percent of funding for students they no longer serve. This retention of funds is just over double my estimate for short-run fixed costs. The retention of funds by Oklahoma school districts under this legislation is identical to the retention of funds they experience when students move between public school districts. In the long run all costs are variable and all taxpayer funds should follow students into their accounts if their parents choose to access an Education Savings Account.

Benjamin Scafidi (Ph.D., University of Virginia) is a professor of economics at Georgia College & State University and a senior fellow with the Friedman Foundation for Educational Choice. He has testified as an expert witness for the state of Georgia in school funding litigation.

www.ocpathink.org

UNCORRECTED PROOF - NOT FOR DISTRIBUTION

Medicaid Reforms Even Obama (or Republicans) Can Love By Patrick B. McGuigan

It may be hard to believe, but it was only four years ago that health care costs became the top cost driver in the Oklahoma state budget, surpassing the traditional “winner,” K-12 public education. Debates over the (un)Affordable Care Act aside, there is widespread recognition that Medicaid is the top factor in the state-level cost run-ups for taxpayers. As the state’s largest newspaper, The Oklahoman, noted in an April 9 editorial, “Without reform, Medicaid threatens to consume an ever-larger share of state funding.” The good news? Even in states with less-than-stellar records, a move toward managed care has provided some savings. But Oklahoma is avoiding managed care in Medicaid, and Barack Obama is not to blame this time. In keeping with the recent tradition of policy disappointments from professing conservatives—avoiding opportunities for tax cuts, spending reductions, expanded school choice, and new pension reforms—GOP supermajorities around here are deadlocked over Medicaid reform. State Sen. Kim David, R-Porter, wants a pilot program for privately managed care in Oklahoma’s Medicaid system. Her Senate Bill 1495 would build on reforms that go far beyond cost-cutting and would focus, as The Oklahoman reported, on improved patient outcomes. On-the-ground health care success has come in areas touching diabetes and high blood pressure, for starters. Even in the dysfunctional Medicaid system nationwide, 39 states allow one form or another of private managed

PERSPECTIVE • May 2014

care—but Oklahoma is not among those (except for a program over the past year and half limited to mental health). Why is urgent action needed? Folks, here are “just the facts” from Medicaid system administrators, concerning one leading example of waste and abuse: emergency-room visits. In fiscal year 2013, 548,136 emergency room visits were reimbursed by Medicaid in Oklahoma. All told, 289,135 Medicaid enrollees used the emergency room (approximately 28 percent of all Medicaid enrollees). Total cost of enrollees accessing emergency rooms in FY 2013 was $178,331,616. Of that, $37,291,466 covered ancillary charges. That includes doctors, pharmacy, lab, radiology, ambulance, and so forth. The average cost per ER visit by a Medicaid enrollee was $325.34. That includes the ancillaries. The average number of emergency room visits was 0.5 per enrollee. The average per utilizing member was 1.9 ER visits per year. Take a look back, just one year. With more than one-fourth of state residents covered by Medicaid, emergency room costs for Oklahoma’s Medicaid recipients had already reached crushing totals in fiscal year 2012. That year, 250,030 people in Medicaid utilized emergency room services. Total ER visits reimbursed by Medicaid that year was 528,264, an average of just over two visits for each ER “utilizing member” in the system. (In both years, the average includes many who visited emergency rooms much more often.) In FY 2012, the total for ER services

provided to Oklahoma Medicaid enrollees was $169,642,272, which including ancillary costs. The average cost per ER visit for Medicaid patients two years ago was $321. (Emergency services are exempt from co-pays in Medicaid. The state does not limit the number of emergency room visits for Medicaid enrollees.) In short, in just one year state spending on Medicaid patients’ emergencyroom visits increased by more than $8 million, and nearly 40,000 more patients utilized the emergency room. So much for the notion that expanding Medicaid will decrease emergencyroom visits. These results merely build on patterns over many years. Oklahoma’s Health Care Authority has made some effort to counter the problem, with what is called a population management program. Its operatives communicate with “clients” after a problem has been identified. Still, ER costs financed through Medicaid rose despite the legal and management steps begun in late 2011, in which officials tried to address the inappropriate diversion of Medicaid monies to emergency room use. They tackled it bassackwards, as Larry the Cable Guy might put it. OCPA’s Jonathan Small observes, “After-thefact intervention cannot impact the bad numbers, because unless the issue is focused within ERs, there is no incentive not to be seen in the ER hospital setting.” Data like these are not merely the concern of cost-sensitive wonks like Small and myself. Amy Finkelstein, an acclaimed re-

searcher at the Massachusetts Institute of Technology (MIT), has pioneered national research in this area. A fan of Obamacare, she is known for “measuring the effects of health programs with scientific rigor,” as Bloomberg News has noted. Her studies regularly appear in the magazine Science. Based on a comprehensive study of Oregon data, as summarized in Bloomberg Business, Finkelstein and her colleagues “found that Medicaid coverage increased emergency department visits by 40 percent.” Medicaid systems have few mechanisms for accounting, even in most managed care states. As a rule, the system simply pays out based on charged fees and available federal dollars. Florida, Louisiana, Kansas, and other states—states moving toward comprehensive managed care—are having notable success in fighting these trends. Florida’s program features Medicaid counselors who advise ER visitors (again: “clients”) toward more appropriate (and affordable) care with general practitioners. The Obama Administration agreed to Medicaid plan modifications in these states. Yes, Obama’s team is open to some reforms. I am frustrated by Oklahoma Republican gridlock because, contrary to rumor, our taxpayers and policymakers have for decades shown concern for and paid attention to the lowerincome population when it comes to health care, including Medicaid. The state created an historic bipartisan accord to provide health insurance for the working poor in the Insure Oklahoma program. This gave those willing and able to work a chance to play by rules similar to (but not the same as) rules for those with higher income. Thanks to Mr. Obama’s oft-repeated

broken promise (if you like your health care plan, you can keep your health care plan), Insure Oklahoma is now on life support, given a short-term extension for only those participants at or below the poverty level. However, it is ending for those between that level and 200 percent of the poverty benchmark. This is a tragedy for many reasons, not the least in destroying the incentive for people of modest means to participate in the broader economy. Back to a Medicaid focus, Oklahoma’s system is not stingy with those serving the “client” population. This is demonstrated by the Urban Institute’s Medicaid Physicians’ Reimbursement Survey, summarizing how much Oklahoma’s Medicaid structure pays to reimburse doctors or health care facilities for Medicaid services. As seen in the sidebar, Oklahoma is consistently higher in reimbursement (i.e., more generous to physicians and facilities) than surrounding states. In fact, as the final category documents, the state’s reimbursement rate is higher than the national average across the full range of covered services. Consider this alongside the managed care argument advanced above. It is not specifically addressed to undoing or revising Oklahoma’s rate structure (although policymakers should not rule that out). Rather, the point is to counter the shibboleth that our relatively poor state has ignored the less fortunate. In the present arguments, Republicans can redeem themselves for inaction on Medicaid reforms in the model of Florida, Louisiana, and Kansas. Sen. David has a bright idea. Here’s hoping it gets some new life in the last month of the 2014 legislative session.

Patrick McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK.com and Oklahoma bureau chief for the Watchdog.org network. 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.

Medicaid Physicians’ Fees as a Share of the Medicare Reimbursement Rate Oklahoma All Services: 97% Primary Care: 97% Obstetric Care: 97% Other Services: 96% Texas All Services: 65% Primary Care: 61% Obstetric Care: 68% Other Services: 75% Kansas All Services: 78% Primary Care: 82% Obstetric Care: 73% Other Services: 78% Arkansas All Services: 79% Primary Care: 70% Obstetric Care: 74% Other Services: 111% New Mexico All Services: 92% Primary Care: 85% Obstetric Care: 100% Other Services: 100% Colorado All Services: 71% Primary Care: 74% Obstetric Care: 68% Other Services: 69% Missouri All Services: 59% Primary Care: 57% Obstetric Care: 57% Other Services: 68% Louisiana All Services: 75% Primary Care: 75% Obstetric Care: 73% Other Services: 76% Oklahoma Compared to Nationwide Average Medicaid Reimbursement Rate All Services: +38% Primary Care: +54% Obstetric Care: +16% Other Services: +27% Source: 2012 Kaiser Commission on Medicaid and the Uninsured/Urban Institute Medicaid Physician Fee Survey

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UNCORRECTED PROOF - NOT FOR DISTRIBUTION

T O N , S E I L I FAM E C U D E R N A C , T N E M N GOVER Y T R E V O P L A N O I T A R E GEN By Wendy P. Warcholik

I have previously written in these pages (“Black Leaders Say Personal Responsibility Key to Economic Opportunity,” July 2013) about the mayor of a great city, a prize-winning economist, and an award-winning actor who all speak about the need for stable families. Just last month I discussed the innercity woes of an “F” school in Tulsa and how the administration was attempting to deal with the behavioral problems the children brought with them to the classroom (“Family Intactness, Parental Participation, and Student Performance,” April 2014). Teachers and administrators commented that it was the unstable family life experienced by the children which was a primary factor driving the children’s undesirable behavior. The mainstream notion about disadvantaged youth is that coming from a low-income family determines the effects on those disadvantaged children in adulthood. It is this notion that propels government anti-poverty policies. In a 2007 National Bureau of Economic Research working paper, economists

10 PERSPECTIVE • May 2014

Rajeev Dehejia, Thomas DeLeire, Erzo Luttmer, and Joshua Mitchell state: “Many studies have documented the correlation between poverty and youth outcomes. Growing up in poverty is related to having worse physical health, lower levels of cognitive ability, lower levels of school achievement, and a greater level of emotional or behavioral problems.” The authors also state that evidence shows that it is improbable that low income is the cause for all these adverse outcomes. In addition to income, there is a significant amount of evidence that having an unmarried parent can help explain these effects. Economists Sara McLanahan and Gary Sandefur argue that “growing up with only one biological parent frequently deprives children

of important economic, parental, and community resources, and these deprivations ultimately undermine their chances of future success.” For instance, the highest percentage of single-headed households is among black mothers. In an interview with President Barack Obama, television host Bill O’Reilly stated that 72 percent of black babies are born out of wedlock. He asked the president why he and Mrs. Obama haven’t explicitly addressed this very serious problem. According to federal health statistics, 24.6 percent of births to nonwhites were to single mothers in 1964. (This includes blacks, Hispanics, and Asians—so the percentage of blacks was even lower than 24.6 percent.) Fast forward to 2012, almost 50 years since LBJ’s War on Poverty began, and

WELFARE POLICY AND ITS PERVERSE RESULTS

the percentage of births to unmarried black mothers was 72 percent. Despite 50 years of LBJ’s War on Poverty and $20 trillion spent, we are presented with one of the many perverse results of welfare policy. Clearly, the intent of welfare policy in 1964 was not to rip apart the structure of the American family. In groundbreaking research in 1985, Harvard economist Richard Freeman found that the background factors that most influence who escapes innercity poverty are churchgoing, whether other members of the family work, and whether the family is on welfare. In Oklahoma, 62 percent of children are born on Medicaid. The percentage nationwide ranges from a whopping 71 percent in Louisiana to a low of 27 percent in Virginia (with a median value of 45 percent). Unfortunately, Oklahoma is in the very high range, at fourth-highest in the country. In absolute numbers, that represents, on average, approximately 30,000 babies that are born into Oklahoma’s welfare system each and every year. Unfortunately, as Scott Moody and I recently pointed out in these pages (“The Negative Impact of Multi-Generational Welfare,” February 2014), this suggests Medicaid will continue to swell, as this next generation of new-

borns is very likely to be remain dependent on the program into adulthood like their parents. Economist Carolyn Moeling’s 2004 research is a forewarning to those Oklahoma policymakers flirting with expanding public assistance: “States that offered the most generous benefits to single mothers were the states that experienced the largest increases in single motherhood.” Largely missing from mainstream conversation about what factors influence disadvantaged individuals’ ability to improve their financial trajectory is church going—despite robust evidence. Dehejia, et al.’s empirical results “show that religious organizations play an important role in shaping the lives of disadvantaged youth by mitigating at least some of the long-term consequences of disadvantage.” More specifically, the results are strongest when disadvantage is measured by maternal education or youth’s level of education.

Similarly, Byron Johnson finds that church attendance has been found to influence youth’s inclination whether to commit serious crimes. In other words, when youth are actively involved in church, the linkage between neighborhood disorder and serious crime diminishes (where neighborhood or social disorder is characterized by visible cues like hanging out, drinking, taking drugs, and creating a sense of danger on the streets). Research which confirms that welfare policy contributes to the ongoing existence of intergenerational poverty abounds—whereas factors like twoparent households and churchgoing have been shown to ameliorate intergenerational poverty. For liberal policymakers and media to argue that intact marriages and religion have negligible effects on the health of a community and an economy is to blatantly ignore the facts.

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.” She blogs at PhDMomDropout.com.

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Krauthammer Tells OCPA Audience American Hyper-Liberalism Cannot Go On and, Therefore, Will Not Go On By Tina Korbe Dzurisin

The people of the United States remain engaged in a timely and important debate about the size and scope of government—and Pulitzer Prize-winning columnist Charles Krauthammer is optimistic that advocates for liberty and limited government will prevail. Speaking April 2 at the OCPA Citizenship Dinner, Krauthammer said Americans have historically favored freedom over the false promises of an overextended welfare state—and he’s confident they will again. Among Krauthammer’s many reasons for this sanguinity: Barack Obama has tipped the hand of those who favor government-imposed equality. “Obama represents a different kind of challenge to the American idea,” Krauthammer said. “He’s not a conventional liberal. He’s what you would call in Europe a social democrat—and it’s important to understand what that represents.” His explanation: In social democratic countries like France, Germany, Italy, and Greece, the ideal is, unabashedly, equality. In the United States, equally unabashedly, the mantra has been: Liberty above all. “In Europe, the idea is a government that gives you more protection, more regulation, more taxation, more security, more leveling, more solidarity,” Krauthammer said. “In the United States, we believe differently. We believe in more liberty, more dynamism, more social mobility, more enterprise, more innovation, more risk-taking, more freedom. There’s a reason why, in New York Harbor, we have a Statue of Liberty and not a Statue of Equality.” This historical precedent against him, Obama nevertheless declared in his

12 PERSPECTIVE • May 2014

first State of the Union address that he intended to fundamentally transform America in the three key sectors of health care, education, and energy. “What’s remarkable is, he went for it,” Krauthammer said. “It wasn’t a theoretical thing.” He went for it, of course, by harnessing Democratic majorities in the House and Senate to pass the sweeping Affordable Care Act into law without the vote of a single Republican. That, Krauthammer said, was Act I. Then came Act II—and no one, least of all Obama, expected it. Act II was dubbed “the Tea Party,” but it stood for something much wider, “which was a resistance to this social democratic idea, this imposition of the rule by experts, this intrusion into the lives of Americans on a scale very rarely seen,” Krauthammer said. “All of a sudden, people started showing up and saying, ‘This is not what we want; this is not who we want; this is not the American experiment.’” In Krauthammer’s telling of history, the 2010 midterm elections were and remain decisive, halting the Obama legislative agenda at the federal level and instigating “mini-rebellions” at the state level, even in such unlikely states as Wisconsin and Michigan. “Now we have a full-fledged engage-

ment of left and right and, again, this is the great national debate, everywhere, at all levels,” he said. Sure, the American people reelected Obama in 2012—Krauthammer admits he “underestimated the GOP’s extraordinary capacity to lose unlosable elections”—but, in 2016, Krauthammer predicts they’ll respond to a candidate who can make the case for a carefully circumscribed government and, from Krauthammer’s perspective, that candidate exists among “a whole generation of young, dynamic leaders” including governors like Bobby Jindal, Scott Walker, and Susana Martinez. Perhaps even more importantly, Americans can look to Europe to preview the results of the social democratic experiment—and to find all the evidence they need to decide against it. “Look at what happened in Greece, in Portugal, in Spain, in Italy,” Krauthammer said. “History has spoken. This kind of hyper-liberalism—over-taxation, over-regulation, over-involvement, overintrusiveness into American life—cannot go on and therefore it will not go on. So, it either means we go over the cliff if we don’t change course or we change course—and I think we will.”

Tina Korbe Dzurisin is a research associate at OCPA. Formerly, she was a staff writer at The Heritage Foundation and an associate editor at HotAir.com.

Krauthammer Quips Kept Audience Entertained

On Obama’s stimulus bill

“It left not a trace behind. For God’s sake, at least FDR left the Hoover Dam. Obama leaves behind the ruins of that Solyndra factory; that’s it. That’s where the Obama Library ought to be.”

On the GOP’s nomination of Mitt Romney in 2012

“So, who does the GOP nominate? They nominate the one man in a country of 330 million, the only man, who cannot make the case against Obamacare because he invented it. Now that takes genius on the part of the party.”

On Jeb Bush as a potential 2016 presidential nominee

Now, we know, he’s got one liability— his last name. I have a solution. Change it. How about: Jeb Ochocinco? By doing that he’s going to get two constituencies at once: Hispanics and wide receivers.

On Chris Christie’s Bridgegate

Citizenship Dinner 1. Dr. Tom Coburn receives the OCPA Citizenship Award. 2. OCPA chairman Dr. David Brown congratulates Dr. Coburn. 3. Dr. Charles Krauthammer received a standing ovation both before and after his remarks.

Now, here I have to confess that I am deeply disappointed. This really does not speak well of the state of revenge in New Jersey. In the old days when men were men and you wanted to send a message of revenge to the mayor of Fort Lee, you put a horse’s head in his bed. You sent him a dead fish in the mail. He’d hear a knock on the door; he’d go answer it and there would be Tonya Harding. Three lanes of the George Washington bridge? In New Jersey, that’s the best you can do? Talk about American decline.

On Paul Ryan

“I think he has a future in the House that he will want to live out; he will be a great chairman and I think he will be a great member of the Congress and, of course, he’s so young, he could do that for 10 or 20 years and still run for the presidency and only be about 19 years old.”

4. Dr. Krauthammer and OCPA president Michael Carnuccio at the dinner.

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UNCORRECTED PROOF - NOT FOR DISTRIBUTION

@OCPAThink 1. Conservative leaders from around the country recently gathered at the 2014 Resource Bank meeting in New Orleans. The meeting is hosted annually by The Heritage Foundation. One panel discussion at the Resource Bank meeting was entitled “Saving Rural America.” Pictured here are William Buckner, president and chief executive officer of The Samuel Roberts Noble Foundation; Daren Bakst, research fellow in agricultural policy at The Heritage Foundation; Annette Meeks, chief executive officer of the Freedom Foundation of Minnesota; Myron Ebell, director of energy and global warming policy at the Competitive Enterprise Institute; and OCPA research fellow Steve Anderson.

2. OCPA research fellow J. Scott Moody at the Resource Bank meeting. 3. OCPA president Michael Carnuccio at the Resource Bank meeting. 4. OCPA president Michael Carnuccio (center) and other staff members reviewing architectural plans for OCPA’s new events center. The groundbreaking ceremony is May 22. 5. Stephen Moore—formerly of The Wall Street Journal, now chief economist at The Heritage Foundation—discussed tax reduction with policymakers on April 17 at OCPA. Moore is a co-author of the 2011 OCPA study, “Eliminating the State Income Tax in Oklahoma: An Economic Assessment.”

6. OCPA intern Brittoni Bobek received the “Big Woman on Campus” award from University of Oklahoma president David L. Boren. Brittoni was recognized for her outstanding achievements in the classroom and for her community service. (Photo credit: Jawanza Bassue) 7. OCPA’s vice president for policy Jonathan Small discussed Obamacare with students at the Inspired Leadership Challenge on March 29 at Cameron University. 8. Conservative leader Grover Norquist (left), president of Americans for Tax Reform, visited the state capitol on Tax Day with Dave Bond, CEO of OCPA Impact. Oklahoma lawmakers are considering both tax cuts and tax increases this year. 9. Congressman Frank Lucas discussed farm policy with OCPA executive vice president Brian Bush on April 16 in the OCPA library. 10. Economist Jonathan Williams of the American Legislative Exchange Council (ALEC) discussed pension reform with policymakers on April 3 at OCPA.

14 PERSPECTIVE • May 2014

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QUOTE UNQUOTE “I was the slowest kid, so when a kid came up to me he kicked me down, and everyone started stomping on me. I didn’t like being bullied. I didn’t like people calling me ‘weirdo’ and ‘gross.’ … My stepdad had a Desert Eagle under his bed … so I kept on saying I would pick that up and kill myself with it.”

An autistic Oklahoma City boy describing his experience in a public school before receiving a ticket out with a Henry Scholarship. To see the new OCPA mini-documentary “Lindsey Nicole Henry Scholarship Stories: Trinity School,” visit ocpathink.org/videos/295

“It is shocking that a number of lawmakers who promised to not raise taxes are working behind the scenes to raise the tax burden on capital-intense oil and gas mining, increasing it significantly from its effective rate for the last two decades.”

OCPA president Michael Carnuccio

“We, in this state right now, waste outrageous amounts of money on remediation for students that come out of high school with good grades but they’re not ready for higher education. They’re not ready to be hired by businesses.”

Mike Neal, president of the Tulsa Chamber of Commerce

“As a conservative, I know government is powered by the people. Tax dollars are taken from hard work and the sweat of the brow. Government doesn’t bestow upon citizens the right to the remainder of our dollars. Wealth is created by risk takers, workers, and investors—not by government.”

Lt. Gov. Todd Lamb, arguing in The Oklahoman against a tax increase on the oil and gas industry