OCPA's Freedom Agenda 2011
December 9, 2010
In the end, the contending philosophies of Oklahoma’s two competing candidates for governor came down to this: a predominantly economic and jobs focus (Mary Fallin) versus a competence or qualifications focus (Jari Askins). Oklahomans chose the “jobs first” message, and they did so consciously.
Sometimes it is a virtue to restate the obvious, even if in the form of a rhetorical question. What is the source of job creation in a free economy? See page 4 for the first in a series of articles about job creation in Oklahoma. But make no mistake: Small businesses and start-up entrepreneurs account for the lion’s share of new jobs, both in the nascent current recovery and in historic terms.
The sine qua non for economic growth in Oklahoma is to continue the modest and methodical progress of recent years toward a lower state income tax rate. Although inadequate, these tax reductions have fed the comparative economic vibrancy that has led Oklahoma City to one of the nation’s lowest unemployment rates, and to steady improvement in the state’s improved ranking on indexes of business-friendliness.
The way forward for Oklahoma does not lie in protection of government employment, but in growth of private-sector taxable income. That latter growth can only come if more private-sector jobs are created, and if more income is earned by everyone with a job—including those indispensable souls who invest, expand operations, and create jobs.
If that seems circular, it is. No government job ever created another government job. Government jobs are created, and funded, by the wealth generated in the private sector.
Assuming that economic growth in the near to medium term will not be adequate to close Oklahoma’s FY 2012 budget gap—and with confidence that, in any case, Oklahoma’s government is far from “right-sized”—blue-ribbon panels of the well intentioned will not be sufficient to the task at hand. The state budget must be cut. Fortunately for policymakers, this will not require Churchillian courage. Because according to a new SoonerPoll of likely voters,1 Oklahomans want smaller government. Consider:
Which would you rather see in Oklahoma?
- A smaller government with fewer services ... 71%
- A larger government with many services ..... 17%
- Don’t know / Refused ....................................... 12%
Which is more to blame for the state-budget crunch in Oklahoma—taxpayers’ unwillingness to pay more in taxes or politicians’ unwillingness to reduce government spending?
- The taxpayers’ unwillingness to pay more in taxes ........................................ 8%
- The politicians’ unwillingness to reduce government spending ....................... 81%
- Don’t know / Refused ....................................... 12%
Generally speaking, when Oklahoma has budget problems, is it better to raise taxes or cut spending
- Raise taxes ......................................................... 7%
- Cut spending .................................................... 86%
- Neutral / No opinion ........................................ 7%
Sometimes a state will raise fines and fees instead of raising taxes. Generally speaking, when a state has budget problems, is it better to raise fines and fees or cut spending?
- Raise fines and fees ........................................ 19%
- Cut spending .................................................... 72%
- Neutral / No opinion ........................................ 9%
Given that Oklahomans want less government and more freedom, here are some recommendations for policymakers.
Right-size state government. The chart on page 9 shows that state and local government spending in Oklahoma continues to outpace the most reasonable benchmark, i.e., population growth plus inflation. State Treasurer Scott Meacham has observed that “in good times, I do think that it’s true that government is subject to ‘mission creep.’ … When the revenue is flowing maybe there’s a trend to drift into areas that are outside of the core mission or missions of government. What happens when things are going well is that things that are ‘nice to do’ become new programs, but in hard times or tight times, it’s time to look at maybe pruning the tree of government.”2 Mr. Meacham is correct. Oklahoma Policy Blueprint 2011, forthcoming from OCPA, will include a balanced FY- 2012 budget which will cut taxes while prioritizing spending by focusing on the “core mission” of government.
Continue to reduce Oklahoma’s individual income tax rate. In 2010, the average Oklahoman was forced to work more than three months before he was able to enjoy the fruits of his own labor. “Tax Freedom Day” arrived on April 6, 2010—that’s the day the average Oklahoman had finally earned enough money to be able to pay the federal, state, and local tax collectors.3 (This tax burden ranks 30th among the 50 states.) As OCPA distinguished fellow J. Rufus Fears has observed, “The American public pays an amount of taxes that no despotic pharaoh in antiquity would have ever dreamt of imposing upon his people.”
Oklahoma families have real needs: school clothes and dental work for the kids, new brakes for the car, ever-increasing health insurance premiums—the list goes on and on. Indeed, Oklahoma families have a multimillion-dollar backlog of health care, transportation, education, and retirement needs. Policymakers must craft a state budget that respects their constituents’ family budgets.
Accordingly, policymakers should continue to phase out Oklahoma’s individual income tax, reducing the top rate from 5.5 percent to 4.4 percent this year. This will put money back into the hands of Oklahoma’s private sector, thus spurring economic activity and even providing some offsetting revenues for the state.4
Defuse Oklahoma’s pension bomb. Oklahoma’s retirement systems represent nothing less than a ticking time bomb. OCPA has developed a plan5 that will (a) pay off the pension debt over time without a need for an infusion of new money, (b) free up more than $300 million immediately for state services, and (c) promise every current member of OTRS and OPERS their full retirement plus a guaranteed two percent cost-of-living adjustment every year. The key to the OCPA plan is that all new teachers, support personnel, and government employees will begin their employment in a defined-contribution plan instead of the defined-benefit plan that OTRS and OPERS currently use.
The state’s largest newspaper editorialized that the OCPA plan “provides a starting point for policymakers. And start they must.”6
Continue to reform the education system.
- Enact legislation (sponsored by Sen. Dan Newberry) which allows for a tax credit for donations to nonprofit organizations that award scholarships to help low-income parents or parents of special-needs children send their children to private schools.
- Bring transparency to education spending: Instruct the state Department of Education to report the real cost of education by using Governmental Accounting Standards Board principles.7
- Enact charter school reforms that accelerate the pace of formation of new schools.
- Get rid of tenure.
Get rid of trial de novo. A new SoonerPoll8 suggests doing so would be in keeping with popular sentiment in Oklahoma:
Which view comes closer to your own: “Teachers unions help make schools better” or “Teachers unions are an obstacle that keeps schools from getting better”?
- Teachers unions help make schools better .............................................. 25%
- Teachers unions are an obstacle that keeps schools from getting better...55%
- Neutral / no opinion ................................... 20%
- Which view comes closer to your own: “Teachers unions help make schools better” or “Teachers unions are an obstacle that keeps schools from getting better”?
- Have the Attorney General’s office assume many of the functions currently performed for school districts by private law firms.9
- Help alleviate the state budget crunch by adding a “means-testing” component to Oklahoma’s preschool program. In a book chapter entitled “The Impact of the Earliest Years on Students’ Success,” Harvard Business School professor Clayton M. Christensen concludes that universal pre-K programs “are an ineffective mechanism for addressing the challenge of preparing children for school.” Heritage Foundation researcher Lindsey Burke calls government preschool “an expensive and unnecessary middle-class subsidy.” American Enterprise Institute scholar Douglas Besharov worries that “preschool will become a new middleclass entitlement which will shortchange the poor.10 In an era of limited revenue, policymakers must prioritize, focusing attention on the children who need it most.
- Put an end to the practice of individuals accruing benefits in OTRS who are employed by private employers (e.g., the Oklahoma Education Association). The estimated cost in the unfunded liabilities is more than $100,000 per person.
Make state agencies pay for what they use. It’s time to bring greater transparency to state government by putting an end to the cross-subsidization of agencies. The state should provide resources to each agency to cover its cost of central services. The agency should then pay the central service agencies for the services they provide. For instance, a state agency would pay the Office of Personnel Management an amount for each employee hired and for each employee on staff during the year. It would pay the Office of State Finance for each claim processed. This would allow the state to discontinue funding the central-service aspects of several agencies. The administrative costs of billing would be more than offset by the more efficient use of central services, and the state would gain better control over federal cost reimbursements.
Make Oklahoma’s government accountable. Governmental accounting can be difficult to understand, even for seasoned experts. Oklahoma can become a pacesetter among states by producing an annual report consistent with the best practices employed in the private sector. This would impress business leaders looking for a location where state government is run in a businesslike fashion.
Move jobs to rural areas. Rather than funding the poorly conceived Rural Economic Action Plan, policymakers should look for opportunities to send good-paying jobs (with benefits) to rural Oklahoma. There are many fine buildings on Main Street in rural Oklahoma that are vacant or underutilized. The rent on these buildings is significantly lower than that of equivalent office space in Oklahoma City. Existing state agency functions should be examined for their suitability for remote office environments. In this day of server-based operations, many private firms have moved jobs not only around the country but overseas. Through the use of Virtual Private Network systems (VPN), we can move state jobs into rural areas. The VPN technology is safe, economical, and battle-tested by tens of thousands of private companies. The placement of agency jobs in rural towns would provide an instant economic impact on those communities that received them.
Embrace a new conceptual framework for welfare. Replace the current morass of uncoordinated programs with a framework that might actually help the less fortunate escape dependency. To do so, policymakers must (a) focus on the people who need help rather than the programs; (b) ensure that the state rewards the men and women who get married and stay married; (c) ensure that the state rewards those who work hard and earn more money; and (d) ensure that the state never rewards destructive behavior.
Redirect a portion of DHS daycare subsidies toward a tax break for families in which one parent stays home with the children. Former Heritage Foundation scholar Patrick Fagan says that for too long policymakers have neglected our country’s “economic trump card,” the “indispensable building block upon which the fortunes of the economy depend: the married-parent household— especially the child-rich family that worships weekly.”11 Oklahoma policymakers should respect and encourage the vital role of the intact family in fostering social-capital formation.
Put an end to the ability of state agencies—such as the Oklahoma Health Care Authority—to move hundreds of millions of dollars into the next fiscal year by flip-flopping between accrual and cash-basis accounting. This little trick hides millions of dollars of state debt. A simple directive from the Office of State Finance could put an end to it, thus making government more transparent.
Get serious about corrections reform. House Speaker-elect Kris Steele has proposed a critical stem-to-stern overhaul of state correctional policies, with an eye toward programs that are more just, effective, and cost efficient. “We should expect those who have done wrong to toe the line in terms of accountability,” he says. “That’s the right thing in terms of public responsibility. At the same time the outcomes in terms of dollars and cents are included in our responsibility. The Oklahoma Legislature needs to get serious about corrections reform. … Right now we are at 99 percent capacity [in corrections facilities]. That means that when we have a wrongdoer today, most particularly a violent criminal, there’s no place to put that person because our system is to some extent clogged with non-violent offenders.”12 It’s time to consider restorative justice of the sort advocated for decades by groups like Justice Fellowship. To get there, the faith communities of Oklahoma will have to be involved.
Conclusion: A Freedom Model, Not a Feudal Model
The Obama Administration wants to make government bigger and more intrusive, and taxes more burdensome on income earners. Right now, at least, the federalist system allows Oklahoma to make opposite choices. The future belongs to the bold. It was bold of Harry Truman to counter Soviet aggression with the Berlin Airlift after World War II. It was bold of John F. Kennedy to declare himself a citizen of Berlin. It was bold of Ronald Reagan to demand that a “reformist” communist dictator “tear down this wall”—and the wall came tumbling down, advancing the cause of human liberty and dignity. Now is the time for Oklahoma to provide a freedom model in opposition to the feudal model being advanced at the national level. “This is a good time to be a little less constrained in your thinking,” Jeb Bush recently advised. “Think big and bold.”13 In the 1950s William F. Buckley, Jr. memorably declared it was the mission of conservatives to stand athwart history, yelling “Stop!” It was the right theme for that era, but some things have changed. That was then, and this is now. The mission of the current generation of Americans is to cry out: “Forward to Freedom!”
1. SoonerPoll, telephone interview of 518 likely voters in the state of Oklahoma, November 5-11, 2010. The margin of error is plus or minus 4.3 percent.
2. Patrick B. McGuigan, “Budget crisis continues, Oklahoma may prune ‘tree of government,’” CapitolBeatOK, 12 January 2010, http://bit.ly/5R0aSG
3. “America Celebrates Tax Freedom Day,” Tax Foundation, http://taxfoundation.org/taxfreedomday
4. Steve Anderson, “A Tale of Two States: The Real Effect of Individual Income Tax Cuts,” OCPA Memorandum, October 2010, http://bit.ly/aw0JOO
5. Steve Anderson, “How to Defuse Oklahoma’s Pension Bomb,” OCPA Perspective, November 2010, pg. 9, http://bit.l/cYCBf8. Spreadsheet available upon request.
6. The Oklahoman, “One idea for attacking state’s unfunded pension systems,” 14 November 2010, pg. 14A.
7. Steve Anderson, “Determining the Real Cost of Oklahoma’s Public Education System,” OCPA Memorandum, 10 November 2010, http://bit.ly/aoKrpI
8. Op. cit., SoonerPoll.
9. See the recommendations of OCPA trustee Bill Price in the sidebar at right.
10. Brandon Dutcher, “Wise investments for the beginning of life,” OCPA website, 9 November 2010, http://bit.ly/dvgYUu
11. Brandon Dutcher, “Traditional Family Key to Economic Health,” The Oklahoman, 20 September 2010, http://bit.ly/cn15Bj
12. Patrick B. McGuigan, “‘Convicted’—Kris Steele on veterans, corrections, colleagues, and vision,” CapitolBeatOK, 10 November 2010, http://bit.ly/gAEny8
13. Fred Barnes, “The View from the Sidelines: Jeb Bush on the Republican future,” The Weekly Standard, 22 May 2010, http://bit.ly/dzxVFl