Steve Anderson | August 1, 2015

Apples to Onions: Liberal Think Tank’s Report Is Extremely Flawed

Steve Anderson

Last fall, the Center for Budget and Policy Priorities (CBPP), a liberal think tank, issued a report claiming that most states, including Oklahoma, are funding schools at a lower level than before the recession. Indeed, the CBPP report claimed that Oklahoma led the nation in spending cuts, saying that Oklahoma’s per-student spending (adjusted for inflation) decreased 23.6 percent—or $857 per student—from fiscal year (FY) 2008 to FY 2015.

By choosing FY 2008 as its starting point, CBPP ignores the huge increase in education spending that occurred in most states from 2004 to 2007. But even apart from that, the report is highly misleading. As Oklahoma Senate president pro tempore Brian Bingman correctly put it on page 6, the report “stretches the truth beyond the breaking point.”

The CBPP report acknowledges the following: “The education funding totals presented in this paper reflect the funding distributed through states’ major education funding formulas. The numbers do not include any local property tax revenue or any other source of local funding.”

Unfortunately, this methodology yields inaccurate results because states finance schools in different ways. It is unlikely there are even two states, much less 50, using the same school funding approach.

For example, all states have some form of local funding. Some states simply redistribute a portion of income tax revenues, sales tax revenues, or other tax revenues back to local schools via state appropriations. Other states have local revenues provide a base supplemented by state resources.

Kansas, for example, uses local funds which are supplemented through an equalization formula by state funds. By excluding these local funds, the CBPP methodology understates total funding significantly. CBPP singled out Kansas as a state which has “cut funding by 14.8 percent,” but when one considers the local contributions and other funding sources, it turns out that Kansas actually increased funding by 27.8 percent, or $868 million, during the period cited.

Rather than picking and choosing which expenditures to include, the proper way to identify school expenditures is to use the rules established by an impartial referee: the Governmental Accounting Standards Board (GASB). GASB is the official, non-partisan rule maker for governmental accounting. It is the scoring system for financial transactions.

To better understand the flaws in the CBPP report, consider just two examples.

First, the CBPP report excludes Oklahoma House Bill 1017 funds for schools because those funds go directly to schools. In FY 2014 alone this amounted to $594.5 million.

Second, the CBPP report excludes roughly $300 million in pension payments for Oklahoma’s teachers—even though the report includes those payments made in Arkansas for teachers there. The only difference is that the State of Arkansas directs its unfunded liability payments through the employer contribution of each employee’s paycheck, whereas Oklahoma bypasses the school districts’ payroll and sends the funds in a more direct path to the Oklahoma Teachers Retirement System.

In Arkansas, the employer contribution rate for teacher pay to the Arkansas Teachers Retirement System is 14 percent, with 7.11 percent of that contribution going directly to the unfunded liability. On a payroll of approximately $2.5 billion, Arkansas gets credit (in the CBPP report) for school funding of more than $175 million—while Oklahoma’s contribution of more than $293 million on top of the teachers’ employer contribution of 9.5 percent is ignored.

Under GASB rules, both states should be given credit for their payments as school expenditures.

CBPP is certainly entitled to its “policy priorities”—higher taxes and increased government spending. But this report indeed “stretches the truth beyond the breaking point.”

Steve Anderson

Contributing Author

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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