Budget & Tax

Stealth Taxation 'Nonappropriated' Agencies Quietly Take Your Money

April 1, 2009

Steve Anderson

In its first hundred years Oklahoma's state government has managed to develop bureaucracies that would make it the envy of many socialist countries.

Tucked away in the governor's FY-2009 Executive Budget Book is a little something called Schedule C-31, a document listing the "nonappropriated" agencies in state government. Herein lies a treasure trove of political placements and high-paying jobs, many of which are of questionable value and have little or no oversight.

These agencies will remove nearly a billion dollars from business and taxpayers' pockets in the next fiscal year, yet they stay off the radar screen of most citizens and legislators. Since this money is not appropriated by the legislature, it is often overlooked as legislators focus their attention on the appropriated money that they control directly.

Many of these nonappropriated agencies are funded by "fees" charged to businesses. This is one of the more insidious ways government grows itself while hiding the funding mechanisms through indirect taxes to consumers. These fees are simply a cost of doing business to those who pay the fee-and like other costs, they are passed on to Oklahomans.

Some of these agencies provide "services" of questionable merit. For example, fees added to liquefied petroleum are used to fund the Liquefied Petroleum Gas Research, Marketing, and Safety Commission as well as the Liquefied Petroleum Gas Board. Together they extract more than $1.2 million dollars from the Oklahoma economy each year. Nearly half of that amount, or about $511,000, is spent by the Liquefied Petroleum Gas Research, Marketing, and Safety Commission for the professional services of a firm that is in the business of "managing" associations.

Many of these fee-funded agencies are licensing agencies, some of which seem to be in existence simply for the purpose of having a place to put political appointees. Consider, for example, the State Board of Examiners of Perfusionists. In FY-2008, the examiners of this group managed to separate health care consumers from more than double the amount of money that they actually spent protecting Oklahomans from nefarious perfusionists.

The Oklahoma Board of Medical Licensure performs the function of verifying the professional status of perfusionists for the general public. In fact, according to a website maintained to promote perfusionists, there are only about 3,000 of them nationwide, and most "are certified or licensed in some other allied health field."

It seems like some consolidation would be in order here. Several boards, such as the 13 listed below, could come under the authority of the state Board of Medical Licensure or the state Department of Health:

Nonappropriated Agency Budgets

In total these boards add more than $10 million to health care costs annually. Eliminating the overlapping boards and some of the 80-plus employees that operate these agencies would save Oklahoma medical practitioners (and their patients) money. More importantly, having one filing system would help to monitor the health care profession more efficiently and would also provide health care consumers one agency to contact in order to file complaints and check for actions against their respective providers.

As wasteful as the aforementioned boards are, they at least (arguably) have a reason for existence. But consider some of the other industries we feel the need to regulate. We are protected from a bad hair day by a Cosmetology Board ($1,018,000 in FY-2008) and protected from a poorly planned lawn by a Board of Governors of Architects and Landscape Architects ($304,647 in FY-2008). Of course, the Better Business Bureau already performs an excellent service informing consumers of service provider complaints—without removing any dollars from taxpayers’ wallets.

As wasteful as some of these agencies may be, none of them compare in scope to the education expenditures hidden in the Oklahoma Teachers Retirement System (TRS). In FY-2009, Oklahoma taxpayers forked over nearly $322 million in individual and corporate income taxes, sales taxes, and use taxes to a retirement system that has placed the state (and its citizens) more than $9 billion in debt with no end in sight.

But it’s not just the taxes. School districts also contribute a staggering 8.55 percent of payroll to this sinking ship. To my knowledge, there is no other industry where the employer is putting so much money per employee into retirement benefits.

The archaic, defined-benefit retirement system being used by TRS is fast becoming extinct in the private sector, which has learned that these types of plans destroy companies. Anyone remember Bethlehem Steel? They were one of the first victims of a defined-benefit plan that made them uncompetitive in a global steel market. Now we see icons of America’s automobile industry teetering on the edge of bankruptcy because of these same sorts of overhead costs. The only difference between private industry and the government’s TRS is that government can always extract more money from the taxpayers.

Simply requiring all new employees to enter a defined-contribution plan would reduce individual, corporate, sales, and use taxes by the five percent of those taxes currently funding this largesse. Such a simple fix would bring Oklahoma’s individual income tax rate to 5.225 percent, corporate income tax rate to 5.7 percent, and sales and use tax rate to 4.28 percent, benefiting every citizen in the state—including school teachers. Now there’s a stimulus!

Some may question the wisdom of moving to a defined-contribution plan when the market is at such a low point. Ever heard of “buy low, sell high”? New teachers would be afforded an opportunity to start their investment when the market is at a low point and enjoy the benefits of portability should they leave the profession or the state. School districts could provide an account to each new teacher funded by matching 6 percent of the employees’ pay while still saving local school districts more than $80 million annually. Never has there been a better time to give new teachers ownership of their retirement accounts—while giving Oklahoma taxpayers an immediate $400 million in savings!

The nonappropriated agencies of government have grown without proper scrutiny or cost/benefit analyses. Regrettably, this article has merely scratched the surface of the problems in these nonappropriated agencies. It’s past time for legislators to give proper oversight to an area which has now swelled to more than 2,100 state employees while removing nearly a billion dollars from the productive sector each year.

Steve Anderson (MBA, University of Central Oklahoma) is an OCPA research fellow and a Certified Public Accountant with more than 20 years of experience in private practice. He spent two years as a budget analyst in the Oklahoma Office of State Finance.