Author: gary-watts@sbcglobal.net

Here’s what happened to this Dennis:

He was at work at a bank branch in Martinsville in 2014 when other staffers noticed he was not feeling well. A co-worker drove him to an urgent care facility, but the staff there called an ambulance to take him to a hospital.  Dennis was having chest pains that recalled an earlier heart attack, and nitroglycerin did not seem to relieve his pain, according to a summary by Henry County Circuit Judge David V.

Williams. Dennis’ wife said he was “crying … upset … [and] agitated,” the judge wrote.  Dennis arrived at Memorial Hospital of Martinsville & Henry County “in acute emotional and physical distress,” Williams said.

While lying in a hospital bed awaiting treatment, a hospital staffer had him sign a “Financial Responsibility Agreement.” The agreement provided that the patient was obligated to promptly pay the hospital in accordance with charges listed in the hospital’s “charge description master” or CDM.  Dennis was in the hospital two days and underwent surgery to place five stents in his arteries, his lawyers said. 

Dennis and his insurance company paid $27,000 which was the approximate amount the hospital would have accepted from other insurers, including Medicare, with which it had an agreement in advance, but the hospital billed at its “charge description master” (CDM) rate $111,000 because it had no agreement with Dennis’ insurer, meaning he had “chosen” an out-of-network hospital.  Memorial Hospital sued Dennis for the $84,000 balance based on the contract he had signed.  I found these case descriptions by Googling “contract of adhesion hospital bill”, Dennis 1 and Dennis 2.

In my law school Contracts course we learned that for a contract to be enforceable both parties must have the legal capacity to contract and willingly enter into the agreement with knowledge of its terms.  By contrast a contract of adhesion “is a contract between two parties, where the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate more favorable terms and is thus placed in a “take it or leave it” position.”  Such a contract is not enforceable and was the basis of the judge’s decision for Dennis that he owed only $500 more and that was enough.

This outcome just last year in a Virginia court was definitely an exception.  By some estimates over half of bankruptcies in the United States are in part due to unpaid medical bills.  (bankruptcy 1 and bankruptcy 2)  While that level may be overstated (FactCheck) there is no dispute that medical bills are a very substantial contributor to bankruptcies in our country.  This fact simply underscores the reality of the medical services “marketplace” and demonstrates how most consumers are at the mercy of their insurance companies at best, or large hospital chains with inscrutable charge description masters at worst.  Those engaged in the current national debate over the future of how we pay for medical services in this country who advocate more reliance on “markets” and “competition” need to explain how consumers are to make rational, and competitive, decisions (assuming they’re even conscious at the time), like they do when shopping at the mall or online, when they aren’t even allowed to know the prices of the services being provided.

Lest you think Dennis is an exception, here is my true story about a friend who sought my help after she suffered from a suicidal episode about 15 years ago.  Fortunately, at the time she had health insurance through her employment and she knew about COPES, the local mobile psychiatric service that responded to her call for help.  COPES, though, took her to the psychiatric ward of a Tulsa hospital that was, like Dennis’, out-of-network.  Gratefully the intervention was successful and my friend was discharged after two weeks of treatment.

Then the billing came, which was not supportive of my friend’s road to recovery.  Knowing what I did about hospital charging practices I was able to negotiate a 50% reduction which brought it somewhere nearer to what the in-network cost would have been.  With assistance my friend’s bill was paid and she has had no other hospitalizations or significant illnesses since, which is typical of those who are not old geezers like I am.   That experience was when I first reflected on the possibility that many hospital patient contracts are contracts of adhesion—especially when the patient arrives in no condition to make a contractual commitment of any kind.

My friend eventually lost her job with that employer and since has been employed by a series of employers that did not offer health insurance.  She was locked out of the private insurance market because that one hospitalization constituted a “pre-existing condition” that made her uninsurable.  After her COBRA coverage ran out from the ex-employer she then maintained coverage first, at a very high cost, through the State of Oklahoma’s High Risk Pool, which once kicked her out for not remembering to use 4.3 instead of 4 when converting a weekly income to monthly, and more reasonably through Insure Oklahoma, before finally having the actual right to purchase an individual plan through the Affordable Care Act (Obamacare).  Now we wait in fear to see what happens next.

Who knew health care could be so complicated?  I did; Mr. Dennis did; my friend did; and you do too.  The “market” by itself won’t get it done.  We can provide reasonable care for all Americans and it is simplest and most cost effective if we do it collectively and together.  We’ve figured out how to take care of us old geezers through the single payer Medicare system, which no politician is trying to eliminate, so why can’t we do the same for our working population.  They are the source of our nation’s wealth and future productivity; just as we need to invest in our physical infrastructure we need to invest in our workforce by assuring every person of working age has the health care they need to remain productive—and paying for my Social Security retirement income.

Again, you’ve got to read Bitter Pill How Medical Bills Are Killing Us; I close with an excerpt:

Unless you are protected by Medicare, the health care market is not a market at all. It’s a crapshoot. People fare differently according to circumstances they can neither control nor predict. They may have no insurance. They may have insurance, but their employer chooses their insurance plan and it may have a payout limit or not cover a drug or treatment they need. They may or may not be old enough to be on Medicare or, given the different standards of the 50 states, be poor enough to be on Medicaid. If they’re not protected by Medicare or they’re protected only partly by private insurance with high co-pays, they have little visibility into pricing, let alone control of it. They have little choice of hospitals or the services they are billed for, even if they somehow know the prices before they get billed for the services. They have no idea what their bills mean, and those who maintain the chargemasters couldn’t explain them if they wanted to. How much of the bills they end up paying may depend on the generosity of the hospital or on whether they happen to get the help of a billing advocate. They have no choice of the drugs that they have to buy or the lab tests or CT scans that they have to get, and they would not know what to do if they did have a choice. They are powerless buyers in a seller’s market where the only sure thing is the profit of the sellers.   

Indeed, the only player in the system that seems to have to balance countervailing interests the way market players in a real market usually do is Medicare. It has to answer to Congress and the taxpayers for wasting money, and it has to answer to portions of the same groups for trying to hold on to money it shouldn’t. Hospitals, drug companies and other suppliers, even the insurance companies, don’t have those worries.   

Moreover, the only players in the private sector who seem to operate efficiently are the private contractors working — dare I say it? — under the government’s supervision. They’re the Medicare claims processors that handle claims like Alan A.’s for 84¢ each. With these and all other Medicare costs added together, Medicare’s total management, administrative and processing expenses are about $3.8 billion for processing more than a billion claims a year worth $550 billion. That’s an overall administrative and management cost of about two-thirds of 1% of the amount of the claims, or less than $3.80 per claim. According to its latest SEC filing, Aetna spent $6.9 billion on operating expenses (including claims processing, accounting, sales and executive management) in 2012. That’s about $30 for each of the 229 million claims Aetna processed, and it amounts to about 29% of the $23.7 billion Aetna pays out in claims. 

As always lunch is on me for the first to ID the photo.

State Capitol of Iowa, ID’d by Sue Haskins

We’re going to need lots of sugar to take what this Congress is likely to shove down our national throats as they repeal and replace the Affordable Care Act—Obamacare.  I likely will devote future, and better researched, posts to this topic but for now am going to share some insights and stories accumulated over an adult lifetime of thinking about medical costs and health insurance—well not my entire adult life, just since the late 70’s when I was immersed in teaching both Personal Finance and introductory Economics at Tulsa Junior College.  Before that, through three employers, one wife, and two children, I didn’t give it much thought.  I can tell you what we paid for rent in Philadelphia, for a pound of chicken livers (least expensive protein), for a gallon of gas, for a motel room, for our first mortgage, for our first car, and much more, but health insurance costs don’t register in my memory.  I was a classroom teacher with Tulsa Public Schools when our second child was born and I don’t remember the cost of family coverage being significant back then.  Today that cost is $1,734 per month with only $571.04 of that being paid by the employer in most school districts.  If now was then I would remember that level of impact on our family’s budget.  So getting national health care/insurance right is a big, big deal to American families.

As a famous American said recently “Nobody knew health care could be so complicated”.  Well, after a little study back then, I did, and so did many others as rising health care costs, rising numbers of uninsured families, and rising numbers of deaths due to lack of insurance, have made health insurance and medical costs inflation major topics of national discussion for decades.  In my 1970’s and 1980’s Personal Finance classes we learned that having good major medical insurance at all times is an essential risk management strategy for everyone since very few, such as billionaires, can rationally assume the entire risk of having a catastrophic loss of health with the attendant hospital costs and loss of earned income.  We also learned that modern medicine, safe drinking water and sewage waste disposal have mostly eliminated what were prevalent causes of death for my parents’ and grandparents’ generations, like typhoid, diphtheria, measles, chicken pox, etc.  Vaccines and sanitation have eliminated most causes of early death from contagious diseases and greatly increased life expectancies.  We also learned that our leading causes of death now often result from our behaviors of choice, like eating too much, not exercising, smoking, shooting each other, and driving too fast or while impaired or distracted.

In introductory Economics we learned what economists had to say about the rising cost of medical services, namely that characteristics of American health care markets did not fit the model of competitive markets for other products and services, like restaurants, house construction, automobiles, lawn mowers, etc. In those markets prices are kept in check and quality improves due to many sellers trying to gain profits and market share while selling to many consumers who have lots of choices.  By contrast in health care markets the greatest expenditures often occur when the “consumer” has a serious health condition and relies on, or is at the mercy of, health care professionals to recommend the medical care needed to improve health or even save life.  In these “markets” consumer “choice” is a fantasy.  Additionally, due both to the prevalence of health insurance and physician and hospital ethics, a “consumer”, the patient, is going to receive the treatment without the same regard for cost as would be the case if he or she were purchasing a television, a movie ticket or lawn service.   In other words, most health care expenditures are made with the consumer relying on professionals to determine what will be purchased and relying on somebody else, i.e. their insurance company, to pay for it.  Think what would happen to the price of automobiles if we all purchased based on a car dealer’s recommendation for the make, model and optional equipment, AND we had a trust fund, restricted for automobile purchases only, to pay for it. 

Economists have long recognized that where health care services are involved we cannot rely on market competition alone to contain costs and improve outcomes; there is simply too much of a disconnect between the “consumers” and the “deciders”.  Unfortunately, many engaged in the discussion are so wedded to the belief that competition cures all they lose touch with reality.  For an example of this see what Mark J. Perry, one of the limited-thinkers at the Oklahoma Council of Public Affairs, posted June 1, 2015 “Competitive Health Care Markets Spur Price Deflation”.   Apparently he believes the circumstances and choices faced by consumers (no quotation marks) of liposuction, breast augmentation, tummy tuck and Botox injection services, are similar enough to “consumers” facing diagnoses of advanced breast cancer, heart disease, renal failure, and other life-threatening health conditions, that there are important lessons to be learned.  I’m sorry that his introductory Economics course didn’t include discussion of why markets are not always perfectly competitive and why some market outcomes require corrections for the betterment of society—or maybe he was nodding off after having discretionary brain surgery.  More competition alone is not going to improve the health of the many Americans whose access to quality health care is limited today.

I actually experimented a few years ago with this market competition approach to health care when my physician and wife, a colon cancer survivor, shamed me into getting my first colonoscopy.  The first time I tried my insurance would pay part of the cost, but not all, so being a good econ, a rational decision-maker, or as my Italian daughter-in-law describes me, a pidocchioso (Italian slang for “stingy or cheapskate”), I wanted to know what the price/cost would be.  I met with the referral doctor who, after he got my information and explained the procedure, asked me if I had any questions.  I said yes and asked what the procedure would cost.  He said he didn’t know, that I should ask his billing staff out front.  While in private law practice this was a question I was always prepared for and always answered as definitively as I could, when asked by a client.  “Out front” I was told to ask my insurance company and the facility/hospital where the procedure would take place.  I called the facility/hospital which deferred to the other two and fared no better when I contacted my insurer.  I happily used this pricing obfuscation to do what any good consumer should do—I declined to have the procedure.

Then a couple of years later, either due to my advanced age or change in preventive care coverages (may have been implementation of the Affordable Care Act), the procedure became “free”, at least to me as the consumer.  So I dutifully went back to the same doctor, the same facility/hospital, and the same insurer, and, along the way, including the early morning of the procedure (my wife smiling all the time), asked each one to confirm that the procedure would be “free”, at no out of pocket cost to me, which they each did.  So with no remaining excuse or reason to defer, I was wheeled into the staging area, where a nurse anesthetist introduced himself and asked me to count backwards, 10, 9, 8, 7, 6,…. then I’m waking up, told all looked good, and driven home none the worse for wear.  Until several days later when I got a billing from the nurse anesthetist for charges not covered by my insurance because he was “out of network”.  Oh what a stupid consumer I was and entirely my bad that while on the gurney in my backless white gown I didn’t, in my final minute of consciousness, ask if the needle-holder was “in network”.  Where were Mr. Perry and the OCPA when I needed them.

My first substantive exposure to health care pricing in this country was in 1986 when, as the newly elected Commissioner of Finance and Revenue for the City of Tulsa, I became a member of the Emergency Medical Services Authority which then and now provided emergency ambulance services to Tulsans.  Prior to serving on that authority I assumed that medical services pricing, like prices for barbers, exterminators, plumbers, dentists and other service providers, would be based mostly on the cost, i.e. the value of the labor of the service provider involved, adding in amounts for equipment and other costs involved.  Indeed, such calculations were the starting point, including the wages of the emergency medical technicians, amortizing the cost of the ambulances, fuel and medical supplies costs, etc.  There also were calculations about how to most efficiently schedule and position the ambulance crews so that they stayed fairly busy (more on Saturday nights for example) and, therefore, productive.  All of that led to a dollar calculation of what the actual cost was for an ambulance run, much like the calculations that an auto wrecker service must make to determine its per-run pricing, and essentially total expenditures divided by the total number of runs.  Let’s say it was $150 in 1986.  In contrast to the wrecker service where that might be the beginning and the end of establishing a price of a run, for EMSA we were just getting started. 

Unlike the wrecker service, a plumber or a dentist, EMSA is required by city ordinance to provide emergency services to anyone and everyone who is in need; it can’t ask about ability to pay.  Whereas the wrecker service, plumber and dentist will each have a “bad debt” write-off as part of their calculation, it is nothing like the algebraic gymnastics for EMSA at that time.  A sizeable portion of the runs were covered by Medicare, Medicaid or other health insurance, however Medicare and Medicaid for sure, and much of the employer and individually purchased insurance, negotiated a reduction from what EMSA charged for a run at the “retail” level, i.e. a cash-paying, non-insured person who was transported.  Of course many of EMSA’s retail customers ended up being bad debts.  When all these factors were fed into the algebraic gymnastics the result was a retail charge much greater than the actual cost, something like $275.  So the reality was that a person able to pay, but without the benefit of any insurance related “discount”, was billed and expected to pay far more than the actual cost.  I don’t remember the actual ratios and dollar amounts, but it was eye-popping and patently unfair, but also perfectly legal and what had become an expected part of our crazy-quilt way of pricing medical services.

That same year Congress passed the Emergency Medical Treatment and Active Labor Act (EMTALA) which requires every hospital that receives Medicare or Medicaid payments from the federal government and that provides emergency room services, to treat anyone and everyone who shows up at the emergency room, regardless of ability to pay.  Translated we effectively have universal health care coverage and I doubt even the most limited-thinker at the OCPA would be mean-spirited enough to advocate repealing EMTALA—but they might surprise me.  I just finished reading Trevor Noah’s autobiography of growing up in South Africa “Born a Crime” (black mother, white father, during apartheid).  Spoiler alert for the rest of this paragraph now because it was a great read and I highly recommend it.  When he was just a couple of years out of high school, his stepfather shot his mother in the back of the head and she was taken to the emergency room, dying.  The staff informed Trevor when he arrived that she could not be treated there because she was uninsured (a devout Christian she believed Jesus was her insurance), meaning South Africa had no equivalent of EMTALA.  Only because he provided a credit card and agreed to be financially responsible for what could have been an astronomical cost did the hospital give her the emergency treatment she needed.  Miraculously the bullet that had exited cleanly through her nose missed all vital parts of her cranial cavity and she was treated and released within days.  When Trevor later chided her saying her faith in Jesus didn’t give her health insurance when she needed it, she replied “But Jesus gave me you”.

After my EMSA experience I always thought hospitals were following a similar calculation process, just more complicated by all the hundreds, maybe thousands, of different procedures they perform.  Apparently that is not the case.  While collectively the charges grossly exceed the actual cost to account for the insurance negotiated discounts and the no-pay patients, the individual procedure charges are mostly unrelated to any rational measure of actual costs—at least that’s what author Steven Brill reported in his 2013 article “Bitter Pill–Why Medical Bills Are Killing Us“.  It is a must read for anyone who thinks “Nobody knew health care could be so complicated.”  It demonstrates the absolute folly of thinking analyses like that reported above by the OCPA are relevant, while showing how effective the market power of a single payer system, namely Medicare, can be in reducing costs, both medical and administrative services, compared to pricing through the private sector. 

What is driving the financial struggles for Medicare is not that it is a government run program, which in fact is its strength, rather it is the reality of the rising expectations we collectively have for extending our individual lives, regardless of quality, at great costs.  As one who is likely, as my friend Lloyd Snow would say, playing in my final quarter, I can say that we do need to have an honest national discussion about the amount of scarce resources we are devoting to end of life treatments.  Call it “death panels” or say it like Dr. Ben Carson did recently to HUD employees when he honestly expressed his belief that his skills as a brain surgeon were more appropriately used to “operate 12, 18 or 20 hours on a young child and, if successful, you might be rewarded with 50, 60 or 80 years of life, whereas with an old geezer they die in five years or something else, I like to get a return on my investment.”  Regardless of the blunt language (though maybe 6 months instead of five years), if we want to control health care costs, it is a genuine way to do so, unlike so-called “market” and “private competition” proposals that will exacerbate the lack of access to care for our younger and economically marginalized citizens.

One other thought, as important as dealing with end of life health care costs, is the role of having universal coverage in containing costs.  Not only is it a great benefit for all of us and a societal advancement we can afford, it is also a smart play.  Insurance works best when large numbers participate and no one is able to game the system.  That is what happens when we don’t strive for universal coverage, but still honor EMTALA, namely the young and/or healthy can roll the dice, contributing nothing to the pot, knowing that they can always join later and have the emergency room guarantee in the meantime.  For most it works, but for those it doesn’t we and they pay dearly.  The resulting dynamic is the “death spiral” of more expensive insurance premiums driving more to roll the dice, which in turn raises the premiums further.  You need look no further than the discrepancy in premiums for teachers’ health insurance, $571 per month where the premiums are paid for by their Flexible Benefit Allowance, and the $674 charged for spouses, all of which is entirely out-of-pocket.   That higher cost for spouses drives more to find other options, like rolling the dice before the individual mandate of the Affordable Care Act, leaving an older and sicker group captive to a plan for which costs must inevitably rise.  Whew!!!  That’s way too much information—maybe you’d like for me to post the photo of my colon instead.

As always lunch on me for the first to ID the photo location.     

As this Tulsa World article, “Question of revenue for teacher raises looms over lawmakers”, shows our legislature seems to have every good intention of funding a teacher pay raise this session—except they haven’t a clue how to pay for it.  It’s got to come as a shock to most of them that when you spend years drinking the Kool Aid dogma, and perversion of true supply-side economics, that every tax cut will generate more revenue, our state will eventually run out of revenue to fund even its most basic services.  So where is a good think tank when you need them; surely the Oklahoma Council of Public Affairs is ready with the answer.

Painful as it is I checked their site and found a February 1 post, “Non-Teaching Staff Surge Prevented Oklahoma Teacher Pay Raises”, from Benjamin Scafidi who, for this post, is the Ugly Step-Thinker.  I’ve never met Mr. Scafidi, have no idea where his appearance would fit on some immature 1 to 10 scale, and besides, as you can see from my legs in the photo above, I’m firmly opposed to judging a person based on his physical appearance.  My use of “Ugly” goes back to my November 19, 2016 post The Glib, The Bad and The Ugly, where I showed that each of the OCPA’s recent suggestions for funding a teacher pay raise in Oklahoma are bereft of substance.  The “Glib” was the assertion by OCPA “thinker” Dave Bond that recent legislation doing something with teacher health insurance had freed up $100 million for raises; he just made it up.  The “Bad” was the assertion by OCPA “thinker” Steve Anderson that school districts could simply spend all their available cash for raises; he just demonstrated his ignorance of school district financial accounting and cash flow.

I refer to Mr. Scafidi as a “step-thinker” because he is not with the OCPA, but rather one of their outside contributors.  I guess the OCPA thinkers just can’t do the state finance math to see how their fiscal policy recommendations over the last decade have succeeded in almost bankrupting our state government so they have to call in outside help.  I refer to him as “Ugly” because his proposal for funding a teacher pay raise is to offset the cost by laying off non-teaching staff, and that would not be pretty.  Even though his most recent post drops the silly implication that the relative surge in non-teacher employees over the last several decades is mostly an increase in administrators, his numbers still don’t fully jive with the data I’ve found so methinks he is still playing loose with the statistics. 

I don’t dismiss his work entirely.  We may quibble about the stats around the edges but his central point that non-teacher staffing has grown faster than teacher staffing is probably accurate.   School administrators, and even lawmakers, certainly should look at their school districts’ data and analyze whether the staffing patterns are necessary and appropriate; most already do.  It might benefit Mr. Scafidi to talk to them.  Regardless, I doubt this step-thinker proposal will get legs this session because it is pretty ugly.  He projects $255 million is potentially available for a teacher pay raise, but he doesn’t spell out that means laying off over 6,000 non-teacher school employees statewide.

He also throws out a new (from him) option of giving $7,000 vouchers to 36,000 students.  He says this will lower class sizes but doesn’t say how and is not clear if this is somehow related to giving teachers a pay raise.  Any discussion about vouchers has got to begin with how the state is going to pay for the inevitable increase in student enrollment (counting both voucher and traditionally enrolled together) that will result.  In my July 5, 2016 post This Is Too Much Fun I show why I think the number of Oklahoma students in private and home schools is approximately 44,000 to 45,000, or about 6.5% of the total school aged population.  That number and percentage represent a pipeline of students who are educated outside the public school system and the state budget for education.  Maybe not all the first year, but eventually any voucher system is going to capture a sizable share of that pipeline and every payment will be an additional expense to the state.

That is not to say the students and their families aren’t entitled to an education at public expense—they most certainly are and it is already available to them.  But to suggest that implementing a voucher system of any kind is somehow going to save the state money so that we can lower class size or increase teacher pay, is folly and defies the reality of a 40,000 student pipeline that will certainly take advantage, as they should, of the opportunity.  A voucher proposal that does not include more revenue to pay for these additional students, coming in from the private/home school system, in the near future, is fiscally irresponsible.

As always lunch is on me for the first to ID the photo location, but I recommend you try one of my earlier posts instead—this one is of an obscure Lake Michigan lighthouse and selected only because it shows my ugly legs.

 

 

      

Donald Trump and Hillary Clinton were my classmates—or so I thought on two different occasions.  Hopefully that’s enough to hook you into reading the rest of this post because essentially it is just an old man’s stories of close encounters with presidents and presidential candidates.  Lately I’ve spent too much time thinking and writing about the Oklahoma Teachers Retirement System and, like many Americans, too much time watching news about our current president, so I need a break from doing real thinking. 

My first close encounter was in the spring of 1959 when, finishing my sixth grade year at Celia Clinton Elementary School in Tulsa, I took my first airplane trip, complete with propellers, rollaway staircase, full meals, coats and ties, and all that went with 1950’s air travel, to Washington, D. C. with my mother and brother.  My mother had written a wonderful essay about being thrifty, using her experience as a girl with her grandmother’s cistern, entitled “Saving for a Rainy Day”, and we entered it in my handwriting and name in a thrift essay contest sponsored by the national savings and loan association.  The essay won first place, and $50, in the local contest, and ultimately first place for elementary school students in the national contest where the prize was an all-expense paid trip to our nation’s capital for the student and one adult.  My brother Clayton got to tag along being the only time in our 70-year relationship I could meaningfully claim superiority.  Undoubtedly my participation in the Savings and Loan thrift essay contest contributed to the ultimate downfall of the S & L’s in the late 1980s and the attendant financial crisis.

Along with the high school and junior high winners, from Florida and Illinois I recall, we toured the usual sights, rode in the Cherry Blossom Parade, met our respective congressmen, mine being Page Belcher, and were supposed to meet then Vice President Richard Nixon.  Somewhere among our family archives is a photo of me at his desk; unfortunately, he was called away, by Rosemary Woods I suspect, to urgent business.  I trust the Savings and Loan industry continued the sponsorship of a thrift essay contest for many years, at least until its demise in the late 1980s, which saddened me due to my fond memories of the experience they had provided.

The following year, 1960, was memorable for Clayton and me as Boy Scouts from local Troup 37 getting to attend the 50^th anniversary national scout jamboree in Colorado Springs that summer.  It was a memorable bus trip and adventure with 40 to 50 other scouts and adult leaders formed into a troop from the Tulsa area for two weeks of travel to/from and camping at the jamboree.  One special memory was watching then President Eisenhower’s motorcade parade slowly through the thousands of scouts gathered to greet him.  Somewhere in our family archives is a brief 8 mm film of that event taken by Clayton.  I’m not super anxious to locate that film because I think it also contains footage of me being boosted by other patrol members over the obstacle course wall so that my lack of wall-climbing prowess wouldn’t keep our patrol from receiving an award of excellence at the jamboree.

That fall of 1960 I was in the eighth grade and keenly interested in the presidential contest between Richard Nixon and John Kennedy.  My father was a Roosevelt Democrat, his father had been a Democratic County Commissioner for Washington County, so of course we were supporting Kennedy.  My parents had also recently acquired a laundromat that was located in the 800 block of South Sheridan and at which the four of us worked off and on to clean and maintain.  It was a good lesson in the relentless responsibilities of being a small business owner.  It was also located on the route taken by Richard Nixon’s motorcade from the Tulsa airport to the fairgrounds for a campaign event on Saturday, October 15 of that year.  My parents timed our Saturday cleaning stop at the laundromat to coincide, so along with many others lining both sides of Sheridan, I finally saw Richard Nixon in person.

I was a junior, I think in typing class fourth hour, on Friday, November 22, 1963, at Nathan Hale High School in Tulsa, when our principal announced the news from Dallas.

I was a college freshman “at a school over a thousand miles away from home at a place where I knew nobody, where I was alone and scared” (at least that’s how Senator Ted Cruz described our alma mater when he announced his presidential candidacy two years ago) standing outside with thousands of other students by the newly constructed, Yamasaki designed, building for the Woodrow Wilson School of International Studies as then President Lyndon Johnson spoke at its dedication on May 11, 1966.  I don’t remember any of Johnson’s speech but I do remember feeling unsettled seeing the students, kept back across the street, who were holding signs of protest against the Vietnam War.

Following Senator Eugene McCarthy’s stunning, close second place finish in the New Hampshire Democratic primary, New York Senator Robert Kennedy announced his candidacy for President in Washington, D. C. on Saturday, March 16, 1968.  He then flew back to New York’s LaGuardia Airport and walked past a college junior who was waiting, with a $45 student half-fare ticket, to see if he could get on the American Airlines nonstop flight to Tulsa to be with his best friend for life over spring vacation.  March 31, Lyndon Johnson announced he would not seek re-election; April 4, Martin Luther King was assassinated in Memphis; and June 6, Robert Kennedy was assassinated in Los Angeles.

On Wednesday, September 13, 1972, along with thousands at Broad and Chestnut in Philadelphia in the shadow of William Penn atop city hall, I listened to Senator George McGovern, the Democratic nominee for president that year, at his campaign stop in Philadelphia after being introduced by Senator Ted Kennedy.  Surely school was out at West Philadelphia High School where I taught math.

I can’t think of any close encounters with President Ford so will just go with having watched Chevy Chase on SNL many times.

Nor did I have any close encounters with President Carter, though I was a Carter delegate to the 1980 Tulsa County Democratic Convention (don’t recall for sure but think I was a Fred Harris, not Carter, delegate to the 1976 convention) and visited his presidential library while attending the 1996 Olympics in Atlanta where our son Ethan competed as a member of the USA volleyball team.  My brother Clayton took our father to attend one of President Carter’s Sunday School classes in Plains, Georgia some years after that; pretty sure Clayton has their books President Carter autographed.

I surprised Linda in the early 1980’s with a getaway to New Orleans for her birthday weekend in June.  While there we encountered a street vendor who took our photo standing next to a life-sized cardboard cut-out of President Ronald Reagan.  I kept that photo taped to my office door at Tulsa Junior College for many years, causing students and faculty to be duly impressed with my close relationship to the President.

The build up to the Persian Gulf War under President George Bush (41) in 1990 led to me, as Chair of the first Tulsa City Council and stand-in for Mayor Rodger Randle, bringing words of thanks and encouragement on behalf of their fellow citizens to a local reserve unit that was deploying to the Middle East from Tulsa; I never will forget the look on the faces of those young men and women who were poised to be separated from their families for an unknown future.  That’s as close as I got to Bush 1; except my friend Brenda Burkett has sent this photo which puts me within two degrees of separation: 

At my 15^th year Nathan Hale High School Class of ‘65 Reunion several hundreds of us (we were 800 strong originally) were in the Hale auditorium for a group program and recognitions.  I remember only two parts of that program; one was that I was called to the stage along with a few others and we were each given an award, mine, a wooden middle finger, was something like “class politician” because I had recently been elected to the Tulsa School Board.  The other was that our emcee called our attention to a classmate who had just arrived with her husband and introduced her as the new “first lady of Arkansas”.  Being a bit of a political junky that made an impression, though the classmate was one of most in attendance whom I really didn’t remember, or never knew even in school.

Twelve years later it’s February, 1992 and I’m casually following the contenders for the Democratic Party’s nomination when Bill Clinton vaults into the spotlight with an unexpected second place finish in the New Hampshire primary.  I knew he was governor of Arkansas, thought he was first elected in 1978, and that his wife Hillary was my age.  The light went on in my brain realizing that a high school classmate of mine could become the next first lady of the United States.  I even told this to a few friends and believed it for several days until learning that Hillary Rodham Clinton had grown up in the Chicago area, not Tulsa.  With a little research I found that Bill Clinton indeed was elected governor in 1978, served the two-year term, but was defeated by Republican Frank White in 1980.  Then Clinton re-captured the governorship from White in 1982 and was re-elected every two years thereafter until winning the Presidential election in 1992.  My classmate was Gay Daniels who was married to Frank White during this time.

In August, 1993, Tulsa hosted the National Governors Conference.  President Bill Clinton and Vice President Al Gore both addressed the attendees and many Tulsans, including me, at our Maxwell Convention Center.  Clinton Tulsa Speech, 1993

It was during the 1996 election year, late spring I think, when along with others from Tulsa I attended a national housing conference in Washington, D. C.  As a city councilor a couple of years earlier, I had helped established Home Ownership Tulsa as a coalition to promote homeownership and the improvement of Tulsa neighborhoods.  The conference was an opportunity to share experiences and strategies with others around the country and to learn what the Clinton administration had in mind with its newly announced National Homeownership Strategy.  At the conference it was confirmed that President Clinton would speak and that we should arrive for that session early enough to pass through security.  Following his speech we were delighted to learn that he was going to “work the rope line” and shake hands with us.  As he was getting closer to me I had no thought of saying anything, rather just wanted to courteously take his hand and then let him get on to the next attendee.  However, being the consummate people person that he is, when he took my hand and looked me in the eyes he noticeably paused, awaiting what I would say.  So I rose to the occasion and uttered “mmm…mmm…mmm”, then he went on to the next person.    Just as my thrift essay in 1958 contributed to collapse of the Savings and Loan industry and the financial crisis of the late 1980’s, undoubtedly my advocacy of homeownership in Tulsa in the 1990’s contributed to the subprime mortgage crisis and subsequent collapse of our economy into the Great Recession of 2008-2009.

Crushed, I lived with regret for many years that I had failed in my one opportunity to converse with a President.  My failure was enhanced when our son Ethan in fact had lively conversations with both President and First Lady Clinton at the White House following the 1996 Olympics.  Therefore, when, sometime in the mid-2000’s, I noticed three black Suburban’s pulling into the back parking lot of the Hotel Del Coronado where Linda and I were staying for a credit union conference, I knew somebody important had arrived.  Indeed, I learned it was Bill Clinton, there to speak to a group of Japanese businessmen for one of those large honoraria I assume.  So I staked out my position by the hotel courtyard to encounter him when he would leave an hour or so later.  Successfully I caught view of him, of course surrounded by dark suits with earpieces, talking on his cell phone, and as I moved closer for actual engagement was abruptly stopped by a uniformed Coronado policeman.  I got to yell out “We voted for you, Bill” to which he gave me a thumbs up.  No regrets.

Like Bush 1, I had no real close encounter with Bush 2, so my best shot is that the day the invasion of Iraq began in 2003 was also the day my parents committed to move to Inverness Village, which saw them through their final years in comfort and dignity.  Also I watched the second tower collapse on 9/11/2001 with a few others in the Mayor’s conference room outside her office.

One of the many disadvantages of living in a totally red state is the Electoral College “winner takes all” system causes candidates to ignore us.  When I visit with my Iowa cousins I am jealous about the attention they get.  In 2008, at least neighboring Missouri was in play so Linda and I headed to Springfield for a Barak Obama campaign rally on Saturday, November 1, 2008, before the election the following Tuesday.  It was an electric outdoor, late evening event made more fun by finding friends Penny and Joe Joseph and Marilyn Hill and Emily Major also there to share with in the excitement.  Here he is in Springfield that night.

He narrowly lost Missouri to Senator John McCain but the overall result was amazing history for our nation and the world.

My 2016 election encounter with Hillary Clinton is documented in the photo above, taken in 2015, for which identifying the location will win you a free lunch with me and hearing more of my stories.  In the 30 seconds I had with her while the photo was taken I tried to tell her that I thought she was my high school classmate as I’ve explained above.  I expect she had me placed on her Secret Service “watch list”.

When Donald Trump became the real deal throughout 2016 we learned that he was in the same college cohort as my brother Clayton, meaning Class of 1968, that he attended Fordham University in New York City as an undergraduate, and that he subsequently earned a degree from the Wharton School at the University of Pennsylvania.  I did the math and figured if he graduated from Fordham in 1968 and then enrolled in the Wharton School MBA program in Philadelphia that he was likely on the Penn campus while I was pursuing a Master of Science in Education at Penn from September, 1969 through completion in August, 1971, and even took a course in accounting for non-majors at the Wharton School in 1971.  When I did a focused search about his collegiate education this week I learned that his degree from Penn’s Wharton School was his undergraduate degree in economics so he was gone before Linda and I arrive in Philly.

Here’s a late addition:  while not our president, Special Counsel Robert Mueller is certainly poised to play an important role in our country’s presidential history.  Turns out that he was a senior in 1965-66 when I was a freshman at that “school over a thousand miles away from home at a place where I knew nobody, where I was alone and scared”.  The silliness of Ted Cruz’ description is amplified by the reality of what Robert Mueller did after graduation, namely enlisted in the United States Marines, fought in Vietnam and returned home wounded and decorated for his service to our country–exactly the kind of patriot our nation is blessed to have continuing to serve.

This photo is my silliness, not his:

Again, as always, lunch is on me for the first to ID the location of the photo above.

Preston Doerflinger wrote this op ed piece for the Tulsa World published 2/22/2017, “There’s nothing ‘broken’ about the state’s insurance plan for employees and teachers”.  Mr. Doerflinger is Oklahoma’s Secretary of Finance, Administration and Information Technology, the executive director of the Oklahoma Office of Management and Enterprise Services, which administers HealthChoice, the state’s health insurance plan, and is a member of the Oklahoma State Pension Commission.  His op ed piece is overall “right on” which makes the “Right”.  In it he explains why it makes sense, and is good government, to have a state managed health insurance plan for over 220,000 Oklahomans (per OMES in 2013) rather than submitting them to the private sector health insurance marketplace.

His arguments that HealthChoice doesn’t have to price for profits to shareholders, that it incorporates the private sector in competitive ways, that its administrative costs are much lower than private sector insurance companies, and that it is able to deliver lower cost medical services statewide are all reasons that it is not broken.  By being so large in the Oklahoma health insurance marketplace HealthChoice has economies of scale and a strong negotiating advantage when servicing members and contracting with medical service providers.  It also is not going to game the system in the way that private sector insurers might, focused only on profits, by either serving a healthier group or by lowballing premiums initially to get their foot in the door.

These are similar arguments I’ve been trying to articulate in my recent posts about why moving away from the current Oklahoma Teachers Retirement System (OTRS) defined benefit plan to individualized retirement plans managed by private investment companies is a bad idea.  Because Mr. Doerflinger can influence legislative decisions through his position on the state’s Pension Commission (from its website:  the Commission makes recommendations on administrative and legislative changes which are necessary to improve the performance of the retirement systems) I have taken the liberty of rewriting his arguments below to fit the facts of ill-conceived legislation proposed to “reform” OTRS.  Quite enlightened is his final paragraph—a most forthright and accurate admonishment—which says:   If legislators are really concerned about state employees and teachers, perhaps they should turn their attention to things that are truly broken — the nearly $900 million budget hole and chronically low teacher and state employee salaries — and not create a false problem using bad information for the sole purpose of benefiting a particular insurance company.

Now for Doerflinger’s “Two Wrongs”.  He opens his otherwise correct argument by stating:  First, HealthChoice is a self-funded plan, not state-owned or subsidized. No matter how many times the authors of these bills repeat “state-funded,” that doesn’t make it true.  Self-funded plans do not operate for a profit and employee health-care costs are significantly less. Self-funded means they are supported by member premiums, not tax dollars.

My quick and dirty legal research, and thirteen years of dealing with HealthChoice, lead me to conclude that he is wrong and wrong where underlined.  Title 74, Section 1301 et seq. of the Oklahoma Statutes begins this way:  This act shall be known and may be cited as the “Oklahoma Employees Insurance and Benefits Act”.  It continues to establish the mechanism for funding and managing the health insurance plan that is HealthChoice.  Most of the funding, as I understand it, for state employees and their families to purchase health insurance comes from the appropriations of state revenues to the agencies that employ them for their “flexible benefit allowances”.  So at least indirectly it is state revenue and the cost of the allowances is part of the state’s budget calculations.

For education employees, who greatly outnumber state employees in the plan, their flexible benefit allowance is a legislative line item amount each year from the State’s general revenues and they cannot choose to keep it all.   The allowance is about $570 per month of which a teacher can choose to keep about $70 if she doesn’t take the health insurance; similarly a support employee can keep about $190.  Family coverage for education employees does come entirely out of their gross income, and is grossly expensive.  So it is either untrue or highly misleading to say that HealthChoice is not funded with tax dollars—if it walks and quacks like a duck, then….

After reading “not state-owned” I expected to find that HealthChoice at a minimum was operated as a state trust, like the Oklahoma Teachers Retirement System for which its board of trustees are the “deciders”, or perhaps some special federal tax code driven entity.  Not so as far as I could discern.  It seems that the Oklahoma Employees Insurance and Benefits Board created by the Act cited above is merely advisory.  Subject to the statutory requirements the “decider” appears to be Mr. Doerflinger’s state agency, the Oklahoma Office of Management and Enterprise Services—in other words himself.  The various funds that collect, hold and process the premiums and medical services payments are state funds also.  If it is “not state-owned” then I am clueless who or what the owner is.

Why then does Mr. Doerflinger go to such lengths to argue the inarguable?  Apparently this is symptomatic of the sad state of current Oklahoma policy-makers, that we can’t have a discussion about the appropriate role of government, or about smart uses of government to benefit our state’s citizens and taxpayers, because many legislators, hopefully not most, have convinced themselves that anything government does has got to be inefficient at best and very bad at worst.

Now for a quick transition from state and education employees’ health insurance to teachers’ retirement.  In 1995 the Oklahoma Supreme Court decided Taylor v. State and Educ. Employees Group Ins. Program.  The issue was whether the state could take $39,600,000 from OTRS assets to front end the health insurance reserve fund needed to move teachers and education employees into the state’s health insurance plan.  The Court ruled that the transfer was proper since it both benefitted teachers and was to be fully replaced with newly enacted dedicated revenues for OTRS.  The case is interesting history that connects both state plans.  Now here is my version of Mr. Doerflinger’s op ed piece:

Rep. McDaniel and Sen. Stanislawski have offered misguided bills suggesting Oklahoma’s defined benefit retirement plan for teachers and education employees, is “broken” and needs to be replaced with individualized retirement plans managed by private investment companies.

Nothing could be further from the truth. In fact, the arguments in support of these measures are based on false premises put forward by the Oklahoma Council of Public Affairs and some financial advisors, including members of the state legislature, who would profit greatly from the so-called reforms.

So, let’s clear up a few things.

First, the Oklahoma Teachers Retirement System’s current plan is a self-funded plan with respect to the new retirement commitments made to active members each year.  These new commitments are fully funded by employee and employer contributions each year.  State payments into the plan are not subsidies, but rather payments toward state commitments made long ago that were not properly funded.  No matter how many times the authors of these bills say they are “saving workers’ retirement” that doesn’t make it true.  The OTRS retirement plan does not operate for a profit and teacher retirement costs are significantly less.   Self-funded means the retirement commitments being made each year are supported by teacher contributions and their employers’ match, part of their earned compensation. In years where contributions exceed retirement benefit payments to retirees, the excess funds are added to OTRS assets and invested to be used in future years for retirement payments to retirees. With individualized retirement plans managed by private investment companies much more of the funds become profits and are pocketed as fees by the advisors and investment companies.

Second, there already is private competition among investment management companies in investing the $14 billion in OTRS assets.  Over forty different investment companies are competitively selected to invest OTRS assets.  As required by OTRS board policy its investment committee facilitates a competitive process to select companies based on investment performance, management fees and costs, and compliance with OTRS investment objectives.  According to the latest report of the Oklahoma State Pension Commission OTRS investment performance over one year (11.4%), five years (10.7%) and ten years (6.8%), has been the best of more than 200 public pension plans nationwide reviewed by the Commission’s consultants.  These actual results are virtually impossible for individual employees to match if left to manage their own retirement plans as proposed by McDaniel and Stanislawski.

The process followed by OTRS protects its members and state taxpayers by making sure both receive the benefit of solid investment returns with low administrative and sales costs. What the misguided legislative proposals would do is actually tip the scales in favor of individualized retirement plans managed by private investment companies that would significantly drive up costs, while lowering investment returns, for each new teacher’s retirement plan resulting in lower incomes when they do retire.  Any benefits to new teachers put forth by Rep. McDaniel and Sen. Stanislawski are only possible by taking future revenue needed to fund the state’s past retirement promises to current OTRS members and using it to reward new teachers for choosing the more expensive plan the legislation creates.

Third, the current OTRS plan is in good financial shape and not near “broken.” The new retirement commitments made each year by the plan are easily funded with teachers’ contributions and a part of their employers’ match.  The rest of the funding paid by employers and earmarked from state revenues to OTRS is needed to pay the plan’s unfunded liability, i.e. its debt, to active and retired members for retirement income promises made years ago that were not funded.  This debt is owed by the state regardless of what plan, the current one or a new one, that new teachers may select.  The current plan is on track to be fully funded by the state in about twenty years if current revenue streams are left in place.  The only threat to its long run stability on the horizon is the proposed legislation that would divert millions of dollars needed to honor the state’s promises to current teachers from the current plan into high cost, low performing individual plans for new teachers only.

Perhaps supporters of the misguided proposals should compare administrative costs. OTRS sustains operations on much lower administration costs — 0.032 percent versus 0.044 percent for OPERS individualized deferred compensation plans (similar to what the legislation would establish for new teachers).  Additionally, by basing teachers’ promised retirement income as an earned percentage of their working income, OTRS ensures each retiree will have a standard of living in retirement comparable to the years they served the state’s children.

If legislators are really concerned about state employees and teachers, perhaps they should turn their attention to things that are truly broken — the nearly $900 million budget hole and chronically low teacher and state employee salaries — and not create a false problem using bad information for the sole purpose of benefiting for profit investment companies and advisors.

As always lunch on me for first to ID the location of the photo.

I just mailed letters to each of the six members of the Oklahoma State Pension Commission in advance of their meeting on Wednesday.  Here are the members:

Ken Miller Chairman	State Treasurer
Louis F. Trost Vice Chairman	Governor Appointee
Gary A. Jones Commissioner	State Auditor and Inspector
Preston L. Doerflinger Commissioner	Director, Office of Management and Enterprise Services, Secretary of Finance, Administration and Information Technology
Doug Lawrence Commissioner	Governor Appointee
Jason Smalley Appointee	Senate Appointee

This Commission is charged with monitoring the performance of Oklahoma’s pension plans and should be front and center in expressing concern about legislation, like Representative McDaniel’s bills HB 1162 and HB 1172 that could significantly damage the fiscal soundness of the existing Oklahoma Teachers Retirement System plan.  Here is my letter to them:

 

Ken Miller, Chairman

Oklahoma State Pension Commission

 

I request that the Oklahoma State Pension Commission recommend to the Oklahoma Legislature that an actuarial analysis be performed concerning the potential financial impact on the current Oklahoma Teachers Retirement System defined benefit plan by House Bills 1172 and 1162 under consideration during the current legislative session.  HB 1172 will create an “optional” defined contribution plan for new teachers only beginning with the 2018 fiscal year.  This new defined contribution plan lowers the contribution required of new teachers, from 7% to 4.5%, and provides a significantly greater “match” by employers, 6% compared to the current “employer cost” of 3.5% for the defined benefit plan.  At the same time HB 1162 diminishes the retirement benefits for new teachers electing the defined benefit plan.  The effect of these changes together will likely result in a rapid decline in the number of active members in the existing defined benefit plan which is a radical departure from the assumptions upon which its actuarial reports have been based.

This de facto “closure” of the defined benefit plan will deprive it of future revenue that is needed to amortize its over $7 billion unfunded actuarial accrued liability, or UAAL.  Specifically, of the current 9.5% match school district employers are required to pay to OTRS, at least 6% goes to reduce the plan’s UAAL which is a state obligation.  Under HB 1172 that payment, for members of the newly created defined contribution plan under its “remit the difference” requirement, is reduced to 3.5% at most and can be as low as 2.5%.  This clearly will diminish future payments by employers to amortize the UAAL of the existing plan.  Whether or not this reduction in future payments poses significant risk to the financial health of the existing plan can only be determined by a proper actuarial analysis.

You may encounter two arguments against my request.  One is that, if this legislation does effectively close the existing defined benefit plan, the effect will be similar as with the closure of the OPERS defined benefit plan where the actuary found the “remit the difference” revenue going forward was sufficient.  This argument is simply an “apples to oranges” comparison because the OPERS “remit the difference” payments are not significantly diminished and the OPERS plan is significantly better funded, less relative UAAL to amortize, than is OTRS. 

The other argument is that the Legislature’s actuary, pursuant to the Oklahoma Pension Legislation Actuarial Analysis Act, OPLAAA, may determine that HB 1172 does not have a “fiscal impact” so no further actuarial analysis is needed.  While such a determination can be made as “fiscal impact” is defined by OPLAAA, it is not correct as fiscal impact is ordinarily understood.  Under OPLAAA a “fiscal impact” only results from legislation that increases retirement benefits for a retirement system’s members.  Yet clearly legislation that strips away future funding needed to amortize a system’s UAAL also has a fiscal impact as those words are ordinarily understood and important to the state’s financial future. 

OPLAAA will not protect state taxpayers from reckless legislation that will increase the UAAL of the current OTRS plan by reducing its future revenue.  That can only be accomplished by thoughtful policy makers who take the steps necessary to inform legislators of the financial impact of their decisions.  Again I request that the Oklahoma Pension Commission recommend to the Oklahoma Legislature that an actuarial analysis be performed concerning the potential financial impact on the current Oklahoma Teachers Retirement System defined benefit plan by House Bills 1172 and 1162 under consideration during the current legislative session. 

 

We’ll see what comes of it in substance, but one insubstantial result was when I emailed a PDF of the letter to Ruthie Chicoine, who so ably provides staff support to the Commissioners, and alerted her that hard copies were in the mail, I “replied all” to her email notice to interested persons, about 30 in number, who are on her list for notice of Commission meetings.  Immediately, while still at the post office, I saw a reply to her from “Randy” saying “Who is Gary Watts?”.  Of course I hoped it was Representative Randy McDaniel, but instead turns out to be Randy Ellis, whose email address is rellis@oklahoman.com, so I assume is a reporter with the Oklahoman.  So just for fun if any reader of this post wants to reply to Mr. Ellis and tell him who I am just copy me and I’ll buy lunch for the first to do so and also for the best answer—humor counts for sure.

As always lunch also on me for the first to ID the location of the photo above.  I picked the Pegasus statue because I hope our OTRS retirement does not go down in flames this legislative session.

P. S.  Oops; mixed up mythological winged creatures starting with a “P”–bet I got the math right though.

 

That’s the title of a very informative policy paper commissioned by the Oklahoma Policy Institute and posted to their website during the 2014 legislative session when legislators, against the advice of the policy paper, ultimately acted to essentially close, and ultimately end, the defined benefit pension plan, administered by the Oklahoma Public Employees Retirement System (OPERS) for Oklahoma’s state employees.   The authors are Stephen Herzenberg of the Keystone Research Center and Ross Eisenbrey of the Economic Policy Institute, both seemingly reputable think tanks with real thinkers employed.  The Oklahoma Policy Institute (www.okpolicy.org) is based here in Tulsa and is also the real deal with real thinkers.  The vehicle for closing the OPERS retirement plan was House Bill 2630 of the 2014 session.

As I outlined in my recent posts, “Fouling Our Nest….Egg” and “What’s Up Doc?”, what was done in 2014 to state employees with the HB 2630 “stick” is now proposed by Representative McDaniel to be done to Oklahoma’s teachers and other education employees with a big juicy “carrot” contained in House Bills 1162 and 1172 during the 2017 session.  In those posts I show that according to the most recent OTRS actuarial report for every $7 a teacher pays into the current OTRS defined benefit (DB) system the employer pays in about $3.50 and the employer and state pay another $13.50 to pay off the unfunded liability of the state to the OTRS DB plan putting it on track to be fully funded in about 20 years.  The proposed legislation would establish a new defined contribution (DC) plan for all new teachers beginning with the 2018-2019 school year.  The new plan would require teachers to contribute only $4.50, in comparison, yet employers would pay $6.00 as a match into the plan.  This means that, roughly, a new teacher can get the same potential retirement value ($10.50) by only contributing 65% of what a veteran teacher is required to pay.  Additionally, and most important, the extra $2.50 contributed by the employer is diverted from the amount being paid to fully fund the current DB plan, worsening its financial condition in a way no one has yet attempted to determine.

Rational newly hired teachers in 2018 and thereafter will elect to join the richer DC plan to be created by HB 1172.  As a result, large sums of funding, previously counted on to pay off the state’s unfunded liability for the OTRS DB plan, will now be diverted to the new DC plan.  This will clearly worsen the financial stability of the existing DB plan but no one yet has called for an actuarial analysis to determine what the impact of this proposed legislation will be.  If the bills were increasing the benefits to current or future retirees under the current OTRS DB plan, the Oklahoma Pension Legislation Actuarial Analysis Act (OPLAAA) would mandate an actuarial study be done and a two-year legislative process.  But McDaniel’s proposed legislation does not increase benefits for current or future retirees, rather it strips away funding from the DB plan that supports their current and future retirement income.  OPLAAA works effectively to prevent an increase in the unfunded liability caused by raising benefits, but it does not prevent an increase in the unfunded liability caused by diverting away needed funding.

If the legislature does not seek an actuarial analysis of the impact of these bills on the current OTRS retirement system, then the Oklahoma State Pension Commission should at its February 22nd meeting.  Its members include state treasurer Ken Miller, state auditor Gary Jones, and appointees of the governor, senate and house leadership.  Here are some of the statutory “duties” listed for the Commission on its website www.okpension.ok.gov:

“The Oklahoma State Pension Commission was formed to provide guidance to public officials, legislators and administrators in developing public retirement objectives and principles, identifying problems and areas of abuse, projecting costs of existing systems and modifications to those systems, and recommending pension reform programs…the Commission makes recommendations on administrative and legislative changes which are necessary to improve the performance of the retirement systems.”  

Another public body with a clear duty to understand the impact of this legislation is the Board of Trustees of OTRS.  They meet the following day on February 23^rd.  Here’s hoping one of these boards takes action to fully understand the impact of HBs 1162 and 1172, working in tandem, on the financial stability of the current DB plan.

Now back to “If Ain’t Broke, Don’t Break It“.  For anyone with authority in Oklahoma to impact our public employee pension systems or with an interest in those systems this paper is a must read.  I can’t make their argument any better or shorter, but I do want to emphasize two important takeaways:  a large, pooled investment fund is more cost effective and will yield higher returns than individually managed funds; and the purpose of public retirement systems is and should be retirement income security, not wealth accumulation.

The OTRS DB plan has about $14 billion in assets.  When investing, size matters.  A fund of that size can command the lowest advisory, management and transactional costs available.  As a perpetual fund with an infinite life expectancy its investment decisions are not hamstrung by a short investment horizon—translated, its managers can seek investments with the greatest yield regardless of maturity, whereas an individual must invest for stability, not yield, as their life expectancy shortens.  Even an advantage as small as 1 per cent over a twenty-year period amounts to at least a $3 billion savings to Oklahoma taxpayers.  Here are some calculations that demonstrate this:  OTRS 1% Matters.  The policy paper explains other advantages of a collective approach and concludes:

Two recent National Institute on Retirement Security studies gauge the combined impact of all of these DC plan inefficiencies. These two studies conclude that defined contribution retirement plans cost 45% to 85% more in employee plus taxpayer contributions to deliver the same level of retirement security. An Economic Policy Institute/Retirement USA report independently came to a similar conclusion.

Part of the policy discussion that needs to occur is whether the goal of the Oklahoma Teachers Retirement System should be retirement income security or wealth accumulation.  If the goal is retirement income security, meaning we don’t want retired schoolteachers going on food stamps or begging at street corners in their 70s, then the reward to the member for participating is a guaranteed lifetime income, what is called an annuity.  If the goal is wealth accumulation, then the reward to the member is a lump sum payment upon retirement that may or may not provide retirement income security but that can be left to their heirs if they don’t use it all while alive.  By far the cheaper, more cost effective way to provide retirement income security is a guaranteed lifetime income commitment, i.e. a lifetime annuity.

When I taught Personal Finance at Tulsa Community College I would explain how an annuity works by showing how it is the opposite of term life insurance.  Term life insurance is income protection against dying too young.  When I was younger, had dependent children and many years left to work I faithfully paid for term life insurance every year, probably not enough coverage but at least something.  The bad news is I wasted every dollar I spent on those premiums because those policies never paid my family a dime.  Of course the good news is that they didn’t pay because I’m still living.  My premiums, primarily, went to those families whose breadwinners did die.  By paying the premiums my family was part of a collective pool that in a very cost effective way provided the lump sum benefit paid to those unlucky families to help offset their reduced future income.  I was willing to do so because there was a possibility my family could have been unlucky.

By contrast, a lifetime annuity is funded with an up-front lump sum amount that pays out an income for life to the beneficiary/retiree.  That money is pooled with many other beneficiary/retirees, collectively invested, and then, after factoring in everyone’s life expectancies, paid out in monthly pension payments to each as long as they live.  Some die earlier than their life expectancy; some die later, but all are provided a retirement income for the rest of their lives.  Those who die early are, in effect, subsidizing those who die later in much the same way as my life insurance premiums subsidized the unlucky families.  Overall it costs less to provide every beneficiary/retiree with a lifetime income, and not a dime more or less, than it would, collectively, if each had to save enough lump sum to be absolutely sure they would not outlive the funds available.  A pure lifetime annuity leaves no funds to be inherited, but again is the most cost effective way to assure a lifetime income for every beneficiary/retiree.

When the policy paper enumerates and further explains the advantages of defined benefit public pension systems, it is primarily about the greater returns received and lower costs incurred by a large collective investment fund and about the ability to annuitize lifetime income payments in the most cost effective way.  There are an endless variety of ways to tweak retirement options such as by providing for beneficiaries and lump sum pay out options, but at the core a smart public pension plan, one that delivers the greatest bang for the taxpayer’s buck, will incorporate the collective investment pool and the ability to annuitize lifetime income.

As always lunch on me for the first to identify the photo location.

Like most kids of my generation we watched a lot of Bugs Bunny cartoons.  In those stories Bugs was definitely motivated by carrots and by Elmer Fudd’s “stick” in the form of a shotgun.  This post is about the carrot and stick approach being used by the legislature to dismantle Oklahoma’s defined benefit public pension plans.   In my last post “Fouling Our Nest….Egg” I provided information about the Oklahoma Teachers Retirement System (OTRS) taken from its most recent actuarial report which is available here https://www.ok.gov/TRS/Publications/Actuarial_Reports/index.html

Most important I showed what happens to the more than one billion dollars that flows into the system from education employees, their school districts and other employers and dedicated revenues from the state.  For every $100 in new payroll $24 is paid into the system coming, approximately, $7 from employees, $10 from their employers and $7 from the state.  In effect that $24 is actuarially allocated $10.50 to pay for the future benefits of the contributing employees (made up of the employees’ $7 and $3.50 from their employers) and the remaining $13.50 ($6.50 from employers and $7 from the state) to pay off the system’s Unfunded Actuarial Accrued Liability (UAAL) which is over $7 billion, but on track to be retired in 23 years.

Following the direction from the Oklahoma Council of Public Affairs and their ilk our legislature has been anxious to phase out the state’s defined benefit (DB) pension plans and replace them with defined contribution (DC) plans.  Here are the definitions:

•      Defined Contribution Plan: A retirement plan, such as a 401(k) plan, a 403(b) plan, or a 457 plan, in which the contributions to the plan are assigned to an account for each member, and the plan’s earnings are allocated to each account, and each member’s benefits are a direct function of the account balance.

•      Defined Benefit Plan: A retirement plan that is not a Defined Contribution Plan. Typically, a defined benefit plan is one in which benefits are defined by a formula applied to the member’s compensation and/or years of service.

As more fully addressed in my October post “Turkish deFright” the legislature used a “stick” (the 2014 HB 2630) to provide for the end of the OPERS DB plan for state employees by simply mandating that it would be closed to new employees who, instead, would use a DC plan for their retirement.  For political (teachers engender more sympathy than “bureaucrats”) and legal reasons, I suspect, Representative McDaniel and others are choosing to use a “carrot” approach to ending the OTRS DB plan and moving new school employees to a DC plan.  The carrot is spelled out in HB 1162 and HB 1172 he has filed for the 2017 legislature to consider.

By raising the retirement age two years for new members of the DB plan HB 1162 simply makes the existing plan less attractive.  Using the numbers from the actuarial study we see that effectively the current active and contributing members are paying $7 and their employers $3.50 for every $100 earned for the retirement benefits they will eventually receive.  But that calculation includes all active members, those under the more generous Rule of 80, the previous Rule of 90, and the tighter Rule of 90 that now applies to new employees.  I don’t know what the amounts would be but clearly the value of the employer’s contribution to a new employee under McDaniel’s plan will be well less than $3.50 that is the average of all.  However, to keep a comparison simple we’ll “stick” with $3.50.  So a new employee pays $7, the employer kicks in $3.50, and the remaining $13.50, coming from the employer and the state, goes to pay off the system’s UAAL.  Bottom line, the employee pays $7 and gets a $10.50 value.  And the state’s promise to retirees like me is kept.  Whoop De Do.

What I just said is essential to understanding the “carrot” McDaniel wants to offer new teachers and school employees.  It is an actuarial fact, fully documented and supported by the most recent OTRS actuarial report, that for every $100 of payroll generated today, under the current DB plan, $24 is paid into the system of which $10.50 goes to support the future retirement of the current employees who are contributing their 7% or $7.  The remaining $13.50 goes to pay off the systems unfunded liability for those already retired and some still working whose earlier years of service were not fully funded.  This $13.50, which is made up of the state’s $7 and the employers’ excess above the $3.50 needed to fund each year’s current promises to current teachers and school employees, will be needed regardless of how the legislature may change the plan in the future.  It could be more in which case the UAAL will be paid off sooner (just like paying more toward your mortgage); it could be less but that would lengthen the time to pay off the UAAL and could even endanger its long run solvency.  The best way to view this is that the $13.50 is “off the table” and what we have to work with is the $10.50, $7 from the teacher and $3.50 from the employer school district.    

Now for the carrot.  HB 1172 mandates the creation of an optional DC plan within OTRS.  A new school employee has a 30 day window to decide whether to join the DC plan or not.  Those who don’t, if they are teachers, will then be in the DB plan; other school employees can opt in or out of the DB plan.  By joining the DC plan the employee is required to contribute a minimum of 4.5% of payroll, or $4.50 for every $100 of payroll.  The employer is required to “match” with 6% being $6 for every $100 of payroll.  The employer is also required to remit the difference that would have been paid to the DB plan if the employee had joined it.  That amount, on the average, is about 10%, or $10 per $100, from above (the employer percentage is generally 9.5% but is much greater for employees paid with federal grants so averages a little more than 10%).  Bottom line the employee pays $4.50 and gets a $10.50 value. 

Here then is the carrot.  If a newly employed teacher in August, 2018 asked me whether she should opt for the new DC plan or default to the legacy DB plan I would have to say to her that in each case you will have the same amount ($10.50 per $100) or percentage (10.5%) of your salary working for your retirement but it will cost you 7% to get that through the DB plan and only 4.5% through the DC plan.  That 2.5% difference, or $2.50 per $100 of payroll, stays in your pocket.  There are other pros and cons to consider (will be addressed in my next post) that might alter my recommendation if the starting math was more equal, but it’s not.  The scheme that will go into place if HB 1172 is enacted is a clear “carrot” to move all new employees into the new DC plan, certainly fulfilling the objective of McDaniel and the OCPA, but it comes at a significant cost. 

There ain’t no such thing as a free lunch even if it’s only carrots.  That 2.5% or $2.50 per $100 must come from somewhere and it does.  Note that for the existing DB plan the actuary tells us that the employer’s 10%, or $10 per $100, gets split 3.5% to the current employees and 6.5% to help pay off the UAAL.  This split changes with HB 1172; going forward 6% will be allocated to the current employees who opt in the new DC plan leaving only 4% to pay off (under the “remit the difference” requirement) the UAAL.  Assuming new employees figure this out and depending on how quickly the actuary projects this de facto “closing” of the DB system, this will certainly slow down the reduction of the system’s UAAL and may even put it on the path to insolvency.

The carrot can even get juicier.  If a new employee participant elects to put at least 7% into the DC plan then the employer “match” increases to 7%, meaning 14% is working for the new employee’s retirement contrasted with only 10.5% for the old employee in the DB plan (or $14 compared to $10.50 per $100 of payroll).  And this takes away another 1% from the employers’ pay down of the system’s UAAL, making the split 7% to the new employee and only 3% to the debt, further worsening the DB plan’s long run stability.  Yet I can see the postings on the OCPA’s blogs as their self-fulfilling prophecy plays out, saying they told us so, that the DB plans are disasters and aren’t we glad that at least new employees were “saved” by the DC plans.  We have met the enemy and it is us.

My hunch is that this blatant robbing Peter (old teachers) to pay Paul (new teachers) will not become part of the conversation about HB’s 1172 and 1162 because the math is confusing at best and can be made deceptive at worst.  Both Peter and Paul deserve better.  What would help is if the legislature would commission an actuarial study of the financial impact of this proposed legislation so that they understand the facts before taking action.  The Oklahoma Pension Actuarial Analysis Act was enacted some years ago to require both a two-year process and an actuarial analysis of proposed legislation that would have a “fiscal impact”.  Unfortunately, this law defines “fiscal impact” as only a law that would increase benefits for current or retired employees without funding the change.  It does not consider stripping away revenues that support existing benefits as having a “fiscal impact”.   Therefore, the legislature’s actuary has already certified these bills as “non-fiscal” and thus no analysis is required—just more limited thinking.

As always lunch is on me for the first to identify the photo location—hint:  it and the one before are “up the hill” from the photo on the “Short and not the Point” post. 

   

      

 

 

 

As I shared in my initial blog post, “Hello World”, my first substantive introduction to the shoddy “research” done by the limited-thinkers at the Oklahoma Council of Public Affairs was taking the time to analyze their policy paper “Saving Workers’ Retirement” which provided like-minded Oklahoma legislators with their marching orders, namely first “save” the Oklahoma Public Employees Retirement System (OPERS) and then “save” the others, particularly the Oklahoma Teachers Retirement System (OTRS).  Here are direct quotes from the paper:

“Oklahoma must transition into a defined-contribution retirement plan for all new non-hazard duty government employees and teachers….Establish a defined-contribution (DC) plan, effective July 1, 2014, for all new state (OPERS-eligible) employees….Establish a defined-contribution (DC) plan, effective July 1, 2016, for all new teachers and judges.”

The OCPA’s minions got off to a good start in 2014 by passing HB 2630 which, after an unsuccessful court challenge, implemented a defined contribution plan for the vast majority of new state employees in late 2015 (See my October post “A Turkish deFright”).  Now it looks like step two is front and center for the 2017 legislative session with the filing of two bills, HB 1172 that would implement an optional defined contribution plan for new education employees and HB 1162 that would raise the retirement age for new education employees entering the existing defined benefit plan by two years, from 60 to 62 to qualify for an early retirement, otherwise from 65 to 67.  Just like the OCPA’s misnomer “Saving Workers’ Retirement”, the bills’ author Representative McDaniel (not our beloved Jeannie who was termed out) chose deceptive titles “The Retirement Freedom Act of 2017” and “The Pension Protection Act” respectively.

Where the 2014 HB 2630 used the “stick” of abruptly forbidding new state employees from participating in the existing defined benefit pension plan (which is over 93% funded so definitely not in need of “saving”), McDaniel’s bills appear designed to work in tandem as a “carrot” to lure new education employees into a cheaper and likely low-performing defined contribution plan that will not provide retirement security for Oklahoma’s future teachers and school employees.  Apparently it’s not enough to hold teacher pay flat for eight straight years, now they want to remove the one bright spot in teachers’ compensation package—a sound retirement.  In this post and a couple more I will try to explain why these bills are deceptive and not helpful to current and future school employees; bear with me while I drone on and eventually wax eloquent, I hope.

First we need a status report on OTRS.  My initial post linked to this document “Ten Facts” that summarized my thinking about Oklahoma’s public pensions at that time.  I wrote it in 2014 after OTRS had experienced some really positive financial changes, namely the elimination of assumed COLA’s for retirees (Representative McDaniel likely deserves some credit for this), increased employer contributions and superior investment performance.  The two years since, 2015 and 2016 (fiscal years ending June 30) have not been as good but the system is stable and remains on track to full funding in about 20 years.

The 2016 actuarial report specifically shows the funding period has increased from 14 to 23 years, primarily because the board has directed the actuary to assume a 7.5% return on investments, lowered from 8%, going forward.  Unfortunately, after several stellar years of investment performance, even ranking as a top performer nationally, OTRS experienced a bad year with an overall investments loss of 2.2% seemingly driven by substantial losses in its three Limited Partnership (oil and gas I think) investment funds.  A “bad” year, though, is not necessarily an indication of poor management any more than the previous “good” years indicated investment genius on the part of the board.  With defined benefit pension systems it’s always about the long run averages and OTRS remains in a healthy position if current funding streams are kept in place.

Here is a table that summarizes OTRS performance over the last ten years.

Or here for a clearer view:   OTRS 2017

Note there are two entries for 2016, the first in italics for what it would have been if the 8% assumption had been left in place and the last row for what is actually the report’s final numbers for FY 2016.  The two most important numbers to watch, in my opinion, are either AV% or MV% (two ways of determining the funding ratio with around 100% being the eventual goal) and Years, showing how many years it is likely to take the system to reach 100% funding, which should remain under 30 and trend downward.  Again, FY 2016 was not a proud result for OTRS but its fundamentals remain sound and, like OPERS, if left alone does not need “saving” though will take longer.

Now for the nitty gritty that a defined benefit retirement system’s actuarial report reveals to us.  Look again at the table and the entries at the bottom.  For this post let’s focus on 2016 and see what it tells us.  In FY 2016 about $1.020 billion was paid into OTRS by employees (the 7% required contribution), employers (like school districts) and the state (dedicated revenues from sales, income, gross production taxes and other sources).  That amount means that for every $100 of payroll, $24 is paid into OTRS which is indeed a heavy burden.  Of that $24 employees contribute a little under $7, employers a little over $10 and the state a little under $7.  Now here’s the nitty of the gritty, having all the current employees working another year (FY 2016) and earning the total payroll of $4.255 billion adds a little over $445 million to the system’s project cost or liability.  The actuarial term for that is “normal cost” and for OTRS in 2016 (and for the 2017 projection) is 10.47% of payroll.

Now go back to that $100 of payroll we analyzed above.  Again the $100 generates $24 in new revenue to the system, but the normal cost calculation tells us (rounding) that only $10.50 is needed for the additional costs/liability imposed by that new payroll.  Clearly the system needs that $10.50, but what about the other $13.50 (a little under $575 million in total)?  Isn’t that excess?  Yes and no.  It is in excess of what the current year employees’ payroll is going to cost the system, i.e. normal cost, but it is not in excess of what the system needs.  That $13.50 is necessary to pay off the past sins of our elected officials who committed to pay benefits in the future but did not provide sufficient funding to support those promised benefits.  Actuaries call that the Unfunded Actuarial Accrued Liability (UAAL) which for OTRS is a whopping $7.615 billion.  It is legally a debt of the state and, again, current projections are that if the $13.50 is kept in place it will be paid off in 23 years.

Looking again at the $10.50 normal cost, we see that education employees are contributing $7.00, so the cost to employers and the state of the current benefit structure for current employees is only $3.50 for each $100 of payroll.  For newer employees the cost is even less because I think even a limited-thinker should see that employees grandfathered in with the Rule of 80 or the old Rule of 90 are costing more than new employees coming in under the modified Rule of 90 (higher minimum retirement age).  I will come back to this in a later post but two eloquent conclusions for now:

Regardless of how the system may change for new employees going forward, the state (and its employers) is still on the hook for the $13.50 per $100 of payroll ($575 million annually) until the system is fully funded (23 years); and

Providing the current level of benefits promised to new education employees going forward under the current defined benefit system costs less than $10.50 per $100 of payroll ($445 million annually) and $7.00 ($295 million annually) of that is paid by the employees, meaning the cost to employers and the state is only $3.50 per $100 of payroll ($150 million annually).

Now that we have a basic understanding of the current OTRS defined benefit plan’s funding structure, in the next post (“What’s Up Doc?”) we’ll dissect Rep. McDaniel’s “carrot”, so stay tuned but don’t hold your breath.

As always lunch on me for the first to ID the photo location.

  San Diego Harbor ID’d by Kevin Byrne.  Statue of iconic photo of sailor kissing a nurse in Times Square, New York City on Aug. 14, 1945, V-J Day–always something to think about and remember.

Sometimes I think the OCPA’s heartburn with public education is really that they don’t want an educated electorate so they can feed us all the same silly drivel and their busy readers, like Oklahoma legislators, will swallow without checking.  A recent post by “Contributor” Vicki Alger on January 10, 2017 says this:

Oklahoma’s per-pupil spending is up, student-teacher ratio is flat

According to the latest available data from the National Center for Education Statistics, since 1999 the number of students per teacher in Oklahoma’s public school system has risen from 15.7 to 16.2. Per-pupil spending has risen from $8,624 to $9,728.

Source: National Center for Education Statistics. Real per-pupil expenditures (in 2013-14 dollars) shown include capital outlay and debt service expenditures and are calculated based on average daily attendance.

It is accompanied by this graph, the fairly flat line being the students per teacher ratio over time and the other being the expenditures:

https://nces.ed.gov/programs/digest/current_tables.asp

I doubt that Vicki Alger, who is with a California equivalent of the OCPA, wrote the headline.  The brief text of what she likely did provide says that both data streams, the pupil/teacher ratio and the expenditures per pupil, have risen.  So why does headline say the expenditures are up (deceivingly true) but the pupil/teacher ratio is flat (absolutely false)?  Answer:  whether true or false that is the message the OCPA fellows are hired to proselytize.   The message is that the bloated public education blob has more and more money but it must be wasted because clearly it’s not going to the classroom, i.e. lowering class sizes.

The graph of any data series, no matter how much it varies, will appear flat if you use a large enough scale on the vertical axis.   Here’s where Alger says she got her data.   https://nces.ed.gov/programs/digest/current_tables.asp

When I look at the most recent and earlier tables needed to fill in all the data points, such as the current “Table 208.40. Public elementary and secondary teachers, enrollment, and pupil/teacher ratios, by state or jurisdiction: Selected years, fall 2000 through fall 2013” on the NCES website, I see the entry “15.1”, not “15.7” for 1999 (found in the 2004 “Table 66.  Teachers, enrollment, and pupil/teacher ratios in public elementary and secondary schools, by state or jurisdiction: Fall 1997 to fall 2002”).  We’ll suppose the OCPA is just sloppy and not trying to shave 0.6 off the rise in the pupil/teacher ratio. 

Using the correct data and a more reasonable scaling on the vertical axis the graph now looks like this:

For more readability you can click here for a pdf of my spreadsheet.

PT Ratio 99 to 13 Chart Smaller

Regardless it is clear that the headline statement “student-teacher ratio is flat” is just a flat lie.  From 1999 to 2013 it rose from 15.1 to 16.2, an increase of 7.3%.  From its lowest level, just before the Great Recession and the wholesale decimation of Oklahoma’s tax base as recommended by the OCPA, in 2007 of 13.7 it has increased 18.2% to the 16.2 they characterized as “flat”.  They must believe you and I are limited-thinkers.

I could not find original data on the NCES website that mirrored the “Real per pupil expenditure (in 2013-14 dollars)” shown in Alger’s graph.  The closest current tables I found were Table 236.70

Current expenditure per pupil in average daily attendance in public elementary and secondary schools, by state or jurisdiction: Selected years, 1969-70 through 2013-14

and Table 236.75

Total and current expenditures per pupil in fall enrollment in public elementary and secondary schools, by function and state or jurisdiction: 2013-14

Alger’s data is based on “total and current expenditures”, using “average daily attendance” instead of enrollment, with amounts adjusted to “2013-14 dollars” for inflation.  None of the current tables I see on the NCES site incorporate all three elements so I’m guessing Alger did some actual work to arrive at her numbers.  What is interesting is that combining all three of these elements together will generate the largest possible amount for each year in the data set.  Students miss school so using average daily attendance which is lower than daily enrollment generates a higher ratio (dividing by a smaller number).  “Total and Current” expenditures adds capital spending into the equation—increasing the numerator makes for a larger ratio.  And finally using “real dollars” means increasing the ratios for past years by the amount of inflation that has since occurred.  Good arguments can be made for these changes, just interesting that each has the effect of making the expenditure per student amounts greater which supports the OCPA narrative that the public education blob is bloated.

Since I couldn’t replicate her numbers I took the easy way out and used current Table 236.70, and its predecessors, to generate the data set that produces a graph very similar to Alger’s expenditure per student, just lower numbers.  Here is the graph and table:

Or click here for a possibly clearer version:  PPExpend 00 to 14 Chart Smaller

The most recent year, 2013-14 at $8,526 appears larger than every earlier year.  However 2009-10 at $8,511 (capturing the early flow of ARRA funding thanks to President Obama and Congress for prioritizing public education in designing the economic stimulus to counter the Great Recession) is a close second and in current dollars, according to (https://www.bls.gov/data/inflation_calculator.htm) an official inflation calculator, would be worth $9,240 in 2013-14. 

Therefore the real message/point of the data from the NCES is that in recent years the pupil/teacher ratio has not remained flat, rather it has increased 18.2%; and expenditures per pupil in current dollars have not increased, but rather have declined by 7.7% from the high point at the beginning of the Great Recession.   That is a not so short and very different point than the OCPA drivel.

As always lunch is on me for the first to identify the location of the photo.  Congrats to Kevin.