gary-watts@sbcglobal.net

House Bill 1017 25th Anniversary

imag0136

We’re approaching (Saturday, October 15, 2016) the 25^th anniversary of the “No Repeal” vote on October 15, 1991 which sealed the implementation of what was arguably our state’s greatest legislative achievement—House Bill 1017 that Governor Henry Bellmon signed into law at Tulsa’s Marshall Elementary School on April 25, 1990. The photo above is of some of the key players was taken at a recent gathering. Seated is then Senator Penny Williams, next left is Cathy Newsome, then Judy Eason McIntyre who was a TPS board member at that time and later State Senator; back row from left to right are Gary Allison, Charlie Cantrell, Grant Hall, then Speaker of the House Steve Lewis, Beverly Hoster and Lee Clark Johns. Of course Lewis and Williams were giants in the legislative effort; the others were core members of the Tulsa area citizens who led the NO Repeal effort that was an inspiring success.

The genesis of H.B. 1017 was the work of Task Force 2000, established by HJR 1003 in 1989, and appointed by Governor Bellmon, Speaker Steve Lewis and President Pro Tem Bob Cullison. It was chaired by Tulsa businessman George Singer; other members included Howard Barnett, now President of OSU-Tulsa, then State Superintendent John Folks, Wilma Mankiller, Tulsa businessman Joseph Parker, Jr., and our last Tulsa County Superintendent Kara Gae Wilson (now Neal).

Governor Bellmon called the Legislature into special session on November 6, 1989 to receive the Task Force 2000 report “Oklahoma’s Public Education: A Blueprint for Excellence” and to act on education reform legislation. Beginning on November 15, when House Bill 1017, incorporating many of the report’s recommendations, passed the House but without the emergency clause, there ensued months of deliberations, conferences and votes (including a statewide teacher walkout in advance of the House passage of the emergency clause) with final Senate approval coming on April 19, 1990 and the Governor’s approval on April 25.

This historic education reform legislation included a funding increase initially of $230 million by a 1% hike in the income tax rate and 0.5% in the sales tax rate. The funding legacy of HB 1017 is that in FY 2016 the “HB 1017 Fund” was $886 million, over 1/3 of public schools’ funding. It also provided for greater equity in the funding formula to narrow the gap between property tax rich and poor districts. The minimum teacher salary was increased from $15,060, in 1990, to $24,060, in 1995; it is now $31,600.

The funding also provided for greatly expanded early childhood education; mandatory kindergarten; school district consolidation incentives (resulting in a reduction from 609 to 550 districts); limiting class sizes to 20 for elementary and 140 per day for secondary teachers. The reforms also included provision for teacher assistants, eliminating county superintendents, statewide curriculum standards, competency testing, college ready courses, alternative certification for teachers and mandatory professional development. The existing teacher tenure law was replaced with providing for teacher dismissal due process hearings to be held before local school boards.

After passage of this landmark reform legislation, opponents organized and collected signatures on an initiative petition to repeal HB 1017. Governor Bellmon set October 15, 1991 as the election date for State Question 639. Statewide campaigns for Vote Yes Repeal and Vote No Repeal ensued. On election day a record number voted with an especially huge turnout for No Repeal in northeast Oklahoma.

Result: Yes 360,318 45.67%

No 428,680 54.33%

HB 1017 remains Oklahoma law.

Epilogue: SQ 640 immediately circulated by opponents of HB 1017, passed with 56% of vote in March, 1992, requiring 3/4 vote of legislature to increase any tax.

Personal Note: As a former school board member and elected city official I was so used to voting Yes on ballot measures that I reflexively did just that and, for the first and only time as a voting citizen, had to “spoil” my ballot and ask for another so I could vote No.

Once Upon A Time

IMAG0052

Senior Vice President Brandon Dutcher, in anticipation of Labor Day, on a post dated August 31, 2016 alleges the Oklahoma Education Association, as a union for teachers, has failed them because teachers “should demand to know why an education system with $8.7 billion in total revenue last year, the most in state history, can’t seem to raise teacher pay.” Click on “raise teacher pay” and you get his March 4, 2016 blog “The $7,000 Teacher Pay Raise That Wasn’t”.

I will have fun in the future fully vetting that post but the gist of it is that school districts across the country and in Oklahoma during recent decades have increased “non-teaching” staff at higher rates than the number of teachers. If all those non-teachers had not been hired since 1993, at the rate of $50,000 each annually (you have to listen to the video for this number), then there would have been enough money to give Oklahoma teachers the $7,000 raise. He even cites my district, Sand Springs, to illustrate this horrible imbalance.

For a very quick and dirty response I know that by far the largest work group of non-teachers at Sand Springs are teacher assistants and are second only to the number of teachers in the district. A safe estimate we would use for the annual cost of a teacher assistant position was $25,000. The next largest employee groups would be cafeteria workers, bus drivers and custodians, with virtually all, like the teacher assistants, working 180 day contracts. Using a $50,000 average to get to the $7,000 raise makes no sense and is shabby math.

Now for the transition to House Bill 1017: it promoted the use of teacher assistants as a cost effective way to provide more individualized services to younger students because the expansion of Kindergarten and 4-year-old programs were two of its primary reforms and are probably the largest drivers of the increase in teacher assistant positions. The genesis of H.B. 1017 was the work of Task Force 2000, established by HJR 1003 in 1989, and appointed by Governor Bellmon, Speaker Steve Lewis and President Pro Tem Bob Cullison. It was chaired by Tulsa businessman George Singer; other members included Howard Barnett, now President of OSU-Tulsa, then State Superintendent John Folks, Wilma Mankiller, Tulsa businessman Joseph Parker, Jr., and our last Tulsa County Superintendent Kara Gae Wilson (now Neal).

After passage of this landmark reform legislation, opponents organized and collected signatures for an initiative petition to repeal of HB 1017. Governor Bellmon set October 15, 1991 as the election date for State Question 639. Statewide campaigns for Vote Yes Repeal and Vote No Repeal ensued. On election day a record number voted with an especially huge turnout for No Repeal in northeast Oklahoma.

Result: Yes 360,318 45.67%

No 428,680 54.33%

HB 1017 remains Oklahoma law.

Epilogue: SQ 640 immediately circulated by opponents of HB 1017, passed with 56% of vote in March, 1992, requiring 3/4 vote of legislature to increase any tax.

Remember lunch on me if you guess the photo location.

Something Special

IMAG0073

My heart went pitty pat when I saw this email in my inbox yesterday at 4:35 p.m. almost as much as with this morning’s earthquake:

Re: Educate Oklahoma

Dave Bond <dave@ocpaimpact.com>

Sep 2 at 4:35 PM

To Gary Watts

Gary, my apologies for the delayed response. The finishing touches are being put on a summary of the reform, which we should be able to forward to you next week. The reform was passed during the 2015 legislative session at the state Capitol as House Bill 1567. Principal authors were Rep. Glen Mulready, of Tulsa, and Sen. Greg Treat, of Oklahoma City.

Thank you for reaching out to us. Will forward that more expanded summary to your soon.

All the best,

Dave

Dave Bond

OCPA Impact, Inc.

405.684.0563 mobile

dave@ocpaimpact.com

www.ocpaimpact.com

This summer Linda and I watched (for me probably the 20^th time) my favorite musical “The Music Man” with our grandchildren (for them the first time). Now our grandson is beginning trombone instruction in the 6^th grade (so happy the arts haven’t been eliminated in their district) and knows the source of the most iconic song about that instrument. My favorite has always been the part when little Ron Howard and the rest of River City are awaiting the Wells Fargo Wagon as he anticipates “something special just for me”. That will be my emotion this lovely Labor Day weekend as I anxiously await Dave’s explanation of the $100 million he assured Channel Six viewers last week on “Educate Oklahoma” is available for teacher pay raises.

Here is House Bill 1567: HB1567 ENR

which makes this change only:

The Health Insurance Plan may provide for the application of deductibles and copayment or coinsurance provisions, when equally applied to all covered charges for services and procedures that can be provided by any practitioner for the diagnosis and treatment of a particular illness, disease, injury or condition unless deductibles, copayments or coinsurance variations that are based on contracts with providers for specific services based on levels of outcomes or cost.

Therefore, by deleting 37 words and adding back only 3 (can’t get them underlined so bold italic) we will have $100 million available for teacher raises. Don’t you love lawyers. I hope it is true but having spent some time learning about our state and education employees health insurance plan I am skeptical. So what better way to spend part of Labor Day weekend than writing about health insurance, one of the many benefits American workers enjoy due to the labor union movement in this country.

First let’s put the $100 million to be available into perspective. In April of 2013 our statewide large school district CFO group (MABM) met with officials of Oklahoma’s Employee Group Insurance Division of OMES to learn and have dialogue about the impending implementation of the Affordable Care Act. Here is a link to their presentation that day. EGID.04042013-rotated (by the way rotatepdf.net works) Looking at their website the most recent annual report available is for calendar/plan year 2014 so this 2013 presentation about as up to date as I can easily access. Look at page 2 and you see that it was a $917 million operation then so surely is somewhat over $1 billion by now. Notice also on page 5 that this is the program for education employees as well as state workers, including their families and many retirees, in Oklahoma, about 220,000 that year.

So what Dave Bond/OCPA told Oklahomans last week is that replacing those 37 words with 3 new ones will reduce about $1 billion to just about $900 million, about a 10% savings. Though I’m skeptical, I will be delighted if it is true. One reason I’m skeptical is shown in this table that I put together using the information I gathered from Sand Springs Public Schools records for the monthly premium cost of this insurance (calendar plan years) since 2003. FBA Premium History

HB 1567 was signed into law on April 13, 2015 and became effective November 1, 2015; during that year the insurance premium for employees was $499.42 and a premium increase to $515.82 for 2016 was established some time that summer even after EGID knew about HB 1567. Following the same timing this year the premium for 2017 has been set at $571.04 and is part of every state agency and school district budget for FY 2017. This increase comes more than a year after the passage of HB 1567 and unfortunately is about the same $100 million except up instead of down.

It appears from the language, and here I’m really making a poorly educated guess, that what HB 1567 will allow EGID to do is to have different deductibles and coinsurance rates within its plans for different procedures and providers. I don’t live in their world and certainly want the plan to be able to negotiate favorable costs for state and education employees because that is one of the huge benefits of having health insurance, but I just have to be skeptical that there is $100 million savings available so soon after their cost analysis moved premiums by about the same amount upward. This is why I am awaiting “something special” from Dave Bond and the OCPA.

A couple of final words. Please look carefully at the Premium History chart I put together. The OCPA will predictably blame every adverse occurrence in the health insurance world on Obamacare — the Affordable Care Act. As you can see from the chart the pre-ACA premium experience was worse than the post-ACA premium experience (ACA approved 2009 and gradually implemented thereafter with the personal mandate in place for 2015 I think). We’ve had challenges with health care cost increases in this country for decades and the reasons are many and complex. Whether ACA has helped or hurt is a fair question, but if we ask the thousands of Oklahomans who now can get insurance that was previously denied to them they will say it has helped. And if we ask the states that had the wisdom to accept the Medicaid dollars which Oklahoma foolishly turned down, they have been helped as well.

What is interesting though is that the ACA/Medicaid debate may be a barely relevant sideshow to the real drivers of medical cost increases. Take a look at this Time Magazine article for an eye opening look at the “free market” that is health care in the United States. 2013,2,26,MedicalCostsDemandAndGreed More later about the “free market” in health care.

A week later, 9/10/2016 and nothing new received or noticed.

Please note that I have switched the photo from the “Waiting For Dave Bond” post to this one as a hint for its location; and the new photo on that post should be easy for someone out there. Lunch on me and this weekend thank a union member for your health insurance.

Waiting for Dave Bond

IMAG0051

I watched the Tulsa Channel 6 program “Educate Oklahoma” on Monday and Tuesday this week. Scott Thompson is a loyal member of the Sandite community where I had the pleasure to work the last 12 years and he recognizes the value of public education in building our state’s economy and fostering strong communities. The program is good journalism.

Of course my mission here at OCPAThinker.org is to comment on what the other OCPA’s write and say, one of whom appears on the program. His name is Dave Bond and he is OCPA Impact which is some kind of branch or twig of OCPA. His comments on the program are to the effect that it looks like Oklahomans may well vote themselves a tax increase, State Question 779, and that is a shame because there is plenty of money in the state budget to give teachers a raise. He gives two or three examples but the one that caught my eye was “$100 million savings on employee health insurance going into effect October 1.”

Of course I had to chase that. I have scoured, or at least looked diligently, at both his OCPAImpact.com and the OCPAThink.org sites and can’t find anything that resembles that. I even went to the OMES/EGID site for state and education employees’ health insurance to see if there was some kind of announcement–nothing. So yesterday and today I have emailed and called, leaving voicemail, at the OCPA Impact contact information on that site and am waiting to hear back from Dave Bond.

In the mean time I saw this displayed on his site:

“FACT: As Oklahoma gradually reduced its personal income tax rate from 2005 through 2012, our state’s economy grew faster than the national economy and faster than many of our surrounding states. This, along with other positive economic factors, helped grow new jobs and increase individual opportunity in our state. (Source: U.S. Bureau of Economic Analysis)”

To which I ask Mr. Bond why, since the rate was again reduced after 2012, is our state economy now in recession? Could it be related to the low price of oil—one of those “other economic factors”? I suspect if the U. S. Bureau of Economic Analysis looked at the relative impacts the state income tax rate in Oklahoma pales as a driving “economic factor” compared to changes in energy prices. So you will notice that when there is good economic news in Oklahoma the little twigs of OCPA will go on and on about how that is the result of income tax cuts; but when there is bad economic news, such as a failing state budget, then that is solely the result of low energy prices.

And this:

“FACT: Oklahoma’s total state government spending has reached record highs each of the past dozen years, even through two national recessions.” (If true, don’t have time to fact check, is only so because of Obama’s stimulus package, ARRA.)

“Total Oklahoma tax collections, coming out of the most recent recession, have also hit record highs in each of the last three fiscal years. Available funds, per-pupil, in our state’s public education system have reached record highs, as well. Oklahoma government does not have a revenue problem, but we do have a spending problem. Income tax reductions have not depleted funds for schools, roads, bridges, infrastructure or public safety. (Sources: Oklahoma Office of Management and Enterprise Services, Oklahoma Tax Commission, Office of the State Treasurer)”

I’ve only had time, and interest, to check part of this, namely “Available funds, per-pupil, in our state’s public education system have reached record highs, as well.” For reasons I addressed in two earlier blogs I’m not going to give Mr. Bond credit for carry forward balances, funds that may look like new and recurring revenue to him, but simply are not. Nor am I going to give him credit for bond funds, student activity funds, school lunch program revenues or gifts to school districts. These are all funds that are absolutely not available for teacher salaries and are never intended to pay for the operational costs of providing basic education services to our students. The revenues that are recurring and intended to support basic educational costs are included in the general, co-op and building funds.

FY 2008 was the last year the legislature provided additional funding for across the board teacher pay raises. FY 2015 is the most recent year for which apples to apples numbers are available on the SDE site for comparison, plus FY 2016 was no improvement. I compared the two and here’s what I found: the new revenue per ADA (per student) in those three funds increased from $7,495 in FY 2008 to $7,551 in FY 2015—whoop dee doo, maybe I have to say he is right which would hurt so bad.

But let’s look further, remembering he was arguing on the program that funds are available for teacher pay increases. Maybe that 56 bucks per kid should allow us to give teachers something, but also maybe we need to see if operational costs have gone up for any other reasons—utilities, motor fuels and insurance come to mind. Someday I’ll dig into those but suffice it to say that what the OCPA twigs present is just the “fact” that revenues are higher in current dollars than they were eight years ago so PRESTO there is money available; they make no mention of what other costs may have risen in the meantime.

Here’s an example that is easy to do. The revenue that is earmarked for education employee health benefits is a separate line item in the OCAS data which in turn is a very close measure of the actual cost to school districts. By subtracting that revenue from the totals for FY 2008 and FY 2015 we can then get per pupil comparisons of revenue available for everything but employee health insurance. The result is FY 2008 is $7,036 compared to FY 2015 of $6,961. Translated, net of employee health insurance costs school districts have $75 per pupil less new revenue now than in FY 2008 with which to operate schools. Tell me again how they are supposed to raise salaries, Mr. Bond.

Of course now I have played right into the leaves of the OCPA twigs by giving them an opening to blame all our woes on Obamacare (and thus ignoring the huge stimulus Oklahoma’s economy would have received by accepting the Medicaid dollars years ago). And they will wax eloquent about how much lower health costs would be without state provided/mandated health insurance by simply relying on the free market. Perhaps they will buy each teacher an EpiPen or, better yet, hire Martin Shkreli as a consultant to explain how market pricing works in the health care industry.

A final word. State new revenues only, per pupil, fell from $4,694 in FY 2008 to $4,424 in FY 2015. Public education remains primarily a state responsibility yet our state leaders are not doing their share by any calculation. Also lunch is still on me for identifying the location of the photo for this or any earlier post except June 20 and July 5 which have been ID’d.

Here’ my crude spreadsheet. ocpa impact fact check

The data comes from here: https://sdeweb01.sde.ok.gov/OCAS_Reporting/StateReports.aspx

Lies, Damned Lies, and Statistics

IMAG0070 (1)

Summer for me came to an end Friday when I lost my summer job being chauffeur and companion for my two 11 year-old grandchildren. They have returned to school so I’m beginning to have more time to review the OCPA’s postings. I started browsing a bit but my eye caught the “Featured Links” section with an enticing “Oklahoma Pension Bomb”. As I said in my first post on this blog, “Hello World”, my interest in exposing the shoddy “policy research” performed by the OCPA came out of my study of Oklahoma’s public pensions and particularly the largest and one I now happily draw from—Oklahoma Teachers Retirement (OTRS).

Clicking on the link takes you to an outside site maintained by the Manhattan Institute which is an older and likely better funded version of OCPA based in New York City. The page you arrive at is the “Oklahoma Pension Calculator” and is described as this “…tool is intended to inform the pension debate. In addition to estimating the pension that you would collect after a career in government, the calculator will also provide an estimate of the total annuity cost, or how much someone would need to save to replicate that guaranteed income stream in retirement.” Translated we’re going to show you how much better lazy government workers will be off when they retire and how much it’s going to cost you.

Here’s an example that I tried.

What is your target retirement age? 65

How many years of service will you have at retirement? 30 (most teachers are females and have some career interruptions along the way)

When were you hired? On or after 7/1/1992, but before 11/1/2011.

What is your final average salary? $50,000 (imagining a teacher who began in the 90s and will retire in the 2020s and hoping for salary increases some time soon)

Here is the response:

Your Pension Benefit: Monthly, $2,500; Annual, $30,000.

Your Lifetime Annuity: The amount of cash you would need at the same retirement age to yield the same annual income as this public pension.

Male: $453,494 Female: $496,609

Half a million! How am I ever going to save half a million?! Damn teachers!

At least that’s how OCPA and Manhattan want you to react. Let’s take a closer look at these “Statistics”. Don’t get real hung up about the choices I made above. The mathematics that follows will apply to any example.

First, a compliment. Manhattan could have made this seem “worse” by using retirement formulas other than OTRS (i.e. OPERS, Firefighters, Judges, etc.) that may be more generous. However, OTRS is the largest and that choice is best if trying to keep this simple.

Next a lesson on how annuities work. A pension is a lifetime payment that in its simplest form lasts as long as the pensioner lives and ends as soon as she dies. The cost of providing an annuity is driven by two primary factors: life expectancy and rate of return. The longer the life expectancy the more it will cost to provide for; the shorter the less it will cost (which is why the Male cost is lower above).

Rate of return is also important because the problem Manhattan poses is how much money do you need at the beginning of retirement to purchase a lifetime benefit. The money is available now but will be paid out over the retiree’s lifetime. No pension plan manager or insurance annuity provider will keep the money in a shoe box, rather it will be invested. The higher the return on investments over the retiree’s lifetime the less that is needed up front; the lower the return the more needed up front.

Gratefully Manhattan has the integrity to state the assumed rate of return—by clicking the “i” encircled in blue we get this information: “Estimated payment for a Single Premium Immediate Annuity, indexed to inflation on the same basis as the simulated public pension, with an insurer who assumes a 3% rate of return.” The comment on inflation does not apply since there is no automatic cost of living adjustments to OTRS benefits, not since about 2011.

Now we turn to two data sources to check out Manhattan’s $496,609 needed for our school teacher at age 65. I found what seems like a pretty credible life expectancy table on the CDC site, “National Vital Statistics Reports, Vol. 57, No. 1, 8/5/2008, Table 3” which is a Life table for females: United States, 1999-2001. It shows the life expectancy for a female at age 65 is 19.12 more years. The other data source is my trusty C. R. C. Standard Mathematical Tables published in 1959. It provides a table for calculating The Present Value of Annuity for various periods (the number of years our teacher will receive the $30,000 pension) and rates of return.

First I tried 20 (life expectancy is 19.12) and the factor for a 3% rate of return is 14.8775 which multiplied times $30,000 tells us $446,325 will be needed. So I am close. To get closer I find the factor for 23 years is 16.4436 which results in $493,308 compared to Manhattan’s $496,609. Makes sense to me that the insurance company is going to cushion the risk by a couple of years (plus there are commissions, profit, etc.) and consider this from the Economic Policy Institute cited in my retirement study “Ten Facts” linked in my first blog post “Hello World”:

“DC plans (what OCPA advocates) do not pool longevity risk. When individuals convert their accumulated savings into an annuity – a fixed payment until they die – their annuity payment is lower because the provider of the annuity knows an individual is more likely to purchase an annuity if they are in good health and have a longer-than-average life expectancy. Since defined benefit plans do pool longevity risk across tens of thousands of plan members, they can base annuity payments on the average life expectancy of the population.”

OTRS assumes a return of 8% and over the long run has managed that rate. Even during the most recent 10-year period which included the Great Recession OTRS achieved over 7%. Investing billions over a very long term horizon simply generates a much greater return than individuals can do on their own and apparently much better than the annuity companies that Manhattan shopped. So let’s be nice and use 7% over the same 23-year period as above. The amount OTRS needs to have to support our teacher’s pension is $337,166 (factor 11.2722). At 8% it is $311,133 (factor 10.3711). And, if I want to really drive home the point, how about having OTRS use 20 years, much closer to our teacher’s real life expectancy, and their long, long run rate of 8%: $294,543 (factor 9.8181). An eye-popping 40% savings from what OCPA recommends.

Translated so maybe even the “research fellows” at OCPA can understand, using Manhattan’s numbers, OTRS can deliver the same retirement benefit to our teacher at 60% of what it costs to do it the OCPA/Manhattan/Free Market way. To this taxpayer that sounds like pretty smart government.

It’s too bad the OCPA’s and Manhattan’s want to frame this retirement debate as DC vs. DB. What makes OTRS a better vehicle for school employees retirement is because it is big, it is mandatory and it can continue to invest for the long term while still annuitizing individual pensions. Those characteristics don’t have to be unique to DB plans. But as long as the discussion is “informed” by lies, damned lies, and (especially) statistics, the strategy for those of us who appreciate how the public benefits from well managed public sector pension plans is, unfortunately, to oppose change.

By the way, Mark Twain is one of those who uttered those words.

Lunch on me if you can name the photo location. Has to do with amazing statistics!

Paradox of Thrift

IMAG0084

Mark Twain said, “Get your facts first, then you can distort them as you please.” At least that’s what an internet site says he said and ought to be posted inside the offices of the OCPA to remind them of their mission.

Anyhow just can’t stop thinking about Mr. Anderson’s silliness I partly critiqued in my last post “Where to Begin?”. Gratefully I’m saved the trouble of addressing his concern about the 27% sitting in school district bond funds by the great comment written by my friend Kevin Berry of Choctaw-Nicoma Park Public Schools; as Kevin says:

“Great blog, Gary. To expand further, we don’t get the proceeds of our series bond issues until June of each year. Since most of it goes to pay the revenue-lease financing payment which is due the following fiscal year, we don’t encumber this bond money until July 1. So it looks like we have millions of dollars in bond fund carryover on June 30. The OCPA’s website says we had $13.5 million in total cash forward in all funds. If you actually look at the cash forward amounts by fund, nearly $9 million was bond funds, $7 million of which we received just prior to the end of the fiscal year. We had nearly $2 million in the Sinking Fund’s carryover. That left only $2.5 million in carryover in all the rest of our funds, including the General Fund. We were hardly sitting on a bunch of cash.”

Translated, each school district will have its own rhythm and reasons for the bond fund balances that are shown each June 30; same is true for the 11% that is in their building funds. What is important for the public to know, which is not disclosed by Mr. Anderson, is that these funds are restricted by law for the purposes of constructing, maintaining and repairing facilities and for the purchase of necessary equipment as determined by the voters who approve the issuance of the bonds and the elected school board members who approve the budgets. These funds are not available for teacher salaries and most of the other expenses necessary to operate our schools.

Now for another reason school districts must maintain fund balances for operations—the Paradox of Thrift. This is a well-established observation of behavior noted by economists since its early years as a discipline (I wonder does the OCPA employ any real economists?), namely that when individuals and businesses are uncertain about their future income they tend to save now at higher rates to prepare for the likelihood of having less in the future. The Paradox that economists worry about is that the increased savings by individuals and businesses in turn decreases demand and spending which can in fact reduce future income for individuals and businesses, i.e. a recession. The rational behavior of individuals and businesses can be exactly the opposite of what the economy as a whole requires for recovery—a self-fulfilling prophecy.

So what does this have to do with Mr. Anderson’s silliness? When school district revenues become highly uncertain (go to http://sde.ok.gov/sde/notice-allocation and compare how many “adjustments” were made to state aid in FY 2016 to the number in FY 2014) as they were last year and continue to be, then what rational school board would rely on the amount of state aid promised for FY 2017 to actually be paid? The effect of this uncertainty, caused in no small part by the fiscal policies promoted over the years by OCPA, is to cause rational school boards to plan for greater uncertainty by increasing their savings. This year though rational thought likely will butt into the reality of diminished resources so fund balances will diminish. However, the fact remains that one rational reason for Oklahoma school districts to maintain fund balances in their general fund greater than their cash flow needs is to guard against the kind of revenue uncertainty that has become the norm in Oklahoma school finance due to both economic fluctuations and to failed fiscal policies promoted by the OCPA.

The photo is not in San Diego; lunch on me if you guess where.

Where to Begin?

IMAG0055

I really do want to be a blogger but my first summer after retirement has been more hectic than I expected. Most of my time is happily spent with my two 11 year-old grandchildren, products of a fine public school system and great parents, and working pro bono on the HB 2244 litigation in Oklahoma County. I figured I could really get with it once school starts again but this latest drivel from OCPA Research Fellow Steve Anderson, “WHY ARE SCHOOL DISTRICTS SITTING ON SO MUCH CASH?”, begs an earlier response. The only difficult part of writing this is having to read Anderson’s silliness a second time.

He states: “The schools need to explain how they can be sitting on nearly $1.9 billion of unencumbered cash–cash that is not promised to any obligation currently–that they did not expend during the prior school year.” For the purposes of this post I’m not going to fact check his numbers, risky but easier. Of that $1.9 billion he says 34%, being about $646 million, is in the general funds of school districts. With the exception of the few that are paid out of co-op funds, teachers and other certified employees are paid out of school districts’ general funds. Mr. Anderson alleges that as of the end of the fiscal year, June 30, 2015, $646 million was “unencumbered cash–cash that is not promised to any obligation currently…” may be hyper-technically correct at a ten year-old level of understanding, but factually wrong, wrong and stupid at a “research fellow” level.

Title 70 O. S. Sect. 6-101(E) states: “A board of education shall have authority to enter into written contracts with teachers for the ensuing fiscal year prior to the beginning of such year. If, prior to the first Monday in June, a board of education has not entered into a written contract with a regularly employed teacher or notified the teacher in writing by registered or certified mail that a recommendation has been made not to reemploy the teacher for the ensuing fiscal year, and if, by fifteen (15) days after the first Monday in June, such teacher has not notified the board of education in writing by registered or certified mail that such teacher does not desire to be reemployed in such school district for the ensuing year, such teacher shall be considered as employed on a continuing contract basis and on the same salary schedule used for other teachers in the school district for the ensuing fiscal year, and such employment and continuing contract shall be binding on the teacher and on the school district.” Even the Oklahoma Constitution at Article 10, Sect. 26, comes into play giving a one of a kind exemption from the prohibition against incurring debt without a vote of the people for “any school district …contracting with certificated personnel for periods extending one (1) year beyond the current fiscal year…”.

Translated so perhaps even Mr. Anderson can understand, before June 30 every school district has become contractually obligated for the bulk of its certified employee salary and benefit expenses for the next fiscal year. Following State Department of Education OCAS requirements those obligations are not technically encumbered until after July 1 and before the first payroll for the certified personnel. Using the OCPA’s handy little OCAS tool we see that statewide regular certified personnel salaries, those that must be fully encumbered at the beginning of the fiscal year and most of which became a contractual obligation in June of the year before, totaled about $2.1 billion for FY 2015. Also the benefits that were part of those contracts exceeded $500 million. So, Mr. Anderson, unless certified personnel costs for FY 2016 were dramatically less than in FY 2015, school districts, by June 30, 2015, had clearly promised all of that $646 million to the certified personnel under contract for the next fiscal year.

He also dismisses the real concern districts have with managing cash flow in their general funds: “They don’t seem to understand that the accrual of those expenses incurred but not paid should already have been made.” I managed a $40+ million budget for an Oklahoma school district for ten years and I don’t know what he means, probably because he doesn’t. I think his “accrual of those expenses” is referring to encumbrances under Oklahoma law–and yes those expenses, like salaries, are encumbered fully before they are paid. The problem that Mr. Anderson chooses not to understand is that revenues are also “accrued”, in our language budgeted, before they are received.

Under Oklahoma school district budgeting law and practice a district can encumber total expenses up to the total amount of revenues approved by the board of education as projected for the year. But, “duh”, the revenue doesn’t necessarily come at the same time as the actual expenditures, most notably property tax revenues, the third largest revenue source on Mr. Anderson’s list. Property taxes for the current fiscal year upon which school district budgets are based are due and payable by December 31 to the county treasurer who in turn makes payment to districts about two weeks later. Thus school districts receive very little from this source until over half the year has passed; this affects some districts greatly and especially affects technology districts.

Districts handle this very real problem in different ways, some by using non-payable warrants, a legal form of getting a short term loan from a bank, and others by moving money among funds, a practice that some might question. This reality is an example of what frustrates me about the OCPA, that they pay people like Mr. Anderson to do shallow “research” regurgitating their preconceived premise that if government is doing it then it is inept if not actually stupid. Instead wouldn’t it be nice if the OCPA would do real research, like how do school districts actually manage the real cash flow challenges many face into December and are there some better “smart government” ways of managing?

But I digress in expecting that OCPA will ever be a real research entity. Let’s close by looking at one more–sinking funds that collectively had 19% or about $361 million of the $1.9 billion. At my school district we used an auditing firm and a bond advisory firm that each do business with many Oklahoma school districts so our practices mirror much of the state. Our fund balance on June 30 in the sinking fund was a function of how our auditing firm prepared our Estimate of Needs, which sets the sinking fund levy as required by Title 62 of Oklahoma Statutes using a form and process established by the State Auditor and Inspector, and the timing of our bond sales and payments as recommended by our bond advisors. Short of stiffing our bond holders or violating Oklahoma law I’m unaware of how else our district should have managed its sinking fund balance. Maybe Mr. Anderson will put down his copy of Atlas Shrugged long enough to enlighten us.

OK, that disposes of over half of his heartburn so I’m going to return to a better and more thoughtful world of 11 year olds. Remember it’s lunch on me if you figure out the location of the photo on this blog–and the one on HB 2244 is still up for grabs.

This Is Too Much Fun

IMAG0062

San Diego Mission

This Is Too Much Fun

Been enjoying visits with family on the west coast and then in the great middle of this land made for you and me the last couple of weeks so haven’t taken the time to post again. However seems fitting to compose one on July 4 in celebration of the liberties our founders aspired to 240 years earlier—especially the freedom of speech. It didn’t take long to notice a couple of jewels posted on the OCPA site, one by Greg Forster: The Oklahoma Blob Votes Itself Largesse; and another by Brandon Dutcher: Oklahoma’s Budget Hole Could Be Much Deeper. I’ve only skimmed these but here’s three thoughts:

I refer to OCPA in my first blog post as “limited thinkers” and provide a definition. Any hesitation that I had that using such a term would diminish my commentary about OCPA’s publications was relieved when I read Forster’s clever use of “Blob” to describe the thousands of Oklahoma schoolteachers, custodians, bus drivers, teacher assistants and building administrators who daily care for Oklahoma’s children. Really Mr. Forster, is the power of your analysis and soundness of your policy proposals so weak you have to resort to name calling in the title?
I’m likely misinformed but I thought OCPA is supposed to be a “think tank”, a source not only of policy proposals but also sound information upon which policy makers can rely. Dutcher cites the number $10,000 per student as the amount the state spends, yet Forster cites $8,813. Come on OCPA, that’s a big difference, over $750 million. Can’t you sit down for a discussion over coffee and come up with a consistent OCPA number? When you do then I’ll take the time to fact check it. Just remember not to double count, like including expenditures for both the sinking and bond funds; and if you are comparing to private schools be sure you are consistent about what parents pay for school lunches and student activities are apples to apples. Even more fun will be checking how you account for the costs mandated for serving special education students—the ones private schools don’t/won’t take.
Really humorous is Dutcher using Shawn Hime of the OSSBA (and part of the Blob Forster would say) as a source for how many students are educated in Oklahoma outside of the public school system. Again if OCPA is a think tank, a place where supposedly smart people are paid money to provide information upon which policy makers can rely, then do your own work Dutcher—why rely on the Blob? I suspect Dutcher thinks it’s clever to use an artificially high number because it enhances his claim that if Oklahoma had to educate all those students outside the system then that would be an even greater cost.

For policy makers though this is an important number to know. In conversation with a state representative who authored voucher legislation this last session, I asked how many students are educated outside the public system and was quite surprised to learn he didn’t have a number. It doesn’t take much analysis, though apparently beyond what the OCPA has done, to understand that any voucher funding proposal will eventually backfill to the pipeline of families already electing private schools for their students. Policy makers need to know what the current private school enrollment is so this additional cost can at least be part of the discussion.

Here’s my quick and dirty shot at a number:

https://www.census.gov/popest/data/historical/2010s/vintage_2014/state.html

This is where I found U S Census estimate for Oklahoma’s population as of July 1, 2014 by age which is most recent year apparent. I totaled the numbers for age cohorts 5 through 17 the 13 years for which school is mandatory and that number is 687,225.

Then here is the grade cohort enrollments for Oklahoma’s public schools first quarter FY 2015:

http://sde.ok.gov/sde/sites/ok.gov.sde/files/documents/files/FY2015%20revised%20FQSR.pdf

The total is 683,815 rounded. Then back out the pre-school counts which are not mandatory, i.e. ages 3 & 4, leaves enrollment ages 5 through 17 at 642,619 which is three months after the Census estimate. That leaves approximately 44,000 to 45,000 children not enrolled in Oklahoma’s public school system. I bet that is closer to the actual private school enrollment of ages 5 – 17 than OCPA’s number of 100,000.

**Photo ID’d by Tresa Snow**

House Bill 2244

IMAG0054

Synopsis of HB 2244 Impact on School Districts

Motor vehicle license fees are a major source of revenue for the state, counties and school districts in Oklahoma. The Oklahoma Tax Commission by statute in Title 47 is charged with the responsibility of collecting the revenue and apportioning it among the recipients including the share that is divided among school districts. The school district share before 2000 was apportioned based on first giving each district the same amount it received in the same month the preceding year or a proportionate amount thereof if that month’s collections were insufficient. In 2000 the apportionment changed to assure sufficient funds available for full distribution of each month’s amount from the preceding year by reducing the state’s share and thus making unnecessary the prior provision for proportionate apportionments.

The school district share is a major revenue source that is considered part of the dedicated, local and state aid revenues that make up the foundation aid distributed equitably among school districts pursuant to statutes in Title 70. The amount each school district is “charged” with, or expected to collect, each year for the foundation aid to be equitable is based on the preceding year’s total collections. If school districts statewide collected approximately the same amount of motor vehicle revenues as they did the year before then the equitable, or balancing, purpose of state aid under Title 70 with respect to motor vehicle revenues is fulfilled; if instead the amounts school districts receive vary wildly from the preceding year’s collections the purpose of state aid is frustrated.

The 2015 legislature hastily amended Title 47 ostensibly to “cap” the amount of total revenue going to counties and school districts to allow the state to capture future growth revenue for its share. The amendment left untouched the school district apportionment language but to fully enable the “cap” removed the authority for the Commission to reduce the state’s share in order to fully fund the school districts’ preceding year’s monthly amounts. When confronted with the first “under collection” month the Commission construed the statute to say, which it does not, that if there were insufficient funds to fully apportion every school district the same amount as the same month the preceding year, then no funds could be distributed in furtherance of that priority under the statute. Instead it concluded that all funds must be distributed by the method of last resort, ignoring that such method was only to be triggered after the first two priorities were satisfied, i.e. full distribution according to the amount the year before and filling in any shortage in that amount for earlier months of under collection.

As a result motor vehicle revenues have been incorrectly distributed based on average daily attendance for ten of the thirteen months since August 2015 instead of based on the preceding year’s collections. This has caused school district receipts of this important revenue source to vary wildly from the amounts estimated and made a part of the calculations for each district’s state aid. This in turn has greatly frustrated the equitable purposes of state aid in Title 70.

In effect the legislators who voted for HB 2244 in 2015 (http://www.oklegislature.gov/BillInfo.aspx?Bill=HB2244&Session=1500), through their failure to correct the Commission’s silly application of the amended law, have moved the amounts listed from the “losers” fund balances to the “winners” fund balances during fiscal 2016, a total of over $14 million shifted through no fault of any school district and for no good reason. Another $7 million is at risk of being shifted the same way in FY 2017 or after if not corrected.

Here is a list of all 419 school districts impacted:

2016 Total loss final

Here is the same list sorted from greatest “losers” to greatest “winners” by dollar amount:

2016 Total loss final sort

Here is the list sorted by ratio of 2016 collections to 2015 collections, low to high:

2016 Ratio final Sort

There is litigation in Oklahoma County District Court to correct this travesty imposing more unnecessary expense and confusion on school districts due to the actions of the legislators who voted for HB 2244. Here are the documents filed to date in that litigation.

Petition – 06-15-16 – OTC

160706 Answer

160825 Plaintiff’s MSJ – without exhibits

Exhibit Enevoldsen Affidavit

160908-mtd-for-failure-to-join-interested-parties-1

160909-response-to-plaintiffs-msj

160926-response-to-def-s-mtd

Hello World

Pacific Beach, San Diego

My inspiration for this blog site began several years ago when a college roommate was the speaker at the annual fundraiser for the Oklahoma Council of Public Affairs. I attended out of friendship and proceeded to endure the OCPA’s communications for several years thereafter, candidly not paying much attention until I went to work as CFO for the Sand Springs Public Schools. That position led to my awareness of how the OCPA influenced the growing number of Republican legislators who were rapidly ascending to control of our state’s policies. Their influence is in no small part responsible for the financial mess we are now in as a state.

My first detailed engagement was a review of the OCPA’s paper “Saving Workers’ Retirement” resulting in discovery of the group’s shallow analysis and ideologically driven conclusions. Here is a summary of my study of Oklahoma’s public pensions I prepared in early 2015:

Ten Facts About Oklahoma.san

Now that I have retired on earned public pensions, both Social Security and Oklahoma Teachers Retirement, I have time to formally review and correct some of what OCPA produces. Therefore I am an:

Oklahoma (born in Osage County in 1947, graduated Tulsa’s Nathan Hale High School 1965)

Councilor (my 15 minutes of fame was being Tulsa’s first Chair of its City Council in 1990) for

Public (OCPA and other Limited Thinkers Definition)

Accountability.

Gary Watts

**Photo ID’d by Terry Gammel**