You’re Not in Kansas Anymore

 

Lobby of Kansas City Hotel Phillips and Fountain Plaza adjacent to hotel, ID’d by Ryan Mahoney

It has been an interesting few days corresponding with Steve Anderson, a “research fellow”, with the Oklahoma Council of Public Affairs.  It began with his comment in response to my Friday post Shooting Fish in a Tank by which I detailed my critique of the ten “facts” he had found using the OCPA’s school finance data tool and wrote about the week before on their website.  Here is his comment:

April 15, 2017 at 12:13 pm Steve Anderson says:

I would love to debate you on these items in a public format because I see your understanding of sources and uses of fund is not very developed and the public really should know the full story behind these items. There was not enough time or room to fully develop the issues with those items and a good debate would be very informative to listeners. I believe OCPA will make time available on their radio show for a good exchange of information. Will look forward to your response. Steve Anderson

On Sat, Apr 15, 2017 at 2:19 PM, Gary Watts wrote:

Mr. Anderson,

Thank you for your comment.  I would be delighted to discuss matters related to school finance in Oklahoma with you in a public or private setting.  I reside in Tulsa.

Gary Watts

On Apr 15, 2017, at 15:40, Steven Anderson wrote:

I will see if Trent will give us air time.  You and I can call in.   Are you one of the signees on Sands Springs Financial statements in the past—I believe someone said you were CFO?  I ask because if so are you aware you probably have GASB violations and hence SEC violations if any bonds were issued under your tenure.  If not we can discuss the issue on the radio but if so I would not want to put you at legal risk.  Having been through a SEC claim of financial fraud for a state that occurred in 2008 and was just being prosecuted when a new administration came in and asked me to serve as state comptroller to address the issues I can tell you that they named every signatory and it took two years to get it resolved in a way that removed their personal liability—$50,000 per issue===but amounted to a guilty plea since it was actually a misreporting of pension risk.   Sand Spring’s Financial more than likely has the same issue since prior to the last two years no school in Oklahoma had TMK a fully GASB compliant financial.  All it takes to institute a investigation is a bond holder complaint.  I would not want to put you in that position.

I look forward to the opportunity to let the general public know a lot that they currently do not know about school financing including all the things that GASB requires that the schools tend to ignore.  I am sure you will bring some interesting detail to the counter argument.  Will have OCPA contact you and thank you for accepting the debate.  Every other school finance officer or administrator has either refused to respond or backed out.

On Sat, Apr 15, 2017 at 4:19 PM, Gary Watts wrote:

Yes, I was CFO at Sand Springs.  I look forward to our discussion. You seem very welcoming.

Apr 16 at 7:29 AM, Steven Anderson wrote:

My second major was math philosophy so as you can guess my interest is just the best outcome, I am a certified teacher with the intent of making that my ‘retirement’ job fairly soon and from a long line of educators so I am not anti public education.  We will avoid the bonding discussion other than there is a much better way to do it that lowers property tax rates while not having a lot of idle funds and hence the arbitrage issues.  Will have Trent contact you directly

Apr 16 at 8:39 AM, Gary Watts wrote:

I would enjoy having our discussion in person and don’t mind visiting OKC with enough advance notice–my wife is addicted to the Full Circle Bookstore.  Otherwise the telephone is fine.  My phones are 9187431410 and 9183130558.  Bond discussion is fine; my instinct is also that there is a much better way to do it.  Arbitrage in such a low interest environment seems a waste of time anyhow.  

So that is where our correspondence stood on Easter morning less than 24 hours after it began.  Notice that he has made no statement that refutes anything I said in my post about his ten facts, and I assumed that we would hear his rebuttal when we had our debate/discussion.  However, while not offering any rebuttal, notice what he does offer is a slight disparagement of my statements (“your understanding…is not very developed”) without any explanation, and a very clear effort to intimidate me by alleging I am guilty of acts that bear a $50,000 penalty, but not to worry because he won’t tell, still other school officials have always backed out after hearing this.  Wow.  Of course he also throws in that he really wants to help public education and that his family has lots of teachers—can’t tell you how many times I’ve heard other statements like that in recent years, you know “You can’t think I’m against public education because some of my family are educators.”

I did do a little quick due diligence and decided to call his bluff and bluster.  Which meant I went ahead and posted yesterday Miserables Love Company which was a critique of his most recent OCPA post “A Teacher Recruitment Tool for School Administrators”.  Of course I emailed the post to him and here is his response and my replies:

Apr 18 at 11:03 AM, Steven Anderson wrote:

After reading this piece of trash—I am guessing you were not aware that I did the original design on the very successful OPERS conversion and that you support stealing people’s retirement funding ala OTRS—I do not want to give you any mouthpiece at all.  

While I will not be the one to file a complaint with the SEC—I did look up your financials and yes they are not in compliance—I certainly would not discourage someone else from it.   

After thinking “Lions and Tigers and Bears, oh my!” we continue

Apr 18 at 11:16 AM, Gary Watts wrote:

If “very successful” means putting employees into more expensive and less effective individualized plans then I agree.  And looks like “stealing” means supporting a retirement system instituted by the popular vote of Oklahomans many decades ago.  Enjoy your day; I will.

Apr 18 at 12:22 PM, Gary Watts wrote:

In the interest of public accountability what is the SEC rule you allege I have violated?

Notice again no substance, just bluster and a threat.  Of course I needed to confirm that it is an empty threat so I did a little more due diligence.   Since Mr. Anderson’s OCPA bio says he was recently budget director for the State of Kansas I searched on SEC and the State of Kansas and found this Kansas SEC Order, a Cease and Desist Order, from August, 2014.  In a nutshell the State had issued $273 million in bonds during 2009 and 2010 when its State audit/financials did not clearly disclose the State’s obligation for several billion dollars of unfunded actuarially accrued liability for the state’s pension system, KPERS.  The SEC alleged this failure was potentially deceptive to bond investors and the Order requires that Kansas fully disclose its responsibility for the unfunded pension liability in its future financial statements, audits and disclosures.

Sound familiar?  Not the failure to disclose part but the unfunded liability of state pension plans.  My last post, Miserables Love Company, has links that show the extent of the Oklahoma Teachers Retirement System (OTRS) unfunded liability that is also eye-popping.  However, here is the critical part of the SEC Order that distinguishes it from Oklahoma, in paragraph 5 on Page 3:

5.  The State was not the only obligor of the total retirement system UAAL. Other obligors included, but were not limited to, local school districts and local governments.

Based on this order I suspect school districts in Kansas have since made sure they state their share of the UAAL, whatever that may be, in their financials and disclosures for bond issues that are regulated by the SEC, because, according to the Order, school districts are also obligors for future retirement payments to teachers.  That makes sense.

However, Oklahoma is different.  As I have stated in previous posts, that is just not the law in Oklahoma.  I have practiced school law in Oklahoma for over 25 years, have read our state case law concerning our public pensions extensively over the last few years, and have read nothing that suggests school districts in Oklahoma are obligors for the UAAL of the Oklahoma Teachers Retirement System or for future retirement payments to their teachers.  Here is a 1996 Attorney General Opinion that clearly places the obligation with the State of Oklahoma, not school districts or any other political subdivision of the state.

Perhaps partly a result of the Kansas matter the Governmental Accounting Standards Board (GASB) issued Statement 68 in 2012 that now requires our school district audits, whether fully GASB compliant or not, to disclose the district’s “share” of the OTRS UAAL even though it is not a legal obligation.  Our State’s Pension Commission, including Auditor Jones and Treasurer Miller, fought this standard being applied to Oklahoma school districts due to the fact that Oklahoma law places the obligation squarely with the State.  Here is the Pension Commission Letter to the GASB board in 2011 which includes this:

“In Oklahoma, and perhaps other state jurisdictions, the long-standing case law clearly makes pension obligations the legal obligation of the State.  There is no legal or factual way in Oklahoma for a local employer to pay for any portion of the ultimate pension.”

Since GASB 68 the Sand Springs FY 2016 Audit has included disclosure of this “liability” as required, but also includes a statement on Page 37 that begins, “The District vigorously disputes the use of the term “liability” in so far as it suggests the District is legally responsible for payment of the calculated pension liability.” 

As for most school districts, including Sand Springs, not having a fully GASB compliant audit, which seems to give Mr. Anderson heartburn, doing so in most districts would mean incurring the expense of having its plant (school buildings) and equipment all appraised, at taxpayer expense, and placing those values on the books and maintaining depreciation records, etc., likely entailing the employment of addition staff.  And after that effort I guess each district would know the depreciated value of their school buildings that they already know they have; how that helps educate kids escapes me.  If school districts were private entities and their net worth determined their ability to borrow it would make sense.  But school districts’ ability to borrow is primarily based on the stability of their property tax base, and the buildings Mr. Anderson would have us appraise aren’t even on the tax rolls.  Conducting useless appraisals has never been a priority for expenditure of district funds.  So much for the OCPA’s commitment to small government.

Good luck guessing either photo location for a free lunch; they are as close to Kansas as I could find.