Oklahoma economics: From good to great

In March, leaders of a group of 31 conservative Republican legislators – each of them an advocate of lower and eventually phased out income taxes – laid out their assumptions about tax cuts and government spending.
The group operated (and presumably still operates) from certain assumptions about economic behavior, government revenue and the possibility, as one leader put it that day, of taking Oklahoma from “good to great” in terms of appeal to taxpayers here – and elsewhere in America.

A sketch of their assumptions follows:
First, based on a dynamic analysis of the anticipated impact of the lower taxes, the group assumed (and still does) that total personal income in the state would grow by 20 percent as the decade-long phase out takes place.
Second, government tax revenue would, they project, increase to $8.2 billion in appropriated dollars, compared to the current $6.6 billion, as the state economy grew due to resources remaining in private hands.
With those assumptions and projections in mind, the group gave reporters a listing of up to $853 million in unnecessary or wasteful spending of taxpayer dollars, saying that was enough spending reduction to cover the anticipated $525 million needed to jumpstart the process.
Much of what the group laid out was drawn from the work of Jonathan Small, a budget and fiscal analyst for the Oklahoma Council of Public Affairs, the state’s leading “think tank” advocating markets, economic liberty and limited government.
What a difference a few weeks can make. Hopes that seemed realistic for at least significant income tax reductions have been assailed, badgered and dismissed – even sneered at in some settings. By about two weeks ago, the conventional wisdom (not always, but often, prophetic) under the dome at the Capitol in Oklahoma City assumed that major tax reduction was dead in Oklahoma, at least for 2012.
Then, Dr. Arthur Laffer’s return visit to the Sooner State last week seemed to provoke some new hopes for major tax reductions.
Late in the week, came news that Kansas was flirting (in fact, had already passed through both houses) the largest tax cuts in that state’s history.
Perhaps reports of the demise of income tax reduction for Oklahoma are premature. These last two weeks of the legislative session will tell.
With hopes for comprehensive reform of business incentives, tax credits and carve outs apparently waning, it is not clear that substantial attention has been devoted to the possible spending reductions Small, and his admirers in the House GOP caucus, laid out.
To narrow the focus and the numbers somewhat, CapitolBeatOK asked the Certified Public Accountant, who has worked both for Republicans and Democrats in his time in the public policy arena, to list his top 10 ways to reduce spending – this year, if legislators so chose.
Distilled below, the results of an exchange of several emails and interviews with Small.
Jonathan Small’s top 10 ways to reduce state spending, with some reference to earlier work and with the potential spending impact listed, follows – leavened with CapitolBeatOK’s narrative.
1. State Employee Health Insurance Reform – Over $75 million annually.
This one might seem like a bipartisan no-brainer, but it has not yet come to pass.
Small argues policymakers should “implement the reforms of SB 2052, … passed by the legislature in 2010 but vetoed by former Gov. Brad Henry. The reforms include consolidation of duplicative administrative functions of the state Employee Benefits Council (EBC) and the Oklahoma State and Education Employees Group Insurance Board (OSEEGIB), which is estimated to result in an administrative savings of $2 million to $3 million annually.”
The proposal is deemed “bipartisan” because it was advocated, rather passionately, by Small’s former boss, former state Insurance Commissioner Kim Holland. As Small explained, “Non-appropriated revenue of OSEEGIB and EBC is derived from state appropriations for health-benefit payments for employees, so any spending reductions at EBC and OSEEGIB equals savings for state-appropriated agencies.”
The reform’s implementation would allow a “winner-take-all” bidding process for benefits (i.e. the way private sector firms operate). It includes other possible reforms of incentives, a possible shift away from self-insurance for the state, and other reforms.
2. Telecommunications Efficiency Audits – $3 million annually.
In Small’s view, state policymakers need to “require audits of state telecommunications and data communications utilization. Independent IT efficiency firms, for a flat fee or on a contingency basis, can be employed as a negotiator and reviewer of charges from telecommunications and data communications companies used by state agencies.”
Private firms using such services have reduced telecom and datacom costs 25 to 30 percent, Small reports.
3. Performance Evaluation Reform & Hiring Reform – Over $5 million annually after first year, $41 million annually after 3rd year.
Small presses for semi-annual performance evaluations of government employees, mirroring those often used it he private sector to measure computer use, time management, output in hours worked, incentive pay and steps to reduce the number of full-time equivalent employees.
Small reports that “some agencies have already started these evaluations, and have discovered startling information about the low workload and output of some of their employees. In some agencies, more than six percent of the FTEs were grossly underperforming their required duties and contributed little to the completion of agency tasks. These evaluations have allowed agencies to reward and reassign duties to performing employees, separate non-performing employees, and save hundreds of thousands of dollars in personnel expenses.”
Oklahoma has a high number of state employees per capita, OCPA asserts. In essence, Small’s proposal is to have fewer employees, perhaps pay the retained (better) employees more, and still save money.
To avoid he problem of government expansion as a result of economic recovery, Small believes “all state-appropriated agencies should be required to notify the Office of State Finance, Division of Personnel Management, and the Governor’s office before any new hires are made. Once the agency has provided a detailed notification and justification for filling the position, the Governor’s office or the Division of Personnel Management will have 30 days to approve or disapprove the new hire.”
4. Eliminate legislative forced funding for the NCSL – Over $141,000 annually, total of $1 million over the last 8 years. 
Small confesses his belief that the National Conference of State Legislatures (NCSL) is a “big government lobbying organization.” He points to the group’s policy statements, which conflict with the policy views of the Sooner State’s congressional delegation.
In a summary Small prepared, NCSL supports “corporate welfare, welfare through the tax code and stands in way of congressional efforts to reduce federal spending.”
In Small’s summary, other NCSL policy preferences include:
• Ensuring “Federally funded family life and health education and prevention (HIV & AIDS) programs must include accurate information emphasizing responsible sex practices. These programs should include but not be limited to the promotion of safer sex …”
• Support for increased funding for the National Health Services Corp.
• Strong support for “the development of an interoperable system of electronic health information for the United States.”
• Support for federal funding of early childhood education, including failed programs such as Head Start.
• Support for the “Common Core Initiative.”
• A neutral position on climate change legislation and the statement that “Climate change is a far reaching topic that affects multiple issues of everyday life.”
• Concerning a balanced federal budget, the NCSL states “NCSL is concerned that excessive spending increases or tax cuts, given the need for continued fiscal discipline, may threaten funding for existing and future intergovernmental programs.”
Small’s argument, passionately presented, is that NCSL lobbies for increased federal spending, neutral or positive views of the 2010 federal health care law and other policies most Oklahomans do not accept. He advocates an end to direct subsidies to NCSL by Oklahoma taxpayers, and a kind of “scholarship” to allow legislators who wish to travel to use the money “to seek innovative policy” as they deem appropriate.
5. Eliminate state funding for attempts at space travel – Over $394,000 annually.
Small understates his point: “Space travel is not a core function of Oklahoma state government.”
When the Oklahoma Space Industry Development Authority was created in 1999, he intention was for it to self-fund. But lawmakers have spent $7.8 million on the authority since then – up through a $394,589 expenditure in Fiscal Year 2012.
Small argues the authority – like the Native American Cultural Education Authority – “is ripe for non-appropriation.” 
6. Eliminate state funding for rodeos, roping contests, local fair, local aquarium, local festivals – $330,000 annually, perhaps more.
Small found several hundred thousand dollars of annual state expenditures he deems “good old-fashioned pork.” There were (in his words):
•  A special, politically targeted earmark for the Kiamichi Technology Center – $100,000
•  A special, politically targeted earmark for the Tulsa State Fair – $65,000

•  A special, politically targeted earmark for the National Finals Steer Roping Championship – $25,000

•  A special, politically targeted earmarks for the IPRA National Finals Rodeo – $50,000

•  A special, politically targeted earmark for the Red Earth Festival – $25,000

•  A special, politically targeted earmark for the Summer Arts Institute – $25,000

•  A special, politically targeted earmark for the Jenks Aquarium Exhibits – $40,000
7. Eliminate taxpayer funds for operation of non-core agencies such as the horse racing commission, the insurance department, the consumer credit department, NACEA, OETA, etc. – Over $20 million annually.
Small believes the Native American Cultural Education Authority, which wants to build the American Indian Cultural Center and Museum (pictured right) on the Oklahoma River is a prime example of a project begun with state money, with the promise that after start-up, no further taxpayer subsidy would be needed.
As OCPA notes, “More than 17 years and $67 million dollars later, the state continues to provide funding for both bond-indebtedness and operational expenses of an agency that still has not achieved its mission.”
Several legislators have opposed more money for the museum, while others have demanded an audited accounting of past expenditures before consideration of new spending. Small asserts the museum “should no longer receive taxpayer funds for operations. The potential savings from implementing this reform would be more than $1.3 million annually.”
Small builds on the work former Auditor & Inspector Tom Daxon, who in 2010 detailed a range of spending for entities that the state no longer needs (if it ever did, in their shared view) to finance.
Small and others at OCPA have long advocated an end to taxpayer support for the Oklahoma Educational Television Authority (OETA). He notes that 17 other states have already stopped providing state government funding for public television.
In short form, his view is this: "When you take a dollar from someone you make them less free, so tax dollars should be reserved for the core functions of government. They should not be squandered on non-core functions which the free market provides quite capably (such as television programming, golf courses, rodeos, and much more).” 
In some recent writings, he has recounted what he considered distorted advertising on his views, and that of other advocates of tax reduction, to augment his position.
He concludes, “Taxpayers should not be forced to subsidize PBS or NPR, and they shouldn’t be forced to subsidize OETA’s assaults on job creators.”
In his writings, Small details other non-core function spending reductions along these lines that would a total savings of roughly $20 million annually.
8. Eliminate state funding for losses on state golf courses – $400,000 annually.
From Fiscal Year 2001 to Fiscal Year 2009, Small found, Oklahoma state “lawmakers appropriated $6,530,000 for golf courses. This figure does not include the amounts for FY 2010 or FY 2011.”
OCPA has previously argued, “Oklahoma’s state resorts and golf courses—which do not pay property taxes to support essential services such as local schools, firefighters, and police—have no incentive to make a profit. Even if they did turn a profit, they would not be paying income taxes to the state—something their competitors who operate private resorts or golf courses are forced to do. These government-owned operations take money away from taxpayers who are risking their own capital instead of the taxpayers’ money.”
Small concludes, “Operating golf courses is not a core function of government. Oklahoma should get out of the golf course business altogether.”
9. Implement state usage of the private sector to contract with the state to provide services that the private sector can provide at a lower cost – $39 Million after first year, over $49 million annually after 3rd year.
10. Reduce duplicative conservation district offices – $868,000 annually.
Small believes another obvious possible savings would be to eliminate administrative funds now spent on conservation district offices, even though every one of Oklahoma’s 77 counties already has a conservation district.
He contends, “The potential savings from implementing such reforms would be $868,000 annually.”
Put it all together, and Small’s “top 10” eventually totals more than $190,000,000 annually." 

As the late Everett Dirksen might put it — a million here, and a million there, and pretty soon you’re talking real money.