Are House Republican leaders dishonest or ignorant?

[Guest post by Jonathan Small]

If this year is like most election years, Oklahomans will receive campaign mailers from state Republicans decrying Washington, D.C.-style politics and proclaiming themselves fiscal conservatives. But in this year’s session—primarily because of House Republican leaders—lawmakers fully embraced D.C. politics and abandoned responsible financial stewardship.

Few things highlight this sad reality more than House Republicans’ decision to increase Oklahoma’s unfunded liability by advancing an unfunded “cost of living adjustment” (COLA) for retired state government workers—a transparent election-year ploy to buy votes with other people’s money.

The negative consequences for working families will be significant.

When Democrats controlled the Legislature, they also advanced unfunded COLAs in election years. That ultimately drained pensions so fast Oklahoma ranked 47th among the 50 states by 2007.

Between 2000 and 2010 the unfunded liability of Oklahoma’s state pensions increased from $6 billion to $16 billion. Things got so bad that by 2010 actuaries predicted the teachers’ retirement plan would never achieve fully funded status.

However, when the GOP won power, that first generation of Republican legislative leaders—who not only touted conservatism on the campaign trail but practiced it in office—began reforming pensions. One major reform, abandoned this year by House Republican “leaders,” was to ban the raiding of pension assets through unfunded COLAs.

Major progress has since been achieved, but—contrary to the fiscal fairy tales offered by some lawmakers—state pensions are still far from whole. Oklahoma’s government pensions started the year with $7.8 billion in unfunded liabilities. That figure is larger now thanks to the unfunded COLA.

The teachers’ retirement system, in particular, faces major challenges. The teachers’ system already had more money going out in benefit payments than what was coming in through employee and employer contributions. The system must make up the difference with investment earnings. Now, those earnings are reeling due to the stock-market collapse tied to the COVID-19 pandemic. The Teachers’ Retirement System of Oklahoma portfolio has declined by $1 billion since June 30, 2019, and its funded status has fallen from 72.3 percent to around 64 percent.

The unfunded COLA further drained system assets, adding an estimated $400 million in unfunded liability to the teachers’ system.

I am a CPA who previously served on the board of the Oklahoma Teachers Retirement System, so I understand what those numbers represent: reduced benefits for current teachers upon their retirement, diversion of funds from schools and other needs to retirement systems in the future, and tax increases for working families to cover unfunded liabilities (or some combination of all three).

When incumbent Republicans dismiss the hard financial realities created by their raid of pension assets—done amidst a global pandemic when the livelihoods of working Oklahoma families are being decimated—citizens must ask if those lawmakers are willfully ignorant of financial reality or deliberately misleading constituents. Those are the only two possible answers, and neither inspires voter confidence.

COVID chaos requires bold reforms

[Guest post by Jonathan Small]

The assault on lives, livelihoods, and medical needs of Oklahomans by governments’ response to COVID-19 is going to require bold reforms to reverse the damage. Lawmakers should enact several polices as a result.

First, any regulations waived to deal with COVID-19 should stay repealed. The state is functioning without those regulations and lives and livelihoods have been saved.

Oklahoma government is receiving more than $1 billion in federal funding to recover. As the federal government provides more flexibility, these funds should be used for a mix of purposes, including offsetting of state revenue shortfalls, financing of some strategic projects, and facilitating pro-growth reforms.

Pro-growth tax reform is desperately needed. With two “black swan” events underway—the collapse of the oil and gas industry and COVID-19—Oklahoma must now position itself to diversify with new businesses, preserve existing businesses, and attract business from other states.

It’s time to eliminate the wildly volatile corporate income tax, adopt a revenue-neutral plan to phase-out the personal income tax, and adjust the tax code to protect the most vulnerable from tax increases. That will provide a more stable revenue system for state government and foster job creation and economic diversification.

Lawmakers should use part of federal aid to reform the teacher’s retirement system. Strengthening state finances and pensions and giving teachers an asset that travels with them (that can benefit them and their families) can be accomplished by enrolling all new teachers in a robust defined-contribution plan, duplicating the similar successful reform done for other new state employees. This will also help with recruitment since today’s employees are extremely mobile and change jobs throughout their lives.

Policymakers should provide permanent and full expensing for new investments in machinery and equipment, allow faster depreciation deductions, and foster crowdfunding infrastructure to provide more capital to small businesses. Businesses are going to need maximum flexibility to rebuild.

Legislators should delay collection of business property taxes until at least Oct. 1, 2020 and remove the experience rating on unemployment-insurance tax rates related to COVID-19.

In health care, lawmakers need to protect patients from surprise medical bills by requiring advance notice of costs. They need to protect doctors by placing caps on noneconomic damages in the Oklahoma Constitution. And they need to protect the truly needy already on Medicaid and taxpayers by rejecting any sort of Medicaid expansion. The state already faces a $1.3 billion shortfall.

To build the workforce of tomorrow, lawmakers should support tax-credit scholarship programs that increase K-12 educational opportunity and scrutinize tuition rates so colleges focus on productive teaching.

The government response to COVID-19 has done severe damage to Oklahoma citizens’ lives. But lawmakers have the chance to change that trajectory and put Oklahoma back on the path of vitality—if they embrace needed reforms.

Teacher unions lie with statistics

Many education activists "conflate state and total funding, play games with baselines, and ignore noncash teacher benefits," Allysia Finley points out.

No, teachers are not underpaid

#OklaEd teachers’ employer-paid retirement benefits are worth 23% of annual salaries. By contrast, the typical private-sector employer contribution to a 401k plan amounts only to about 3% of employee pay. #okleg https://t.co/BsH44cU1Nt

— Choice Remarks (@SchoolChoiceOK) April 27, 2018

'Charter school pensions: the sum of teacher unions’ fears'

"As if the teachers unions need another reason to hate charter schools," Michael Petrilli writes, "here’s one: The finding, from a new Fordham Institute report, that when given a chance to opt out of state pension systems, many charter schools take it. Furthermore, a fair number of these charters replace traditional pensions with nothing at all."

Oklahoma poses serious threat

... in the eyes of the nation's largest teachers union.

Drowning in red ink, the children won't be silenced

Operating under the theory that "quantity has a quality all its own," hundreds of Oklahoma educators are expected to descend upon the state Capitol today, many wearing red tee shirts emblazoned with the words "We Won't Be Silenced."

In an effort to make sure the children aren't silenced either, OCPA prepared the following flyer (click to enlarge). It is being distributed widely today at the Capitol.

Risking eternal damnation, pension reformers proceed

Oklahoma state legislators are continuing to address Oklahoma's pension problems, even as one retired educator says some such legislators probably "should die and go straight to hell."

'A fundamental shift in our K-12 investment strategy'

While exploding Medicaid costs certainly have grabbed the attention of state lawmakers, "the key structural problem in state and local finances is education, not health care," Adam Schaeffer writes in Investor's Business Daily.

And a fundamental shift in our K-12 investment strategy is the only way to avoid defaulting on the promise of a public education. ...

When a budget doesn't come close to adding up, the biggest expenditure usually has to give. That has meant foreclosure for many homeowners; and it means a serious restructuring of K-12 education spending for public officials. State and local governments need immediate relief from the financial demands of public schooling, and a long-term solution to the system's profligacy. ... We need a more effective and efficient means of investing in education. 

The long-term solution involves tax credits, of the sort provided for in SB 969, by Sen. Dan Newberry (R-Tulsa). As Schaeffer says, "citizens and businesses want to invest directly in the effort to educate the public, and we should encourage them to do so through K-12 education tax credits. Given our state and local financial outlook, we have no promising alternative."

'Why teacher pensions don't work'

"Defined-benefit systems [like Oklahoma's] aren't merely Ponzi schemes," Joel Klein points out today in The Wall Street Journal. "They actually create incentives that impede hiring and keeping the best teachers."

CapitolBeatOK editor talks education reform

CapitolBeatOK editor Patrick McGuigan reports on Waiting for "Superman" and educational reform, and discusses these topics and more with News9's Alex Cameron.

Oklahoman highlights OCPA's pension fix

The lead editorial in today's Oklahoman highlights OCPA's plan to defuse Oklahoma's pension bomb.

Steve Anderson, a research fellow at the Oklahoma Council of Public Affairs, a conservative think tank, has some suggestions. A longtime certified public accountant and former budget analyst in the Office of State Finance, Anderson outlines his plan in the most recent issue of OCPA's Perspective magazine.

If implemented, he said, the plan would in time pay off the debt without needing an infusion of new money and make millions of dollars available immediately for state services.

The most important component is to have all new teachers, support personnel and government employees begin their jobs in a defined-contribution plan instead of the defined-benefit plan now used by OTRS and OPERS. “Without taking this essential step, nothing else will correct the funding issue,” Anderson said.

These accounts would be owned by the employee from the start, unlike the defined-benefit plans that require several years of service before retirement benefits are obtained. This would allow employees more portability and easier access to their funds. In addition, the plan would make matching payments by the employee voluntary instead of mandatory, and cap the state's contribution at 9 percent. Workers could contribute additional amounts.

There are a number of other pieces to Anderson's proposal. This may not be the answer, but it provides starting point for policymakers. And start they must.

“Do we want to leave our grandchildren a fiscally solvent state with no pension debt and a low tax rate?” Anderson asks. “Or do we choose to ignore all the warning signals and leave our problems (and higher taxes) to the coming generations?”