Oklahoma faces a major budget shortfall. While the situation may improve in the short run, it may be more than a temporary problem because of two factors: The share of Oklahoma's expenditures funded by the federal government has been increasing, and the ability of the federal government to continue this largesse indefinitely is constrained by the looming crisis facing our major entitlement programs.
In 1981, Oklahoma funded 28 percent of state expenditures with federal dollars. By 2009, that had increased to 40 percent and is doubtless higher in the current year due to added federal stimulus money.
However, the long-dreaded collapse of federal finances due to the unfunded liabilities of our Medicare and Social Security systems is growing relentlessly closer. In 2017, the Medicare Hospital Trust Fund runs out of money. The rest of Medicare follows suit in 2020. While inter-fund borrowing can still postpone the inevitable a bit longer, the main Social Security fund becomes insolvent in 2039, much earlier if we use it to prop up Medicare.
These are no longer issues that will hit home in some future administration, but issues that will start to bite during what President Obama is hoping might be his second term. In a situation where the federal government is cutting expected benefits to seniors and significantly hiking taxes on everyone, expecting the federal government to continue increasing its funding of state budgets is a fantasy.
Meanwhile, we seem to have become addicted to socialism. Some say President Obama is in the embrace of socialism. Perhaps we ourselves have become overly fond of socialist programs. We travel on government roads and occasionally government trains. We send our kids to government schools and attend government colleges. More of us are getting our health care through government-funded programs and even at government-run facilities from government employees.
Are we getting too comfortable in a potentially destructive relationship?
The emerging fiscal realities dictate that we must fundamentally change our approach to government. Those government activities that provide the least effective services at the greatest cost are almost invariably those rooted in the socialist construct.
Recently, I grabbed a bite to eat in a restaurant that was playing the song "50 Ways to Leave Your Lover." So, with apologies to Paul Simon, a political leftist better at composing music than developing public policy, I offer the following opportunities for consideration: 50 ways to reduce our budget shortfall while lessening socialism's embrace.
Are these wildly popular suggestions? Not necessarily, although a few of them have been tried successfully elsewhere. However, they do represent a fundamental change in the way government operates.
1. Make a new plan for state retirees. Virtually every new pension plan in the private sector for the last 20 years has been a defined-contribution plan, not a defined-benefit plan like the state uses. Defined-contribution plans offer employees greater flexibility, allowing them to build wealth they can pass on as well as secure an adequate retirement income. Existing employees should have the option of converting to the new plan.
2. Make a new health care plan for new employees.The new plan should provide full coverage for catastrophic expenses but provide funding for more routine care through a health savings account. Once again, we should grandfather in existing employees who wish to stay in the current plan, but all new hires should go to the new plan. Because defined-benefit pension plans tend to be more attractive for those nearing retirement, and especially to those who haven't planned for that retirement, they tend to act like magnets for older workers. Older workers also tend to have higher health care costs. However, if we adopt a defined-contribution plan, we will see a trend toward a younger workforce and lower health costs.
3. Let little Jack slip out the back of the class. The truth is, many private schools can do a better job educating Jack and for less money.
4. Get on the bus, Gus, and off the Heartland Flyer-unless you want to keep asking taxpayers to pay most of your fare.
5. Drop off the key to our college dormitories to a private business that will improve service and cut costs.
6. Charge agencies for indirect costs. Right now, Oklahoma calculates an indirect cost rate that an agency getting a federal grant adds to the amount of money it gets from the federal government. This makes the state whole for the overhead needed to carry out grant-funded programs, such as central purchasing, finance, and personnel functions. Of course, the additional money doesn't go toward those overhead functions; we let state taxpayers pick those up while the agencies use the extra funding for their own purposes. If the agencies had to pay the central service agency every time they used its services, they would probably use those services more judiciously.
7. Reform the workers' compensation system. State agencies pay those exaggerated costs just like everyone else.
8. Sell CompSource. This will not solve the workers' comp problems, but it is likely to generate a significant one-time bonus from an insurance company wanting to purchase the state's book of business.
9. Use a business center or office suite arrangement for small agencies. Consolidation of smaller agencies is a tactic that rarely delivers the savings promised and often leads to higher costs. (It is easier to hide waste in a large bureaucracy than a small one.) However, smaller agencies may benefit by sharing administrative services and office facilities. Many small Oklahoma businesses employ this useful concept.
10. Do a better job of collecting the taxes we already have. While the Oklahoma Tax Commission has improved its efforts, they could do more if given the proper resources. Yes, that will mean better pay and more training for some state employees.
11. Review Oklahoma's tax credits and eliminate those that aren't effective.
12. Sell or close the Oklahoma School of Science and Mathematics (OSSM).
13. OK, I'll grant that OSSM is popular with a lot of folks and, even though very expensive, does produce some good results. However, if OSSM is going to exist then at the very least the state should collect something for room and board. After all, the family sending the student is at least saving money on groceries. Perhaps our liberal friends can help me understand something. If we take a kid out of a public school and move him or her to OSSM at state expense, fine. But help the same kid leave the same school and go to a private school and we are led to believe we are threatening the existence of Western Civilization. Moreover, if we send the kid to OSSM, it costs the state a lot of money. If we send the same kid to a private school, the state saves money. I do not understand this.
14. Consolidate school elections with other elections.
15. Eliminate the Oklahoma State Regents for Higher Education. I offer this reluctantly, because among state agencies, the Regents are one of the most responsive and proactive for progress. However, if we allowed each college to become a self-governed entity, much like a private college, we might once again find it difficult to transfer every single credit from one college to another, but we would save a lot of money while getting more excellence.
16. Rather than giving so much money directly to the Regents, help students save to pay for their own college education. Yes, it would mean higher tuition, but the net cost would be less and the colleges would be more responsive to the students they serve.
17. Sell the bookstores and other concessions at public colleges.
18. Funnel an increasing part of higher education's research budget into a pool that requires a private-sector match. This would expand the research pot, save money, and encourage closer cooperation between Oklahoma businesses and universities on important research initiatives, which would be a plus for economic development.
19. Provide vouchers for training in lieu of CareerTech's Training for Industry Program. If CareerTech continues to provide superior training, most of the money will come back to it. But vouchers will ensure the efficiency and responsiveness we need.
20. Coordinate all public assistance programs. Most programs currently operate on a standalone basis, with unfortunate results. We should not operate TANF, food stamps, Medicaid, housing assistance, daycare assistance, or other programs without making sure they don't result in perverse consequences. Too often they do.
21. Pass tort reform. Because of the state's heavy involvement with our health care system, reducing costs by curbing lawsuit abuse will save the government money.
22. Help hospitals collect their bad debts. As the national debate makes evident, the cost of health care is a complex issue. When someone without health insurance shows up at the emergency room, the hospital winds up absorbing the marginal cost of treating that patient. ObamaCare eventually will require almost everyone to purchase health insurance, but experience with auto liability insurance has shown that a mandate to buy insurance may not be that effective. The state may have more success if it backstops hospitals and assesses deadbeats a portion of their income over a period of time. Such an approach would keep many people from declaring bankruptcy, but would also attach a real penalty to not buying insurance. As a result, more of those currently uninsured are likely to buy health insurance. At the same time, hospitals are likely to experience fewer bad debts, making health care for paying patients cost less. To be fair, because of the roles played by fixed and variable costs, the degree to which cost-shifting increases costs to paying patients is often overstated but it still exists. Since the state also pays for a lot of health care costs, it will save money if that health care costs less because those who can pay for the care they receive do so.
23. Require proof of health insurance to collect lottery winnings. Our insurance commissioner suggested we not sell OU or OSU football tickets to those without health insurance or some other means to show they will not burden taxpayers if they show up at the emergency room. Once again, fewer uninsured can lead to lower health costs that can translate into budgetary savings.
24. Allow people to buy coverage across state lines. This has the effect of allowing people to buy insurance absent at least some of the mandates for which they may not wish to pay.
25. Outsource inmate health care. The hospitals in many towns struggle to keep their doors open, often needing taxpayer help to do so. Meanwhile, nearby sits a prison with an underutilized clinic. This is an opportunity to keep some hospitals in business while reducing the cost of health care at state prisons.
26. Expand the use of vouchers for the developmentally disabled. This approach has been shown to improve services and save money.
27. Simply reducing outlays to mental health programs that pay for themselves with savings in other areas is hardly a sound way to cut overall spending. However, if the state focused more mental health funding in community mental health centers and let them buy hospital services for their patients as they need them, better outcomes and savings should follow. To fully realize these savings, the state should prohibit mental health centers from opening their own hospitals.
28. Means-test senior nutrition programs. Senior nutrition is a program that is probably best left to local communities to run and fund. However, as long as the state is providing the service, we should make sure that those who can afford to pay for their meals do so.
29. Streamline and reform right-of-way acquisition for new highway construction. A landowner whose land is made subject to eminent domain deserves fair compensation. However, when tales abound about well-placed legislators buying land on the open market and later selling it at a higher price to the state for road construction, something is wrong.
30. Close the state's rest areas. What is wrong with someone leaving the interstate for a few minutes and possibly spending a few dollars with an Oklahoma establishment? Yet, we persist in providing a free service that competes with taxpaying businesses.
31. Consolidate maintenance operations for the turnpikes and other state roads.
32.. Provide modern, strategically placed weigh stations. A modern weigh station is one where the trucker doesn't have to stop. A strategically placed station is one the trucker can't effectively bypass (think bridges over major rivers). This is not likely to collect a lot more revenue, but eliminating only a few illegally running trucks will reduce road maintenance costs.
33. Close less-popular state parks or allow local communities to assume their operation.
34. Get out of the park motel and campground business. Oklahoma has many areas with attractive scenery and compelling history. Unfortunately, the state runs its Department of Tourism and Recreation more like it is responsible for a third-rate motel chain than the steward of the state's public scenic and cultural attractions. We can save money if we get out of the motel and campground business and focus on making the public aspects of our parks truly excellent.
35. Outsource park concessions. The state does not need to operate restaurants, stables, or marinas. If we focused on enhancing the natural and cultural aspects of our parks, private entrepreneurs could provide better services and actually pay taxes, generating rather than consuming revenue.
36. Sell all state golf courses, and simply close any that don't sell.
37. Outsource vehicle maintenance for the Highway Patrol.
38. Take most of the money we use to fund the Oklahoma Indigent Defense System (OIDS) and run it through the District Attorneys (DAs). Then require the DA to transfer funds to OIDS for each charge or other action that requires work on the part of the defense attorney. This approach would assure that OIDS is adequately funded. The DA has an incentive to prosecute the criminal in the most appropriate manner possible. (Any DA wanting to make extra headlines with additional charges that do little to further justice but drive up the cost to OIDS, which must respond to each filing, will find he or she has less money left over to spend.) The taxpayers get justice and savings. The state could also employ a similar approach to funding at least a part of the budget for the Department of Corrections. This would strengthen the hand of the DA and allow him or her greater flexibility in protecting the public.
39. Require an adequate performance bond for the drilling of a new well, assuring that any cleanup is done and the well plugged when done-and none of it at taxpayer expense.
40. Reform the program for leaking underground storage tanks by requiring gas stations to carry insurance sufficient to address any leaks that occur rather than burdening the taxpayer. For older stations, the insurance can be more expensive so some would want some relief. They might make a compelling case in situations where a town only has a single active service station. However, the cost of such relief would be less than the cost of the current program.
41. Eliminate funding for OETA. I am a donor to OETA. If I think it is worth watching, I should pay for it and not burden others.
42. Eliminate funding for the Oklahoma Arts Council. Same rationale as above.
43. Sell or lease Sardis Reservoir. We can always provide for easements to ensure public access while allowing for much-needed commercial development in the area.
44. Sell the Grand River Dam Authority.
45. Have private veterinarians certify that a herd of cattle is free of brucellosis in lieu of state testing prior to a sale.
46. Consolidate all water testing. As many as three agencies regularly test the same water at many locations, two more than usually necessary.
47. Raise court fees and assess them against the loser in court contests. This will lessen the burden the courts place on the general taxpayer and will make people think twice before filing frivolous lawsuits.
48. Eliminate special programs in the investment of state funds that effectively reduce what the state could realize in revenue. On the flip side, we have witnessed at the national level what happens when the government urges banks to make loans they would not otherwise make.
49. Reform the Merit System to allow for more businesslike personnel practices. The Merit System was inaugurated to keep legislators and other elected officials from padding state payrolls with their cronies and extorting campaign donations from those same employees. It has become a series of bureaucratic regulations that make it difficult to discharge ineffective or unneeded workers.
50. Eliminate all state mandates on the use of Community Development Block Grant funds. Local people can best decide how to spend money designed to benefit their community. The state runs many programs that could be more appropriately run at the local level. If local government manages programs for which their local taxpayers provide the funding, the programs will invariably be run with greater sensitivity to local needs and with more zeal for curbing unnecessary spending. As a practical matter, the state will need to provide some funding, but the funds will be spent more efficiently if local governments manage the programs and the local citizens electing them reap the rewards of good decisions and suffer the consequences of bad ones.
Even implementing all 50 of these ideas won't ultimately save us much money if we don't do one more thing: Carve the expected savings out of the budget and redirect the money. Government budgeting is often referred to as "cutting up the pie," and agencies tend to think of having their own share of that pie. We must relentlessly challenge that mentality. Each agency should get as much as it needs to achieve the goals the governor and legislature set before it-and no more.
If those goals change, or the resources needed to achieve them change, we should adjust the agency's budget accordingly. It's too easy to give everyone a four percent cut or a four percent increase and too hard to do the real work of budgeting. Even when we make exceptions, as we invariably do for money spent in the classroom and on uniformed law enforcement, it is usually to hold them "harmless" rather than to actually determine what change would be best for the state.
This approach often goes under the name of "zero-based budgeting," but there are many variations. Each can become a paperwork drill without serious interest from the top down in improving the performance and efficiency of state programs.
Medicare is going broke. Social Security is close behind. The constant increase in the flow of federal dollars to the states has probably reached its high water mark. We can begin to act now and move Oklahoma boldly ahead of other states, or we can continue our drift back toward Europe. Americans (especially Oklahomans) are not Europeans and don't want to be. We need to start considering some things we have not seriously entertained previously. We need to make it clear to our socialist lover that we are not going to be any more than acquaintances, if that.
Tom Daxon is a former Oklahoma state auditor and inspector and a former secretary of finance and revenue for Gov. Frank Keating. A Certified Public Accountant who holds both an undergraduate and a master's degree from Oklahoma State University, Daxon is the author of two recent OCPA studies on financial reporting in government and one on comprehensive health care reform.
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