Chamber leaders oppose some proposed tax credit reforms
Published: December 21st, 2011
Leaders of the three largest and most powerful chambers of commerce in Oklahoma have sent to state Rep. David Dank a letter opposing several policy proposals outlined in the work of the state Task Force on State Tax Credits and Economic Incentives. Dank, an Oklahoma City Republican, chaired the task force.
In the letter (a copy of which was obtained by CapitolBeatOK), the State Chamber, Oklahoma City Chamber, and Tulsa Chamber leadership said the six-month long study of the programs “has been an important and healthy undertaking for the well-being of the State of Oklahoma and its taxpayers.”
Saying they had studied principles Dank contends should be included in any reforms, the trio of officials said, “After careful review with our impacted businesses and member organizations, our chambers would like to take this opportunity to provide you with our joint feedback on each of your proposed principles. Our comments are structured as areas of agreement, areas of agreement with additional considerations, and areas where we respectfully disagree.”
Dank had laid out the nine principles at the November 9 session of the task force, a meeting he considered the most important session of the group’s deliberations.
Fred Morgan of the State Chamber, Roy Williams of the Oklahoma City Chamber and Mike Neal of the Tulsa Chamber identified three areas of disagreement, including transfer-ability.
They wrote they oppose “adoption of a blanket ‘no transfer-ability’ position. Our members have stressed to us the importance of transfer-ability in making certain tax credits effective.” After detailing reasons transferability can be a positive factor for effective incentives, the trio said, “we do acknowledge the need to approach this issue on a program-by-program basis – and would be pleased to work with you to create safeguards and claw backs, if necessary, for individual incentives.”
The Chamber leaders also disagreed “with the idea that any future credit must be explicitly designed to create or save jobs. Many economic incentives were not designed exclusively for job creation.” They contend a broad “public purpose” could assure benefits to the state.
They appear to oppose bringing the auditor and inspector’s office in the review of tax credits, asserting, “the legislature is the most appropriate oversight mechanism for tax incentive policy,” contending “that diverting such oversight to another body or agency would create unnecessary bureaucratic red tape and effectively politicize an issue that should rest upon the nature of the particular company, project, and decision-makers in each individual case.”
The men also listed what they deemed “areas of agreement with additional considerations.” They concurred on “the need for caution and skepticism with regard to the enactment of incentives as last minute legislative proposals without time for proper review.”
They continued, “However, we feel the emerging practice in the legislature of holding open conference committee hearings should address the concern of transparency and serve to eliminate the need for a hard and fast rule. Additional recommendations from your task force, including requiring fiscal impact statements, should also alleviate concern over incentives passed in the final weeks of legislative session.”
The three men said they do not believe actual fiscal impacts to the state could be measured with certainty, while possible impacts should be stated.
As for areas of agreement, stated in the first few paragraphs of the two-page missive, the Chamber executives said they backed “enforceable caps and limits on future tax credits, provided these caps are tailored to allow for the effective use of each incentive. We believe the discontinuation of open-ended tax credits will promote predictability in state budget processes and assist with administrative efficiency.”
They also backed Dank’s push for sunset provisions in all future tax credits, writing, “We fully endorse your view of the proper role of the legislature as an oversight body that should review and rectify incentive programs after confirming their effectiveness.”
Also agreeable to the business association leaders, they said, was “the principle that a variety of means for attracting business and jobs should be examined before the use of tax credits is considered. From our experience in job creation and economic development, no single type of incentive should ever be viewed as the ‘solution.’ ”
They further agree that tax credits and economic incentives should be audited regularly by the legislature to ensure adherence to original intent and purpose.
At the November 9 task force meeting, Dank summarized nine principles he believes should be part of reform:
“First of all, I believe firmly that we must end forever the creation of tax credits or other incentives that are transferable. Taxpayer dollars should never be traded around to the highest bidder in a shell game like some we have seen. Any tax credit should at a minimum benefit only the recipient.
“Second, no tax credit or other incentive program ought to be enacted or changed by legislation created and introduced in the final days or hours of any legislative session. We all know how that works. We’ve seen it before. A bill or amendment suddenly appears on the calendar during the final hours with no time for debate or deliberation. In fact we all know lobbyists who prefer it that way. When it comes to allocating public money, that practice must end, and I believe any legislation we submit needs to say so.
“Third, any future tax credit needs to come wrapped in a clear and accurate fiscal impact study. We can no longer afford to enact tax credits with unknown future costs to the state budget. Tell us what it will cost from year to year.
“Fourth, any future credit must be designed to create or save jobs. That is the only acceptable reason for a tax credit in the first place, because that is the only way any tax credit will actually help build wealth and return the initial investment to the state. Economic growth is job growth. That has to be the central goal of any tax credit worthy of our consideration.
“Fifth, whenever a business comes to us asking for our help to grow jobs, we need to look at all of the alternatives before we even utter the words ‘tax credit.’ We have discussed several times the job sustaining provisions of the Quality Jobs Act, as well as other state programs that can help keep people at work. A tax credit should be our last, not our first, resort.”
In a sixth recommendation that proved a prelude to lengthy critical discussion sparked by comments from Treasurer Miller, Dank said he believes the Auditor and Inspector should have power “to thoroughly audit every tax credit, beginning in the drafting state and continuing on a year to year basis. The Auditor was elected by the people to oversee how public dollars are spent, and this is one area that has cried out for oversight for a long time. We will never have the transparency and accountability we have spent the past few months talking about until we have a trusted authority examining these programs.
“Seventh, I firmly believe that we can no longer afford to enact open-ended tax credits. We are coming out of severe state budget crisis, but there will always be another one somewhere down the road. Any future tax credits need to have enforceable caps and limits.
“Eighth, on that same theme, all future tax credits must be subject to sunset provisions. The Legislature should periodically examine and be prepared to re-certify any tax credit. Frankly, I am a little surprised that we did not turn up a tax credit for the makers of buggy ships that had been on the books since the delivery of the first horseless carriage back in 1907 or so. No tax credit should be granted eternal life, and sun-setting will address that problem.
“Ninth, I believe we need to curtail the granting of tax credits on what has become virtually an automatic basis. Each project or separate credit needs to be subject to examination and individual approval. Without that we get projects like pizza parlors in buildings that just happen to qualify for a historic preservation credit.”