Rep. Earl Sears, Auditor & Inspector Gary Jones outline views on reform of tax credits and economic incentives

At this week’s meeting in the House Chamber, Chairman David Dank delivered the most detailed outline of reform principles for the Oklahoma Task Force on Tax Credits and Economic Incentives. However, state Rep. Earl Sears, Auditor & Inspector Gary Jones, and other members also provided a framework for the approach they will take in crafting a final report to the Legislature before year’s end. 

Sears, a Bartlesville Republican, is chairman of the House Appropriations and Budget Committee. His comments throughout the morning session, both in his own speech and in dialogue with other officials, evinced both pragmatism about the economic benefits of some incentives and principled commitment to reform past program practices that have drawn public ire.

For the future, Sears said, “No tax credit can be extended without an extensive review of the anticipated benefits and the impact to economic growth.” He said the Legislature’s review should “include benefits to the state, a complete history to support job growth – [and] has the tax credit enhanced the industry.” Rather than assertions of goals or intentions by recipients, Sears wants the process to “include identified improvement of the entity receiving the credit, [and] a financial statement of tax revenue decrease to the General Budget.”

Reflecting one of the strongest areas of consensus on the task force, Sears believes all tax credits should be face a “sunset,” with three years as an apparent agreement. He wants continuation of any tax credit or incentive to flow from provision to the Legislature of “a detailed analysis of the benefits to date,” including history of economic development triggered by the business benefit. 

There appears to be majority support, but not unanimity, to end transferable tax credits across all categories of government incentives to businesses. Sears strongly placed himself in agreement with Dank on the issue.

In his prepared comments, Sears advocated “a full audit” for any tax credit annually or “every other year.” However, in later discussion he seemed open to a suggested three-year cycle for audits, with assessment occurring before possible renewal.

Sears asserted that in the future, “No tax credits are to be voted on during the last two weeks of session.”

He argued that, “Upon granting a new tax credit the [business] entity must have a comprehensive plan on how it will create jobs. The plan must include a built-in period review that reports job growth. The plan will include the state’s number of jobs, a timeline, [and] states where people will be employed.” He noted, “If the entity receives the tax credit and after one year has failed to meet their plan, they will lose their tax credit.”

In other comments, Rep. Sears said he supported many of the existing incentives, to assure the Sooner State can “stay competitive, create jobs and save jobs.” He observed he was “not comfortable with ‘corporate welfare’ language” as an argument against business incentives, and affirmed the state “must remain pro-small business.”

He concluded that “Taxpayers expect us to review all aspects of taxes and spending. The question is whether incentives are meeting expectations. Hundreds of millions of dollars are involved.”

State Auditor & Inspector Gary Jones also backed “sunset provisions” to assure frequent review of these programs. He laid the basis for stricter accounting standards by arguing for “thorough review of the process” and “proper safeguards” in advance of renewal or creation of an incentive program. 

Jones aligned himself with Chairman Dank’s advocacy of “accounting safeguards” to include his office’s involvement. He believes “all credits or incentives should be subject to the Oklahoma open records act. No more secret deals.” A “performance audit” should be conducted every two years, in Jones’ view. Later he hinted possible accord with a three-year cycle in advance of possible renewals. Part of the audit process would be not only to assure ethical use of resources, but also “to determine whether [the] program has met set goals.” 

Jones aligned himself with Sears’ view that no credits or exemptions be legislated during the last two weeks of a legislative session. He shared the Dank-Sears view against transferability of tax credits. 

He suggested “a training element” so that managers and personnel have “a foundation for creating a meaningful matrix by which to evaluate both the initial approval of a tax credit and compliance by the recipient.” He argued his office “should be allowed to audit all existing programs to insure that all requirements have been met and that any tax credits issued and applied in error be recovered and repaid to the State of Oklahoma.” He asked the Legislature to provide funding to monitor and audit the programs. 

In dialogue with Jones, Sears and staff from the Oklahoma Tax Commission, Chairman Dank wondered if the Legislature could authorize such new powers to the auditor’s office. Jones told the panel accountability could be improved if legislators “enhance what already exists” in the auditor’s office.