Seeking to define the word “reimbursement” – task force looks at successful incentive program, and who benefits
Published: August 10th, 2011
An afternoon meeting of the task force studying Oklahoma tax credits, exemptions and other business incentives focused on the 5-year ad valorem exemption for qualifying manufacturing concerns, and the ad valorem reimbursement fund.
Much of the Wednesday (August 10) session wound up devoted to the emerging importance of the wind power industry in Oklahoma. Indeed, the industry is already drawing 24% of the value in “pay out” for benefits under the program.
However, the most contentious issue of the day focused on the reimbursement fund, which draws revenue from 1% of state income taxes collected. Advocates for schools and local governments referred to abatements or exemptions provided to manufacturing concerns as “lost” revenue, but the program terminology was scrutinized in some presentations.
Wes Stuckey of Ardmore, a longtime economic development leader in southern Oklahoma, described the ad valorem exemption as “absolutely critical” to the success of development specialists like himself, working to build economic activity in areas outside the state’s two major metropolitan areas. Concerning the “loss of revenue” referenced by some witnesses, Stuckey reflected, “I’m not sure how you lose something you never had.”
He identified the ad valorem reimbursement fund as “the problem,” not the temporary exemption from taxation he and other advocates use as a tool for business recruitment.
Other witnesses pointed to changes in the definition of “manufacturing” that have unfolded since legal authority for the exemption program was created in a 1985 voter referendum.
Shelley Shelby of the Oklahoma state School Boards Association, explaining funding mechanisms for public education, said, “We need kids to generate money.” Shelby said the reimbursement issue was critical to her members in several respects.
Noting that funds that formerly came in “real time” under the program now take more than a year to arrive, due to high demands to access the program. She said, “the growth in the amount available has not kept pace with the growth in payouts.” She said a $10 million direct appropriation to fill in funding for reimbursement (beyond money in the dedicated stream) was vetoed by “the last governor.” (That was Brad Henry, a Democrat.)
Shelby stressed she was not saying the reimbursement program was literally being gutted: “The Legislature has funded the reimbursement, but not in a timely way.”
Noting witnesses had been asked to make suggestions for procedural changes she said changes were needed to assure the money is disbursed “up front.” Her group is advocating a $25 million one-time appropriation from the Legislature, “to catch us up.” She also suggested an increase in the percentage from the existing revenue stream.
Secretary of State Glenn Coffee and Finance Director Preston Doerflinger both attended the afternoon session, as did state Auditor & Inspector Gary Jones.
Jon Chiappe of the state Commerce Department described the extent – or potential extent – of the program in “real time,” noting that his agency was in the midst of reviewing proposals from about 30 businesses. Saying projects worth a potential $1 billion investment — and bringing from 1,400 to 6,200 new jobs to the Sooner State — were under “current review,” he stressed the businesses that might benefit were “very diverse.”
Chiappe stressed that not all of the projects would pan out, in any scenario, but that he prepared the report at Dank’s request to demonstrate the nature of possible incentive recipients under examination in the hearing.
Dr. Greg Winters of the Canadian Valley Technology Center, based in the suburban jurisdictions west of Oklahoma City, offered comments both supportive of the ad valorem exemption and of the reimbursement program. He said frequent changes (and expansion) in eligibility had undermined the property tax base for local jurisdictions. On the other hand, he stressed his support, and that of others in CareerTech, for economic development and manufacturing concerns.
While much of the day was devoted to “macro” issues involving millions of dollars, Dawn Morris of the Metropolitan Library System, representing the state Library system, spoke about the seemingly modest dollars that flow in “reimbursements” to the state’s eight public library systems.
She noted that 95% of revenue for such libraries come from ad valorem taxes. From the reimbursement system, the largest beneficiary nets $335,000, the smallest $10,000, she said.
In an overview of program costs and the legal underpinning of the ad valorem exemption, legislative staff pointed out the definition of “manufacturing” businesses for purposes of accessing the credit.
Virtually every speaker seemed to agree the 5-year property tax exemption has resulted in job creation and economic growth in Oklahoma cities, large and small.
State Rep. David Dank of Oklahoma City, a critic of many business incentive programs he considers wasteful or of dubious value to the general public, said he had no doubt the limited manufacturing exemption from ad valorem taxes would survive the task force’s examination. Dank is chairman of the panel considering the incentives, credits, abatements and other tax breaks.
Rep. Mike Reynolds, also an Oklahoma City Republican, asserted again that provisions in many of the tax credit programs and other incentives for business violate state constitutional strictures.
Dank’s critical focus was on the “reimbursement” the state government pays to local government jurisdictions for ad valorem taxes that would otherwise be paid by new or expanded manufacturing concerns.
Dank contended that thus far he and legislative staff had found only two other states that “reimburse” local government units, including schools, for ad valorem taxes paid by businesses for new or expanded construction related to manufacturing.
The two states Dank listed were Connecticut and Kansas. During the afternoon session, Dank accepted as true the assertion by one wind industry witness that Texas has a similar program, with different words used to describe it.
Dank returned frequently to his theme that it is unclear to him why the state should be “reimbursing” local governments for new economic activity provoked by state policy. He pointed out that if a new building or a facility expansion never happened, the community would have had no net increase in employment or property value, in any case.
At the end of the 5-year abatement or tax credit, however, the industrial interests receiving the abatement or credit begin to pay regular property tax levies, thus increasing the local tax base.
“They haven’t ‘lost’ anything by the provisions in the ad valorem exemption,” Rep. Dank said.
While the afternoon hearing was not as well attended as the morning session dealing with energy efficient residential construction, it clearly dealt with consequential issues of tax policy and public finance.
Controlling legal authority for the 5-year ad valorem exemption for qualifying manufacturing, and the reimbursement fund, are found in Article X, section 6B of the state constitution, and in these statutory provisions: Title 68, section 2902, and Title 62, section 193.
The official name of the panel looking at exemptions, tax credits and other business incentives is the Task Force for the Study of State Tax Credits and Economic Incentives.
Editor’s Note: This story was revised and updated on Saturday, August 13.
Editor’s Note: This story was revised and updated on Saturday, August 13.