Task Force members pan investment/new jobs tax credit, say it is a poor model

At this week’s meeting of the Oklahoma Task Force for the Study of State Tax Credits and Economic Incentives, the investment/new jobs tax credit program was panned as a prime example of a poorly structured and unaccountable program.

State Rep. David Dank, chairman of the task force, was not alone in worrying about what could be “a big chunk of money” owed to participants in the program, once a moratorium on accessing the credits ends next summer. 

A session attended by a bipartisan group of legislators and several state officials listened with obvious concern as defenders described the program as a “useful in the toolbox” for economic developers, while agreeing it is difficult, perhaps impossible, to discern how much the state might pay out or withhold from tax liability.

While state tax credits and incentives are presently in a moratorium, that will end next July and could lead to hefty benefits to participating businesses. 

In prepared comments, Rep. Dank said, “One thing we have determined is that almost without exception, many of these tax credits have no caps. There are literally no caps at all on the cumulative amounts that can be used annually on many of these credits. That’s like handing the keys to the car and a credit card to a 16-year-old boy and saying, ‘Have fun son!’ You know he’s thinking that the sky is the limit.”

The afternoon session on Wednesday was brief. Participants of diverse views sang the praises of Oklahoma’s Quality Jobs Program.
The morning session on the investment/new jobs program was a different matter, entirely. Concerning the investment/new jobs program, a summary prepared by legislative staff read:

“The state’s Investment/New Jobs tax credits are income tax credits for either an investment in depreciable property used in a manufacturing or processing facility or for a net increase in average levels of employment in said facilities. Credits not used can be carried over to subsequent tax years without any restriction on the number of years.”

State Auditor & Inspector Gary Jones noted that although the investment/new jobs program is audited by the tax commission, “we’re really not certain what the likely or possible payout is for the program.”
In their own words, other members of the task force, and legislators not on the task force but who attended the hearing, echoed the concerns of Jones and Dank. 

Democrats at the hearing included included state Sen. Tom Adelson of Tulsa, and House Minority Leader Scott Inman of Del City. 

Republican legislators included state Sens. David Meyers of Ponca City and Great Treat of Oklahoma City, as well as House Appropriations and Budget Chairman Earl Sears of Bartlesville, as well as Reps. Corey Holland of Marlow and Todd Russ of Cordell . 

Secretary of State Glenn Coffee attended most of the day’s discussions, as did State Finance Director Preston Doerflinger. Deputy state Treasurer Regina Burcham represented the Treasurer’s office. 

Sears pressed for clear data showing costs and asserted benefits, as he has in prior hearings. 

Adelson raised a philosophical question, wondering if it is possible to distinguish between credits or incentives that actually create new jobs that would likely not otherwise have emerged, and those that reward government-approved behavior and allow businesses to offset costs.

Rep. Inman, like Dank, said he was worried about the extent of unanticipated liability for benefits in the program. 

Several task force members criticized confidentiality provisions that do not allow legislators and interested citizens to know the names of companies benefitting from the program. 

In its defense, Justin McLaughlin of the Tulsa Metropolitan Chamber said the program was an important part of that economic development “toolbox.” 

Dank reflected, “We really have no handle on what’s been accomplished and how much is out there, in terms of claims in future years.” He asked McLaughlin, “Can you help us figure that out, and look at controls on how the program works?”

McLaughlin replied, “that is something we can look at.” He cautioned he was uncertain, however, how to bring greater transparency and disclosure without violating propriety concerns of participating businesses.

After the hearing, Dank said in a statement, “I know that most of us in the Legislature remain totally unfamiliar with the Jobs/Investment Tax Credit. 

“I am especially interested to learn about what caps, if any, may apply and what levels of accountability are involved, since in 2008 alone this tax credit accounted for close to $50 million.”

Previously, Dank told CapitolBeatOK he is pressing for development of a “matrix” to distill provisions and costs of the Sooner State’s business incentives and tax credits. The document he envisions would provide a tool for legislators as they consider possible reforms, sunsets or extensions to the varied programs. 

In related news, Treasurer Ken Miller provided CapitolBeatOK with clarification about the fiscal impact of suspension and delay of tax credits and incentives.

In his monthly briefing with reporters, Miller, a member of the task force, had said that a “ballpark figure” for ending the moratorium on certain tax credits and exemptions might impact the next fiscal year’s budget by about $200 million. 

After further study, Miller’s office said, resumption in Fiscal Year 2013 of tax credits currently under moratorium could have an impact between $30 million and $45 million.

As for the deferred gross production incentives for energy (oil and gas) producers, those could have an impact Miller estimated at $130 million. 

Miller’s office concluded that projected fiscal impact of these policies might fall between $160 – $175 million for Fiscal Year 2013. In all discussions, he has stressed estimates are just that – reasonable projections that could be low, or high.