Ken Miller is State Treasurer and a member of the the Task Force for the Study of Tax Credits and Economic Incentives.  This originally appeared as an article in the November Oklahoma Economic Report and is reprinted with permission. For an earlier blog post on tax credit reform by Task Force co-chair David Dank, click here, and see this piece laying out OK Policy’s position.

Critics contend that if politicians are good at anything, it is studying something to death. While this legislative interim has been full of task forces and studies, many promise to be more than just simple academic exercises. True, some are meant to garner attention for a favored issue. Others are meant to bolster an opinion. And some are honest undertakings in search of good policy.

And there are some with elements of each of the above. Facing a December 31 report deadline, the Task Force for the Study of Tax Credits and Economic Incentives is preparing final recommendations.

It is this task force member’s hope that rhetoric and ideology will play a subordinate role to sound policy and economic reality. The task force recommendations can impact our business climate for years to come and must take into account the competitiveness of states in attracting industry and economic growth. Read the rest of this entry »

ConocoPhillips headquarters in the Energy Corridor area of Houston

Why do some companies choose to locate their businesses  in Texas rather than Oklahoma? During the first two meetings of the Task Force on Comprehensive Tax Reform, co-chair Representative David Dank has stated repeatedly that the absence of the personal income tax accounts for the cases where Texas wins out in relocation and investment decisions.

Finding hard evidence to support his case, however, has proven elusive. At a recent Task Force meeting, Wes Stucky, CEO of the Ardmore Development Authority and a widely respected leader in the economic development field, spoke of his long-standing efforts to bring investment and jobs to Ardmore. Stucky told the Task Force:

For 24 years, I’ve been conducting interviews with executives of companies that we tried to recruit to Ardmore that ended up locating elsewhere. Not once in all those years did a company that rejected Ardmore base its decisions on taxes. Read the rest of this entry »

Senator Tom Adelson is a state senator from Tulsa. Scott Meacham is the former State Treasurer and former director of the Oklahoma Office of State Finance. Preston Doerflinger is the current director of the Oklahoma Office of State Finance.

If the Oklahoma Legislature were to invest tens of millions of your tax dollars in start-up companies located out of state, how would that make you feel?  That’s basically the question Representative David Dank asked the Oklahoma Capital Investment Board (OCIB), a state public trust, during the August 25^th joint House/Senate hearing on state tax credits.

As co-chair of the Task Force for the Study of State Tax Credits and Economic Incentives, Representative Dank has held several hearings to review the effectiveness of state tax credits and incentives that are collectively costing Oklahoma hundreds of millions of dollars each year. One tax credit program that is drawing special scrutiny is OCIB.

The Oklahoma Legislature created OCIB in 1985 to attract private sector investment in Oklahoma start-up companies.  As conceived, the idea was to have the state invest in venture capital funds, whether located in Oklahoma or other states, and rely on the investment expertise of these venture capital funds to invest these dollars in Oklahoma companies.

The business model is a little more complicated.  OCIB borrows money from banks and invests these loan proceeds in the venture firms.  Banks are willing to make the loans because OCIB pledges tax credits issued by the state of Oklahoma to the bank as security for the loan.  So long as OCIB pays the loan back, the tax credits would not be sold.

OCIB thought these venture firms would earn a positive return on OCIB investments and use the profits from the investments to pay down the loan.  But things did not work out that way.  By 2005, OCIB had borrowed $31 million while the investments were worth $13.6 million.  So, OCIB had to sell the tax credits off to pay down the debt.

Who buys the tax credits? Businesses and wealthy investors who owe Oklahoma taxes.  Instead of paying state income taxes, they buy the credits from OCIB and reduce their tax bill dollar for dollar.  Since inception, OCIB has sold $27.5 million in tax credits.  That has a direct effect on the state budget.  Oklahoma has $27.5 million less to spend on core services – like roads and bridges, health, education, and public safety.

It’s an open debate on whether Oklahoma should directly invest in fledgling Oklahoma businesses.  Many states support new ideas generated within the state thru direct investment – in places like universities and institutions of higher research.  And there certainly would not be adequate capital for basic research and development without public sector involvement. Others point out that states directly favoring some types of business activity over others interferes with the allocation of capital in the private sector and raises borrowing costs for everyone else.

In fact, the authors of this article have friendly disagreement on the subject.  But we do agree on one thing – it’s simply wrong for states to gamble away tax dollars on out of state companies or to directly subsidize economic growth and job creation elsewhere.  That’s not what the people of Oklahoma elected their State Legislature to do. Read the rest of this entry »

Recently, Governor Mary Fallin made headlines for saying that while she has no immediate plans to propose more income tax cuts, her long-term goal is to do away with the income tax while finding a way to “restructure the state’s tax system to find new ways to pay for essential public services”. Her statement echoed one made earlier this year by House Revenue and Taxation Chair David Dank, which prompted  this blog post back in February.

“Imagine never having to file an Oklahoma income tax form again, and having no more state income tax withheld from your paycheck.” This is the scenario floated recently in a press release by David Dank, the Chair of the House Revenue and Taxation subcommittee. According to the release:

Dank said he would favor completely eliminating the state personal income tax and replacing that revenue with a higher state sales tax on merchandise other than groceries and prescription drugs.

The main reason behind Dank’s proposal is said to be the need to compete with states that have no personal income tax, especially our southern neighbor:

We are already being left behind in economic and job growth by states like Texas with no income tax,” Dank said. “If we are going to compete in the crucial next few years, we need to stop talking and start acting to dramatically reform our state tax system.” Read the rest of this entry »

Today’s Tulsa World has a strong editorial opposing legislative proposals to enact further restrictions on property taxes.  For those who haven’t been following, this week has seen a public flare-up of a long-simmering internal battle within the House Republican caucus over proposals to tighten the maximum annual tax increase on homestead properties from its current 5 percent cap down to 3 percent or 1 percent.  In Monday’s Tulsa World, Speaker Chris Benge was quoted opposing the proposal:

“I think it is bad timing,” said Benge, R-Tulsa. “We are looking at a very tough budget year. To date, it is about 25 percent or 26 percent below the estimate. We are looking at a very difficult time to fill a budget hole in which we are going to have to cut budgets. We are going to have to use reserves. I just don’t think that the timing is good to reduce revenue.”

Read the rest of this entry »