Four months ago, a legislative task force chaired by Rep. David Dank and Sen. Mike Mazzei laid out an ambitious agenda for reforming Oklahoma’s tax expenditures. The group’s recommendations included ending tax credit transferability, enacting caps, sunsets, and regular audits for all tax incentives, and placing a one year moratorium on credits while the legislature decides which ones should be eliminated.

Describing the task force’s findings, Rep. Dank said, “The simple truth is that a few of these tax credits are like the huckster who took a bucket of manure, covered the top with an inch of honey and sold the whole thing as a full bucket of honey. It wasn’t until the sucker got home with it that he found out what he had actually bought.”

The reception was rocky. The State, Oklahoma City, and Tulsa Chambers of Commerce immediately came out against several task force recommendations. The Tulsa City Council strongly defended the historic rehabilitation tax credit, and filmmakers lobbied to protect the film incentives program. Rep. Dank introduced four bills meant to implement the task force recommendations, but today three of the bills are dead and the fourth has been watered down. Read the rest of this entry »

In the final days of the 2010 session, when legislative leaders were faced with historic revenue shortfalls and were desperate for ways to balance the budget, a deal was struck with representatives of the energy industry on oil and gas drilling incentives. The industry agreed to defer payment of credits on horizontal and deep well drilling for twenty-four months, until July 2012, and then to pay out over the next three years the credits that accrued during this period. In return, the legislature adopted several changes to how drilling is taxed that were sought by the industry .

At the time, it was anticipated that deferring the payment of credits on horizontal and deep well drilling for two years would put the state on the hook for $150 million. Instead, when oil and gas companies submitted their claims in late 2011, the price tag turned out to be nearly double: $297 million. The state now must pay out close to $100 million annually between 2013 – 2015 for credits accrued in 2010 and 2011, leaving less money than expected for state appropriations. These back payments are in addition to credits that are accruing for current production

The announcement that tax breaks for horizontal and deep well drilling amounted to nearly $150 million per year in 2010 and 2011  should serve as a wake up  call to Oklahoma policymakers and the public. All evidence points to horizontal drilling accounting for a substantially greater share of Oklahoma oil and gas production in the years ahead.  The generous tax treatment we provide this form of drilling threatens to compound our budget woes and hamper our efforts to provide adequate funding of core public services. Read the rest of this entry »

States are spending billions of dollars per year on corporate tax credits, cash grants and other economic development subsidies that often require little if any job creation and lack wage and benefit standards covering workers at subsidized companies.

These are the key findings of “Money for Something: Job Creation and Job Quality Standards in State Economic Development Subsidy Programs”, a 51-state “report card” study published today by Good Jobs First, a non-profit, non-partisan research center based in Washington, DC.

“With unemployment still so high, taxpayers have a right to expect that economic development investments create significant numbers of quality jobs,” said Good Jobs First Executive Director Greg LeRoy. “The days of ‘no strings attached’ are largely gone, but the fine print in many states is still full of gaps and loopholes.” Read the rest of this entry »

This post originally appeared on Oklahoma Watch as part of their Oklahoma Voices series. The legislative task force that has been studying tax breaks will vote on final recommendations at its November 30 meeting. Also appearing today on our blog is a statement by tax force co-chair Rep. David Dank.

The Oklahoma tax code contains hundreds of credits, deductions, and other special breaks that cost the state billions of dollars each year. In the last few months, a legislative task force has uncovered numerous tax credits and deductions that lack public transparency, adequate monitoring, or any clear proof that Oklahoma was getting its money’s worth.

For political reasons, it is sometimes easier for lawmakers to change the tax code rather than fund a state program to do the job directly. Yet monkeying with the tax code is often a less efficient way to achieve a goal. For example, in 2007 Sen. Mike Mazzei proposed a tax credit that would reimburse 20 percent of the cost of health club memberships. The measure, which did not pass, was intended to combat obesity. Yet there was no way to ensure that the credit was not wasted on those who would have joined a health club without it. If we instead invested those funds in public health programs to promote physical fitness, we could ensure that the money is spent on those who need it. Read the rest of this entry »

Note: The Task Force for the Study of State Tax Credits and Economic Incentives, created by HB 1285, is meeting over the interim to scrutinize tax credits. This blog post excerpts an OK Policy issue brief from last year titled “Let There Be Light: Making Oklahoma’s Tax Expenditures More transparent and Accountable”. You can read the full brief or a 2-page summary of our recommendations.  Also see our blog post on the Task Force’s first meeting.

Tax expenditures are a widely utilized policy tool, with each legislative session seeing the introduction of dozens of bills calling for new or expanded tax breaks for individuals and businesses.  Proponents of most specific tax break proposals tend to make the argument in their favor on one or both of the two following grounds:

• Tax preferences are instruments for accomplishing worthwhile public purposes. If policymakers agree, for example, that encouraging individuals to save for a college education is a worthy goal, then allowing a tax deduction or deferral for some or all of one’s contributions to a 529 College Savings account may be the appropriate policy tool.  Tax policy can also be used as a way to target assistance and benefits to groups deemed worthy of support, because of such factors as age, income level, disability, military service, or occupation. Providing assistance through the tax code is often seen as a more effective, less expensive, and politically more palatable mechanism for providing support than operating a government spending program. Read the rest of this entry »

A recent news report examining proposals to limit the federal tax deduction for charitable giving concluded with a comment that gets to the crux of the debate over tax breaks:

As one donor explained, he doesn’t give to charity to get a deduction — but he’ll take it if it’s there.

It seems as though Oklahoma oil and gas producers think the same way.

State tax breaks ranked last among 10 variables cited by Oklahoma oil industry executives as affecting their decision to drill, according to the findings of  a non-scientific 2008 survey by Oklahoma City University economics professor Steven Agee. However, most producers will gladly take them when they’re there: Agee found that 83 percent of respondents had claimed a gross production tax rebate. Read the rest of this entry »

In their efforts to find additional revenues for the upcoming budget year, legislative leaders and Governor Henry took some strong and politically risky steps to suspend tax credits for various forms of economic activity. But when it came to tax incentives for the oil and gas industry, expected to amount to some $150 million in FY ’11, it was the industry that seemed to have the upper hand. HB 2432, which passed in the final days of session, allowed the state temporarily to defer incentive payments to oil and gas producers – but only in return for some permanent and questionable concessions to the industry. Read the rest of this entry »

In recent months, with the state confronting historic budget shortfalls for the coming fiscal year and critical services facing massive cuts, there has been growing attention paid to the vast array of exemptions, credits, deductions, and rebates known collectively as tax expenditures. According to data compiled from the most recent report by the Oklahoma Tax Commission, the state’s tax expenditure budget in FY ’08 consisted of over 450 tax preferences with a fiscal impact of at least $5.6 billion – an amount that exceeds the state revenue available for appropriation for next year’s budget ($5.4 billion).

Much of the discussion of late has focused on the wisdom and likelihood of reining in certain income tax credits whose costs have snowballed with little, if any, apparent economic benefit. However, this may also be the appropriate moment to look again at the tax preferences granted for oil and gas production in Oklahoma. Read the rest of this entry »

There is definitely something in the air. Over the past several weeks, there has been a heavy flurry of attention paid to the state’s system of tax expenditures, the array of over 450 exemptions, credits, deductions and the like that allow taxes not to be paid when they otherwise would. Yesterday, we released an in-depth issue brief which we titled “Let There Be Light: Making Oklahoma’s Tax Expnditures More Transparent and Accountable.” In our press release, we stated:

While the merits of granting tax preferences can be debated as a matter of principle, the reality is that they are unlikely to be abandoned entirely. There is a chance now to build on important progress made in recent years in increasing disclosure and scrutiny of tax expenditures to really get a handle on which tax breaks are worthwhile and effective, and which are wasteful giveaways.

Read the rest of this entry »

Are tax breaks for businesses a legitimate tool of economic development, or a form of corporate welfare? The fact is they can be either. The challenge is telling the two apart and ensuring through clear legislative language and ongoing oversight that policies that provide tax credits or other preferential treatment to businesses are meeting their goals.

Last week, a Joint Legislative Task Force created by legislation authored by Rep. David Dank and Sen. Randy Brogdon met to begin examining transferable tax credits. These are  tax incentives where one company qualifies for a tax  and sells that credit for cash to another company that wants to reduce its tax obligations.

According to a presentation by House staff attorney Mark Harter, the “general rule is that a tax credit can only be used by the person or entity who performed some economic activity or who invested money in some way.” Yet the Task Force heard that two of the state’s most notorious transferable tax credits – for non-stop coast-to-coast air service (Great Plains Airline) and for space transportation vehicle providers (Burns Flats spaceport) – provided much weaker standards. In those cases, taxpayers ended up on the hook for tens of millions of dollars for projects that failed (literally) to get off the ground.

But even where eligibility requires performance of certain economic activity, either job creation or capital investment, oversight and compliance is often uncertain. Rep. Dank was especially critical of the state’s coal credit intended for the purchase of Oklahoma mined coal. Businesses and individuals claimed anywhere from $5 million to $12 million in coal credits in 2007. Yet, according to Rep. Dank (quoted in the Journal Record, subscription only):

But there is no evidence that these were ever used to produce more coal or to hire more miners. Instead, tax credits given to the coal industry in Oklahoma were sold to companies that had nothing to do with coal, reducing revenues to the state with no economic gain.

The next meetings of the Task Force will no doubt dig deeper into how particular credits have been used, or misused.

Over the past several years, the state has made genuine progress in improving accountability and transparency of tax incentives.  An Incentives Review Committee, created by statute, has been reviewing major tax credits and making recommendations; their work was responsible, in part, for the decision to allow one of the most expensive and controversial incentive programs, the Venture Capital Credit, to expire at the end of 2008. As we discussed in this blog post, implementation of the Taxpayer Transparency Act (SB 1) led earlier this year to the launch of a searchable online database that generates lists of all individuals and businesses that claimed tax credits (so far information is available only for 2007).  And for the first time ever in the state, the Legislature this session passed a tax credit bill, SB 929,  that included a “clawback provision” allowing for the state to demand repayment of credits in the event that companies failed to uphold their obligations – as promptly occurred when Mercury Marine announced it was pulling up stakes from Stillwater and returning over $1 million in payments.

So what more can be done? One interesting idea was proposed recently by Good Jobs First, a national policy organization that focuses on corporate accountability:

We also need responsible budgeting. Let’s also require each state to enact a Unified Development Budget: an annual report to the legislature itemizing all forms of spending for jobs—both appropriations and tax expenditures. Tax breaks typically dwarf appropriations by ratios of 4 to 1, 6 to 1, 8 to 1 or more, so we need the whole iceberg up on the table for an annual check-up.

While Oklahoma has made strides in making available information on tax incentives with the Taxpayer Transparency Act and biannual Tax Expenditure Report, it remains difficult, if not impossible, to find comprehensive information on the full array of tax credits, especially regarding credits claimed on taxes other than the income tax (insurance premium tax, gross production tax, ad valorem tax).  A Unified Development Budget such as proposed by Good Jobs First could go a good ways towards helping pull the various pieces together into a single picture – and ultimately help policymakers with the tough but essential goal of reaching informed decisions about which tax credits are working to promote good jobs and investment, and which are purely handouts to special interests.