The Oklahoma tax code is riddled with some 450 ‘tax expenditures’ that reduce state funds by exempting or giving back tax payments for favored groups and activities. Despite widespread rhetoric about the need for serious reform of  tax expenditures, eliminating tax breaks was “the dog that didn’t bark” this past legislative session. The Legislature did, however, pass HB 1285 to create a Task Force for the Study of State Tax Credits and Economic Incentives. The Task Force is charged with examining the justification and economic impact of all state tax credits and incentives.

On a sweltering Friday in mid-July, an overflow crowd of policymakers, lobbyists, reporters, and policy analysts packed the fourth floor committee rooms at the State Capitol for the Task Force’s first meeting. The meeting began with opening statements from the ten Task Force members, which includes legislative leaders from both parties, statewide officeholders, and Cabinet secretaries. Their remarks emphasized that in a time of severe fiscal constraint, expenditures through the tax code must be held to the same scrutiny and accountability as direct budgetary expenditures. In particular, Task Force co-chair David Dank stressed that decisions about tax credit programs must be guided by a recent Attorney General’s opinion on the subject. As we discussed in this blog post, then-AG Drew Edmondson laid out a three-part test to determine the constitutionality of a tax credit.  The AG’s opinion cast doubt on several existing tax credits, particularly transferable tax credits where entities purchasing a tax credit are not held to the same standards and conditions as those who initially qualify for and receive the credit. Read the rest of this entry »

In The Know is a daily synopsis of Oklahoma policy-related news and blogs. Inclusion of a story does not necessarily mean endorsement by the Oklahoma Policy Institute. E-mail your suggestions for In The Know items to gperry@okpolicy.org. You can sign up here to receive In The Know by e-mail.

The first meeting of a legislative task force for the study of state tax credits and economic incentives is scheduled for this Friday.  Oklahoma City Councilman Ed Shadid calls for halting plans to build a convention center downtown in favor of quality of life projects like trails, sidewalks and senior wellness centers.  Republican State Representative George Faught announced his candidacy for Congress in Oklahoma’s Second District.  CapitolBeatOK presents different perspectives on the state’s recent $219 million deposit into the Rainy Day Fund.

Home foreclosures in Oklahoma were down significantly during the first half of this year.  The Tulsa area had the eighth-fastest growth in clean economy jobs between 2003 and 2010.  Oklahoma has seen a sharp increase in oil drilling.  Sen. Tom Coburn may rejoin a group of senators known as the ‘Gang of Six’ for bipartisan budget negotiations.  Grand Lake’s blue-green algae toxin warning has been lifted. 

Edmond joins Oklahoma City in establishing a water conservation schedule and will temporarily buy needed water from Oklahoma City.  Citizens of Ada ask for a public apology from the city after the chair of a city beautification committee used the n-word during a meeting.  The number of Oklahoma residents who say they are living with a same-sex partner has increased dramatically, according to the 2010 Census.

The OK Policy Blog has an interview with the interim director of the University of Tulsa’s new School of Urban Education.  In Today’s Policy Note, the National Employment Law Project issued a report documenting widespread hiring discrimination against the unemployed.  Today’s Number of the Day is how many jobs Oklahoma needs to get back to pre-recession levels. These stories and more below the jump. Read the rest of this entry »

In an earlier post, we discussed tax breaks that had been extended or newly created in the most recent legislative session. The governor promised to eliminate tax credits that “do not create jobs,” but there were no successful bills to end credits or any other tax expenditure this year.

The unwillingness so far of state leaders to rein in tax expenditures is a serious problem. As OK Policy pointed out in a pair of issue briefs[1, 2], Oklahoma’s tax code is full of holes created by numerous exemptions, deductions, and credits. The estimated cost of all these tax breaks is $5 billion a year. In an issue brief released last year, OK Policy also laid out several principles for how to make tax expenditures more transparent and accountable and distinguish good tax breaks from bad.

To understand why that is important, consider that direct appropriations must be approved by the legislature every year.  Tax credits, deductions, and exemptions reduce state funds to accomplish policy goals in the same way as direct spending. But as the Center on Budget Priorities explained in a report on tax expenditure transparency, “Most tax expenditures are written into the tax code and thus will continue indefinitely — regardless of how costly they may become over time — unless the legislature acts to discontinue them.” Read the rest of this entry »

In her first State of the State speech, Gov. Fallin said, ”Our course of action will be simple: only tax credits that create jobs will stay. For instance, my budget begins the process of restoring the Aerospace Engineer Tax Credit, which brings good, high tech jobs to Oklahoma. But those tax credits that do not create jobs must be eliminated.”

Reinstating the aerospace credit was among the Governor’s top goals this year, and she made good on that promise early in the session. Unfortunately, eliminating tax credits that aren’t worth the cost did not seem to be as much of a priority.

While some positive steps were made over the legislative session to increase transparency of tax credits, we have seen no credits permanently taken off the books. On the contrary, several tax credits and exemptions were added or extended. Read the rest of this entry »

As we pointed out in an earlier post, there is more than one way to cut taxes. We can do it in a way that mostly benefits those with the highest incomes, as is the case with cutting the top income tax rate, or we can provide relief to those who need the most help and who suffer most from the loss of public services.

The same is true when eliminating tax exemptions. Certainly some exemptions should be removed to ensure adequate revenues and a fairly shared tax burden. However, a bill on its way to the House floor goes far beyond those exemptions that cater to special interests. SB 517 would sunset twenty tax credits, including the Sales Tax Relief Credit, which is relied on by about one million low- and medium-income Oklahomans.

Poor Oklahomans already pay a larger share of their income in taxes than the wealthy due to sales and property taxes. In particular, the sales tax on groceries disproportionately affects low-income Oklahomans. According to the 2009 Consumer Expenditure Survey, the poorest 20 percent devoted nearly twice as much of their incomes to groceries as did the wealthiest 20 percent. Read the rest of this entry »

What’s up this week at Oklahoma Policy Institute?  The Weekly Wonk is dedicated to this week’s events, publications, and blog posts.

Once again, property tax cuts are on the table this legislative session.  OK Policy took a close look at property taxes this week, suggesting in a blog post that a better approach to get help to people who need it without forfeiting investments in public infrastructure would be to increase the homestead exemption, which currently reduces by $1,000 the assessed value of a taxpayer’s actual residence.  For a summary of the major elements of Oklahoma property taxes, which Oklahomans pay less of than almost any other state, download the fact sheet released on our website this week.  You can also listen to our Director David Blatt breakdown the legislative proposals in a segment on KWGS Public Radio Tulsa.

Oklahoma was one of only six states selected to receive a $54 million dollar health care ‘early innovator’ grant from the federal government.  The state is now poised to build the best health care technology in the country, including developing the state’s online insurance exchange, one of the primary requirements of the Affordable Care Act.  Find out why Oklahoma was selected for this grant and how they plan to spend it by reading Monday’s post, Oklahoma Named Early Innovator. Read the rest of this entry »

When we discuss government budgets, direct spending receives the most attention by far. Less noticed is the substantial expenditure on tax credits and incentives, what some have called the “submerged state.”

That inattention may have allowed several unconstitutional measures to sneak through in Oklahoma. At the end of 2010, outgoing Attorney General Drew Edmondson issued an opinion on the constitutionality of Oklahoma tax credits. The opinion was requested by Rep. David Dank, R-Oklahoma City, who chairs the House Revenue and Taxation subcommittee. An AG opinion does not have force of law–only a court can legally determine constitutionality–but it can provide guidance to lawmakers and the courts. Read the rest of this entry »

This is the fourth in an ongoing series of posts looking at the impact of the new federal health care reform law on Oklahoma and Oklahomans. Our previous posts have explored the “cliff effect” , the  impact on state budgets and the Temporary High Risk Pool. For full information on health care reform, the Henry J. Kaiser Family Foundation website is excellent. If you have thoughts on health care reform, we encourage you to contribute a comment or a guest blog.

Most people who have been following the Affordable Care Act, the new health care law passed earlier this year, know that the law will strengthen the individual market for health insurance coverage, by offering subsidized coverage on the new health insurance exchanges, and expand access to public coverage for low-income families through Medicaid. What is less well known and understand is that the Affordable Care Act also includes several important mechanisms for strengthening the beleagured employer-based system of health insurance coverage, especially for small businesses that currently face the greatest challenges in offering coverage to their workers and where the rates of the uninsured are currently the highest.

A recent report from Families USA looks at one of the most important provisions of the new law, tax credits for small businesses that will provide significant help with the cost of coverage. Beginning this year, businesses with fewer than 25 workers and average wages of less than $50,000 will be eligible to receive a tax credit for the health insurance premiums they provide to their employees.  The smallest firms with the lowest wages will be eligible for the maximum credit, which is 35 percent of the cost of coverage, or 25 percent for non-profits. The credit will phase down for businesses with more employees and higher average wages. Businesses that are already offering coverage, as well as those opting to cover the workers for the first time, will be eligible for the credits. After 2014, when the new health insurance exchanges will be operating, credits will increase to 50 percent of the cost of coverage, or 35 percent for non-profits. Read the rest of this entry »

We are at a truly critical time for Oklahoma. The state faces its most severe budget crisis of the past quarter century, perhaps the most severe in its history. As revenues have fallen, successive rounds of budget cuts have created hardships for those whose health, security and livelihood depend on state-funded services. However, as bad as things have already gotten, we are only now approaching the eye of the full budget storm. In the absence of additional revenues, the state’s budget shortfall for the upcoming year is equivalent to cuts of an additional 11 to 12 percent across every agency of state government beyond what has already been cut this year.

In recent blog posts, we have laid out the potential toll that cuts of this magnitude could have on Oklahoma families, businesses and communities. The Oklahoma Health Care Authority is considering the elimination of prescription drug coverage, diabetes supplies and kidney dialysis treatment for adult Medicaid recipients. The State Health Department warns of an inability to respond in timely fashion to man-made disease occurrences and natural disasters. The Department of Human Services confronts rate reductions that could push private sector providers of services to Oklahomans with developmental disabilities out of business. Similar stories are being told across the spectrum of state government of cuts that would undo progress made in recent years and set our state back years, if not decades. Read the rest of this entry »

If, as Judge Louis Brandeis famously stated, “Sunshine is the best disinfectant”, the Oklahoma Legislature seems to be on a bit of a cleaning frenzy. Several bills making their way through the legislative process this session HB 3422, SB 1633 and HB 3253 – would expand the amount of information on public expenditures that is made available online to the public.

The measures all build on the 2007 Taxpayer Transparency Act, authored by Sen. Randy Brogdon, which led to the state’s OpenBooks website. The site makes available data on expenditures by each state agency by year and purpose, including detailed payroll and vendor information. OpenBooks also provides information on individuals and businesses who claimed tax credits against the income tax (see our post on this subject). Read the rest of this entry »

In Monday’s State of the State address, Governor Henry laid out the broad parameters of his FY ’11 Executive budget. The Governor’s speech likened our current fiscal storm to the severe weather the state has faced recently and so often in our past.  While the Governor stated clearly that continued budget cuts are unavoidable due to the dramatic plunge in revenues that has hit the state during the current fiscal year (FY ’10) and that will continue next year, he earned loud, bipartisan applause when he declared:

We all will be asked to sacrifice. But we cannot balance the budget at the expense of the most vulnerable among us.

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.