NOTE: This week, Oklahomans learned the state was on the hook to pay oil and gas producers $294 million over the next three years in deferred tax rebates for horizontal and deep well drilling in 2010 and 2011, an amount almost $150 million more than initially anticipated. The deferred payments came about as a result of legislation, HB 2432, passed in 2010 that provided several concessions to the oil and gas industry in how horizontal and deep well drilling is taxed. Here is the blog post we ran at that time explaining HB 2432 and expressing our concern about the potential costs of tax breaks to the industry. It has been edited to revise one error in the initial post and to link to an updated fact sheet.

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 and FY ’12, 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 »

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 »

Scott Meacham is the former State Treasurer and former director of the Oklahoma Office of State Finance. He currently chairs the Oklahoma Chamber of Commerce’s Economic Development and Taxation Committee.

The Oklahoma legislature has struggled for decades with the best way to encourage capital investment in Oklahoma. Many ideas have been tried with varying degrees of success. The problem is that once the ideas are launched by the legislature, usually as tax benefits under Oklahoma’s tax code, they are all but forgotten. Tax benefits included credits against tax liability, deductions against income and, in some cases, direct payments from the State. No real processes exist to critically evaluate these programs and eliminate those that are not working. The result is that the least effective of these initiatives stay on the books and end up costing the state hundreds of millions in lost tax revenues.

The Rural and Small Business Tax Credit programs are one of the prime examples of bad tax policy run amok. The legislature launched these programs a decade or more ago with the stated purpose of encouraging venture capital investment in Oklahoma. The structure created was very complicated, with entities called Capco’s serving as a sort of investment pool where investors would make investments and receive hefty tax credits in return. The Capco would then invest the investor funds, perhaps along with borrowed money, in qualifying rural or small business ventures.

The problems started almost immediately as smart lawyers figured out loopholes and ways to provide tax benefits which in some cases exceeded the amount invested. With such lofty investor returns at the expense of state tax revenues, investors quit paying attention to the merits of the underlying investments, as they literally had nothing to lose. In one highly publicized case, the investors took their credits and no investment was even made. The State was left totally holding the bag. 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 »

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

This week at OK Policy we blogged about an unlikely request to area governors from Kansas City business executives – stop offering tax incentives.  Competing incentives incite an “economic border war,” where companies move back and forth across state lines chasing profits, but without benefiting the community or economy at large.  Oklahoma recently received an object lesson on the futility of state subsidy wars, but the problem is a nationwide phenomena.  We propose that it makes far more sense to invest in a strong general infrastructure and workforce, then in bonuses and incentives for particular businesses and corporations.

This past weekend the Tulsa World wrote an editorial citing Director David Blatt on the impact of repealing the Sales Tax Relief Credit on poor Oklahomans.  Click here for our blog post last week on a legislative proposal to repeal this credit.  The bill died this week after it was not heard in the House.

Yesterday’s blog explained how growing income disparities erode public structures and political community.  Inequality, as measured by the U.S. Census Bureau’s Gini index, has increased in Oklahoma over each of the past three decades, going from 0.419 in 1979 to 0.445 in 1989;  0.455 in 1999 and 0.460 in 2009.  However, Oklahoma’s Gini coefficient in 2009 (0.460) was below the national average (0.468) and we rank 32nd among the states.  Today on OK Policy blog, guest blogger Jeffrey Alderman, M.D. highlights the ever-shrinking pool of health care providers in Oklahoma.

Board Chair Vince LoVoi spoke up on behalf of OK Policy this week with a defense of our core values:

Foremost, we are nonpartisan and will never subscribe to labels, left or right, red or blue, Democrat or Republican. Second, we focus solely on the betterment of Oklahoma.  Our priorities are fiscal responsibility; the fair, adequate and efficient delivery of essential services; and economic opportunity for middle- and lower-income Oklahomans….To that end, we will share ideas with any Oklahoman who shares our goals, whatever label they may or may not wear.

Numbers of the Week

• 13,485,000 – Visits to state parks in Oklahoma in 2007
• $2,499 – Median credit card debt in Oklahoma, 2008; the national median credit card debt is $2,960
• 13,200 – Non-farm jobs added to the Oklahoma economy between February and March 2011
• 36.2 percent – Oklahoma families that are ‘low-income working families’ (income below 200% of the federal poverty line in 2007); 28 percent are ‘low-income working families’ nationally
• 130 – Years a prospective Mexican immigrant would have to wait to gain legal admission to the U.S. after applying for an unskilled worker visa.

Click here for source citations and archived numbers of the day.

In the Know is a daily synopsis of Oklahoma policy-related news and blog posts.  You can sign up here to receive In the Know in your inbox each weekday morning and the Weekly Wonk each Friday afternoon.

Last week, 17 of the top business executives from the Kansas City area made an unexpected request to the governors of Kansas and Missouri – they asked to end tax incentives for their businesses. The letter describes competing incentives as inciting an “economic border war,” where companies get escalating payoffs to move back and forth across state lines, with no benefit to the larger community. The business leaders wrote:

At a time of severe fiscal constraint the effect to the states is that one state loses tax revenue, while the other forgives it. The states are being pitted against each other and the only real winner is the business who is “incentive shopping” to reduce costs. The losers are the taxpayers who must provide services to those who are not paying for them.

Read the rest of this entry »

It is widely accepted that ownership of assets – a home, savings accounts, stocks and investments, a business – is a cornerstone of family financial security. Assets provide a cushion against temporary setbacks and allow for an investment in greater opportunities and economic success in the future. Government policies have long promoted asset building through a combination of direct expenditure programs and, especially, through preferential tax treatment in the federal tax code of home mortgages, savings account contributions, capital gains income, and other items.  States, too, promote asset building, in large part by “piggybacking” on federal itemized deductions for such items as the home mortgage deduction and property taxes on state income taxes.

A new report from CFED and the Annie E. Cassey Foundation (AECF) calculates annual federal expenditures on asset-building policies to be $384 billion. Of this total budget, ninety per cent of benefits, or $348 billion, is delivered through the tax code, while just 10 percent, or $37 billion, takes the form of direct government expenditures. Most of the latter is in the area of scholarships and grants for post-secondary education. Conversely, the vast majority of the total federal budget in the areas of homeownership, savings and investment, retirement accounts and business developments takes the form of tax credits, deductions, and lower tax rates.

Here’s the thing. These policies to promote savings, investment and ownership primarily subsidize the wealthy, and offer few, if any benefits to low- and moderate-income households. Take, for example, homeownership. According to the report: Read the rest of this entry »

Over the past several months, we have blogged several times on state tax incentives, in particular on the need to strengthen transparency and evaluation of tax credit programs (see our posts here,  here, here and here). The issue  seems to be quickly gaining critical mass.  In September, a Joint Legislative Task Force chaired by Senator Mike Mazzei and Representative Jeff Hickman began examining transferable tax credits (the Task Force meets again November 5th in Tulsa). Earlier this month, Representative Mike Reynolds called for an investigation into possible abuses associated specifically with two transferable tax credit programs, the Small Business Capital Companies credit and the Rural Small Business Capital Companies credit.  The Oklahoman has taken note, arguing in this editorial that, “while we remain convinced that some incentive programs are justified, the potential for abuse makes the scrutiny vital and timely.”

One common argument for tax incentives is that in the competitive world of state economic development, states that fail to offer tax breaks to entice companies to invest or stay put will see investment and jobs shift elsewhere. Read the rest of this entry »

In a recent post on our blog, Paul Shinn looked at state tax incentives and made the case for holding them to the same standards of accountability as direct government spending programs.  In the new blog at Tax.com, David Brunori, who is among the most knowledgeable and sharpest tax policy experts in the nation, pulls no punches in taking aim at the bidding wars that often break out between states hoping to attract or retain manufacturing facilities. In this case, he’s discussing the competition between Indiana, Kentucky and Tennessee to lure Harley-Davidson to open a motorcycle assembly plant in their states. Brunori writes: Read the rest of this entry »

I recently attended a meeting of the state’s Incentive Review Committee. This board of citizens is appointed by elected leaders to review some of the hundreds of tax incentives we give to encourage specific economic activities. Dr. Larkin Warner, a member who also is a retired professor of Economics at Oklahoma State University, called the committee’s attention to two research approaches and current views on state tax incentives for businesses.

In the July 13 & 20 edition of Business Week, Jessica Silver-Greenburg asks Will Tax Breaks Boost State Jobs? She points out that incentives are a zero-sum game. Michigan might be better off for keeping a GM plant by spending $44 million in tax money, but the country is not.While state economic development officials defend the programs as essential to the state’s economic future,  Greg LeRoy of Good Jobs First, contends:

It’s a net-loss game for state and local governments. The only winners are the companies playing the tax game. Read the rest of this entry »

The Brookings Institution recently released a study of the continuing shift of jobs away from cities and toward the suburbs. According to Job Sprawl Revisited: The Changing Geography of Metropolitan Employment, only 21 percent of Americans who live in metropolitan areas work within three miles of a downtown area. All but three of the 98 areas studied have seen jobs move further away from the city center from 1998 to 2006. Nearly every industry is involved in this outward shift.

Only 21 percent of employees in the largest 98 metro areas work within three miles of downtown, while over twice that share (45 percent) work more than 10 miles away from the city center.

Oklahoma’s major metropolitan areas are joining in this trend. Our jobs are not as spread out as most metro areas, but lately they have been spreading faster. Just under a quarter of Oklahoma City (23.9 percent) and Tulsa (23.1 percent) jobs are 10 or more miles from the city center, compared to the national average of 45 percent. From 1998-2006, Oklahoma City share of jobs in this “outer ring” has grown by 4.6 percentage points; in Tulsa it grew by 3.8 percentage points. Both are considerably higher than the national average growth of 2.6 percent.

Read the rest of this entry »