Even as Governor Fallin and legislative leaders were patting themselves on the back for this year’s legislative session, one Republican lawmaker sounded a discordant note. Rep. David Dank, R-Oklahoma City, awarded the session a “C-minus at best,” saying it was “marked as much or more by what we failed to do than by what we actually achieved.”
A large part of Rep. Dank’s discontent comes from the Legislature’s failure to take meaningful action on the numerous tax credits, deductions, and other loopholes that riddle the tax code. Dank has long been a champion of reining in tax breaks. He led a task force on the issue in 2011, and he has sponsored several bills over the past couple years to increase oversight and eliminate unnecessary tax credits.
Those efforts have not seen much success. In fact, lawmakers approved several measures this year to extend or create new tax credits. Here’s what was done:
SB 343 by Sen. Mike Mazzei and Rep. Elise Hall extended the sunset date to 2021 for payouts going to utilities that burn Oklahoma coal and large renewable energy producers. Previously, the coal credit was set to expire in 2014 and the renewable energy credit (known as the zero-emission facilities credit) would have expired in 2016.
This bill also changed these credits from being transferrable to being refundable at 85 percent of their value. Previously, the credits could be sold to other entities for a portion of their value, and the state would deduct the full value from the taxes owed of whoever bought the credit. It was designed so that the incentive would continue even after the tax liability for the original recipient had gone down to nothing.
After this change, the original recipients (purchasers of Oklahoma coal or generators of renewable energy) can no longer sell credits, but they can receive direct payouts from the state after their tax liability has been reduced to zero.
This change will save some taxpayer money, since the payouts will be at 85 percent rather than 100 percent of the credits’ starting value. However, it also pulls the veil off to make it even more clear that these tax breaks are spending programs by another name. Last fiscal year, the coal credit paid out $293,000 while the zero-emissions facilities credit paid out $2.9 million.
A new tax exemption was created with SB 645 by Sen. Mike Schulz and Rep. Charles Ortega. It provides an excise tax exemption for helicopters that were “purchased to be used exclusively for training U.S. military personnel or other training authorized by the U.S. Government.” Ortega said the exemption was designed to support a helicopter training facility in southwest Oklahoma, even though the training facility was already planning to open without the credit. Besides the fact that the bill’s own author acknowledged that it is unnecessary spending, this tax exemption designed to help out a specific company may qualify as an unconstitutional “gift” that would be thrown out in court if challenged. The exemption is estimated to cost Oklahoma $1 million in FY 2014 and $535 thousand in FY 2015.
Lastly, in response to the damaging tornadoes in Moore and other parts of the state, SB 330 by Sen. Anthony Sykes and Rep. Earl Sears created tax credits for owners of vehicles and homes that were destroyed. The bill also exempts from the sales tax goods that were donated for tornado relief.
One measure was approved to remove some tax breaks. HB 2308 by Rep. Scott Martin and Sen. Clark Jolley eliminated 18 tax credits and 3 tax deductions. However, most of those eliminated were already being used very little or not at all. You can see a table here that lists the eliminated tax breaks and what they cost Oklahoma last fiscal year. This bill was estimated to save $1.874 million in FY 2014, with most savings coming from eliminating the deduction for dividends and interest from Oklahoma-based banks. That estimate may be high, because it claims small savings from eliminating a tax credit for victims of tornadoes between 1999 and 2003, even as SB 330 recreated this credit for 2012-2013 tornadoes. Savings from this bill will not be much greater than the cost of the new helicopter training facility tax credit.
There’s much more that could be done. OK Policy has identified several likely candidates for tax breaks that should be eliminated, including the “double deduction” for state income taxes paid and the out-of-control tax breaks for horizontal drilling. The cost of the the latter tax break could balloon to as high as $400 million every year without legislative action, and it is strongly opposed by Oklahoma voters.
Senate Pro Tem Brian Bingman has said that reforming tax credits will be on the agenda for next year. He told the Associated Press, “All those tax credits have sunset dates on them, and I think it’s our responsibility to look at them and make sure they’re bringing economic benefit to Oklahoma. We will continue looking at them.”
We can only hope that, unlike this year, they do more than look.