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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.
Today you should know that U.S. Senator Bill Nelson plans to ask the Justice Department to investigate Chesapeake Energy Corp for potential fraud and price manipulation. Chesapeake’s largest stockholder is pursuing steps to intervene in the management of the company. Chesapeake retained a PR consultant who has been described as “spinmeister of the apocalypse” because he has worked for many high-profile clients in moments of humiliating public collapse.
State Treasurer Ken Miller said that Oklahoma’s economy continues to do well despite the low price of natural gas, but if prices don’t rebound the state could end up paying out more in tax credits to the industry than it gets in taxes. Lawmakers said that despite months of work on the issue, major reforms to business tax credits this year is unlikely. The OK Policy Blog previously summarized what happened with the various bills seeking to reform tax expenditures.
OK Policy analyst Gene Perry writes in the OK Gazette about the risk to broad-based tax credits for working families that do not have powerful lobbyists defending them. An OK Policy issue brief provides more details about these credits. On May 9, the State Chamber of Oklahoma is hosting a tax policy debate between Arthur Laffer and UCO Business Dean Mickey Hepner.
Lawmakers are at odds over implementation of an A-F grading system for public schools. Legislation to reform Oklahoma’s criminal justice system has been sent to Governor Fallin. OK Policy previously analyzed what this legislation would do and what obstacles still stand in the way of real reform. DHS officials have revised their child welfare reform plan, agreeing that abused and neglected babies should no longer be housed in state shelters after the end of the year.
The Number of the Day is how many violent crimes were committed in Oklahoma per 100,000 people in 2010. In today’s Policy Note, Tax Credits for Working Families explains why the claim that those on the bottom half of the income spectrum don’t pay taxes is flat-out wrong.
In The News
Senator Nelson seeks probe into Chesapeake Energy
U.S. Senator Bill Nelson plans to ask the Justice Department to investigate Chesapeake Energy Corp for potential fraud and price manipulation, an aide to the lawmaker said. Nelson’s request comes after Reuters reported on Wednesday that Chesapeake Chief Executive Aubrey McClendon ran a $200 million hedge fund that traded in the same commodities Chesapeake produces. A search of Chesapeake’s filings turned up no disclosure of his activities. “In response to the reporting by Reuters, Senator Bill Nelson has asked his staff to formally request that the Justice Department’s Financial Fraud Enforcement Task Force investigate the Chesapeake Energy Corp matter to determine whether there is evidence of fraud, price manipulation, conflicts-of-interest, or other illegal activities,” said Ryan McCormick, a staff director for the Senate Finance subcommittee on fiscal responsibility.
Chesapeake’s biggest stockholder may seek third party involvement
Southeastern Asset Management Inc., the largest investor in Chesapeake Energy Corp. (CHK), filed to change its status to an activist investor so it may pursue talks with management or third parties to boost the company’s value. Southeastern disclosed a 13.6 percent stake in Oklahoma City-based Chesapeake in a filing today with the U.S. Securities and Exchange Commission. Mason Hawkins, Southeastern’s chairman and chief executive officer, pushed to have Chesapeake CEO Aubrey McClendon replaced as chairman and to halt a perk that allowed McClendon to buy personal stakes in Chesapeake’s oil and natural-gas wells. Chesapeake fell 13 percent to $16.97 at 2:40 p.m. in New York, after earlier dropping 14 percent, the biggest intraday decline since March 2009. The stock lost 49 percent of its value in the past year.
In latest sign of trouble, Chesapeake hires Lehman spin doctor
In the latest sign that massive natural gas fracker Chesapeake Energy is in deep trouble, the company has retained George Sard, the CEO of Sard Verbinnen. Sard was described as a “spinmeister of the apocalypse” by Portfolio magazine in April 2009, because he has worked as a PR consultant for so many high-profile clients in moments of utter, humiliating public collapse. Chesapeake is in distinguished company. Sard’s clients have included the Madoff brothers (Ponzi scheme), Eliot Spitzer (prostitution), Martha Stewart (insider trading), former Lehman Brothers CEO Dick Fuld (Ponzi scheme), and AIG (Ponzi scheme). His firm was also on the scene during the Enron collapse — JPMorgan hired him to beat back accusations that the bank was complicit in the Enron fraud (it eventually paid $135 million to settle SEC charges).
Read more from The Huffington Post.
Oklahoma’s economy continues to do well, state Treasurer says
The state’s total revenue collections resumed their upward swing last month despite lower than projected natural gas prices, state Treasurer Ken Miller said Wednesday “Oklahoma’s economy is reflecting health and resilience in spite of the low price environment for natural gas,” Miller said. Total revenue collections, a reflection of the performance of the state’s economy, came in during April at $1.16 billion, up by almost $83 million, or 7.7 percent, compared with the same month a year ago, he said. All major sources of revenue saw growth over the previous year except for gross production taxes on oil and natural gas, which fell by more than 20 percent, he said.
(Oklahoma Economic Report) Natural Gas: Beneath the surface
A glimpse at potential bad to worst-case scenarios shows a budgetary impact is possible if prices don’t rebound. Should natural gas prices during FY-13 be one dollar lower than the estimated rate of $3.64/mcf, the loss to the state budget would be approximately $70 million. If prices for the entire fiscal year averaged $2.00/mcf, when the top tax rate would be four percent, the negative impact to the budget would be approximately $175 million. In the worst-case scenario, with prices below $1.75/mcf at a tax rate of one percent for a full fiscal year, the state would be required to pay back to the natural gas industry more than is collected to account for payments due from deferred tax credits. Natural gas production doesn’t just provide direct gross production revenue to the state. It provides thousands of jobs and hundreds of millions of dollars of economic activity as well.
Read more from the OK Policy Blog.
Lawmakers say elimination of business tax credits unlikely
State leaders met for months to discuss eliminating dozens of tax breaks, but under intense lobbying from special interest groups, legislators appear unwilling to make significant changes in tax credits and incentives, key lawmakers said Wednesday. “There is no question that we started out bold in seeking legislation to do away with the credits,” said Rep. Earl Sears, R-Bartlesville, chairman of the House Appropriations and Budget Committee. “Unfortunately that has just not been the case. Members have found that the credits that we thought maybe needed to go away, in their particular district or in their particular region, continue to make an impact. It has just not been that easy. So these hundreds of millions of dollars we thought we’d review and eliminate, has just not come to reality.”
Previously: The tax expenditure dog: Still not barking from the OK Policy Blog
Tax credits worth saving
Are the hundreds of thousands of families in Oklahoma who make less than $50,000 a year a “special interest”? Based on rhetoric surrounding Oklahoma’s income tax debate, some lawmakers seem to think so. Gov. Mary Fallin and other state leaders are eager to cut the top income tax rate this year. They say we can offset some of the cut by eliminating “special interest” tax credits and deductions. Yet when the details emerge, we discover that the biggest costs would fall not on special interests, but on hundreds of thousands of Oklahoma families. These families would lose several broad and effective tax credits to make way for rate cuts that primarily benefit wealthier households.
Read more from the Oklahoma Gazette.
Previously: The “tax cut” bait and switch from Oklahoma Policy Institute
Upcoming event: Tax Policy Forum, May 9
The State Chamber of Oklahoma is hosting a tax policy forum, co-sponsored by OK Policy and the Oklahoma Council of Public Affairs. Speakers include: Arthur Laffer, PhD, the author of a report being relied on by those pushing to abolish the Oklahoma income tax. Mickey Hepner, PhD, Dean of the College of Business Administration at UCO and a critic of tax cuts. State Treasurer Ken Miller, PhD, who will be moderating The event will be held Wednesday, May 9, noon-1:30pm at the Oklahoma History Center, 800 Nazih Zuhdi Dr, Oklahoma City. Seating is limited. RSVP for lunch to Karen Cagle at kcagle@okstatechamber.com or call 405-235-3669.
Read more from the OK Policy Blog.
Lawmakers at odds over A-F grading system for public schools
Gov. Mary Fallin approved rules Wednesday for an A-F grading system for public schools. At nearly the same time, a House committee passed a measure seeking disapproval of the rules developed by the state Education Department to implement the scoring system. The rules are in effect and will be used unless the House of Representatives and the Senate both pass House Joint Resolution 1125, which calls for disapproving them. The House Administrative Rules and Government Oversight Committee voted 9-1 to pass HJR 1125, which now is headed for the full House for possible consideration. Several school officials complained to committee members that the rules are confusing and unfair, and were developed without enough feedback from public school officials.
Justice Reinvestment legislation sent to governor
The House passed a measure Wednesday intended to reduce crime and control prison growth. House Bill 3052, by House Speaker Kris Steele, passed 71-18. It now goes to the governor. HB 3052 would create a grant program for local law enforcement agencies, require supervision of all felons leaving prison and develop intermediary revocation facilities for nonviolent offenders who violate drug court regulations or conditions of probation and parole. Steele, R-Shawnee, accepted a decision by the Senate to cut a section of his bill that would have allowed inmates who must serve 85 percent of their sentence to start earning good-time credits when they enter prison.
Previously: Reforming criminal justice: What the latest bill does and what stands in the way from the OK Policy Blog
Oklahoma DHS officials tweak reform plan
DHS officials have revised their child welfare reform plan, agreeing that abused and neglected babies should no longer be housed in state shelters after the end of the year. Most of the original reform recommendations remain intact, including plans to decrease caseloads, add 200 new child welfare workers over the next two years and recruit 500 new traditional foster families by the end of the first fiscal year. The agency wants more foster families so it can stop using its often-overcrowded shelters to care for the youngest abused and neglected children. The revised plan incorporates a few changes, however. It speeds up the process for getting abused and neglected babies out of state shelters and into family-like settings. The original plan called for eliminating the use of shelters for children younger than 6 years old by June 30, 2013. The new plan would require that all children under 2 years old be placed in family-like settings by Dec. 31, while leaving the earlier date intact for children ages 2 to 6.
Quote of the Day
A salary increase alone is not likely to bring about the changes needed in the Oklahoma child welfare system. However, OKDHS is in a workforce crisis. For the past year, it has been very difficult to attract an adequate pool of eligible candidates and retain high-performing staff in a complex and challenging field when salaries are not competitive.
–The Oklahoma Pinnacle Plan report on fixing the state’s child welfare system to meet the terms of a court settlement
Number of the Day
480
Number of violent crimes committed in Oklahoma per 100,000 people in 2010, down from 550 violent crimes in 1990.
Source: FBI’s Uniform Crime Report via DisasterCenter.com
See previous Numbers of the Day here.
Policy Note
Tax credits for working families alleviate, don’t erase tax burden
We’ve already shared our thoughts on the misleading claim that wealthy Americans pay a disproportionate share of taxes while those on the bottom half of the income spectrum don’t contribute. This argument is flat-out wrong: It only looks at federal individual income tax, ignoring the fact that Americans are subject to many other types of taxes –from federal payroll taxes and excise taxes on gasoline and other items, to state and local taxes like sales, property and income taxes– that nearly every person in the country pays. And since these other types of taxes tend to be regressive, they impose a greater tax burden on low-income families than on wealthier families. Many taxpayers who fall in the bottom half of earners are eligible for the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), which supplement their wages and help them make ends meet. But even with that relief, possibly reducing their income tax liability to below zero, they will still devote a significant chunk of their small income to taxes.
Read more from Tax Credits for Working Families.
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