Oklahoma makes “Quality Jobs” payment to companies that aren’t creating new jobs (Guest Post: Mark Lash)

Mark Lash is a retired federal employee who follows Oklahoma policymaking, tries to understand it, and sometime even writes about it.

Oklahoma’s Quality Jobs Program began in 1993. In fiscal year 2013, it paid incentives of $78.9 million to Oklahoma companies. The purpose of the program is to incentivize businesses to bring jobs to Oklahoma. Yet one provision, the “Change in Control Event”, allows companies who create no new jobs to receive payments from the state.

This blog post shares two case studies of how this provision has led to questionable Quality Jobs payments. More examples can be found in my longer report on the subject.

The “Change in Control Event” provision, which was added to the Quality Jobs program in 2006, comes into play when a company transfers more than 50 percent of its ownership or assets. The company can then make a case to the Department of Commerce that they have offers and incentives to relocate their business outside of Oklahoma. If the Department approves the contract, the company is eligible to receive incentive payments for jobs that already exist, under the premise that they could have moved them out of state.

Eight companies have been awarded a contract under this provision, and they have received incentive payments of $14.2 million through FY 2013. One company that currently receives payments is Holly Refining & Marketing, located in Tulsa. Their parent company, HollyFrontier, purchased their assets from Sinclair in 2009 for approximately $340 million. The purchase included two refineries, their associated infrastructure, and 1,216 acres of land.

Holly’s contract with the state shows that for the purpose of incentive payments, the company was able to count 460 existing jobs as new jobs. As of FY 2013, they have received incentive payments of $8.99 million and are on track to receive the maximum contract benefit over a ten-year period of $25.2 million.

In the case of Holly, the approval letter for their contract was different from every other company, in that it did not mention that the jobs were likely to leave the state. When I asked the Department of Commerce about this difference, they replied:

Holly Refining & Marketing is slightly different from other change in control projects. In this case the jobs were considered at risk because the refinery was to close if the company did not receive incentives to justify the investment to upgrade the existing refinery. Due to extremely stringent EPA regulations it is extremely difficult to build a new refinery. The options for the owners of the refinery were to either upgrade or close the refinery.

In fact, the Oklahoma Department of Environmental Quality is also a party to the EPA complaint, and Holly was well aware of the EPA concerns before they purchased the refineries from Sinclair in 2009. Furthermore, Holly had already purchased the refineries before receiving approval for incentives in February 2010. So why would the Department of Commerce approve payments to help a company pay for upgrades required by another state agency and the EPA? Would Holly have really closed the refineries after just buying them for about $340 million?

We should also wonder why Oklahoma is providing a subsidy to a company whose parent company had net profits of $1.7 billion and revenues over $20 billion in 2012. They certainly don’t need this “incentive” to remain profitable.

One company that dropped out of the program was the glass manufacturer Zeledyne, which was located in Tulsa. Zeledyne was allowed to count 300 existing jobs as new jobs under the change in control event provision. Beginning July 2008, the company received six quarterly payments for a total of $2.3 million. Yet in February 2010, Zeledyne said that its Tulsa plant and assets elsewhere were for sale, and in March 2010, they laid off 210 employees. In 2011, Zeledyne closed their Tulsa factory, laid off about 200 employees, and sold the property to Ford Motor Company, which demolished the plant and sold off all of the machinery.

With this company, we might ask what due diligence occurred to ensure that they were financially sound and likely to continue employing Oklahomans. Unfortunately, that information is also exempt from release under the Oklahoma Open Records Act. The layoff in March 2010 was certainly a red flag, but as was recently reported by The Oklahoman, the Quality Jobs Program does not provide a “clawback” mechanism for the state to recover its money if a company seems about to fail. The contract between Zeledyne and the state did require money to be returned if they ceased operations within 3 years of receiving their first payment, but media reports indicate that the money was never paid back.

Oklahoma has made large cuts to core services in recent years, including what was by some reports a more than 20 percent drop in per-pupil funding for our schools. In this environment, we should expect state leaders to make every penny count. Yet as these examples and others discussed in my full report show, we may be wasting millions on payments to private corporations without getting any new jobs in return.

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