Oklahoma ranked 6th in the nation for tax break safeguards, but serious gaps remain

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.”

Oklahoma was found to do the 6th best job of applying job standards to major subsidy programs, coming behind only Nevada, North Carolina, Vermont, Iowa, and Maryland.  Among Oklahoma’s individual subsidies, the Quality Jobs and 21st Century Quality Jobs Programs earned the highest marks, with 109/100 and 95/100 points respectively.

Other Oklahoma subsidies did not fare so well. The lowest performing Oklahoma program was the Investment/New Jobs Income Tax Credit, which received only 25/100 points. This credit was placed under a two-year moratorium in 2010 and is now under review by the Task Force for the Study of Tax Credits and Economic Incentives. At a meeting of the task force, Rep. David Dank called the lack of caps, controls, or transparency for the Investment/New Jobs credit “a disgrace for the state.” The program has an estimated $140 million in awarded but unused credits, with no limits on when companies can claim them.

To prevent the wasting of public money on handouts to businesses that may have little to no return for the state, we should extend the strong eligibility standards of the Quality Jobs program to every subsidy that is offered, or eliminate them entirely. And even the most well-designed subsidy should have a sunset provision and an annual cap so it doesn’t break the budget. (For more on this, see OK Policy’s issue brief on making tax breaks more accountable.)

A tax break not mentioned in the Good Jobs First report but especially relevant to Oklahoma is the gross production tax rebate for oil and gas producers. We pay out millions of dollars in these rebates with no job creation requirements and no guarantees that we are not paying oil and gas companies to do what they would have done regardless of the handout.

Money for Something rates the performance standards and job quality requirements of 238 key subsidy programs from the 50 states and the District of Columbia that together cost more than $11 billion a year. Each program is rated on a scale of 0 to 100 (with extra credit for advanced features). The scores for the programs in each state are averaged to derive a state score. The report offers these policy recommendations:

• Every subsidy should contain job creation, job retention or training requirements. Those should be strengthened by provisions barring employers from shifting existing jobs from other facilities and mandating that the jobs be kept in place for a minimum period.
• Every job or training position in a subsidized facility should be covered by a wage standard, preferably tied to labor market averages and structured in a way that raises pay above market levels. They should also offer health coverage in which the employer contributes to the cost of the premium. These rules should also apply to part-time, temporary and contract workers.
• Decent job standards do not guarantee that a program’s benefits will outweigh its costs. Sometimes the only sensible course of action is to eliminate a program altogether.

Note: Standards such as those rated here mean little if they are not enforced. In a companion report to be issued soon, Good Jobs First will grade the states on their enforcement practices.