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Up for Scrutiny: Over $335M a Year in Business Incentives

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Photo of wind turbines near Hunter in Garfield County. Photo by Bonnie Vculek, Enid News and Eagle. Photo of wind turbines near Hunter in Garfield County. Photo by Bonnie Vculek, Enid News and Eagle.

By Warren Vieth and Mark Lash, Oklahoma Watch

Responding to a new law that took effect Nov. 1, state officials are suggesting an independent review of up to 75 business incentives that have reduced state revenue by more than $300 million a year.

The list, compiled by four state agencies with help from nongovernment advisors, is dominated by two big incentives designed to boost employment in Oklahoma: the Quality Jobs Program and the Investment/New Jobs Tax Credit.

The review roster also includes smaller programs that have been fiercely defended by their beneficiaries, such as tax credits for wind energy plants, historical preservation projects, energy-efficient new homes and Oklahoma-based movies.

“Just the fact that these are on the table right now, I think, makes a big difference,” said state Rep. Jason Murphey, R-Guthrie and chairman of the House state government operations committee.

“If it brings attention to these through the viewpoint of holding them accountable, then maybe some sacred cows are going to get poked a little bit,” Murphey said. “And that’s not bad.”

Yet even if the new law lives up to its potential over time, it won’t do anything to reduce next year’s looming budget shortfall, which some officials predicted could be as big as $1 billion.

That’s because the first incentive reviews would not be finished until Nov. 1, 2016. The Legislature could not act on the findings until 2017 at the earliest.

House Bill 2182, whose principal author was the late Rep. David Dank, R-Oklahoma City, put the review process in place. Before his death on April 10, Dank was a prominent advocate of tax credit reform.

The law established a new Incentive Evaluation Commission, with five voting and three non-voting members. So far, none of the voting members has been appointed, said John Estus, public affairs director for the state Office of Management and Enterprise Services.

The voting members will consist of a private sector auditor appointed by the governor, a university economist appointed by the Senate president pro tempore, a lay person appointed by the House speaker, a certified public accountant appointed by the Oklahoma Accountancy Board and a representative of the Oklahoma Professional Economic Development Council.

Estus said the appointments are expected to occur shortly. He said the Office of Management and Enterprise Services was coordinating preparations for the review process.

The first commission meeting should be held in time to meet the law’s Jan. 1 deadline for choosing the incentives to be reviewed and preparing the schedule for reviewing them, Estus said.

Under the law, each incentive will be reviewed once every four years. The commission will hire outside advisors to help with the analyses. The commission will report its findings to the governor and legislature by Dec. 15 each year.

“This commission exists to provide information to the legislature. It’s up to the legislature to decide whether to act on that information,” Estus said. “The first reviews will not be in the hands of legislators until the 2017 session.”

The initial list of 75 incentives was compiled by the Office of Management and Enterprise Services, the Oklahoma Tax Commission, the Oklahoma Department of Commerce and the State Treasurer’s office. Two nonprofit groups, the Pew Charitable Trusts and the Center for Regional Economic Competitiveness, assisted them.

It will be up to the commission to finalize the review list.

The state’s initial list did not include revenue estimates. Oklahoma Watch, using other data sources, independently tallied the cost of the 15 biggest incentives on the list.  According to the most recent available data, they have reduced annual state revenue by $335 million.

The new law says the commission should consider any tax credit, tax exemption, tax deduction, tax expenditure, rebate, grant or loan “that is intended to encourage businesses to locate, expand, invest or remain in Oklahoma, or to hire or retain employees in Oklahoma.”

The Quality Jobs Program is a key example. Created in 1993, it makes cash payments to manufacturers and other businesses for creating jobs by opening new operations or expanding existing ones.

Its supporters have described the Quality Jobs Program as the “gold standard” of incentives, and it enjoys considerable legislative support. A previous Oklahoma Watch data analysis examined the program’s track record of job creation. Another Oklahoma Watch story looked at a sister program that pays companies for retaining existing jobs instead of creating new ones.

The Quality Jobs Program reduced state revenue by $89 million in fiscal year 2015. Supporters have said the program pays for itself over time by boosting the economy, but critics have countered that such claims are impossible to prove.

State Auditor Inspector Gary Jones, whose office was excluded from the review process established by HB 2182, said he harbored reservations about whether the law would effectively rein in excessive business incentives.

“I hope that they’ll be successful,” Jones said. “We’ll wait and see what they do.”

Jones predicted it would be politically impossible to eliminate all existing incentives. “But we could probably cut them in half,” he said.

“Some of these things ought to be eliminated,” Jones said. “The problem is, you’re leaving so much to people whose jobs depend on campaign contributions.”

Gene Perry, policy director at the Oklahoma Policy Institute, a nonprofit research group in Tulsa, said the success or failure of the new review process ultimately would depend on the political will of legislators.

“It’s not like we haven’t looked at these,” Perry said. “It’s just that there hasn’t really been attention by state lawmakers to do something with the information.”

The top 15, from the most recent data available from either fiscal 2014 or 2015, total $334,575,524. Here's the list:

Investment/New Jobs Tax Credit: $94,792,000 (Income tax credit)

Quality Jobs Program: $89,241,878 (Tax refund or rebate)

Insurance Premium Tax: $39,007,824 (Insurance company credits)

Five Year Ad Valorem Tax Exemption: $35,422,118 (Reimbursement to local governments)

Electricity Generated by Zero-Emission Facilities: $18,181,000 (Income tax credit)

Economic Development Pooled Finance: $12,567,178 (Other)

Clean Burning Fuel Vehicle Credit: $10,674,000 (Income tax credit)

Oklahoma Film Enhancement Rebate Act: $8,909,205 (Tax refund or rebate)

Quality Jobs Leverage Program: $7,102,141 (Other)

Farm Vehicle Registration Benefits: $3,978,000 (Other)

Historic Rehabilitation Tax Credit: $3,869,000 (Income tax credit)

Energy Efficient Residential Construction: $3,714,000 (Income tax credit)

Aerospace Engineer Tax Credit: $2,497,000 (Income tax credit)

Aircraft Repairs and Modifications: $2,425,000 (Sales tax exemption)

Training for Industry Program: $2,195,180 (Other)

Oklahoma Watch is a nonprofit, nonpartisan media organization that produces in-depth and investigative content on a range of public-policy issues in the state. For more Oklahoma Watch content, go to www.oklahomawatch.org.

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