October 9, 2011

Oklahoma Jobs Incentives Pay Millions

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For nearly 20 years, Quality Jobs has been Oklahoma’smost prominent business incentive program.

Since it started in 1993, Quality Jobs and its ancillary programshave paid employers more than $700 million. These payments are in theform of rebates calculated as a portion – generally 5 percent – ofqualified payroll for a maximum of 10 years.

The program once covered more than 40,000 jobs, but that figure hasdeclined by half in the past decade. Total payouts, though, haveremained fairly steady at about $50 million per year.

That’s at least partly because of a 2003 change instituting wageminimums. Since then, the average annualized wage in the program hasrisen from a little more than $30,000 to more than $60,000.

Unlike many other business incentives, Quality Jobs has relatively fewdetractors. Even state Rep. David Dank, R-Oklahoma City, a frequentcritic of tax credits and rebates, is a supporter.

“I just think it is one of the outstanding job recruitment programsin the country,” said Dank, who is chairman of a task force examiningbusiness incentives.

“It’s tied directly to jobs,” he said. “If you don’t createthe jobs, you don’t get the incentives.”

The program is limited to certain activities such as manufacturing,information technology, distribution and administrative services.

Benefits are not paid until the jobs are actually online. Recipientsmust achieve and maintain at least $2.5 million in new payroll withinthree years to remain in the program.

The original Quality Jobs program remains by far the largest of theaffiliated incentives. A small business program was added in 1998, andin recent years new programs for high-end engineering and technologyjobs and government contractors were instituted.

Criticism of the program is generally based on principle stategovernment should not provide any business incentives, period – or thatit has had some questionable participants over the years.

Tulsa-based Commercial Financial Resources received nearly $10 millionbefore its crash in the late 1990s. Some have questioned thepropriety of the Oklahoma Thunder NBA team getting almost $7 million inQuality Jobs rebates.

Rep. Eric Proctor, D-Tulsa, has attacked American Airlines and otherlarge Quality Jobs participants for shipping jobs overseas. Citing stateDepartment of Commerce statistics, Proctor says the state has paid morethan $110 million in Quality Jobs rebates to companies that have movedproduction jobs off-shore.

Proctor tried unsuccessfully last year to pass legislation barring suchcompanies from receiving incentives financed by state tax money.

“The state of Oklahoma should not be in the business of using taxdollars to subsidize companies who put profits before people byoutsourcing jobs to places like China, India or Mexico,” Proctorsaid.

Just how many jobs the program may have brought to the state or helpedretain – or how many may have left once the subsidies stopped – isimpossible to calculate. As it turns out, the number of jobs created isn’t even thekey figure in the Quality Jobs program – it’s the total payroll.

This is because of the way Quality Jobs contracts are structured.

Maximum benefits are a product of the estimated job total multiplied by theestimated average wage times the 10-year time limit times 5 percent.Thus, 100 jobs at $30,000 per job normally mean a maximum benefit of$1.5 million.

That $1.5 million maximum applies regardless of how many jobs areactually created or how much they actually pay. Once the maximum isreached, the payments stop, so the incentive is for employers to err onthe side of optimism when applying for Quality Jobs.

In practice, the result has been a tendency to underestimate wageswhile overestimating the number of jobs. Thishas at times led to accusations that the public has been intentionallymisled about the efficiency of the Quality Jobs program.

Only about 5 percent of the nearly 600 employers to applyfor the program have ever received the maximum benefit. About 20 percentdrop out without ever receiving a payment.

But 80 percent of those to receive at least one Quality Jobs paymentare still active in Oklahoma.

“When we’re talking about jobs with this program, we’re talkingabout long-term jobs,” said Dank.