October 10, 2011

Oklahoma Coal Tax Credits Feel the Heat

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Since the late 1980s coal companies operating in the state have received transferable tax credits. In just over 20 years those credits have grown times ten, causing a few Oklahoma lawmakers to question the worth of tax incentives for what some are calling a small and dying industry.

Right now the state is paying for $10 of every $50 of coal that’s mined and burned in Oklahoma. While Vice President of Farrell-Cooper Mining Company Bob Cooper openly admits he isn’t currently using the credit, he is quick to defend it. He’s used it in the past, and he says that not only do other coal companies in the state depend on it to survive, without it the prices that other states like Wyoming can offer would be impossible for Oklahoma mines to beat.

“We’re a thick heavy or overburden state,” Cooper said. “We’re only mining two foot of coal at the end of the day. People like to go to other states where they can mine 4, 6, 8 foot of coal. They help give us incentives to offset the cost.”

However, in a time of massive budgetary shortfalls and cutbacks, some lawmakers are asking why the coal industry deserves these credits. State Rep. David Dank argues that the credits border on welfare for the coal companies.

“I’m not in this to take care of people that are in a business that’s not functioning or making somebody any money,” Dank said. “It has to serve the public interest, it has to have controls.”

Dank’s opposition lies mainly with the credit’s transferability. A coal company in the state who receives the tax incentives and doesn’t make enough money to use them can sell them to the highest bidder. Insurance companies buy most of these credits. They often buy them at 85 cents on the dollar, diluting their initial value. Figures compiled by Oklahoma Watch indicate these transferable credits have cost the state over $60 million over the past eight years.

“When you sell them, you’re selling them to someone who has nothing to do with the industry that the credit was issued for,” Dank said. “So, if you’re a coal tax credit recipient and you sell it to an insurance company, the insurance company is making money for doing nothing but having an obligation to the state.”

Dank is also critical of the incentives due to the small size of the coal industry in the state. He claims the mines only employ around 200 workers. Numbers compiled by Oklahoma Watch puts the estimate at somewhere in between 500 and 600.

The coal tax credit is currently on a two-year hiatus, but is scheduled to resume in mid-2012.

Created by the Legislature, the Incentive Review Committee looks at similar credits. Committee member and University of Oklahoma’s Price College of Business Associate Dean for Research and Graduate Programs Robert Dauffenbach says all scrutiny aside, the incentive does what it’s supposed to.

“It still has the desired effect. Maybe not at the 100 percent level that you’d like it to have, but it still has an intended consequence of benefits flowing to the industry in question,” said Dauffenbach said. “If you’re objective is for dollars to flow to a certain industry then having them transferable makes in fact that possibility, even if it is at a discount.”