December 22, 2011

Task Force Supports Moratorium Extension

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Oklahoma offers a number of tax credits for a variety of business ventures, investments and purchases. Recipients range include aerospace employers, coal mine operators and Hollywood movie makers.

Warren Vieth/Oklahoma Watch

Oklahoma offers a number of tax credits for a variety of business ventures, investments and purchases. Recipients range include aerospace employers, coal mine operators and Hollywood movie makers.

An existing moratorium on nearly 30 tax credit programs should be extended for another year and should be expanded to include all tax credits, the chairman of a legislative task force on tax credits said Wednesday.

The proposed moratorium, which would run from July 1 through June 30, 2013, would free up about $150 million and would give lawmakers time to review the recommendations of a task force establishing conditions and requirements that companies must meet in order to receive economic incentives, said Rep. David Dank, chairman of the Task Force for the Study of State Tax Credits and Economic Incentives.

Half the savings from freezing the tax credits could go to a program that would pay incentives for companies that bring in new jobs or provide for existing jobs, said Dank, R-Oklahoma City. The remainder of the money could be used to offset revenue lost by reducing a percentage of the state’s personal income tax rate.

“There’s a lot of waste in these programs so that part of it can be used to be returned to the taxpayers,” he said.

Several oil and gas drilling tax incentives that legislators extended earlier this year to 2012; the Quality Jobs Act, in which companies can receive quarterly cash rebates of up to 6 percent of payroll after creating jobs with health care benefits and above-average wages; and the aerospace engineer incentive program, which was originally included in the moratorium but was restored this year, would not be included in the proposed freeze, Dank said.

“There is a general consensus here that says tax incentives that create real, lasting jobs are worthy, while those that fail that basic test are not,” Dank said.

Legislators in 2010 placed a two-year moratorium on nearly 30 tax credit programs to help deal with significant state revenue shortfalls brought on mostly by the national recession. The moratorium is scheduled to expire June 30, the end of this fiscal year.

The task force, which met 10 times since July, completed its work Wednesday.Its recommendations, which will be sent to legislative leaders and the governor, highlight the need for more transparency and for more reviews of economic incentives given to companies.

Members hope the recommendations will be developed into legislation that will be considered in the upcoming session, which starts Feb. 6.

“If we have learned one thing during the life of this task force it is that few members of the Legislature had even the dimmest concept of how many tax credits we had on the books, how much they cost or even where they were going,” Dank said. “The taxpayers certainly didn’t either.”

Gov. Mary Fallin, who has said she supports eliminating tax credits that fail to produce or retain jobs, said Wednesday she looks forward to reading the panel’s report.

“Examining the state’s many tax credits to determine which perform well and which do not is a priority of mine,” Fallin said. “I continue to be encouraged that so many members of the Legislature have expressed a commitment not only to weeding out underperforming tax incentives, but to lowering the overall tax burden on Oklahoma citizens.”

Dank said he would like to see the state end the practice of giving tax credits. The task force is recommending other methods be used to promote business activity and that tax credits should be considered “the incentive of last resort.”

Dank said that he prefers performance-based incentives.

Task force members added increased transparency and prior approval for projects eligible for incentives. Dank said the current system seems “to be almost automatic” with no future cross-checking in the re-approval process for recipients.

He would like to see a pre-approval board made up of state officials.

“My definition of transparency is that everyone involved sees and knows exactly what is going on and what is at stake, down to a dollar-by-dollar accounting of where these credits and incentives are going and what they are achieving,” he said.

Dank said it was important for the task force to come up with criteria to use to determine the value of economic incentive programs, instead of selecting which ones should be ended.

Legislators, if they adopt the recommendations, should find the criteria helpful in determining which programs are benefiting the state.

“I think there’s going to be a sense within the Legislature that it’s time to pay attention to the taxpayers,” he said. “I plan personally to be very noisy about this. I’m not going to go into a shell now that this part’s over.”

He said he hopes lawmakers agree not to continue two tax credit programs that caused the state to lose more than $275 million in revenue during a three-year period. The two incentive programs — the small business tax credit program and the rural venture capital program — have been suspended.

They are included in the existing moratorium and are scheduled to expire at the end of this fiscal year.