Questions Surround State Subsidies Aimed at Saving Jobs

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Oklahoma’s premier business incentive, the $1 billion Quality Jobs program, entered new territory nine years ago.

Until then, businesses only received payroll subsidies from the state if they created new jobs in Oklahoma.

In 2006, the program was expanded to begin providing subsidies for existing jobs if a “change in control” occurred and the Oklahoma Department of Commerce director determined the jobs were “likely to leave the state” because of new ownership.

Since then, nine companies have collected $20 million in state payments for preserving existing jobs, at least for a while.

Existing Jobs imageState officials and some lawmakers say the change-in-control provision was a good idea. They cite examples such as Holly/Frontier Refining and Marketing Corp., which has kept more than 500 Tulsa-area refinery workers employed since it began receiving subsidies in 2010.

But several officials and independent analysts say a lack of transparency makes it virtually impossible to verify claims that the jobs were really in danger of leaving Oklahoma and that the state isn’t just subsidizing private-sector jobs that would have existed anyway.

“If that program is going to go forward, it’s going to be essential that it finds a method by which there can be independent verification,” said Rep. Jason Murphey, R-Guthrie. “Because without it, it simply doesn’t have credibility.”

An investigation by Oklahoma Watch, based on data gathered by Mark Lash, a retired federal agency program manager, calls into question the state’s conclusion that none of the subsidized jobs would exist if not for the incentives:

* Holly/Frontier received its Quality Jobs contract seven months after buying one Tulsa refinery and one month after buying a second. It said nothing publicly about the deals being contingent on a Quality Jobs subsidy. The company that sold the first refinery said the deal would preserve jobs. Total incentives provided so far: $13.5 million.

* Zeledyne LLC received $2.3 million in Quality Jobs incentives after buying a glass factory in Tulsa from Ford Motor Co. Zeledyne stated at the onset it planned to keep the Tulsa plant operating. It eventually shut it down. More than 500 jobs were lost.

Lash has been gathering data on the Quality Jobs program for two years. He shared his data with Oklahoma Watch, which also analyzed and fact-checked the data, conducted the interviews and generated the story.


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Confidential Documents

Under the 2006 legislation, a company applying for incentives is required to submit documentation showing that more than 50 percent of its assets or voting power has changed hands and that the new owners are “unrelated” to the old ones.

In addition, the company is required to “explain why the jobs at the establishment are likely to leave the State of Oklahoma. (For example, include copies of any formal written offers from other states or other countries for the establishment to relocate from Oklahoma.)”

It’s nearly impossible for the public to determine with certainty whether those conditions were met in every case. Commerce Department officials said the firms’ applications, supporting documents and related communications are exempted from the state Open Records Act. They declined to provide copies of anything other than the approval letters and contracts issued to each firm.

Commerce Department Director Deby Snodgrass, who has been with the department since January, declined a request for an interview. So did Deputy Director Don Hackler, the department’s former public information officer and interim director. Gov. Mary Fallin’s office also declined comment.

Executives at Holly/Frontier did not respond to phone messages and emailed interview requests. Oklahoma Watch was unable to locate the founder of Zeledyne but was told he had left the state. Hackler said in an email he had contacted the change in control companies, and none was willing to divulge information about its contract.

Leslie Blair, the Commerce Department’s public information officer, said the department was convinced in each case that all existing jobs would disappear if Quality Jobs incentives were not provided.

State Auditor and Inspector Gary Jones said his impression was that the Quality Jobs program was generally well-run. But he said he can’t say for sure because the Legislature removed his office’s authority to audit Commerce Department programs before he took office in 2011.

“I think as much information as can be made available to the public is best,” Jones said.

Gene Perry, policy director of the Oklahoma Policy Institute, a research and advocacy group in Tulsa, questioned the wisdom of subsidizing existing jobs just because new owners say they might eliminate them.

“A company that threatens to move jobs out of Oklahoma if they’re not paid off by the state is frankly a bad corporate citizen. This type of company will only stay until a higher bidder comes along, or they are being dishonest about what keeps them here in the first place,” Perry said in an emailed comment.

Oklahoma’s Quality Jobs program has been around since 1993. Since then, it has paid out nearly $1 billion to companies holding more than 700 incentive contracts. All but nine of them authorized wage subsidies for new jobs.

In December, an Oklahoma Watch story examined the program’s rapid growth and concerns about job-creation projections that proved to be inflated.

The former Zeledyne glass plant, located at 5555 South 129th East Ave., has apparently been sold by Ford. Pictured is the plant on Wednesday, Feb. 26, 2014. CORY YOUNG/Tulsa World

The former Zeledyne glass plant in Tulsa is being turned into an industrial park. Photo taken February 2014. CORY YOUNG/Tulsa World

Zeledyne’s Crash

The case of Zeledyne LLC shows that the state’s best efforts to save jobs sometimes go awry.

Zeledyne was founded by former Tulsa attorney and investor Robert B. Price. In April 2008, Price bought three automotive and architectural glass factories from Ford Motor Co. One was in Tulsa, the others in Nashville and Juarez, Mexico.

The Tulsa plant employed more than 650 people at the time. Shortly after buying it, Price announced a $30 million furnace upgrade. In July 2008, the state awarded a Quality Jobs change-in-control contract contingent on Zeledyne maintaining at least 300 jobs in Tulsa.

The Commerce Department determined that all of the plant jobs were at risk of leaving the state and it would pay Zeledyne on that basis. The company received eight quarterly subsidy payments totaling $2.3 million. Its workers also received about $960,000 in free training from the Oklahoma Department of Career and Technology Education.

But things headed south in a hurry. In February 2010, Zeledyne put all of its glass plants up for sale. No buyers stepped forward. In March 2010, it closed one of its furnaces and laid off 210 workers. It received its last incentive payment from the state in October 2010.

In July 2011, it closed the Tulsa plant, laying off about 200 remaining employees.

Under the Quality Jobs Act, a company generally does not have to pay back incentives already received if it later eliminates the jobs. Zeledyne’s contract required it to maintain operations for at least three years. It closed the plant shortly after the three-year deadline passed.

Ford bought back the shuttered plant from Zeledyne in late 2011. A Zeledyne spokeswoman called it a “routine land transfer.” Ford later resold the property to a Tulsa investor group that is turning the site into an industrial park.

Attempts to reach Price were unsuccessful.

The Holly Precedent

The 2010 change-in-control contract received by Holly/Frontier Refining and Marketing Corp. is one of a kind. It was, and remains, the only instance in which the state agreed to subsidize existing jobs not because they might have left Oklahoma, but because they might simply have disappeared.

Holly, a subsidiary of Dallas-based Holly/Frontier Corp., bought two old, adjacent oil refineries in Tulsa from Sunoco and Sinclair in 2009.

Sunoco had been shopping for a buyer for its refinery since late 2008. It said it might convert the refinery, built in 1913, to an oil transport terminal if no one wanted to buy it.

Holly stepped forward in April 2009 and said it had agreed to purchase the refinery for $65 million. It announced plans to do a $150 million upgrade so it could produce low-sulfur diesel fuel there. It said nothing about the deal being contingent on receiving state subsidies.

In announcing the sale, Sunoco said it “keeps the refinery operating, provides for necessary upgrades to ensure the long-term viability of the facility, and protects approximately 400 jobs there.”

In a June 2009 interview with the Tulsa World, Holly Chairman and CEO Matthew Clifton indicated the company intended to keep people employed there.

“When you buy a facility like the Tulsa facility, you buy it for the long haul,” Clifton was quoted as saying. “You’ll have some challenging short-term environments, but we think it will continue to make money.”

Clifton said employees at the plant would notice few changes other than a different culture due to working at a smaller company, the World reported. Even with the $150 million in planned upgrades, Holly’s purchase price for the Tulsa refinery was far below expectations, news reports said.

About six months later, in December 2009, Holly bought the second refinery, from Sinclair. Again, it made no mention of state subsidies in its announcement. Holly has since linked the two plants with pipelines and operates them as one combined refinery.

The state awarded the company a change-in-control contract in January 2010 and in May amended the contract to include the Sinclair refinery purchase. The Commerce Department declined to say when it had received its initial contract application from Holly. The agency decided all of the jobs were imperiled and set a maximum total subsidy of $25.2 million, to be paid within 10 years. Holly must maintain a minimum of 460 jobs to keep the payments coming.

So far, the company has received $13.6 million in Quality Jobs incentives.

In addition, Holly received other state and local subsidies. It qualified for a five-year property tax exemption provided to new or expanded manufacturing operations. In fiscal 2013, that exemption reduced its taxes by $1.8 million, the Oklahoma Tax Commission reported.

In an October 2013 email, Commerce Department Deputy Director Hackler acknowledged that the Holly contract was unique.

“In this case, the jobs were considered at risk because the refinery was to close if the company did not receive incentives to justify the investment to upgrade the existing refinery,” Hackler wrote to Lash, the retired federal program manager.

“Due to extremely stringent EPA (Environmental Protection Agency) regulations it is extremely difficult to build a new refinery. The options for the owners of the refinery were to either upgrade or close the refinery.”

Asked about the contract this month, Commerce spokeswoman Blair said in an email that “Sunoco and Sinclair were in danger of closing at worst, or becoming simply terminals. Either would have resulted in a great loss of high-paying jobs.”

Holly/Frontier Vice President and spokeswoman Julia Heidenreich in Dallas and Vice President and Refinery Manager James Resinger in Tulsa did not return phone calls or respond to emailed interview requests.

‘Never A Good Idea’

Former state Sen. Ted Fisher, principal author of the 2006 tax-incentive bill authorizing change-in-control contracts, said he did not recall the circumstances leading to the provision’s inclusion in the bill.

Fisher, who left the Legislature in 2007 and is now economic development director for the city of Sapulpa, also authored the 1993 legislation creating the Quality Jobs program. He said he remains convinced the program is sound.

“I would be for eliminating all incentives if all other states would follow,” Fisher said in an email. “Failing that, I think we have one of the most foolproof and effective incentives in the country.”

State Rep. Murphey said he intends to author a resolution this legislative session that authorizes the state auditor and inspector to conduct regular reviews of the Quality Jobs program.

Auditor and Inspector Jones said he supports the proposal.

“We think we ought to be the one conducting the evaluations,” Jones said. “…That responsibility is one that we were elected by the people of Oklahoma to serve.”

Murphey said he harbored reservations about business incentive programs such as Quality Jobs.

“If left to its own devices, the free market system will work itself out,” Murphey said. “When the government gets involved, it significantly complicates things. It also potentially corrupts government processes. It’s never a good idea to have the government choosing who’s going to get a special break and who isn’t.”

Reach reporter Warren Vieth at wvieth@oklahomawatch.org.

 


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