June 9, 2015

How the Subsidy Program Works

Print More

In every case except Hitachi, here’s how the process works for extending a subsidy to a company under the Pooled Finance Act.

• Acme Widget Co. decides it will spend $10 million to expand its Oklahoma plant by adding a building and buying new widget-making machines.

• It submits a detailed application to the Oklahoma Department of Commerce. Among other things, it cites its existing job count and estimated new employment.

• Using a scoring system, the department decides to provide $5 million from the pooled finance program to help pay for the plant expansion.

• The Commerce Department hands off to the Oklahoma Development Finance Authority, which executes a $5 million taxable note to finance the project.

• ODFA loans the $5 million to Acme under the terms of a loan agreement. Acme executes a promissory note promising to pay back the loan.

• Acme turns around and buys the ODFA taxable note, paying $5 million to the development authority. At that point, Acme has neither gained nor given up any money, but it now holds the taxable note.

• Acme pays the actual expansion costs as they occur out of its internal cash flow or other credit lines.

• For a period of four to 15 years, state income taxes withheld from Acme workers’ paychecks are transferred back to Acme once a year, via a state account, to repay the note.

• The withholding payments include principal on the note, plus interest of about 2 percent. The state, in effect, is paying both.

• By the time the note is paid off, Acme will have received $5 million, plus interest, that otherwise would have been used to help fund state programs.

• Acme’s employees are not affected at all. The Oklahoma Tax Commission still credits them with having made their withholding payments.

• The employees may not be aware that money they thought was being used by the state actually went back to their employer.

Sources: Oklahoma Development Finance Authority, Oklahoma Department of Commerce, Oklahoma Watch research.