Economic development experts told lawmakers Tuesday that a variety of incentives and business development tools could benefit from tweaking and study.
The House interim study by the Economic Development Committee was requested by Rep. Joe Dorman, D-Rush Springs.
“It's a shame that we are not on a level playing field with other states,” Dorman said. “If we could compete with California and Texas just without incentives at play, we certainly offer many of the things that people look for, but so many of these states are providing incentives, it puts us in a tough spot.
“We have to decide what's a wise use of tax dollars, as far as what incentives we're going to provide, what incentives we are going to retool, and how effective those are going to be for job development in Oklahoma.”
Don Wood, executive director of the Norman Economic Development Coalition, focused on the Quality Jobs incentive, which gives qualified expanding or relocating manufacturing plants 5 percent of the payroll back in quarterly cash payments.
“The Quality Jobs is a good amount of money. It's an adequate amount of money,” he said.
“But when you stretch those payments out over 10 years, that doesn't help the companies in the beginning … and where we are getting beat in some cases is where Texas and Gov. (Rick) Perry will write a check up front.”
Wood said Oklahoma lost a Petco plant to San Antonio because of the cash payment the company was offered.
His suggestion to make Oklahoma more competitive was to use the governor's closing fund to pay companies up front a portion of the money they would ordinarily receive over 10 years.
He said then the companies could pay that money back over time with money they would receive from the state through the Quality Jobs program.
Rep. Mike Reynolds, R-Oklahoma City, raised concerns about protections for the taxpayer if the company fails after receiving an up-front payment.
“One thing good about Quality Jobs is you actually have to have a payroll,” Reynolds said. “There's some legitimate call back provisions that keep us from misusing taxpayer money.”
Wood said he wished incentives would go away.
“As an economic developer, I wish the playing field were level across the board,” Wood said. “But it's not.”
Tax increment financing
Dan McMahan, an attorney who specializes in public finance and was formerly general counsel for the Oklahoma Commerce Department, recommended lawmakers study the impact of Tax Increment Financing on local revenues.
Tax Increment Financing, or TIF, allows the taxable value of any improvements made to property in a designated blighted district to be used to pay off bonds for other property improvements in the area. Bricktown is in a TIF district.
“Since the Legislature adopted the local development act in 1992, and especially after 2004, Tax Increment Districts have been indispensable,” McMahan said. “These districts have provided revenue for the most critical economic development projects in our state.”
Because every other state utilizes a form of TIF, McMahan said repealing or weakening the TIF would be detrimental.
However, he said the TIF program has resulted in the tax base, particularly for schools, being unnecessarily reduced in some cases.
McMahan said that every use of the financing tool goes through a “but for” test. “It essentially means that private investment would not have occurred if the improvements that are being financed with tax increment financing weren't made,” he said.
McMahan recommended a study of the use of TIF to determine when that “but for” test was not met, and how those projects have had an impact on the state aid formula that determines funding for schools.
“For those instances in which the but for test was not met, one could argue the state aid formula was being unnecessarily strained because of the use of tax increment financing in that case,” he said. “That's what our friends in the education community have rightly argued, I think, for several years.”