The best way to attract jobs to Oklahoma is to reduce and eventually eliminate the state's personal income tax instead of providing tax credits to certain industries and companies, the chairman of a legislative panel studying business incentives said Wednesday.
Rep. David Dank blamed lawmakers' failure to deal with “runaway tax credits” on their failure earlier this year to reduce the top 5.25 percent personal income tax rate.
“Even the most pro-tax relief members, as well as the governor, saw that we could not move ahead on tax relief for 3.5 million (Oklahoma taxpayers) when we refused to stop the bleeding in the form of tax credits for a few hundred recipients,” said Dank, R-Oklahoma City.
“That is what it will come down to in 2013 as well — either we act decisively to reform and clean up the tax credit mess or we will once again stiff the 3.5 million,” said Dank, chairman of the House of Representatives Tax Credit and Economic Incentive Oversight Committee. “It is up to this committee to decide who will rule — the people or a few special interests and their lobbyists.
“It is time for us to stop listening to the lobbyists and start listening to the people,” he said.
Dank, who has been crusading to provide more accountability for tax credits and business incentives for six years, held the fifth and final task force meeting.
He asked members to send in recommendations by Dec. 1 so a report can be made to House leadership by year's end.
Regardless of the final report, Dank said he plans to refile legislation that was produced from a task force that met for five months last year and developed proposals outlawing transferable tax credits and developing criteria for tax credits to meet. All failed to advance during this year's session.
Dank said most on the bipartisan task force agreed that the state's tax credit is “a hodgepodge of giveaways” and has little accountability.
“There is little correlation between the tax credits we have granted and any real benefit to the state or the people,” he said. “Many of those tax credits are constitutionally infirm, which is just another way of saying they violate the spirit of the law.”
Various pieces of legislation to change the way tax credits are issued were killed in committees. Legislation to end the transferability of tax credits failed in the House budget subcommittee on revenue and taxation. Another bill in a House budget committee that would have extended the existing moratorium on tax credits failed.
“The only progress we made was in allowing the venture capital tax credits to be sunsetted, but I can assure you that the lobbyists and their employers are already busy trying to bring them back,” Dank said. “Our good bills were killed by an unprecedented lobbying campaign that was all about grabbing goodies from the state treasury, and to heck with what the public wants or needs.”
Dank said he will refile legislation to eliminate transferable tax credits, which is estimated to save the state nearly $30 million a year; require full disclosure of who gets tax credits; require tax credits to be jobs-focused; outlaw perpetual tax credits, such as the home office credit; insist that all tax credits come with a cost-benefit analysis; require all tax credits to be reviewed by the state auditor and inspector's office; and ban the consideration of any tax credit in the final five days of a legislative session.
He also may try again to win passage of a measure that would call for a two-year moratorium on nearly 30 of the state's 41 corporate tax credits and another that would have limited the total tax credits allowed to insurance companies that establish a home office in Oklahoma.
The six transferable tax credits selected for elimination this year were those for coal, wind power, manufacturing small wind turbines, restoring historical buildings, constructing energy efficient homes and railroads.
All were suspended for two years in 2010 as lawmakers struggled with revenue shortfalls. The moratorium expires Dec. 31.
When companies receive more credits than they owe in state taxes, they use the transferability feature, which allows them to sell their surplus credits to other corporations or individuals, usually for about 80 cents on the dollar. The buyers use the credits to reduce their own tax bills.
More help needed
Deputy state Auditor Steve Tinsley told committee members the auditor's office would need more auditors to review tax credits. He estimated it would cost $159,000 a year in the next fiscal year to provide a two-person audit team and $222,000 to fund a three-person team.
He also provided information from the Georgia Department of Audits and Accounts, which reviewed tax credits six years ago. The report called for improved controls in the administration of corporate tax credits and that data for evaluating their cost and benefit to Georgia should be compiled.
Tax credits cost Georgia about $284 million in a five-year period, the report states, “with little indication of any economic development benefits resulting from these tax expenditures.”
Dank complained that the home office tax credits have no caps and no end date. In the previous fiscal year, 17 insurance companies claimed nearly $17 million in home office tax credits; one company is claiming $6 million. The credit is available for insurance companies that employ at least 200 people at a headquarters or regional office.
Deputy Insurance Commissioner Frank Stone said six other states offer home office credits and only one, North Dakota, has a limit. Oklahoma started the home office credit for insurance companies in 1987.
“The jobs are here,” he said.
State Farm Insurance created more than 1,500 jobs when it moved a regional office to Oklahoma and Farmers Insurance Co. Inc., employs about 1,300 at its regional office. Farmers Insurance last year opened a new customer service and data center in Oklahoma City after leasing space for several years. Rep. Earl Sears, R-Bartlesville, chairman of the House Appropriations and Budget Committee, asked Kim Decker, manager of government and industry affairs for Farmers Insurance, what would happen if the state discontinued the home office credit.“It changes promises made to companies who brought brick and mortar and jobs to the state,” she said. “You're also taking away an incentive for other companies to come to Oklahoma.”
It is time for us to stop listening to the lobbyists and start listening to the people.”
Rep. David Dank