Lawmakers must look for another way besides transferrable tax credits to spur new jobs and give a boost to the coal and wind industries, the chairman of a legislative task force looking at tax credits said Wednesday.
“State policy has apparently created a whole new industry of brokering and buying and selling transferable tax credits, like a big swap meet with millions being traded back and forth,” Rep. David Dank said. “Is it really good stewardship of tax dollars to have these tax credits handled this way?”
Dank, R-Oklahoma City, said he supports the coal industry, but the coal tax credits are the “poster child for just about everything that is wrong with this system.”
Job retention in the coal industry would be better addressed through the Oklahoma Quality Jobs Program, he said. The coal tax credits cost the state at least $10 million of revenue each year. State Insurance Department records show that about 30 insurance firms bought $55.9 million in coal credits from 2006 through 2009. Insurance companies buy the tax credits, usually at 80 to 90 cents on the dollar, to help pay their tax liability to the state; instead of corporate income taxes, insurance companies pay a flat, 2.25 percent tax on premiums.
Coal and wind industry representative defended the tax credits, saying they have helped make their products more competitive and have resulted in the employment of hundreds of Oklahomans.
Clay Hartley, vice president of Phoenix Coal Co. in Vinita, told members of the Task Force for the Study of State Tax Credits and Economic Incentives that none of the money from tax credits went to company executive salaries. Money was used to help pay employee salaries and to buy equipment.
Coal tax credits are earned only after the coal is produced, he said. For a coal mining company to get a tax credit, the price offered for its variety of coal has to be less than $68 a ton.
Hartley said his company sells the coal tax credits for 90 cents on the dollar. He said he bought some of his company's tax credits at the same rate, which he used to help reduce the amount he owed in personal state income taxes.
Dank said the coal tax credits were initially created to help an industry that was in stiff competition with other states, especially Wyoming. But they have evolved into transferrable tax credits that coal producers may sell to other people to generate a new stream of cash.
There is no accounting of how coal companies spend the money earned through the sale of tax credits, he said, calling on the state auditor and inspector's office to review coal company financial records.
Hartley said he had no problem if the coal industry's tax credits went under increased scrutiny.
“Let's have full accountability,” he said. “It is the people's money and let's justify what we're doing with it.”
Dank said at first a tax credit was given for each ton of coal produced and a larger credit was given for those who bought it, which mostly are utility companies.
Legislators in 1989 created a $1-per-ton tax credit to subsidize purchases of state coal. It later increased to $2 and eventually a law was passed requiring all coal-fired power plants to include at least 10 percent Oklahoma coal in their fuel mix.
During the 2006 legislative special session, lawmakers increased the credit to $5 per ton.
“So now we give a $5 per ton tax credit for producing coal and another $5 per ton for buying it. Basically we are giving not one but two tax credits for each lump of coal.”
Dank said the Legislature deserves much of the blame because it didn't demand more accountability.
Last year, the Legislature put the coal credit under a temporary moratorium until July 2012. That means no new credits can be generated. But the credit can be carried forward for up to five tax years.
A bill filed in the closing hours of last year's session extended the coal credit an additional two years.
Wind industry included in study
The task force also took up tax credits for the wind industry. “The credits help make us more competitive with our surrounding states,” said Chris Knapp, with the Virginia-based APEX Energy Inc. Ground should be broken in April on the Canadian Hills Wind Farm, which has a planned capacity of 300 megawatts of electricity, he said. The electricity supplied by the new wind farm would power about 120,000 average Oklahoma households. About 200 workers will be used to build the operation, which should take about eight months to a year. About 15 employees will work on the wind farm when it is operational. Task force members also looked at a tax credit given to manufacturers of small wind turbines. Mike Bergey, with Bergey Windpower, said about 97 percent of the products manufactured at his family-owned business goes out of state. Money from the tax credit goes to research and development and to move operations from its China plant back to the United States, he said.