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Oklahoma auditor calls for stricter review of tax credits, incentives

State auditor says problems occur when loopholes are found in the tax credit programs. A subsidiary of an Oklahoma bank became eligible for $160 million in tax credits under a venture capital program that expired last year.
BY MICHAEL MCNUTT Published: October 18, 2012

Jones said the transfer of money involving the two companies that are subsidiaries of the bank drew the attention of his auditors because seven of the eight members listed as officers of one subsidiary are employees of the bank and all four company board members are bank employees.

“What you're looking at in that particular instance is that the requirements are that you participate in a loan,” Jones said. “There's nothing that goes to state what actually participation is. The difference between a bank making a loan … and one of these venture capital companies participating is nothing more than a 20 percent tax credit that's given out. We can't differentiate whether or not that loan would have been made without that.”

The tax credits were transferable. 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.

Jones said two other programs, the small business and rural tax credit programs, were authorized in legislation approved by lawmakers in 1986, long before current legislators, who are limited to serve 12 years, took office.

“Those who squawked the loudest, lobbied the most and sometimes passed out the biggest campaign contributions got the biggest tax credits,” Dank said. “I think all of us would agree that it is a very flawed system.”

The state missed out on collecting more than $275 million in revenue through tax credits that were issued from 2006 through 2009 under the small business credit program and the rural venture capital program. The programs created 1,428 jobs from 2007 through 2009, which amounted to about $192,000 per job, according to a 2011 Oklahoma Tax Commission report.

The small business program offered investors 20 percent credits on investments in qualifying projects and the rural program offered 30 percent credits. Both programs expired Dec. 31.

“There was too much skulduggery in those so I chose to let those sunset without any kind of hearing,” Dank said. “I want to correct the problems that exist now and move forward.”

‘Overhaul is needed'

Dank said at least $150 million in outstanding tax credits granted through the small business and rural venture tax credit programs still can be redeemed. He said that is money that likely will have to be taken from funding state services.

“That's one of the problems with all of these,” he said. “We don't really know in a lot of instances how much is left out there. ... They could hit anytime.”

Dank, who a year ago introduced legislation calling for sweeping changes after heading up a five-month study on tax credits and economic incentives, said a serious overhaul is needed.

“We need more safeguards, audit provisions, a stick to measure incentives by, and caps set on how long and how much an individual company can receive,” he said.

Contributing: Randy Ellis, Staff Writer