A legislative panel rang the death knell Monday on a lawmaker's seven-year crusade to scrutinize business tax credits by rejecting a bill that targeted 32 credits to pass legislative muster to continue.
“The lobbyists win,” state Rep. David Dank said after the House of Representatives Subcommittee on revenue and taxation voted 10-3 to not advance House Bill 1371. “They continue to win.
“The legislators do not have the will to look at the multimillions of dollars that are being given away in tax credits and determine which ones are benefiting the state and which ones aren't,” he said.
Among the major credits targeted in HB 1371 were those for the coal and wind industries, establishing a home office in the state, renovating historical buildings and building energy-efficient homes. Dank's legislation came after he headed a special committee last year and a task force in 2011 that studied tax credits.
Dank, R-Oklahoma City, said his bill's defeat also cripples efforts to significantly reduce the state's personal income tax rate, a key priority for the Republican-controlled Legislature and GOP Gov. Mary Fallin.
The governor has proposed a cut of 0.25 percent, reducing the top rate from 5.25 percent to 5 percent, with the lost funds being made up by state revenues.
Fallin and others introduced more aggressive cuts last year, but those depended on eliminating virtually all tax credits and deductions to help make up for lost revenue. Legislation targeting tax credits and deductions failed to advance.
“We're not ever going to get significant cuts as long as we're giving away the store, and that's what we're doing,” Dank said.
The defeat of HB 1371 came one year after another House subcommittee voted down a bill that would have outlawed transferable tax credits, which would have saved the state nearly $30 million a year. The defeat of that measure derailed last year's efforts to get a significant cut in the income tax rate.
Dank filed a similar measure this year, but removed it from consideration Monday after HB 1371 went down in defeat.
Lawmakers voting against the measure said it was unfair because it identified only certain business tax credits.
They felt that some of the credits that benefited their districts were unjustly targeted and that all credits and economic incentives, such as those given to the oil and natural gas industry, should be reviewed.
Rep. Mike Brown, D-Tahlequah, said poultry litter and dry fire hydrant credits don't produce a lot of jobs and likely would have failed the criteria set in HB 1369, but they provide jobs and help the economy in his district.
“There were good things about Dank's bill, and he's done a yeoman's job at working on this, but you've got to be fair about it, and this bill wasn't fair,” Brown said. “It picked winners and losers. There were a lot more small losers than the big winners.”
Rep. Gus Blackwell, R-Laverne, said the proper way to proceed would be to identify business tax credits that aren't working and eliminate them. He also didn't like imposing a moratorium on the 32 credits mentioned in HB 1371 and prohibiting the credits from being used after June 30, 2014, unless the Legislature passes a measure to reauthorize the credit.
“Once the word goes out that here's a moratorium … capital begins to flee the state of Oklahoma,” he said. “Let's find out the ones that aren't working and eliminate those.”
Oklahoma is facing stiff competition from Kansas and Texas in attracting the wind industry, Blackwell said. Both states offer as good or better incentives than Oklahoma.
“We have opened up the first two wind farms in the Panhandle … that are producing jobs, producing energy and, most important, are producing ad valorem dollars for our local schools,” he said.
Future tax credits
The subcommittee voted 9-4 to pass HB 1369, which would put in place a set of criteria that would govern existing or future tax credits. Criteria include stringent auditing; rigorous cost-benefit analysis; cost and time caps; and a requirement that any tax credit would create or sustain quality, permanent jobs.
It now goes to the full House, but Dank said without its companion measure, HB 1371, it lacks any teeth. HB 1371 would have sunset all existing tax credits as of July 1, 2014. Dank said that date would have given lawmakers time to examine each tax credit, change it to meet the new criteria or let it expire on the sunset date.
“All the king's horses and all the king's men are out here fighting against this,” Dank said. “It's just almost impossible. There's too much lobbying influence to do anything at this stage of the game.”
Dank said he may file a lawsuit challenging the constitutionality of some business tax credits.
An opinion issued in 2010 by the state attorney general's office stated some state tax credits were not constitutional. To be legal, tax-credit programs had to serve a public purpose, provide more benefit than cost and include adequate controls and safeguards, according to the opinion.
“I don't think this Legislature has the will to tackle something that is opposed by so many special interests,” Dank said. “These are the people who get them elected — this is where the campaign contributions come from.”