OKLAHOMA lawmakers don’t know how many recipients may cash in tax credits this year, don’t know the total amount of tax credits that will be handed out in any given year, and don’t know if those tax credits actually generate economic activity. But other than that …
No private business would operate this way, yet it remains par for the course in state government.
We’ve noted this before, but it bears repeating: State government budgeting is a mess. Lawmakers should consider simple changes that could reduce wild swings in revenue collections — swings that are unrelated to economic downturns. In recent years, the state economy has been growing, but poor financial practices have created artificial shortfalls through accounting tricks and weak budgetary restraint.
Poorly devised tax credit policy has played a role in that problem. Despite state economic growth, general tax revenue for the 2014 fiscal year came in $283.8 million below the official estimate. Corporate income tax revenues accounted for $175.3 million of that shortfall, due in part to tax credits. And corporate tax collections remained below projections in July. Uncertainty over who has tax credits, the value of outstanding tax credits, and when tax credits will be claimed has made it difficult for officials to devise reliable revenue forecasts.
Many state tax credits have no monetary limit, which means the amount issued can range from nothing to hundreds of millions of dollars’ worth annually. Such uncertainty does not foster sound budget planning. Some experts suggest implementing annual caps to limit the total that can be issued by any one credit program. That’s an idea that could lead to more reliable budget projections. It deserves serious consideration.
Another suggestion touted by several officials is to “sunset” all tax credits. Under that proposal, every tax credit would be eliminated after a handful of years, unless it is specifically re-authorized by the Legislature. This process would at least encourage legislators to examine and evaluate each tax credit program, something that appears to happen only haphazardly today.
Most importantly, lawmakers need to conduct legitimate cost-benefit analysis of each tax credit program. The purported basis for most tax credits is to encourage economic activity that fuels growth. Do Oklahoma’s tax credit programs achieve that goal? For the most part, no one knows. This is not a minor problem.
Via campaign contributions, the recipients of tax credits often share the wealth with the politicians who approved the tax credits in the first place. But tax policy should be based on fostering economic growth, not generating campaign donations.
If a tax credit program doesn’t grow Oklahoma’s economy, that money could be better used elsewhere — such as on schools, roads and public safety, or by implementing tax rate reductions for all. Poorly designed tax credit programs can also generate ancillary fiscal problems. The state once diverted money in complex tax credits to provide up-front financing to Great Plains Airline. When that airline went bankrupt, lawmakers had to divert $27 million in motor fuels tax revenue to cover state losses. That money would normally have been used to repair substandard roads and bridges.
As every Oklahoma family knows, you can’t write a valid budget if you can’t predict your income. It’s time Oklahoma lawmakers face that reality and impose sensible oversight of tax credit programs.