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Tax credits hinder Oklahoma's budget projections

Oklahoma state officials say they don’t know who holds tax credits, how many are being held or when they will be claimed.
by Rick Green Published: August 18, 2014

Oklahoma hands out millions of dollars in tax credits a year, mostly to stimulate economic activity, but state officials lack basic information to determine their budget impact.

State officials struggle to predict what Oklahoma’s revenue picture will look like, partially because they don’t know how many tax credits are being held by companies, which companies hold them or when they will be used.

Also, a moratorium on using some of these tax credits during recessionary years created a pent-up demand to cash them in as businesses rebound.

Although the Oklahoma economy has been performing well, general tax revenue for the 2014 fiscal year fell short of the official estimate by $283.8 million, or 4.8 percent. Corporate income tax revenues were below the estimate by $175.3 million, or 36.4 percent.

It’s hard to make accurate revenue estimates when state officials don’t have a good idea of how many tax credits will be claimed.

“The lack of any long-term planning or controls over tax credits that were granted in the past, must invariably cause estimation problems going forward,” Steve Tinsley, of the state auditor and inspector’s office, said in a special report to identify why the corporate tax revenue estimate was so far off the mark.

Other approaches

John Estus, a spokesman for the state Office of Management and Enterprise Services, said Oklahoma is one of seven states collaborating with experts in a Pew Charitable Trusts study to identify better ways to measure the effectiveness of all economic incentives, including tax credits. Participants include legislators and representatives from state agencies and businesses.

“We have involved the business community from Day One because this affects them more than anyone,” Estus said. “There is a middle ground to be found, and we believe this initiative will get us there.”

Estus said some states have found that offering rebates to businesses, rather than tax credits, allows for tighter controls and greater budget certainty.

A key goal of the Pew study is to develop a cost-benefit analysis for tax credits that can be supported by government and businesses.

Abuse potential

In a broader sense, state Auditor and Inspector Gary Jones said he and the Oklahoma Tax Commission need more resources to properly monitor and audit tax credits for performance and compliance with program rules.

The state has had several high-profile problems with these programs, including tax credits wasted on rockets that never flew and an airline that went bankrupt.

Jones, state Treasurer Ken Miller and Preston Doerflinger, director of the Office of Management and Enterprise Services, all say more oversight is needed.

“I am not aware of any current tax credit beneficiaries operating in violation of the law,” Miller said.

“Though not illegal, it’s doubtful all current business incentives are providing a positive return on investment to the taxpayer.

“In some cases, the state doesn’t have sufficient information to determine effectiveness and budget impact, which is why I have supported caps and sunsets on all state business incentives.”

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by Rick Green
Capitol Bureau Chief
Rick Green is the Capitol Bureau Chief of The Oklahoman. A graduate of Humboldt State University in Arcata, Calif., he worked as news editor for The Associated Press in Oklahoma City before joining The Oklahoman.
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