The Task Force for the Study of State Tax Credits and Economic Incentives had another meeting on Wednesday.
Up for discussion were a pair of tax incentives, the Investment/New Jobs Tax Credit and the Quality Jobs tax rebate. The former was relatively unfamiliar to the task force, the latter routinely ballyhooed.
There were four key points from the discussion, most of which we expect to see carried into the next meeting, which is slated for Sept. 28.
1. Caps Are Key
In his opening remarks, State Rep. David Dank, R-Oklahoma City, who co-chairs the task force, said that almost without exception, the tax credits examined by the panel had no caps. “That’s like handing the keys to the car and a credit card to a 16-year-old boy and saying, ‘Have fun, son,’” Dank said at the meeting. “You know he’s thinking that the sky is the limit.”
The cap questioning didn’t just apply to total funding amounts; the panel was also concerned about time limits on some of the credits, including the Investment/New Jobs Tax Credit, which gives certain manufacturers tax credits for investing in depreciable equipment or adding job in manufacturing, processing or aircraft maintenance.
Dawn Cash, director of tax policy for the Oklahoma Tax Commission, told the task force that there was no limit on how long the Investment/New Jobs Tax Credit could be “carried forward.” The credits “stack,” she said, so investments in additional years add to the tax credit. Despite the current tax credit moratorium, which expires in 2012, qualifying companies can carry the credit forward.
The lack of a cap did not please Rep. Dank, who said, “It goes to my point that we’re giving the kid our credit card.”
2. We’re Spying on Other States
The task force wants to know what incentives are working in other states. They want specific examples of business opportunities Oklahoma has lost due to competing incentive programs in other states.
House Appropriations and Budget Chairman Earl Sears, R-Bartlesville, asked Mike Ogan, the director of business development for the Greater Oklahoma City Chamber, “Do you have data on companies that look here and go to Texas or some other state because of what they offer?
Ogan said he had data about which companies chose other states, but didn’t have information on the reasons why they went elsewhere.
Rep. Dank also praised an incentive program not up for discussion at Wednesday’s meeting, the Quick Action Closing Fund, which was signed into law last year by Gov. Mary Fallin and gives the governor a cash reserve to tap for economic development. The fund could be used to tip the balance when a company is looking at several states competing for its relocation. It could also be used to make sure a company stays in Oklahoma.
In Arkansas, Dank said the use of a governor’s closing fund helped secure a $10 million wind turbine manufacturing plant, which brought about 500 jobs to the state. Turbines made in Arkansas end up at wind farms in Oklahoma, Dank said.
3. Oklahoma Should be Proactive
Beyond the questioning about tracking what incentives are working in other states, the task force wanted to know if Oklahoma was going after companies that might benefit from our tax credits.
Rep. Sears asked Richard Schwalbach, who manages the Quality Jobs program for the Department of Commerce, “I’m assuming there are companies contacting us about this, but do we seek out companies?” Yes, Schwalbach said, the Department of Commerce has recruiters that seek out companies to bring back to Oklahoma.
4. Quality is KingThe Quality Jobs tax rebate remains the benchmark for a successful tax credit. Rep. Dank praised its controls and transparency, and Rep. Sears said, “The model has been very successful.”
Since its creation in 1993, 610 companies have participated in the Quality Jobs program, creating a combined payroll of $15.6 billion, Schwalbach told the task force.
The Quality Jobs program pays cash of up to 5 percent of payroll for up to 10 years.
The jobs must be “new” jobs, meaning the activities and functions of the job didn’t exist for six months prior to application for the credit. The jobs must average the county wage or $29,745, whichever is lower, and the company must provide health insurance, and maintain a $2.5 million annual payroll within three years.