"This has been a boondoggle for many, many years," said state Sen. Randy Brogdon, R-Owasso, about what he described as the "risky business" of "special corporate welfare."
"It is immoral for the state government to use taxpayers' dollars to handpick which businesses are going to prosper," he also said.
Because of his vehement opposition to such "corporate welfare," Brogdon is just about giddy over a bill proposed this session by Sen. Mike Mazzei, R-Bixby.
He and some other lawmakers expect that it will be the demise of many of the state "handouts" enjoyed by big businesses in Oklahoma in the form of tax credits. Or, at least, it will eliminate the risk they associate with them.
Senate Bill 2024 would put a sunset and review process in place for the currently uncounted number of tax credits granted by the State of Oklahoma, to see which are helpful and which are harmful, and to winnow them accordingly.
Which, of course, might sound pretty boring to the casual reader, right?
What isn't boring, though, is the enormous chunk of revenue lost to the State of Oklahoma through such incentives.
"It's well over a billion dollars each year," Mazzei told UTW.
If the concept of a billion dollars a year in tax giveaways isn't staggering enough on its own, to put it in it's proper perspective, the entire state budget for last year was about $7 billion.
Mazzei, who works as a certified financial planner when he isn't legislating and co-chairing the Senate Finance Committee, said that billion dollars is comprised of a combination of tax credits for businesses and tax exemptions for individuals, such as seniors, veterans and disabled.
His bill will not address most of the individual exemptions, he said, since the vast majority of those billion dollars is from the tax credits to businesses.
Mazzei told UTW that he hasn't yet counted all the various tax incentives on the books, but the voluminous text of SB 2024 is a pretty good indication of how many there are: it's 233 pages long, the first ten of which are just the title.
The lawmaker declined to comment on what incentive programs might be getting the ax first because, he said, he's only in the "analysis and data-gathering stage," but said the plan is to eventually eliminate any tax incentives that don't have a demonstrable net benefit to the state.
"By placing sunset dates for special tax breaks, it will require the Legislature to conduct regular reviews to ensure these have worked as advertised," said Mazzei.
"Reviewing them will be an ongoing process. If we can find tax breaks that don't benefit the state or that have become out-dated, we can use that money instead to help grow the economy by reducing taxes on income and investments," the financial guru explained.
"There are obviously some incentive programs that work, but there are others that really raise questions," he said.
One program that works, he said, is an incentive for manufacturers: they're exempted from paying sales tax on materials they purchase to manufacture their products.
"All 50 states have this," he said, so if Oklahoma discontinued it, we'd be at a disadvantage to other states, he said.
But, the state's economic climate indicates that many others haven't had their desired effect of creating jobs and raising income in the state during the past few decades since many of them began, he said.
"We went from being 29th in the nation for average income per worker in the 1970s to being 45th in 2005," Mazzei said.
Closing the Loop
Two of the programs in particular that have "raised questions" were the cause of some considerable embarrassment to some lawmakers in recent years.
Investors managed to discover some loopholes in two tax credit programs, enabling them to fleece the state of Oklahoma for as much as $66 million in 2005, according to estimates by the Oklahoma Tax Commission.
State officials noticed a steep and sudden increase in requests for certain tax credits that year, prompting lawmakers to look into the matter to discover what Gov. Brad Henry later called "an accounting shell game."
The tax credits in question were designed to encourage investment in Oklahoma, but crafty investors discovered they could make instant profits of 100 to 500 percent by claiming the tax credits on borrowed money.
State Treasurer Scott Meacham outlined a scenario to illustrate the problem: investors could put up $10 million of their own money for a project, and then borrow another $115 million. They could then apply for a 30 percent tax credit (if the project is in a rural area, while urban projects' have a 20 percent tax credit) for the $125 million and get $37.5 million from the state: which is a 375 percent profit at taxpayers' expense.
It is and was illegal to use borrowed money to fund business ventures, but the investors were able to get around that law by creating layers of limited liability companies with the same board of directors, so no actual laws were broken, so no one was prosecuted.
That's to say nothing of the ethical violations and financial damage from the completely legal scandal, though, which prompted the Governor to issue an executive order in early 2006 to place a moratorium on the pre-approval process for the incentives, so investors wouldn't have any guarantee of receiving the credits before moving ahead with a project.
While the moratorium was in effect, then-Senate Majority Floor Leader Ted Fisher, D-Sapulpa, passed legislation to close up the loophole by requiring that the money invested has to actually be at risk to qualify for the tax credit, the investment must be for a "legitimate business purpose," and it cannot be invested for the purpose of dodging taxation.
Fisher, who has since left office due to term limits, was the author of the tax credit programs in the first place, and was a driving force behind the Oklahoma Quality Jobs Act, which gives tax incentives for companies to meet certain wage levels and provide health benefits.
Through the Looking Glass Clearly
Many Republicans like Brogdon point to the tax credit debacle of 2005-2006 as a shining example of why such "corporate welfare" is bad for the state.
Of course, that might be an extreme example, but Brogdon pointed to Mazzei's proposal as a way to review existing tax incentives for effectiveness before certain red flags, like a sudden cost to the state of almost $70 million with no benefit in job growth, brings other less-than-well-conceived tax credits to lawmakers' and the public's attention.
Brogdon told UTW that he'll probably sign on as a co-author of the bill.
"This is going to drastically reduce the state income tax," he foretold, with a measure of barely-contained excitement.
Brogdon said he filed legislation three years ago to eliminate the special tax credits addressed by Mazzei's bill, but was thwarted by the then Democrat-controlled Senate.
This time around, he said he expects "anyone who's in line for handouts will be opposed to the bill."
More specifically, he said he expects opposition from the Oklahoma Center for the Advancement of Science and Technology (OCAST), which is a recipient of significant state funding for scientific research and development for the purpose of economic development.
Also, Brogdon expects The State Chamber and other municipal chambers of commerce to come out against the bill.
He pointed to The State Chamber's 11th hour attempt last year to roadblock his Taxpayer Transparency Act.
The law is modeled after a relatively new federal law authored by Oklahoma's Republican Sen. Tom Coburn and Illinois Democratic Sen. and candidate for President of the United States Barack Obama: the Federal Funding Accountability and Transparency Act of 2006.
When it's up and running, it should enable citizens to "Google the government" through an easily accessible, searchable website by which all government expenditures can be monitored by the public.
It was one of Democratic Gov. Brad Henry's agenda items last year, and passed the House and the Senate with unanimous bipartisan support.
It also passed largely unnoticed by the general public and the news media, since there wasn't a word of objection to be heard against it in an otherwise controversy-laden legislative session.
While it sat on the Governor's desk awaiting his signature in June, The State Chamber CEO and President Richard Rush sent Henry a letter, urging him not to sign it into law.
He warned that it would have a chilling effect on investment in the state by shining "unwanted light on those who invest in Oklahoma and will make it much more difficult to attract those investors."
That "unwanted light," Rush said, will expose tax credits awarded by the state, as well as their recipients, by requiring them to file electronically to enable the state Tax Commission to post them on the website.
Those tax credits, he said, are "critically important incentives to attracting investment."
"Governor, many thousands of Oklahoma taxpayers, both individuals and businesses, take advantage of our tax credits," he wrote.
"The goal of (the Taxpayer Transparency Act) is fine. The inclusion of tax credits is a bad idea. Please veto (it). Let the Legislature try again next year," Rush concluded.
When word leaked that the Chamber honcho was trying to derail his bill, Brogdon was pretty miffed.
He rallied some of his colleagues for a quick press conference at the state Capitol to denounce Rush and his intentions.
"The state provides millions upon millions of dollars in tax credits to businesses every year. Oklahoma citizens have just as much right to know where this money is going as they do to know where expenditures are going for other government programs," Brogdon told the Capitol press corps.
"That information must be public. It cannot be held private. It can't be held close to the vest. Deals cannot be made, expecting the taxpayers to just accept what the politicians are doing," he continued.
The Governor soon after signed it into law, and the new website is due to be operational and fully searchable by January 1, 2009.
Meanwhile, SB 2024 is in the early stages of the Legislative process, and Mazzei said he hasn't seen any overt opposition to it so far.
"Right now, I'm just trying to get everyone focused on the process," he said.
Representatives of The State Chamber did not return UTW's repeated telephone calls.
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