In an effort to move Oklahoma toward a lower and possibly eliminated state income tax, the State Legislature is trying to figure out a way to balance the budget without its largest source of revenue. Last spring, Governor Mary Fallin appointed two legislative task forces (one focused on tax credits, another on the tax code) to ferret out a way to lower or eliminate Oklahoma's income tax.
The tax credit task force, led by State Rep. David Dank (R-Oklahoma City), convened for five months as the members went on a budget-chopping witch hunt through the state's $29 million in tax credit expenditures.
Early in 2012, Fallin unveiled her new income tax plan, which would reduce the top personal income tax rate by more than half. To make this happen, the tax credit task force recently reported Oklahoma would need to dump more than 30 tax credits, including a critical incentive that's changed the face of downtown Tulsa in recent years.
In the past five years, downtown Tulsa has grown with the help of millions of dollars in historic preservation tax credits (its official title is qualified rehabilitation structure expenditure tax credit, or call 'em "HP credits" for short).
In 2006, the Mayo Hotel was pulled back into the limelight after nine years and $40 million in renovations by the Snyder family. The Mayo project received $7 million in state tax credits and another $4.9 million was provided through voter-approved Vision 2025 money, according to Oklahoma Historical Society numbers.
More recently, Tulsa's historic Atlas Life building gained new life as the chic Atlas Courtyard at Marriott. Currently, the old Tulsa Paper Co. building, a weathered brick structure in the Brady Arts District, is being restored into funky residential lofts. These projects plus renovations at the Mayo Building, Philtower Lofts, Tribune Lofts and Hotel Ambassador all received critical funds through HP credits, according to Amanda DeCort, a city of Tulsa historic preservation planner.
Though eliminating tax credits is important to Fallin's new lowered income tax plan, Tulsa leaders made a point to tell her, "Not so fast."
A Blindfold and an Axe
District 4 City Councilor Blake Ewing said he was "very disappointed" by the task force's recommendations to get rid of many key tax credits. "It was foolish."
He said that the benefits of cutting credits "is based on a hypothesis," Ewing said. "It's like taking an axe to [tax credits] based on a guess."
Ewing's District 4 includes downtown Tulsa as well as historic midtown neighborhoods. Ewing has received HP credits for his most recent venture, the Phoenix Café, which is currently under construction in the Pearl District.
The city's PLANiTULSA plans call for historic preservation and infill development that would be ideal for HP tax credit funds. But once HP credits are taken out of the equation, Ewing said, "it changes the numbers and makes a parking lot more feasible financially." Renovating an old building is an expensive venture because older structures require more costly major updates.
"It's like [the task force] put a blindfold on, and took an axe" to all the credits, regardless of their possible benefits, Ewing said.
Ewing also said he was frustrated when tax credits designed to boost the state's burgeoning film industry would be axed as well.
At the city council's Thursday evening meeting on Feb. 23, councilors voted 8-1 to pass an emergency resolution asking the Oklahoma Legislature to reinstate HP tax credits. The resolution was supported and signed by Mayor Dewey Bartlett Jr.
Tulsa's legislators aren't the only ones opposed to getting rid of HP credits. The same day the council's emergency resolution passed in Tulsa, a House of Representatives Subcommittee voted against a piece of legislation that would've outlawed all six transferable tax credits, which include HP credits.
Another tax credit for the growing Oklahoma wind industry was also taken off the chopping block. A House bill (HB 2876) that would have extended tax credit moratoriums (and imposed new ones), was also defeated in committee. Fallin's income tax proposal hinges on the elimination of most tax credits.
Only one Tulsa city councilor voted against the emergency resolution -- District 9 City Council Chairman G.T. Bynum. "I voted against it, not for anything to do with historic preservation," Bynum said, "I just fundamentally disagree with the notion of tax credits, period."
Bynum said he thinks "tax credits are government's way of controlling how you spend your money. If government is going to take your money to pave streets and educate your kids, that's one thing."
But taking your cash and then redistributing it for handpicked uses, Bynum said, is "the height of arrogance."
Whether it's arrogance or strategy, the Fallin administration, as well as all levels of Oklahoma government, will grapple with important choices on how to move the state forward. The Tax Foundation came out with a new report, "Location Matters: A Comparative Analysis of State Tax Costs on Business," which ranked Oklahoma fifth best for new firms and 16th best for more established firms.
Texas ranked far behind Oklahoma for taxes on new firms -- 42nd; though the Lone Star state came in slightly ahead of Oklahoma for older firms -- 16th.
The foundation ranked states on their business tax climate in 2012. Oklahoma came in 29th. Topping out the list were Wyoming, South Dakota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas and Utah. New Jersey had the worst business tax climate, according to the foundation's report.
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