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Task Force on credits and incentives edges toward recommending broad reforms

By Patrick B. McGuigan
Executive Editor

At this month’s meeting of the Task Force on Credits and Economic Incentives, Chairman David Dank said the object was to turn the committee’s attention to the “criteria we will use to judge the validity of the tax credits we have examined in the past months. We will also discuss how we will proceed in drafting that report and the legislation that will ultimately result from it.”

He and several other members, including Democratic state Sen. Andrew Rice of MidTown Oklahoma City, reflected a consensus that programs to “incentivize” business must change. Still, there is not unanimity on how much to limit programs. One legislator who is not a member of the panel but a regular at its deliberations, Republican Mike Reynolds of Oklahoma City, offered a strongly negative view of most incentives and tax credits.

Panel members Earl Sears (House Appropriations and Budget Chairman), Gary Jones (state Auditor and Inspector), and Preston Doerflinger (Director of State Finance) clearly inclined in support of Dank’s goal to reform significantly, not end entirely, the tax credits, exemptions, abatements and other methods for advancing economic development.

Dank asked rhetorically, “Who do we represent? I think the only valid answer is, The Taxpayers. Not the special interests who have benefited from many of these tax credits … and certainly not the few who have manipulated this system for personal gain.”

The Oklahoma City Republican continued, “We are not against business We don’t oppose growth. We believe that government policy can help create jobs. We don’t think all credits or incentives are bad.
“What I think most of us believe after all we have heard here is that far too many tax credits and other incentives enacted in the past were created for the wrong reasons, and in the wrong way. Many were enacted virtually in secret. Some had no checks and balances.”

Dank said an attorney general’s formal opinion and its tripartite test for the legal adequacy of credits and incentives concluded a number of Oklahoma’s existing programs “are constitutionally infirm, which is simply another way of saying they were simply illegal.”

In his bluntest language of the day, Dank said, “The simple truth is that a few of these tax credits are like the huckster who took a bucket of manure, covered the top with an inch of money and sold the whole thing as a full bucket of money. It wasn’t until the sucker got home with it that he found out what he had actually bought.”
Crafting a report that aims to retain effective, transparent and legally sound incentive programs while bringing the more dubious systems to an end provides, Dank said, “a golden opportunity to reverse that culture and to shine some much-needed light on the public business we do here, all the way to the bottom of the bucket.”

Dank’s approach would create new review procedures for tax credits, end transferability, sunset all programs, end voting on such programs in the closing days of the legislative session, subject programs to the Open Records Act, make job creation the sole justification for credits, review alternatives to incentives, develop regular auditing procedures, cap/limit the dollar amounts, and allow scrutiny of businesses seeking the credits and incentives.

Sears, a Bartlesville Republican, evinced both pragmatism about the economic benefits of some incentives and principled commitment to reform past program practices that have drawn public ire. There appeared to be majority support, but not unanimity, to end transferable credits across all categories of business incentives. Sears strongly allied himself with Dank on the issue.

Auditor & Inspector Jones backed “sunset provisions” and stricter accounting standards by arguing for “thorough review of the process” and “proper safeguards” in advance of renewal or creation of an incentive program. He welcomed Dank’s advocacy of “accounting safeguards” to include his office’s involvement.
Jones believes “all credits or incentives should be subject to the Oklahoma open records act. No more secret deals.” A “performance audit” should be conducted regularly, he said.

Chairman Dank wondered if the Legislature could authorize such new powers to the auditor’s office. Jones told the panel accountability could be improved if legislators “enhance what already exists.”
Treasurer Ken Miller laid out the most explicit reservations about anticipated changes. He questioned “growing government,” while agreeing there should be fewer credits and exemptions/abatements. Miller believes it is “important to evaluate these programs based on reality as it exists today, and not on the basis of ideology.” He encouraged members to “be sensitive to the economic impact of our actions. We cannot set policy in a vacuum.”

With Jones sitting near him in the House chamber, where the hearings were held, Miller said that he was “not yet opposed to enhancing the auditor’s authority, but also not yet convinced or persuaded to grow government.”
Miller said he was not sure enough research has been done on the effectiveness of transfer-ability provisions. He said, “If the Legislature determines there is a certain cost and benefit and that the policy is a good one, I’m not sure it matters who gets the benefit.”

Miller pressed: “Something is not bad just because we keep saying it is bad.” He admonished, as other speakers have in past hearings of the task force, that Oklahoma should “not throw the baby out with the bathwater.”

Senator Rice is resigning from the Senate on January 15. He gave a positive assessment of the process and Dank’s focus. Rice marveled at occasional agreement among legislators as diverse as Tulsa Democratic Sen. Tom Adelson and Republican Rep. Reynolds.

While not opposed to reforms, he laid out cautions about the increased use of the auditor’s office. He said, “Absolutely some of these need to be eliminated, but let’s tread carefully.”
Rice said it was clear some legislators, perhaps a majority, want to use any shift away from tax credits and incentives to leverage a phased-in reduction of the state income tax. He questioned this, pointing to programs that might be cash-starved, including Insure Oklahoma.

Rep. Dank engaged in back-and-forth with Sen. Rice over the auditing procedures, while praising him for “effective and principled” serve to the state and the community. The two men share some MidCity constituents, including in the Crown Heights-Edgemere Heights area.

Rep. Reynolds challenged the programs, saying the Legislature should avoid picking winners and losers. He contended the state Constitution forbids “the vast majority” of the programs now in place. He said Dank’s task force has brought to light “very interesting” information about weak or non-existence oversight.

Reynolds has been especially critical of certain venture capital programs and has repeatedly focused on the lack of documented job creation from state government programs in the area.The task force will meet again November 30, at which time formal action on some proposals, and development of the final report’s language, seems likely to begin. Deadline for a final report is Dec. 31.

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