Tax Incentive Review Is Only The First Step

Recently, OPEA members asked about two pieces of legislation passed into law last session regarding the evaluation of tax incentives. While we appreciate this first step taken by the Governor’s office, Senate and House members in the passage of HB 2182 and SB 806 and OPEA supported their passage, they are only a first step in determining whether tax credits and incentives are helping Oklahoma’s economy.
HB2182 requires all tax incentives to be evaluated by a newly formed Incentive Evaluation Commission at least once every four years and SB806 requires that new incentives have measurable goals. OPEA supported passage of these laws but believe they are only a first step in determining whether tax credits and incentives are helping Oklahoma’s economy.

The first law, HB2182 effective November 1st, establishes an independent group to look at our current incentives and reccomend whether they should continue, be modified or repealed. The second law requires measurable goals for any new tax incentives and does not directly impact those incentives already in place. While OPEA appreciates this initial step, much work is needed to make sure potential revenue not currently collected due to ineffective tax incentives is made available for state services. These laws will not increase revenue in 2016 and only have the ability to make recommendations in the future. The ultimate responsibility for revising or eliminating ineffective incentives lies with lawmakers.

The Commission will be supported by The Office of Management and Enterprise Services’ (OMES) staff with help from the Department of Commerce and the Tax Commission and its members include a certified public accountant appointed by the Oklahoma Accountancy Board, the president of the Oklahoma Professional Economic Development Council or his or her designee, an internal auditor appointed by the Governor, an economist from an Oklahoma college or university appointed by the President Pro Tempore of the Oklahoma State Senate, a lay person who is not an elected official appointed by the Speaker of the Oklahoma House of Representatives, the Chairman of the Oklahoma Tax Commission or his or her designee who is also a member of the Oklahoma Tax Commission, the OMES director or his or her designee who is an OMES employee and the Oklahoma Secretary of Commerce or his or her designee who is an Oklahoma Department of Commerce employee. The Tax Commission, Commerce and OMES appointees will be ex officio and nonvoting positions.

The law states that the commission shall ensure that each incentive is evaluated at least once every four years unless the Commission determines that the incentive is exempt from evaluation because it has a minimal fiscal impact.

By January 1, 2016, and by January 1 thereafter the Commission shall develop a four-year schedule for evaluating incentives. The evaluation schedule must be made so that the incentives having the highest fiscal impact to the state revenue system are evaluated before other incentives. In determining whether a program is an incentive, the Commission may consider legislative intent and may also consider whether the program is promoted as an incentive by any state agency. For each incentive, the Commission shall attempt to identify the goal or goals of the incentive.

Each evaluation shall include the following: An estimate of the economic and fiscal impact of the incentive, the results of the incentive for Oklahoma’s economy as a whole, including both positive direct and indirect impacts and any negative effects on other Oklahoma businesses and a comparison to the results of other incentives or other economic development strategies with similar goals.

It will also assess whether adequate protections are in place to ensure the fiscal impact of the incentive does not increase substantially beyond the state’s expectations in future years, assess whether the incentive is being administered effectively and assess whether the incentive is achieving its goals.

The Commission must include recommendations for how Oklahoma can most effectively achieve the incentive’s goals, including recommendations on whether the incentive should be retained, reconfigured or repealed recommend any changes to state policy, rules, or statutes that would allow the incentive to be more easily or conclusively evaluated in the future.

OPEA expects the members of the commission to be named before the end of this calendar year. However, the first report will not be made available until December 1 2016. The earliest lawmakers could take action on discontinuing or revising any incentives would in early 2017.
It will be crucial that those named are truly independent and have the freedom to make recommendations based on facts and not be subject to outside pressure. OPEA members will need to pay close attention to the commission’s finding and communicate our wishes to lawmakers.
While these laws are steps in the right direction, The ultimate responsibility for changing or repealing incentives deemed ineffective by the commission will still be the responsibility of the legislature and governor. Rather than this process, some states have taken an approach that “sunsets” all incentives but allows lawmakers to continue those that are effective. Lawmakers will need to exhibit the will to act on the commission’s findings even if those findings are politically unpopular.

OPEA members must be diligent in seeing that work done by this committee achieves its purpose. If it finds incentives that are not achieving goals, Oklahoma’s lawmakers must take steps to discontinue or revise the incentives. Oklahoma’s need for resources to provide services to our citizens depends on having sufficient resources to efficiently and effectively administer the programs.

State employees and agencies have the responsibility to be good stewards of taxpayer funds. Oklahoma’s lawmakers also now have the responsibility to make sure our state is only keeping in place those incentives that show they are achieving their goals.

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