August 11, 2011
Oklahoma

Official: Lost revenues not offset

By D.E. Smoot, Phoenix Staff Writer, Muskogee Phoenix, muskogeephoenix.com 10 August 2011

Wind energy industry representatives showed up en masse Wednesday as state policy makers examined the costs and benefits of a program that exempts qualified manufacturers from paying local property taxes.

Those representatives, during a hearing at the Oklahoma State Capitol, said the exemption is necessary for its continued growth in the state. Industry officials say Oklahoma ranks ninth in the nation with regard to wind energy manufacturing and related jobs. By 2024, they say, the state is expected to be No. 1 in the field.

While a number of manufacturing representatives argued for a continuation of the five-year tax break, Muskogee County Commissioner Gene Wallace, District 1, testified how the exemption impacts county-level stakeholders.

Wallace said manufacturing companies that qualify may apply for an exemption that keeps them from having to pay local property taxes for five years.

The exemption, Wallace said, is one tool for economic development that benefits all Oklahoma counties regardless of size. But the program is not without flaws.

“It is the only program that creates a level playing field,” Wallace said. “If we’re going to use our tax code to entice somebody to do something – in this case, create jobs – this appears to be a valuable tool.”

One of the program’s flaws is its apparent inability to adequately make up for the loss of tax revenue that normally would flow to county stakeholders. To offset that loss, Wallace said, the state sets aside 1 percent of its income tax collections and places it in a special fund.

Money from that fund, according to Wallace, is distributed to the counties to offset the loss of revenue that normally would fund the operations of county government, local school districts, libraries and similar entities.

The problem with that, Wallace said, is the exemptions claimed by qualified manufacturing facilities have exceeded the value of the fund set up to offset county stakeholders’ lost revenues.

“The state is just now paying claims made in 2009 because there have been so many exemptions claimed,” Wallace said after testifying Wednesday. “The task force admitted, due to competition for businesses, it would be difficult to limit this exemption, but it did recognize the funding mechanism is broken.”

Wallace said the exemption has reduced ad valorem revenues across the state by up to $52 million in recent years. The fund set aside to offset those losses has accumulated between $24 million and $26 million annually.

Wallace predicted there will be no major change to the manufacturing exemption. But he said there may be some tinkering around the edges.