Tulsa World from Tulsa, Oklahoma • 6

TULSA WORLD A6 a Monday, May 30, 2016 ISSUES FROM A1 Missed revenue enhancements A number of bold revenue-enhancing initiatives were floated and discussed during the session, many of them percolating from working groups formed in the House. Among the ideas were a fuel tax to fund roads and bridges, a cigarette tax to pay for health care, an expansion of health insurance to tens of thousands of uninsured working Oklahomans, and the broadening of the sales tax to fund pay raises for teachers or slash the tax on groceries. But none of the ideas got off the ground. The only proposal that actually made it to the House floor for a vote was the cigarette tax, but Democrats in the 101-member House flexed their political muscle and locked up their 30 votes, demanding that in exchange the GOPled Legislature embrace a Medicaid expansion. In the end, neither proposal made it anywhere.

TAXES FROM A1 money to them directly. In other cases, they get the cash by selling credits they can't to taxpayers who can use use them. An Oklahoma Watch analysis shows that subsidies doled out to businesses with no income tax liability easily exceed the $29 million the state has been paying to working families who owe no income taxes. Last year, for example, operators of "wind farm" generating plants alone received $45 million in cash refunds. An effort to end those subsidies was rejected by lawmakers.

"We're paying businesses that are making negative profits," said University of Oklahoma economics professor Cynthia Rogers, who was recently appointed to serve on a newly created state Incentive Evaluation Commission. "They have a negative, and we're offsetting it," Rogers said. "You could argue that if we don't want to give refunds, we shouldn't give them anywhere." What lawmakers did Both the House and Sen-1 ate voted in recent days to eliminate what is called the "refundable" portion of Oklahoma's earned income credit, which provides income tax relief to income people who work and have dependent children. The refundable portion of the credit is paid to families with little or no state income tax liability. That means the families receive a cash payment despite the fact that they may owe no income tax.

One of the purposes of the credit is to partially offset what low-income families pay in other state taxes, including the sales tax. The decision to repeal the refundable share would end cash refunds averaging $147 a year for about 200,000 households across the state. It would save the state an estimated $29 million, which would be used to reduce spending cuts elsewhere in the budget. Gov. Mary Fallin had not signed the bill into law by Thursday, Some advocacy groups were urging her to veto it.

But it was included in a big, interlocking package of tax and spending measures being rushed through the Legislature in time to meet Friday's 5 p.m. end-ofsession deadline. It might be difficult for Fallin to veto that measure and leave the budget package intact. The governor's office declined to comment on the Oklahoma Watch analysis. Several lawmakers who voted to scale back the earned income credit said it made no sense to them for the state to pay refunds to taxpayers who owed no taxes.

"We're not eliminating it but making it not refundable," House Speaker Jeff Hickman told the editorial board of The Oklahoman newspaper. "Why should you get back more than what you paid in taxes?" Yet that's essentially what some businesses have been doing for decades, through a variety of state tax refunds, rebates and transfers. Although lawmakers have scaled back some of them, others remain on the books and have politically powerful constituencies support- Oklahoma state Rep. Jeff Hickman (left), R-Fairview, shakes hands with Rep. Scott Inman, D-Del City, on the House floor on Friday, the final day of the legislative session in Oklahoma City.

SUE AP Medicaid 'rebalancing' Because Republicans SO fiercely rejected nected to the federal Act, a straight has been politically head of the state's had to get creative. Care Authority ficer Nico Gomez by the federal govwhich provides its credit to qualifying It was used, for renovate Tulsa's and Oklahoma Hotel. Tax Commission that holders of hispreservation credits exmillion of them for year. It could not determined of the $6 million were still held by who initially them. But advocates have acknowlthey typically are people who have liability to use transferable credit builders of new homes energy-saving features them more efficient that simply meet standards.

It applies of up to 2,000 and was intended energy consumption generally purchased families. 2014 tax year, holdenergy-efficiency million of could not be immedetermined how many credits had been sold taxpayers by developtax liability. the buyers was Halthe big oil-field serAccording to OklaCommission data, it $800,000 in energycredits in 2014. Transferable credit marketplace A Senate-backed attempt to scale back a generous tax subsidy for the wind industry also stalled in the House. Among the revenue that were enacted include tax credit for marginally oil wells, an adjustment to income tax credit for poor, and a requirement ma motorists buy new ing them.

Wind and coal refunds At least two state business incentives provide cash refunds to companies that owe no state income taxes because their year-end tax returns don't show a profit. The biggest one is for electricity generated by windpower installations. Before 2014, qualifying companies received transferable credits they could sell to other taxpayers if they had no state income tax liability, which is often the case. The buyers were other companies, individuals and brokers who purchase and resell the credits. From 2014 forward, the tax credit became refundable instead of transferable.

Credits earned after January 2014 can be returned to the state if companies have no tax liability. The state then sends them a check equal to 85 percent of the credits earned. According to the Oklahoma Tax Commission, companies earned $59 million in credits for the 2014 tax year. They returned $53 million of those credits, and the state paid them $45 million in refunds. "No doubt a lot of taxpayers would agree that individuals shouldn't get back more than they pay in," State Treasurer Ken Miller told Oklahoma Watch.

"But I bet they'd also agree that the wind power industry shouldn't get back more than the zero dollars they pay into the state Treasury. It is unfortunate the same principle didn't apply to the wind industry." The state issues similar refundable credits to operators of Oklahoma coal mines and companies that purchase their coal for electricity generation or other uses. Companies earned $6 million in credits for the 2014 tax year and used $4 million of them. It could not be immediately determined how much of the $4 million was paid out in refunds and how much was used to offset state tax liability. Historic buildings and energy-efficient homes Several business tax credits are freely transferable to other taxpayers.

That allows a company that owes no state income taxes to sell any credits it earns to someone else for cash, often at a discount of 15 percent to 25 percent of face value. One of those credits subsidizes the rehabilitation of buildings certified as historic in Oklahoma anything conAffordable Care expansion of Medicaid impossible, so the Medicaid agency Oklahoma Health Chief Executive Ofcame up with the data shows that sador OKC LLC $2.1 million in ervation credits Bank. Commerce, parceled out the insurance companies individual, Scott Two years earlier, Development Co. City transferred in Oklahoma vation credits to Muskogee Housing The credits hands three more tually winding up ter Mutual Insurance Shelter Life Garrison credits for two projects in developed a ing built in 1910 Apartments, a ment complex. It same thing with 10-story Manhattan Besides doing vation and Garrison ent company has called Garrison specializes in to people who can reduce their federal tax liabilities.

"The investor flow of tax credits rison Equities at for example, an pay $0.85 for tax credit received," pany says on its addition, investors the benefits of "Medicaid Rebalancing Act," which would have, expanded Medicaid eligibility to those earning up to 138 percent of the poverty level and provided health coverage to an estimated 170,000 uninsured Oklahomans. To do it would have required shifting roughly an equal number of currently Medicaid-eligible pregnant women and children into the private market, where they would receive federal tax subsidies to help them buy policies. But the Medicaid proposal fizzled in the Senate, especially amid growing opposition from free-market think tanks and conservative icon former U.S. Sen. Tom Coburn.

"I think we've been consistent since Day One that we didn't want to expand the Obamacare," said Senate President Pro Tem Brian Bingman. "It's not sustainable. The state can't afford it." That position drew a sharp rebuke from Democrats who have pushed to expand Medicaid, which would infuse hundreds of millions of dollars of federal money into the state's -care system. "For the last six years, Republicans have fought against Medicaid expan- HPP Ambastransferred historic presto Commerce in turn, credits to six and one Thomas. Garrison of Kansas $1.2 million historic preserDowntown Partners.

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receive the deprecia- offering a viable soluSenate Democratic Leader D-Norman. "Blaming Obama for a system which in other states is no substi- sion without tion," said John Sparks, President is working tute for Social issues The session also came to a close with a last-minute flurry of legislation targeting hot-button social issues, including abortion and the use of bathrooms by transgender people, that exposed a rift within the Republican caucuses in the House and Senate. A bill that would have made it a felony for a doctor to perform an abortion in Oklahoma passed the Legislature, but was vetoed by Republican Gov. Mary Fallin, a strong abortion opponent who said the law was vague and unconstitutional. A transgender bathroom bill that would have required schools to provide separate restrooms for students who didn't want to share them with transgender students died in a Republicar committee on a 10-10 vote.

enhancements a cap on a producing the earned the working that Oklaholicense plates. structures ernment, own tax developers. example, to Mayo Hotel City's Skirvin Oklahoma data show toric ercised $6 the 2014 tax be immediately how much in credits the developers received of the credits edged that sold to other enough tax them. Another goes to with that make than homes code to residences square feet, to reduce in homes by lower-income For the ers of its exercised them. It diately of those to other ers with no One of liburton, vices firm.

homa Tax acquired efficiency Some transferable credits have been curtailed and some transformed into refundable credits. But many previously earned credits are still in circulation and can be exercised for years to come. Before the wind-power credit was made refundable, Apple Inc. and Kraft Foods Group Inc. were among the big purchasers of Oklahoma wind credits.

Tax Commission data show that during 2012 and 2013, Apple bought $6 million of them to reduce its Oklahoma income tax liability. Kraft acquired $4 million of the credits in 2012. Wind farm developers who sold their credits to Apple included Blackwell Wind LLC; Minco Wind LLC, Elk City Wind LLC, Oklahoma Wind LLC, FPL Energy Sooner Wind LLC, FPL Energy Cowboy Wind LLC, and FPL Energy Oklahoma Wind LLC. In some cases, refundable credits change hands many times. In 2014, Tax Commission 3CM starting at $33 SQ.

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3 129th 13105 E. 61st 918-307-8900 Ave. Mon-Fri: Sat: Sun: Closed www. www.usagraniteandcabinetry.com tion and interest expense deductions which flow from the property." There are enough transferable credits still in circulation to support an Oklahomabased niche industry of credit brokers, such as Tax Credit Exchange LLC in Oklahoma City. Quality Jobs rebates and credit carryovers The state also provides other forms of subsidies to companies that have no income tax liability.

One of the biggest is the Quality Jobs program, which paid out $89 million in cash rebates during the 2015 fiscal year to companies that satisfied its criteria for creating new employment in Oklahoma. Quality Jobs rebates are provided to firms regardless of their income tax liability. Although it could not be determined how much of the $89 million went to companies with no income taxes to pay, previous Oklahoma Watch reporting has shown that some recipients are business start-ups that remain unprofitable for several years. In addition, the state allows companies that receive other business tax credits to hold them for future use if they have no taxable income during the year in which they were earned. For example, companies that receive New Jobs" tax credits for capitalizing job-creating projects can exercise their credits for as long as 20 years if they have no immediate tax liability and if the new employment is maintained.

Those credits reduced state revenue by an average of $57 million year over the last three years, state data show. Another perspective Despite the similarities between the earned income credit refunds and the subsidies provided by some business credits, one tax policy analyst said he was wary of drawing a direct analogy. "They're not really comparable," said David Blatt, executive director of the Oklahoma Policy Institute. The Tulsa-based research group strongly opposed elimination of the refundable credit for the working poor and was among those urging the governor and lawmakers to reject the budget package that includes it. "A business credit is supposed to be an incentive to invest or create jobs," Blatt said.

"The EITC is to offset other taxes and to provide an incentive to reward work." Opponents of earned income credit refunds "may say they don't like refundability at all," Blatt acknowledged. "But that's not our argument." TULSA WORLD MEDIA COMPANY BLAZING HOT Find your numbers every day in the Tulsa World. Over $1,800 in cash prizes given away each month! No purchase necessary. Visit tulsaworld.com/bingo for complete rules. Special Kitchen Remodel Installation Backsplash $8,500 3CM Granite Countertop Cabinets FREE All wood with soft close Cabinet 30 colors to choose from Hardware 16 gauge Stainless sink USA Granite Cabinetry INC.

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