By Constitution Staff

State Rep. Mike Reynolds (R-Oklahoma City) said a new report just released by the Oklahoma Tax Commission shows that two major state tax programs probably make the architects of the Solyndra scandal proud. And, Rep. David Dank (R-Oklahoma City), the chairman of the Task Force on State Tax Credits and Economic Incentives, says that in light of a recent attorney general's opinion, lawmakers should seek Oklahoma Supreme Court rulings on many potentially unconstitutional tax credits.

According to the legislatively-mandated Oklahoma Tax Commission report, the programs cost more than $550,000 per job, while the now well-documented Solyndra scandal cost only $486,000 per job, Reynolds noted. "This is just more proof that the government should not try to pick winners and losers in the marketplace," said Reynolds,. "The track record of government officials displays why legislators, other government officials, and employees in the various departments who make the decisions to give away this money aren't in the private sector. This money should have been used for roads, schools, or constitutional incentives like across-the-board tax cuts."

The Oklahoma Tax Commission report examined the 2009 impact of the state's Small Business Capital Formation Incentive Act as well as the Rural Venture Capital Formation Incentive Act. Reynolds has been a critic of these "giveaway" programs for several years. Reynolds noted that legislation was previously passed requiring at least some level of accountability, but said even that reform was "watered-down."

The Small Business Capital Formation Incentive Act provides up to a 30 percent tax credit of qualified investments made in certain small business capital companies or investments made "in conjunction" with those ventures. The Tax Commission report found that of $158 million in total tax credits generated through the program in 2008 and 2009, only $41 million has currently been claimed, leaving at least $117 million in potential revenue reductions for the next budget year. Of the 99 total jobs created by the program, over half were at the Patriot Golf Course, a private golf course in the Tulsa area.

Quartz Mountain Aerospace, received $32 million through Oklahoma's Rural Venture Capital Formation Incentive Act with the promise to build 415 pilot training planes. The company bought out Luscombe Aircraft and proposed to build a four-seat, single-engine airplane based on the Luscombe Model 11A, introduced in 1946. Production began, but the company closed their plant in Altus before the first plane was delivered. While Quartz Mountain Aerospace was the beneficiary of $32 million, according to some reports, the venture capital group the received double the cash sent to the aircraft company.

What is even more disturbing, according to Reynolds, is that an opinion by the Office of the Attorney General issued on December 20, 2010 made it clear that the programs are unconstitutional.

"I could say it is shocking that no legislation was introduced in the last session to fix this fraud, but it's not. A significant number of the members of the Legislature introduce bills to expand these giveaway programs, and it took a majority to pass the original bills. I have introduced bills and amendments on numerous occasions during the past several years. This legislation ranged from elimination of these types of programs to comprehensive disclosure that would allow the Legislature and the public to determine how badly the programs are failing. These measures have never been allowed a vote on the floor of the House," says Reynolds.

"Oklahoma families should not have to see their hard-earned tax dollars wasted in this way. No one can rationally justify maintaining these expensive, wasteful, unconstitutional programs and I intend to reintroduce legislation during the upcoming session to see that it stops," Reynolds concluded.

Rep. Dank echoed Reynolds criticism in view of the opinion issued by the Office of the Attorney General. To be legal, the opinion said tax-credit programs had to serve a public purpose, provide more benefit than cost, and include adequate controls and safeguards. "I believe we need to ask the court to apply that three-part test to those tax credits the Attorney General determined to be constitutionally infirm," said state Rep. Dank. "I think we need to get that process of testing these tax credits before the Supreme Court underway." Dank believes many state tax-credit programs fail the third test involving safeguards. "We have reviewed enough of these tax credits so far to know that the controls and safeguards in place are often a joke," Dank said. "In many cases, they are nonexistent."

On October 12, members of the Task Force on State Tax Credits and Economic Incentives reviewed tax incentives for the film industry. "We all get excited when Hollywood comes to Oklahoma," Dank said. "But we still need to ask if we are getting our money's worth from these generous cash rebates we offer for movie production. Hollywood glamour is one thing, but we're here first and foremost to balance the state budget with hard-earned taxpayer dollars."

He noted that similar incentive programs across the nation appear to lack adequate controls. In Iowa, a similar program allowed film producers to subsidize the purchase of new Mercedes and Range Rover automobiles with taxpayer money while also providing filmmakers' relatives with taxpayer-subsidized payments for work that was not clearly documented. "I am not suggesting that we face a similar mess here in Oklahoma, but we do need to ask if these film tax credits are serving the public purpose, if they are supported by adequate consideration, and if there are adequate controls and safeguards in place," Dank said.

The task force also reviewed the railroad modernization tax credit, which provides credits for every mile of track rebuilt or modernized, and revisited historical preservation tax credits. Dank says that there seems to be one common thread running through the tax credits being reviewed, and that is that they appear to create very few permanent or even long-term jobs, "Railroad construction ends when the project is finished. Filmmakers stop hiring people, and their out-of-state employees go home, when the movie is done," Dank said.