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The Legislature cut tax credits in effort to shrink budget hole


Scott Cooper June 3rd, 2010

The buzz phrase for the 2010 legislative session was tax credits, specifically to kill them or at least maim them in some way.Supporters of such action seemed to have momentum as the governor came out...

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The buzz phrase for the 2010 legislative session was tax credits, specifically to kill them or at least maim them in some way.

Supporters of such action seemed to have momentum as the governor came out early in the session and proposed a moratorium on several tax credits that could save millions of dollars. Several legislators joined in the call and followed through when a budget was hammered out.

But one bill has some worried the savings from the moratorium will be drained out.

House Bill 2432 would delay tax credits given to the oil and gas industry for the 2011 fiscal year. The deferment would last for two years.

It passed the House and Senate overwhelmingly and now goes to the governor.

The concern for budget hawks is when the credits are paid out, oil and gas companies awarded the 2011 credits would actually get more back than originally awarded.

"Overall, we're seeing progress toward greater scrutiny and not just writing blank checks," said David Blatt, executive director of the Oklahoma Policy Institute. "But the bill would provide a $65 million tax cut for oil and gas."

The progress Blatt is referring to mainly concerns three bills. Senate Bill 1267 would halt for two years the awarding of 30 tax credits, saving about $25 million in 2011 and $50 million in 2012. The bill covers credits such as recycling and immunization of food service employees.

Senate Bill 1590 applies to credits for small and rural businesses, saving about $24 million. House Bill 2641 changed the tax credit given for the purchase of electric cars, mainly golf carts. Because there was a run on buying the cars due to dual state and federal tax credits, purchasers were getting the cars practically for free.

But some legislators worry HB 2432 could be too costly for the state.

"Every other industry has taken a (tax credit) moratorium," said Sen. Tom Adelson, D-Tulsa. "This industry is so powerful they are getting a deferral plus a tax cut."

However, state Treasurer Scott Meacham said a new formula has been worked out where the tax rate for oil and gas production has been increased on deep well drilling, although the cap on the amount the state awards each year for the credit is removed.

"There is no fiscal impact," Meacham said.

But the treasurer is concerned about the language on horizontal well drilling that eliminates the payback limitation the state gives to energy companies. He said it could reduce revenue by $13 million starting in the 2015 fiscal year.

"The language was in the summary of the bill, but it wasn't clear," as to its impact, Meacham said. "I think things will get worked out."

Overall, both Blatt and Meacham are pleased with the progress made during the session on tax credits.

"We've created a breathing period to re-evaluate these credits, which is what needs to be done," Meacham said.

"The moratorium provides a chance to take a time out and analyze and find out which ones are working," Blatt said. "We have some good credits. We just need to know which ones are not working." "Scott Cooper

Tax Savings FY 2011

Senate Bill 1267 places a moratorium on 30 credits. Estimated to save $25 million.

Senate Bill 1590 places two-year moratorium on small and rural business tax credits. Estimated to save $24 million.

House Bill 2641 changes the tax credit for electric cars. Estimated to save $9.5 million.
 
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