According to State Representative Mike Reynolds, (R-Oklahoma City), “This is just more proof that the government should not try to pick winners and losers in the marketplace. 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 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 the $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.
State Representative David Dank, (R-Oklahoma City) is the chairman of the Task Force on State Tax Credits and Economic Incentives. He and Reynolds agree that a 2010 AG’s opinion that some of the tax credits in the two programs were unconstitutional because they failed the ‘accountability’ test should sent up a red flag and put a stop to them, but it didn’t.
In the 2010 opinion, then Attorney General Drew Edmondson said for the credits to be legal, they had to serve a public purpose, provide more benefit than cost, and include adequate controls and safeguards.
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.” In other words, these programs had no oversight- no one was watching to make sure they were not being abused. Why has there not been any ‘accountability’ for these two programs?
Oklahoma has the office of State Auditor and Inspector. The state constitution states the Auditor’s duties include examining the state and all county treasurer's books, accounts and cash on hand or in bank and to publish an annual report with the results of those examinations.
You would think the State Auditor’s office could audit any agency or program that receives state money, but that is not true. The office is limited by statue from looking at certain agencies books. You would also think that any honestly administrated publically funded program would welcome an annual outside audit by the Auditor’s office.
But there are two problems. First, some agencies and programs don’t want the taxpayers to know how and where tax money is being spent. They know taxpayers would be outraged and demand reform, so they conduct ‘internal’ audits that are designed to make them look good. They account for the money, but no ‘performance’ audit is conducted. A performance audit differs from a regular audit because it examines whether tax dollars were spent economically, efficiently and effectively. Agencies and programs shouldn’t be grading their own tests. An objective set of eyes should be auditing their books.
Second, audits are expensive. Expanding the reach of the Auditor’s office would cost money, requiring the legislature to increase the Auditor’s budget, but if we are truly concerned about accountability, this would be a good investment for taxpayers.
The so-called Venture Capital programs mentioned were supposed to create permanent jobs for Oklahomans, but they appear to have done nothing but give tax credits to wealthy investors. The long term answer is to expand the State Auditor’s authority to audit any agency, program or group that gets a penny of state money or receives a reduction in their tax obligations.