This post is part of an occasional series examining state and local reports evaluating economic development incentive programs.
Last week Oklahoma’s Incentive Evaluation Commission received draft evaluations for twelve state incentives including the Quality Jobs Program. According to Oklahoma’s Department of Commerce, the Quality Jobs program makes quarterly cash payments of up to 5 percent of new taxable payroll to qualifying manufacturers and certain service industries that have a new payroll investment of $2.5 million or more.
The legislative intent behind Quality Jobs is to support establishments of basic industries that hold the promise of significant development for the state of Oklahoma. Further, incentive amounts should be directly related to the jobs created and should not exceed the estimated net direct state benefits that accrue as a result of locating in the state.
The approved evaluation criteria include:
- change in jobs
- change in payroll
- ability to verify claims
- change in jobs/payroll associated with cash rebates versus state growth rates as a whole
- change in jobs/payroll in qualifying industries versus state growth rates as a whole
- return on investment – here meaning taxes generated by the economic activity compared to the cost of the incentives
Companies receiving an incentive payment from 1994 to June 2017 created 86,711 qualifying jobs. The count is based on jobs reported by companies on their last payment claims and does not incorporate “how long the jobs were maintained before or after the final incentive payment.”
From 1994 to June 2017, 790 contracts with potential payments of $3.9 billion were signed.
Actual payments over this period totaled $1.1 billion, putting the cost per job at approximately $13,000.
The change in jobs over the last five years in qualifying industries contracted 2.9% while industries in the state as a whole grew 2.5%. Most payments went to industries lagging state growth in employment and annual average pay.
Although the intent of the program is to incentivize industries with the potential for growth in Oklahoma, 73 percent of payments over the last five years have gone to industries that are underperforming relative to State growth overall. (p. 8, Quality Jobs Draft)
The report authors found a positive return on investment (ROI) based on estimated taxes generated from the economic activity of each company compared to the cost of the incentive. The estimated tax benefit calculations assume each company qualified for full payments (also meaning they met their full employment and payroll targets) and incorporate tax estimates based on indirect and induced activity.
The report advises that the Quality Jobs program be retained with modifications. The three primary recommendations for improvement are:
- Require companies to file information for payment each quarter to improve predictability of costs to the state.
- Establish a schedule for regular review of eligible industries to help meet the state’s goal of incentivizing activity that brings significant development potential to the economy.
- Maintain a centralized database of information collected by the Department of Commerce and Oklahoma Tax Commission to facilitate future evaluations, including the following:
- unique identifier for each establishment/contract
- NAICS code
- contract terms
- dollar amount for each quarterly payment made
- number of jobs and payroll information reported by companies for each quarterly payment
For those who are interested in the specifics of this and other program evaluations, the 2017 draft reports for the following tax incentives are listed under Documents on the Incentives Evaluation Commission’s website:
- Quality Jobs Program
- Coal Tax Credits
- Economically At-Risk Lease Tax Credit
- Production Enhancement Rebate
- Ethanol Fuel Retailer Tax Credit
- Capital Gains Deduction
- High Impact Quality Jobs Program
- Re-Established Production Rebate
- Clean Burning Fuel Vehicle Credit
- Small Employer Quliaty Jobs Program
- 21st Century Quality Jobs Program
- Home Office Tax Credit
This Commission was established in response to 2015 legislation with a mission “to produce objective evaluations of the State of Oklahoma’s wide array of economic incentives.” All incentives must be reviewed by the commission once every four years, and the reviews must recommend whether the incentives should be retained, reconfigured or repealed. Once the evaluations are reviewed and accepted, they will be formally submitted to the Governor and Legislature. The PFM Group prepared the evaluations.