Oklahoma created two incentives over a decade ago to help address a skills gap that made it difficult for employers to fill aerospace engineering positions in the state. One incentive is a tax credit for aerospace employers based on compensation paid to qualified employees. The other is an income tax credit for qualified aerospace employees. A 2020 evaluation conducted by PFM Group Consulting* concluded that these programs perform well, with economic benefits exceeding costs. PFM and the Oklahoma Incentive Evaluation Commission recommended that the state retain the credits.
These two tax credits are interesting because they appear unique among state talent and workforce incentives. PFM reported that, “No other state was found to have a directly comparable program, and the credits appear to be valuable to industry representatives who recruit aerospace engineers.”
Key findings from the evaluation include:
- According to industry accounts, the State of Oklahoma still has a skills gap when it comes to filling aerospace engineering positions – but data show an increase in related degrees conferred within the state.
- The tax credits appear to facilitate talent attraction. The introduction of the tax credits may have helped increase aerospace engineering employment in the state as employers continue to recruit from out of state. Since the incentives were introduced, aerospace engineering employment has increased meaningfully in the state.
- The total economic activity associated with the tax credits substantially exceeds the cost to the state each year.
- While the employer tax credit is being claimed by more employers, the cost to the state is declining. The average amount used to reduce tax liability is about $50,000.
- Use of the employee tax credit has increased. The average amount used to reduce tax liability has generally remained constant, at just over $3,100.
The evaluation offers recommendations for improving the tax credits that emphasize enhancing employer reporting to identify overlap with the use of other state incentives and broadening and clarifying eligibility guidelines for the employee tax credit.
* To learn more, please see the full report, “State of Oklahoma Incentive Evaluation Commission. Aerospace Employer & Employee Tax Credits Evaluation,” November 2020. Ellen Harpel of Smart Incentives is an adviser to the PFM evaluation team.
This evaluation was prepared for the State of Oklahoma Incentive Evaluation Commission pursuant to the Incentive Evaluation Act of 2015.