State tax expenditure policies questioned
From our weekly issue dated November 11, 2009
Although tax incentives long have been used by municipalities to encourage businesses to relocate or expand, a recent investigation into Oregon’s Business Energy Tax Credit (BETC) program is prompting calls for closer scrutiny of such policies.
The Oregonian newspaper examined the BETC program. The Portland-based publication found that state officials deliberately underestimated its costs, with millions of dollars going to failed companies.
Figures provided to the Legislature during February 2007 stated that expanding the tax credits would cost $1.2 million for the first two years and $4.1 million in the 2009-11 biennium. But BETC actually cost the state $68 million in 2007-09, with estimated costs of $167 million in 2009-11 and $243 million in 2011-13.
Emergency measures to curb some of the program abuses have been announced since by the Oregon Dept. of Energy.
Chuck Sheketoff, executive director of the left-leaning Silverton-based Oregon Center for Public Policy, said that he has been looking into the state’s tax expenditure policies since 1992. In particular, Sheketoff raised concerns about the BETC program during the 2009 legislative session. He expressed those concerns during testimony before legislative committees, and through the www.blueoregon.com blog.
“I’ve been critical about any number of aspects of it, the least of which is the inability to check the cost,” Sheketoff said. “That’s one of many issues.”
Sheketoff was not alone in sounding the alarm about the potential for problems regarding tax expenditures. Josephine County Commissioner Dave Toler has for some time examined the issue, which comprised the bulk of the work he performed with the Josephine County chapter of Social Justice Alliance.
As a former member of the Three Rivers School District Board of Education, Toler traveled to the capitol in Salem during the 2005 legislative session to lobby for the expiration of some expenditures. His pleas fell largely upon deaf ears, as Republicans held a narrow House majority and soundly rejected his suggestions.
Rep. Dennis Richardson (R-Central Point) served as speaker pro-tempore during that session, and was on the budget-writing Ways & Means Committee. Richardson said that at the time, Republicans considered the elimination of expenditures akin to a tax increase.
“Basically, what the caucus’ position was that any time a business pays more money, it’s a tax increase, regardless of whether that increase is a deduction, taking away credits or actually lifting the percentage you have to pay in taxes,” he said.
Toler had no better luck during the 2007 legislative session, even though Democrats held the House and Senate majorities. But when he went to Salem earlier this year with the same idea, Toler said that lawmakers were somewhat more receptive.
“Compared to the other two sessions I tried, I think we turned more ears this time than I had ever seen before,” he said. “I think part of that is because of the huge crisis we were in.”
Legislators were struggling to fill a growing budget gap caused by plummeting revenues, and Toler lobbied for a temporary, 10 percent reduction in some of the state’s many tax expenditures. Instead, a series of tax and fee increases were passed, which prompted business groups to launch a referendum.
A sunset clause also was placed on all the state’s tax credits during that session. However, Sheketoff points out that, “Those are only a subset of tax expenditures.”
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He added that part of the problem with expenditures, and BETC in particular, is that the official revenue projections from the Legislative Revenue Office “have all been off.”
“Every time they’ve projected, it’s been way too low,” Sheketoff said.
Richardson said that the potential for cost overruns with the BETC program was “certainly not raised during the floor debate” prior to legislative approval of its expansion.
“Once again, liberals, starting with the governor, have taken an expensive step based on good intentions, not on thorough investigation and research,” he said. “I don’t know if it was deliberate or not. But whether the issue is credibility or competence, the result is the same.”
In the future, Sheketoff said that he would like to see the state change the way tax expenditures are presented in the budget.
“A number of them like BETC ought to be turned from expenditures in the tax code to direct budget items and compete head-to-head with other state priorities like education, health care and public safety,” Sheketoff said.
Toler said that he would agree with such an approach. Expenditures, he explained, should be evaluated individually to see if they are producing their intended results.
“I think it’s a great first step,” he stated. “Until we evaluate them, we don’t really know if we’re getting our money’s worth out of these tax credits and deductions.”
Richardson, a staunch conservative, said he also would support a closer look at the state’s various tax expenditures and letting some of them expire.
“The challenge is to put in the sunsets not based on political maneuvering, but on what’s best for taxpayers,” Richardson said. “I think we need to look at every one of those tax credits and deductions and determine whether or not they’ve outlived their intention and their benefit to the people.”
Sheketoff said that he expects legislators to take a closer look at tax expenditures when they meet during a special session in February.
“They can change them with a simple majority of votes and let them disappear,” he said. “The fact that the Legislature put sunsets on all the measures makes it easier now, ultimately, if they have the political will, which is a separate issue.”
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