Oklahoma Quality Jobs incentive program pays out $54 million amid budget crunch
This is a longer version of what appeared in Sunday’s paper:
- Search an online database of companies claiming Quality Jobs rebates
- View the Quality Jobs contract for the NBA’s Thunder basketball team
- View the Quality Jobs contract for Boeing Co.
By PAUL MONIES
Database Editor
pmonies (at) opubco.com
Oklahoma’s longtime economic development incentive for creating jobs paid $54 million in cash rebates to companies last year despite the state’s budget crunch.
But economic development officials and some economists say that was money well spent for the Quality Jobs program, which began in 1994 and has been copied in other states.
Under the program, companies can receive quarterly cash rebates of up to 6 percent of payroll after creating jobs with health care benefits and above-average wages. A sister program helps small employers.
Among the largest claimants last year were some of Oklahoma’s most high-profile employers, according to data from the state Tax Commission.
Source: Oklahoma Tax Commission
The owners of the NBA’s Thunder basketball team received $5.28 million in Quality Jobs rebates, leading all companies. Dell Inc. received almost $3.7 million, while SandRidge Energy Inc. received $3.3 million. Spirit Aerosystems Inc., with factories in Tulsa and McAlester, had $2.4 million in rebates.
An expansion of the program, called 21st Century Quality Jobs, was instrumental in landing more than 550 new jobs at Boeing Co. in Oklahoma City. Those jobs upgrading the C-130 and B-1 military aircraft are coming from Long Beach, Calif.
The 21st Century Quality Jobs program allows rebates of up to 10 percent, but the new jobs must pay at least three times the average county wage. In Oklahoma County, that’s about $94,400.
“When you compare all the things that companies compare, the incentives certainly made our business case for Oklahoma much, much stronger,” said Mike Emmelhainz, Boeing’s site director for Oklahoma City. “This has been a solid location for a very long time, but the folks have worked hard in establishing themselves as a good place for Boeing to do business and maintain the Boeing reputation.”
Emmelhainz said the incentives helped Boeing’s Oklahoma City location bid for expanded jobs within the company. That was important given the Pentagon’s emphasis on keeping older aircraft serviceable in a tough budget environment.
“Given shrinking or flat budgets, your ability to go build new platforms and products gets tougher and tougher,” he said. “You have to keep your existing inventory of platforms operational and flying. They need the people that supply them to do it in the most cost-effective manner they can.”
Boeing has been part of the older Quality Jobs program and has received rebates of $3.8 million since 2007, according to Tax Commission records. The company also is talking to Oklahoma City officials about getting local incentives for the new jobs from California. Both sides hope to finish those negotiations by the end of the year.
Program is a model
Economic development incentives of all types have drawn scrutiny as the state’s finances took a hit from the recession. Lawmakers placed a moratorium on several tax credits in the last legislative session. Although another budget hole is expected for the upcoming fiscal year, some are calling on the state to expand Quality Jobs and use it as a model for other state incentives.
Robert Dauffenbach, an economist at the University of Oklahoma, studied the effectiveness of Quality Jobs along with Larkin Warner, a retired economist from Oklahoma State University. A report they issued in 2004 found the program had benefited both employment and tax revenue in its first decade.
Both men are part of the state’s Incentive Review Committee, which is studying the Quality Jobs program this year.
“There can be a lethargy that develops once a program gets put in place,” Dauffenbach said of some incentive programs. “Some of them get grandfathered in forever and there’s no sunset provision or mechanism for evaluation.”
Dauffenbach said Quality Jobs continues to get high marks for transparency and for not issuing cash rebates until companies actually add new jobs. The analysis used by the state Commerce Department to determine the percentage of the rebate also is fairly conservative, he said.
Is it worth it?
Still, some economists wonder if the state is rewarding behavior that would have happened anyway without the incentive. Mickey Hepner, an economist and associate professor at the University of Central Oklahoma, said programs such as Quality Jobs spread the costs among the entire population but the gains go to a small group.
“A vast majority of the jobs that are claimed under the program are not actually created by the program, and they’re not created as a result of the program,” Hepner said. “A lot of those jobs would have been created anyway.”
For example, a company that planned to add 100 jobs could add another five jobs under Quality Jobs, he said. But the company would receive rebates on all 105 jobs, not just the five additional jobs that resulted from the incentives.
“We get the press releases about new jobs, but it’s tougher to get the true cost of the program,” Hepner said. “For $50 million a year, you could eliminate the franchise tax, which would be much more effective and much more equitable to all businesses in the state.”
Hepner said it’s easy for lawmakers to expand Quality Jobs because the money for it is not subject to annual appropriations. The money for the rebates comes from state income tax revenues.
When Oklahoma is competing against surrounding states for new businesses, it helps to have programs such as Quality Jobs, said Mike Southard, president and chief executive officer of the Ada Jobs Foundation. The program allowed local manufacturers to expand their operations in Ada by putting more employees on the payroll. Those employees then spend more money in the community and pay taxes to the state and local governments, he said.
“It’s not like these companies are saving that 5 percent and putting it in their pocket. They’re able to put it into capital or debt service, and that strengthens their business.”
Southard said he understands the arguments against economic development incentives. But the rhetoric used to attack them can make businesses wary of expanding.
“Elected officials have to figure out how to solve both short-term and long-term financial issues,” Southard said. “Everybody who runs talks about better employment opportunities and creating higher-paying jobs. When we’re competing with other states that are also going after those projects, you don’t want to take tools out of your toolbox.”
Written by Paul Monies
Follow @pmonies
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