Insurance company’s expansion helped by a unique arrangement of tax credits and job creation rebates
Re-posting today’s story from the Business section:
BY PAUL MONIES
Published: September 13, 2011
One of the state’s largest insurance companies has taken about $20 million in job creation rebates and tax credits in two separate economic development programs using a possible loophole in the law, The Oklahoman has learned.
Farmers Insurance Co. Inc., which is based in Los Angeles, received $9.6 million in Quality Jobs rebate payments from 2002 to 2011, according to Oklahoma Tax Commission records.
- View the Farmers Insurance Quality Jobs contract from 1999
- View the Farmers Insurance home office premium tax credit application for 2010
The company also claimed at least $8.8 million in “home office” tax credits against its insurance premium tax in the last decade, according to data from the Oklahoma Insurance Department. Those credits may be used if insurance companies establish headquarters or regional offices employing at least 200 people.
The Oklahoma Quality Jobs Program Act, which provides quarterly cash rebates for job creation, forbids qualified companies from claiming home office premium tax credits along with Quality Jobs rebates. An annual incentive guide published by the Commerce Department describes the tax credit for insurance companies and states, “This credit is not available to participants in the Quality Jobs Program.”
Farmers Insurance directly employs about 1,400 people in Oklahoma. The company recently opened a new customer service and data center on W Memorial Road in Oklahoma City after leasing space for several years at Shepherd Mall on NW 23. Farmers Insurance has another 750 agents, managers and staff in affiliated offices across the state.
Three state agencies are involved in administering the two incentive programs. The Commerce Department approves applicants for Quality Jobs. The program’s quarterly rebate payments are issued by the Tax Commission. Meanwhile, premium tax credits go through the Insurance Department, which collects premium taxes.
Farmers Insurance applied for Quality Jobs in 1999 and received its first rebates in 2002. It reached a 10-year cap on the program this year after receiving an average of $960,000 in rebates per year. Insurance Department officials said the company has claimed home office premium tax credits since at least 2003.
Company split its operations
Company representatives said the company has been able to claim rebates and tax credits under both incentive programs because it split its operations. Even though employees could be in the same office building, Farmers Insurance assigns their job functions to separate incentive programs.
Tony Morris, vice president of tax strategy for Farmers Insurance in Los Angeles, said most of the discussions on the unique arrangement happened more than a decade ago with Commerce Department officials. At the time, Oklahoma was competing with several neighboring states for placement of a Farmers Insurance regional office.
“For the company, the maximum benefit was to split it up the way we did,” Morris said. “We had a lot of conversations on the front end to basically go over, ‘Here’s the mechanics of what we would need to do and this is how we basically keep (track of) our people.’ We did run through the mechanics of how it was supposed to work and what information and documentation they were expecting from us on a quarterly basis.”
Don Hackler, deputy general counsel for the Commerce Department, said the agency has memos from Farmers Insurance detailing how it was able to use both incentive programs. That documentation is not publicly available because of an exemption in the Oklahoma Open Records Act, he said.
The Commerce Department did provide a copy of Farmers’ 1999 Quality Jobs contract, which is a public record. The contract makes no mention of other arrangements for the premium tax credits.
Hackler compared the department’s economic development incentive guide that tells companies they can’t take both incentives to a “Cliffs Notes” version of the law.
“The law is correct,” Hackler said. “You can’t take both incentives for the same activity, but since you have separate activities, you can take different incentives for each activity.”
Hackler said he wasn’t aware of any other insurance companies taking both Quality Jobs rebates and home office premium tax credits.
In a statement, officials from the Insurance Department said Farmers’ annual paperwork in qualifying for the home office premium tax credit has been in compliance. The department’s application form for the tax credit makes no mention of the Quality Jobs program limitations.
Here’s some updated Quality Jobs totals through the 2011 fiscal year, via the Oklahoma Tax Commission:
Also, I pulled the company totals from FY 2007 to FY 2011. Below is a quick chart on the Quality Jobs recipients. Some companies have renewed and used the rebates under a different legal name, but I’ve tried to consolidate the names as best I could.
BY PAUL MONIES
Scores of state employees have left agencies after new leaders took office earlier this year, saving the state some money but at the cost of experience and knowledge in many specialized jobs.
Leading the way is the state Education Department, which has seen 61 employees leave since state schools Superintendent Janet Barresi took over in January.
The Oklahoman examined payroll records at six statewide elected agencies for the first six months of 2009, 2010 and 2011. The governor and lieutenant governor offices were excluded because they have smaller staffs.
Among the findings:
• The average turnover rate for state employees has been about 13 percent. Three of the six agencies had double those turnover rates in the first half of 2011.
• A combination of voluntary buyouts, employee transfers, retirements and resignations meant the number of employees at the Education Department fell to 269 at the end of June, down from 341 in January. Fourteen people left in the first part of 2010, while 11 employees left in the first half of 2009 under longtime state schools Superintendent Sandy Garrett, a Democrat.
• A quarter of the staff, or 32 people, at the Insurance Department left in the first six months of 2011. That compared with 12 employees in the same period of 2010 and 10 employees in 2009. The agency has 113 employees.
• More than one-fourth of the staff at the attorney general’s office left in the first part of this year. The agency has 148 employees. In the first part of 2010, 6 people left, while 11 people left in the same time period in 2009.
Brett Sharp, a political science professor at the University of Central Oklahoma, said employee turnover is a normal part of any agency. It typically spikes a little when new leaders take over.
“We have way too many elected leaders in the executive branch,” Sharp said. “That makes Oklahoma different from most other states. We have a weak-governor (system). Part of that is having all these elected executives. They have their own agendas, and they bring in their own people. The people that are there may want to leave, especially if someone is coming in who is not the same political persuasion.”
There also are costs associated with training new people on the job or leaving positions open for extended periods. In its latest compensation report, the Office of Personnel Management estimates employee turnover costs the state about $82 million annually.
“One of our biggest challenges is maintaining senior management positions,” said State Auditor and Inspector Gary Jones. “They’re often lured away by other agencies with offers of higher salaries. It’s also difficult to recruit experienced auditors.
“Most of our new hires are recent college graduates with no field experience, so additional training is necessary to prepare them for the job.”
Phillip Applegate retired from the Education Department in February.
Applegate worked there from 1995 to 2005 and again from 2008 to 2011. His last job was as director of policy research. Applegate, 54, now works at the University of Tulsa.
Applegate said communication was scarce at the department between last November’s elections and January, when Barresi took office.
“There was very little effort to reach out to the people who had 25, 30, 35 or 40 years of experience,” Applegate said.
“It was disheartening, especially when we heard statements that really were more politically driven than educationally driven. I think there was a real concern that there was no desire to keep any of us around. She knew what she wanted to do, and we were simply in the way.”
Damon Gardenhire, Barresi’s communications director, said the turmoil involving the state Education Board earlier this year ended any hopes for an orderly transition.
After a contentious first meeting with Barresi leading the board, the GOP-controlled Legislature passed a law stripping the board of some oversight powers at the Education Department.
“We spent about four months with the superintendent not being able to act as the chief executive of the agency and being micromanaged by a group of unelected political appointees,” Gardenhire said. “That significantly affected morale in the agency, and we are in the process of rebuilding morale.”
Gardenhire said the Education Department was overstaffed in many areas. Barresi has been able to cut payroll by $2.5 million in the first six months, he said.
More than 20 longtime employees took buyouts in January or February.
Among the payroll savings were cutting the number of employees in the print shop to one from seven. The department also streamlined some financial services jobs and communications jobs, Gardenhire said.
As part of a statewide technology consolidation effort, the Education Department shifted some information technology employees to the Office of State Finance.
At the Labor Department, 10 of the 89 employees are new. That’s close to the turnover numbers for the first six months of the previous two years under former Commissioner Lloyd Fields, a Democrat.
Labor Commissioner Mark Costello, a Republican who defeated Fields, said new administrative staff took a pay cut when they started.
He also decided not to replace a deputy commissioner and an attorney, both of whom made salaries of more than $70,000.
“Personally, I reduced my salary by 15 percent in order to meet the bottom line.”
The Oklahoman looked at employment and agency turnover at six agencies headed by new officials. Here’s how they stacked up:
• Elected official: Janet Barresi
• Number of employees, January: 341
• Number of employees, June: 269
• Turnover, first half 2011: 61
• Turnover, first half 2010: 14
• Turnover, first half 2009: 11
• Elected official: Scott Pruitt
• Number of employees, January: 143
• Number of employees, June: 148
• Turnover, first half 2011: 40
• Turnover, first half 2010: 6
• Turnover, first half 2009: 11
• Elected official: John Doak
• Number of employees, January: 117
• Number of employees, June: 113
• Turnover, first half 2011: 32
• Turnover, first half 2010: 12
• Turnover, first half 2009: 10
State auditor, inspector
• Elected official: Gary Jones
• Number of employees, January: 114
• Number of employees, June: 118
• Turnover, first half 2011: 11
• Turnover, first half 2010: 11
• Turnover, first half 2009: 9
• Elected official: Mark Costello
• Number of employees, January: 91
• Number of employees, June: 89
• Turnover, first half 2011: 10
• Turnover, first half 2010: 6
• Turnover, first half 2009: 9
• Elected official: Ken Miller
• Number of employees, January: 56
• Number of employees, June: 55
• Turnover, first half 2011: 3
• Turnover, first half 2010: 1
• Turnover, first half 2009: 0
SOURCE: THE OKLAHOMAN ANALYSIS OF STATE PAYROLL DATA
The proposed ward map for the City of Oklahoma City was released on Tuesday.
In the map below (click for a larger version), the current wards are in color, while the proposed boundaries are outlined in the brownish-black dotted lines.
A lot of the population growth has come in the far northwest part of the city, so you can see Ward 8 (Patrick Ryan in bright green) has been chopped up quite considerably. A chunk of Ward 8 constituents will move into Ward 1 (Gary Marrs; light blue) under the proposed plan. On the eastern side of Ward 8, some residents will move into Ward 7 (Skip Kelly; yellow). Ed Shadid in Ward 2 (pink) will gain some residents in the southwestern part of his ward from Ward 1. He will lose some residents at the northeast end of the ward to Kelly.
Meanwhile, Meg Salyer in Ward 6 (dark blue) and Pete White in Ward 4 (purple) will swap some people on the southern parts of the existing Ward 6. Larry McAtee in Ward 3 (dark green) will lose some residents along Reno Avenue to Gary Marrs in Ward 1.
David Greenwell in Ward 5 (dark red) on the far south side will lose some residents to White and McAtee on the top left and top right of his existing ward.
The city also set a public meeting for discussion on the proposed changes to ward boundaries, which happens once a decade to allocate population fairly across the city.
The public meeting will be at 6 p.m., Aug. 9, in the City Council Chamber on the 3rd Floor of City Hall, 200 N. Walker.
In the meantime, you can leave your comments on the proposed map below.
First off, let’s get some disclosures out of the way:
My birth date is 6/27/75. I’m a board member for FOI Oklahoma Inc. I signed several sworn affidavits in the court case pursued by The Oklahoman and other media outlets on gaining access to the birth dates and employee ID numbers of state employees for identity verification purposes and for background checks. I was involved in writing articles about the issue last year and this year for my employer.
The Oklahoma Public Employees Association and its legislative backers, including Rep. Randy Terrill, R-Moore, are claiming victory and vindication from Tuesday’s Oklahoma Supreme Court ruling in their favor.
You can hear Terrill’s interview about the decision at radio station KTOK. Here’s part of what he said:
I’m the guy who attempted to negotiate the compromise legislation that would have satisfied the interests of everybody concerned. I’m talking about the public employees as well as the interests of the newspapers. Mark Thomas with the Oklahoma Press Association said the Daily Oklahoman and the Tulsa World folks were putting pressure on him that he could not accept that compromise. That’s the reason they took the all-or-nothing approach that they did, and as a result of that, they ended up with nothing, and I’ll tell you what, that is truly unfortunate.
I’m not privy to the discussions Terrill had with Thomas during the 2010 session. All I know is that Terrill’s compromise language would have added a multitude of hurdles to the Open Records Act for the public and the press. When his proposed compromise didn’t make it to the House floor, he tried to make some legislative changes to the Open Records Act in the final days of the session by tacking them onto an omnibus Corrections bill. Those also were not successful.
Meanwhile, here’s what Terrill told reporters from The Oklahoman in a wide-ranging, on-the-record 90-minute interview at the Capitol in March 2010, days before the OPEA filed suit to block the Open Records request for public employee birth dates:
Randy Terrill: Does the public have a right to know? The answer is, in some cases, the public does have a right to know; in other cases, they do not.
Paul Monies: Who makes that determination? You? State agencies? The media? The state troopers association? OPEA? Who makes that final determination?
Randy Terrill: The questions of public policy are resolved by this body. That’s why you’re here interviewing me.
Now, more than a year later and after his legislative changes were rejected by his colleagues, Terrill seems comfortable with the Oklahoma Supreme Court resolving this question of public policy. As the dissent by Justice Yvonne Kauger and Chief Justice Steven Taylor makes clear, they believe the Legislature should be making those decisions on public policy:
This is a matter of statutory construction. The statute involved is the human resources statute within the Open Records Act. Although the Legislature has amended 51 O.S. supp. 2005 §24A.7 three times since its inception in 1985, it has never chosen to include the date of birth. If the Legislature desires to do so, it certainly can.
Related DataWatch posts:
- One year later: Attorney General opinion on public employee DOBs still unresolved
- Oklahoma brings in millions by selling DOBs of drivers, voters
- Special mailing list deal for Oklahoma Public Employees Association
- ‘Privacy pirates’ and the politics of fear
- How many state employees are sex offenders?
In a case that stretched almost 18 months, the Oklahoma Supreme Court ruled today in favor of several state employee groups on the birth date issue. For background stories by The Oklahoman, check our continuing coverage page.
Also, I blogged about this issue at the end of last year.
We’ll have more on this, but in the meantime, here’s the court’s ruling:
Re-posting Sunday’s story:
BY PAUL MONIES
More than 60 state retirees, including former statewide elected officials, district attorneys and judges, are receiving annual pensions of more than $100,000.
In many cases, those annual pensions exceed the retiree’s highest annual salary and dwarf the amount the retiree contributed during his or her years of public service.
The pension information is online at AccountAbilityOK.com, a new website developed by the Oklahoma Council of Public Affairs. The organization advocates for limited government and has called on lawmakers to convert the state pension systems to defined-contribution plans more like those in the private sector.
For several years, former State Auditor and Inspector Clifton Scott was the poster child for the state’s highest pension. But Scott, with an annual pension of about $157,000, has been supplanted by two former district attorneys, records show.
Tom Giulioli, who retired last year as the district attorney for Okmulgee and McIntosh counties, has an annual pension of more than $176,700. Cathy Stocker, who served as district attorney for 28 years in a five-county area from Enid to El Reno, has an annual pension of more than $162,000.
Both Giulioli and Stocker each earned an annual salary of almost $122,000 in their final years on the job, according to state payroll data.
Neither Giulioli nor Stocker could be reached for comment.
Changes in state pension laws and rules will stop future retirees from receiving annual pensions higher than their salaries. But thousands of current and future retirees are still “grandfathered” from the changes, which apply mostly to new state employees.
Among recent high-profile retirees with six-figure pensions are:
Former Attorney General Drew Edmondson, whose annual pension is almost $150,000 after 33 years of service.
Former state schools Superintendent Sandy Garrett, who spent 44 years in state government. Her annual pension is $123,600.
Under the state’s Open Records Act, the Oklahoma Council of Public Affairs collected individual pension benefit data from three of the state’s six major pension systems. The data on the AccountAbilityOK.com website covers more than 75,000 retirees or their beneficiaries.
Three public safety pension systems — firefighters, police and law enforcement — declined to provide the same information as the pension systems for teachers, state employees and judges, said Jonathan Small, fiscal policy director for the group.
Small said the public safety pension systems all cited confidentiality for not releasing individual beneficiary data. He called on lawmakers to open the beneficiary information for the public safety pension systems.
“Citizens, who in the end are responsible for paying all the promises of these pension systems, deserve to know the details and results of financial obligations for which they are on the hook,” Small said.
Tom Spencer, executive director of the Oklahoma Public Employees Retirement System, said lawmakers opened basic information about the system’s beneficiaries in the wake of the Gene Stipe scandal.
Stipe, a former state senator from McAlester, pleaded guilty in 2003 to federal campaign finance violations. Stipe, who is 84 and suffers from dementia, continues to receive a state pension of more than $95,800 annually.
The public employees retirement system tried to forfeit Stipe’s pension after his guilty plea in 2003. Stipe’s attorneys fought the effort all the way to the Oklahoma Supreme Court and won in 2008.
“Former Sen. Cal Hobson ran a bill in 2004 to make not just elected officials pension amounts public, but all OPERS pension amounts public,” Spencer said. “Ever since then, all of that information is a matter of public record.”
Most receive less
The outliers in the “six-figure pension club” tend to overshadow the tens of thousands of other state retirees and their beneficiaries who receive annual pensions of much less, Spencer said.
“A handful of these people were really fortunate when the loophole existed and they’re making these pensions, but there’s just a handful of them,” Spencer said. “The average Joe Blow pension benefit is pretty modest. They’ve worked for many years at modest pay and they’re getting some pension benefits, but that’s it.”
The average pension at the Oklahoma Public Employee Retirement System is about
$18,000 $15,200. It’s about $19,160 at the Teachers Retirement System. Retired judges, who make higher salaries, tend to have higher pensions. The average pension is more than $60,800 $60,100 at the Uniform Retirement System for Justices or Judges.
More than one-third of the retirees in the three pension systems that provided data are receiving annual pensions in excess of the entire amount they contributed as an employee.
Much of the recent focus on public retirement pensions has come as companies in the private sector continue to shed defined-benefit pension plans in favor of defined-contribution plans such as 401(k)s. Investment losses from the recession also sharpened the scrutiny by taxpayers and other groups throughout the country, said James Wilbanks, executive director of the Teachers Retirement System.
Lawmakers made changes in the 2011 legislative session to address some of the shortfalls in the state pension systems. The biggest was forcing future cost-of-living adjustments to have a dedicated funding source. That alone will shave about $5 billion in unfunded liabilities from an estimated shortfall of $16.5 billion.
Other reforms increased the retirement age for new hires in the Teachers Retirement System to 65 from 62. Also, elected officials will be treated like other state employees. They no longer will be allowed to contribute at higher rates to receive higher pension benefits.
Rep. Randy McDaniel, R-Edmond, has requested several interim legislative studies on pension issues. McDaniel and Sen. Mike Mazzei, R-Tulsa, authored several of the pension bills that passed earlier this year.
“This is a long-term process,” said McDaniel, chairman of a new House oversight committee on pensions. “It took many decades to get in this financial condition. We made a significant difference last session; nonetheless, we still have much work to be done. We are still among the bottom in the states on our financial status.
State Treasurer Ken Miller, who is chairman of the Oklahoma State Pension Commission, said continuing the reforms will help put the pension systems on a firmer footing. As tax revenues rebound, Miller said he hopes legislators won’t succumb to pressure to grant cost-of-living adjustments just because extra money is available to spend.
Unlike other states where pension reforms have been met with hardened opposition, Miller said lawmakers, employee groups and pension officials have worked together to make necessary changes. More can be done, he said.
“We have a different workforce than we did when these pension systems were designed,” Miller said. “There’s some desire for plans that offer choice and flexibility that will meet employee needs and be fair to taxpayers.
Dr. Joey Senat, associate professor of journalism at Oklahoma State University, has compiled some recent violations of the state’s Open Meetings/Open Records Acts in Oklahoma. Read more at the FOI Oklahoma blog.
(Full disclosure: I’m among the board members at FOI Oklahoma.)
Re-posting Sunday’s print story below.
- Check out the latest financial snapshots for college and university revolving funds
BY PAUL MONIES
Some revolving funds for colleges and universities are flush with cash as higher education leaders warn of impending tuition increases from budget cuts.
The University of Oklahoma Health Sciences Center’s three revolving funds had a combined balance of $93.4 million at the end of March, according to a list of balances provided by the Office of State Finance. That’s up from $75.5 million at the end of December.
Meanwhile, the University of Central Oklahoma saw a 35 percent increase in its combined revolving funds in the first quarter. It went from $31 million in December to $41 million in March.
In March 2010, UCO’s revolving funds had a combined balance of $27 million, according the Office of State Finance.
Some higher education officials said their revolving funds are often targeted by state budget writers to make up shortfalls in other areas.
Steve Kreidler, UCO’s executive vice president, said part of its revolving fund increase came from tuition revenue from higher enrollment. The university’s enrollment grew by 1,000 students this year to more than 17,000.
“We would have collected a whole ton of tuition in January and February from students enrolling for the spring semester,” Kreidler said. “We then pay it out over the next several months because we still have salaries and overhead.”
At the other end of the scale, several colleges and universities had large drops in their revolving fund balances. Oklahoma State University’s revolving funds for its Stillwater campus fell to $6.5 million in March, down from $12.6 million in March 2010.
The state Regents for Higher Education also saw large decreases in its revolving fund balances. Its combined balance was $12.7 million in March, down from $22.2 million a year ago.
Northeastern Oklahoma A&M College saw its combined revolving fund balance drop to $1.62 million in March. That’s down from $7.38 million a year ago. Much of that decrease was from its capital expenditures fund.
Revolving funds are snapshot
Higher education budget officials said the revolving fund balances are a snapshot in time and may fluctuate during the year from tuition and fee revenue. Some of the balances are cash reserves, too.
In UCO’s case, Kreidler said the university’s governing board likes to keep about one-twelfth of its annual operating budget in reserves. That’s about $12 million, he said.
“We’ve been holding off on capital expenditures to make sure we had good reserve funds to go into next year,” Kreidler said. “But that meant we haven’t fixed up as many classrooms; we haven’t fixed sidewalks that needed to be fixed.”
Kreidler said some deans are also saving money from academic course fees over a period of several years to make classroom improvements without borrowing through the state.
“Some of the colleges are in very aggressive forms of setting money aside to be able to do that stuff for students, like building out labs,” Kreidler said.
OU Health Sciences Center
The increases in the OU Health Sciences Center balances came mostly from a $33 million repayment from the Office of State Finance, said Catherine F. Bishop, OU’s vice president of public affairs.
“In (fiscal year) 2010, the state borrowed funds from a number of agencies and schools to cover statewide cash-flow requirements,” Bishop said in an email. “ … Additionally, there were increases in cash receipts realized from tobacco tax, tuition and fees, and indirect cost (overhead) reimbursements between years.”
Jonathan Small, fiscal policy director for the Oklahoma Council of Public Affairs, said the size and growth of some higher education revolving funds deserves more scrutiny. He said higher education should be treated like any other state agency. That means removing some of its exemptions from legislative oversight.
“If necessary, the Legislature needs to send a measure to the vote of the people to amend the constitution to allow lawmakers to have the same appropriations oversight and direction as that of any other agency,” Small said.
Borrowing from other funds to make up shortfalls is just one of the tactics used by budget writers to balance the budget.
The $6.5 billion budget agreement for the 2012 fiscal year includes more than $93.7 million in transfers from various revolving funds. That includes $25 million from the unclaimed property fund and $5 million from a revolving fund at the Insurance Department.
Another $219 million to balance the budget came from leftover federal stimulus funds and cash reserves.
The remainder of the entire $500 million budget shortfall came from appropriations cuts. Higher education, which receives about 14 percent of the state’s appropriations, received total cuts of $58 million. That’s a 5.8 percent decrease from fiscal year 2011.
Separately, the Transportation Department saw an appropriations decrease of $8 million, or 7 percent, in exchange for additional authority to issue $70 million in bonds.
UPDATE: We have taken down this page with the interactive before/after maps. I apologize for any inconvenience. (8/15/11).
We’re in the home stretch of redistricting in the state House and Senate. I had a story today about the major changes to Senate District 43 that straddles Oklahoma and Cleveland counties.
With the help of Web Editor Nick Tankersley, I came up with a series of sliding redistricting maps on NewsOK that include party voter registration.
(Click on the image to go to the page)
In these maps, purple precincts are competitive. Light blue leans Democratic and dark blue is heavily Democratic. Light red leans Republican, while dark red is heavily Republican. I computed these categories by comparing the percentage-point difference in Republican voter registration to Democratic voter registration in each precinct.