The Tulsa Forum by TulsaNow

I heard a report on the radio this morning about the myriad of "incentives" that divert various tax payments to corporations. The news piece happened to focus on companies who get interest free "loans" (http://oklahomawatch.org/2015/06/09/state-program-diverts-workers-tax-payments-to-businesses/) and then divert employee income tax withholdings to pay back the "loans" without the knowledge or consent of anyone except some economic development guy in OKC (State gives money to company, company pays state back with tax revenue its employees are legally required to pay to the state anyway).

But it started me thinking about what all incentives are out there, how we got into this arms race, and where Oklahoma stands.

Now, that's an economic'c thesis. SO I narrowed my focus a good bit. But first I wondered into a few specific beneficiaries that made me laugh. Holly Corp got $1.6mil in manufacturing development incentives for, presumably, adding to their refinery in Tulsa as opposed to adding to their non-existent refinery in Arkansas. In 2013 (last year I could find data) the ownership group of the Thunder received $3,600,000, to help offset the cost of billionaires employing millionaires to bounce an orange ball. And of course Macy's will be getting a TIF worth $8.75mil, a state Manufacturers Tax Exemption worth $8.5mil, $1.5mil from the governors slush fund, $500k in infrastructure from ODOT, matched by about $500k from Tulsa County, a .85% sales tax exemption ($400k), $500k from Owasso, and a 5% payroll rebate for a decade for whatever qualifies for quality jobs.  What are we getting for ~$30mil in handouts?

- Somewhere between 1500 and 5000 jobs, depending on the press release. The vast, vast, VAST majority will be part time warehouse associates and seasonal workers.
- A commitment to hire 367 full times employees
- According to Glassdoor.com (http://www.glassdoor.com/Hourly-Pay/Macy-s-Warehouse-Associate-Hourly-Pay-E1079_D_KO7,26.htm), the average seasonal worker at a Macy's Warehouse makes $10.50 an hour. The average Warehouse Associate makes $12.00 an hour.


Here is an 87 page manual for the State level kick backs (doesn't county City, County, or Tribal) (http://okcommerce.gov/assets/files/incentives/Oklahoma_Business_Incentives_and_Tax_Guide.pdf):


It very well may be that by paying Macy's millions to move here, we will attract thousands of employees who are then eligible for benefit programs from the State of Oklahoma. That seems like a potentially bad investment. So why do we do it?

Well, we are told we do it because everyone else does it. TEXAS DOES IT! SO WE HAVE TO TOO! And yes, Texas does do it. They do it more in overall dollar terms than anyone else. Texas gives out $19 Billion a year in incentives. (http://www.nytimes.com/2012/12/03/us/winners-and-losers-in-texas.html?pagewanted=all&_r=0) They attract many jobs by doing so. Unfortunately, they have also created more minimum wage jobs than anywhere else and have sunk to #3 in the nation for low paying jobs and #11 on citizens living below poverty. It has also left the state broke, so they cut education in order to continue the handouts.


Tax incentives are a zero sum game. They do not "create" any jobs. They merely move them around. Whirlpool to Tulsa. Citgo to Houston. Etc. The net result is tax money gathered from citizens and given to various companies. Wealth transfer from the less affluent, to the more affluent. The entire process should be wound down like the nuclear standoff of the cold war. But until that happens, how does Oklahoma stack up?

Using 2012 numbers, which are the most reliable I could find for all three criteria:
- The United States of America saw $80 BILLION in taxpayer money filtered to companies per year. That accounts for 0.47% of national GDP.

- Texas paid out $19 Bil in economic incentives. Accounting for 1.3% of economic activity in the state of Texas.  This represents nearly 18% of government "spending" (foregoing revenue is the same as spending money).

- Oklahoma handed $2.19 Bil over to companies.  Accounting for 1.1% of all economic activity in the state of Oklahoma. Representing 31% of all government "spending." (in a budget of $7BIL)
https://stateimpact.npr.org/oklahoma/2012/12/03/oklahoma-governments-pay-2-19-billion-a-year-to-incentivize-private-companies/
https://bivisual.cpa.texas.gov/QvAJAXZfc/OpenDocNoToolbar.htm?document=Documents%2FTR_Master_UI.qvw&host=QVS%40daupswap80&anonymous=true&select=LB00,03&sheet=SH27

Now, I'm happy to have someone post better numbers. There are all kinds of numbers all over the place for various fiscal years etc. But the fact is the pace is accelerating and, as these are long term programs, the costs are exponential. There is no data to tell us if we are getting a return on our investment (ignoring the zero sum game). Corporate subsidies are now a bigger industry in Oklahoma than hunting, fishing, forestry and agriculture combined.  (http://http://stateimpact.npr.org/oklahoma/2012/03/26/oklahomas-biggest-industry-is-government/) While it is tiny compared to our largest industry (government, accounting for nearly 19% of GDP), handouts are still a huge part of our economy.

Why is our "small government" and "no welfare" leadership in Oklahoma City just going along for the ride? Free market economy? Why is there not a multi-state compact trying to stop this crap from continuing? There is $80bil in tax revenue being transferred around by the government each year, as our infrastructure collapses and our educational system falls behind.

How many Oklahoma's realize that they $565 per year for each member of their family so Devon can make another billion next quarter?

/rant

good rant

good rant

I believe we are far better off spending that money (or really much less) helping to incubate new entrepreneurial ideas which might be a little beyond conventional thinking and the only thing they lack is conventional funding.

Think what Tulsa might look like if Steve Jobs, Bill Gates, Michael Dell, Jeff Bezos, Fred Smith, or Sam Walton had been Tulsa natives and committed to starting their company out here.  It doesn’t even have to be something that gets to that size. 

Help incubate 50 to 100 companies with $1mil or $2 mil in seed money which eventually grow to employ 50 to 100 jobs worth $50,000+, and you’ve created hundreds of millions in new taxable revenue that is organically grown.

Minneapolis had this idea in 1975. They formed an agreement with all the suburbs to stop competing for the same firms already in the metro (net zero job creation + losses from tax incentives). They all share a piece of a common pie, and Minneapolis is now home to 28 Fortune 1000 companies, most if not all of them home-grown (Tulsa has 7). It has grown five times faster than Chicago and 3.7 times faster than Tulsa between 2000 and 2013. It's forecasted to grow by more than 20% just in the next 15 years. It also bests Tulsa in bachelors degrees by 16 percentage points (30.0% Tulsa; 46.3% Minneapolis). They've been investing in homegrown talent and business for 40 years now and are consistently ranked among the best places in the country to live, work, play, learn, raise a family, etc.

We should take a page from Minneapolis and stop competing with other cities for jobs.

Help grow local businesses and then make the city such a nice place to live that they don't want to leave.

Article: Why is Minneapolis growing almost five times faster than Chicago? It's not the weather. (http://www.metroplanning.org/news/article/7110)

A great stride, one that has been discussed often but would be extremely difficult to do in Oklahoma where we are the only State in the Nation that requires municipalities to be 100% funded for operations by sales tax dollars.

That would require a progressive, forward looking, innovative mindset that Oklahoma just will never have.  Taxes would also have to be higher to support infrastructure and education on a MUCH higher level than we are willing to do.

They have Al Franken and Amy Klobuchar.  We have Jim Inhofe and James Lankford.

They have these people;
https://www.google.com/search?q=minnesota+us+representatives&ie=utf-8&oe=utf-8

We don't.

They have Mark Dayton.  We have Mary Failin'.

They have Betsy Hodges.  We have the always forgettable Doobie Bartlett.

And while the "ratings" put OKC at #20 in growth rate and Minneapolis at #27, OKC is all minimum wage growth.  Minneapolis isn't.

That is why Minneapolis is growing 5 times faster than Chicago.  And Minnesota is overall a much nicer place to live, outside of that really big gorilla in the room - the winter weather.

I like your 100% number...   Then I actually looked at a city budget.   More like 65%.

https://www.cityoftulsa.org/media/380610/03-Fund%20Summaries.pdf

So that would be to accept that the status quo can never change.  Certainly it can.

I find much better value in providing a local tech company with $2 million in seed money than giving Costco that $2 million to come in and further dilute sales tax collections.  The sigh of relief is that Bixby/Broken Arrow/Jenks/Owasso/Glenpool doesn’t get the retailer while we basically shift revenue from Sam’s and other direct Costco competitors within Tulsa.

It’s truly a crappy economic model.  We need leadership which can steer us in a different direction.

The big thing missing in your analysis is that there is more than just a revenue shifting event.  The employees are making twice as much, meaning there is twice the opportunity for economic activity in the area.  This has a big ripple effect.  (It's as if the minimum wage were doubled...literally.  And anyone with at least half a brain or more knows what a good thing that is for the overall economy!)

It would be crappy if it were just another minimum wage retailer, but since it's not, there is a much bigger benefit.  But yeah, it would be better to fund a potential money/product/manufacturing creation than just another retail/restaurant type event.  But since we are he$$ bent on obliterating education and roads and other infrastructure in this state, probably not gonna happen just real soon.

I believe we have covered this before, Costco doesn’t pay twice what Sam’s does and with a payroll of +/- 200 employees, that ripple effect is minimal.  It comes nowhere close to impacting the local economy like an organically-grown company eventually providing jobs worth two or three times what Costco pays.

According to glassdoor.com, average pay for a Sam’s associate is $11/hr, average for Costco is $14.  Difference is $3 or roughly 25% more, not double.

With Tulsa’s annual population growth in the 1-2% range, we will never capture enough in new sales taxes to pay for the additional infrastructure and public safety which is required to keep up with the retail growth.

We need to change the way we finance our city.  Retail growth is not the answer, as evidenced by chronic claimed shortages of police and fire personnel and our still bombed-out roads.

There is a reason no other state in the union, and as far as I know nonkther country that requires cities to operate on sales tax revenue. A stupid law. Why can't cities choose?

I thought I already debunked this once...    Try 65% of cities revenues comes from sales taxes.    https://www.cityoftulsa.org/media/380610/03-Fund%20Summaries.pdf


Page 6

Yeah...chasing retail growth is stupid!  And counterproductive.  That's why I am with you on funding real jobs/companies rather than the next big box retail place.  Or at least as bad - a call center!!

As quoted :

65% sales tax
9% "other taxes"
8% Charges for services
7% Misc Transfers and Revenue
4% Fines and forfeitures
3% Intergovernmental
3% Licenses and permits
1% Interest income
- - -

And that is interesting. BUT, the fact remains, the City OPERATES on sales tax revenue. No one else does that because it encourages poor growth models, sporadic revenue, and tax incentives for retailers (which generally have a low or even negative overall economic impact). You have to chase retail before jobs. Before redevelopment. Before quality of life. Walmart is more important than nearly anything else - to the fiscal life of the City.

By encouraging municipalities to chase retail you cannibalize the only available tax base. Owasso builds a new Walmart, Tulsa loses X in sales tax from its Walmart. It is a zero sum game - the regional consumers can only consume so much. Industry, commerce, and other opportunities can actually drain revenue from the municipality. A new corporate headquarters adds potential new shoppers and nothing more, from a fiscal standpoint. Yet, they may demand incentives to build their campus... which we can't do (should is a different discussion). Hence, Walmart gets a TIF, CITGO does not.

The Other 35% is mostly use fees. And that's great: sewer, water, etc. is covered by use fees. But police, fire, parks, beautification, street maintenance, 2025 improvements, etc. is paid for with sales tax revenue. Basically, everything that is quality of life is sales tax. So I'm not sure what you have "debunked."

In most of the United States, sales tax only represents 11% of revenue for municipalities (most cities operate on 2:1 property tax to sales tax. This forces them to consider land use and long term planning to maximize revenue).  It is 65% in Tulsa. Most states allow multiple sources of revenue for cities, Oklahoma allows one. Of the States that allow only one source, Oklahoma is the only state dumb enough to restrict it to just sales tax.

Stupid.

Good slide show on the topic:
https://cmao-ok.org/DocumentCenter/Home/View/9

Last time I checked (and you are right, my degree is NOT in accounting), 100% did not equal 65%.

Nothing more.

Don't forget the fees and charges that are fed back from companies to private entities the provide "consulting services" to "facilitate" progress on any desired project.

All other states - well except maybe Louisiana and Chicago - would call these kickbacks.  Funded to the tune of that $565 per family member....

I gave you an executive summary on why relying on sales tax for the majority of municipal funding is a stupid idea, and you sharp shoot one clause?

Thank you for adding value to the conversation...

I think the city gets more than enough money.   Just because they choose to spend it foolishly by doing things like buying large buildings from their business associates or funding study after study after study, is not my problem.   Yes, the majority of their revenues come from sales taxes...   You said 100%, I disproved that as being grossly wrong.

Maybe instead of feeding the machine, the city should man up and learn to operate within its means.    (Just like if I had spending habits that exceeded my income.)

Ahh yes, the "whatever the tax level is is too much" theory. I'm confident there is waste, but I also know we have closed community pools, centers, under fund education, parks, and beautification projections. Our roads are crumbling, our water mains burst so regularly it is included in traffic reports, and our traffic reports often include warnings about holes in bridges.

Furthermore, my complaint wasn't even geared towards the AMOUNT of money we receive. But the source and the consequences thereof.

A point that you have still steadfastly refused to acknowledge, address, or contribute to.

But thanks again for your stellar contribution to the discussion on corporate subsidies and/or the merits of funding with sales tax.

Cities in Oklahoma have the option to use General Obligation bonds which are recovered through the use of property taxes. 

Sales tax makes sense.   The more dollars you have spent in a city gives the city more revenues.   Create more jobs, get more revenue (assuming the company or its employees spend even a dollar in the city.)   I don't see the shortfall numbers that necessitate the need for cities to begin to use property tax as a revenue stream.   

Would it be potentially more stable than an income tax?   Probably, especially for small rural towns whose retail base has dried up.    Would it adapt and provide immediate revenue like a sales tax?   Definitely not.


I am still lost as to how cities have only one source of revenue.

All other forms of revenue are restricted.

Either Oklahoma is genius and has figured out a better system than the rest of the world, or we are doing it wrong. I tend to think the latter based on my previous statements.

We have strayed way off topic, I apologize.

You are no where near "off topic" (taken from another of your posts)...you are dead on.  And the magnitude of the problems you touch on will only grow.  Corporate welfare is just one piece of the problem.

We have waste and corruption - in a previous life, I was front row observer to how the state legislature works on several occasions - I didn't actually carry the money, but saw the money and saw the car port designs - held them in my hands - that were 'bought' from a local Tulsa legislator who also happened to be a 'consultant' during the law making process.

And we just keep on electing the clown show!!  There is little if any hope for the state....

Some of the tax breaks for Macy's are being questioned:
https://www.readfrontier.com/investigation/assessor-questions-whether-law-allows-macys-to-collect-tax-breaks/

You are not supposed to be able to give property tax incentives or exemptions to retail establishments. Who knew? So the question is - is a direct-to-customer order fulfillment center a retail establishment?

In that they are not paying Oklahoma sales tax on the item, I suspect not. Seems to be the crux of the law to me. But, nonetheless, interesting development.

Great topic, and interesting conversation.  The City provides a pretty nice executive summary of the budget:
https://www.cityoftulsa.org/media/426340/02%20Executive%20Summary.pdf (https://www.cityoftulsa.org/media/426340/02%20Executive%20Summary.pdf)

Here are two interesting graphs:
(http://www.accidentalurbanist.com/wp-content/uploads/2015/11/Tulsa-Revenues.jpg)
(http://www.accidentalurbanist.com/wp-content/uploads/2015/11/Tulsa-expenditures.jpg)

On the revenues side of things, "taxes" refers to:
Sales tax, use tax, franchise tax/right-of-way user fees, hotel/motel tax, and ad valorem tax. ("The State Constitution requires Tulsa make an annual Ad Valorem tax levy sufficient to pay for the principal and interest on bonded indebtedness and any court judgments against the City."  I don't think we're allowed to use it for anything else.)

Enterprise revenues are:
"Charges for using utility services, emergency medical services, and golf courses are sources of revenue for the enterprise funds. Utility charges include revenues generated by the water system, the sanitary sewer system, the solid waste disposal service, and the stormwater management program. The Emergency Medical Services Authority (EMSA) fees are collected and used to help fund the operations of emergency medical services. Golf course revenue is generated from the operations of Page Belcher and Mohawk Golf Courses."

I don't know how our expenditures compare to other cities, but it looks to me as if roads, infrastructure repair, public safety and debt (for more roads and infrastructure?) takes up most of the pie.

Now for my current favorite statistic:
Since 1963, the population of Tulsa has increased about 30%.  During that same time the city's geographic area has increased about 300%.

Gosh, I wonder why we can't afford all the cops and roads....?