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Oklahoma CITY - Sen. Ted Fisher says he will offer legislation this week to permanently fix two state tax credit programs that critics say are being abused, costing taxpayers tens of millions of dollars without necessarily creating any jobs.
The House has passed a bill to place a June 1, 2007, moratorium on the tax credit programs, but Fisher, D-Sapulpa, said he wanted a bill to stop the abuse and allow legitimate job-creating efforts to continue.
"I will have draft legislation out Monday to close the loopholes," said Fisher, the Senate's majority leader.
Fisher is a longtime supporter of tax credit programs and was a prime mover behind Oklahoma's Quality Jobs Act, which provides tax relief to companies that meet certain wage requirements and provides health benefits.
He also sponsored the two heavily criticized tax credit programs and said earlier in the session he was upset to learn they are being manipulated to produce exorbitant profits to investors.
The Oklahoma Tax Commission estimates the state will lose $66 million during 2005 because some investors abused the programs, which cost taxpayers only $2 million a year the first three years of their existence.
Officials say no laws have been broken, but Gov. Brad Henry said the programs have been become "a shell game" for people to make huge profits without the state getting any benefit.
Henry has issued an executive order aimed at putting an administrative roadblock in the path of venture Capitalist attorneys. Officials say the attorneys have devised a complicated scheme to secure essentially borrowed money from banks to produce instant profits of 100 to 500 percent for investors.
Ed note: "essentially borrowed money" is this $643 million - fraudulent bank loan scheme, and $66 million in counterfeit tax credits.
Lawmakers worry the state treasury could be drained of hundreds of millions of dollars with little or no economic benefit to the state if the programs are not revised this year.
The current tax credit laws are supposed to prohibit using borrowed money to fund enterprises.
But officials say investors are getting around the law by creating layers of limited liability companies with the same board of directors.
Under one scenario outlined by state Treasurer Scott Meacham, investors could put up $10 million for rural projects, borrow another $115 million and get $37.5 million by applying a 30 percent tax credit against $125 million. That's more than a 300 percent profit on the $10 million initial investment.
Tax Commission officials say individuals and companies can wipe out their tax liability for up to 10 years by using the tax credits, which are 30 percent for rural projects and 20 percent for urban projects.
Some say the way the programs are being manipulated, the incentive for creating jobs is diminished because investors make huge profits whether or not an enterprise they invested in succeeds.
"I think it's crooked," said Sen. Jim Wilson, D-Tahlequah. "Technically, under the law, they can do this, but it is certainly unethical."
"When you take the risk out of it, they are no longer a venture Capital company," Wilson added.
Fisher he is having language drafted in a bill that will make the programs operate under the same rules that are in place for tax credits issued under the Internal Revenue Service code.
"They will have to meet three basic tests," he said. "No. 1, the investment will have to be for a legitimate business purpose. Secondly, it cannot be primarily for Tax evasion and the third thing is the money has to be at risk."
Wilson said he is aware that some venture Capitalists in an Altus project have put money into Republican political campaigns, including Tuesday's special election to succeed the Sen. Robert M. Kerr, D-Altus, who died this year after a long fight with cancer.
Running for the post are Democrat Robbie Kerr, the widow of the late senator, and Republican Mike Schulz, an Altus area farmer.
Wilson said that despite "the arrogance of the people who have abused us in this deal," he thinks the leaders of both parties will agree to fix it.
"If I was in the Republican Party, I would be running from these people," the Tahlequah senator said. "I think Republicans have integrity, too, and they are going to stop them. I can't believe they (venture Capitalists) tried to make this scam political."