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Oklahoma CITY - The Oklahoma House voted 100-0 on Monday for a bill introduced to put the brakes on two venture Capital tax credit programs that officials warn could cost the state treasury hundreds of millions of dollars.
The measure returns to the Senate, where it was introduced by Sen. Ted Fisher, D-Sapulpa, who said the taxpayer-supported credit programs for small businesses are being abused.
Fisher said investors are using complicated financial transactions to reap profits of 100 percent to 500 percent without any risk and without necessarily creating new jobs.
Under the programs, tax credits of 20 percent are allowed for projects in non-urban areas and credits of 30 percent are permitted for investments in rural businesses.
Officials say the state had a tax loss of about $2 million a year for the first three years of the programs, but that ballooned to an estimated $66 million for the 2005 calendar year.
The reason, they said, is that venture Capitalists and their associates figured a way to apply the tax credits to a relatively small investment and a large pot of money that was borrowed or otherwise restricted and not at risk.
Officials of an Altus venture Capital company in southwestern Oklahoma have said investors are getting a 2-to-1 return on tax credits used to partly finance a new aerospace company.
As approved by the House Revenue and Taxation Committee, the bill placed a June 1 moratorium on the tax credit investments.
Lawmakers adopted Rep. Fred Morgan's amendment to extend the moratorium to June 1, 2007. Morgan, R-Oklahoma City, said he is confident leaders will work out language to close a loophole that is allowing investors to make exorbitant profits.
But he said if an agreement is not reached, his amendment would give lawmakers more time to fix the problem.
Rep. Mike Reynolds, R-Oklahoma City, argued against the Morgan amendment, although he voted for it.
Reynolds is unhappy that House leaders did not allow consideration of his amendments to require more public disclosure of venture Capital transactions and to retroactively restore to state coffers tens of millions of dollars already lost through the programs.
He cited court opinions allowing the state to recover taxes lost in certain circumstances.
Under the programs, records are not made public of either the investors receiving the tax credits or the companies benefiting from venture Capital being invested. Fisher said he wants the new legislation to require public disclosure.
Officials say the tax credit programs will allow some of the state's wealthiest taxpayers and businesses to have their income tax liability wiped out for up to 10 years. The program also allows insurance companies to reduce their premium taxes. Next year, it is scheduled to apply to oil companies so they can reduce their gross production taxes.
Principals in the Altus venture say they have contributed heavily to the campaigns of House Speaker Todd Hiett, R-Kellyville, and Rep. Kevin Calvey, R-Del City, House Revenue and Taxation Committee chairman who is involved in negotiations on the tax credit bill. Hiett is running for lieutenant governor and Calvey is running for Congress in central Oklahoma's 5th District.
After Monday's House action, Calvey and Hiett were quoted in a House news release as saying they wanted to close any loopholes, but hope the program will continue to create jobs.
Rep. Odilia Dank, R-Oklahoma City, House education chairman, is House author of the Fisher bill. Dank was made author by House leaders and Rep. John Carey, D-Durant, was removed.
Dank said the moratorium "will give us time to strengthen these particular tax credit programs so they can continue to create jobs and stimulate small business growth."
Meanwhile, the Senate approved a bill that basically endorses the concept of tax credits for small businesses in rural areas and contains a provision designed to lure weapons' manufacturers to the state.
Sen. Jay Paul Gumm, D-Durant, said the measure was amended in his Senate Finance Committee to remove language that guaranteed venture Capitalists a profit of 150 percent.
In floor debate, Gumm said the original House bill "smells" and takes away the "risk" factor that is inherent in venture Capital programs. Rep. Don Armes, R-Faxon, was House author of that bill.
Gumm later said that under a venture Capital program, "there has to be a degree of risk as an incentive to succeed. The language as it came from the House of Representatives removed the risk and put Oklahoma taxpayers on the hook for ensuring a 150 percent return on a private investment."
Armes' administrative aide said the House member had left the Capitol after the House session and was unavailable for comment.