Below are two articles on the same issue, but each contains different information that helps understand the program and problems.

Leader scratches moratorium in favor of permanent fix. View

The House approved Senate Bill 1693, calling for a moratorium until June 1, 2007. View

Leader scratches moratorium in favor of permanent fix

Associated Press, April 27, 2006
Ron Jenkins

Oklahoma CITY - Sen. Ted Fisher, majority floor leader of the state Senate, has scratched a House-passed moratorium on two heavily criticized tax credit programs, The Associated Press has learned.

Fisher, D-Sapulpa, told The AP he decided not to bring up the moratorium bill on Wednesday before the Senate adjourned for the weekend because "we are going for a permanent fix. A moratorium is the last thing we want."

He said he planned Thursday to issue his first press release in 20 years as a senator explaining his reasons for not calling up the moratorium plan, which passed the House Monday on a 100-0 vote.

Tax Commission officials say the tax credit programs cost the state $2 million a year the first few years it was in effect, but they now estimate the cost will be $66 million for the 2005 calendar year alone.

Officials warn the state could lose hundreds of millions of dollars in revenue if changes are not made in the programs.

On Monday, the House voted unanimously to establish a one-year moratorium that would shut down the Capital Formation Incentive Act and the Rural Venture Capital Formation Act until June 1, 2007.

The moratorium was inserted into Fisher's original Senate bill designed to be a vehicle for preventing a situation where investors are making 100 percent to 500 percent in profits without any risk.

Under one program, which applies to businesses in non-rural areas, investors are supposed to earn 20 percent on their tax credits. Under the rural program, the tax credit is 30 percent.

Fisher said the exorbitant profits being made under the programs would never be allowed if they were federal tax credits and were governed by Internal Revenue Service rules that require investments to be in "legitimate" enterprises and carry a certain amount of risk.

"None of these things could get through the IRS," he said of the programs, which state officials say are being abused because investors make a relatively small investment in a company while taking a tax credit on a large pot of money that includes borrowed or otherwise restricted funds.

"If it is a straight-up business investment, then nobody has anything to worry about," said Fisher, chief sponsor of Oklahoma's highly successful Quality Jobs tax credit program. Fisher has traditionally backed the idea of tax credits to bring new businesses to the state.

Officials of an Altus venture capital company in southwestern Oklahoma have said investors are getting a 2-to-1 return on tax credits that are part of the financing mix for a new aerospace company. They say the company needs more tax credits to complete the project.

One House member offered amendments to require public disclosure of venture capital transactions and to retroactively restore to state coffers tens of millions of dollars already lost through the programs.

His amendments were not considered, however.

Officials say the tax credit programs are allowing 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.

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The House approved Senate Bill 1693, calling for a moratorium until June 1, 2007
Tulsa World, April 25, 2006
By Mick Hinton and Barbara Hoberock World Capitol Bureau

Oklahoma CITY -- The House ordered on Monday a moratorium for more than a year on a controversial tax-credit program that officials say could cost the state several million dollars.

The House approved Senate Bill 1693, calling for a moratorium until June 1, 2007, in an effort to prevent venture capitalists from earning tax credits on borrowed money. The bill returns to the Senate.

Oklahoma Tax Commission officials suspect that some of these ventures have operated without creating jobs and expanding Oklahoma businesses. Once the companies get the tax credits from the state, they pay off bank loans without using the money for economic expansion.

When the bill came up for consideration Monday, it provided for a moratorium until June 1 this year, but it was amended on the floor by Rep. Fred Morgan, R-Oklahoma City.

Morgan and another GOP House member, Rep. Kevin Calvey of Del City, are among candidates seeking the post of US representative for the 5th Congressional District.

Records show that Calvey has received campaign contributions from several people involved in one of the capital venture projects. Members of Altus Venture LLC have contributed more than $21,900 to Calvey.

Altus - Ventures officials say they have not abused the program.

Rep. Mike Reynolds, R-Oklahoma City, said on the House floor Monday that only seven entities have taken advantage of the program, which was costing the state about $2 million a year. However, last year's estimated cost of the program jumped to $66 million.

The way the program was set up, companies can receive tax credits of 20 percent for urban projects and 30 percent for rural projects. For example, investors might pool $2 million to start a rural company and borrow $18 million from a bank. Based on the overall $20 million investment, investors would be entitled to tax credits of $4 million.

The state tried to close a loophole a couple of years ago by requiring that borrowed money could not be used to draw the tax credits. Companies have been skirting that requirement by forming another limited liability corporation and turning the borrowed money over to the new firm, whose name would not appear on a bank loan.

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