How tax credits were rigged to fund pork off the books and defeat Oklahoma's balanced budget law

March 17, 2009

Oklahoma lawmakers have found a way to overspend the states balanced budget law while keeping the overspending hidden from the public. This was accomplished, unnoticed, by passing legislation that: 1) allows some tax credits recipients to sell their tax credits for cash, immediately upon receipt; and 2) to deny the public access to information disclosing how much was being diverted to these special groups, how the money was to be used and who receives the funds.

Let's be perfectly clear about tax credits. Tax credits are dollars owed to the public treasury that are diverted to unknowns and converted to cash. Yet this funding is not held to the same standard of public accountability as direct legislative appropriations.

Since tax credits allow diverting incoming taxes before the taxes are logged as revenue this money evades the budget process and the state's system of financial accountability. Simply put this is public money going directly to unknown groups (CAPCOs), for unknown reasons, off the books and leaving no paper trail. Partial records made available, for 2006 and 2007, show $100s million diverted into this black hole, leaving no traceable paper trail.

There is more that should cause the most indifferent taxpayer to start questioning!

According to the state ethics commission Oklahoma law allows state officials including lawmakers to invest in these CAPCOs which are receiving $100s million in hidden money. Some of the CAPCOs are taking tax credits amounting to $2 to as much as $5 for every $1 they claim their investors invest in new business ventures. All unearned profits that are shared with the investors. Profits received before the investment receives its first dime. The reality is the public pays all of the investors' investment cost, plus huge unearned windfall profits, they keep even if the business investment fails.

How do they get by with this? In addition to hiding the spending from the public, no state agency or officials were assigned oversight and there are no accountability requirements. The program operates like a self-serve vending machine. In many cases no one knows who will take how much until tax returns are filed. Then that information is guarded like the nations secret missile launch codes. The only responsibility and involvement by state officials is to guard the secrets.

Note: Only pieces, not complete information is available on OpenBooks in spite of the Taxpayer Transparency Act.

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