Economy

Corporate welfare efforts ignore true growth areas?

August 30, 2022

Ray Carter

In recent years, Oklahoma lawmakers have offered millions of dollars in taxpayer subsidies to “green” energy businesses.

But the associated job creation has been anemic and those corporate-welfare efforts overlook, or even undermine, existing businesses that are already producing high-paying jobs across Oklahoma, according to one state business leader.

“If you take a look at OCAST (Oklahoma Center for Advancement of Science and Technology) and Department of Commerce graphics and the social-media campaigns, and then try to guess what high-tech industry drives the state, you’d think it was windmills,” said Brook Simmons, president of the Petroleum Alliance of Oklahoma. “The wind industry only has 414 workers in Oklahoma, according to the U.S. Bureau of Labor Statistics. Oklahoma’s workforce future is unlikely to be determined by the wind industry, the solar industry, or manufacturers of electric vehicles or batteries, and we must leverage the high-tech industries that we have here already.”

During this year’s legislative session lawmakers passed, and Gov. Kevin Stitt signed into law, a measure that directed nearly $700 million to the Large-scale Economic Activity Development Act (LEAD Act). That money would have been paid out in subsidies to Panasonic if the company opted to build a new battery plant for electric vehicles in Oklahoma.

Panasonic instead opted to locate the project in Kansas, which promised around $1.3 billion in subsidies.

The state has also paid out millions of taxpayer dollars to generate the 414 permanent wind-power jobs noted by Simmons. The state has provided $252.69 million through a zero-emissions tax credit for wind power since 2008. In addition, wind power has received $347.74 million in manufacturing tax credits since 2013, and has also received $3.69 million in subsidies through the advanced small wind-turbine tax credit program since 2008.

In contrast to those “green” energy efforts, Simmons noted that the oil-and-gas industry remains the key driver of Oklahoma’s economic growth, producing jobs across the state that pay far more than the state average.

“Oklahoma has a goose that lays golden eggs,” Simmons said. “Having a highly specialized economy is not necessarily a bad thing. Silicon Valley is a highly specialized economy. Lower Manhattan is a highly specialized economy. One of my frustrations, sometimes, is that Oklahoma seems embarrassed when it comes to this highly specialized economy—except when it comes time to boast about tax revenue.”

In 2021, he said Oklahoma ranked 5th among all states in marketed natural-gas production and 6th in crude-oil production, and the state exports two-thirds of the energy it produces.

Simmons noted oil and gas is responsible for one-fourth of household earnings in Oklahoma and remains the state’s largest taxpayer among industries. He said the more than 4,000 businesses in oil and gas produce more than half of Oklahoma’s real Gross Domestic Product growth “in both good years and bad.” Even during the COVID downturn of 2020, the industry contributed $19 billion to Oklahoma’s state GDP.

State officials have often stressed the importance of developing a more skilled workforce to make Oklahoma attractive to new businesses, particularly high-tech companies.

While agreeing with the goal of workforce development, Simmons noted many of the high-tech jobs that need to be filled in Oklahoma spring from the oil-and-gas industry, not from new industries officials are trying to lure to the state.

“Does Oklahoma want investments in unmanned systems manufacturing and deployment?” Simmons said. “The oil-and-gas industry is on the cutting edge of deploying unmanned systems for emissions monitoring and facilities inspection. Does Oklahoma want investments in high-tech workers, data analytics, cutting-edge manufacturing? The U.S. oil-and-gas industry leads the world in the manufacture and deployment of new energy technologies. The oil-and-gas industry actually has far more ‘green’ patents than does the renewable-energy industry.”

Simmons made his comments during a legislative study on workforce shortages in which lawmakers heard from officials representing several state industries.

But oil-and-gas jobs account for much of the demand that exists in Oklahoma. Simmons said Oklahoma’s oil-and-gas extraction workforce expanded 16 percent in the past year.

“Our companies need both CareerTech and university-degreed labor with a focus on science, technology, engineering, and math,” Simmons said.

The industry also has need for jobs that don’t require a college degree, such as electricians, welders, and drivers, along with those that require higher education, such as engineers and data analysts, he said.

“We’re fairly unique among industries in that one can enter this industry with a clean drug test and a high-school diploma and quickly make six-figure incomes,” Simmons said.

He said the average annual compensation in Oklahoma’s oil-and-gas industry is $136,000 per worker, more than twice the state average.

While other industries have often received more attention from lawmakers, the returns from those efforts have been limited. During the study, lawmakers discussed the film industry in Oklahoma, which officials have tried to boost by increasing the size of a state subsidy program.

Matt Payne, an official with Prairie Surf Media, praised the subsidy program and said it had allowed many Oklahomans to find higher-paying jobs.

He cited a young man who was working retail for $7.25 an hour when he was hired to do construction for a film production at $30 an hour for the next nine months.

That amount is roughly half the average salary in the oil-and-gas industry. And the extremely sporadic nature of film employment means worker incomes fluctuate wildly, a fact Payne tacitly acknowledged.

“Now the question is what happens to Jacob until the next show comes,” Payne said.

A 2020 review of Oklahoma’s film-subsidy program, conducted by the state Incentive Evaluation Commission, found that state government has never reaped a return on investment of more than 13 cents for every $1 in state subsidies provided in any year for which data was available. The state return on investment was as low as three cents in 2013.

Put another way, for every $1 in state film subsidies provided, state government lost at least 87 cents in revenue and as much as 97 cents.

Reviews of film-subsidy programs in nearly two dozen other states have found similar results nationwide with scratch-off lottery tickets often producing a better return on investment than film subsidies.

Simmons told lawmakers they should appreciate what they have with oil-and-gas companies, noting the other industries that legislators have pursued with incentive programs remain unlikely to produce a comparable level of new jobs and income.

“If Oklahoma’s economic diversification is a journey, it must be a very long journey indeed,” Simmons said. “For at least 50 years, Oklahoma leaders have promised taxpayers economic and workforce diversification. Yet the oil-and-natural-gas industry has been and continues to be the primary driver of the state’s economy.”