Ray Carter | March 4, 2020

Scholarship program critics do about-face on tax credits

Ray Carter

In his State of the State address in February, Gov. Kevin Stitt urged lawmakers to expand a state tax credit program that funds public-school programs and private-school scholarships using private donations. At that time, the proposal included $15 million in tax credits for gifts to public-school programs and $15 million for support of private-school scholarships.

House Democratic Leader Emily Virgin of Norman tweeted in response that Stitt wanted to increase the scholarship tax-credit program but had endorsed “only an increase of $12 million in state funding for public schools. If you want to fund public schools, fund public schools. Stop the gimmicks.” Rep. Melissa Provenzano, D-Tulsa, tweeted a similar message, adding, “Seems a little out of balance to me.”

That sentiment was voiced by other critics who argue the scholarship tax-credit program reduces funding for public schools by reducing money in the state’s general revenue fund.

Yet this week many who lambaste the tax-credit scholarship program voted to provide up to $50 million in tax credits to mostly out-of-state film producers, diverting a far greater sum from the state’s general revenue fund. And they supported the film program even though independent research shows its return on investment is a small fraction of the return generated by scholarship tax credits.

House Bill 3921, by Rep. Jason Dunnington, significantly expands Oklahoma’s existing tax credit for film and television productions. That program is currently capped at $8 million in film tax credits per year, but a fiscal analysis showed the program would provide up to $50 million in annual tax credits if HB 3921 becomes law.

The bill passed the House on a 67-28 vote.

Dunnington, D-Oklahoma City, said the film credit would indirectly generate new tax revenue.

“We’ll create new jobs,” Dunnington said. “These are higher-paying jobs that will be new taxpayers to the state of Oklahoma that will put money into general revenue.”

But several lawmakers noted the film credit could result in a significant reduction in available funding. The state already faces a shortfall of $85.5 million this year.

“Would we potentially have less money to give to other core services?” asked Rep. Chad Caldwell, R-Enid.

Dunnington responded that the “return on investment” from the film tax credits is “seven or eight to one.”

“I would say it will actually bring more money into general revenue than it will take out of it,” Dunnington said.

Other lawmakers appeared skeptical.

“I was looking at these types of credits last year, and one thing I found is I don’t think we’d found that they actually paid for themselves,” said Rep. Derrel Fincher, R-Bartlesville.

Dunnington said the existing rebate program “has certainly paid for itself many times over,” and suggested Oklahoma should look to Georgia as an example. Georgia today has a film tax credit “that they spend about $1 billion on a year,” Dunnington said, and added that the Georgia film credit generates $9.8 billion in economic impact.

But independent reviews counter Dunnington’s assertions.

In 2016 consultants hired by the state's Incentive Evaluation Commission urged lawmakers to eliminate Oklahoma’s film tax credit.

“There is no evidence that the Oklahoma film industry has strengthened during the time period when the rebate has been available,” the consultants’ evaluation stated. “Documented job creation is neither stable nor sustainable absent state support. The effect on Oklahoma’s image nationwide is unclear, but likely limited.”

That echoed reviews of similar film credit programs nationwide.

A study published in 2016 in the American Review of Public Administration reviewed the motion picture incentive programs of 40 states, including the use of transferable tax credits and refundable tax credits. The study found, “Neither credit affected gross state product or motion picture industry concentration.”

And, while Dunnington cited Georgia’s film incentive program as a model, a 2017 report by The Pew Charitable Trusts found Georgia was one of 23 states that lacked well-designed plans to evaluate whether its film credit was actually generating positive financial outcomes. The report noted that Georgia “has provided hundreds of millions of dollars in film tax credits but has not rigorously studied the results of the program.”

That’s in stark contrast with Oklahoma’s tax-credit scholarship program. Independent evaluations have found it provides a much higher return on investment than do film tax credits.

According to research conducted by economists at Oklahoma City University, the Oklahoma Equal Opportunity Education Scholarship Act produced $1.24 for every $1 in credits issued for private-school scholarships. In contrast, consultants hired by the state Incentive Evaluation Commission concluded that the Oklahoma Film Enhancement Rebate Program produced just 13 cents for every $1 in rebates issued

Rep. Tommy Hardin, R-Madill, also noted the film tax credits are transferable, which means film producers can sell them to raise money. (Tax credits issued through the scholarship program are not transferable.) As a result, Hardin noted the film tax credits could be claimed by individuals or entities with no role in the film industry or any associated job creation.

“Believe it or not, when I first got in office, we couldn’t budget right because we didn’t know how many of these transferable tax credits were going to be taken at the time that all these insurance companies had bought out,” Hardin said.

Rep. Denise Crosswhite Hader, R-Piedmont, was among those who opposed HB 3921. She said cost was one consideration.

“It was $50 million, which is quite a bit,” Crosswhite Hader said. “Also, my concern was that it doesn't guarantee us good films. I get that art is subjective, so that’s my concern. What might be okay to some is not okay to me or my constituents.”

And lawmakers who supported HB 3921 say there’s an obvious disconnect when officials oppose tax-credit scholarships for low-income children but simultaneously endorse lavish tax breaks for Hollywood producers and other similar measures.

“I don’t know the exact dollar amount of tax credits that has been passed, but it’s sizable—hundreds of millions,” said Rep. Ryan Martinez, an Edmond Republican who voted for HB 3921 and is also a co-author of Senate Bill 407, which would increase scholarship tax credits. “And I’ve heard not one peep from anybody about this. What’s the problem here?”

Martinez said he has asked critics of tax-credit scholarships about their silence on other tax credits.

“They were pretty sheepish about it, to be honest,” Martinez said. “They didn’t really have a good response.”

As a child, Martinez noted he was “one of those kids that was in a bad neighborhood that was in a failing school system.” He said the opportunity to attend a small private school had a huge impact on his life, and the tax-credit scholarship program offers similar hope to other needy children across Oklahoma.

“If we can give one more kid like me a shot to succeed,” Martinez said, “I’m all for it.”

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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