Incentives Watch: Oklahoma and Louisiana Threaten an End to Tax Credits

Like the tides or public opinion of Kanye, states’ attitude towards tax credits rise and fall. Often, it manifests in bits and pieces: the expansion of a film credit here and the repeal of a historic rehabilitation credit there. However, it’s rare that a state proposes to get rid of all of its tax credits, but that’s what is happening in Oklahoma and Louisiana.

Oklahoma brings us S.B. 977, proposing a two-year suspension of tax credits in the state from July 1, 2016 until June 30, 2018. Although some see the bill as a necessity to overcome a budget shortfall in Oklahoma, many lawmakers, including Gov. Mary Fallin (R) are concerned that the mere proposal of the bill will scare businesses from investing money in Oklahoma. In fact, Boeing, who relies heavily on tax incentives in several states, has already cancelled two projects, according to The Oklahoman.

Meanwhile, Louisiana has proposed a complete sunset of all tax credits in 2017, with a recently introduced amendment to H.B. 2. Louisiana is facing its most severe budget woes in three decades, according to the New York Times. Tax credits in Louisiana are often in the news, mostly thanks to its film credit, which in the past two years has led to potential fraud, a study over their effectiveness and the introduction of a cap. Interestingly, one of the state senators that is pushing for an across-the-board repeal of tax credits is J.P. Morrell (D), who last year vigorously argued against the film credit cap, according to The Times-Picayune.

There are few case studies of states slashing all their credits at once, but it is clear that states need to be careful in the implementation of the plan. When Michigan switched from the Michigan Business Tax to a corporate income tax in 2012, they suspended all tax credits, but allowed credits certified prior to the switch to still be carried forward, according to PricewaterhouseCoopers. Unfortunately, the state vastly underestimated the number of credits that would have been available under the Michigan Economic Growth Authority (MEGA) program. Now it is several years later, and Michigan is still paying for those MEGA credits, and may be for some time.

And of course, any time credits are repealed or expire, there will always be those who will ask for their restoration. North Carolina had many of its credits sunset in 2014 and 2015. Although the state didn’t proactively repeal the credits, it let them expire without passing extender bills. However, politically popular tax credits got reinstated. The historic rehabilitation credit came back, according to the Charlotte Observer. And although the film credit has not been restored, it has been replaced by a grant program that was expanded last fall, according to the North Carolina Film Office.

As states examine their budgets each year, it seems as though many programs end up in a ‘yes’ pile, meaning that the states will find room in the budget for those programs. However, it seems that tax credits are usually in the ‘maybe’ pile: the states love them if they can afford them, but they are often cut if there’s no room on the accounting sheet. Indeed, when Illinois faced a budget impasse last year, Gov. Bruce Rauner’s (R) solution was to suspend tax credits.

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