When a credit is an offset, is an exemption, is a reserve, is a bailout: Task Force tackles insurance industry tax credits

In a rare interim meeting on a Friday afternoon (July 15), members of a task force looking critically at insurance premium tax credits heard from a wide range of industry representatives who more or less defended the status quo. Those witnesses spoke, however, in the face of often pressing questions from state Rep. David Dank and other members of the panel he chairs.

For the insurance industry, focus of the afternoon session, the emphasis was on the $37.8 million in tax credits that help keep Oklahoma guaranty funds solvent.

Brenda Nation, regional vice president of the American Council of Life Insurers, provided a succinct and non-combative defense of the rationale for gross premium taxes to finance industry-driven bailouts or “clean-up” operations when insurance providers fail.

Nation explained historic roots of credits to finance guaranty funds in past decades. She described the industry “offset” as a pragmatic means for government to structure a system to assure policyholders get value even after such failures.

In the course of discussion with other industry representatives in other insurance fields, including property and casualty, Rep. Dank noted that most states do not finance guaranty funds through public sector funding mechanisms. Most states do provide a legal structure by which guaranty funds provide some safety net for insurance policyholders in workers compensation, life, and property/casualty.

One industry official provoked lengthy discussion about the structure of the industry benefit when he asserted that the credits were not an offset against “taxes.”

Dank and other members of the task force said the question was whether the industry itself, or taxpayers, should provide the financing for salvage operations. Besides “offset,” terms used in the course of the day as a substitute for tax credit included exemptions, reserves, bailout and expenditures.

The focus on insurance industry credits in the afternoon followed a lively morning session that put under the legislative microscope a variety of state and federal incentives to support historical renovation.
 
One of the most direct criticisms of the ways in which tax incentives are structured came in the morning session from Steven B. Goldman, an Oklahoma City writer who encouraged members to study “the dangers of transferability, which can subvert the purpose of tax credits.”

Goldman expressed hope the panel will encourage restructuring of incentives to “push investment, and payback for the state as a whole. Transferability of credits at less than face value is a very troubling aspect of the system.”

Dank’s panel is operating under the authority of House Bill 1285, which he wrote with co-sponsorship from Democratic Reps. Anastasia Pittman of Oklahoma City, Ed Cannaday of Porum, and Seneca Scott of Tulsa, and Republican Rep. Dan Kirby of Tulsa. Senate co-sponsors of H.B. 1285, which Gov. Mary Fallin signed into law this spring, included Republican Mike Mazzei of Tulsa and Democrat Connie Johnson of Oklahoma City.

The law created a “Task Force for the Study of State Tax Credits and Economic Incentives.” Friday brought the required organizational meeting of the panel, which has more initial cachet than the typical interim or inter-session task force.

Speaker of the House Kris Steele, a Shawnee Republican, came to the first few minutes of the afternoon session to tell members and attendees he believed legislators in both parties take seriously the duty to “be good stewards of the resources entrusted to us.” He commended Dank’s work on the issue and said, “This is every bit as important as anything we’re doing in the interim” before the 2012 session starts in February.

The task force faces a December 31 deadline for its work. Members include key legislators from both the House and Senate, and other state officials. Along with Chairman Dank, of Oklahoma City, other Republicans include Sen. Mazzei, and the appropriations and budget chairmen of both chambers: state Rep. Earl Sears of Bartlesville and Sen. David Myers of Ponca City. Legislative Democrats on the task force are House Minority Leader Scott Inman of Del City and Senate Minority Leader Andrew Rice of Oklahoma City.

Other legislators can attend the hearings and were allowed to pose questions during Friday’s hearings. In the first sessions, these included state Reps. Mike Reynolds of Oklahoma City, Al McAffrey of Oklahoma City and Emily Virgin of Norman.

Two statewide elected officials are on the task force: Auditor & Inspector Gary Jones and Treasurer Ken Miller. High-ranking appointees representing Gov. Fallin are State Finance Director Preston Doerflinger and Secretary of State Glenn Coffee.

Dank has an ambitious schedule, saying the panel may meet a few times a month through November.

On Monday (July 18), he told CapitolBeatOK he planned to firm up more meeting dates soon, but closing of the state Capitol due to a water main break would delay announcement of further hearings until later this week.