Ad valorem exemptions help drive growth in Oklahoma
Oklahoma taxpayers subsidized wind farms, manufacturers and data centers to the tune of $106 million last year, according to the Tax Commission’s latest five-year property tax exemption report.
The amount was the largest in the incentive’s history since it began in 1986 and represented a 37 percent increase from the $80 million in property tax exemptions in 2015. The program exempts some types of businesses from property taxes for five years.
Wind farms claimed $41.3 million in exemptions last year, followed by manufacturing at $39.75 million. Data processing centers had $24.1 million in exemptions, while distribution centers had about $905,000 in exemptions under the program.
After a decade of rapid growth from wind, data processing exemptions now represent the fastest-growing slice of the five-year ad valorem reimbursement program. That’s driven mainly by expansions to Google’s data center in Pryor. The company has more than 115 full-time employees in four buildings, including a new four-story data center that opened last year.
Google qualified for $23.8 million in property tax exemptions in Mayes County in 2016, up from $13.5 million in 2015, according to the Tax Commission. It had $7.2 million in exemptions in 2014.
“We love Oklahoma, and over the years we’ve grown our data center in Pryor into one of Google’s largest in the world,” said Brenda Strandridge, Google’s operations manager and data center site lead for Pryor. “The state of Oklahoma has really enabled us to make these significant investments, and we hope to continue growing here for years to come.”
State reimburses schools, others
The state pays back school districts and local governments for the property tax exemption out of the Ad Valorem Reimbursement Fund. The first 1 percent of state income tax collections go to that fund, although it has operated in the red
since 2003. The supplemental appropriation for fiscal year 2018, which starts Saturday, totaled $70 million.
This year’s supplemental appropriation was also the largest in the program’s history and came as lawmakers had to close a budget gap of nearly $1 billion for fiscal year 2018. Supplemental appropriations for the ad valorem reimbursement program were $47 million last year and $28 million in 2015, according to the Office of Management and Enterprise Services.
Other states like Alabama, Kansas, Louisiana, Mississippi, South Carolina and Texas all have similar property tax exemptions for large capital investments. The State Chamber of Oklahoma said incentives such as the five-year ad valorem exemption help expand and develop the state’s economy.
“This report shows we are making progress toward that objective,” said Fred Morgan, the chamber’s president and CEO. “Investment in data processing, traditional manufacturing and wind energy means more jobs and more money for schools from increased ad valorem taxes. A more diversified economy will result in less reliance on one source of revenue, the oil and gas industry. This report is ultimately good news because it shows our economy is growing and all Oklahomans will benefit in the future.”
Program ends for wind
Wind farms were added to the program in 2004. Since then, wind farms qualified for more than $200 million in property tax exemptions, according to Tax Commission data. That’s about one-fifth of the $1.1 billion in total exemptions in the past 30 years.
That rapid growth led to lawmakers curtailing wind from the program. Although exemptions ended for new wind farms Jan. 1, projects qualifying before then will remain in the program until their fiveyear exemption ends.
The wind industry said the program has been good for the state because wind farms are long-term projects and the companies pay the property taxes for decades after their exemption ends.
Meanwhile, critics have questioned some wind company protests to their tax assessments after the incentive ends.
Ending the program for wind farms mirrors an earlier jump in program exemptions in the mid-2000s, when electric generation plants could qualify.
After a boom in natural gas plant building in Oklahoma, lawmakers ended the program for fossil-fuel generation in 2009.
The state’s Incentive Evaluation Commission studied the ad valorem exemption program in a report last year for the Legislature. It concluded the program “surpassed expectations in terms of the portion of state revenues that must be dedicated to it.”
“It is likely, however, that the exclusion from the program of electricity generating facilities from wind energy will slow growth in the next several years,” said the December report for the commission.