Oklahoma Small Employer Quality Jobs Program triennial report

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OFF\CE OF THE
GO\lERNOR
Oklahoma Small Employer Quality Jobs Program
Triennial Report
(as required by legislation)
February, 2010
Submitted by:
Oklahoma Department of Commerce
Natalie Shirley, Secretary
Jonna Kirschner, General Counsel
Richard Schwalbach, Program Manager
Oklahoma Small Employer Quality Jobs Program
2010 Triennial Report
.Table of Contents
Introduction Page 3
Small Employer Quality Jobs Program defined Page 4
Legislative Changes Page 5
Historical Performance Data Page 6
Summary Page 8
Closing Page 9
2
Small Employer Quality Jobs Program
Triennial Report to the Legislative Body
Prepared January, 2010
Introduction
The Oklahoma Small Employer Quality Jobs Program was created in 1998 to
assist the start up and expansion of small companies. The qualifying criteria was
modeled after the successful Oklahoma Quality Jobs Program, which was
created by legislative action in 1993. These elements however were set to be
more conducive for smaller companies to participate.
The program elements underwent a legislative overhaul in 2001, to become even
more business friendly. While only 7 companies enrolled in the program from
inception to 2001, a total of 78 companies have now participated in the program
over the years.
The Small Employer Quality Jobs Program statutes require that the Oklahoma
Department of Commerce provide a report on the status of the program on a
triennial basis to the President Pro Tempore of the Senate, the Speaker of the
House of Representatives and the Governor. The next report is due by March 1,
2010. This report fulfills that legislative requirement.
3
Small Employer Quality Jobs Program defined
The legislative cite for this program may be found at O.S. 68 § 3901 et. seq. The
intent of the program is to assist small startup companies in Oklahoma and to
help existing small companies grow. Statistics show that small business is the
backbone of the economy in Oklahoma, with most companies employing 100
employees or less, and the great majority employing just 20 or less employees.
Many of these companies have been in the fields of Manufacturing and Research
& Development. Since the changes to the program in 2001, 71 companies have
enrolled and are in position to take advantage of the benefits of the program.
To participate, a company must have 90 or fewer employees at the time of
application (and an average of 90 or fewer during the last year leading up to
application). The company must be working in a "basic" industry as defined by
listed NAICS codes in the legislation. Based on the population in the city where
the company is located, it must create as few as 5 new jobs (less than 3,500
population), 10 new jobs (population between 3,500 and 7,000) and as many as
15 new jobs (population greater than 7,000). A participant may create more than
the required threshold level of new jobs. The company has one year from its
application date to reach these employment levels, and must pay these
employees at a rate of 110% of the average county wage.
Certain companies in identified industries have up to 3 years to create these new
jobs. Also, some companies may be able to qualify by paying equal to the
average county wage, based on location in an economically distressed area. All
companies must provide a basic health care plan to the new employees, and pay
at least 50% of the premium. All companies must also demonstrate a minimum
of 75% of sales to out of state buyers or the federal government.
Companies which qualify are eligible to collect up to 5% of the new payroll
generated by these jobs, based on a contract with the state for up to 7 years.
Although companies qualify based upon projections of jobs and wages, the
program is performance based. Thus, a participating company must actually
create the jobs quarter by quarter and pay wages as required to receive any
benefits. Participants must perform by creating jobs and payroll for a quarter,
and then file for benefits based on that performance. A warrant for benefits
follows in the next month or two based on claim filing.
By statute, the Oklahoma Department of Commerce is responsible for with the
initial application, due diligence, approval and contracting with qualified
companies. The Oklahoma Tax Commission then facilitates the claims and
payment process for the ensuing seven years. Both agencies have dedicated
staff for this program and work very closely in each aspect of administration and
compliance.
4
Legislative Changes since the most recent Triennial Report
In the three years since the last Triennial Report was submitted (2007), there
have been two legislative changes. Those changes are summarized below:
• Legislative action in 2007 removed the "residency requirement"; instead
jobs to be counted towards Small Employer Quality Jobs benefits were
required to perform the "activities and functions" of the job within the state
of Oklahoma. This change recognized that some border communities
labor markets stretch beyond state borders. It removed an unnecessary
hardship on companies participating in the program.
• Legislative action which broadened qualifying NAtCS codes in the Quality
Jobs Program also affected the Small Employer Quality Jobs Program. (A
NAICS code identifies a company as performing work in a particular
industry. Only certain NAtCS Codes are eligible to participate in the Small
Employer Quality Jobs Program). The following NAtCS codes were
added: 711211, Professional Sports Teams; 488190, Support Activities for
Air Transport; 813920, Professional Organizations; and 53120, Real
Estate Agents.
5
Historical Performance Data
The following chart lists the number of companies that have enrolled in the
program since inception. Not all companies remain active.
2002 7
2003 11
2004 6
2005 11
2006 13
2007 14
2008 8
2009 1
These numbers are based on the state's fiscal year- July 1 to June 30.
Enrollment since last Triennial Report:
FY 2009:
Companies enrolled
Jobs projected
Wage range
Industry activity
Net Benefit Rate %
Status
Maximum benefit dollars range
1
20
$36,541
1, manufacturing
4.31%
Withdrew due to economic factors
$170,039
FY 2008:
Companies enrolled
Jobs Projected
Wage range
Industry activity
Net Benefit Rate %
Status
Maximum benefit dollars range
83
80
$33,500-$47,382
All manufacturing
4.48%-5.0%
6 active, 2 withdrawn
$107,669-$788,622
FY 2007:
Companies enrolled
Jobs projected
Wage range
Industry activity
Net Benefit Rate %
Status
Maximum benefit dollars range
14
677
$26,818-$52,000
13 manufacturing, 1 R&D
4.31%-5.0%
9 active, 2 withdrawn
$210,317-$851,864
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Historical Performance Data, continued
As the program is performance based, companies must file quarterly reports with
the Oklahoma Tax Commission to receive benefits.
Legislative requirements call for participating companies to be located in counties
with a population of less than 200,000. Cleveland, Oklahoma and Tulsa counties
are the three counties that have populations exceeding legislative limits.
Legislation does permit a company to be located in an "Opportunity Zone", or
economically challenged area, in one of these larger counties and still participate.
This program has had a very positive affect on rural counties in the state.
Companies involved in the industries of Research & Development and Testing
Laboratories may locate anywhere in the state, regardless of population, and
participate in the program.
The most recent month of claims filing (January, 2010) shows that the program
has distributed $4,526,695 in benefits since inception, which averages 4.45% of
the new payroll created by these companies. An average of 361 new jobs was
eligible for incentive benefits.
To date, over $100 million in new payroll to the state has been generated by the
Small Employer Quality Jobs Program, with an average wage of $40,027 per
new job created.
Under Oklahoma's Taxpayer Transparency Act, payments to companies
participating in the Oklahoma Small Employer Quality Jobs Program are found
on the Oklahoma Tax Commission's website, under the "Reports" link on the
homepage.
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Summary
The Small Employer Quality Jobs Program is a good alternative for those
companies in Oklahoma that find themselves growing, but not at a rate to qualify
for the regular Quality Jobs Program. The financial assistance generated from
the program helps these smaller companies compete in the marketplace. The
payroll impact that the new jobs create in the local economy is invaluable. It
represents tax income to the state, as well as related investment and property tax
revenue.
The program requires that a cost-benefit analysis to be performed by the
Department of Commerce prior to enrolling the company in the program. This
analysis determines the maximum amount of dollars a company may be entitled
to receive throughout the life of the contract, and is done to insure that no more
money is spent on benefits than tax revenue is generated for the state by the
project.
The Executive Director of the Department of Commerce is aware of the declining
participation rate in this program. According to the economists some of this is
due to the general condition of the economy and the regular Quality Jobs
Program has also encountered a declining participation rate over the past 3
years. The agency is conducting a statewide analysis of the required and actual
wage rates by county to determine if participation rates are being adversely
affected by unrealistic requirements in any area. As in past years,
recommendations for improving the program will be shared with legislators.
Workforce issues also playa significant role in a company's ability to "ramp up"
to program qualifying thresholds. Many participants report an inability to find
qualified workers, particularly in the fields of engineering and welding. This lack
of qualified applicants causes some participants to grow at less than projected
rates, and jeopardizes meeting qualification thresholds. Oklahoma's Workforce
Development programs, as well as the state's Technology Centers, are
addressing those issues. Many of the participants in the Small Employer Quality
Jobs Program also qualify for assistance in the Training for Industry Program,
offered by the Oklahoma Career Technology Center.
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In Closing
The Department of Commerce continues to work very closely with the Oklahoma
Tax Commission to manage this program. Tracking of program data, both
projected and actual, is kept.
The partnership with the Oklahoma Alliance for Manufacturing Excellence which
began in 2003 continues to grow. The field staff of that organization has
increased the opportunity to reach those entities that could benefit from
participation in the Small Employer Quality Jobs Program.
The program assists in the attraction and expansion of businesses, and is
identified by both Site Selection staff and Existing Business staff as a key
component in closing deals for Oklahoma. Indeed, several other states have
modeled similar programs. We look forward to another successful year in 2010
and beyond with the Small Employer Quality Jobs Program.
Comments, questions or general feed back should be directed to:
Richard Schwalbach
Quality Jobs Program Manager
Oklahoma Department of Commerce
900 N. Stiles Avenue
Oklahoma City, OK 73104-3234
405.815.5269
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MAY 25 2011