By Rep. JAMES LOCKHART
Several people have asked me recently why the state has a $670 million deficit if the state’s economy is in good shape. I’ve heard all the excuses, from declining oil prices to tax cuts and too much government spending. I think all of these answers dance around the issue.
Last year the tax break on horizontal wells was set to expire. The tax break was implemented about 10 years ago in order to help with the high cost of new technologies associated with drilling horizontally for natural gas.
The argument was that the technology was new and expensive, so they needed a tax break so the oil and gas companies could break even. The tax rate under this deal was set at one percent for the horizontal wells.
Oklahoma’s taxes on unconventional production of oil and gas – that is, horizontal drilling – are among the nation’s lowest, according to a new study from Headwater Economics in conjunction with the Oklahoma Policy Institute based in Tulsa.
Oklahoma’s effective tax rate on unconventional oil production is 3.3 percent. In comparison, effective tax rates in six other oil-producing states are: Wyoming, 11.7 percent; North Dakota, 11.5 percent; Montana, 7.5 percent; New Mexico, 6.8 percent; Texas, 6.7 percent; and Colorado, 5.7 percent.
The one percent levy on horizontal wells generated $152.9 million in state gross production tax revenues over the past four years, according to the Oklahoma Tax Commission. How much more tax revenue would we have taken in for our schools, for health care and for our transportation network if our tax rate had been more in line with those of the other oil-producing states?
Last year, with the one percent tax break set to expire, the oil companies literally hired every lobbyist in the state Capitol to arrange another special deal. The bill was 39 pages long and quite convoluted. Every bill filed is required to have a fiscal impact, which informs legislators as to how much every piece of legislation will either cost (tax cut) or how much it will make (tax increase).
The word around the Capitol was that the ‘new’ deal on horizontal wells would double the tax from one percent to two percent, yet the fiscal impact statement on the legislation said it would not have a significant fiscal impact on state revenues.
I questioned how could the tax on all the horizontal wells in the state be doubled and not have a fiscal impact?! I voted against the bill because I considered the fiscal impact statement to be a sham. There’s no way the tax on every horizontal well in the state can be doubled and not have a fiscal impact; it should have brought in more revenues.
The same day we voted on the horizontal well tax deal was also a day when we worked well into the night. Usually dinner is brought in and we eat at our desks in the House chamber while voting on bills. While standing in the food line I overheard a Representative tell another one, “Well, I guess this dinner is worth about $350 million, because the oil companies paid for it and we just passed their special deal.”
Hearing this made me sick at my stomach; I couldn’t stand to eat that food. I went to my office in the Capitol and made a bologna sandwich. A couple of my colleagues asked me where I got the sandwich. I related what I overheard, and afterward they, too, went and made bologna sandwiches.
The influence of money at our state Capitol is sickening at times. Every week I have people calling my office needing help with things such as school fundraisers, road repairs and medical issues. It is a shame the average citizens carry such a heavy load while multinational companies such as Halliburton, Schlumberger, Exxon and BP basically pay no taxes at all.
Over the past 10 years, oil and gas companies have made record profits but paid relatively little in taxes. Now, with oil prices falling, many Oklahomans are out of work and their families are struggling to make ends meet, even though the state has subsidized the energy industry heavily.
This one special deal for the oil and gas companies is equivalent to about half of our state budget deficit. We are seeing it in southeast Oklahoma in closed roads, schools constantly fund-raising so students have what they need, services to veterans cut, and the list goes on and on.
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