ANALYSIS: The Legislature’s Lost Weekend, and the storm ahead
Published: May 21st, 2017
OKLAHOMA CITY – Legislators came to the state Capitol Saturday (May 20) for an unusual weekend work session, with an expectation or hope that some progress toward resolution of the state budget might be forthcoming. That, in turn, could possibly trigger a Sunday work day.
Instead, it became a lost weekend.
That may mean lost time off this summer.
Republicans and Democrats appear to have edged, however slightly, toward a common position on the primary point of division of recent days, on the gross production tax levy for oil and gas businesses.
Democrats insist that the oil and gas industry face a 5 percent GPT levy (even as the liberal base states preference for a 7 percent tax). The Republican preference is to keep the tax low, but leaders have said they want a levy no higher than 4 percent.
The issue, complicated for non-specialists by the distinction between horizontal and vertical wells, is challenging.
Key players in the state’s energy business remain firmly opposed to any higher tax. Any substantial hike would be “a huge deterrent on activity in Oklahoma,” said Continental Resources’ Harold Hamm at his company’s annual meeting held Thursday.
Legislative Democrats have been describing oil and gas as the richest industry in the history of the planet, but after the energy trough of recent years, Hamm and other oil and gas leaders disagree with that sketch of their position.
“To raise the gross production tax on the industry when prices are below $50 for oil and below $3 for natural gas, that’s unconscionable. That sends the wrong message. We can’t always go back to the trough of loading up on oil and gas every time the state needs revenue,” Hamm said.
Adam Wilmoth, energy reporter for The Oklahoman, the state’s largest newspaper, distilled the economics of the matter this way:
“Previously, the rate was 7 percent, but horizontal drilling — which represents the vast majority of current drilling — was taxed at 1 percent for the first four years as an incentive that was set to expire [in] 2015.
“As a result, industry leaders say the initial gross production tax rate doubled from 1 percent to 2 percent, while others say the rate was lowered from 7 percent to 2 percent.
“Both are correct, depending on the perspective. But the cumulative result is that the overall effective gross production tax rate — which includes all production taxes and incentives — declined to 3.2 percent in fiscal year 2016 from 6.25 percent in 2012, according to the Oklahoma tax Commission.”
Hamm contends, “We just now returned to a small degree of profitability. To put more taxes on us puts us back in a hole. We need to look for other sources of revenue.”
Any tax increase (on oil/gas or anything else) will require 76 votes in the House. Republicans have an overwhelming numerical advantage, but are sufficiently divided enough among themselves that many of the 26 Democrats voting in the state House will have to ally themselves with the majority GOP to get to the numbers needs for any tax hike.
Minority Leader Scott Inman, D-Del City, and House Speaker Charles McCall, R-Atoka, long cordial in their personal relations, have assailed each other over the past week, each accusing the other of falsehoods (http://www.www.capitolbeatok.com/reports/titanic-thursday-dueling-descriptions-of-budget-talks-yield-a-day-of-deadlock).
What’s certain is that McCall would like to keep the initial level of gross production tax low, then raise it to 4 percent after 36 months of a well’s operation. Elements of the oil/gas industry don’t want any change in the status quo.
Inman is sticking to his side’s demand for a 5 percent levy, but a number like 4.5 percent has cropped up in some discussions. Elements of the Democratic base don’t want anything less than 7 percent.
Inman’s criticisms of the industry’s tax burden have become increasingly sharp, as he withholds support for proposals like a cigarette tax increase, a motor fuels tax increase and other proposals that would raise millions here and there.
Even if some of the broad tax changes get worked out, and/or even if some government agencies still take significant budgetary changes, the tax/spending battles of 2017 – deeply personal accusations of lying aside – will leave scars on the body politic at the Capitol.
Since early May, Inman’s messaging has included these words:
“They have benefited from the most generous gross production tax cuts of any major oil and gas producing state in the nation and our state is cratering because of it.”
He contends, “We know the citizens of the state don’t support a gasoline tax increase, especially when the wealthiest industry in the history of the planet continues to skate by unscathed.”
Inman also contends, “Instead of raising those taxes that they cut, to put us in this mess, they’d rather raise taxes on middle-class families. It is absolutely a political position to say ‘let’s protect the oil and gas companies and hurt middle class families’.”
Late this past week came new evidence that rhetoricians of the right can also craft aggressive messages.
After prospects for movement on the central tax issue faded on Saturday, Assistant Majority Floor Leader Mark McBride, R-Moore, escalated the exchange. In a prepared statement sent to CapitolBeatOK and other news organizations, he said:
“Both the House and Senate have presented budget proposals in recent weeks that would increase revenue for the state and limit severe budget cuts to state agencies, while also providing core services to all Oklahomans. One person has kept all budget proposals from moving forward, and that same person is willing to force lawmakers into a special session to continue budget negotiations despite the increased costs associated with it.
“Rep. Scott Inman’s continued refusal to compromise on behalf of all Oklahomans is nothing more than political grandstanding. Budget proposals that increase taxes on tobacco, motor fuel and the oil and gas industry impact all Oklahomans and are a fair compromise offered by lawmakers and agreed to by the industries that will see their taxes increased the greatest.
“Rep. Inman is not working for the greater good of Oklahoma. He’s working for the greater good of Scott Inman in hopes that his statements that echo Barack Obama and Bernie Sanders are heard by the far-left elite during his gubernatorial candidacy.”
As things now stand, Governor Mary Fallin might start a special session “early” – even before the end of the regular session on Friday, May 26. That could create the option to allow (this week) consideration of revenue measures before the traditional “sine die” adjournment.
Even in that instance, however, prospects for gridlock remain. In the unlikely event of lockstop GOP unanimity, Republicans face the prospect for enacting significant new budget cuts or a range of tax hikes (but in any case they will still need a handful of Democratic votes).(http://www.www.capitolbeatok.com/reports/manic-monday-as-cigarette-tax-boost-falls-short-in-oklahoma-house-senate-plan-would-enact-510-millio)
Looking at all variables, a reasonable forecast follows:
Continued stormy conditions.
Possible high temperatures.
Occasional high winds, with some gusts reaching unusually high speeds.
High pressure systems dominating, under the existing dome.
And, that’s not the weather.