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Oklahoma legislators have reached an impasse over a slate of possible tax hikes proposed to solve the state’s $215 million budget shortfall, but the state’s oil and gas industry has rejected calls for a “grand bargain” that would seek to tap the sector for the fourth time in three years, arguing it would hurt Oklahoma energy producers and workers alike.
“The oil and natural gas industry has seen its gross production taxes increase for three consecutive years,” Chad Warmington, President of the Oklahoma Oil and Gas Association, told Western Wire via email. Warmington told Western Wire before the special session that the oil and gas industry has been Oklahoma’s stopgap source for addressing repeated budget shortfalls, including this year’s legislative session.
“Just two months ago, the state ended all GPT rebates and increased the rate on 6,000 older wells by 300 percent to the tune of $141 million,” said Warmington. That, apparently, is not enough he said.
“Yet, they are already back in a special session debating what more they can take from the same single industry. OKOGA represents Oklahoma’s most active operators, and we’ve reached a point where we cannot negotiate and offer any more on taxes while still promising to create jobs, drill new wells, and attract significant capital investments here in the state,” Warmington said.
A letter sent to Gov. Mary Fallin (R) on September 29 from OKOGA and the Oklahoma Independent Petroleum Association (OIPA), obtained and published by NonDoc, opposed the notion of a “grand bargain” that called for raising the gross production tax in the initial rate of the two-tiered tax program that the groups said “has kept Oklahoma competitive during persistently low commodity prices and attracted the current robust exploration and drilling activity.”
“It is a shame that after job creators put their capital to work in Oklahoma, they are then punished by the state,” the groups wrote.
“They’re offering it [gross production tax hike] as a solution to all the state’s problems,” Warmington said in September.
Dangling the prospect of a tax hike raises industry uncertainty, especially at a time of year when budgeting decisions for 2018 are being made at oil and gas companies.
“The months of October and November are the time most of our large E&P [exploration and production] companies are making critical monetary and business decisions about where they invest capital in 2018,” Warmington said. “In many cases, lack of clarity is treated the same as an outright cost increase, and right now Oklahoma is the only state perpetuating an uncertain tax environment for the energy industry. This continued ambiguity and subtle hostility towards the industry will hurt Oklahoma and its competitiveness for limited capital investment dollars.”
According to Oklahoma State Treasurer Ken Miller, the oil and gas industry has been the “primary driver” of Oklahoma’s recovery.
“Oklahoma’s economic recovery, slow and steady, continued through August,” Miller said in his September bulletin. “The energy sector remains the primary driver of the state’s economic expansion as evidenced by the continued rise in oil field employment and gross production tax payments.”
Negotiations continue, however, as Republican House Floor Leader Jon Echols (R-Oklahoma City) said legislators are “circling an agreement” despite what one reporter called months of “political gamesmanship.” That agreement may hinge on Republicans agreeing to a gross production tax hike in return for Democratic support for a cigarette tax.
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In an effort to break through in the special session, Fallin sent an “inventory of ideas” to Republicans and Democrats alike to bring all of the proposals to help Oklahoma’s ailing budget “on paper,” according to The Oklahoman.
“My staff and I have spent the last several months listening to ideas as well as providing proposals of our own,” Fallin said. “We believe it was important to generate this document in order to bring clarity to the situation and put everything on paper for everyone to see.”
But after holding the special session for only three days and then pausing due to seeming intractability on both sides and unwillingness by House and Senate leaders to reconvene unless a funding deal can be made on the competing cigarette and gross production taxes, movement seems unlikely.
The special session was costing Oklahoma taxpayers $30,000 per day, according to House Speaker Charles McCall (R-Atoka).
Oklahoma House Democrats led by House Minority Leader Rep. Scott Inman (D-Del City) won’t budge on their call for increasing the state’s gross production tax from 2 percent for the first 36 months of a well’s operation to 5 percent or higher.
Without votes from the Democratic caucus, House Republicans can’t reach the 76 votes to pass the cigarette tax. Inman has called for hiking the gross production tax increase to between 5 and 7 percent in four bills, HB 1006-1009, which he has introduced for the special session.
The political wrangling of the quid-pro-quo tax hike disappointed McCall, as the special session’s early days were filled more with rhetoric than action.
“If we do not get the (cigarette) tax implemented through the House of Representatives this week, there will likely be cuts,” McCall said last week. “If nobody wants to get serious on the cigarette tax, what they’re really saying is we’re not serious about anything.”
Inman shot back, saying sticking to a cigarette tax only would be a “Band-Aid on a bullet hole.”
It is unclear if this week’s optimism on special session negotiations or plan to reconvene next Monday will bear more fruit than the stalled talks last week that centered on the gas-production-for-cigarette-tax deal.
