May 18, 2014
The Oklahoman Editorial: THE stuff at the center of a debate over Oklahoma’s gross production tax rate is known as “crude.” That’s an apt word for a lobbying campaign aimed at increasing the tax by 700 percent for some wells.
A debate is ongoing about whether to let the current rate structure revert to 7 percent on July 1, 2015. That’s when the existing differential rate for horizontal wells (1 percent for 48 months) will sunset unless lawmakers extend or modify it.
We support a proposal to set the rate at 2 percent for all wells for four years and 7 percent beyond that. This is a rational, sensible plan to keep exploration companies from moving rigs out of Oklahoma.
“Rational” and “sensible” are nonexistent in the crude ad campaign mounted by togetheroklahoma.org, a special-interest group with links to Oklahoma’s biggest tax consumers, including the public education establishment.
One ad features what appear to be oil industry fat cats toasting themselves with champagne in the halls of power. What’s next, a reprisal of the legend about the Penn Square Bank energy lender drinking beer from a cowboy boot? By inference, elected officials who agree with the industry are also painted as sleazy.
A key message of the ad is that “Wall Street” is sucking money out of Oklahoma public schools. This is a crude reference to the ownership status of major Oklahoma City exploration companies that are publically traded. The subtext is that “out-of-state” investors are benefitting from a tax policy that’s “starving” public schools.
Investors do own these companies. Shareholders live throughout the world. They don’t live on “Wall Street” and most of them don’t live on Easy Street either. Most are average people. Many of them invest through pension plans and mutual funds that benefit when oil companies prosper. This includes pension plans that cover state employees and teachers.
The prosperity of energy firms isn’t at the crux of the debate. Oklahoma producers will prosper (or not) regardless of how much they spend to explore within state borders. The tax rate is one determinant of where they will spend exploration money.
Another determinant is the price of oil, something over which Oklahoma firms have zero control. Another is a risk assessment keyed to the potential richness of the rock into which they drill.
Oklahoma has good rock but not great rock. Comparisons between this state’s gross production tax rate and that of, say, North Dakota are irrelevant.
Togetheroklahoma.org doesn’t go this deep into the discussion about the tax rate. The crude ad demonizes successful energy firms, painting them as takers rather than sharers. Yet these firms have contributed billions of dollars to the Oklahoma economy in the past few years and millions of dollars in charitable giving.
The crude campaign run by their detractors has spread the myth that taxing all oil production at 7 percent would pump $200 million or more into public schools. This even extends to putting a dollar figure on what would go to each of the state’s more than 500 school districts.
Yet no one can say what the net effect of the change would be. While gross production tax receipts might go up in the short term, disincentivized energy firms could make investment decisions that result in a net loss in state revenue. Furthermore, lawmakers aren’t required to use any extra revenue for common schools, much less all of it.
The crude campaign borrows from many we’ve seen in recent years when tax policy is debated. It’s laden with emotion rather than rationality. It pits “Wall Street” against “the children.” It’s a low-budget attempt to influence a high-budget debate.
Energy firms will make decisions this fall on exploration options for 2015. If the 2014 Legislature does nothing in the few days remaining in this session, these firms can’t assume something will be done next year. They will have a legal duty to act accordingly. What they need is a permanent tax rate. And they need to know this month what that rate will be after July 1, 2015.
What none of us needs is yet another class warfare-laden campaign to shift the debate away from seriousiness and rationality and toward crude schlock that’s remindful of a schoolyard taunt.