Reinstate Louisiana’s Energy Social Contract – End All Severance Tax Exemptions [OPINION]
Louisiana has had a severance tax since 1910. The idea of the severance tax is rooted in the idea of the commons — those assets, features, amenities which are, to some degree, shared in common by all people.
In the book Beautiful Trouble, Peter Barnes writes that the commons exists in three broad categories: “natural wealth (air, water, seeds, ecosystems, other species); community wealth (streets, parks, the Internet, money, social insurance); and cultural wealth (music, art, science, open-source software). All of these are gifts we share and are obliged to preserve for others and for future generations.”
Severance taxes are a legal expression of the commons — that is, the public call on some share of the mineral wealth when those resources are converted to private wealth — when our call on that shared wealth is severed.
Severance tax revenue has been the basis for the feel good story that the oil and gas industry likes to tell about its contributions to Louisiana. Severance tax revenues built the roads, bridges, schools, hospitals and other public institutions in this state. For our state to regain its fiscal equilibrium and to be able to once again respond to our legitimate shared needs, the severance tax must be fully collected. When we do not collect severance tax, we shortchange ourselves and our future.
Severance taxes are in place in at least 35 states. As a resident of Lafayette, I pay severance taxes in Wyoming when I use electricity from Lafayette Utilities System. Wyoming coal is used to power the Rodemacher generating plant at Boyce that LUS co-owns with CLECO. Wyoming has a severance tax on coal. Lafayette residents and CLECO customers are funding public investments in Wyoming when we consume electricity, but — for example — Louisiana’s severance tax exemption on fracking has robbed Louisiana of the same opportunity to invest in ourselves and the effects are telling.
The Severance Tax Exemption on Fracked Oil & Gas
In Edwin Edwards’ final term as governor (the Golden Age of modern Louisiana politics in the wake of the Fall of the Jindal House of Cards), the oil and gas industry convinced the Governor and the Legislature to create a technology-specific severance tax exemption.
The technology was directional drilling and hydraulic fracturing (“fracking”). The exemption was sold as an incentive for the industry to try what it claimed to be an experimental extraction technology. The consent was quick and — since 1994 — Louisiana has exempted from the state’s severance tax oil and gas extracted from Louisiana land wells. The severance tax on oil is 12.5% of the value of the oil when it is extracted. The severance tax on natural gas is 16.4¢ per thousand cubic feet of natural gas.
Haynesville Ended Fracking's Experimental Status
If by 2005 there was any doubt remaining that directional drilling and fracking were proven technologies, the Haynesville Trend settled the question.
The Haynesville Trend is not the largest natural gas shale field in the country but it is the most productive. More than 2,000 wells have been drilled there during the boom that started in 2007. The Haynesville Trend is primarily a “dry” field in that it has produced very little oil in any of those wells.
Under the state’s severance tax exemption on fracking, Louisiana got very little in severance tax revenue from the massive productivity of the Haynesville Trend. Under the terms of the law, the exemption can exists for up to two years (or until the well is paid for, which ever comes first).
The Louisiana Department of Revenue, in its “Tax Exemption Budget 2012-2013,” reports that Louisiana lost out on $2,500,000,000 in severance tax dollars over the past five years, which includes years of peak activity in the Haynesville Trend.
Tax Exemptions Are a Form of Spending
Every year, the Department of Revenue is required by law to produce “The Tax Exemption Budget.” In that document, the department itemizes the cost of tax exemptions to the state. It operates from the assumption that if a tax is on the books, that is revenue the state would collect were the tax not exempted:
“For purposes of this report, the term tax exemption is used to describe all exemptions, exclusions, deductions, credits, rebates, preferential tax treatments, and tax deferrals. Tax exemptions are tax dollars that are not collected and results in a loss of state tax revenue available for appropriation. In this sense, the fiscal effect of tax exemptions is the same as a direct fund expenditure.”
Granting an exemption is state government saying, ‘even though you technically owe us that money, we’ve decided we don’t need it and would prefer that you kept the money.’
During the five budget years of Bobby Jindal’s reign, the Governor has granted so many exemptions that state government is no longer able to fund essential services. State support for higher education funding has been cut by 80% — and tuition and fees on students and their families have been increased to replace that support. Yet, the state continues to tell landowners and energy companies (the millionaires and billionaires from last year’s legacy lawsuit fight now reunited against the general public) we don’t need those severance tax dollars, you keep them.
Over the past five budgets, Governor Jindal sometimes with the help of the Legislature has slashed programs in behavioral health, public health, Medicaid services, LSU’s hospitals, funding for programs that aid the victims of domestic violence, behavioral health services for the developmentally disabled, right down the line. These cuts have come in the form of cuts in the hundreds of thousands, and even millions. The explanation from the Jindal administration is to lament the cuts ‘due to tough times.’
But, if you are willingly giving away $4.8 Billion dollars in tax exemptions — which the Department of Revenue says we do — then you are not in tough times. You are in a self-inflicted crisis that is the product of policy choices being made by the Governor and the Legislature. Severance tax exemptions, though, because derive from the idea of the commons — of a shared claim to a piece of the state’s mineral wealth — are the worst offenders of all because they take from all of us and undercut our ability to invest in ourselves.
The severance tax is supposed to be our insurance policy to help us not only build our state, but help us thorugh tough times and tight spots. Exempting any severance tax robs our core institutions of the financial protection they need in order to sustain our state through most economic circumstances.
It is morally indefensible to maintain the severance tax exemption on any minerals in Louisiana because of the corrosive harm providing that exemption inflicts on all of us, in addition to undermining the core belief in the idea of the commons and of shared resources.
It’s About the Future
It’s no use crying over already exempted taxes — and the severance tax exemption on fracking has already cost the state billions of dollars. The argument against exempting severance taxes is really about the future of the state and our mineral wealth.
The Tuscaloosa Marine Trend contains an estimated 7 BILLION barrels of oil in shale in a field that extends across the Florida Parishes and into Central Louisiana. That oil is the primary difference between the Haynseville Trend and the Tuscaloosa Marine Trend. Those of us who are concerned about the environmental implications of fracking insist that where it is allowed to occur, the severance tax on the resulting minerals must be paid, if for no other reason than to help mitigate the damage fracking inflicts on the environment during the drilling and extraction processes.
Re-instating the severance tax on all mineral extraction reasserts the claim of the commons on those natural resources. This is an important fact when one considers what passes for modern conservatism in this country is an attack on the notion of the commons, on the very idea that there is a public interest, and that the public interest is superior to the private interests at whose alter conservatives worship.
Collecting all severance tax revenue due the state reasserts our shared claim (modest though it is) on those commonly owned assets. Getting that money and reasserting the claims of common ownership will go a long way towards fixing what Louisiana voters now recognize has gone wrong here in recent years.