Shannon: No Appetite To Curb Energy Industry Tax Breaks

Oklahoma’s panoply of tax credits will be one of the major items of investigation this summer, House Speaker T.W. Shannon said, but he doesn’t see an appetite in the House to curb tax breaks for the energy industry, which he said is fueling Oklahoma’s economy.

Shannon-R-Lawton, said state tax credits – along with the state’s unfunded pension liability and schools safety and emergency preparedness – are at the top of the list of issues under study this summer.

The House passed criteria last session, he said, as well as several bills to eliminate some credits, but agreement has been difficult to reach.

“It’s always tough” to deal with tax credits because each of them has a constituency, he said, but legislators have a responsibility to use tax revenue wisely and eliminate tax breaks that don’t produce the desired results.

On Wednesday, Secretary of Finance and Revenue Preston Doerflinger released figures that show tax rebates and refunds for drilling totaled $173 million in the fiscal year that ended June 30, while state tax credits delayed for two years during the economic downturn cost the state an additional $148 million during the same fiscal year. Initially predicted to cost the state about $150 million over three years, the credits-including those for drilling deep and horizontal wells – have cost Oklahoma that much alone in the first year of payback. The incentives were initially put in place in the 1990s, when horizontal drilling was experimental and very costly. But now the practice is so commonplace that nearly all new oil and gas wells qualify for the tax incentives.

“Any fiscally responsible policymaker needs to seriously consider at what level government should incentivize something that is now standard practice,” Doerflinger said. “It’s not responsible for government to give money away as an incentive if no incentive is needed.”

On Thursday, the chairman of a legislative committee created to examine state tax credits and other incentives said it is time for state leaders and Oklahoma-based oil and gas producers to work together to determine what fair tax incentives should be granted to energy producers.

“I share the concerns voiced this week by Secretary Preston Doerflinger,” state Rep. David Dank, R-Oklahoma City, said” in a news release. “As he noted, the gross production tax incentive is costing the state treasury more than $200 million per year, and it is time to examine that. What I would propose is that we work closely with energy companies that make their home in Oklahoma to determine what is fair for all, and most of all to assure that Oklahoma-based companies come first in any decisions we make.”

Dank said it is time for a “meeting of the best minds” on state energy policy, including state leaders and representatives from Oklahoma-based energy companies like Devon, Chesapeake, Continental, Kaiser, SandRidge and others.

But Shannon said the fact that the incentives are being used shows that they’re having the desired effect. Oil and gas companies have plenty of options for where they will drill, he said, and Oklahoma has to stay competitive, noting that Pennsylvania -which has seen an energy boom – has no severance tax at all.

Shannon said Oklahoma’s prosperity is tied to the oil and gas industry – which he said provides 15 percent of state tax revenues and has been a key to weathering the national recession – and he doesn’t want oil and gas companies to wonder whether they should invest in Oklahoma.

“The worst thing that we can do is create uncertainty in the marketplace,” he said. “I think we had better proceed very, very cautiously before we kill the goose that lays the golden egg,” he said. Examining the oil and gas tax credits is “certainly not something that’s on my agenda, not on the front burner for me,” he said, and he believes most House members feel the same way.