Late-session $115.6 million cut by GOP to K-12 funding bill finances top-heavy cuts to the corporate and personal income tax

Defeat of numerous Dem-NPL tax bills shows majority’s skewed priorities on tax relief

 

(BISMARCK, N.D.) – Ahead of a press conference today by GOP legislators and Governor Jack Dalrymple at which tax relief will be touted, Dem-NPL legislators pointed to a significant, late-session cut to the K-12 funding bill used by the GOP to finance reductions in corporate and personal income taxes that will be of little benefit to North Dakota families.

House and Senate conferees recently stripped $115,660,000 from SB 2031, which funds primary and secondary education in North Dakota and provides ongoing property tax relief in the form of state payments to school districts. The GOP cut to this bill, which passed the Senate over objections by Democrats Monday, essentially finances the $108 million in cuts to corporate and personal income taxes contained in SB 2349.

“The priority should be property tax relief, and I am concerned that reduction to the K-12 funding bill is a step away from a focus on cutting property taxes,” said Senate Minority Leader Mac Schneider, D-Grand Forks. “The $108 million in corporate and income tax cuts really is a missed opportunity to provide $108 million in property tax relief, which North Dakotans have made clear is their preference when it comes to cutting their tax bill.”

According to an analysis from the North Dakota Tax Department, over 170,000 of the 470,000 income taxpayers in North Dakota pay less than $100 in income taxes. A family with a household income in the $50,000 range, for instance, would see less than $30 in income tax relief under SB 2349. On the other hand, corporate income tax collections would be reduced by approximately $21 million under the bill.

In a contrast to the GOP supermajority, Dem-NPL legislators have been focused on property tax relief since day one of the session. Senator Dotzenrod was the prime sponsor of SB 2307, which would have exempted $50,000 or 50%, whichever is less, of the value of a primary residence from property taxation. The bill was amended to extend the 12 percent state-paid credit enacted last session and passed the Senate in that form. While the bill was defeated in the House on March 23, the 12 percent state property credit was successfully passed as part of SB 2005.

Perhaps most telling of the flawed priorities of the GOP supermajority is the rejection of a property tax credit for those that rent their homes, renters’ tax credit for veterans, a sales tax exemption for clothing, eliminating sales taxes at thrift stores, and exempting Social Security benefits from income taxation.

“These bills would have provided meaningful relief to thousands of North Dakotans. $900 in renters relief is school supplies for kids, it is a repair on a family vehicle, and it’s a couple trips to the grocery store,” Representative Kenton Onstad, D-Parshall, said. “The majority should ask itself why it is continuing to tax Social Security benefits and levy sales taxes at thrift stores. Our friends in the majority have demonstrated seriously misplaced priorities on tax relief this session.”

Of course, the GOP supermajority also ramrodded through a 23 percent cut to the oil extraction tax in less than a natural week during the waning days of the session by passing HB 1476. The bill is presently before Governor Dalrymple for consideration.

“We respectfully ask the governor to veto the massive cut to the oil extraction tax,” Schneider added. “We know that the majority didn’t cut property taxes by 23 percent this session. Beyond that, the lost revenue from the GOP oil extraction tax cut threatens future property tax relief and a whole host of priorities going forward.”

###

[1] SB 2307 as introduced

2 SB 2307 as passed in the Senate

3 SB 2005 as passed

4 SB 2230

5 HB 1262

6 SB 2223

7 HB 1327

8 SB 2305

Caucus Talk 4.27.15

Freshmen
Four incoming members into both our caucus and the Blonde Caucus.

We are nearing the end of what was—up until Day 70 of 80—a relatively smooth legislative session in the House, with an emphasis on relative, as the supermajority once again pushed over the last few months an agenda that is out of step with many, if not most, North Dakotans. And, as we all know, Day 70 is important because that was when Rep. Al Carlson decided that he needed to cram down our throats a massive tax cut for oil companies that will severely and negatively impact our state from now until the last drop of oil is extracted from North Dakota.

While your Democratic-NPL House Caucus had to fight tooth and nail, for example, over $50,000 to benefit our veterans that were harmed by Agent Orange, or $160,000 for spouses of veterans, Carlson and his caucus were euphoric to pass a bill that will cost North Dakota nearly $5 billion in revenue over the next ten years (yes, that is billion with a B). With the same euphoria that Rep. Carlson and his Republican colleagues passed the bill, we look forward to taking this issue to voters over not only the next eighteen months, but for years to come. The contrast in priorities between your Dem-NPL House Caucus and our Republican counterparts could not be clearer, and we’re confident that the voters will agree.

Whether it was protecting our LGBT family and friends from discrimination, addressing pipeline and rail safety, closing the gender wage gap, or improving workplace leave policies for pregnant women and public employees, we were proud of the priorities we fought for during the session. We may not have won every battle, but we started and continued the conversations that are required in order to move our state forward.

Consider, for a moment, rail safety. After the accidents in Casselton, Larimore, and across the country, one would think that improved safety is one thing we can all agree on, regardless of party affiliation. That’s why our caucus, led on this issue by Rep. Ron Guggisberg, D-Fargo, has been doing everything we can to allocate approximately $600,000 for two rail inspectors and a new rail safety program under the Public Service Commission. To put that number in perspective, Rep. Carlson’s massive oil extraction tax cut will cost the state approximately $800,000 per day over the next ten years. We’re hoping to one day discover why it is that we cannot use less than one day’s worth of tax cuts to primarily out-of-state oil companies to pay for increased rail safety.

These are the questions we’ll be asking as we leave Bismarck and back to our respective districts. We think it’s fair that we hold accountable both our friends across the aisle for the votes they’ve taken, as well as ask where those Republicans stand who run for office with the hope of joining Carlson’s caucus next session.

Thanks for following along with us the progress (or lack thereof) that the House of Representatives has made during the 64th Legislative Assembly. It’s a pretty safe bet that you’ll be hearing plenty more from us as we transition out of Bismarck and highlight the contrast in priorities between our caucus and our friends across the aisle. Be sure to check for updates on our blog as well as on our Facebook page.

Tags : , ,

Capitol Letters: Vol. 2 Week 16

Rep. Glassheim shares a laugh with Rep. Onstad & Rep. Mock.
Rep. Glassheim shares a laugh with Rep. Onstad & Rep. Mock.

Last week at this time, we had just learned of a delayed bill introduced by Representative Al Carlson to significantly cut the oil extraction tax. Today, over strong objections by Dem-NPL Legislators, that bill, HB 1476, is now on its way to Governor Dalrymple’s desk. Over the span of about five working days, in an abusive departure from normal legislative procedure, the Republican supermajority crammed through a 23% cut to the oil extraction tax that stands to cost the people of North Dakota billions in the coming decade alone.

We here in the Dem-NPL Caucuses are a bit bleary-eyed, but unbowed, after the fight. And we fought like hell. As disappointed as we are with the bill’s passage, your Capitol Letters co-authors couldn’t be prouder of our caucus members. They stood and delivered with conviction, tenacity, and appropriately-placed outrage. To any objective observer, it couldn’t be clearer which legislators had the interests of the public at heart.

But back to that bleary-eyed thing. We’re going to depart from our normal Capitol Letters format this week, in part because the juices have been nearly squeezed out of the creative orange, but also because we want you to know exactly what we said about the oil extraction tax cut in HB 1476. So we bring you the remarks of a Capitol Letters co-author below.

We’ll be back to wrap up the session next week. But in the meantime, keep the faith. And always — always — keep up the fight. (And like us on Facebook.)

Floor remarks of North Dakota Senate Minority Leader Mac Schneider on HB 1476

Bismarck – On Thursday, April 23, the North Dakota Senate debated HB 1476, legislation which would permanently cut the oil extraction tax by 23%. The following are the remarks of North Dakota Senate Minority Leader Mac Schneider as prepared for delivery on the Senate floor:

Mr. President, last Thursday we considered whether to pass a bill containing $3 million for early childhood education grants. That was one week ago, but that bill was first introduced on January 8. It had a hearing in the Senate on January 13. It was referred to the Appropriations Committee and had a hearing there on February 11. We debated it on the floor on February 25. It crossed over to the House on March 3. It had a committee hearing over there on St. Patrick’s Day and was then considered by House Appropriations on March 25. After that, it passed the House on April 15. It finally got back to us last Thursday. That was the serious scrutiny the pre-K bill received: Consideration by four committees. Debate over the course of three months. For three million dollars.

Last Thursday, Mr. President, this bill didn’t exist. I literally have leftovers in my fridge that are older than this bill. And there’s nothing funny about that.

This bill doesn’t appropriate three million dollars. It affects how we tax a critical industry in our state’s economy. It affects the livelihood and well-being of thousands of North Dakota residents and a sovereign nation that exists within our state’s borders. It affects a tax that was put in place by a vote of the people themselves. And it deeply affects future generations of North Dakotans — those who will be living in our state long-after the last drop of oil has been profitably drawn from the ground.

To make a decision of this magnitude over the course of five working days is legislative malpractice. The heart of this bill is a 23% permanent reduction to the oil extraction tax, and never once during the legislative ramrodding did the majority take testimony from the Tax Department or the Department of Mineral Resources regarding the long-term cost of the 23% cut to the extraction tax in outlying biennia.

Mr. President, how could we possibly shove this bill through the Legislature in less than a week without considering that long-term impact? The majority leader is my friend. And friends can tell friends when they’re doing something wrong. The cramdown of this bill through the process is wrong. The process this bill followed is more arrogant and cavalier than anything I’ve seen in the Senate during my four sessions. It is absolutely out of character with the traditions of this body.

And when you have a ramrodding of this nature, you make mistakes. Like yesterday, when the Finance and Tax Committee forgot to vote on the bill. Oops. Some of the members of the majority had a good laugh about it on the floor this morning. But mistakes on this bill affect billions of dollars. They affect people yet unborn. This bill is “haste makes waste” in action on a grand scale.

So let’s do what the committees didn’t do in their four working days on this bill. Let’s look — with the best evidence possible — at the long-term loss of revenue from this 23% cut to the extraction tax.

Using projections from the Department of Mineral Resources, the Energy Information Administration, and the Chicago Mercantile Exchange Group regarding price and production, the 23% cut to the extraction tax stands to cost the people of our state over $4 billion dollars during the next ten years under current projections. Pause to contemplate that number.

But these are just projections, I’ve heard. Projections can change. To that I say, “Where are your numbers?” How much do you reasonably believe a 23% reduction in the extraction tax will cost the people of North Dakota over the life of the world-class Bakken formation? There are no projections from the majority. In fact, they have affirmatively done their level best to hide the long-term cost of this bill from the public.

A similar cut to the extraction tax was proposed last session, Mr. President, and I think a discussion of the projected revenue losses from that bill is highly relevant to consideration of this legislation.

Back in 2013, the Legislative Council estimated we could lose $595 million from a 30% cut to the extraction tax in five years. The Tax Department said it would be over a billion in a half decade. We pointed to those numbers to stress the high cost of the extraction tax cut, one just slightly larger than the cut we’re voting on today.

I now want to apologize for how far off those numbers were, Mr. President. In fact, they weren’t even close to accurate. The actual lost revenue from the 30% cut to the extraction tax proposed last session would have been — in reality — over $876 million and counting this biennium.

So yes, projections aren’t always accurate. Sometimes, they’re too conservative. This bill might cost an arm and a leg. Or just an arm. Or maybe an arm and two legs. Whatever the case, it cannot be reasonably disputed that the cut to the extraction tax in this bill is a multi-billion dollar proposition.

So that’s the extraction tax side of the equation, Mr. President, but let’s take a look at the bigger picture and include the 5% production tax and how it relates to this bill. During campaign season, it was said that oil-impacted communities should get 60% of the production tax to address needs as they arise.  But that promise has been walked back.

Now, the majority says that the local share of the production tax should be 30% because the state needs the rest. And today, the Senate seems poised to reduce 23% of the revenue the state would otherwise receive on the extraction tax side of the ledger.

If so, a line can sensibly be drawn to this conclusion: The majority is taking away a promised 60% share of the production tax from western North Dakota with the right hand and — with this bill — giving away a 23% cut to the extraction tax with the left.

I do not represent western North Dakota, Mr. President. But I care about it deeply. I will not tell the locally-elected leaders who are daily struggling to keep up with the challenges of growth — rutted roads, housing, crowed schools — how to feel about the state keeping the bulk of the production tax while slashing the extraction tax. But I know how I’d feel. I’d be outraged.

So this bill relates directly to that broken promise regarding the production tax. But there’s another broken promise that speaks squarely to the insidiousness of this bill. The majority leader of the other chamber publicly stated last fall that there was “absolutely no intention[]” of looking at cutting the extraction tax.

But here we are, on day 74, looking at cutting the extraction tax. So let’s look at the professed reasons for raising this multi-billion dollar, intergenerational issue on day 70 of the 80 day legislative session.

First, that this “fixes” the trigger. Hardly. In the near term, this bill leaves in place the trigger during the months when it is most likely to go into effect. In the outlying months when the trigger is least likely to be activated or remain active, it trades the trigger for a permanent, 23% cut to the extraction tax. In the long-term, it creates a “reverse trigger” with a 6% extraction tax rate when oil reaches the $90 per barrel for three months.  In other words, we’ll still be holding our breath on the trigger in the coming months while speaking about the “reverse trigger” with our constituents and perfect strangers for years to come.

Second, is that this bill is a hedge or some kind of insurance policy against low oil prices. If it is insurance, it is the worst and least affordable insurance product of all time. No one in this body would permanently trade 23% of their future income to guard against a possible, temporary loss of income (as could occur if the trigger goes into effect for 11 months as Moody’s predicts or 5 months according to current projections in the futures market). I would not want to be the agent tasked with selling that insurance policy, yet the majority seems poised to take that deal here today.

Third, is that this will result in revenue stability. False. Completely untrue. Wrong. Even with a flat tax — which this isn’t, because of the new “reverse trigger” concept — revenue will rise and fall with the price of this volatile commodity. As an example, take the WTI price of oil last March — $105.34 — with the WTI price of oil this March — $50.43. A five percent tax (or 6% with application of the “reverse trigger”) on North Dakota crude at similar prices would obviously result in vastly different tax collections. This bill will not bring revenue stability. Only stable oil prices can do that.

Fourth, is that the so-called predictability of this bill will encourage production during downturns like the one we are experiencing now. How could that conceivably be? How could taking away a tax incentive during times of sustained low oil prices in exchange for a dramatic cut to the extraction tax when prices are at $89 a barrel reasonably encourage production when times are tough for the industry? That professed rationale makes no sense.

As we did during the rushed committee process, we will offer solutions on the floor to the trigger issue and leave some downside-incentives in place to encourage continued investment by the oil industry during tough times.

To be clear, that industry has positively transformed North Dakota’s economy through innovation and investment leading to the profitable recovery of our natural resources. And, very thankfully, it has absolutely thrived under the 6.5% extraction tax, making our state the number two producer of oil in the country with our existing tax structure.

So what is the real purpose of this bill? If you talk long enough and listen clearly enough, flecks of truth come out. And it has nothing to do with a trigger. “We’re still going to have a lot of money.” “How much money do we need?” “If we don’t cut this tax, we’ll just spend more.”

How shortsighted. How ideological. Mr. President, we are the trustees of this one-time harvest of natural resource revenue. It must be made to benefit future generations of North Dakotans.

This bill does the opposite. What will the impact of this bill be on our Legacy Fund? No testimony on this point was received. What will the effect be on water projects funded through the Resources Trust Fund? No clue. How will we continue to fund property tax relief with 23% less in extraction tax revenue in the long term? If we pass this bill, we’re saying “that’s for someone else to figure out down the road.”

On the other hand, the benefit of perfect hindsight will make the effect of this bill absolutely clear. Working a 23% reduction in extraction tax revenue backwards, the people of North Dakota will know exactly what their lawmakers gave away as part of this bill. For the sake of perspective, 23% of the oil extraction tax revenue collected thus far this biennium is a little over $671 million dollars.

Imagine if circumstances materialize whereby the trigger wouldn’t have gone into effect. The 23% cut to the extraction tax in this bill still goes into effect no matter what. Now imagine further North Dakotans filling up their tanks again at $4 a gallon. In roll the numbers: $500 million in lost extraction tax revenue in two years. Or maybe it will be as low as $350 million in two years. And if anything like that scenario becomes reality, I’ll wager this bill might just be the talk of the town across the entire state of North Dakota for quite some time.

Mr. President, I ask my colleagues in this body to consider one final thought with regard to this bill: What have we left behind before passing a cut to the extraction tax? Have we done what Wyoming has done, which used its natural resource revenue to permanently endow college scholarships? Or Texas, which created a Permanent University Fund to finance higher education?

Mr. President, let’s keep our eyes on the future. Please vote no on this bill.

###

Tags : , , ,

Explanation of the accurate, current, objective information regarding HB 1476

This memorandum uses best evidence from the Department of Mineral Resources, Energy Information Administration, and Chicago Mercantile Exchange Group regarding price and production of oil to reasonably estimate the near-term and long-term cost of HB 1476, which as amended by the Senate contains a permanent 23% cut to the oil extraction tax (i.e., taking the extraction tax rate from 6.5% under current law to 5% if oil does not exceed $90 per barrel for any consecutive three-month period, in which case the rate would be 6%) and removes the so-called “trigger” incentive.

Fiscal effects of HB 1476 during the 2015-2017 biennium:

While the fiscal note associated with HB 1476 presently shows a positive fiscal impact for the first biennium, it relies on one questionable assumption: That low oil prices would cause the “big” trigger incentive to be in effect for 11 months, triggering “on” in June of this year and expiring in May 2016 as predicted by the March revenue forecast prepared by Moody’s Analytics. This scenario is represented in the blue line in the graph below.

However, much has changed in the oil market since the March revenue forecast was delivered. A more current look at the future price of oil as projected by the Chicago Mercantile Exchange demonstrates that oil prices are expected to result in the trigger going “on” in June of this year and ending in November of 2016 — the statutory minimum period of five months. This scenario is represented in the orange line in the graph below.

This results in a net loss of revenue in the first biennium of approximately $484 million. Of course, the trigger may never have gone into effect if the price of WTI stays at present levels through the month of May, in which case the loss of revenue during the 2015-2017 biennium under HB 1476 would be even deeper.

On the other hand, the 23% cut to the extraction tax becomes effective no matter what. As demonstrated in the section following the graph below, a profound loss of extraction tax revenue occurs across the biennia.

Figure 1 Cumulative Change In Revenue on HB 1476 W/Cook Amendments
Figure 1 Cumulative Change In Revenue on HB 1476 W/Cook Amendments

Fiscal effects of HB 1476 throughout the next decade:

Based on production projections from the state’s Department of Mineral Resources and futures prices from the Energy Information Administration, the 23% cut to the extraction tax would result in a $4.7 billion loss under this scenario.

Graph 3

The cumulative loss of oil extraction tax revenue under these projections can be graphed as follows:Graph 4

Fairly assuming no increased revenue from enhanced oil recovery or other factors not taken into account by the DMR, EIA, or CME Group projections, the proposed, permanent 23% cut to the extraction tax in HB 1476 would result in loss of untold billions of dollars of revenue over the life of the Bakken.

Floor remarks of North Dakota Senate Minority Leader Mac Schneider on HB 1476

(BISMARCK, N.D.)Today, the North Dakota Senate debated HB 1476, legislation which would permanently cut the oil extraction tax by 23%. The following are the remarks of North Dakota Senate Minority Leader Mac Schneider as prepared for delivery on the Senate floor:

Mr. President, last Thursday we considered whether to pass a bill containing $3 million for early childhood education grants. That was one week ago, but that bill was first introduced on January 8. It had a hearing in the Senate on January 13. It was referred to the Appropriations Committee and had a hearing there on February 11. We debated it on the floor on February 25. It crossed over to the House on March 3. It had a committee hearing over there on St. Patrick’s Day and was then considered by House Appropriations on March 25. After that, it passed the House on April 15. It finally got back to us last Thursday. That was the serious scrutiny the pre-K bill received: Consideration by four committees. Debate over the course of three months. For three million dollars.

Last Thursday, Mr. President, this bill didn’t exist. I literally have leftovers in my fridge that are older than this bill. And there’s nothing funny about that.

This bill doesn’t appropriate three million dollars. It affects how we tax a critical industry in our state’s economy. It affects the livelihood and well-being of thousands of North Dakota residents and a sovereign nation that exists within our state’s borders. It affects a tax that was put in place by a vote of the people themselves. And it deeply affects future generations of North Dakotans — those who will be living in our state long-after the last drop of oil has been profitably drawn from the ground.

To make a decision of this magnitude over the course of five working days is legislative malpractice. The heart of this bill is a 23% permanent reduction to the oil extraction tax, and never once during the legislative ramrodding did the majority take testimony from the Tax Department or the Department of Mineral Resources regarding the long-term cost of the 23% cut to the extraction tax in outlying biennia.

Mr. President, how could we possibly shove this bill through the Legislature in less than a week without considering that long-term impact? The majority leader is my friend. And friends can tell friends when they’re doing something wrong. The cramdown of this bill through the process is wrong. The process this bill followed is more arrogant and cavalier than anything I’ve seen in the Senate during my four sessions. It is absolutely out of character with the traditions of this body.

And when you have a ramrodding of this nature, you make mistakes. Like yesterday, when the Finance and Tax Committee forgot to vote on the bill. Oops. Some of the members of the majority had a good laugh about it on the floor this morning. But mistakes on this bill affect billions of dollars. They affect people yet unborn. This bill is “haste makes waste” in action on a grand scale.

So let’s do what the committees didn’t do in their four working days on this bill. Let’s look — with the best evidence possible — at the long-term loss of revenue from this 23% cut to the extraction tax.

Using projections from the Department of Mineral Resources, the Energy Information Administration, and the Chicago Mercantile Exchange Group regarding price and production, the 23% cut to the extraction tax stands to cost the people of our state over $4 billion dollars during the next ten years under current projections. Pause to contemplate that number.

But these are just projections, I’ve heard. Projections can change. To that I say, “Where are your numbers?” How much do you reasonably believe a 23% reduction in the extraction tax will cost the people of North Dakota over the life of the world-class Bakken formation? There are no projections from the majority. In fact, they have affirmatively done their level best to hide the long-term cost of this bill from the public.

A similar cut to the extraction tax was proposed last session, Mr. President, and I think a discussion of the projected revenue losses from that bill is highly relevant to consideration of this legislation.

Back in 2013, the Legislative Council estimated we could lose $595 million from a 30% cut to the extraction tax in five years. The Tax Department said it would be over a billion in a half decade. We pointed to those numbers to stress the high cost of the extraction tax cut, one just slightly larger than the cut we’re voting on today.

I now want to apologize for how far off those numbers were, Mr. President. In fact, they weren’t even close to accurate. The actual lost revenue from the 30% cut to the extraction tax proposed last session would have been — in reality — over $876 million and counting this biennium.

So yes, projections aren’t always accurate. Sometimes, they’re too conservative. This bill might cost an arm and a leg. Or just an arm. Or maybe an arm and two legs. Whatever the case, it cannot be reasonably disputed that the cut to the extraction tax in this bill is a multi-billion dollar proposition.

So that’s the extraction tax side of the equation, Mr. President, but let’s take a look at the bigger picture and include the 5% production tax and how it relates to this bill. During campaign season, it was said that oil-impacted communities should get 60% of the production tax to address needs as they arise. But that promise has been walked back.

Now, the majority says that the local share of the production tax should be 30% because the state needs the rest. And today, the Senate seems poised to reduce 23% of the revenue the state would otherwise receive on the extraction tax side of the ledger.

If so, a line can sensibly be drawn to this conclusion: The majority is taking away a promised 60% share of the production tax from western North Dakota with the right hand and — with this bill — giving away a 23% cut to the extraction tax with the left.

I do not represent western North Dakota, Mr. President. But I care about it deeply. I will not tell the locally-elected leaders who are daily struggling to keep up with the challenges of growth — rutted roads, housing, crowed schools — how to feel about the state keeping the bulk of the production tax while slashing the extraction tax. But I know how I’d feel. I’d be outraged.

So this bill relates directly to that broken promise regarding the production tax. But there’s another broken promise that speaks squarely to the insidiousness of this bill. The majority leader of the other chamber publicly stated last fall that there was “absolutely no intention[]” of looking at cutting the extraction tax.

But here we are, on day 74, looking at cutting the extraction tax. So let’s look at the professed reasons for raising this multi-billion dollar, intergenerational issue on day 70 of the 80 day legislative session.

First, that this “fixes” the trigger. Hardly. In the near term, this bill leaves in place the trigger during the months when it is most likely to go into effect. In the outlying months when the trigger is least likely to be activated or remain active, it trades the trigger for a permanent, 23% cut to the extraction tax. In the long-term, it creates a “reverse trigger” with a 6% extraction tax rate when oil reaches the $90 per barrel for three months. In other words, we’ll still be holding our breath on the trigger in the coming months while speaking about the “reverse trigger” with our constituents and perfect strangers for years to come.

Second, is that this bill is a hedge or some kind of insurance policy against low oil prices. If it is insurance, it is the worst and least affordable insurance product of all time. No one in this body would permanently trade 23% of their future income to guard against a possible, temporary loss of income (as could occur if the trigger goes into effect for 11 months as Moody’s predicts or 5 months according to current projections in the futures market). I would not want to be the agent tasked with selling that insurance policy, yet the majority seems poised to take that deal here today.

Third, is that this will result in revenue stability. False. Completely untrue. Wrong. Even with a flat tax — which this isn’t, because of the new “reverse trigger” concept — revenue will rise and fall with the price of this volatile commodity. As an example, take the WTI price of oil last March — $105.34 — with the WTI price of oil this March — $50.43. A five percent tax (or 6% with application of the “reverse trigger”) on North Dakota crude at similar prices would obviously result in vastly different tax collections. This bill will not bring revenue stability. Only stable oil prices can do that.

Fourth, is that the so-called predictability of this bill will encourage production during downturns like the one we are experiencing now. How could that conceivably be? How could taking away a tax incentive during times of sustained low oil prices in exchange for a dramatic cut to the extraction tax when prices are at $89 a barrel reasonably encourage production when times are tough for the industry? That professed rationale makes no sense.

As we did during the rushed committee process, we will offer solutions on the floor to the trigger issue and leave some downside-incentives in place to encourage continued investment by the oil industry during tough times.

To be clear, that industry has positively transformed North Dakota’s economy through innovation and investment leading to the profitable recovery of our natural resources. And, very thankfully, it has absolutely thrived under the 6.5% extraction tax, making our state the number two producer of oil in the country with our existing tax structure.

So what is the real purpose of this bill? If you talk long enough and listen clearly enough, flecks of truth come out. And it has nothing to do with a trigger. “We’re still going to have a lot of money.” “How much money do we need?” “If we don’t cut this tax, we’ll just spend more.”

How shortsighted. How ideological. Mr. President, we are the trustees of this one-time harvest of natural resource revenue. It must be made to benefit future generations of North Dakotans.

This bill does the opposite. What will the impact of this bill be on our Legacy Fund? No testimony on this point was received. What will the effect be on water projects funded through the Resources Trust Fund? No clue. How will we continue to fund property tax relief with 23% less in extraction tax revenue in the long term? If we pass this bill, we’re saying “that’s for someone else to figure out down the road.”

On the other hand, the benefit of perfect hindsight will make the effect of this bill absolutely clear. Working a 23% reduction in extraction tax revenue backwards, the people of North Dakota will know exactly what their lawmakers gave away as part of this bill. For the sake of perspective, 23% of the oil extraction tax revenue collected thus far this biennium is a little over $671 million dollars.

Imagine if circumstances materialize whereby the trigger wouldn’t have gone into effect. The 23% cut to the extraction tax in this bill still goes into effect no matter what. Now imagine further North Dakotans filling up their tanks again at $4 a gallon. In roll the numbers: $500 million in lost extraction tax revenue in two years. Or maybe it will be as low as $350 million in two years. And if anything like that scenario becomes reality, I’ll wager this bill might just be the talk of the town across the entire state of North Dakota for quite some time.

Mr. President, I ask my colleagues in this body to consider one final thought with regard to this bill: What have we left behind before passing a cut to the extraction tax? Have we done what Wyoming has done, which used its natural resource revenue to permanently endow college scholarships? Or Texas, which created a Permanent University Fund to finance higher education?

Mr. President, let’s keep our eyes on the future. Please vote no on this bill.

###

 

 

Statement from Sen. Schneider regarding proposed amendments to HB 1476

(BISMARCK, N.D.) – Following the announcement of a proposed amendment to HB 1476 in the Senate Finance and Tax Committee this morning, Senator Mac Schneider, D-Grand Forks, released the following statement:

I view Senator Triplett’s work with Chairman Cook to amend HB 1476 as an attempt to make an extraordinarily bad bill slightly less bad. The proposed amendment does not come close to making the bill good. To the contrary, the permanent 23 percent cut to the extraction tax contained in the proposed amendment stands to cost our people billions of dollars over the life of the Bakken. The fact that the majority has yet to take testimony from the Tax Department or the Department of Mineral Resources on the long-term loss of revenue that would result from this permanent cut to the extraction tax demonstrates their determination to hide the extraordinarily high cost of this bill from the public. We will offer solutions to address the trigger. Those solutions need not — and should not — include a massive cut to the extraction tax.

###

Analysis of GOP oil tax bill indicates serious risk of dramatic near-term and long-term loss of oil extraction tax revenue if projections hold

Scenario indicates North Dakota could lose nearly $370 million in 2015 biennium, over $6 billion through 2023 biennium under current oil price projections

(BISMARCK, N.D.) – Armed with oil price and production projections obtained from the Department of Mineral Resources, the Energy Information Administration, and the Chicago Mercantile Exchange Group, Dem-NPL legislators today said that the GOP proposal to permanently cut the oil extraction tax by 30 percent in exchange for elimination of the “trigger” incentive results in an unacceptable risk of stunning revenue loss both in the upcoming biennium and in future biennia.

“If the oil price predictions made by the EIA and CME Group prove true, North Dakota will lose hundreds of millions of dollars in the next two years and billions upon billions in between now and 2025,” said Ron Guggisberg, a member of the House Appropriations Committee who gathered the data from the Department of Mineral Resources and worked with Legislative Council to develop the attached memorandum detailing these scenarios.

According to the data from the EIA and CME Group regarding the price of oil, the “trigger” would be in effect from June of 2015 through October of that year. However, the EIA and CME Group data predicts the price of oil will reach average above the trigger price for all five of these months, meaning the trigger incentive would no longer be effective starting in November of 2015.

In other words, this data indicates that the trigger incentive would be in effect only for the statutory minimum of five months.

“Such circumstances can reasonably be called the doomsday scenario for North Dakota,” Guggisberg added. “A permanent 30 percent cut to the extraction tax taking place after what would otherwise represent a relatively minimal five month loss of extraction tax revenue would be disastrous both in the near term and the long term for our state.”

Indeed, under such a scenario (identified as Proposed Scenario 2 in the attached memo), the state would lose an estimated $369,330,000 in the 2015-2017 biennium alone. Because of the permanent nature of the 30 percent cut to the extraction tax, the continued loss of oil extraction tax revenue would be profound: An estimated additional $5,830,350,000 reduction in revenue from the start of the 2017 budget period through the 2023 biennium.

“We understand that predictions change when it comes to a volatile commodity, but rather than being outlandish this nightmare scenario is based on best evidence,” added Senate Minority Leader Mac Schneider. “HB 1476 has been sold as adding predictability regarding oil revenues. This data shows that the bill is a multi-billion dollar crap shoot. It is an unacceptable risk for North Dakota that is being ramrodded through.”

HB 1476 was introduced last Friday by House Majority Leader Al Carlson. On Monday, it was heard by the House Finance and Tax Committee at 9:00 a.m. and was passed by the full House of Representatives that afternoon. The House did not take any testimony from the Tax Department or the Department of Natural Resources regarding the long-term cost of the 30 percent oil extraction tax cut.

###

Comparison of Estimated Oil & Gas Tax Collections – Proposed Scenario Calculations

 

Testimony of Senator Mac Schneider (District 42 – Grand Forks) – House Bill 1476

House Finance and Tax Committee – April 20, 2015

Permanently reducing the oil extraction tax by 30% is an artificial and unwise exchange for elimination of the trigger incentive and stands to potentially cost the people of North Dakota tens of billions of dollars over the life of the world-class Bakken oil play. As an alternative, I would respectfully ask that we instead focus on reforming the trigger incentive in a bipartisan manner during these few remaining days of the session while leaving the oil extraction tax rate alone.

The heart of my concern with this bill is the permanent nature of the 30% cut to the extraction tax and the stunning loss of revenue that the people of this state could see if this reduction becomes effective.

For the sake of perspective, North Dakota collected about $2.14 billion in oil extraction tax revenue during the last (2011-2013) biennium. A 30% reduction of this amount is roughly $642 million. I think we can all agree that would have been a rather staggering loss of revenue for the state in a two year period.

I need to emphasize, that is what a 30% reduction in oil extraction tax revenue would have looked like — in reality — over the course of just two years. The 30% reduction in the extraction tax proposed in this bill, on the other hand, would be ongoing forever and for all time across the biennia.

The details of this bill were made available on Friday and the legislation is now being heard at 9:00 a.m. on Monday. As a result, I have not yet been able to obtain projections of what the proposed 30% cut to the extraction tax could cost our people in the decades to come. I urge the committee to take no action on this bill until the long-term cost of the proposed 30% cut to the extraction tax is thoughtfully considered and debated.

What we do know right now is that Moody’s Analytics estimates the trigger incentive will go into effect in June of this year. Importantly, Moody’s also predicts that the rising price of oil will result in the expiration of the trigger incentive effective May of 2016. That’s 11 months of lost extraction tax revenue on newly-producing wells.

While the lost extraction tax revenue during this 11 month period would be significant — $863 million, according to the Legislative Council — it is temporary. On the other hand, a 30% cut to the extraction tax — which, again, would have resulted in $642 million in lost revenue in only two years — is perpetual. By any fair measure, the cost of the extraction tax reduction over the life of the Bakken would absolutely dwarf the temporary loss of revenue Moody’s and Legislative Council predict will occur if the trigger incentive becomes effective. In fact, the loss of revenue is incomparable.

But there is no reason why we have to accept the false choice between the blunt trigger incentive and a massive cut to the extraction tax. That is why I urge the committee to instead key in on reforming the trigger by providing a meaningful incentive to the industry to continue investing in North Dakota during down times in the market while easing the impact of the incentive on any given two-year state budget. I do not have easy answers on this point, but I know the experienced members of this committee — both Republican and Democratic — can get there with the right focus and will.

Before I conclude, I would like to address some of the professed rationales for this bill and why they fail to justify passage of this legislation in its current form.

First is that this is a “hedge” or insurance policy. Respectfully, I wager there are few people who would permanently trade 30% of their income for the rest of their working lives to guard against a temporary loss of income — especially one anticipated to last 11 months. This bill, with all due respect, would be an extremely unpopular insurance product if sold on the private market.

Second is that this bill will result in revenue stability. Even with a flat tax in place and elimination of the trigger incentive, there would be no revenue stability so long as oil prices remain volatile. Using the WTI price as an example of this point, the difference between 4.5% of $105.34 a barrel (the WTI price on 3/3/14) and 4.5% of $50.43 (the WTI price on 3/3/15) is significant. Similar future volatility in the price of North Dakota crude would continue to cause wildly varying oil extraction tax collections even with a flat tax in place.

Third is that this will result in predictability for the industry. While I will let the industry speak for itself, a concern is that this bill short-changes the people of North Dakota during times where oil may return to prices of $80 per barrel or more while also taking away an incentive when the oil industry is most likely to need one as a “carrot” to continue investing in our state. I understand the forces of geopolitics may be stronger than any incentives we can provide through state tax policy under certain circumstances, but elimination of a tax incentive during troughs in the market price of oil in exchange for a 30% tax cut when prices are at a peak seems to be a strange policy choice. I do not believe any perceived predictability gains from this legislation justify the cost to the state and lost incentive to the industry.

Mr. Chairman, I would also urge the joint committee to consider this final point: The 6.5% extraction tax was put in place by a vote of the people. The trigger incentive, on the other hand, is a creation of the Legislature. There is no reason we need to undo what the people have put in place, especially considering how well the industry has done in North Dakota under the existing 6.5% extraction tax. If the concern is the trigger, then let us focus on that. Respectfully, leave the people’s share of this one-time harvest of natural resource revenue intact for the benefit of future generations.

###

 

 

 

Tags : , ,

Capitol Letters: Vol.2 Week 15

House Transportation Committee shenanigans.
House Transportation Committee shenanigans.

In this week’s Capitol Letters, efforts by Dem-NPL legislators to help those caring for newly-adopted children and a not so new effort adopted by the GOP majority to cut the oil extraction tax by 30%. (Here we go again.)

We bring you these right fights and some head shaking memories of 2013 in this installment of your three-minute update about the goings-on in the North Dakota Legislature.

The Right Fights: Family values in action

For awhile there, “family values” regrettably became a charged term in American politics. We here in the Dem-NPL caucuses, on the other hand, have always believed family values cross party lines, especially when it comes to welcoming adorable little grubs into the family with open arms. Or being there for a loved one receiving Hospice care.

Two of our caucuses’ bright lights, Representative Jessica Haak and Senator Erin Oban, have made it a little bit easier for our state employees to be there for those can’t-miss moments in life. Jess’ bill, HB 1244, allows state employees to use up to a month and a half of accrued sick leave to spend time with a newborn or newly-adopted baby. HB 1387, co-sponsored by Erin, will soon permit state employees to access up to twelve weeks of earned time off to be with family during times of serious illness. Both of these measures were signed into law by Governor Dalrymple this week. (To read a great op-ed from Erin and Jess on this topic, click here.)

While we were proud of our legislators’ work on behalf of North Dakota families, some in the House majority seemed to be stuck in the era of “Father Knows Best.” For instance, Representative Vernon Laning (R-Bismarck) urged his House colleagues to defeat the bill, reasoning (kinda) that he was “fully in favor of the mother getting that much time off, but in the case of the father, I think it’s way too much.”

Unlike the mad men with views dating from the era of Mad Men, Representative Kylie Oversen brought a more modern and sensible approach to the debate. “Every day, in this chamber, we take a vote to excuse our absent members,” said Oversen. “We don’t ask why they’re gone, and we shouldn’t. We allow them to be excused, and we pay them every day that they’re missing, no matter the reason. And I don’t see why we should so heavily question why our state employees need that leave, especially when it come to the birth or adoption of a child.”

The bills may not cost the state much, but to the adopting young couple or the son saying a long goodbye to mom, the outcome is priceless. Supporting families. Helping parents.Supporting those who care for their loved ones. Those are the fights Jess, Erin, and Kylie are fighting. They’re the right fights for North Dakota.

Headshaker of the week: Return of the Oil Extraction Tax Cut

Earlier this week, a Capitol Letters co-author was having a pleasant conversation with one of our talented caucus staff members. During this enjoyable bout of idle chit-chat, the two recounted the palpable difference between the 2013 legislative session and the current one. The former, which was marked by a highly-contentious debate about whether to cut the oil extraction tax by 30%, felt like an 80 day knife fight. The latter, less stab-y.

And then stuff got real.

Today, on day 70 of the 80 day legislative session, Representative Al Carlson — with Senate Majority Leader Rich Wardner in tow — resurrected what is in essence the 2013 GOP plan to cut the oil extraction tax by 30%.

We were quick to respond, and the Bismarck Tribune headline pretty much caught the gist of it: “Proposed flat tax of oil called ‘arrogant power grab[.]’”

We’ve fought this fight before. Against all odds, we won it. We pledge to fight again for the sake of future generations of North Dakotans who are the proper beneficiaries of our state’s one-time harvest of natural resource revenue.

So they might have rebuilt the oil tax Death Star on us. We are, indeed, outnumbered. But we’ve got caucus members who are as nimble as X-Wings and others who are as gritty as Lando Calrissian. And we’re flying straight for the reactor core of that thing.

(When you’re done shaking your head, feel free to read our full statement on this issue below.)

Onward

We’re back next week for what is shaping up to be the most acrimonious days of the session. Until then, keep the faith, keep up the fight, and like us on Facebook.

———-

Statement from Representative Kenton Onstad and Senator Mac Schneider in response to the GOP proposal to permanently reduce the oil extraction tax by 30 percent

(BISMARCK, N.D.) – In response to the announcement by Representative Al Carlson that the GOP majority in the Legislature intends to go forward with a delayed bill that would permanently reduce the oil extraction tax by 30 percent, House Minority Leader Kenton Onstad and Senate Minority Leader Mac Schneider released the following statement:

If enacted, the Republican majority’s resurrected plan to dramatically and permanently reduce the oil extraction tax would represent a misuse the legislative process and result in a breach of trust with future generations of North Dakotans.

Representative Carlson’s proposal — advanced on day 70 of an 80 day legislative session with no public input or collaboration with the minority — is literally a back room deal. If the proposal actually stood to benefit North Dakotans, it would have been introduced as a bill months ago and subjected to the public scrutiny that accompanies a bill’s path through the Legislature.

Instead, Representative Carlson and his followers are seeking to ramrod a significant, permanent reduction to the oil extraction tax through the Legislature without a meaningful opportunity for thoughtful consideration. It is an arrogant power tactic that has no place in North Dakota policy making.

Worse than this procedural abuse is the potential end result for North Dakota. By reducing the oil extraction tax by over 30 percent during the remainder of the life of the world-class Bakken oil play, the majority is setting the state up for a loss of tens of billions of dollars that should be used to support infrastructure projects, fund education, and invest as part of our Legacy Fund.

If the proposed 30 percent oil extraction tax reduction was in place during the previous biennium, for example, revenue would have been reduced by approximately $642,754,538 in just those two years alone. Extrapolating a similar loss across the decades, this permanent reduction in revenue would dwarf anticipated short-term revenue losses from the “triggering” of existing incentives. Specifically, Moody’s Analytics recently predicted that if the “big” trigger activates in June of 2015 as anticipated, this incentive would expire in May of 2016 due to the expected rise in the price of oil.

Under those circumstances, permanently cutting the extraction tax by 30 percent in a contrived and artificial exchange for elimination of the trigger is like cutting off a leg to avoid a sprained ankle.

We are proud of the Legislature’s role in promoting valued investments by the oil industry in our state’s economy and happy that the industry has thrived under our existing tax structure. We remain entirely open to working with the majority on ways to incentivize continued investment in North Dakota by the oil industry during downturns in the market without unduly harming our state budget. However, this proposal — which compared to current law seeks to provide a massive tax cut when oil is at $100 a barrel and a relative increase in taxes on the industry during prolonged periods of sustained low prices — utterly fails to strike the right balance.

Our Republican colleagues need to remember that the 6.5 percent extraction tax was put in place by a vote of the people. The triggers, on the other hand, are a product of legislative action. We are happy to work to reform the triggers if our friends in the majority decide to scrap this proposal and engage in good faith. But we will zealously guard the people’s share of this one-time harvest.

###

Letter to the Editor

Dear Editor,

In our state, we pride ourselves on working hard, putting family first, and finding common sense, fiscally responsible ways to support those who call North Dakota home. At the beginning of this legislative session, together, we set a goal to shift the conversation from simple words into real action by making North Dakota an even more family-friendly place to live and work.

Though the course these bills took to the Governor’s desk for signing at times resembled that “sausage-making” process we often hear about, our goal became reality on Day 68 of this 64th Legislative Assembly.

The combination of our successful legislative efforts will do two important things. First, with the passage of HB 1244, state employees who become a mom or dad, whether that new child joins the family through birth or adoption, will now be able to use up to six weeks of their own sick leave to spend those early, crucial moments with their babies. Secondly, through language included in HB 1387, long-serving state employees, some of whom accrue hundreds of hours of sick leave during their service to the public, can now access up to twelve weeks of their own time, a significant increase from the former ten days, to care for a seriously ill child, an injured spouse, or a parent who is facing their last weeks on earth.

While we recognize these changes are specific to state employees, we feel leading by example often incites others to follow suit, and we encourage our business leaders to join these efforts. We commend North Dakota’s private sector employers who are able to enact policies that help to recruit and retain good employees and that align with the priorities of today’s workforce – balancing one’s career with growing and caring for family.

Allowing our state employees to access their own earned sick leave for the birth or adoption of a child and to care for a sick or dying parent, spouse or child is not just good policy; it doesn’t cost taxpayers a dime, and it’s the kind of common sense, bipartisan proposals that North Dakotans are looking for from their legislature.

Actions indeed speak louder than words, and we are proud to have led the conversation and made good progress for our state’s families through the passages of these bills.

Signed,
Representative Jessica Haak, D-Jamestown & Senator Erin Oban, D-Bismarck