Capitol Letters: Vol. 2 Week 17 – Final Week

With the conclusion of the 2015 legislative session last week, Capitol Letters will be on a two-year hiatus. Before we bid you a fond farewell, however, we want to share with you the opinion piece we submitted to daily newspapers across the state of North Dakota recently. It highlights some of the right fights our Dem-NPL legislators waged this session while civilly lowlighting some of the headshaking antics the Republican supermajority brought us over the course of the those 78 legislative days.

If our column fails to satiate your hunger for a better understanding of the difference between Dem-NPL legislators and the Republican majority, please click here for a comprehensive memorandum on this topic. And when we say comprehensive, we mean it: The thing has more footnotes than a piano-playing millipede.

As we prepare to say adieu, we’ll leave you with one of our favorite quotes. “The world is a fine place and worth fighting for[.]” We feel that very way about our great state. We will keep fighting for North Dakota until its elected lawmakers live up to our state’s unlimited potential.

So keep the faith, keep up the fight, and like us on Facebook.

Mac Schneider and Kenton Onstad column: Republicans “no longer deserving of their legislative majorities”

As we write this column, Legislators are vacating the capitol. The halls are getting quiet. Colleagues are saying their goodbyes after adjournment sine die. But rather than having finished their work, the members of the Republican majority are leaving town with no budget in place for an important state entity that oversees the retirement funds of thousands of state employees — a direct result of the dysfunctional final hours of the legislative session and the obstinance of House Republican leadership.

Contrast this inability to reach a compromise on an innocuous bill with the ramrodding of a 23% permanent cut to the oil extraction tax and you have the story of the 2015 legislative session: A majority that rashly speeds through a multi-billion dollar oil tax cut and then leaves town without getting its work done.

About that 23% cut to the oil extraction tax, which was introduced and passed on party lines over the course of a mere seven natural days. If it had been in place during the current two-year budget cycle, the people of North Dakota would have lost $671.6 million (and counting). But the GOP oil tax cut isn’t just for the next biennium. It’s permanent. By any objective measure, the majority’s cut to the oil extraction tax stands to cost the people of our state untold billions over the course of the world-class Bakken formation.

The heart of the oil tax cut bill was not about reforming “trigger” incentives for the oil industry. Far from it. In fact, the Republican oil extraction tax cut leaves the trigger in place in the near term, takes away incentives during downtimes for the industry, and then gives a huge tax break when oil rises as high as $89 a barrel. Sensible Democratic-NPL alternatives to this approach, which left some downside incentives in place to encourage investment by the industry while leaving the oil extraction tax rate alone, were rejected by the majority.

While the House majority leader said during campaign season that there were “absolutely no intentions” to cut the extraction tax “at all[,]” that isn’t the only broken promise of the GOP majority. Take, for instance, the pledge to provide a 60% local share of the production tax to oil-impacted communities — a goal long supported by Dem-NPL legislators to address the challenges of growth. With the election far behind, the proposed 60% local share of the production tax is now about 30%. In essence, the majority took away a promise to assist western North Dakota with one hand while cutting the oil extraction tax with the other.

 

Then there is property tax relief, an issue directly tied to funding for K-12 education. In a late session move, the majority cut $115 million from the K-12 funding bill to finance $108 million in corporate and personal income tax cuts. Take that lack of focus on deeper property tax cuts with the GOP majority’s rejection of Dem-NPL bills to provide a tax credit for renters, create a sales tax exemption for clothing, and eliminate taxes on Social Security benefits, and one can reasonably conclude that our friends in the majority have seriously misplaced priorities when it comes to taxes.

Dem-NPL legislators worked in good faith with the majority this session and advanced good ideas. Some, like tackling the demand for sex trafficking, improving access to behavioral health services, and capping tuition increases, were prudently adopted by the majority. Many others, like funding universal pre-kindergarten education, improving the safety of our railways, and creating an ethics commission, were senselessly rejected.

One particular proposal advanced by the Dem-NPL caucuses truly shows the differences in values between the legislative majority and minority. SB 2279, which would have prohibited discrimination based on sexual orientation, passed the Senate only because a minority of the majority joined every Dem-NPL senator in voting for it. We were proud to be the legislators who went on record against discrimination and were mightily disappointed to see this bill run aground in a sea of antiquated views in the Republican House.

We appreciate our friends in the Republican majority and value the opportunity to serve with them. But their shoving of a multi-billion dollar oil tax bill through the Legislature during its last days betrays the public trust, and their beliefs on issues like non-discrimination show they are out of step with a changing North Dakota. They have failed to live up to our state’s unlimited potential. With all due respect, they are no longer deserving of their legislative majorities.

 

A Session in Contrast — 2015

Asessionincontrast-2015 (1)

End of Session Op/Ed – Sen. Mac Schneider & Rep. Kenton Onstad

As we write this column, Legislators are vacating the capitol. The halls are getting quiet. Colleagues are saying their goodbyes after adjournment sine die. But rather than having finished their work, the members of the Republican majority are leaving town with no budget in place for an important state entity that oversees the retirement funds of thousands of state employees — a direct result of the dysfunctional final hours of the legislative session and the obstinance of House Republican leadership.

Contrast this inability to reach a compromise on an innocuous bill with the ramrodding of a 23% permanent cut to the oil extraction tax and you have the story of the 2015 legislative session: A majority that rashly speeds through a multi-billion dollar oil tax cut and then leaves town without getting its work done.

About that 23% cut to the oil extraction tax, which was introduced and passed on party lines over the course of a mere seven natural days. If it had been in place during the current two-year budget cycle, the people of North Dakota would have lost $671.6 million (and counting). But the GOP oil tax cut isn’t just for the next biennium. It’s permanent. By any objective measure, the majority’s cut to the oil extraction tax stands to cost the people of our state untold billions over the course of the world-class Bakken formation.

The heart of the oil tax cut bill was not about reforming “trigger” incentives for the oil industry. Far from it. In fact, the Republican oil extraction tax cut leaves the trigger in place in the near term, takes away incentives during downtimes for the industry, and then gives a huge tax break when oil rises as high as $89 a barrel. Sensible Democratic-NPL alternatives to this approach, which left some downside incentives in place to encourage investment by the industry while leaving the oil extraction tax rate alone, were rejected by the majority.

While the House majority leader said during campaign season that there were “absolutely no intentions” to cut the extraction tax “at all[,]” that isn’t the only broken promise of the GOP majority. Take, for instance, the pledge to provide a 60% local share of the production tax to oil-impacted communities — a goal long supported by Dem-NPL legislators to address the challenges of growth. With the election far behind, the proposed 60% local share of the production tax is now about 30%. In essence, the majority took away a promise to assist western North Dakota with one hand while cutting the oil extraction tax with the other.

Then there is property tax relief, an issue directly tied to funding for K-12 education. In a late session move, the majority cut $115 million from the K-12 funding bill to finance $108 million in corporate and personal income tax cuts. Take that lack of focus on deeper property tax cuts with the GOP majority’s rejection of Dem-NPL bills to provide a tax credit for renters, create a sales tax exemption for clothing, and eliminate taxes on Social Security benefits, and one can reasonably conclude that our friends in the majority have seriously misplaced priorities when it comes to taxes.

Dem-NPL legislators worked in good faith with the majority this session and advanced good ideas. Some, like tackling the demand for sex trafficking, improving access to behavioral health services, and capping tuition increases, were prudently adopted by the majority. Many others, like funding universal pre-kindergarten education, improving the safety of our railways, and creating an ethics commission, were senselessly rejected.

One particular proposal advanced by the Dem-NPL caucuses truly shows the differences in values between the legislative majority and minority. SB 2279, which would have prohibited discrimination based on sexual orientation, passed the Senate only because a minority of the majority joined every Dem-NPL senator in voting for it. We were proud to be the legislators who went on record against discrimination and were mightily disappointed to see this bill run aground in a sea of antiquated views in the Republican House.

We appreciate our friends in the Republican majority and value the opportunity to serve with them. But their shoving of a multi-billion dollar oil tax bill through the Legislature during its last days betrays the public trust, and their beliefs on issues like non-discrimination show they are out of step with a changing North Dakota. They have failed to live up to our state’s unlimited potential. With all due respect, they are no longer deserving of their legislative majorities.

 

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