To Comfort The Afflicted
And Afflict The Comfortable

To Comfort The Afflicted And Afflict The Comfortable

Saturday, March 6, 2021

Observercast

Putting State’s Future Ahead Of Self-Interest

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BY MICKEY THOMPSON

I ran the Oklahoma Independent Petroleum Association [OIPA] for 15 years. I was the lead lobbyist for Oklahoma independent producers at the state and national levels for more than 20 years. Today, I implore the leadership of the Oklahoma oil and natural gas industry to reconsider its opposition to restoring the gross production tax.

I understand the OIPA’s position in favor of maintaining the special tax provisions now in place, but today I believe their rationale is self-centered and misguided. I helped invent their arguments – in the mid-‘90s! That was in a much different time both for our state and its most vital industry. Today, with circumstances dramatically different, especially in terms of the state budget, I believe it’s imperative that oil industry leaders re-examine, and abandon, their desire to preserve their special tax treatment.

The OIPA is correct in asserting that the oil industry already pays a disproportionate share of taxes in Oklahoma. The new leaders of the group contend that number is 25% of total state taxes collected.

I believe that number is outdated and a gross exaggeration. The current gross production tax represents somewhere between 3%-5% of total state tax revenues. Where do they get the other 20%? Maybe when oil was $100-plus. And before thousands of Okies were laid off from oil and other related jobs in 2014-16. Maybe when virtually all production paid GPT at 7%.

But the biggest caveat to their tax rationalization is that state taxes aren’t the only taxes that matter in this discussion. Shouldn’t local property taxes be included in any calculation of total tax burden? Of course they should. But the OIPA’s number carefully omits local taxes, perhaps because the oil industry is virtually exempt from ad valorem taxes in Oklahoma. How convenient.

Let me digress for a moment. The oil industry remains our most important industry. We need the active drillers to be profitable. We need those jobs. We need a healthy “oil patch.” And I acknowledge that oil at $50 a barrel and natural gas at $3 per mcf create a challenging environment for our companies to make a profit. But the vast majority, large and small, is currently profitable.

We also need state government to function, especially our schools. Really, this debate should be about the tough questions related to balancing the interests of our most important industry while recognizing current realities for funding our public education system and all of state government.

The reality is our state is in a crisis situation at the Capitol. Republicans have led a charge to reduce all sorts of tax sources. As it turns out, they have charged us off a cliff. Republicans rebuked Gov. Fallin’s attempt to create a new, significant and sufficiently broad tax source. We are less than a month from adjournment and we are arguing over nickels and dimes. And anticipating even more draconian cuts.

It’s time for leaders in both the private sector and public sector to lead. The Oklahoma oil industry once was full of real leaders, men and women who put the welfare of all Oklahomans ahead of their personal fortunes, men and women who focused on the importance of the success of Oklahoma’s students over out-of-state stockholders.

Here is the crux of the matter related to Oklahoma’s gross production tax: Is it accurate that restoring the GPT to 7% will have a chilling effect on drilling and jobs? Sure, it will have some negative impact, but the overriding fact here is that these companies will still have the lowest overall tax rate in the nation even with the GPT at 7%. So, if Oklahoma has best geology, best regulations and best taxes, these oil folks aren’t going to decide to drill elsewhere.

I’m betting our legislative leaders will do nothing about restoring any part of the GPT. They are ideologues who lack the vision and courage to solve these difficult tax issues. Where is the leadership in examining other ideas? For instance, we could levy a storage [environmental/security] fee on all oil in storage in Oklahoma. Perhaps it would be a transportation fee. Or maybe a property tax on the oil in storage. Think of all that oil in Cushing – 60 to 70 million barrels! Even a tiny levy could generate billions of dollars for schools, roads, and other services.

That’s just one idea. There are many others, but our industry and our Legislature seem locked into a dogma that demonizes anything that raises revenue for state government. It is a disastrous path. I hope our leaders wake up before they do permanent damage to our state.

Oklahoma City resident Mickey Thompson served as president of the Oklahoma Independent Petroleum Association for 15 years and is former publisher of the Ada Evening News