Let's Really Fix This

Let’s Really Fix This - October 29, 2017

State Representative David Perryman

Oklahoma schools, mental health agencies, hospitals and health care agencies are in financial crisis. That crisis translates to impending catastrophe for hundreds of thousands of Oklahomans of all ages. Oklahoma’s state government has a revenue problem that has deepened to the point that services can no longer be provided.

This situation did not occur overnight. For the past ten years taxes have been recklessly cut without considering the cost or the impact on services that citizens expect government to deliver. Income taxes on high income earners have been slashed to the end that hundreds of millions of dollars have been taken out of state revenues.

Gross Production Tax on the oil and gas that is extracted from Oklahoma has been reduced from 7% which is actually low compared to other states to 2% which has the effect of subsidizing companies who are drilling in other states where the GPT is actually two and a half to six times higher.

If the Oklahoma legislature had the courage to stand up to the oil and gas industry and its lobbyists, we would have an opportunity to avoid being 48th, 49th or 50th in every category that impacts our quality of life.

I am not talking about punishing an industry that is so vital to Oklahoma. I am talking about simply reminding it that its Oklahoma operations are destroying our roads and contributing to earthquakes that damage our property and there is simply no reason for its tax structure to be so low. The legislature simply needs to tell the oil and gas industry to pay its fair share of taxes.

The legislature clearly does not have the intestinal fortitude to confront the oil and gas industry. Today marks the end of the 5th week of Special Session. If you would like to understand the situation, I would ask that you read the 7 points below:

First, the Oklahoma Energy Producers Alliance recently had a poll conducted that showed that 67 percent of Oklahomans favored an increase in the Gross Production Tax (GPT) to 7 percent.

Second, the current Oklahoma GPT rate is 2 percent for the first three years (“tax holiday”) of each well’s production and then it increases to 7 percent in the 37th month of the life of the well.

Third, Oklahoma’s GPT Tax Rate is not only the lowest in the country, if it were raised to 4%, it would STILL be the lowest in the country.

Fourth, the length of the “tax holiday” is every bit as important as the percentage rate. For instance, horizontal wells in Oklahoma are more than half depleted after just 36 months of production. So, when Democrats said months ago that they would accept 4% at 12 months; 4.5% at 18 months or 5% at 36 months, the length of the “tax holidays” were not just numbers that were casually tossed around.

• A 12 month tax holiday means that 37% of the lifetime oil production of the well is depleted before the 7% rate kicks in.

• A 24 month tax holiday means that 53% of the lifetime oil production of the well is depleted before the 7% rate starts.

• A 36 month tax holiday means that 62% of the wells total oil production is depleted before 7% applies.

Fifth, even though the Democrats have been requesting an increase in Gross Production Tax for months, it has only last week that the Republicans announced a budget deal WITH EACH OTHER… and that budget deal didn’t include the Gross Production Tax….or Democrats.

Sixth, last Friday, for the first time, Republicans claimed to offer a deal that included Gross Production Tax. The purported offer was: THE LOWEST GROSS PRODUCTION TAX RATE IN THE COUNTRY and a plan that would allow 62% OF EACH NEW WELL’S LIFETIME PRODUCTION OF OIL TO BE DEPLETED BEFORE the tax went to 7%. The “deal” ended up deadlocked and dying in committee with a tie vote that the Republican Chairman and Co-Chairman refused to break.

Seventh, I truly believe that most legislators (Republican and Democratic) want to fix this, but those who are beholden to their campaign contributors are having a tough time right now. They need courage. If you really want this fixed, pick up the phone or sit down and write a note to your legislator, Democratic or Republican, and encourage them to REALLY FIX this by increasing the Gross Production Tax and decreasing the length of the Tax Holiday.

If you have comments or questions, please call or write, 405-557-7401 or david.perryman@okhouse.gov.