BISMARCK, ND (trfnews.i234.me) The North Dakota Senate has voted down increasing the oil extraction tax, which could have added $500-million to State coffers.
next bill under consideration is Senate bill 23 36 mount secretary Senate bill 23 36 a bill for an act to amend and reenact section 57 – 51 point 1 – 0 – of the North Dakota century code relating to the oil extraction tax rate and to provide an effective date the fiscal note shows an impact for the 2019 21 biennium of revenues from other funds of 452 million sander Patton mr. president Senate bill 23 36 comes to you from the Senate Finance and Tax Committee the purpose of the bill is to raise the oil extraction tax from five percent to six and a half percent the oil extraction tax is where the two primary attacks is assessed on the gross value of at the well of the oil extracted the tax applies to every owner of the oil that is extracted including royalty owners the estimates of the tax generated under the existing 5% rate is about 2.2 billion for the 2019 2021 biennium the fiscal note shows that this 15% increase in tax were generated an additional 452 million the beneficiary entities of the sacs are the lake or the tribe the Legacy Fund the common schools trust fund and the resources trust fund when combined with the 5% gross production tax existing law has a 10% tax on the gross revenue at the wellhead in recent information shows that the state of North Dakota receives approximately 50% of its revenue from oil and gas taxes I’m not aware of any other industries taxed as a percent to their gross revenue this level of tax puts North Dakota above other oil-producing states such as Texas New Mexico and Oklahoma mr. president the Senate Finance and Tax Committee voted 5-1 to recommend it do not pass on this bill for the following reasons he would put us in one of the highest tax tax states in the nation regarding Whalen tax perilla gas production taxes we are already highly dependent on this single source of revenue and therefore highly subject to the revenue cycles of this industry and this would further reduce the diversity of our tax base testimony indicated that the first areas of production to be affected by this proposal would be the outer edges of the Bakken field and therefore would can shriek the activity to the true core production areas of the formation this 15% tax increase would affect tens of thousands North Dakota mineral owners we also heard testimony that the average mineral or mineral owner is a six year old female with receiving approximately $600 a month near the steep decline curves of the wells of the wells continued drilling is a must in order to maintain or increase the production of these wells the result of fewer wells drilled will result in production declines within one to two years it takes a great deal of capital to drill and produce these wells North Dakota is in constant competition with other states and other oil fields for this capital for these reasons the finance and tax committee by a vote of five to one recommends I do not pass on Senate bill 23 36 and we asked her concurrence is there any further discussion senator Dotson Rafah well thank you mr. president I I was on the Tax Committee and was the one yes vote and I would just like to make a few comments about this we we are fortunate to have an industry like the oil industry in our state it’s hard to imagine how we would function in a legislative session like we’re having today without all the benefits and the the things that have occurred in the population growth and the jobs and our economic growth without the oil industry so we certainly appreciate the oil industry and during the time of the the boom when everything was going we had the the six and a half percent oil extraction tax there this for tax was approved by the voters in an initiated measure in November of 1980 and we did have some good years early on there from a roughly 81 to 86 oil got up to $40 a barrel and then around 86 and somewhere in there oil really the industry was in tough shape oil got down to $10 a barrel and things were not good I think our rig count around the state at that time was down to six and so the 1987 Legislature passed a trigger tax break which meant that if the price of oil dropped below a set trigger price then the six and half percent oil extraction would go to and I think is pretty easy to sympathize with that 1987 legislature and they had to do something with the rig count at low prices that low a lot of loss was going on and so they did they did something big they created this trigger tax that will allow that would allow that tax to go to zero when oil prices were low we couldn’t get back above $40 a barrel until 2005 and then as the oil prices and in and the OOP the oil prices and our North Dakota production really started to rise quite fast and we were in the soon in a boom in the good years continued through about 2014 and 15 timeframe when prices really dropped rapidly so the 2015 legislature took the trigger mechanism that had been set up in 1987 which lowered that tax to zero and and and removed it took it away and at the same time then lowered the tax from the six and a half percent down to five and since that time we’ve had kind of a circular debate that sort of continues here today did the oil industry get their taxes cut or did they actually get a tax increase in the loss of this this tax break and it was certainly a very important tax break a very big one the loss of that tax break meant that there would be more oil revenue for the state of North Dakota and more taxes paid by the oil industry but I believe there was really no argument here in the legislature in 2015 that the trigger was no longer appropriate relative to the circumstances that existed in 1987 we had new technology horizontal drilling fracking and there really were the the prospect of dry holes it just about gone away so without that trigger in place and knowing that the oil extraction tax would stay in place and not drop to zero should that oil extraction tax have been lowered as the legislature did or should it have been left alone this bill takes the position that the existing oil extraction tax of six and a half percent should have been left alone that we should have maintained the six and a half and as it was passed by the voters I think there are examples we can find where a very valuable tax break has been taken away and creates a tax increase for a large interest and at the same time no rates have been adjusted I’m thinking back to the days of the investment tax credit was a 10% tax credit it was available to small businesses large businesses farmers and what the way it worked is you’d buy a machine abra had to be a new machine and you’d get a 10% of that value of the machine could be taken off as a credit on your income tax and that was a pretty important thing you could buy a machine for $50,000 and at the end of the year and get a 10% removed from your your taxes so whatever you vote in taxes you could take 10% off that bill pretty important pretty valuable a lot of businesses use the investment tax credit that was taken away I don’t remember what year it would have been and there was no adjusting tax reduction it was just a valuable tax incentive that was lost and the rates stayed the same so the idea that we need to compensate an offset I don’t know if that really holds up or not I think we are fine even with the revenues that we have today because of oil we are struggling here to find the the adequate funding for nursing homes to keep up our infrastructure we’re creating bonding programs to do infrastructure it seems to me we do have the needs here and we are in a lot of these budgets trying to scrape to find where is the revenue going to come from so I think that you know we maybe there’s a lesson here for the future future legislators that is if you give a tax break you need to be very careful about giving that tax break because when the time comes that that tax breaks no longer in appropriate you may find that you’re going to have to pay something to get that tax break remove in this case we removed a tax break and in the process we found we had to or many of us felt many in the legislature that they had to lower the rate the rate that was in place at the same time so for that reason and the the other the fact that we had this measure passed by the voters I and I think it was appropriate I have for that reason I voted YES on the bill is there any further discussion any further discussion senator popcorn mr. president I think everybody heard the fiscal impact of this bill when the secretary read it if he didn’t take a look at it again using very conservative figures this would be revenue of 450 million dollars per biennium and I think those are relatively conservative estimates or the interim we were using in developing various programs and funding programs and projecting we were working on in realizing of course that oil prices vary from month to month we were using the figure of 50 to 50 per barrel 1.2 million barrels per month at that rate we’d be near near 600 million dollars per biennium with the restoration of the six point five percent tax extraction tax which as the previous senator testified has been in place since 1980 until the legislature Lord in 2015 taking a look at more recent figures in September the price of oil 64-56 October 64 16th and of course in November back down to 47 81 so it is volatile but I think we’re pretty safe and summarizing that revenue would be in that 450 to 550 million dollar per biennium range the center who carried the bill did note that there are some primary designations for that tax money including the tribal share the Legacy Fund and of course of common schools trust fund the foundation made Stabilization Fund which would all benefit my tens of millions of dollars and I think people realize the the needs of K through 12 education here in this state and also let’s take a look at the resources trust fund now the primary designation for that is you know water water projects and environmental projects I think most of us realize that we’re just looking at our emails coming in from the different water districts around the state most of them are up around the 50 million dollar ask now I asked the Senators who are here located in those various districts they’re asking for 50 million dollars a year and we do have the opportunity not to not to fulfill every request with to take away a lot of the pain from several of them or all of the pain from some of these requests the demands are great we have the opportunity to fill them Red River water supply of course getting water from the Missouri to Fargo area and the Red River Valley and other places along the way 50 million dollars the Red River diversion 50 billion dollars let’s take a quick look at what this could mean to higher education let’s not use this money necessarily to run the government to pay our ongoing bills on a day-to-day basis let’s look at it as investing in the future NDSU and und our primary research universities in the nation looking at unmanned aerial vehicles fine research they’re looking at they’d like a hundred million dollars of the next two years 50 million dollars each twenty five million dollars a year why don’t we use this money that is we can come our way now to invest in the future and not concentrate on the patchwork but concentrating on investing in broadening our economic base for the future so we aren’t so dependent on on the one on the one issue more more demands estates in in the State of the State speech we learned that the state Supreme Court is asking for another judge they lost or how many how many seats in the 2015 biennium they cut fifty five and a half positions and and we learned that this the Supreme Court system if the court system isn’t under water but it it utilizes some it utilizes some breathing help you know when it comes to terminology it’s how do you say it how do you perceive it it’s been said that the actions of the 2015 legislature amounted to a billion dollar tax raise on the oil industry another point of view will say the state lost a half a billion dollars in revenue because the actions the tax raise angle comes from well had we not lowered that trigger they wouldn’t have paid anything and so then that gets translated into a tax hike on the industry on the other side we’re looking at it we could have we could have gotten rid of that trigger and maintained the 6.5 percent and that would have maintained a a healthier income flow now that argument reminds me of a discussion I was having with my wife a few years ago in our front yard it was over the height of grass she goes Merrill it only it should be about this high maybe she’s like three inches high and I’m going well honey it really only needs to be about two inches high it’s healthier for the grass and it went on and on and finally I said but honey you’re wrong and she stamps her foot looks at me and she goes I know but that doesn’t make any difference that’s kind of like how it is when we’re arguing with each other about whether it’s a tax hike or whether really we’re just giving up revenue we have to look at it we have to broaden that discussion a little bit you know Minnesota has 10,000 lakes trees some tourism there they don’t have that many fish in those lakes we have two big lakes with a lot of fish and we have oil we have been bled we didn’t do anything to get this oil we just happen to be living here in North Dakota flyover flyover country for so many years but we have the oil it’s here it’s our resource and yes we appreciate all this appreciate the the oil industry nearly all of us do and for what it’s done for the state but it’s also taken a toll on our state and we can use this revenue this this extra one and a half percent revenue for the benefit of all North Dakotans it’s just one final thing we go on and on of course I’ll wrap it up we heard the report from the engineers yesterday it was in the news you’ve seen it we got a grade an overall grade C bridges a d-plus levees Roads transit everything could be improved and especially still in oil country I mean I go out there all the time I’m from Montreal County but we go out there all the time I’ve seen the vast improvements it’s great and we just need to keep working at it and I don’t know if we can spend too much on infrastructure not only out there and West just to maintain the business but also for the benefit of the rest of the state and so when we take a look at that where the money could go what it’s being used for I think it is a judicial judgment and we can make great use of that money as far as the designations of these pots go you know what a lot of its gonna wind up in appropriations a lot of it’s going to be trickle down into that into that into that area and where various groups can kind of battle it out for a little extra more money that’s going to be in there for all of us to have access to and with that I thank you senator Beck at all Thank You mr. president and hopefully this works better than the last time I had the mic in my hand that sells I can already is first I want to compliment the carrier for the the senator from district 26 that was probably the best history recollection I’ve ever heard on this issue so thank you for for doing that and also the senator from district 44 on talking about perspectives but I think some things need to come in as well with the word part of the discussion so far mr. president and one of the things is the removal of the exemptions or removal of the of the triggers that occurred in the 2015 session if you remember the oil price went from a high of about $140 a barrel to $26 barrel at that time so we’re having the same discussions in 2015 that they were in having in 1987 about about maintaining and protecting an industry presence in our state and so I think that’s important to the discussion as well at the timeframe we were in also mister president remember to that part that legislation we discussed what was the actual effective rate of our tax of eleven and a half percent at the time which was six and a half extraction tax and in that discussion we found out that because of exemptions granted to the industry on some well production the actual effective rate was eleven point one percent according to the tax department so what we did in that legislation was we looked at the higher end of production intake by the industry and decided to also put in that bill in a reverse trigger of $90 a barrel for three consecutive months moves the extraction tax rate back up to six percent so our rate at that point became eleven percent again if we get to that stage it will reduced out again after three months of below $90 grow but the point is mr. president we made an accommodation that when the industry did better so did the state so it’s important to note that we’re still back to 11 percent if we get there and then it was hurt earlier today mr. president that you know bill that we discussed earlier that 50 percent of the state revenues or oil and gas tax revenue we’re adding more to that system when we do this bill I know there’s a lot of needs out there but how much do you want attacks one horse at your trough for this government to operate I think they pay a lot now and I think we have the right balance between industry and government Senator Hackerman mr. president the passage of 23:36 has deeper implications than just restoration of the oil extraction tax it will change storefronts in North Dakota and will change schools it will enable state agencies to fully state programs and projects it will open doors for providers across the state to get as essential services out to all North Dakotans taxation seems to be a word that everyone shy is away from makes cept when the topic comes – decreasing taxes decreasing taxes would be my hope if I knew that while we were doing so we were able to provide all and I mean all the services needed across the state because it is taxes and fees that make up the revenue stream that funds North Dakota over the summer and into late fall I heard a lot about North Dakota being number one in several categories I love North Dakota you do too and I’m proud to say that we are number one in a lot of categories but today’s local newspaper as was just referenced by one of the speakers also gives us pause to not be so quick to laud our accomplishments the survey cited in the newspaper gives North Dakota C in several categories bridges roads drinking water energy levees dams transit and wastewater seems like these are pretty essential systems to me so how would we address that report I would report I would propose that the report gets addressed by putting money into those systems it also seems that state roads are in poor condition than County roads and township roads we must do better and to do better we need to fund these systems 95 percent of the dams in the state are high hazard dams bridges received a d-plus rating and 14 percent are identified as structurally deficient two ways to address the needs in North Dakota in the article were to raise the gas tax or to tap into the Legacy Fund I would tell you that there is another way and that is to restore the oil extraction tax to the level voted on by the people of North Dakota what would a green vote do for North Dakota a green vote on Senate bill 23 36 could do all of these things for your districts your counties your towns your cities and your families it could adequately fund K through 12 schools to not only teach content but to also get our students college and career ready an increasing need is to find funding to address issues of behavioral health substance use and suicide prevention in our schools that takes trained individuals collaborative programming and increased funding your support could adequately fund to turnaround out-migration of instructors in our higher education system they’re leaving due to cuts and to low morale because of certain uncertainty of whether there are funds available to provide job security your yes vote will be an effort to curb the tuition increases that are 11 campuses which has increased at the same rate as some of the decreases in taxes the legislature has imposed your support could provide a revenue stream that funds long term care it could provide a revenue stream that we address as behavioral health needs across the state it could help with infrastructure needs identified in the survey I just referenced it could help long term water systems across North Dakota continued public health services adequate law enforcement and emergency services infrastructure transmission needs workforce development efforts to end hopeless homelessness and programming and services for those with substance use disorders mr. president the needs are huge across our state it does our responsibility to meet those needs with adequate funding we spend time working on expanding the revenue but we take little time in figuring out a plan to provide a stable funding stream for the future of the state here are some current funding streams we have pushed down to our political subdivisions by policies we adopt in the legislature if you notice cities are imposing increases in sales tax to meet their needs city cities are literally levying additional mills and increasing property taxes cities and counties are increasing property values counties are increasing milites for some of their programs counties are now sharing services as cost savings continue with the hope that services remain adequate people are being made proposals are being made to repeal exemptions on armed residences proposals to tax Grandma and Grandpa in the nursing homes are being made in addition mr. president I propose that one solution to the workforce shortage is to provide essential services to families and individuals whether it is intangible or an intangible need and by intangible I mean those services that are exactly what that are exactly people services workers are not going to come to North Dakota if they’re not adequate childcare services if communities do not have the basics necessary for good schools for a grocery store or gas station a pharmacy an ambulance service a clinic or a hospital all those are essential in recruiting skilled workforce we need a revenue stream to do this in Senate bill 223 36 is the solution the bottom line mr. president is that this restoration of extraction tax can help each and every legislative district each and every city each and every town each and every county and Township and each and every individual and family across the state let’s support the will of the people who put this important revenue stream for North Dakota in place in the first place they were visionary and they stepped up to the task now let’s also step up to the work that is before us let’s vote green on 23:36 senator Patten mr. president though was one time told when it was a county commissioner that the only fair tax is what someone else is paying right now we have a broader than approximately 50% of our revenue coming from the oil and gas industry for the state you know I’m not sure what the appropriate level is is it a 50% is it 60% it’s 70% broad-based public needs need to be supported by broad-based taxes when you have broad-based needs supported by a narrow tax base you’re subject to the wild swings of the pricing especially when the commodities are involved I’m sure that finance and tax could find five hundred million dollars in taxes someplace we won’t but we would require us to tax the many who would receive the benefits right now we have a huge commitment from the oil and gas industry at 50% over state revenue that’s enough for one industry senator cook mr. president I have well aware of the under of the taxing philosophy of tax and spend I’m well aware of the argument taxes bet could make but my philosophy when it comes to tax policy has said the state’s tax policy in a state’s economy are connected at the hip good tax policy will drive an economy bad tax policy will slow it economy uncertain tax policy can destroy an economy mr. president the tax bill that we passed in 2015 moved from unnecessary bad tax policy but it made it better it also removed a lot of uncertainty that was caused by the triggers and that was important to the oil industry mr. president I remember the days with our greatest export was our children I remember all and talk that was going out of however go to keep our children here mr. president that’s not the case today our children have jobs in North Dakota 97% of the working people in North Dakota aren’t working it’s about the economy mr. president and our economy is doing well thanks to good tax policy senator Wardner mr. president and members of the Senate there’s I don’t disagree with any of the comments that have been made but I want to make sure that everybody understands one thing we’re in a competitive atmosphere with other oil plays in the United States we’re competing with the Permian in Texas the scoop and the stack in Oklahoma and as it was explained to me and as I’ve checked out when it comes to royalties were in a better in Texas and that’s the main state we compete with for investment dollars from the oil companies but when it comes to taxes were above them by quite a bit and then we have a third thing they have a short distance to markets we have a much longer distance so the cost to transport is another factor that we have to consider in North Dakota so when we move that tax from eleven and a half down to 10 for overall it didn’t put us in a fair would put us in a better position as far as competing for tax dollars and then when you have days like today the oil companies would rather be in Texas drilling and up here in North Dakota now there’s no question there’s no question I have been told by people involved in the industry that that one and a half percent that we reduced it and yes we took the tax holiday away and they had to pay during that time but the biggest thing was there was certainty and we were competing for their investment and they were now ready to put more investment dollars in North Dakota now there won’t be any money for the services that we’re talking about and we like in North Dakota if there’s companies don’t invest here and right now I think we’re we’ve got of nice balance and we do have the oil companies investing in North Dakota to keep our oil play going so mr. chairman and members of the Senate I would hope that you would defeat this bill is there any further discussion hearing none questions on the final passage of Senate bill 23 36 secretary will open the key essential record their vote well the senators voted saying a senator wish to change their vote secretary closed the key and take the tally final tally on Senate bill 23 36 reveals 10 eyes 36 nays 1 absent not voting the bill is lost senator Klein
Watch: North Dakota Senate Rejects Proposal to Raise Oil Extraction Tax
