Posts Tagged ‘Tax break’

Texas oil and gas officials will plead with House Appropriations Committee members next week that the industry needs its $1.2 billion annual tax break, more than children need fully funded schools or the elderly need nursing homes to stay open.

The committee will take testimony on April 14 from industry representatives and others on the controversial tax break for producing “high-cost” shale gas. The tax incentive has been for a controversial drilling method known as fracking in which rock formations are broken with high-pressure water injections. It has come under fire in recent weeks as lawmakers grapple with a budget shortfall estimated at $27 billion.

As it would happen, Public Citizen will be participating in a press conference that same morning of Thu Apr 14, at 10am, on the South Capitol steps, with great folks actually living up on the Barnett Shale and who have been documenting the health impacts. If you’d like to show up to show solidarity both for folks living with drilling and to support getting rid of this corporate welfare tax loophole in favor of fixing our budget deficit, feel free to come by.

For folks living in the Barnett Shale region of the state, leaving this tax break in place would just add insult to injury.  Many in North Texas are grappling with environmental impacts from the natural gas drilling that they believe are adversly impacting their water, their air quality and their health.  To suffer the economic impacts of cuts to vital and important services while giving this highly lucrative industry a corporate welfare “tax break” would be too much to ask of these Texas citizens.

The state has been giving out this ‘high-cost’ gas exemption to wells that only cost $24,000 and above to drill, while a leaked interim report from the Legislative Budget Board that was never published shows that eliminating the oil and gas industry’s tax break would bring in $2.4 billion to the state per budget cycle.

It is going to be an interesting hearing.

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In another effort to stave off critics who call a $1 billion annual tax break for high-cost gas producers in Texas outrageous, a study paid for by the industry has emerged intended to scare folks into believing that for every $1 the state spends in tax breaks it gets back about $4 in related economic activity and that will disappear if we take their tax break away.

Former Deputy State Comptroller and current lobbyist Billy Hamilton has produced an industry-backed study for the American Natural Gas Alliance on what they claim the impact of the withdrawal of the tax incentive would have on Texas.   The  industry is rightly concerned that the tax break would come under attack as the state tries to close a $27 billion budget gap.

Hamilton’s analysis concludes that ending the tax break would result in an immediate loss in 2012 of 35,000 and $3.8 billion in economic output, estimating Texas would lose 94,400 jobs each year and $10.4 billion each year in economic output.

The industry has been saying for some time that if Texas dumps this tax break, states like Pennsylvania will get the driller’s business, but Texas has the largest reserve of natural gas in the nation and it is hard to believe the industry would pull up stakes to move elsewhere.  It is not like they aren’t making plenty of money here in Texas.  And the state hasn’t seemed concerned that they are losing renewable energy manufacturing jobs by not providing that industry with tax breaks/incentives, so no sympathy here.

Worthy of discussion here is exactly who is getting these state tax cuts, and according to the Houston Chronicle, it’s mostly companies from out of state.

Not surprisingly, the top five firms that saved the most as a result of the exemption represent the largest oil and gas producers in Texas:

Oklahoma-based Devon Energy, saved $113.8 million in fiscal year 2010 under the exemption. Devon reported net earnings last year of $4.6 billion.

Next on the list was XTO Energy Inc., a subsidiary of Exxon, which saved $113.2 million on its “high cost” gas operations in Texas. XTO reported $2 billion in net earnings last year. Others who received top financial benefits were: Canadian-based EnCana, which saved $60.6 million, Oklahoma-based Chesapeake Energy, which saved $59.4 million and Enron spin-off EOG Resources of Houston, with $58.6 million in savings.

These tax breaks really amount to little more than subsidies of some of the most profitable companies around. It would be one thing if these were Texas companies, but when Texas taxpayers are subsidizing Oklahoma and Canadian companies, something is very, very wrong. We can expect the corporate welfare queens to cry when their gravy train is threatened, but their protected status at the Legislature, thanks to millions in campaign contributions to Texas politicians, insures that they won’t actually be in danger of cuts.  Not like our schools, or grandma’s nursing home. Perhaps if our teachers and the elderly were represented by out of state special interests who can dip into their huge profits to bribe donate to politicians, they could be safe from cuts, too.

If, in fact, there are no sacred cows as the legislature tries to deal with the budget deficit, then this tax break needs to be on the table too.

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Energy interests of all sizes are poised to defend their share of tax breaks, loan guarantees and other financial incentives amid calls to slash spending both at the state and the federal level.

Concerned that debt-obsession at the federal and state will translate into real cuts, industry groups and their lobbyists are preparing for what amounts to an all-out war, pitting energy resource against energy resource. Their battles should prove to be daunting given that there will probably be no sacred cows when it comes to cutting the billions of dollars in assistance that the government hands out every year.

In his State of the Union speech last Tuesday, Obama cracked a smile as he said, “I don’t know if you’ve noticed, but they’re doing just fine on their own,” repeating the call he’s made the past two years for the elimination of billions of dollars in tax breaks for oil companies.

While that alone would not be enough to cause the industry to break their stride, rumblings from house Republicans lining up their own targets, are probably giving the industry pause. The conservative Republican Study Committee recently outlined $2.5 trillion in spending, tax breaks and subsidies it wants to see cut over the next decade, including billions of dollars in Energy Department research, vehicle, fuels, weatherization and energy efficiency programs.

With so many battlefronts ahead, energy businesses trying to map out investments are probably sweating bullets trying to figure out how to make the case for pending large capital outlays (say for instance – the billions of dollars needed to build a new nuclear power plant which won’t see a return on investment for a decade).

Hoping they will be spared, we can expect energy lobbyists to push back with warnings that messing with the status quo will force lay offs and halt projects that are helping get the economy back on its feet.  

Still, even in a state with as intimate a relationship with the energy industry as Texas, you can’t get blood from a stone.  In the face of a massive budget deficit this legislative session and a constitutionally required balanced budget, you can bet Texas will be looking hard at every dollar it spends and every dollar of revenue it gives up.


By promoting cleaner energy, cleaner government, and cleaner air for all Texans, we hope to provide for a healthy place to live and prosper. We are Public Citizen Texas.

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