OKLAHOMA CITY — After pledging to Oklahoma’s oil and gas industry that it would make good on tax breaks temporarily set aside during a fiscal crisis, some legislators believe the state should repay developers only about 50 cents on the dollar.
While the state Board of Equalization announced Tuesday that Oklahoma would have slightly more money to spend next year than this year, a Senate panel voted to honor $150 million worth of tax breaks oil and gas producers waived during the past two years.
Figures unveiled last week showed that the drillers would have been entitled to between $294 million and $314 million if they had not agreed to help the state balance its budget in 2010. The Senate Finance Committee said, however, that the initial agreement was binding.
“The original estimates when this program was put in place, through collaboration with the Legislature and the oil and gas industry, was the expectation the rebates would cost $150 million over three years,” state Sen. Mike Mazzei told The Associated Press after the committee vote. “That was the original amount. The Legislature is completely committed to paying that.”
Asked if the state was reneging, Mazzei said, “Not at all.”
But the president of the Oklahoma Independent Petroleum Association said a limited refund would harm drillers when they can afford it least.
“The oil and natural gas industry is, without a doubt, the driving force behind Oklahoma’s economy, and legislative efforts to cap tax provisions at a time when natural gas prices are low, and trending lower, is counter-productive to helping our economy recover,” association president Mike Terry said in a statement.
“Those efforts would also make Oklahoma the only state to impose a sizable tax increase on the oil and natural gas industry at a time when economic activity is most needed and energy independence weighs heavily in national energy discussions.”
Mazzei said further discussions would be needed so legislators can “get some handle on how to afford that additional $150 million.”
The tax rebates for horizontal and deep-well drilling were suspended for two years in 2010 as lawmakers grappled with ways to close a $1.2 billion hole in the state budget. Under an agreement reached with the oil and gas industry, lawmakers agreed to repay the rebates over a three-year period beginning this year.
An unanticipated production boom in Oklahoma’s oil patch led to the larger rebate request.
The Board of Equalization said Oklahoma lawmakers will have about $168 million more to spend on the upcoming fiscal year, money that Gov. Mary Fallin says should help pay for a tax cut.
The state will have $6.6 billion to spend beginning July 1. The growth in the state budget was attributed to increases in sales taxes and corporate and personal income taxes.
“The good news is Oklahoma’s economy is growing,” Fallin said after the meeting. “I’m hoping that we can pass significant tax reform this year, continue to look at ways to make Oklahoma more competitive by lowering our taxes and giving the people of Oklahoma more money back in their pockets.”
Fallin, who heads the board, has proposed cutting Oklahoma’s top income tax rate from 5.25 percent to 3.5 percent and offsetting most of the lost revenue by eliminating most tax deductions and exemptions. She promised specifics next week.
The revenue certified Tuesday is slightly higher than the December estimate, and is 2.6 percent larger than the sum for the current fiscal year. The revised projections also mean the state will be on track to deposit $319.6 million into the state’s Rainy Day Fund in June, Office of State Finance Director Preston Doerflinger said. That fund, which can be tapped during a fiscal emergency, currently has $249 million, Doerflinger said.
Because of the falling price of natural gas, the board approved a revised estimate on the price of natural gas from $4 per 1,000 cubic feet, or Mcf, in December to $3.64 per Mcf, based on a suggestion from the Oklahoma Tax Commission. But even the revised figure prompted concern from state Treasurer Ken Miller, who noted the price of natural gas is currently about $2.60 per Mcf.
“I’m still uncomfortable with that number with spot prices being what they are, with future prices being what they are,” Miller said.
