Thursday, May 30, 2024

A day after delaying all incentives, Louisiana Republicans advance tax breaks for oil industry

by BIZ Magazine

By Wes Muller, Louisiana Illuminator

Republican lawmakers abandoned their cautious approach to tax incentives Wednesday and advanced a bill that would cost the state and parish governments millions in oil severance revenues.

House Bill 172, sponsored by Rep. Phillip DeVillier, R-Eunice, would cut the severance tax rate on oil from 12.5% to 8.5% in half-percent increments until fiscal year 2032. The state levies severance taxes when natural resources are extracted or “severed” from the land. 

The bill’s fiscal note estimates it would cost Louisiana $90 million over the next five years with costs ballooning each year thereafter. Parishes, which receive a share of severance tax revenues, will also lose millions, with annual costs pegged at $4.9 million by 2032. DeVillier has consistently pushed for tax breaks for the oil industry since he was elected nearly eight years ago.

The House Ways and Means Committee approved the bill in an 11-2 vote along party lines with Republicans supporting and Democrats opposing the measure. The vote aligns with the GOP’s cozy relationship with Big Oil but contrasts with the cautious approach Republicans on the committee took just a day before. 

On Tuesday, the committee took no action on over a dozen tax credit proposals, including one that would help low-income families with children. Chairman Rep. Stuart Bishop, R-Lafayette, set them aside to underscore the fiscal impact all the proposals would have on state revenues. 

Those same Republicans voted to slash the severance tax after DeVillier told them it would allow Louisiana to compete with other states and spur new oil production to the point of broadening the tax base and offsetting the revenue losses. 

He could not cite any specific studies to support his claim but pointed to state oil production data.

“No, but when you look at other oil producing states and compare the amount of jobs and the amount of production in those states, their actual production is going up while ours is going down,” DeVillier said.

Louisiana’s oil production actually increased nearly 2 million barrels in 2022, according to the state Department of Natural Resources. It was on a steady decline after 2014, following the drop in global oil prices.

Neither are severance tax revenues going down. According to the Louisiana Department of Revenue, state oil severance tax collections jumped 67% last year and are nearing pre-pandemic levels. At the same time, Louisiana has one of the nation’s lowest severance tax rates on methane at 4% yet produces a fraction of what Texas does. There is also a 100% severance tax exemption on all oil and gas extracted through horizontal drilling in Louisiana.

Oil sector jobs are also forecast to come back to the state without any new tax breaks. In January, LSU Center for Energy Studies researcher Greg Upton told Baton Rouge’s WVLA that Louisiana would gain an estimated 3,500 jobs in the oil and gas extraction sector this year.

Upton also testified before the committee Wednesday and said two separate studies show Louisiana already has a competitive severance tax structure and is in the middle of the pack, ranking about the same as Texas for oil and gas.

When Rep. Matthew Willard, D-New Orleans, asked if DeVillier’s bill would spur new production and create jobs, Upton said it would likely have just a marginal effect. The state will also have less money to spend,he said. 

“So, in a theoretical sense, reducing the tax rate will increase any activity. But in terms of how much of that is a separate question,” Upton said. “…The amount of new activity is not going to be large enough to make the fiscal note zero, for instance.”

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