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Montana Viewpoint©

TO DREAM THE IMPOSSIBLE DREAM

February 2, 2009

Is there a change in taxation in store for Montana’s oil and gas industry? There are a couple of legislators who have introduced bills to either rescind a tax break oil companies got in 1993 or impose a sort of surcharge on production. Governor Schweitzer seems to be enthusiastic about the latter. Best of luck, but my money’s on the big money. In my 16 years in the legislature, I can’t remember a time when taxes were increased on oil production, and believe me, I tried. I can, however, remember several times when they have been reduced.

Montana’s oil industry has protected itself well from paying taxes by playing the Montana and North Dakota legislatures for suckers, which seems to be what they are. The oil industries of the respective states raise the spectre of the loss of jobs and tax revenues of state A if they don’t bring their oil taxes in line with state B. The threat being that they will move their oil rigs to the other state. I first discovered this in 1991 while I was researching a tax break the Montana oil industry wanted so that we would be on a “par” with North Dakota taxes. I did something apparently few legislators had done and called the North Dakota Department of Mineral Resources which handles this sort of stuff. “Oh, they’re doing that again,” said the fellow I reached. “They’ll be over here next year to get us to lower our taxes to be in line with yours.” This is called a “shell game” in a carnival, but if it works in politics…what the heck.

I have often imagined a mythical “Oilvane,” sort of like a weathervane—an oil rig mounted on a turntable—somewhere in Richland County that points the rig towards whichever state they will be moving to if the tax situation isn’t addressed to their liking. But it only points East or West, and Wyoming, which is by far the largest oil and natural gas producing state in the area, never gets targeted. Why is that? Is it because (what do you call them, Wyomers, Wyomites, Wyomingers?) the folks in Wyoming have the revealed knowledge that if the petroleum industry doesn’t like the taxes in Wyoming they can’t pick up their oil and go home. Wyoming has the distinction of getting a lot of oil tax revenue because they actually collect it, and they do it based on sound economic principles.

In 1999, and again in 2001, the Wyoming Legislature paid for studies on the effects of taxation, environmental control, and freight rates on oil, gas, and coal production in Wyoming. The 2002 study is 218 pages long and was sent to me courtesy of the Equality State Policy Center in Casper, Wyoming. It said, in part, that Wyoming could DOUBLE taxes on oil and gas without having a negative effect on state revenue, in fact, it would increase revenue. Well, Wyoming didn’t do that, but they didn’t lower taxes, either. This is an occurrence of that exceedingly rare phenomenon in a legislative body of favoring fact over fiction. My hat is off to them.

In Montana we have an Oil and Gas Production Holiday which was enacted in Montana in 1993 by Democrats and Republicans alike as an incentive to help the oil industry out in hard times. Oil was chugging along at between 12 to 14 bucks a barrel, and it was allowed that a tax holiday might keep the oilvane pointing towards North Dakota or maybe even spur new investment. It’s interesting to read testimony from the hearing. These guys are good at what they do.

They said that Montana’s oil production tax revenues were declining at a rate of 7% a year, and that the best way to slow that decline was to give a tax incentive, “since the discovery of a new major oil field in Montana was unlikely.” Interestingly, the area they were talking about is the same area that was to become that “major new oil field” just a couple of years later called the Bakken formation. In light of this, one might suspect that our legislature would want to revisit the tax breaks given the oil folks, but the legislature hasn’t gone near it with a ten foot pole, despite the fact that oil prices went up to around $100 a barrel and the Bakken formation is considered one of the largest oil reserves in the world.

In March 2008 I requested information from the Montana Department of Revenue on tax revenues lost due to oil and gas production tax incentives. Combining the amounts lost to the state and oil production counties the loss amounted to $94 million in 2005 and $107 million in 2006. For Montana alone the loss was $51 and $56 million respectively. From 2003 through the third quarter of 2007 the total state and county amount was $332 million.

Good luck getting any of it back, but you can always dream.


Montana Viewpoint© is carried by 20 Montana weekly newspapers, including those in Helena and Billings, with a combined circulation of over 60,000.

Jim Elliott is a former state senator from Trout Creek. He served in the Montana House 1989 to 1996 and the Montana Senate from 2001 to 2008. Elliott has distributed his opinion column statewide since 1992. There is no charge for publication.