Obama budget could hurt Oklahoma

Oklahoma Corporation Commissioners sent a letter Friday to President Obama and congressional leaders warning that the President’s proposed budget will have “disastrous effects on Oklahoma’s efforts to educate its children, clean its environment, and create jobs.”

Among other things, the President’s budget would repeal tax incentives needed by Oklahoma’s independent energy producers, even though many of those incentives will still be in effect for all other manufacturers.

The Commissioners noted that Oklahoma’s oil and natural gas industry provides, directly and indirectly, a huge percentage of the funding for public services, and is the single largest contributor to Oklahoma education.  It is also the sole source of funding for one of the most successful environmental clean-up programs in the U.S., the OERB. Oil and natural gas production and related activities also directly and indirectly account for about 20 percent of Oklahoma’s employment. Commission Chairman Bob Anthony said the President’s budget would “put the law of unintended consequences to work.” “The administration’s defense of its approach is that this strategy is necessary to decrease our dependence on foreign oil.  The tragedy is that this will, in fact, increase our dependence by driving America’s domestic producers out of business,” said Anthony.Commission Vice Chairman Jeff Cloud agreed, saying recent history shows what can happen.

“In 1980, then-President Carter successfully pushed through the Windfall Profit Tax on energy producers. Much of President Obama’s argument for his approach mirrors that used by the Carter administration.  As Carter did, President Obama says the extra revenue could be used to fund alternative energy and reduce our dependence on foreign oil.  But the same thing will happen today as happened under the Windfall Profit Tax. Our dependence on foreign sources grew by 13 percent and tax revenue from the industry decreased because domestic drilling budgets were slashed in order to meet the extra tax burden,” Cloud said.

In related news, U.S. Senator Jim Inhofe, leader on the board of the Environment and Public Works Committee, mentioned Oklahoma Gas & Electric’s (OG&E) success recently recognized by the U.S. Department of Energy's National Renewable Energy Laboratory (NREL) as providing the lowest price premium among more than 850 utilities nationwide for new customers who choose to purchase renewable power.

Inhofe said, “Developing and expanding domestic energy resources will translate into energy security and will ensure stable sources of supply and well-paying jobs for Oklahomans and Americans,” he said also announcing the opening of a new power line by OG&E which will utilize western Oklahoma’s wind energy potential.

Inhofe added, “To help spur wind power development, I have consistently supported the extension of the renewable electricity production tax credit, and I successfully included a provision to the Energy Policy Act of 2005 (EPACT) to increase private sector investment in high voltage lines by decreasing the depreciation period for these lines to 15 years.”

Corporation Commissioner Dana Murphy said what’s needed with a national energy program is a balanced approach.

“While we do need to continue to develop and implement alternative energy sources, we also have a very real need for oil and natural gas. Our domestic supplies are critical to meeting that need. Adoption of the White House policy will destroy the progress our state has made in education, in cleaning up the environment, and in improving our economy.”

Text of the Oklahoma Corporation Commission letter:

April 16, 2009

President Barack Obama

The White House

1600 Pennsylvania Avenue NW

Washington, DC 20500

RE: The Proposed 2010 Budget

Dear President Obama:

Energy tax increases proposed in your budget and that are expected to come before the Senate Finance Committee would have disastrous effects on Oklahoma’s efforts to educate its children, clean its environment, and create jobs. Any such new taxes will reduce investment in new oil and natural gas projects in a sector that provides energy to America and revenues to our state.

Oil and natural gas gross production taxes provide 10 percent of state-appropriated dollars for education in Oklahoma. The petroleum industry contributes a larger portion of education expenditures when direct income and property taxes are added, and provides an even larger percentage when similar taxes and sales tax revenues from spillover economic activity are considered. The oil and natural gas industry is the largest single contributor to our state’s education budget.

Oklahoma is plagued by thousands of dangerous and unsightly abandoned oil and natural gas drilling sites from the freewheeling days of the 1910s and 1920s. A voluntary assessment on the petroleum industry pays to clean up these sites and return the land to pristine condition.  This program remediates two to three sites every day. In these tight economic times, no funds are available for this critical environmental project other than monies obtained from the oil and natural gas industry.

Without considering spillover effects, the petroleum industry accounts directly for 16 percent of Oklahoma’s gross state product (GSP). It is a fundamental part of our state’s economic engine.  When spillover effects are added, as much as half of the state’s GSP is impacted by oil and natural gas.  In human terms, the industry accounts directly for 76,000 jobs and indirectly for 245,000 more jobs, out of a total employment of some 1.6 million.

Starting in 1982, Oklahoma endured one of the most severe economic stresses of any state in the nation, as we lived through a depression the likes of which had not been seen since the Dust Bowl period.  Oil and natural gas only recently helped to bring us out of these dire conditions.  If the proposed tax increases are adopted, Oklahoma will suffer not just a recession, but will return to economic depression.

Attempts to repeal expensing of intangible drilling costs, the percentage depletion allowance, the marginal well tax credit, and the enhanced oil recovery credit, as well as increasing geological and geophysical amortization will cause a range of serious consequences—forcing the petroleum industry to stop producing from stripper wells (wells that produce less than 10 barrels of oil or 75 mcf of natural gas per day) that make up much of Oklahoma’s production to halting or strictly curtailing drilling activities in the state. Such consequences translate to an end to major economic activity within our borders and reduced energy supplies resulting in higher prices for consumers.

Adoption of such policies will ravage our state budget—destroying progress we have made in education, in cleaning up the environment, and in returning our citizens to meaningful work. As the state-wide elected officials who regulate the oil and natural gas industry in Oklahoma and know its full impact on our people, we ask that you reconsider proposals that will devastate our economy.

Respectfully,

Bob Anthony     Jeff Cloud          Dana L. Murphy

Commissioner  Commissioner    Commissioner