US Lawmaker pushes repeal of gas drilling tax break

March 09, 2011 | Government & Regulations

Rep._Burnam_LonRep. Lon Burnam, D-Fort Worth, has introduced legislation to repeal a tax break for high-cost natural gas production as part of a package of revenue-raising measures that he says is needed to help soften the impact of deep budget cuts being advanced in the Republican-controlled Legislature.

The measures would raise a total of $2.8 billion, but Burnam acknowledged that Republican support is essential for his proposals to gain traction. Republicans outnumber Democrats in the House by 101 to 49, giving them a two-thirds supermajority.

“All of this is dependent on the Republicans that are in control to decide that it is time to start acting like adults in dealing with this budget,” said Burnam, who has often been described as one of the chamber’s most outspoken liberals. “The only thing I can do as a minority party person is to [propose] some ideas and get them ready for considering.”

Lawmakers are struggling to write a balanced budget over the next two years in the face of a multibillion-dollar shortfall. Although Gov. Rick Perry and Republican legislative leaders have ruled out new or increased taxes, Burnam said that more lawmakers in both parties are privately taking a closer look at revenue raisers — such as lifting exemptions — because of the magnitude of cuts in services.

Burnam also cited a recent report from Standard & Poor’s, a major bond-rating firm, that said Texas budget-writers should consider a “balanced approach” that includes “both revenue enhancements and expenditure cuts.”

But Dale Craymer of the Texas Taxpayers and Research Association said he has heard no serious discussion about eliminating exemptions. “The general consensus is that if you raise money by eliminating a tax exemption you’re still raising taxes, and folks want to avoid that,” he said.

An alliance of industry groups is waging an intense effort to protect the 22-year-old exemption on high-cost gas extraction, which has figured heavily in national gas production in the Barnett Shale. An executive with Chesapeake Energy told members of the Tarrant County legislative delegation recently that the company would consider curtailing activity in Texas if the exemption is discontinued.

“It’s hard to imagine a worst time for Texas to do away with an incentive that provides one of the few bright spots in our economy today,” said James LeBas, a fiscal consultant for the Texas Oil and Gas Association. LeBas said oil and gas development has been “one of the few growing segments” of the state’s economy and “there are a lot of states ready to take away our rigs and our jobs.”

The exemption, created by the Legislature in 1989, has encouraged the industry to develop innovative and costly drilling techniques to extract hard-to-get natural gas. A draft study by the Legislative Budget Board said the exemption cost Texas about $7.4 billion in potential revenue over the past six years. The exemption will amount to $962.5 million during fiscal 2011, increasing to $1.3 billion by 2014.

Industry officials say the exemption generates $4 of economic growth for every dollar invested and creates nearly 40,000 jobs a year. Burnam acknowledged that the exemption has been “highly successful” in stoking natural gas production in formations that are more expensive to develop. But he said the incentive is no longer needed and therefore should be “reduced or eliminated.”

Removing the exemption would raise $2.3 billion over the next fiscal biennium. Burnam’s other proposals include reducing the size of discounts that businesses receive for collecting and remitting sales taxes and assessing a fee for loading and unloading coal onto trains in Texas.

The coal fee would raise $380 million, and changing the sales tax discounts would generate $152 million, Burnam said. The Fort Worth lawmaker is also proposing a measure that he says would close a loophole that now allows Texans to get cheaper concealed handgun permits in other states; if enacted, Burnam said, that proposal would help Texas keep $850,000 in revenue.