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Legislative Report – Week 17

Legislative Report, Week 17, 64th, Senator Murphy

The Republican leadership sprang a bill on us last Friday, the seventieth day of the session. With their stated goal of being done in 75 days, this bill of momentous fiscal significance seems to have been introduced with nearly no chance of contemplation and only limited testimony. It would lower the extraction tax from 6.5% to 4.5% if the big trigger kicks in. Without this bill, the big trigger would knock the extraction to zero for two years on newly producing wells. There are some complicating contingencies so it is not all simple, but essentially the trigger stays pulled until oil prices rebound to over $55.09 (at this time, but it is annually adjusted for inflation) or so per barrel for five months in a row. Obviously, 6.5 to 4.5% is a reduction of about thirty percent. In 1980, the voters of this state instituted the 6.5% oil extraction tax by initiated measure. Since then, every exemption the industry enjoys has come from the Legislature poking loopholes in that policy. Now, the Legislature wants to bargain a lower rate for getting rid of some of the exemptions that they themselves put in. It is being sold as a tax hike for now because 4.5% is better than 0. I get that part, but you had all better be aware that this bill states that this new lower rate will be forever, and that part I do not get along with at all. For example, had that policy been in place the last biennium, it would have cost us around $640 million. We can do a lot with that kind of money, and that was for 2011-2013 before we even got close to the 1.2 million barrels per day that we achieved in 2014.

When our state has money, we can afford to lower tax rates, especially property taxes, and still afford to fund services at a level that can improve our quality of life. This is a onetime harvest of an incredible resource and it does not seem to me that our tax rate has inhibited the oil companies in any way. In fact, three oil industry CEO’s have told me over the last five years that there is nothing wrong with our state tax on oil, and even gone so far to say that our rate helps their companies be better stewards. One mentioned that when working in countries with low tax rates, he noticed that oil companies paid little heed compared to countries that charged more for their oil. Estimates reveal that it will cost us over $6 billion in the next ten years if this bill is approved. Extrapolate the life of the play and conservatively, it runs many times that. Who profits from that money not going to the state of ND?

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