OKLAHOMA CITY —
Promises made to the state’s oil and natural gas industry during a fiscal crisis two years ago will cost Oklahoma nearly twice as much as originally expected, leaving budget officials with $48 million less to work with in the upcoming fiscal year and.
With projected increases in income taxes and sales taxes for fiscal year 2013, Oklahoma should have expected a roughly $91 million increase in the amount that will be certified for lawmakers to spend on next year’s budget. But drilling-related tax breaks will cut that amount to around $43 million, according to figures obtained Thursday by The Associated Press.
The incentives are more than anticipated because drilling in Oklahoma has increased greatly in the last year. The new figures, and the profits enjoyed by the oil and gas industry, raised questions among some lawmakers about whether the incentives are needed.
“It’s a giveaway to people who already have the greatest advantages on the backs of public services that working families depend on,” said Sen. Tom Adelson, D-Tulsa. “You’re basically taking away services from working class families and giving it to people who already have extraordinary wealth. I think it’s really an embarrassment.”
The breaks are on oil and gas production taxes for horizontal and deep-well drilling. The figures approved Thursday by the Oklahoma Tax Commission show Oklahoma must repay developers $294 million over the next three years, not $150 million as initially projected. Oklahoma temporarily suspended tax breaks amid a fiscal crisis in 2010 and promised to repay them beginning this year.
Senate President Pro Tem Brian Bingman, R-Sapulpa, said the incentives make Oklahoma more attractive to oil and gas companies, which in turn generate other forms of revenue and economic development for the state.
“The oil and gas industry has done their part — drilling more wells and creating more revenue for the state and the economy,” Bingman said. “It’s an incentive for them to drill more wells. The money that they realize has to go back in the ground. They’re taking those dollars and drilling more wells, which creates more jobs and keeps people employed.”
But Adelson, a partner in an oil and gas company that’s currently drilling in Oklahoma and several other states, said companies will drill wherever there is oil and gas, regardless of whether they get a tax break.
“It’s simply not a factor for us at all,” Adelson said. “You’re rewarding behavior that is going to occur anyway.”
The adjustment changes how much will be available for lawmakers to spend. The State Board of Equalization meets next week to determine the overall amount. That figure is expected to be roughly $43 million more than the initial estimate made in December, due in large part to an increase in corporate and individual income tax collections, sales taxes and motor vehicle revenues. But the figure would have been much higher if not for the rebates that must be paid to oil and gas companies.
Oil and gas companies that claimed the tax break had until Dec. 31 to file their claims with the state, said Oklahoma Tax Commission Administrator Tony Mastin.
“We didn’t know until January, until we got through processing those actual claims, that we added up to get to the $294 million in claims,” Mastin explained.
The projections for the gross production tax on natural gas also will be reduced because of the falling price of natural gas in recent months. The December estimate was based on a projected average price of $4 per 1,000 cubic feet, or Mcf, while the revised February figure will be based on a projection of $3.64 per Mcf, according to the Tax Commission.
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Sean Murphy can be reached at www.twitter.com/apseanmurphy
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