Oil Industry Keeps Watchful Eye on High-Impact Proposals
by Julie Anderson
As March came to a close, Texas lawmakers had cleared one major hurdle: March 8. The 60th day of the 86th Legislative Session was the deadline for the unrestricted filing of bills and joint resolutions other than local bills, emergency appropriations, and emergency matters submitted by the governor. Some 7,199 bills were filed by the deadline, according to Texas Legislature Online General Reports, https://capitol.texas.gov/Reports/General.aspx.
The next important deadline is a big one: On Monday, May 27, the 140th day, the Legislature is set to adjourn sine die. (While rumblings of a special session have already started, no one wants to go there yet).
Industry Impact
From the time the gavel fell, the Permian Basin Petroleum Association (PBPA) tasked itself with an education initiative.
“Our main objectives all center on the need to convince those elected officials who benefit from the oil and gas produced in the Permian Basin, but who don’t have constituencies out here, that supporting what goes on in the Permian Basin supports the entire state,” shared PBPA President Ben Shepperd. While few legislators negate the powerful industry impact in Texas, whether it be strengthening state coffers, boosting employment, or contributions to counties and communities, those who live outside the region may not fully comprehend the infrastructure challenges.
Road Funding
For the past several years, the oil production tax has pumped more than $2 billion into state coffers, with natural gas bringing in just under $1 billion. The money is divided among several state funds, including the Rainy Day Fund, the State Highway Fund, and the Foundation School Program. There is, however, another side of the coin, one the industry has acknowledged and wants to address: the impact on affected roadways. Unfortunately, the tax money generated by the industry is not being used on a broad scale to address road concerns in the oil- and gas-producing counties.
The PBPA has taken an “all-of-the-above” approach when it comes to road funding this session, shared Stephen M. Robertson, executive vice president of the PBPA, during the March PBPA luncheon.
One bill the industry is carefully monitoring is House Bill 42 by Rep. James White, which calls for allocating a portion of the oil and gas production tax revenue to the counties from which the oil and gas originated.
The proposed legislation includes the following language:
- send to the county treasurer payable to the county the county’s share of the revenue in the trust fund as provided by this section.
- A county’s share of the revenue in the trust fund is equal to the proportion that the gas production and oil production in that county bears to the total gas production and oil production in this state.
- A county may use money received under this section only to supplement construction and maintenance of county roads and bridges that are impacted by oil and gas exploration and production activities.
“H.B. 42 could be a great vehicle to get much-needed road funding to the counties in the Permian Basin,” Robertson observed. “As with the other road funding bills that have been filed this session, the PBPA is keeping an open mind to all paths and is supportive of anyone’s efforts to help the Permian Basin.
“However, since the funding mechanism (reallocating severance tax revenues destined for the Rainy Day Fund) would require a constitutional amendment, the 100 votes necessary in the House may be hard to come by.”
As of April 1, H.B. 42 was in the Ways and Means Committee.
Texas Generate Recurring Oil Wealth (GROW) Fund
Rep. Brooks Landgraf and Rep. Tom Craddick filed a legislative package also designed to bring state money generated by oil and gas production back to the Permian Basin and other areas where those tax dollars originate, according to a press release from Landgraf’s office.
House Bill 2154/ House Joint Resolution 82 would direct state funds “to make drastically needed improvements to expand roads, boost public safety, and enhance educational opportunities across energy-producing areas.
“Oil and gas production in Texas creates countless jobs, generates billions in tax dollars, and helps fund public education across the entire state,” Landgraf shared. “But this single-largest economic driver in Texas is being threatened because of inadequate state investment in highway safety and infrastructure and educational opportunities in Texas’ energy-production hotbeds.”
If passed, the legislation would create the Generate Recurring Oil Wealth for Texas Fund, or the “GROW Texas Fund.” The fund would not raise or create taxes. Instead, it would secure existing state revenue paid by oil and gas producers through severance taxes for specific re-investment in the Texas oil patch that has been strained to the brink by record-breaking production in recent years.
The creation of the fund would require a constitutional amendment, covered by H.R.J. 82.
As specified in the resolution,
“The legislature may appropriate money from the generate recurring oil wealth for Texas (GROW Texas) fund only for use in areas of the state from which oil and gas are produced and only for the following purposes:
- to construct, maintain, or improve public roadways and related infrastructure;
- to address public safety concerns relating to public roadways, including concerns resulting from the increased amount of traffic on those roadways; and
- to fund grants to state agencies and political subdivisions of the state to address public safety concerns and supplement educational opportunities.”
Specifics would include expanding highways and public roads, increasing law-enforcement and first responder salaries, and revitalizing education and skilled-workforce opportunities by dedicating money to teachers, schools, colleges, and universities.
“Growing energy production in the Permian Basin and other regions around the state is causing strains on infrastructure that could threaten continued growth in these areas and prosperity for the state,” Robertson summarized.
“By reinvesting only a relatively small portion of the taxes paid by the industries creating the prosperity, but also causing the strains, such prosperity can continue while the strains are diminished,” he concluded.
On March 6, H.B. 2154 was referred to the House Appropriations Committee.
Eminent Domain
If passed, House Bill 991/Senate Bill 421 could also affect infrastructure, which is critical to oil and gas operations. H.B. 991 was filed by Rep. D. Wayne Burns, while S.B. 421 was authored by Sen. Lois Kolkhorst.
The author/sponsors’ “statement of intent” details three components “designed to provide additional protections and transparency for landowners who are forced to undergo the condemnation process.” The legislation is largely limited to private condemnors.
The bill requires private condemnors to use standardized easement forms that contain minimum protections for landowners related to issues that they may not otherwise know to discuss. S.B. 740 from the 85th Regular Session contained similar language.
The bill also requires a private condemnor that wishes to acquire for the same public use one or more tracts of real property located entirely in one county and owned by at least four property owners to hold a public meeting in that county to allow the public to learn more about the acquisition.
Finally, according to the authors, this bill contains a provision “designed to prevent low-ball offers.” The bill would require a court to award additional damages to a landowner if the award made by a special commissioner is vastly higher than the initial offer. The bill provides varying levels of damages. If the special commissioners’ award to the property owner exceeds the amount of the condemnor’s initial offer by:
- at least 25 percent but less than 50 percent, the condemnor pays the damages awarded and an additional 25 percent of the damages awarded;
- at least 50 percent but less than 100 percent, the condemnor pays the damages awarded and an additional 30 percent of the damages awarded; or
- 100 percent or more, the condemnor pays the damages awarded and 35 percent of the damages awarded. (Original Author’s/Sponsor’s Statement of Intent).
Eminent domain reform has been a process that has continued for several sessions, Robertson noted.
“Changes to eminent domain authority for private entities could have great impact on midstream and electrical transmission and distribution companies,” he continued. “As many know, the Permian Basin is currently experiencing takeaway constraints and electrical delivery and reliability issues because of the growth in production in the area.
“Further constraints on takeaway or delivery of electricity through negative eminent domain reform will impact operations in the Permian Basin and hamper prosperity for the entire State of Texas.”
On March 27, S.B. 421 was placed on the Senate Intent Calendar. As of April 1, H.B. 991 was in the Land and Resource Management Committee.
Property Tax Reform
While House Bill 2 and Senate Bill 2 are not specifically oil and gas operations bills, they could have a large impact on oil and gas operations in the Permian Basin, Robertson said.
Gov. Greg Abbott, Lt. Gov. Dan Patrick, and Texas House Speaker Dennis Bonnen made a joint appearance early in the session to announce the filing of the two identical property tax reform bills in the Texas Senate and the Texas House. Patrick described the occasion as a “historic day” and went on to explain the bills as follows:
“Legislation has been filed in both the Texas Senate and the Texas House that will finally address the rate of growth of local property taxes. This legislation is a demonstration of what we can accomplish in Texas when leadership is united to address the number one priority of Texans across the state—reducing the growth of property taxes. This legislation will address property tax growth for homeowners, which is 8 to 9 percent a year in some cities and counties. It will also reduce the burden on Texas businesses, too many of whom have been driven out of business by high property tax rates.
“SB 2, authored by Sen. Paul Bettencourt, R-Houston, and HB 2, authored by Rep. Dustin Burrows, R-Lubbock, will increase transparency and ensure that taxing entities with revenue over $15 million cannot increase last year’s local revenue by more than 2.5 percent plus growth without a vote of the people.”
Representatives from local governments including cities and counties joined first responders and other affected organizations for a press conference following the announcement to express concerns about the revenue cap. Those offering comments said that restricting revenue would hinder their ability to respond to emergencies, provide help during disasters, and address pressing infrastructure needs such as road and bridge repair.
“Any changes to the property tax system in Texas are going to have an impact on the oil and gas industry, either because of the taxes our members pay or because of how that revenue is allocated and spent by the state,” Robertson offered. “This session, in particular, we are very interested in both sides of that coin because the Permian Basin needs better support from the state for local road infrastructure, schools, medical care, and other areas.”
On Feb. 11, the Senate’s new Property Tax Committee passed an amended version of S.B. 2 in a 4-0 vote. A committee report was printed and distributed on Feb. 15.
On March 27, a committee substitute of H.B. 2 was approved in the House Ways and Means Committee by an 8-3 vote.
To monitor all legislation, go to https://capitol.texas.gov/Home.aspx.
—Julie Anderson is the editor of County Progress Magazine, and the former editor of Permian Basin Oil and Gas Magazine.