The macrocosmic reviews of the 2019 140-day session are replete with feel-good language: Cooperation Instead of Combativeness. An Aura of Kumbaya. Playing Nice. Mission Accomplished.
The trio known as “the Big Three” vowed in the early going to address property taxes and school finance. Texas Gov. Greg Abbott, Lt. Gov. Dan Patrick, and Speaker of the House Dennis Bonnen have claimed victory, saying the bigger picture took precedence over personal differences—unlike two years ago—resulting in the passage of Senate Bill 2 (property tax reform) and House Bill 3 (school finance).
The macrocosmic review is not unreasonable; after all, it’s difficult to provide a concise summary of a session that saw 7,324 bills filed. Of those 7,000-plus bills, 1,429 have passed and been forwarded to the governor, who has until June 16 to veto.
When it comes to the microcosmic review—whether it be breaking down each bill that affects your particular world; replaying dramatic video (like that moment Sen. Kel Seliger addressed decorum on the Senate floor); or remembering the two-minute testimony you made on behalf of an association or an industry—there were several noteworthy moments with noticeable spark and powerful impact.
A Pretty Big World
Perhaps no other industry, no other micro within a macro, no other world within a world, has more of a far-reaching impact than the oil and gas industry, and consequently, the Permian Basin. You rarely have to throw out the stats anymore, but for credibility’s sake, here’s a powerful one: Texas Comptroller Glenn Hegar estimated that oil production and natural gas tax collections will generate $10.7 billion for the 2020-2021 budget cycle, which is up some 10 percent from 2018-2019.
One of the key legislative priorities of the Permian Basin Petroleum Association (PBPA) was to help lawmakers outside of the Permian Basin understand the importance of the region to the state as a whole. It seems that message was well received.
“The Permian Basin oil and gas industry was an important part of the conversation on many budget and policy issues this session,” shared PBPA President Ben Shepperd.
“The PBPA fared well this session, in particular because of our focus on working with our member companies to discuss the challenges we face and developing solutions with those members that would benefit the industry at large,” Shepperd continued.
The Budget
As far as overall budget appropriations were concerned, the funding of the industry’s regulatory agency, the Railroad Commission of Texas (RRC or Commission) was THE concern.
“One of the highest priorities for the PBPA and its members in Texas is the funding of the RRC,” Shepperd said at the beginning of the session. “We believe a properly funded Commission is important and critical to ensure the public that we have a strong, effective regulator overseeing the oil and gas industry.”
The RRC made a baseline budget request of $252.75 million, which is close to its 2018-2019 biennium budget. This amount includes money for an additional 22 full-time pipeline inspectors and $10 million to modernize its IT systems. The agency did not ask for an increase in fees.
“We were able to maximize funding for the Railroad Commission, plus we advocated to acquire an additional $26.9 million in funding to update their computer system [no more Fortran], which we hope will increase permit efficiency, among other things,” Shepperd reported.
House Bill 1, the state budget, has been sent to the governor, who may veto individual line-items within the $250.7 billion, two-year budget.
Abbott has until June 16 to sign or veto the bills that passed. However, no piece of legislation requires the signature to become law. In Texas, the governor may choose to file a bill without a signature, allowing it to become law but without his express endorsement.
Infrastructure: Roads
The PBPA crafted a message to try to help all lawmakers understand that the economic growth the Permian Basin has provided is only possible if infrastructure growth is supported as well. This message was apparently communicated, as lawmakers have earmarked $250 million to address county roads with legislative emphasis on oil- and gas-affected areas.
House Bill 4280 addressed the grant program that distributes money from the Transportation Infrastructure Fund. House Bill 1, the budget, allocated $125 million to this fund, which is open to all 254 counties. The grant distribution formula points specifically to oil and gas activity.
H.B. 4280 was sent to the governor on May 29.
Senate Bill 500, the supplemental appropriations bill, allots $125 million from the economic stabilization fund to the Department of Transportation for a two-year period to provide grants for transportation infrastructure projects under Subchapter C, Chapter 256, of the Transportation Code. S.B. 500 was signed by both chambers on May 27 and sent to the Office of the Texas Comptroller on May 28.
Infrastructure was also addressed in the proposed Texas Generate Recurring Oil Wealth (GROW) Fund, represented by House Bill 2154/ House Joint Resolution 82 filed by Rep. Brooks Landgraf and Rep. Tom Craddick. The intent of the bill was to direct state funds “to make drastically needed improvements to expand roads, boost public safety, and enhance educational opportunities across energy-producing areas.”
A committee substitute was voted out of the House Committee on Appropriations on April 29. On May 10, Craddick raised a point of order against further consideration of H.B. 2154 under Article III, Section 30, and Article III, Section 35, of the Texas Constitution on the grounds that the original purpose of the bill had been changed and the bill contained more than one subject. The point of order was sustained, which precluded further consideration of the bill, according to the House Journal.
When all was said and done, the Legislature acknowledged the need to focus on energy-impacted roads and appropriated $250 million to help with county road infrastructure.
Infrastructure: Judiciary
Oil and gas facilities have now been included in the definition of critical infrastructure via House Bill 3557, which relates to civil and criminal liability for engaging in certain conduct involving a critical infrastructure facility.
H.B. 3557 was sent to the governor on May 29.
Infrastructure: Water
“Huge strides in water recycling were accomplished as House Bill 3246 was passed to allow the industry to more clearly operate and promote the produced water recycling industry,” said Stephen Robertson, PBPA executive vice president.
As explained in the bill analysis, the state advocates the recycling of fluid oil and gas waste, and the legislature has sought in the past to clarify ambiguities regarding the ownership of such waste. H.B. 3246 sought to address this oversight by addressing a situation in which fluid oil and gas waste is produced and used by a person who takes possession of that waste for the purpose of treating the waste for a subsequent beneficial use.
The new law amends the Natural Resources Code as follows:
Unless otherwise expressly provided by an oil or gas lease, a surface use agreement, a contract, a bill of sale, or another [other] legally binding document: When fluid oil and gas waste is produced and used by or transferred to a person who takes possession of that waste for the purpose of treating the waste for a subsequent beneficial use, the waste [transferred material] is considered to be the property of the person who takes possession of it for the purpose of treating the waste for subsequent beneficial use until the person transfers the waste or treated waste to another person for disposal or use.
H.B. 3246 was filed without the governor’s signature on May 24 and will go into effect on Sept. 1, 2019.
Eminent Domain
While both the House and Senate each passed their versions of eminent domain legislation, they were unable to find common ground between those versions.
“The PBPA worked diligently with stakeholders to provide a clearer process for eminent domain, and we continue to be committed to this moving forward,” Robertson said. “While we work with landowners and their representatives to address their concerns, we must, however, ensure that these reforms do not inhibit the ability of producers to move product to market.”
School Finance
Named an emergency item by the governor in the early going, funding public schools dominated the 86th session. With the passage of House Bill 3, approximately $11.6 billion will now flow from the state to Texas school districts. The bill includes property tax cuts, an increase in per-student funding, money to ease the state’s reliance on the “Robin Hood” program, and mandated teacher pay raises with an emphasis on veteran educators. H.B. 3 was sent to the governor on May 29.
Property Tax Reform
The governor also named property tax reform as an emergency item. However, the initial proposal represented in Senate Bill 2 faced a potential stalemate. The reform measure was written to require cities, counties, and school districts to seek voter approval for tax levy increases of more than 2.5 percent in a given year, not including new growth. The bill lingered for two months in the upper chamber, where it lacked the supported needed to bring a bill up for debate.
The lieutenant governor publicly threatened to bypass decades of tradition and use the “nuclear option” to bring S.B. 2 to the floor via the “blocker bill.”
For nearly half a century, the Texas Senate has routinely used a blocker bill. According to the Legislative Reference Library, a blocker bill is introduced, passed through committee as quickly as possible, and placed at the top of the Senate’s calendar, where it remains for the rest of the session. When a bill or resolution is reported from a Senate committee, it is listed on the daily Senate calendar in the order that it was received. Since the blocker bill is at the top of the calendar, each subsequent bill must be considered technically out of order and therefore needs a two-thirds vote of senators present to be discussed and voted on.
Passing the blocker bill would allow Patrick to bring a measure to the floor with a simple majority of senators, just 16.
When it came to S.B. 2, Sen. Kel Seliger, the lone Republican vocal dissenter, represented the vote needed to bring the measure to the floor via the traditional practice. Seliger eventually allowed the bill on the floor after decrying the abandonment of Senate decorum, but he did not support the bill’s passage.
Seliger’s decision to reluctantly acquiesce came in tandem with a reworked bill that included some technical changes along with one concession: the updated version forces cities, counties, and other taxing entities to receive voter approval before raising 3.5 percent more property tax revenue than the previous year, a change from the 2.5 percent trigger originally proposed.
School districts will still face the 2.5 percent threshold under the original version of the bill.
Community colleges and hospital districts will need to hold an election before surpassing 8 percent property tax revenue growth.
According to the legislation, named the Texas Property Tax Reform and Transparency Act, some of the money taxing units spend providing indigent defense attorneys and indigent health care will not be factored into the revenue growth calculation. In addition, taxing units will be able to bank unused revenue growth for three years, allowing them to exceed the 3.5 percent threshold in some of those years.
Tax districts can raise $500,000 without having to hold an election as long as that increase does not exceed 8 percent revenue growth. The $500,000 figure should change with inflation, and the election to exceed 8 percent growth is not automatic; rather, voters will have to petition for the election, though they will need to gather fewer signatures than what is required in current law.
S.B. 2 was sent to the governor on May 28.
On to the Interim
“We are proud of our efforts, and while the legislature may have adjourned on May 27, the work on interim issues and the preparation for next session began on May 28,” Shepperd stated. During the 86th session, the Permian Basin oil and gas industry was at the table and a part of budget and policy discussion.
“We believe this will continue to be the case,” Shepperd predicted, “and we will work hard during the interim to increase legislative members’ understanding of the important role the Permian Basin plays for the entire state.”
For more information on legislative issues, go to www.pbpa.info.
Julie Anderson is editor of County Progress Magazine and former editor of Permian Basin Oil and Gas Magazine.