The proposal, as explained (few have seen the actual language) would create a “trigger on the trigger”. If the big trigger is hit, the extraction tax would move to a permanent across-the-board 4.5% and all triggered reductions would go away forever. If oil prices unexpectedly rise in the next 45 days and the trigger is not hit, nothing changes and it stays at 6.5%. Everyone expects the trigger to be invoked, so this would protect the state’s budget on the short term, and provide a more budgetary certainly for the long run. From the industry perspective, they lose their likely “tax holiday”, but long term will see a significantly lower overall tax rate.For those unfamiliar with oil taxes, a brief refresher. Oil is taxed for production (in lieu of property tax) at 5% - this is where local formula funds are derived and has never been targeted for change. Oil however also has an “extraction” tax, originally imposed by a citizen vote - it is “generally” at 6.5%. “Generally”, because it has various reductions for both exploration and “stripper” wells, AND MOST IMPORTANTLY, this tax is reduced when oil prices hit certain “triggers”. There has been much discussion that current oil prices have hit the “small trigger” reducing the extraction tax on new wells to 4.5%. More significantly, if oil prices stay below a monthly average of $52.05/barrel for 5 months (the “big trigger), the extraction tax goes away for at least 10 months and longer if oil prices don’t increase above the “trigger” for five consecutive months. The price has been this low for 3 months already, and almost certainly will be four months by the end of April. The big and small triggers, coupled with the lower oil prices and consequent lower production, is projected to reduce state revenues in the $4 billion range.
Obviously, this is a HUGE ISSUE for the legislature, and as it enhances the projected bottom line, it will lead to other discussions about funding.
Getting back to more direct county issues, the following is a quick summary of several key pieces of legislation.
The “formula bill” (HB1176) , as reported last week, still remains in the House after unanimous passage in the Senate. Some are still urging a conference committee to address desired changes, but most representatives seem to desire to “concur” with the Senate and move on. If it is going to go into conference, action needs to take place soon.
SB2206, the social service grant cost shift, has been placed into conference. Senator Judy Lee will chair the conference and the other Senators are Dever and Warner. The House is expected to appoint theirs Friday afternoon. DHS and the counties will be urging some adjustment to the language regarding county social services budgeting for the next two years. The other big issue is the Senate proposal to develop a state/local commission for planning to move 100% of the costs to the State in 2018, while the House wants this done more directly by a Legislative interim committee.
As previously reported, in the Health Dept. Budget (HB1004), the Senate approved an add-back of $500,000 for local public health that was removed by the House. To give you all the numbers on this:
- Current appropriation is $4.0 million,
- Public health asked for $5.9 million,
- Governor recommended $5.0 million,
- House approved $4.25 million
- Senate approved $4.75 million
The DOT budget (HB1012) is also in conference and there is a strong effort to get a restoration of at least $200 million of the $400 million reduction from the Governor’s recommended funding level for state highway construction
HB1055, the “mills to cents” proposal was already reported DOA!!!
The Governor’s property tax reform proposal (SB2144) was passed by the House, and is awaiting concurrence in the Senate.
There was a brief 24 hours of anxious work on another tax bill, HB1057 – the assessment notice bill. In conference, amendments were floated to impose a variable property tax cap on all of local government. These amendments however were rejected.
HB1059 to extend state-paid property tax relief to utilities, will likely be the last property tax bill in conference, and as such, may become a “Christmas tree” of sorts. This now contains a modified assessor training requirement and also an enhancement to the state-paid homestead property tax credit program.
Also still in the works are:
- SB2143 – Senior mill match funding
- HB1020 – UGPTI budget and local roads study funding
- SB2012 – DHS budget and enhanced county admin support for expanded Medicaid
- SB2008 – PSC budget and proposal to fund a new rail monitoring unit with gas tax
- SB2016 – DES budget and funding for statewide mobile radio needs