How Texas Got Fracked Over By Gas Drillers

Categories: Schutze
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We added insult to injury a long time ago in this whole business of fracking in Dallas -- you know, the kind of natural gas drilling where they blow up underground rocks in a geological formation called the Barnett Shale, releasing trapped gas. Now, if you don't mind, I need to add injury to insult to injury: The state is letting the frackers skate out of paying their taxes.

The original injury here is the air and groundwater pollution associated with so-called injection wells in this part of Texas. Since they started doing it in Fort Worth, air pollution there has doubled. The original insult was when the Texas Railroad Commission, the weirdo 19th-century government body in charge of regulating this stuff, decided not to regulate it.

But here's the new injury: An analysis purportedly carried out by the by the Texas Legislative Budget Board but buried by somebody, according to the Texas Observer, shows that the fracking industry has been dodging its fair share of state taxes by a cool $8 billion just for wells drilled in 2009.

Does that number ring a bell? Maybe that's because it's very close to the shortfall in state education funding -- a deficit that is about to decimate public schools across Texas.

(Update at 4:12 p.m.: I've posted an update in the comments. But long story short: The LBB called me back, said it is their report, and told me they didn't publish it because they were told not to.)

The report connects some important dots: The money the drillers are failing to pay in Texas comes straight out of that Rainy Day Fund -- you know, the cash reserve everybody was hoping could be used to stave off this crisis. Sounds like the fund would be twice its current size if the frackers had paid their decent due.

The report is clear. That damned Railroad Commission came up with a wing-ding definition of "high cost drilling" -- forget it, it's part of a technical formula -- effectively allowing much of the industry to skate on its taxes.

Totally.

They're supposed to pay 7.5 percent on revenues. The report says many of them pay zero percent -- nothing. The average rate is less than 2 percent.

And here's the other part: While the Rick Perry Republicans have been down there talking about gutting public education in Texas, this report apparently has been buried. Somebody must have leaked it to some reporters yesterday, and now it's out and about.

I have a call in to the Legislative Budget Board -- as does every other reporter in Texas covering this issue, I must assume, and since yesterday they ain't been talkin'. I do have to issue a caution. I guess the report could be a fake.

I also have a call in to Dallas' own Republican Rep. Dan Branch from District 108, who is a member of the Legislative Budget Board's board of directors.

It doesn't look like a fake, and in the discussion of it in Austin nobody has suggested it's a fake. But in the absence of a call-back from the LBB, I can't assert its absolute authenticity here.

Why talk about it now, before it has been authenticated? Listen: In the current political atmosphere in Texas, the only way to get the truth out of those bastards is with a technique I call journalistic fracking. It's very technical, but I will try to simplify.

We know there are large deposits of truth trapped in an intellectual formation we call the "Rick Perry Shale." By injecting information into the Rick Perry Shale under extremely high pressure, we are sometimes able to blast some of that trapped truth free. So turn away and put your finger in your ears.

How do we react to this? Pollute us. Fool us. Pick our pockets. Abuse our children. But what? Don't do it twice? Is Texas just totally populated by people who allowed other kids to steal their lunch money when they were in elementary school?
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44 comments
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tzayad
tzayad

I know this is old news, but would like it to be brought back up.  In comparison to the amount of chems that is injected into both Tarrant and Dallas Counties...does it compare to the chem plant in Waxahachie?  That company is in the process of trying to buy and relocate to the defunct SSC in the heart of ag land.  If they have another accident, how much will the environment be impacted by that?

Nunya
Nunya

This is what happens when you have the Railroad Commission in charge of anything more complex than an iron rail running into the Sunset and it just makes me wanna go Perry hunting around Austin....My kid's education is being gutted, while that scumbag lives in his $ 10K a month Rent-A-Mansion. The second coming of George W. Bush and I just can't believe we Texans are falling for this same trick all over.

Nestle Springs on FB
Nestle Springs on FB

LET'S SEE IF THERE ARE MILLION PEOPLE ON FACEBOOK WHO WANTS CLEAN,PURE DRINKING WATER, PLEASE LIKE IF YOU DO

L Streets Resident
L Streets Resident

It sounds as though this is new information to you and some of your readers but it has been available for a very long time. The high-cost well exception is designed to insentivize the drilling of wells the wouldn't otherwise be drilled. The resulting proved reserves of gas increase the property values of the mineral estates and get taxed once these wells are in production. Yes this results in profits the gas industry wouldn't otherwise enjoy but it also provides benefits to all the mineral owners and surface owners that receive payments they wouldn't have received otherwise.

Removing this tax exception would probably generate increased severance taxes but I don't know how it would balance out on the property tax side. I do know that removing the exception would result in lost jobs in the oil and gas industry. Maybe that doesn't bother you but this industry has placed a roof over my head since I was a child and continues to do so for hundreds of thousands of Texans. Since you are digging into this, I suggest discussing these taxes with the associations that represent the oil and gas industry in Texas. They have a ton of info on the taxes paid by the industry already and the reasoning behind this exception. I'm not saying you have to take their info as as writ but it will provide you with a larger picture that you can research further.

I don't want to see teachers lose jobs, I have friends and family who teach, but I also don't think reactionary taxes are a good solution to our budget crisis. There are no simple solutions.

Anonymous
Anonymous

you lost me at "yes this results in profits the gas industry wouldn't otherwise enjoy"

if the government isn't supposed to give welfare to poor people, it's not supposed to give welfare to rich people either. personally, I don't believe in tax breaks at all. for any industry. i honestly don't care how many jobs would be lost in the oil and gas industry if this tax were enforced as perhaps some of us think it should be. you don't seem to care how many jobs are lost in the public sector due to lack of funds from this and other tax preferences. the claim (though I know you didn't make it) that one is "private" while the other is "public" does not hold water. both are the product of tax policy. at least the salary for teachers and public employees are made public. we will never know how rich particular individuals are getting on these tax breaks.

ANON@QuitComplaining.BIZ
ANON@QuitComplaining.BIZ

@Anon...put your hand back in your pocket and keep it out of mine.

It's simple...1+1=2, unless 1 is really 0, because 1 is too risky.

IF the state incentivizes higher RISK behavior and the GAMBLE works, then the entrepreneur (in this case oil and gas companies) will get profits and the state will get INCREASED tax receipt benefits from production that would otherwise never have been secured. It is the SAME thing as providing TIF money, grants, or development funds in other applications.

Quit poor-boying the service aspect of public employment, wake up, and pull your head out of the sand.

JimS
JimS

If this was such common knowledge and the benefits were so obvious, why was the report done, why did the researchers present the loss of revenue to the state as their primary finding, why did the leadership in Austin decide not to publish the report, why did a legislator leak it to the press, and why in the world was the tax rate set at 7.5 percent by law in the first place?

L Streets Resident
L Streets Resident

Reports are created because legislators aren't omnipotent presumably the budget board was asked to look at potential sources of revenue. Frankly, I don't know much about this particular report but the tax break has existed for some time and the legislature knew it would result in a loss of revenue with regards to the severance tax at the time it was passed. Of course legislators change and this kind of knowledge falls by the way side.

As for a reactionary tax, I would classify that as levying a tax or removing a tax exemption in a hasty manner without due research into the effects that tax will have.

L Streets Resident
L Streets Resident

Corporations should be subject to the same monitoring and auditing that individual citizens are subject to and perhaps the state should be more aggressive with auditing. However, I don't know many citizens who gladly forego tax exemptions they qualify for and I don't blame corporations for behaving in the same manner. If the Railroad Commission set an unreasonably low bar for what qualifies as a high cost well, that should be subject to review.

JimS
JimS

Well, I did not explain what happened thoroughly enough. Actually the texas railroad Commission created a wildly liberal definition of high cost drilling that allowed low cost wells to qualify as high cost. In other words, the incentive for high cost drilling was gamed to create a tax break the legislatre had not intended. You're right: the legislature needs to go carefully in this area, and presumably that is what they will do when this report gets aired in committtee next week. But I wonder if you would agee with this: don't businesses need to be monitored and policed for tax avoidance scams the same way wage-earners do? Don't businesses have the same obligation as individuals to pay their legal due, and wouldn't government be a fool to assume they all will do so voluntarily?

JimS
JimS

What is a "reactionary tax?" A tax on reactionaries?

Jim White
Jim White

Interesting to here how they are dodging taxes in Texas. Because here in Pennsylvania we got tons of Texas companies coming, and already drilling the Marcellus Shale, and the first thing done is ensuring that they won't be responsible for paying taxes to PA at all. Looking around at all the Texas license plates, at least your DMV is getting a lot of money for vehicles registered to Texas that do not operate in Texas.

Laural Luna
Laural Luna

Interesting to HERE ??? where'd you go to school??

Duality of Man
Duality of Man

Gov. Tom Corbett, whose successful campaign last year received sizable donations from members of the natural gas industry, has said he wants to make Pennsylvania the Texas of the natural gas boom. Pennsylvania is the largest natural gas state not to tax the activity, and Corbett is against imposing a new tax on it.http://www.businessweek.com/ap/financ...

Texaspainter
Texaspainter

Like Dorothy in Oz, follow the green backs all the way to Dallas City Hall......................

Bbetzen
Bbetzen

Another solution to the Texas Deficit! How many are there? I find it interesting that they all come out of well protected, but deep pockets. It is no secret that the Texas budget deficit would quickly become a surplus if the most wealthy Texans paid the same effective percentage of their income in state and local taxes as do the poorest one out of 5 Texans. See http://www.itepnet.org/wp2009/...

Kim Triolo Feil
Kim Triolo Feil

The fact to NOT make this information public does not surprise me. Just like the secret fracking receipes are exempt from disclosure of the clean water act, these drillers get the royal treatment while hard working Texas teachers get royally fracked!

Guest
Guest

There is a bill pending in committee that would change the Halliburton Loophole in Texas:

http://www.capitol.state.tx.us...

Sadly, don't have high hopes that it will make it out of committee.

Anon
Anon

I'm not sure why this should surprise anyone. Favored industries buy politicians. How else did the oil industry get to invent an expense to avoid taxes?

JimS
JimS

Aha! Success on the journalistic fracking front! The legislative Budget Board, which had been incommunicado for about 24 hours, called me up, and a very nice gentleman explained to me that the report in question is, indeed, their report, completed last December. So it is not some incredibly clever hoax.John Barton, a spokesman for the LBB, explained to me that the decision to publish a report is up to the “leadership,” meaning the lieutenant governor and the speaker of the House, not the staff.“This report was not published,” Barton said. “The decision was made to not publish it. There was no compelling reason one way or another why it was not published. “Because it was an internal working document, we chose not to release it, and in fact there is a provision in the government which considers this type of document privileged communication and not subject to the open records act. “But there is nothing in the report that we are trying to hide. What happened was, one of the (elected) members (of the legislature) who got the report shared it with a reporter, and once that story got out, everyone was saying, 'Well, hey, where can I get a copy of that report?' “And because it was an internal working document, we as staff are not in a position to release it. “I will say, my boss, the director of the budget board, is probably going to be doing a presentation in front of one of the committees this week about the report, and once he does that, then it will be a matter of public record, and we will go ahead and post it on our website.”A JOURNALISTIC FRACKING BLOW-OUT! Now I'm worried we won't be able to cap this sucker.

Fracked
Fracked

Good God Man - What have you done? This could lead to many months of TRUTH!

Montemalone
Montemalone

Gotta love "leadership", looking out for us Texassians.

Duality of Man
Duality of Man

So we should be concerned with the financial future of American children but not the environment they will have to live in or how educated they'll ?

Duality of Man
Duality of Man

be

scottindallas
scottindallas

great effect, really added to the suspense. Try the edit button, it's helped me correct MANY typos and omissions.

scottindallas
scottindallas

I've done the same thing often enough, I was laughing WITH you.

Duality of Man
Duality of Man

Thanks for the info scott. I'm not a pro at leaving comments on blogs and therefore I don't know how some of these different formats work. I had posted the comment then immediately realized my mistake. Sorry if I upset any of your blog etiquette sensibilities.

Thelisma Partridge
Thelisma Partridge

You say shale, I say shill. People are always getting those two words confused...

Amy S.
Amy S.

I feel like such a sucker for paying my taxes. Maybe we should all skip and see where that gets us (anyone remember the former USSR?)

SteveT
SteveT

Once again: Money talks, especially focused and organized money; for political power and influence, it's hard to beat.

john_robinson
john_robinson

I don't know what the problem is; we need to cut the budget in general, it has to be done for long term sustainability... but if, these companies are dodging taxes, go after them. What's the hold up? I know the Secretary of The Treasury and most of the cabinet and czarships are tax cheats, but this is a local issue. Go get 'em!

drklassen
drklassen

No, we don't. Spending is not the problem as there is PLENTY of money out there to do all the wonderful things we ought to be doing: maintaining our roads, building a 21st century rail system, providing single-payer health care to everyone, etc.

It's just that tax laws for the past 30 years have let all that money disappear into the offshore bank accounts of the super-rich. Go get that and budget woes disappear.

Thelisma Partridge
Thelisma Partridge

Are they dodging them i.e. not paying their taxes? or did their lobbyists get provisions written into their contracts allowing them to write off much of what they otherwise would have had to pay? I think that's what JimS was alluding to with the wing-ding definition of "high cost drilling"...

Emoore9263
Emoore9263

What is the basis for the 7.5% tax? What kind of tax is it?--what is it called, which Texas department or agency collects it, what is the basis (or method) for reducing the tax to less than 7.5%. (I am not being negative, just curious.)

Allen_fe
Allen_fe

look a the money see who has the new time share in aspen , that will tell you all you need to know !!!!

Citizen Kim
Citizen Kim

Thanks Jim. My wife is one of the educators that has been sacrificed on the altar of [p]Rick's 'favorable business climate.' I'm sure it is very 'favorable' for him, as they probably paid some pretty big bucks to dodge $8B in taxes.

Darrd2010
Darrd2010

JimThis is just one of many shoes that are about to drop regarding the gas drilling in Texas and in Dallas itself. The shale gas drilling industry has it's tentacles deep within both the state and city system.Everyone needs to read up on everything they can regarding shale gas drilling. And I don't mean just the industry web sites.Even the city of Dallas has now dropped the gas industry link from it's web site.

Alfredo
Alfredo

MIght be true, might not. This story is long on rhetoric and short on facts. I'll check back when somebody figures out the tax structure and can give a reasonable estimation. If the legislature in years past put a system in place to reduce the tax because of "high cost drillng" they can change it or if it is a regulation by the soon to be renamed Railroad Commission they can change it

G_David
G_David

Come on Jim, why do you hate business so much? We're trying to maintain a "favorable business climate" dammit! Education is for people that aren't already millionaires - i.e. losers.

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