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State Revenue Secretary Jane Smith disputed Wednesday that an alternative fuel tax credit possibly could expose state government to $400 million in claims by taxpayers.

Smith said claims for the credit will be reviewed based on the intent of law rather than on guidelines issued earlier this year by her agency.

“The reality is that the law … was not followed,” she said in written answers to questions on the issue. “We went back to determine the proper scope of the law.”

In the process of drawing up new guidelines for the 2009 law that she authored as a legislator, Smith and state economist Greg Albrecht wrote an impact statement estimating the state’s exposure to be $400 million through mid-August. The estimate was based on the number of eligible vehicles dating back to Jan. 1, 2009, that have yet to receive the credit.

Smith said she disputes that estimate despite the inclusion of her name on the impact statement.

She said the $400 million is based on earlier guidelines that the governor rescinded because they did not reflect the intent of the law.

At issue are financial concerns that imploded over the tax credit three years after Gov. Bobby Jindal signed it into law.

Complicated laws such as the alternative fuel tax credit often require state agencies to write rules or guidelines governing how they are to be applied.

Amid confusion by financial experts on which vehicles to apply the tax credit to, Smith’s predecessor, Cynthia Bridges, authorized a rule allowing taxpayers to claim the lesser of 10 percent of the cost or $3,000 on flexible-fuel vehicle purchases.

Smith and Albrecht reported that flex-fuel vehicles, which are designed to run on more than one type of fuel, accounted for 96 percent of alternative-fuel vehicle registrations in Louisiana over the last four years.

They estimated that state government could be forced to pay $250 million a year to car buyers without a rule change. With a change eliminating flex-fuel vehicles from the credit, the state’s exposure shrinks to $10 million a year.

The governor rescinded Bridges’ guidelines in June. Bridges resigned a day later.

The Jindal administration then got to work on new guidelines.

The biggest change in the rule recently published by the revenue department is the exclusion of flexible-fuel vehicles. Beginning Dec. 20, vehicles must be capable of running independently of petroleum fuel to qualify for the credit.

The state Department of Revenue will hold a public hearing at 10 a.m. Oct. 25 on the new rule. The agency did not give a location for the hearing.

The lingering question is what will happen with vehicle purchases made before the rule change and tax credit requests filed in the interim. The revenue department stopped processing requests once the governor rescinded the original guidelines.

Smith and Albrecht reported a backlog of $4 million in possible claims since the rule’s recension. They said roughly $30 million has been paid or claimed.

Albrecht, chief economist for the Legislative Fiscal Office, said Wednesday that he believes most alternative-fuel vehicle owners will be excluded under the new guidelines, even if they bought their cars or trucks before the rule changed.

“I think that the Revenue Department would say that the new rule negates all that exposure, that the door is closed. I’m pretty sure that’s what they would argue. I can’t opine one way or the other there,” he said.

Only eight to 10 percent of eligible vehicle owners typically have filed for the credit.

Smith said the new rule will be prospective once it is promulgated.

“The claims filed after the emergency rule was rescinded will be reviewed based on the actual intent of the statue, not the (original) rule,” she said in a written response.

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BATON ROUGE — More than $200 million has to be cut from the state budget to cover an anticipated drop in state revenues and a rise in some expenses.

The Revenue Estimating Conference on Wednesday adopted a report by Legislative Fiscal Office economist Greg Albrecht that shows revenues are predicted to run $197.8 million short by June 30, 2012.

That shortfall, plus a $42.7 million increase in the cost of public schools, is forcing Commissioner of Administration Paul Rainwater and his staff to go over each section of the budget looking for places to cut $240.5 million.

“We will have a balanced budget,” Rainwater said after the REC meeting. “We are going to put together a plan that mitigates cuts to higher education and health care.”

Those two sections of the budget are the most exposed because much of the other major funding is protected by the constitution or by statute. The $3.4 billion public school funding formula is one of the largest protected segments of the budget.

The governor has constitutional authority to order reductions of up to 5 percent of $8 billion in state general funds in the $25 billion budget, so the shortfall will be handled with an executive order.

“Year over year we are seeing revenue growth,” Albrecht told the panel. “We are in recovery. It’s not the recovery we would have thought a year ago or six months ago even, but it is recovery. Similar to the U.S. as a whole, it’s a very sluggish, long climb.”

Because the REC recognized the shortage, the matter now goes to the Joint Legislative Committee on the Budget, which is meeting Friday. The committee’s official adoption of the REC report triggers the order for the administration to cut the budget.

Rainwater said his office will try to put together a budget reduction plan by Friday, but if it doesn’t, it has 30 days to do it after the budget committee meets.

The budget cut could be eased somewhat because the administration might have $90 million in uncommitted funds. A constitutional amendment was adopted shifting that much in tobacco revenues to the TOPS scholarship program, which could free up the state funds dedicated to TOPS.

Rainwater said no decision has been made whether to utilize those funds.

The big changes in the current budget estimate are the result of decreases in anticipated receipts from individual income taxes ($142.5 million) and severance taxes ($128.5 million).

“Sales tax and income tax make up 50 percent of our funds,” Albrecht told the conference. There was no change in predicted sales tax collections.

He said there was no indication of a problem with income tax collections in May, but there was a massive drop in the past month. “There’s still an 11 percent growth rate” in next year’s projections, he said, and he’s concerned it might have to be reduced.

“That’s the riskiest number I have in the estimate,” Albrecht said. Economic models used to make forecast predict a much larger increase, but “I don’t see any way we would make 14 percent,” the amount the model predicted after he adjusted it downward.

The $128 million reduction in predicted severance tax revenues came as a surprise, Albrecht said, because oil production is increasing and the price of oil used in the budget was increased $8 a barrel. “This is the second time we raised the price of oil and decreased severance taxes, which is extremely counterintuitive.”

Oil is priced in the estimate at $92.77 a barrel. The state’s sweet crude is selling at $110 a barrel.

The severance tax drop was caused by a 28 percent decrease in the production of taxable gas, he said. Haynesville Shale production, which utilizes tax-exempt horizontal drilling, was never counted on as a severance tax source, so the reduction came from the lack of other production.

Albrecht’s report includes a graph showing how Haynesville production was rising but taxable gas drilling was dropping.

“It gives me pause that at some point in the future. Will I be drawing a graph like that for oil because of marine shale?”

Production of oil in the Tuscaloosa Marine Shale also utilizes horizontal drilling. Estimates show massive amounts of oil could be recovered.

Because of the decrease in the official forecast for this fiscal year, a corresponding reduction totaling $214 million was made in the forecast for the next fiscal year.

That means Rainwater and Gov. Bobby Jindal will have $214 million less to use in constructing the new budget to be presented to the Legislature in March.

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Today, December 14, 2011, the Revenue Estimating Conference will meet to discuss the state of Louisiana’s long-range revenue forecasts and official state revenue forecasts for fiscal years 2011-2012 and 2012-2013.

In March of 2010, the Legislative Fiscal Office’s chief economist testified before the Revenue Estimating Conference and claimed that a major reason for declining state revenues is due to untaxed oil and natural gas production recovered through the state’s investment incentive programs.

As a shortsighted measure to generate revenues, the state’s economist suggested that policymakers work to repeal Louisiana’s vital horizontal severance tax  investment incentive.  This incentive is essential to driving investment in our state and ensures the equitable development of deep and capital-intensive oil and gas projects.  It is our belief that a repeal of this incentive will exacerbate the decline of the Haynesville Shale development and drive away investment from emerging resource plays across the state.

For the Haynesville Shale, the horizontal investment incentive is essential to its long-term growth.  Without it, Louisiana would have missed out on over $40 billion in direct and indirect economic growth between 2008-2010.  Over that time period, the Haynesville Shale has supported over 100,000 jobs and provided Louisiana with approximately $1.3 billion in local and state tax revenue.

LSU economist, Dr. Loren Scott, found in a recent study that for every dollar the state gave up via the horizontal well severance tax investment incentive it gained $2.94 in revenues to the State Treasury. Using the Department of Revenue’s Tax Exemption Budget data, its estimated that in 2010, the state gave up $125.3 million, but it gained $367.7 million.

Given the fact that Haynesville production is only limited to dry natural gas, the current low price structure for natural gas is pushing investment towards oil rich resource plays in other parts of the country.  Among the shale resource plays, the Haynesville Shale is already one of the most expensive to drill and has one of the lowest rates of return on investment.  According to Credit Suisse, natural gas prices must remain around $3.85 per mmcf in order for Haynesville wells to reach their breakeven cost.  With natural gas prices currently at $3.21, the economics of Haynesville wells are less attractive.  There is no question that a repeal of the horizontal incentive would make the Haynesville Shale less competitive and intensify the current rig decline in northwest Louisiana.

Many around the state are talking about the potential for new oil production from the Tuscaloosa Marine Shale and Lower Smackover “Brown Dense” formation.  There is a lot to be excited about regarding these resource plays.  Just this week, Devon Energy reported an initial test of 120 barrels a day in its first completed horizontal Tuscaloosa Marine Shale well in East Feliciana Parish.  Additionally, Indigo Minerals reported an initial test of 540 barrels a day from its well in Rapides Parish.

The recovery of oil from these newfound deep sources will require the use of horizontal drilling and the state’s incentive will be key to promoting their investment.  Companies are interested in Louisiana because of our stable regulatory and fiscal climate, but any change to those dynamics could negatively impact the investment structure and economics of these plays.  It’s important to keep in mind that oil shale plays like these are popping up across the country, and our incentive program keeps Louisiana attractive in such a competitive market.  Without the incentive, the long-term development of these resources and potential for state mineral revenue increases may not come to fruition.

It’s safe to assume that mineral revenue projections will be lower in today’s Revenue Estimating Conference.  The decline is primarily a result of a significant decrease in natural gas prices over the last two years and declining oil exploration across the state.  However, by maintaining the state’s horizontal well severance tax investment incentive, the state can increase mineral revenue through support for the Haynesville Shale and promote the rise of new developments like the Tuscaloosa and “Brown Dense.”

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By MATTHEW DALY, Associated Press

WASHINGTON (AP) — Sensing a political opening, congressional Republicans are moving toward a high-stakes showdown with President Barack Obama over a plan to link fast-tracked approval of an oil pipeline to a measure renewing a payroll tax cut.

Senate Minority Leader Mitch McConnell, R-Ky., said the proposed Keystone XL pipeline from Canada to Texas will help the president achieve his top priority — creating jobs — without costing a dime of taxpayer money.

“There is no reason this legislation shouldn’t have the president’s enthusiastic support,” McConnell said Monday on the Senate floor. “The only reason for Democrats to oppose this job-creating bill would be to gain some political advantage at a time when every one of them says job creation is a top priority.”

The State Department said last month it was postponing a decision on the pipeline until after next year’s election. Officials said the delay is needed to study routes that avoid environmentally sensitive areas of Nebraska.

The GOP language that would require approval of the pipeline within two months unless Obama declares it is not in the national interest.

The State Department warned Monday the congressional interference in the approval process would likely lead to a rejection of the pipeline. The State Department has authority over the project because it crosses an international border.

“Should Congress impose an arbitrary deadline for the permit decision, its actions would not only compromise the process, it would prohibit the department from acting consistently with National Environmental Policy Act requirements by not allowing sufficient time” for the project to be considered, the State Department said in a statement.

In that case, “the department would be unable to make a determination to issue a permit for this project,” the statement added.

McConnell and other Republicans dismiss such procedural objections.

“The only thing arbitrary about this decision is the decision by the president to say, ‘Well, let’s wait until after the next election,’” said House Speaker John Boehner, R-Ohio.

Boehner and other Republicans say many Democrats support the pipeline, noting that 47 House Democrats voted in a favor a bill this summer to speed up the permitting process. GOP lawmakers say the White House opposes the pipeline provision in the tax bill so Democrats can gain political advantage by blaming Republicans for defeating the popular payroll tax cut. The tax bill is expected on the House floor Tuesday.

The two parties generally agree on the bill’s fundamentals: preventing the Jan. 1 expiration of payroll tax cuts and extending coverage for the long-term unemployed. Obama has said he will reject the overall bill if it includes language speeding up approval of the Keystone XL pipeline, which would carry oil from western Canada to refineries in Texas.

Obama’s threat has increased conservative support for the overall measure, with Republicans hoping to use Obama’s opposition to portray him as favoring environmentalists over jobs.

Rep. Lee Terry, R-Neb., called the Keystone XL project crucial to getting thousands of people back to work.

“This is an important jobs and energy security bill which just makes plain sense,” said Terry, author of the pipeline provision. “The American people want us to stop buying Venezuelan oil. The Keystone pipeline is a key component to making that happen.”

Environmental groups, who celebrated the administration’s announcement of a delay in the Keystone project last month, accused Republicans of forcing a premature judgment on the pipeline in order to curry favor with the oil industry.

“To get their way, House Republicans — with some support in the Senate — are even willing to block the much-needed extension of the middle-class tax cut,” said Suzanne Struglinski of the Natural Resources Defense Council, an environmental group.

Struglinski called the pipeline push a “fool’s errand” because of Obama’s threat to reject the measure, and said its likely inclusion in the House bill showed that House leaders have embraced the “extreme agenda” pushed by the tea party.

Senate Majority Leader Harry Reid, D-Nev., said last week that House leaders were wasting time, because the Keystone provision will not pass the Democratic-controlled Senate.

The State Department decided last month to delay the project until 2013, to allow the project’s developer to figure out a way around Nebraska’s Sandhills, an ecologically sensitive region that includes an aquifer that supplies water to eight states.

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By Ben Geman – 12/02/11 11:00 AM ET

House GOP leaders plan to attach legislation to speed up approval of the controversial Keystone XL oil sands pipeline to a broader package that extends unemployment insurance and payroll tax cuts, a Republican lawmaker said.

Rep. Lee Terry (R-Neb.), the sponsor of the Keystone pipeline measure, told reporters that Speaker John Boehner (R-Ohio) announced the strategy at a House GOP conference meeting Friday morning.

“The Speaker announced that this bill will be part of the unemployment and tax holiday package,” Terry said at a press conference on the pipeline bill.

A spokesman for Boehner did not immediately respond to a request for comment.

The strategy, if it comes to pass, could make opposing the Terry plan more difficult for Democrats because extending unemployment insurance and payroll tax cuts this year are priorities for Capitol Hill Democrats and the White House.

The Obama administration last month punted a federal decision on a permit for TransCanada Corp.’s proposed Alberta-to-Texas pipeline until 2013 — notably, after the presidential election.

But Terry’s plan — along with separate Senate legislation — would require a much faster decision on the proposal to carry hundreds of thousands of barrels per day to Gulf Coast refineries.

Terry’s plan, unlike the new Senate measure, would also take the pipeline review away from the State Department and hand the final decision to the independent Federal Energy Regulatory Commission.

The bill has support from almost all the Republicans on the powerful Energy and Commerce Committee, the Nebraska lawmaker said.

The new GOP bill would give FERC 30 days to act on TransCanada’s permit application, and substantially restricts FERC’s discretion to reject the project.

FERC, under the legislation, would also separately approve the re-routing within Nebraska.

Terry told reporters Friday that Nebraska environmental regulators can complete an assessment of the new route within six months. FERC would then have 30 days after receiving the state environmental assessment to approve that portion. “If there are no barriers, [FERC] will have to approve the permit,” Terry said.

Terry said FERC is better equipped than the State Department to handle the pipeline. “FERC is the expert agency in pipelines, pipeline safety, pipeline siting,” he said in explaining the effort to take away the State Department’s authority.

He also said the bill will take the issue “out of politics,” an oblique reference to the tricky terrain facing the White House on the pipeline — a project that many unions support but environmental groups bitterly oppose.

“This removes any decision-making from the State Department and the President. They don’t have to pick between friends now,” Terry said.

Pipeline advocates – which include powerful business groups like the U.S. Chamber of Commerce and the American Petroleum Institute – have called the project a way to enhance U.S. energy security and create jobs.

But environmental groups strongly oppose the $7 billion pipeline due to greenhouse gas emissions and forest damage from the energy-intensive oil sands projects, potential spills along the route and other issues.

“The pipeline would remove existing constraints on tar sands production, dramatically increasing carbon pollution for decades,” said California Rep. Henry Waxman, the top Democrat on the Energy and Commerce Committee, at a hearing on the pipeline Friday.

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By Ben Geman – 11/26/11 06:30 AM ET

The oil industry is batting 1.000 this year when it comes to preserving its tax breaks.

The survival of billions in incentives, which President Obama and Democrats repeatedly have targeted this year, shows that the industry’s lobbying and political muscle remains intact even after a year that saw $4-per-gallon gasoline prices and strong profit reports.

The demise of the bipartisan deficit “supercommittee” robbed industry foes of their best opportunity this year to roll back the incentives, observers say.

Christine Tezak, a senior energy analyst with the brokerage firm Robert W. Baird & Co., said the supercommittee represented the “greatest risk” to incentives for oil-and-gas companies.

She predicts the issue will resurface in subsequent talks over wider tax policy reform, but few expect to see a broad tax code rewrite as the campaign season intensifies.

“The prospect of changes to oil and gas taxes moving before the election remain low,” Tezak said.

The bipartisan deficit panel – which collapsed Monday – was empowered to craft a deal that could not have been filibustered or amended. That made it a threat to the oil companies.

Environmentalists mourned the missed opportunity after the bipartisan deficit panel declared failure.

“For the average family sitting down to their holiday dinner it makes no sense that we will continue to lavish billions of dollars in subsidies on oil corporations while forcing automatic cuts in vital clean air, clean water, wildlife and other domestic discretionary programs,” wrote the National Wildlife Federation’s Adam Kolton in a blog post Monday.

The supercommittee’s failure triggers $1.2 trillion in automatic cuts, which will be implemented in January 2013.

The oil industry waged high-profile ad and PR campaigns to preserve its tax incentives.

In particular, the powerful American Petroleum Institute has run ads claiming that higher taxes would hurt the economy, cost jobs and raise prices.

John Felmy, the group’s chief economist, said Tuesday that the industry isn’t declaring victory in the tax battle. “I have learned to never handicap Capitol Hill,” he told reporters on a conference call.

The oil-and-gas industry hasn’t proven completely immune from attacks on its tax breaks, which opponents call pointless and costly subsidies for a mature industry.

The tax title of the $700 billion Wall Street bailout package approved in October of 2008 – a year that saw record prices – capped the oil industry’s eligibility for the Section 199 deduction on domestic production and manufacturing income at 6 percent.

But Daniel J. Weiss, the climate strategy director for the liberal Center for American Progress Action Fund, said the deficit supercommittee was “by far the best chance to eliminate these unnecessary and outmoded tax breaks for big oil.”

“This was a prime opportunity to reduce taxpayers’ subsidizing big oil companies to the tune of $4 billion annually when the richest of those companies are going to make $130 billion in profits in 2011,” Weiss said.

Most Republicans oppose repealing tax breaks to the oil industry, and so do oil-state Democrats.

In May a plan to strip an estimated $21 billion worth of incentives over 10 years from the biggest companies like Exxon and Shell stalled on a 52-48 vote when 60 were needed to advance the measure.

Felmy and other industry advocates say such proposals unfairly single out the oil industry when some incentives are available to a range of industries.

API has also argued that stripping tax incentives could harm pension funds that are invested in the industry.

“We will continue with those messages and be as diligent as we can,” Felmy said.

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By Ben Geman and Andrew Restuccia – 11/21/11 06:12 PM ET

The collapse of the deficit supercommittee means oil companies fighting to preserve billions of dollars in tax breaks can once again breathe easy.

Many Democrats had sought to kill the tax subsidies as part of any major deal on spending cuts and revenues, prompting strong oil industry pushback.

While scuttling the subsidies was likely a long shot for inclusion even if the panel had produced a deal, its failure probably ends any remaining threats this year.

The tax incentives’ survival shows the industry’s lobbying clout even during a year that saw near-record energy prices, high profits and plenty of calls — including some from Republicans — to look at energy subsidies overall.

The oil industry has waged a vigorous lobbying and advertising campaign to keep incentives such as the ability to claim lucrative deductions on domestic manufacturing income.

The American Petroleum Institute, a major trade group, and other industry advocates argued that removing tax incentives would raise energy prices and cost jobs, while critics say the incentives are unneeded gifts to a profitable, mature industry.

Democrats have pushed Senate legislation that would repeal billions in incentives for the largest oil companies. But it has fallen well short of 60 votes in the chamber and stands no chance in the GOP-led House, showing that only a wider overhaul of energy tax policies could provide a possible vehicle for a major overhaul of oil-sector tax breaks.

While the panel’s demise takes the tax breaks off the table, it also deprives drilling advocates of an avenue to push for wider oil-and-gas leasing.

House Natural Resources Committee Chairman Doc Hastings (R-Wash.) had wanted the panel to raise revenue by expanding offshore oil-and-gas leasing and opening Alaska’s Arctic National Wildlife Refuge.

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By Gerard Shields
Advocate Washington bureau

WASHINGTON — The federal government may be in danger of becoming unable to respond to damages from future spills like the BP Gulf oil disaster unless Congress extends a per-barrel tax on oil, according to a report issued Monday by the Government Accountability Office.

The 8-cents-per-barrel tax, which funds the federal government’s Oil Liability Trust Fund, is set to expire in 2017.

The $1 billion trust fund is used to pay state and local governments for initial cleanup costs until it can be recovered from responsible parties.

Without extending the tax, which pays 92 percent of the fund, recovery money would be depleted, the GAO said.

“This could raise the risk that the fund would not be adequately equipped to deal with future spills, particularly one of this magnitude,” the GAO said.

The GAO also called for a new way of calculating the trust fund balance.

The fund is capped at $1 billion. If the cap is exceeded, the federal government would have to halt any payments to governments making claims for cleanup costs or damages.

Congress should mandate that the fund be calculated to include money that is reimbursed by responsible parties such as BP, the GAO said. Currently, all the money that is spent is assessed to the fund.

BP reimbursed $315 million to the fund as of May 31, 2011, the GAO said, money that should be subtracted from the fund spending and cap.

BP has established a $20 billion trust fund to pay for damages from the leak. Ken Feinberg, who is heading the Gulf Coast Claims Facility processing the claims, is set to appear before Congress on Thursday to provide an update of the process.

As of Monday, BP has paid $5.4 billion to people and businesses making claims for damage from last year’s leak.

The BP Deepwater Horizon exploded on April 20, 2010, killing 11 men and resulted in the worst oil discharge in the nation’s history.

About 4.9 million barrels of oil leaked into the Gulf of Mexico during a three-month period.

Original Article