OKLAHOMA CITY — An impasse among Oklahoma lawmakers over how to fix the state’s worst budget problem in decades has sent the legislature spiraling into chaos and focused blame on the usually sacrosanct oil and natural gas industry for not paying more taxes.
The industry has historically been the key driver of the state’s economy, providing tens of thousands of jobs and accounting for about 13 percent of Oklahoma’s household earnings.
But a sharp cut approved two years ago in oil and gas production taxes, which has led to severe budget problems for schools and social services, has triggered bitter infighting not only among Republicans but industry leaders about whether oilmen are paying their fair share.
Earlier this month, Tulsa oilman and banker George Kaiser, one of the state’s wealthiest residents, wrote a stinging open letter published in newspapers calling his industry’s justification for its low tax rate a "myth."
"We drill where God put the hydrocarbons, not where the tax rate is lowest," Kaiser wrote.
Dozens of smaller, independent producers formed a lobbying group to call for revoking the tax break, which had dropped the rate from 7 percent to 2 percent during a well’s first few, most profitable years.
Fighting back fiercely have been other industry leaders, including oil barons Harold Hamm, the chairman and CEO of Continental Resources, and Larry Nichols, founder and chairman emeritus of Devon Energy.
Ads attacking lawmakers who would consider a rate hike have been running on television and in newspapers, and large pieces of oilfield equipment were parked outside the Capitol to protest any change.
The battle has left the GOP-dominated legislature in turmoil, unable to fill a huge $878 million budget hole but fearful of making more program cutbacks that could cause a wave of schools and nursing homes to close.
With only days left in the session, prospects for a special session are growing as Republican Gov. Mary Fallin has threatened to veto any major cuts to state programs.
The public criticism for oil companies has been an unusual experience for an industry that is part of the state’s identity and always has been warmly embraced by both political parties. The state Capitol itself sits atop a giant oilfield, and an oil derrick stands outside the building as a symbol of the industry’s importance.
Oklahoma’s tax rate on oil and gas production has been 7 percent, similar to other oil producing states. But with tax revenues flush during the recent oil boom, the Legislature agreed to lock in a 2 percent rate for the first three years when wells are most productive. The cut soon backfired when oil prices declined and tax revenues began to shrink.
A recent study of effective tax rates, including property taxes, paid by the oil and gas industry in nine major energy states shows Oklahoma’s rate of 3.2 percent is the lowest. Neighboring Texas, the largest producer, had an effective rate of 8.3 percent.
In defending the lower rate, industry officials insist they are being unfairly blamed for lean times caused by lower oil prices and production. They argue that higher rates would lead to less drilling.
"It’s disheartening at times to be demonized the way we have been…," said Tim Wigley, head of the Oklahoma Independent Petroleum Association trade group. "Oklahoma’s economy is based on whether rigs are up and running. When they are, the state does great and people buy more trucks buy more homes. When they’re not, the state suffers. It’s always been that way."
But Democrats in the Legislature, who are leading the push for higher rates, say the industry is turning a blind eye to the damage the revenue loss is causing to communities, especially schools, where arts, sports and Friday classes are being cancelled.
"They don’t want to pay their fair share," said House Democratic leader Rep. Scott Inman, whose members wouldn’t agree to a rate lower than 5 percent on any new wells drilled. "If the oil and gas industry wins the day … the people who lose are the citizens."
Republicans have looked to increase a variety of fees on things like cigarettes and vehicle purchases to help close the budget gap.
Rebecca Murdock, a special education teacher from Tulsa who came to the state Capitol on Tuesday to advocate for a higher gross production tax, said she’s lost a teaching assistant and had to pay for her own supplies amid budget cuts at her school. "Until we have big movement on that (production tax), it’s just nickels and dimes, and everyone will suffer."
Follow Sean Murphy at www.twitter.com/apseanmurphy