The Oklahoma Senate Thursday approved a measure to eliminate a tax rebate for economically at-risk oil and gas wells, which has ballooned in cost as a result of low commodity prices.
Senate Bill 1577, authored by Senate President Pro Tempore Brian Bingman, would eliminate a tax rebate for economically at-risk wells for any oil and gas production occurring after 2014. The rebate was originally meant to help smaller producers continue to operate older, unprofitable wells. As commodity prices have tanked, many newer, more expensive horizontal wells have become unprofitable and eligible for the tax credit.
“With the state facing a $1.3 billion budget shortfall, lawmakers must examine every tax credit, rebate and incentive on the books to make sure they still make economic sense for Oklahoma,” Bingman, R-Sapulpa, said.
The cost of the tax credit totaled $11 million two years ago, and cost the state $41 million in the current fiscal year. The tax credit is expected to cost the state approximately $133 million next year.
“Oklahoma is an energy state and the Legislature always will work to ensure state regulations aren’t standing in the way of the industry. But this tax break no longer makes economic sense for Oklahoma. State agency budgets are being cut as a result of the historic financial crisis, and lawmakers need to look at eliminating this tax break and any others that are costing the state too much money to help address the budget shortfall,” Bingman said. “By eliminating this particular tax credit, we will bring in $133 million which will help us address the budget shortfall and provide much-needed dollars to core services like education, transportation and public safety. We’re going through an historic economic crisis and it will take serious reforms like this to help us make it through.”
Eliminating this tax credit will generate $133 million next year, including:
$57 million for General Revenue Fund
$22.7 million for Common Ed Technology Revolving Fund
$22.7 million for Higher Ed Capital Revolving Fund
$22.7 million for OK Student Aide Revolving Fund
$3.3 million for County Bridge and Road Improvement Fund
$3.7 million for Oklahoma Water Resources Board REAP Water Projects Fund
$471,940 for Statewide Circuit Engineering District Revolving Fund.