Morgan: Running out of time (The Journal Record Monthly Column - May 2014)

Time is running short at the state Capitol. Lawmakers have, at most, three weeks to finish their work for the year. They have yet to pass the state budget.

Businesses have budgets, too. Too often what happens at the Capitol in the final weeks of session plays a large role in how businesses operate. Will a company add jobs or stand pat? Will it expand operations here or will it be too expensive to do so? Will a business make a capital investment to grow or will the tax climate prevent investment?

The oil and gas industry is facing those questions today because of the tax rate on horizontal wells that is set to jump from 1 percent to 7 percent next year unless the Legislature acts in the next three weeks. Imagine if your taxes were going to increase sevenfold. Would you proceed as normal? Would you take actions to reduce other expenses? Companies that drill in Oklahoma will be making decisions this year on where to invest capital for 2015. If the Legislature does not act soon, oil and gas companies will assume that taxes will increase in 2015 and investment will go to other states.

There’s a proposal to create a permanent 2-percent tax rate for all wells for the first 48 months and a 7-percent rate thereafter. This would create certainty for the industry that would help ensure continued capital investment in drilling, pumping billions of dollars into the state’s economy, especially in our rural areas.

Those who want to increase taxes and spend more say the incentive rate for horizontal wells should be allowed to expire. They claim that doing this will have no effect on drilling and will only result in more money coming into state government. The reality is that not only will the higher tax rate result in less drilling and therefore fewer jobs and lower royalty payments, it will send a message that Oklahoma is not a good place for business or investment.

Doing nothing this session will have the same effect on drilling activities as allowing the tax to increase next year. Time is running short at the state Capitol. There is still an opportunity to do what is right and necessary for Oklahoma’s economic future and its citizens’ prosperity.

Fred Morgan is president and CEO of the State Chamber of Oklahoma.