After nearly two hours of floor debate in the House today, and about three hours of floor debate on the floor of the Senate yesterday, HB1476 will go to Governor Jack Dalrymple’s desk for a signature.
Lawmakers assure me that he’ll sign it. The House debate wasn’t really all that interesting. If you listened to the talking points and histrionics from Democrats in the Senate last night (video here), then you pretty much heard what House Democrats had to say today.
The House concurred with the Senate’s amendments passed yesterday, so here’s a simple version of what the bill does:
Most of the existing maze of exemptions and “triggers” go away. That was the part Republicans and Democrats agreed on. Massive tax exemptions triggered by low oil prices are a bad idea for a state producing more than a million barrels of oil per day.
What replaces them is a relatively flat tax and a new trigger, though one that’s not anywhere near so dramatic as what exists now. Starting on January 1st, if oil is below $90 per barrel for three months the combined oil production and extraction taxes will be 10 percent. If it is above $90 per barrel for three months, the combined taxes will be 11 percent.
Currently the maximum possible rate the oil industry pays is 11.5 percent (Tax Commissioner Ryan Rauschenberger has said the effective rate is about 11.1 percent). The minimum possible rate is 5 percent.
[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]…the industry agreed to go up 5 percent on the lowest possible minimum rate in exchange for getting 0.5 percent off the maximum rate.[/mks_pullquote]So, basically, the industry agreed to go up 5 percent on the lowest possible minimum rate in exchange for getting 0.5 percent off the maximum rate.
I would have preferred lower rates – I think the state is taxing the oil industry beyond what is necessary – but this is probably the best possible deal Republicans could have passed without major defections within their own party.
In the background is the question of what the Three Affiliated Tribes will do. The Fort Berthold Indian Reservation is home to just under a third of all of North Dakota’s oil production. Currently the tribe and the state have a taxing agreement in place, and the current tribal chairman Mark Fox has made noises about the possibility of the tribe withdrawing from that agreement if these reforms go through.
Democrats made a lot of hay out of that, but I’m not sure how likely it is that the tribes are going to want to pull out. Prior to that agreement being put in place in 2008 there was pretty much no oil production on the reservation because of the arcane tax situation between the tribes and the state.
Currently the tribes are profiting in a big, big way from oil production. The unemployment rate on the Fort Berthold Reservation is under 2 percent, while on other reservations in the state it’s as high as 80 percent. In addition to low unemployment rates, at the end of 2013 the tribe there was taking in about $40 million per month in oil tax revenue.
To put that huge amount of money into perspective, the MHA Nation has about 10,249 enrolled members.
The tribe has set up what they call The People’s Fund. According to projections published by the tribe, that fund is expected to be paying out over $11,000 to each tribal member on their 21st birthday by 2030. and over $15,000 by 2034.
The tribe may not be entirely like where the state is going on oil taxes, but it seems unlikely that they’ll want to risk the current windfall they’re enjoying by backing out of their tax agreement with the state.