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Date:
March16,2015at6:55:23AMMST
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CapitolLetters,March14thEdition
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CapitolLettersMarch14thEdition
Asweclosethebooks
onweek10ofthe64thLegislativeAssembly,wehereatCaptiolLettersare
dispensingwithourregularformatwithhopesofbringingyouaconversational
guidetoanissueyoullhearmuchaboutbetweennowandtheendofMay:Theoil
taxtriggerandits
potentialimpactonstaterevenues.
Butdontthinkthis
formatchangemeansDemNPLlegislatorstooktheweekofffromfightingthe
rightfights.Wediscussbelowthefighttoensureethicalbehaviorbylawmakers
(followingawhimsicaldiscussionofsomereallyinterestingactuarialtables).
Soaswesomewhat
anxiouslyawaitnextweeksbigrevenueforecast,wehopeyoulljoinusintaping
upthebridgeofyourglasses,pullingoutyoursliderule,crackingopenabottleof
Maalox,andenjoyingthisweeksCapitolLetters.
Trigger
Talk:OrHowILearnedtoStopWorryingandLovethePriceofWestTexas
IntermediateCrude[$2.50]
EachweekinCapitol
Letters,weaimtoinformandentertainaswediscusstheissuesfacingtheNorth
DakotaLegislature.Giventhatthefollowingparagraphsusewordslikeanalytics
andtaxtriggers,pleaseforgiveusifwerealittlelightintheentertainment
department.
Nextweek,theLegislature
willreceivethemuchanticipatedrevenueforecastfromMoodysAnalytics,the
greeneyeshadefolkswhocrunchnumbersandmakepredictionsaboutour
stateseconomyandtaxcollections.
Thisisabigdeal
formanyreasons,mainlybecausethedecisionswemakeinthecomingweeks
willdeterminehowstategovernmentisfundedforthenexttwoyears.Considering
ourlasttworevenueprojectionswereaboutsevenweeksand$4billionapart,
theonlything
thatiscertainisuncertainty.
YourDemNPLlegislators
haveadvocatedforcontingencybudgetinginthefaceoffluctuatingforecasts,and
wellhavemuchmoreonthatbetweennowandwhenwegavelout
sinedie
.Butfornow,
wewanttoeducateyouasophisticatedconsumerofnewsaffectingfiscal
policyaboutsomethingthathasbeenontheLegislaturescollectivemind(?)
nearlyeverydaythissession:Theoiltaxtriggers.
Therearevarious
triggers,butforthesakeofbrevity(andmercy)wellfocusonlyonthesocalled
largetrigger.Forthwith:
The
gist
:Ifoilpricesarelowforalongtime,taxincentivesaretriggeredintoeffect.
Basically,thestatesignificantlyreducestaxesonoilextraction
duringsustaineddownturnsinthemarkettoencouragecontinueddrillingand
production.
Theweeds:Thetrigger
priceissetbystatuteandindexedforinflation.For2015,thetriggerpriceis
$52.59.Butkeepinmindthatdifferentkindsofoilhavedifferentprices.West
TexasIntermediate(WTI)istherelevantpriceforpurposesofcalculatingthe
trigger.Ifthe
WTImonthlyaverageminus$2.50islessthan$52.59forfiveconsecutive
months,thethelargetriggerkicksinandprovidesanexemptionfromtheoil
extractiontaxforthefirst24monthsofproduction[,]assuccinctlystatedbythe
Fargo
Forum
.
The
CapitolLetterstriggerworkaround:
Thetriggerseemed
confusing,sowehereatCapitolLettershadsomeClevelmathematicsstudents
developthefollowingworkaround:
1)Justsaythetrigger
priceis$55.09.Ifyourspouseorsomeoneatalocalbarcallsyouonit,tellthem
yougotmeandconfessthatthetriggerpriceisactuallyasstatedintheabove
paragraph.
2)Ifthepriceof
WTIaverages$55.09orlessforamonth,thetriggerclockstartsticking.
3)If,duringeach
ofthenextthreemonths(includingMarch),thepriceofWTIaverages$55.09or
less,thetriggerwillbepulled.Ifitdoesntduringeachmonth,itwont.Tobeclear,
WTIcouldaverage$1.00perbarrelforJanuary,February,March,andApril,butif
the
pricerosetoanaverageof$55.10forthemonthofMay,thetriggerwouldnotbe
pulled.
4)Ifthetrigger
ispulled,newlyproducingwellsreceiveanexemptionfromthe6.5%extraction
tax(butnotthe5%productiontax)foruptothefirst24monthsofproduction.But
see5)below.
5)Tountrigger
andputthebulletbackinthechamber,sotospeak,theoppositemustoccur:
Pricesmustaverageabove$55.09foreachmonthduringafivemonth
consecutiveperiod.Thosenewlyproducingwellsthatbecameoperationalafter
thetriggerwaspulledwouldcontinue
tobenefitfromtheupto24monthexemptionfromtheextractiontax,butonlyuntil
theendofthefivemonthconsecutiveperiodwhenthetriggerprovisionsareno
longereffective.
The
triggerinreallife:
WTIaveragedbelow
$55.09inJanuaryandFebruary.Marchislookingtobeatriggerymonthaswell.
Thus,thereisaveryrealpossibilitythatthetriggergetspulledwhenweturnthe
pageofthecalendarfromMaytoJune.Keepinmind,however,thatifthemonthly
average
ineitherAprilorMay(wellwriteoffMarch)ismorethan$55.09,notrigger.
What
pullingthetriggerwouldmean:
TheLegislativeCouncil
has
estimated
thatpullingthetriggerwouldcostthestateapproximately$883millioninrevenue
basedontheJanuary2015revisedrevenueforecast.Hereswhy:
Newlyproducingwells,likethosethatcouldreceivea24monthexemptionfrom
theextractiontaxifthetrigger
ispulled,accountforabout70percentofthestatesoilproduction,asstatedby
theTaxDepartmentintheForum.
Ideas
fortalkingwithyourfriendsandfamilyaboutthetrigger:
DemNPLsenators
andeverymemberoftheGOPmajorityintheSenatevotedtoeliminatethe
triggerslastsession.Youcanviewthevoteforyourself
here
.
WhatalwaysconfoundedyourCapitolLetterscoauthors,however,waswhythe
GOPsponsoredbilltoeliminatethetriggerswasfusedtogetherprominentlywith
anallday,everyday,foreverandalltime,whopping30%cuttotheoilextraction
tax.Permanently
trading30%ofoilextractionrevenueoverthelifeoftheBakkeninexchangefor
gettingridofthetriggers,whichcancausesignificantbuttemporarylossof
revenue,wasnotagooddealforthestate.Whenitcametoavotetotakeitor
leaveit,
wesaidleaveit.Andaninterestingthinghappened:Themajorityagreedwithus.
Wearemorethanwilling
toworkwithourfriendsintheGOPtoenactamechanismthatincentivizestheoil
industrytocontinueinvestinginNorthDakotaduringdownturnsinthemarket
whilebeinglessdisruptivetoourtwoyearbudget.Butifsomeonesaysthat
DemNPLlegislators
opposedeffortstogetridofthetriggers,tellthemtheydontknowWTItheyare
talkingabout.
The
rightfights:Ethics
NorthDakotaprides
itselfonhonest,opengovernmentrunbyelectedofficialswhoarecitizensfirst.
ThegoldstandardisexemplifiedbyservantslikeArtLink,whohumblyand
squarelyfocusedonthebestinterestsofthestateandfuturegenerationsofNorth
Dakotans.
Thatsalegacywe
shouldzealouslypreserveinthefaceofachangingNorthDakota.Evenaswe
warmlywelcomehonestnewcomersseekingbetterlivesinourstate,wecan
makecleartothelessscrupulousthatweexpectourpoliticianstolookoutforfor
thepublicgoodrather
thangetwhilethegettingisgood.
Thatwasthegoal
ofRepresentativeCoreyMock,theHouseAssistantDemNPLLeaderfrom
GrandForks,whointroducedaconstitutionalresolutiontocreateanethics
commissioninNorthDakota.
Coreyhasmanystrengths,
nottheleastofwhichispersistence.Thisishisthirdrunatcreatinganethics
commission,andtheplanthistimewastogainlegislativeapprovalofa
constitutionalresolutionandultimatelyletthepeopledecidewhethertoestablisha
panelthathas
theauthoritytoaddressunethicalconductoflegislators[and]electedand
appointedstatewideofficials[,]astheBismarckTribunereported.
TheTribuneadded,
[l]awmakersinoppositionarguedwhetheraproblemexistsinthestatethat
warrantsthecreationofanethicscommission.Thisgetstheinquirybackwards,
asCoreyaptlynotedtotheTribune.Thelackofanethicscommissionitself
leavesthosequestions
hanging[.]
Further,consider
section12.12104oftheCenturyCode,whichmakesitacrimetocausea
catastrophe.Catastropheisalegaltermofartmeaningseriousbodilyinjuryto
tenormorepeopleorsubstantialdamagetotenormoreseparatehabitationsor
structuresorproperty
lossinexcessoffivehundredthousanddollars.
Thesecatastrophes
dontexactlyhappeneveryday.Hopefullynotever.Butwestillhavelawsonthe
booksshowingstatedisapprovalofsuchbehavior.Anditwouldbeacatastrophe
ofanotherfeatherifsomeseamyoutsideinterestgroupweretosurreptitiously
infiltrateour
lawmakingprocessthroughgraftandnobodyknewaboutitduetolackof
oversight.
Attheveryleast,
creatinganethicscommissionwouldhelpaverttheperceptionthatunethical
conductcouldoccur.Inthatregard,itcouldonlyhelp.Theworstthatcould
happenisthattheethicscommissionbecomestheequivalentofagroupofMaytag
repairmen,lacking
workashonestNorthDakotalawmakersmindtheirscruples.
Intheend,thecommittee
votewas104tonotpasstheresolution.Itwasntawinningfightthistime,butthat
doesntchangethefactthatitwastherightfightforNorthDakota.Andwhenit
comestothosefights,DemNPLlegislatorslikeCoreyneverquit.
Thank
you
Thanksforallowing
ustogetheavyonthepolicythisweek.WellbebackMondayforwhatisshaping
uptobethemostpivotalweeksofarthissession.Untilthen,keepthefaith,keep
upthefight,andlikeuson
Facebook
.