Calls for severance tax reform

Two of the state’s largest newspapers are calling for reform in the wake of last week’s Legislative Auditor report that Louisiana lost more than $1.1 billion in severance tax revenue between 2010 and 2014 due to an unnecessary tax break for “fracking” activity. First up was the Lafayette Advertiser:

Consider, too, that under the current state severance tax exemption on horizontal wells — most are in northwestern Louisiana — Louisiana cannot collect severance taxes for the first two years of the well’s use. For natural gas, those years are generally the most productive years for wells. If two years covers the active life of the well — it could — some well operators may never pay severance taxes on their wells. That’s why the Legislature would do well in 2016 to reconsider how it imposes the severance tax on horizontal wells, especially in light of the exemption. It would do well to revisit the exemption itself. Industry leaders suggest that drillers might not operate here without the exemption; skeptics suggest that Louisiana is rich in oil and gas, and that oil and gas companies will go where the oil and gas is. Most important to the state is to impose taxes that are fair to oil companies, who contribute substantially to Louisiana’s economy, but also to the state, which is being mined for its resources, and its people, who will remain here after wells run dry.

The Advocate also chimed in:

The report doesn’t directly argue that the incentive is a boondoggle. But it reiterates the conclusions drawn from a recent review of the state’s tax structure that was commissioned by the Legislature and conducted by a team of economists. The group recommended abolishing the horizontal drilling credit, which was passed to encourage production at a time when few energy producers embraced the technique.No other state is nearly as generous with the oil and gas industry as is Louisiana…It is Louisiana that is losing out, by choice.

But Don Briggs with the Louisiana Oil and Gas Association disagreed in a letter to the Advertiser:

The severance tax incentive is likely the most important piece of the puzzle for why the Haynesville Shale natural gas play has been so successful…This abundant natural gas is only available due to the severance tax incentive being in place and operators recognizing the value of drilling in our state.

The six-month budget?
The gallows humor around the state capitol near the end of last session was that legislators were passing a “six-month budget”–just long enough to keep the state’s finance afloat until a new governor was elected and called a special session to re-write the spending plan. But as Melinda Deslatte with the Associated Press writes, that may have been too optimistic. Lawmakers already have been forced to cut $4.6 million due to faulty revenue estimates, and the TOPS college tuition program is $19 million under budget. Then there’s this:

The possible gap in Louisiana’s Medicaid program is much larger. The Legislative Fiscal Office says the budget didn’t account for $335 million in increased spending that the health department anticipated across programs. Either the state has to come up with a way to cover those costs or find ways to ratchet back services in some fashion to keep the program’s spending in check. If those budget concerns weren’t enough to cause headaches, oil prices threaten to wreak havoc on the state’s finances…This year’s budget is built on a nearly $62 per barrel oil price. Oil prices have recently hovered around the low-$40 range per barrel.

State continues to grapple with high STD rates
In addition to having some of the highest HIV/AIDS infection rates in the country–New Orleans ranks second and Baton Rouge fourth among major metro areas–Louisiana as a whole struggles with sexually-transmitted diseases. Andrea Gallo with the Advocate reports:

The underlying problems come back to a lack of education and a lack of medical care options, said DeAnn Gruber, STD/HIV program director for DHH. “We need to always continue to emphasize the importance of education and getting tested and getting into care,” Gruber said….Gruber and Olivia Watkins Hwang, DHH spokeswoman, both said keeping people plugged into primary care is one of the most important aspects of prevention. People who regularly visit health professionals are more likely to get tested and receive treatment.

Unfortunately, while medical experts agree that better primary care access is part of the solution, Louisiana’s health policy is moving in the opposite direction, rejecting the expansion of Medicaid coverage to an estimated 225,000 adults and moving to defund Planned Parenthood clinics in Baton Rouge and New Orleans that are important sources of care for uninsured and Medicaid patients.

The more things change, the more they stay the same
Much was made of New Orleans’ economic resurgence during the commemoration of the 10th anniversary of Hurricane Katrina. But analysts from the Brookings Institution have found that some of the same economic barriers that plagued New Orleans for decades are returning as rebuilding activity winds down:

…post-Katrina New Orleans is trending back toward its old self—a sluggish regional economy with high inequality and not enough opportunities for its residents…First, job growth in metro New Orleans is slowing, and the new jobs are predominantly low-quality…Second, the economy has stalled and is not generating enough income to improve living standards…Lastly, metro New Orleans’ sluggish economy has been accompanied by growth in poverty and a decline in median household incomes…These numbers are a stark reminder that the last 10 years of reforms represent only a down payment on the harder work ahead. For New Orleans to change economic course, leaders must make diversifying the economy and workforce development top priorities.

Number of the Day

$335 million – Projected shortfall in the Medicaid budget. The health department requested more funding, but was denied by the Jindal administration and legislators (Source: Legislative Fiscal Office via Associated Press)