Although it’s the season to blame Gov. Bobby Jindal for the state’s precarious finances, one of the big budget holes cannot be blamed on him, but on a deeper illness, the Legislature’s unending subservience to the oil and gas industry.
Because of a huge tax break for oil drilling granted in the early 1990s, long before Jindal’s election in 2007, Louisiana has forgone hundreds of millions of dollars in taxes every year.
The break was intended to spur innovation of horizontal drilling, but long after the process was perfected, the tax break lived on. When this commonplace technique was applied during the oil boom of the last few years, the state’s treasury took an enormous hit.
Since 2010, Louisiana has missed out on more than $1.1 billion in revenue that it would have received if not for the break for horizontal drillers, according to Louisiana Legislative Auditor Daryl Purpera’s report.
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 recalls the grim joke of a century ago that Standard Oil had done everything to the Pennsylvania Legislature except refine it. And ironically, Pennsylvania is now taxing the fruits of the fracking revolution in the oil fields.
It is Louisiana that is losing out, by choice.
While Jindal did nothing to curb this example of corporate welfare, the fact is that repealing or curbing it would have been a hard sell to legislators dependent on the industry for campaign contributions.
Because of politics, we cannot find balance in our approach to state government finances. A booming oil and gas industry is good for Louisiana and for the nation, but its political power warps the system.
A generation ago, we avoided taxing individuals and businesses because oil and gas revenues could fill up as much as 41 percent of the annual budget. After a crash back then, there were bumper stickers: “God, give us another oil boom and we promise not to screw it up.”
God did, and we did what we promised not to do.