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Rep. Phillip DeVillier, R-Eunice, right, watches proceedings on his bill to reduce the oil severance tax in the House Ways and Means Committee as the regular legislative session reopens Monday May 4, 2020, in Baton Rouge, La. Yellow caution tape restricted the use of every other seat for social distancing.

Though state government is facing a huge drop in revenues because of the coronavirus pandemic, almost the first legislation that moved out Monday from the Louisiana House tax committee was a bill to reduce the severance tax charge on the production of oil.

House Bill 506 would reduce the severance tax rate by a half percent each year for the next eight, taking an estimated $151.4 million out of state collections over the next five years.

That is money that local government, in particular, cannot afford to lose, said Guy Cormier, the executive director of the Louisiana Police Jury Association who previously had been president of St. Martin Parish for 14 years. Parishes receive about 20% of the severance income and use that money to help fund law enforcement and other local services.

But lowering the severance tax would entice the oil industry to drill more in Louisiana thereby creating more jobs, which would translate into more sales and income taxes, said state Rep. Phillip DeVillier, R-Eunice, and chief sponsor of the legislation.

“I would feel local governments want more oil and gas production to create more jobs,” he told the House Ways & Means committee.

“Is it wise right now to move forward with a bill that will remove tens of millions of dollars from the state of Louisiana?” said Rep. Matthew Willard, D-New Orleans. “It is dangerous to take that risk.”

The Legislative Fiscal Office noted, “The bill can only result in a significant loss of state severance tax receipts and parish allocation amounts from what would otherwise be the case.”

DeVillier and supporters of the measure said the $151.4 million in losses estimated uses a price per barrel that was conservative at the time the fiscal note was calculated but is now about $30 more than the current price.

Present law imposes a severance tax rate on most oil produced in the state was set in 1974 at 12.5% of value. Wells producing less than 25 barrels per day or meeting different criteria pay less.

The proposed law reduces the full rate from 12.5% to 8.5% in half percent increments over the next eight years. 

Gifford Briggs, head of Louisiana Oil and Gas Association, testified that at 12.5% Louisiana has the highest severance tax rate in the nation. Oklahoma charges 7% of the gross value and Texas is 4.6%.

But the National Conference of State Legislatures notes that comparing severance taxes from state to state has proven difficult because the tax structures differ so widely.

Briggs said lowering the severance tax wouldn’t, alone, translate to more production. But lowering the rate would give companies an incentive, he said

The House Ways & Means Committee advanced HB506 to the full House for consideration.

All the panel’s Republicans and two Democrats made up the 14 who voted to advance the legislation. All three no votes were Democratic legislators.

Voting in favor of lowering severance taxes (14): Chairman Stuart Bishop, R-Lafayette, Vice Chair John Stefanski, R-Crowley; and Reps. Gerald "Beau Beaullieu IV, R-New Iberia; Ryan Bourriaque, R-Abbeville; Rhonda Gaye Butler, R-Ville Platte; Les Farnum, R-Sulphur; Jason Hughes, D-New Orleans; Barry Ivey, R-Central; Jeremy LaCombe, D-Livonia; Wayne McMahen, R-Minden; Buddy Mincey Jr., R-Denham Springs; Neil Riser, R-Columbia; Malinda White, D-Bogalusa; and Mark Wright, R-Covington;

Voting against advancing HB506 (3): Reps Marcus Anthony Bryant, D-New Iberia; Tammy Phelps, D-Shreveport; and Matthew Willard, D-New Orleans.

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Email Mark Ballard at mballard@theadvocate.com.