Wednesday, November 24, 2010

Louisiana’s assessors are taking on Big Oil while the state treasurer faces off against Team Jindal. Why? Money, of course.

 

The time between elections is normally quiet, punctuated largely by the fellowship of Thanksgiving, the merriment of Christmas and renewal through New Year’s. But that feel-good vibe has been body-slammed by the economy.

The wheels of state government are coming unhinged at the thought of not having enough money to support the current $27 billion budget. Next year, Gov. Bobby Jindal and the Legislature will have to knock a couple of billions off that figure to keep the budget in balance.

 

Until then, there are a lot of politicians and agency heads scouting for cash. You got it? They want it. Others are willing to do more with less, but conflicts are already arising.

Just take a look at the state’s assessors. The group is taking on the oil lobby over a new business tax. In our elected fiefdom, state Treasurer John Kennedy continues pushing his own 16-point plan to balance the budget as Jindal splits his book tour time between Los Angeles, New York and Washington, D.C. Jindal’s underlings, though, aren’t giving Kennedy free reign.

Here’s the scoop on both conflicts:

Taxpayers and tax-pickers. Parish assessors and the oil-and-gas lobby are coming to blows over a new rule that increases the taxable value of horizontal wells. Until recently, the lateral sections that help define horizontal wells were not taxed by parish assessors. In September, the Louisiana Tax Commission approved a new rule including lateral sections in the subsurface oil and gas property that’s allowed to be assessed. It will officially take effect in 2011.

Don Briggs, president of the Louisiana Oil and Gas Association, was among the first to fire back, arguing that the new rule will “more than double the established rates in 2010.” Briggs said the change will “stifle” the current $10 billion investment in the Haynesville Shale, a record-setting natural gas play that relies on new technologies like horizontal drilling. He also rejects the notion that lateral sections have an intrinsic value. “As the lateral section is permanently cemented deep below the earth’s surface, the equipment within this section becomes an asset that can no longer be recovered by an oil and gas operator,” Briggs said. “Additionally, some horizontal wells have no casing in the horizontal section, called an open hole.”

Briggs made his argument in his regular opinion column, which is published by outlets statewide. Not to be outdone, the Louisiana Assessor’s Association circulated an editorial taking Briggs to task. Lincoln Parish Assessor Pam Jones, LAA president, called Briggs’ comments “needlessly inflammatory” as well as “downright false or misleading.” The association’s interpretation of the commission’s new rule is that it raises the 2011 cost values for oil and gas properties by slightly more than 4 percent from 2010.

The group added that next year’s depreciation schedule “effectively wipes out the increase in schedule value for existing properties.”

Briggs says his review of the new rules produced a much different impact, or more than a 50 percent increase based on the operations of 200 wells statewide. In north Louisiana, there could even be an increase of $60,000 more in taxes per well next year. “We’re a taxpayer and they’re tax-pickers,” Briggs said. “The guy that pays the taxes pays attention to what he is paying. We know what the numbers are.“

Kennedy v. Rainwater. A Republican like the governor, Kennedy told the Rotary Club of Baton Rouge on Nov. 17 that the administration needs to begin weighing expenditures on consulting contracts and payrolls against priorities like education, health care, coastal restoration and infrastructure. “It all comes down to political courage. We’ll find out this spring,” he said during the club’s noon meeting.

Kennedy calls the upcoming shortfall, which could be as large as $3 billion, a “serious fiscal problem.” He agrees with Jindal that no taxes should be raised, but the other 15 points of his plan seem to provide a bit of a rub for the administration.

Although he has presented the plan to several civic groups around the state, various editorial boards and through his own opinion columns, Kennedy has yet to present his plan to Jindal. “But I have had several meetings with (Commissioner of Administration) Paul Rainwater,” Kennedy said.

Rainwater, for his part, squared off against Kennedy during Garland Robinette’s WWL talk show, just hours before Kennedy spoke to the Rotarians. Hammond attorney and political blogger C.B. Forgotston was also thrown in for good measure.

As Rainwater has already done through his agency’s website, he criticized some of Kennedy’s plans as unworkable. For example, Kennedy wants to eliminate 15,000 positions over a period of three years and save some $500 million. Rainwater countered that such an across-the-board plan could potentially crash certain systems, like prisons.

“You have to look at it in a strategic way,” Rainwater told Robinette. “We’re not shying away from cutting jobs.”

Kennedy is further calling for a minimum span of control of one manager for every 10 Louisiana state workers, similar to the ratio created by states like Texas and Iowa. Contracting issues represent even more savings, he said. If the Legislature and governor were to eliminate 10 percent — by value — of the state’s 16,000 to 19,000 consulting contracts, annual savings could reach $750 million. Additionally, Kennedy said the state should renegotiate Louisiana’s remaining consulting contracts and require a 5 percent reduction in cost, creating annual savings of $337.5 million.

Rainwater said the state already renegotiates contracts every year and that $42 million was saved in 2009 as a result. As for the 16,000 or so consulting contracts, Rainwater calls the figure inaccurate; if one were to “unbundle” that mass, there would be only 3,900 contracts. Rainwater said that’s because contracts are often confused with cooperative endeavor agreements, which could in no way create $750 million in savings.

On the higher education front, public universities recently learned that the state won’t be coming through with more money this year and that 2011 could be worse. As for health care, the Department of Health and Hospital’s latest proposed budget reductions — the fifth scheduled decrease since February of 2009 — would pull more than $250 million in funding from physicians, community hospitals and emergency services.

Kennedy’s related planks on these subject areas include implementing a law that allows the state to purchase private insurance for low-income citizens when it is cheaper than Medicaid for annual savings of $100 million, and giving refundable state income tax credits like the federal Earned Income Tax Credit to parents of students in underperforming public schools to send the kids to better-performing parochial and private schools for an annual savings of $57.5 million.

Rainwater and others probably have responses ready for those ideas, too. But Forgotston, a former chief counsel to the budget-crafting House Appropriations Committee, said the debate over the budget, which has grown by an astounding $8 billion over the past five years, doesn’t need to become so nuanced. The goals should be easy to determine for anyone looking through honest and sincere eyes. “If higher ed and health care are truly our priorities, the money is there for it,” Forgotston said. “We just need to decide that something else is a lower priority.”

Jeremy Alford can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

 

 

 

 

 

 

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