By MIKE STAGG (Independent filmmaker, citizen activist, political strategist – Special to LouisianaVoice)
For the past seven years, as Louisiana has lurched from one fiscal crisis to another, the State of Louisiana has paid the oil and gas industry $2.4 Billion in severance tax exemptions. Despite that massive transfer of public wealth into private hands, the oil and gas industry used its influence inside the Department of Natural Resources and the Jindal administration, to limit—and for three years shut down—audits that would have revealed whether the industry’s severance taxes and royalty payments to the state were accurate.
These facts have been hiding in plain sight, contained in five performance audits of the Department of Natural Resources and the Louisiana Department of Revenue conducted by the Legislative Auditor since 2010. Two of those audits focused on royalty collections from oil and gas produced on state-owned lands and water bottoms. Another focused on severance tax collections; yet another dealt with mineral leases handled by the State Mineral and Energy board, while the fifth audit examined how the Office of Conservation has handled the orphaned and abandoned well cleanup program.
The cozy relationship between DNR and the oil and gas industry is explicit in the department’s regulation of the industry. That coziness, when extended to state finances, has proven disastrous for the Louisiana treasury and its residents. DNR is responsible for collecting oil and gas royalties, which account for roughly seven percent of state General Fund dollars, or approximately $800 million per year.
For a three-year period, between July 2010 and July 2013, DNR had jurisdiction to determine the accuracy of severance taxes and royalty payments.
And DNR let industry have its way.
Audits on royalty revenue dropped. Audits on severance tax revenue all but stopped, even as the state’s financial condition continued to worsen. In short, when it came to providing rigorous oversight to ensure that the royalty and severance tax payments were accurate, DNR’s Office of Mineral Resources deferred to the oil and gas industry while programs that serve the citizens of Louisiana were cut, primarily in healthcare and higher education, the unprotected portions of the state General Fund.
DNR’s relationship with the oil and gas industry is a blatant example of regulatory capture. Regulatory Capture is a form of political corruption that occurs when an agency, created to act in the public interest, advances instead the special concerns of the industry it is charged to regulate.
Severance taxes are the constitutional expression of our, as Louisiana citizens, shared claim on our state’s vast mineral wealth. Exempting severance taxes negates the public claim on that mineral wealth and undermines our ability to invest in ourselves as a state.
Severance tax exemptions are direct payments from the state to the oil and gas producers after the companies have submitted their exemption certificates. Royalties are the property owners’ share of the proceeds from the sale of oil and gas produced from wells on their land. For purposes of this story, royalties are the state’s share of the revenue from oil and gas produced on state-owned lands and water bottoms after severance taxes have been paid.
Since the mid-1980s, Louisiana Department of Revenue has published an annual report on tax exemptions called “The Tax Exemption Budget.” In that document, the department identifies each tax exemption and quantifies the cost of each exemption to the state.
It makes clear that tax exemptions are in fact a spending of state funds — here’s how the LDR explains it in every report: “Tax exemptions are tax dollars that are not collected and result in a loss of state tax revenues available for appropriation. In this sense, the fiscal effect of tax exemptions is the same as a direct fund expenditure.”
Between 2008 and 2014, according to the Tax Exemption Budget, the State of Louisiana paid oil and gas companies more than $2.4 Billion in severance tax exemptions. Those checks went out at the exact same time that our legislature cut funding for programs like aid to families of children with disabilities, behavioral health programs, home health care, and programs that assisted victims of domestic violence. During that same period, state funding for higher education was also cut by more than $700 million as the tuition and fees paid by those attending technical colleges, community colleges, and state universities were jacked up to cover the difference.
The first performance audit on royalty collections was released in July 2010. Royaltieshttps://app.lla.state.la.us/PublicReports.nsf/B6B5DE331E9D48818625776E005CFDA5/$FILE/00018070.pdf The Legislative Auditor found that DNR’s Office of Mineral Resources took a lackadaisical approach to verifying the accuracy of royalty payments from the 1,888 active mineral leases on state-owned lands and water bottoms.
The Legislative Auditor noted that severance taxes and royalties are connected, that both are dependent on the amount of oil and gas produced, as well as the price of the resource.
Desk audits compared the volume of oil and gas sold to the volume of oil and gas produced, which ensures that royalty payments are properly calculated. These audits also help ensure that production wells on state lands are submitting properly calculated royalty payments.
The Legislative Auditor found that the Office of Mineral Resources (OMR) had not conducted a single such audit in a decade. Despite the Auditor’s recommendation that it resume these audits, OMR waited another three years before getting around to doing so.
The Legislative Auditor also found that OMR did not compare royalty reports against severance tax reports filed with the state Department of Revenue, nor did it compare royalty reports to production reports submitted elsewhere in DNR.
In its response to the Legislative Auditor’s Royalty performance audit findings, on June 24, 2010, DNR announced that “As part of the Streamlining Commission’s recommendations, OMR will take over LDRs severance tax field audit program and the two audits will be integrated beginning July 1, 2010.”
In September of 2013, the Legislative Auditor released a follow-up performance audit on royalty collections. https://app.lla.state.la.us/PublicReports.nsf/DB918AD8E33411F286257B490074B82A/$FILE/00031C97.pdf
The auditors were dismayed to find that the revenue produced by OMR’s audits had fallen below the levels reported in 2010.
The Auditor also found that that the State Mineral and Energy Board had waived 45% of the $12.8 million in penalties that were assessed against companies by OMR for late payment of royalties.
Neither the Office of Mineral Resources nor the State Mineral and Energy Board seemed at all concerned about the fiscal impact their indifference to generating revenue had on the programs that Louisiana residents depend on. Their primary concern was with not inconveniencing their friends in the oil and gas industry.
The Legislative Auditor conducted an audit on severance tax collection procedures in the
Louisiana Department of Revenue in 2013 but, because severance tax audit functions had been transferred to the DNR in 2010, auditors had to return to the Office of Mineral Resources close on the heels of the second royalty collections audit. https://app.lla.state.la.us/PublicReports.nsf/AC044A6D3709B90C86257BE30065348B/$FILE/000351F7.pdf
In this audit, the Legislative Auditor found that oil and gas industry complaints about the LDR’s use of GenTax software (which identified possible nonpayers of severance taxes) led first, to LDR shutting off the software, and second, audit power being transferred to DNR.
The scale of the oil and gas production not audited as a result of that shift was staggering. DNR’s field audits ignored oil and gas production on private lands — which comprises 98.1% of all oil and gas leases in Louisiana — for a three-year period.
Revenue from severance tax audits fell 99.8% from the levels produced by the Department of Revenue once responsibility was transferred to the Office of Mineral Resources. The actual dollar amount fell from $26 Million in 2010 to $40,729 in Fiscal Year 2012.
For the three-year period that DNR’s Office of Mineral Resources had responsibility for severance tax audits, the industry essentially operated under an honor system.
Prior history shows why this was a problem. In the late 1990s, the Mike Foster administration filed lawsuits against more than 20 oil and gas companies claiming they had shortchanged the state by as much as $100 million on severance tax payments. Now, for three years as recurring revenue shortfalls continued, the Office of Mineral Resources ignored that history.
During this time, the Haynesville Trend emerged as the most productive shale gas field in the country.
Even though the severance tax exemption on horizontal drilling meant that the state was denied severance tax revenue for much of that play, companies still managed to game the exemption system at taxpayer expense.
Under the rules for severance tax exemptions, the state pays back the taxes already paid once it receives the exemption certificate from the company — plus “Judicial Interest” which in the period covered by the audit averaged about 4.5%.
That is, the state had to dip into non-exempt severance tax payments in order to cover the interest costs on those certificates that the companies chose to sit on for several months.
The Audit found that over the course of four fiscal years running from 2009 through 2012, the Department of Revenue issued 13,818 severance tax refund checks totaling $360,190,583. An extra $23,859,012 in interest was tacked on to that. https://app.lla.state.la.us/PublicReports.nsf/CF6244B77E3A958686257C30005E80B1/$FILE/000368DA.pdf
In addition, the Auditor found that the Department of Revenue overpaid severance tax exemption refunds by $12.9 million between July 2010 and May 2012.
The decline in audit revenue, the interest paid to companies on the gaming of the severance tax exemption process, the overpayment of severance tax exemption refunds, the decision by the State Mineral and Energy Board to waive 45% of fines for late payment of royalties combined to benefit the industry at taxpayer expense to the tune of $68 million.
These gifts to the oil and gas industry were made at a time when the industry was already receiving $2.4 Billion in tax exemptions and at a time when every dollar the state did not collect translated into a cut to programs that Louisiana residents depended on.
The Auditor also pointed out that hiring additional auditors within DNR and LDR would produce a great return on the state’s investment. Each auditor costs a department between $50,000 and $60,000 per year, but they bring in an average of $1.3 million per year. LDR said it had requested additional auditors in its budgets but they were never approved by the Jindal administration.
Oil and gas companies control all of the information used in the severance tax and royalty payment process. The industry has used this power to its advantage and to the state’s detriment.
Vigilant auditing can close that information gap.
The Office of Mineral Resources has shown little interest in that kind of work. DNR’s abdication of its oversight role on royalty revenue has had an outsized impact on Louisiana because of the role that revenue plays in state finances. When added to the three-year period when DNR failed to perform severance tax audits, the agency has likely cost the state hundreds of millions of dollars over the past seven years.
That is corruption.
Not all of this went unnoticed. In the 2014 legislative session, Sen. Rick Gallot (D-Ruston) and Rep. Joe Harrison (R-Gray) introduced concurrent resolutions to order LDR, DNR and the Legislative Auditor to agree upon a means to conduct a thorough audit of oil and gas production, severance taxes and royalty payments. Gallot’s resolution passed the Senate by a vote of 35-0. https://app.lla.state.la.us/PublicReports.nsf/D6A0EBE279B83B9F86257CE700506EAD/$FILE/000010BC.pdf
But by the time the resolution reached the House floor in early June, the oil and gas industry and the Jindal administration recognized the threat the audit posed, so they joined forces to kill it. SCR 142
The resolution had to be killed to keep the secret.
In the midst of a prolonged and deepening fiscal crisis, the Jindal administration and the industry did not want legislators and the public to question whether the severance taxes and royalties paid to the state were accurately calculated.
The Department of Natural Resources betrayed the trust of the people of this state. It failed its fiduciary responsibility twice; first, as collector of royalty payments, and again during the time it served as chief auditor of severance tax collections. It has repeatedly put the needs of the industry above the needs of the people of this state.
For the oil and gas industry, $2.4 Billion in severance tax exemption payments were not enough. Its greed is so great that, in a time of fiscal constraints on state government, it went out of its way to cheat the state out of still more money. It used its power and influence in the Department of Natural Resources and its ties to the Jindal administration to do so.
By these acts, the oil and gas industry has shown itself to be unworthy of the trust we have placed in it.
For Looting Louisiana in our time of fiscal need, the oil and gas industry must be stripped of its severance tax exemptions. Under the Louisiana Constitution, we are entitled to the full benefits of this state’s mineral wealth.
Simply amazing,no wonder we are so broke. Rotting from the inside out,Ugh!!
Tom, if indeed an investigation for corruption were to occur, who has the ultimate authority and responsibility for overseeing the two boards mentioned in your report? Who is the person or persons who have the duty and responsibility on behalf of the Louisiana citizens to investigate? How do we contact them? Thank you to the writer for sharing the millions of dollars of information with us!!!
That would be either the East Baton Rouge District Attorney or the U.S. Attorney for the Middle District (Baton Rouge).
No good will come while the snake has its head.
Amazing reporting. Thanks both to the author and to Tom Aswell for getting this out there. When are the authorities going to do something?
It’s well past time for We the People to demand that the white collar thieves who have stolen our treasure and bankrupted our state are called to account. This post recounts criminal activity by civil servants, industry and members of the jindal administration. This should be quickly investigated, arrests made and people prosecuted and jailed if found guilty. The outrageous greed described here and countless other examples of corporate welfare have destroyed state government – the already-wealthy privileged few have enriched themselves even further at the expense of everyone else in Louisiana. Time for the robber barons and the government employees at every level who enabled them to GO TO JAIL (and pay huge fines as well).
This information is so vital to all the citizens of our State to know and to share so that the jindal administration will be known for what they are i.e. Corrupt beginning from the top that has flowed throughout all branches of his administration. Nothing in the news has ever been broadcast or written in newspapers or media regarding the wrangling of this group of violators. Thanks so much for this individual who submitted this information and thanks to Tom for allowing it to be posted. This should be followed up on and acted on ASAP. Once jindal is gone these yoyos will disappear and live in some faraway country never to be seen again on Louisiana soil with Louisiana money and probably get paid for it. What a ripoff and our leaders are helping them to avoid the penalties and fees they owe to the State. Look who the Sufferers are – our children and those who have lost so much already and are unable to fight back. Makes one wonder how they can sleep at night in peace! They have no heart and care only for what they can get out of the situation and their motto must be “to Hell with Louisiana, I’m outta here when the jindal administration is gone anyway!” What a RIP!!!
Thanks to Mike Stagg and Tom for this eye-opening post. Now if we can only find the people who will act on this information!
We find ourselves in the perfect storm for financial disaster and general meltdown – a gaping hole in our budget and a lack of trust in anything our government does, including collecting and correctly allocating taxes and fees already on the books. Our wink-wink, nudge-nudge method of governing is about to play itself out unless there is a sea change in our collective conscience – let’s hope it’s possible.
So, what can we the people do about it? All we have is our vote and that really doesn’t seem to make much difference. This is just one of many examples of exposed corruption in the Jindal administration and yet nothing seems to ever be done about any of it.
Your vote and your personal communication with your elected officials are important and effective, so don’t minimize them. It may not be possible to legislate morals, but it is possible to let the people we elect know how we feel about them and, even if they can’t develop consciences and empathy, they can and do acknowledge political reality.
You are so right, unless we tell them, they will continue down the path. If enough constituents contact them, they do in fact listen.
Totally agree Stephen and one chance to use your vote is coming soon. One gubernatorial candidate, sometimes referred to as Jindal Lite and who also likes to refer to himself as a “workhorse”, is the career politician Scott Angelle. Angelle was head of DNR during a large part of the period in question and did enough for Jindal to be awarded a coveted LSU stuporvisor spot for his loyalty. The inactions above plus his shameful behavior, along with Jindal, during the ongoing Texas Brine fiasco should be a red flag to anyone regarding Angelle’s intentions. He has proven time and again that any work he is doing as a horse is not for the Louisiana citizenry. Come to think of it, there’s only one part of a horse he reminds me of and it’s only fitting that it’s used for the production of a natural resource.
Shell dredging gave us “Save Our Lake”-
but the Shell flag on the State Capital continues to give us this?
Good work Mr. Stagg- lets make sure the Solar Industry (and others?) use it as ammunition when attacked- as it will help to expose.
Best from Freret st.
Andy Brott
Natural gas production reports published by DNR reveal natural gas producers have done “well” under Jindal’s governorship. From 2010-13 an average of 60% of natural gas produced in Louisiana was exempted from severance taxation.(REF DNR, LA ENERGY FACT AND FIGURES, TABLES 9&14) In 2011, “Heir” Jindal guaranteed a veto of any bill that would revoke or reduce the exemption. In Jindal’s “twisted logic,” revoking the exemption would result in decreased drilling activity because the oil companies would “simply” drill elsewhere. Really, how can that be? Texas, Arkansas, Oklahoma and Mississippi didn’t provide and still do not provide an exemption for horizontal production. They taxed it the same as any and all other natural gas production. Perhaps Jindal believed the gas producers, would in some way, would dig up the Haynesville formation and take it to another state.
I marvel at the “logic” that ‘If we tax oil and gas companies, they’ll move to another state.’ They can’t extract Louisiana natural resources across 500 mile long wells/mines!
They were here before Bobby stopped taxing them. There wasn’t an economic boom when Bobby stopped taxing them. And they’ll remain here when the next governor audits those companies and resumes taxing them.
By the way, when Reagan decreased tax rates, there was an economic boom because the rates were too high, and as a result tax revenues increased. The exact opposite happened when Bobbly eliminated these taxes.
And it’s not “Conservative” to always lower taxes and never raise them. That’s just ludicrous, but that’s what Bobby has done, and he’s proven that he’s incapable of admitting failure or fixing problems that he creates.
Bobby has accomplished two things, gutting state services and enriching outside investors. He’s turned Louisiana in a colony.
Greg, your statement “Perhaps Jindal believed the gas producers would, in some way, dig up the Haynesville formation and take it to another state” is SPOT ON!! Same logic as Willie Sutton used when robbing banks “Because that’s where the money is.” Rather than granting exemptions to oil and gas exploiters, we should be charging them admission to come into our state and play by our strict rules if they want to harvest our natural resources.
That article describes a “colony.” Jindal acts like the governor of a colony, making the oil and gas companies foreign investors in Jindal’s Colony.
The reason why people are so poor in African countries that are mega-rich in gold, diamonds, oil, platinum, etc., is because the leaders (and their friends) split the profits with foreign companies. The services they provide to their citizens are meager. There aren’t any world class universities or hospitals to be found there, for example.
Oil and gas companies provide lots of jobs in Louisiana, but if those companies aren’t paying taxes, then people not on their payrolls are much like those poor Africans, living in corporate colonies.
By the way, I saw a commentary article in the Advocate this morning in which they took the Board of Supervisors to task for wasting many tens of thousands of dollars in legal fees, that LSU can ill afford, in order to keep the process used to choose the next president a secret.
It seems that everything Jindal, or his appointees, do is Top Secret. I would like to see the next governor open up their records to full public scrutiny. Imagine that going on while Jindal is trying to convice America to elect him President.
http://theadvocate.com/news/opinion/12228174-123/our-views-lsu-secrecy-didnt
Please forward to all the state university presidents in Louisiana. Here’s how to save education!
As a state we have given much more treasure than we have collected. And now we are in deep fiscal crisis. Yet the legislature can’t find the courage to stop the handing out special tax favor to special interest groups. Earlier this week we saw the legislature pass on ending hundreds of millions of dollars in refundable film tax credits.
As a independent film maker you are potential benefactor of those film credits. I’m curious how you would feel if those special favors were to end.
Mr. Stagg is not an independent filmmaker in the sense of making movies. He receives no tax breaks, incentives, exemptions or special favors either for himself or his film company. None. Zero. Nada. Zilch.
Thank you for clearing up something I didn’t say or mean to imply. I was asking Mr. Stagg how he would feel if there were cutsin refundable film tax credits. No judgment. There are many people who don’t work in either industry that support the continuance of costly tax credits. It’s a philosophy not association that I was looking for. As for myself, I do not support any corporate tax credits that are sold as job creators. Because by the time the data proves the hypothesis wrong the money is out the door heading to Hollywood or the great state of Connecticut.
I agree. The tax credits, exemptions and incentives haven’t seemed to help Louisiana very much—only the corporations that receive them.
yes, one has to wonder why LA is so poor when we are so rich. Obviously most of the money flows out of state into corporate coffers elsewhere. Why do you think NY state is so rich? That’s one of the places it flows to for example. Texas is another big winner. It must stop.
Reblogged this on Dawn D. Collins, M.P.A. and commented:
As usual, Mike Stagg lays it all on the table. Excellent contribution to Louisiana Voice blog.
Graft. Corruption. Looting, Pillaging. This is why I refuse to live and work in LA. It was like this growing up in Metairie in the 1970a (remember the pumps in the weeds scandal) and nothing has changed.