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State Rep. Dustin Miller (D-Opelousas) has filed HOUSE BILL 724 that would provide an exception to certain provisions of the state ethics code that would allow a Louisiana Department of Health physician to skirt a conflict of interests—in other words, to circumvent the very situation ethics rules were put into place to prevent.

Miller’s bill would allow the physician, Dr. Harold Brandt, to perform in a dual capacity that has already been rejected by the ethics board in a 2016 RULING.

The ruling of July 18, 2016 informed Dr. Sreyram Kuy that he could not accept employment with a healthcare provider that accepted Medicaid payments for medical services because of her position as Medicaid Medical Director, Chief Medical Officer of the Bureau of Health Services Financing (BHSF) within the Department of Health and Hospitals (DHH), now LDH.

The decision, written by Jennifer T. Land, read, “The Board concluded…that the Code of Governmental Ethics prohibits you from being employed as a surgeon for OLOL (Our Lady of the Lake Regional Medical Center), other Louisiana licensed hospitals and other healthcare providers that accept Medicaid payments for medical services while you serve as Medicaid Medical Director/Chief Medical Officer of BHSF.”

Land cited the specific section which said the code “prohibits a public servant from receiving compensation for services rendered to the following persons: (1) those who have or are seeking to obtain a business, contractual or financial relationship with the public servant’s agency, (2) those who conduct operations or activities that are regulated by the public servant’s agency, and (3) those who have a substantial economic interest that could be affected by the performance or non-performance of the public servant’s official duty. OLOL, other Louisiana licensed hospitals and other healthcare providers that accept Medicaid payments for medical services are regulated by your agency, BHSF. Therefore, as the Medicaid Medical Director/Chief Medical Officer of BHSF, you are prohibited from being employed by or from providing compensated services to these entities.”

What makes Miller’s bill particularly interesting, however, is that both Dr. Kuy’s predecessor, LDH Secretary Dr. Rebekah Gee, and his successor, Dr. Harold Brandt, each worked in that same position without bothering to request an ethics ruling, apparently falling back on the Nike slogan “Just do it.”

In fact, in the case of Dr. Brandt, LouisianaVoice has been informed that he was reappointed to the position with the proviso that Miller’s bill would be introduced in order to change the existing law to accommodate him. This despite the fact that an ethics review was requested of LDH legal to determine if such an arrangement was acceptable, and the answer was no, according to sources.

On Jan. 25, LouisianaVoice published a story in which it was revealed that Dr. Brandt previously served as Medical Vendor Administrator (Medicaid Medical Director) for LDH from April 7, 2016 to Sept. 2, 2017 at a rate of $156.25 per hour while he simultaneously served on the staff of BATON ROUGE CLINIC, which received $83,000 in PAYMENTS from LDH during Dr. Brandt’s tenure at LDH.

the Medical Director serves as chairman of the Medical Quality Review Committee, so LDH legal was asked for a second opinion whether any ethics concerns existed in regards to that capacity.

The response was the following potential issues identified under the Code of Governmental Ethics. The Medicaid Quality Committee (Committee) of the Louisiana Department of Health, Bureau of Health Services Financing, fulfills the role of the Medical Care Advisory Committee required by 42 CFR 431.12.  According to its Bylaws, the Committee provides focus and direction for Medicaid program quality activities that assure access and utilization of quality, evidence-based healthcare that is designed to meet the health needs of all Louisiana Medicaid and Children’s Health Insurance Program (CHIP) recipients through:

  • Establishing and maintaining sound business and clinical practices/benchmarks that ensure a system of internal controls and support optimal performance within established thresholds;
  • Driving meaningful and measurable collaboration between the LDH agencies BHSF, Office of Behavioral Health (OBH), Office of Public Health (OPH), Office of Aging and Adult Services (OAAS), and Office for Citizens with Developmental Disabilities (OCDD), with a focus on demonstrating improved care and service for Medicaid recipients by using evidence-based guidelines;
  • Creating and sustaining a vibrant evaluation process for Louisiana Medicaid benefits and services and health care delivery systems that is based on integrity, accountability, and transparency;
  • Offering expertise and experience of Committee members to recommend improvements to BHSF that will serve to better meet the healthcare needs of recipients in a cost efficient manner;
  • Sharing Committee recommendations with recipients, providers and policy leaders; and
  • Forming subcommittees to address specific areas of care, as needed.

The Committee’s functions are advisory and shall include:

  • Monitoring ongoing metrics and ensuring findings are reported on a regularly scheduled basis (quarterly or annually);
  • Ensuring key quality initiatives are identified to align with regulatory and business requirements;
  • Overseeing quality improvement projects and ensuring coordination and integration of the quality improvement activities;
  • Reviewing performance results and providing feedback and recommendations to the MCO action plans; and
  • Participating in the evaluation of the Medicaid Quality Program by evaluating the quality, continuity, accessibility, and availability of the medical care rendered within Louisiana.

The Secretary of LDH appoints all non-permanent Committee members, which must include board-certified physicians and other health professionals familiar with the medical needs of low-income population groups and with the resources available and required for their care, in accordance with 42 CFR (Code of Federal Regulations) 431.12(d).  Additionally, the members of the standing subcommittees are appointed by the Louisiana Medicaid Medical Director, who serves as the permanent Chair of the Committee.

La. R.S. 42:1113B prohibits an appointed member of any board or commission, member of his immediate family, or legal entity in which he has a substantial economic interest from bidding on or entering into or being in any way interested in any contract, subcontract, or other transaction which is under the supervision or jurisdiction of the agency of such appointed member.

As such, La. R.S. 42:1113B would prohibit Medicaid providers from serving, despite 42 CFR 431.12(d) effectively requiring they be appointed to the Committee or subcommittees. LDH should consider proposing an amendment to the Code of Governmental Ethics to provide an exception for Medicaid providers appointed to serve on the Medicaid Quality Committee or any of its subcommittees.

Unconfirmed reports said that Brandt prevailed upon Gov. John Bel Edwards to write Dr. Gee to request that he be allowed to continue serving as Medical Director for LDH.

An attempt was made to reach Dr. Brandt at LDH but his phone line was forwarded to a non-working number. The Department of Civil Service has no record of his employment after last Sept. 2.

LouisianaVoice has made a public records request of LDH for all correspondence between Dr. Brandt and Edwards, between Dr. Brandt and Dr. Gee and between Edwards and Dr. Gee relative to Brandt’s employment.

LDH received an email today (April 3) from LDH to the effect that it would take 30 days to provide such records. It takes only a simple keystroke to retrieve such messages from email files, however. They can be produced in a matter of seconds.

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A professor of Criminal Justice and retired Louisiana State Police Officer compares drug offenses with sex crimes in Louisiana in response to David Vitter’s vitriolic political ads suggesting that releasing non-violent drug offenders will harm public safety.

By Wayne “Steve” Thompson, PhD (Special to LouisianaVoice)

According to Louisiana Revised Statute 40:967, the state of Louisiana has a mandatory minimum sentence of five years for possession of 28 grams of cocaine or crack cocaine. According to Louisiana Revised Statute 14:34, the state of Louisiana does not have a mandatory minimum for aggravated battery which includes shooting or stabbing someone. Second degree rape has a mandatory minimum of two years (LRS 14:42.1). To sum it up, a man who threatens to kill a woman so she will not resist while he rapes her is required to do less time in jail than a person with a handful of cocaine or crack cocaine.

I have personally worked cases involving drug use and drug dealing resulting in decades if not centuries of incarceration. I have served numerous warrants on drug dealers while serving on the LSP SWAT team. I have assisted in the investigation of sex crimes cases. I found it frustrating the level of leniency towards sex offenders who received less punishment than drug offenders. Leniency for sex offenders is required to make sure there is room for the statutorily mandated sentences of non-violent drug offenders. My frustrations are shared by many in the criminal justice community.

Incarceration does not work

 Thirty-two percent of state felony convictions were for drug offenses in 2002 and more than 60 percent of those were sentenced to incarceration (Vanderwaal et al., 2006). There were 253,300 drug offenders in state prisons in 2005 (United States Department of Justice, 2008). The estimated cost of incarcerating these offenders is from $5 billion to $8 billion dollars per year. The average incarceration cost per offender is around $30,000 per year.

The drug war is an exercise of futility. Drug prices have gone down and the availability of drugs has increased (Caulkins & MacCoun, 2003). Long incarcerations result in higher recidivism or have zero effectiveness in reducing recidivism (Marinelli-Casey, et al., 2008; Caulkins & Reuter, 2006; Harvard Law Review, 1998; Vanderwaal et al., 2006). The user is still able to obtain drugs because there are plenty of people willing to stand in for a drug dealer when he or she is incarcerated. It is not the same for a violent offender. There is no line of violent offenders who want to step into the shoes of a sex offender, robber, or murderer. There are only victims. The incarceration of violent criminals can actually reduce the number of victimizations.

What does work?

According to Vanderwaal et al. (2006), drug treatment is more effective than incarceration in reducing drug use and reducing recidivism. Many states have realized this evidenced by numerous legislative acts which reduce mandatory minimum sentences and the establishment of over 1,600 drug courts by the end of 2004. The Back on Track (BOT) program in California is focused on first time low level drug dealers. They participate in extensive community service and meet positive goals such as school and employment requirements. If the participants successfully complete the program, they have their records sealed. Rivers (2009) reported the program has a recidivism rate of less than 10 percent and the cost is only $5,000 per participant. When this amount is compared to the reported prosecution expense of $10,000 and an annual incarceration rate of up to $50,000, it is a great success, a bargain for taxpayers.

Why does Louisiana lead the world in incarceration rates?

Research based treatment programs are a common sense alternative to incarceration that improves the ability to incarcerate violent offenders. An ad recently released in the Louisiana gubernatorial campaign condemned efforts to release up to 5,500 nonviolent drug offenders. That is 5,500 prison beds that can be used for violent offenders. The fiscal impact alone based on current incarceration costs is a savings of approximately $165 million every year. I am sure our schools could use that money.

The excessive punishments have been inspired by political popularity which also inhibits our ability to use common sense penalties and treatment. The public and law enforcement have shifted to the ideals that the drug problem is social, psychological, biological, and medical. The criminal justice system is ill equipped to deal with such problems.

Politicians are hesitant to change how we treat drug offenders for fear of appearing soft on crime resulting in damage to a political career. The fear is not created by the person who chooses innovation over ineffectiveness. The fear is created by opponents of the candidate by taking the methods out of context. I will attempt to place them in context.

Any effort to reduce the incarceration of nonviolent drug offenders through research proven treatment is a stance against violent criminals. Those who oppose such efforts are actually supporting keeping violent offenders in our midst. An attempt to create fear for political gain is described by Sheriff Tony Mancuso of Calcasieu Parish as “irresponsible” and “dangerous.”

Why do politicians think these ads work?

There is only one explanation, the perception of ignorance. The candidate must believe the voters at large have never dealt with a friend or family member who suffers from drug abuse and believe they should be treated versus incarcerated. We need representatives who will reduce our prison population with research proven best practices to make room for violent offenders. The people behind such political ads do not want violent offenders on the street and I would never make that claim. But, by putting such blatantly ignorant ads out, that is what they are facilitating.

References

Caulkins, J. P. & MacCoun, R. (2003). Limited rationality and the limits of supply reduction.       Journal of Drug Issues, 33(2), 433-464.

Caulkins, J. P. & Reuter, P. (2006). Reorienting U.S. drug policy. Issues in Science &        Technology, 23(1), 79-85.

Harvard Law Review. (1998). Alternatives to incarceration. Harvard Law Review, 111(7), 1863-  1991.

Louisiana Revised Statute 14:34. (1980). Aggravated Battery.

Louisiana Revised Statute 14:42.1. (2001). Forcible Rape.

Louisiana Revised Statute 40:967. (2007). Prohibited Acts-Schedule II, Penalties.

Marinelli-Casey, P., Gonzales, R., Hillhouse, M., Ang, A., Zweben, J., Cohen, J. Hora, P. F., &    Rawson, R. A., (2008). Drug court treatment for methamphetamine dependence:           Treatment response and posttreatment outcomes. Journal of Substance Abuse Treatment.      34(2), 242-248.

Rivers, J. L. (2009). Back on track: A problem-solving reentry court. Bureau of Justice Statistics    Office of Justice Programs. Retrieved on November 22, 2009 at             http://www.ojp.usdoj.gov/BJA/pdf/BackonTrackFS.pdf.

United States Department of Justice. (2008). Number of persons under jurisdiction of state           correctional authorities by most serious offense, 1980-2005. Retrieved November 24,    2009 at http://www.ojp.usdoj.gov/bjs/glance/tables/corrtyptab.htm.

Vanderwaal, C. J., Chriqui, J. F., Bishop, R. M., McBride, D. C., & Longshore, D. Y. (2006).       State drug policy reform movement: The use of ballot initiatives and legislation to       promote diversion to drug treatment. Journal of Drug Issues, 36(3), 619-648.

Editor’s note: In one of the two debates attended by Vitter prior to the Oct. 24 primary election, both he and State Rep. John Bel Edwards agreed that alternative programs needed to be implemented in order to alleviate prison overcrowding. That, of course, was before Vitter decided to ignore his own position to the issue and to paint Edwards as “soft on crime.”

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In the wake of his disappointing finish in the October 24 primary election, largely attributable to some of the most vicious attack ads by second place finisher David Vitter, Lt. Gov. Jay Dardenne announced that he would not endorse either of the candidates in the Nov. 21 general election.

That appears to have changed now.

Democratic State Rep. John Bel Edwards, who led the field in the primary election with 40 percent of the votes cast, has scheduled a special press conference for 9 a.m. Thursday (Nov. 5) at Free Speech Alley in front of the student union on the LSU campus.

Both the Baton Rouge Advocate and nola.com have posted online stories saying that Dardenne will be announcing his endorsement of Edwards at the press conference.

http://www.nola.com/politics/index.ssf/2015/11/jay_dardenne_edwards_endorseme.html

http://theadvocate.com/home/13888680-125/sources-jay-dardenne-ready-to

That would be a major coup for Edwards. In addition to the 444,517 votes cast for Edwards, Dardenne, who finished fourth in the primary election, received 166,656 votes. Between the two, that accounts for 611,173, or 54.8 percent of the 1,114,336 votes cast.

Vitter has captured the consolation prize of former Gov. Mike Foster’s endorsement.

But perhaps voters should remember that Foster is the one guilty of foisting Bobby Jindal upon the unwitting Louisiana populace. Based on that unenviable legacy, his endorsement could prove counterproductive to Vitter.

Public Service Commissioner Scott Angelle placed third with 214,982 votes. So far, he has not endorsed either candidate for the runoff election but he was also the subject of the same attack ads as Dardenne.

Vitter is not making any new friends with his new wave of misleading attack ads, this time aimed at Edwards. Filled with distortions and outright lies about Edwards’s voting record as a legislator, the early ads have already backfired.

After a spate of ads claiming that Edwards planned to release 5,500 hardened criminals from prison, the Louisiana Sheriffs’ Association promptly endorsed Edwards. (Edwards actually called for prison reform that would offer rehabilitation to non-violent offenders, thus reducing the prison population for a state that has the highest incarceration rate in the world—higher even than Russia, Iraq, Iran, and every other country on earth.)

Dardenne, for his part, said his position on offering his endorsement “evolved over time,” according to nola.com. He and Edwards have kept the lines of communication open since the primary election and Edwards has repeatedly, even during the campaign leading up to the Oct. 24 primary, referred to Dardenne and Angelle as honorable men and “dedicated public servants.”

As for Vitter, when the state’s senior U.S. Senator said during one of his rare debate appearances that Edwards had voted for President Obama, Edwards replied, “Yes, I did vote for Obama but I never voted for David Vitter.”

Dardenne’s endorsement is significant in two ways:

It is extremely rare for a Republican to endorse a Democrat, or vice-versa, and

It sends an unmistakable message to his supporters that his brand of dirty politics is beyond the pale, even for Louisiana.

And while the Republicans in the Louisiana House have voted to endorse Vitter—no surprise there considering the gutless servitude to Jindal during his eight pitiful years in office—the Senate Republicans in so many words told its House counterparts to take a walk.

Vitter must be feeling the early symptoms of panic.

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LouisianaVoice is launching its third fundraiser during the month of May and while past support has been appreciated more than you could ever know, this one has a greater sense of urgency to it than before.

Where the previous fundraisers helped defray the costs of travel and paying for public records, etc., this one will be used for an even more expensive—and more important—endeavor: covering mounting legal costs.

We are currently engaged in a court battle with the Division of Administration (DOA) over DOA’s pattern of delay in complying with the state’s public records laws (R.S. 44:1 et seq.).

To illustrate DOA’s tactics, here is one glaring example:

Last October 14, we made an official FOIA request for information pertaining to the $350 million contract between the Office of Group Benefits and a California company called MedImpact.

Believing DOA was deliberately stalling in complying with our requests, we had a friendly (but unidentified) legislator make the identical request through the House Legislative Services Office. That request was submitted the same day (Oct. 14, 2014) as our request.

On Oct. 21, 2014, we received the following response to our request:

  • Pursuant to your public records request, we are still searching for records and/or reviewing them for exemptions and privileges. Once finished with the review process, all non-exempt records will be made available to you. It is estimated the records will be available on or before October 31, 2014.

The House Legislative Services Office spokesperson received the following response to its request from DOA two days later, on Oct. 23, 2014:

  • You requested the MedImpact contract, Notice of Intent to Contract, ratings, and recommendations for awarding the contract. Please note the contract contains some proprietary and/or confidential information that has been redacted under La. R.S. 44:3.1. We have scanned these records. They are too large to email, so I can bring a CD over. I heard you’re out of the office. Do you want me to drop it off for you or wait until you get back?

So we were promised the records eight days later than the House Legislative Services Office and while that illustrates a deliberate delay on DOA’s part, it was not completely unreasonable and was hardly a basis for litigation. It didn’t even upset us that DOA would hand deliver the records to the legislature but require that I drive in from Denham Springs to review them.

But the fact is we never received the records—until, that is, after we filed our lawsuit in January of 2015. Once the lawsuit was filed, of course, they were immediately delivered to our attorney’s office—nearly three months after they had been delivered across the street to the legislature.

That was just the most egregious case, but we actually filed our lawsuit on the basis of  shorter but nevertheless unnecessary—and purposeful—delays in compliance with other several other requests.

The records we have requested are for actions by agencies of the state which affect you, the taxpayer. Because most media outlets are concerned with only the surface treatment of news stories, we attempt to pry deeper into the cause and effect aspect of state government—relationships between vendor and vendee, between elected officials and campaign donors, between contributions and contracts and board appointments. In short, we follow the money.

Government in general is uncomfortable with this and this administration in particular abhors scrutiny. That’s why DOA had instituted a deliberate strategy of delay when it comes to complying with our records requests. One former employee of DOA told us that it was common practice for DOA to get the records we request and then simply let them sit in a corner for weeks at a time before finally allowing us to inspect them. This is not the way to build trust between the government and the governed.

And it is not acceptable to us.

That is the reason we filed suit.

Our lawsuit is scheduled for trial this month and no matter which way the judge rules, the decision is quite likely to move to the First Circuit Court of Appeal. It’s that important to us if we lose and apparently, it’s equally important that the administration hide its actions from public examination.

Either way, it has already cost us a lot of money in terms of legal fees. And an appeal is going to cost a lot more. If we win, DOA will appeal in an attempt to make it cost-prohibitive to fight them by forcing us to continue paying legal costs until our resources are exhausted and we allow the case to abandon. That’s what happened with the case of a dentist who was pursuing legal action against the State Dentistry Board. DOA has attorneys on staff being paid with your tax dollars; it’s not costing Kristy Nichols a dime to stay in the game.

That is why we need your help now more than ever.

Please click on the Donate Button with Credit Cards button near the top right part of our web page to donate by credit card.

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Whichever way you choose to contribute, your help in our fight to make state government more transparent and accountable is both needed and appreciated.

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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.

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