Association challenges effort to increase gross production taxes

Oil and gas executives and the Oklahoma Independent Petroleum Association have challenged a request to put a state question on November’s ballot seeking to equalize gross production taxes on state oil and gas wells to create a $4,000 raise for teachers.

In two separate filings made at the Oklahoma Supreme Court, they argue the proposal is unconstitutional and that language for its signature page is misleading.

The challengers argue the proposal is unconstitutional because it would address numerous general subjects, including education pay and gross production taxes.

Currently, Oklahoma requires operators of oil and natural gas wells spudded after July 1, 2015, to pay a 2 percent gross production tax on product from those wells for the first 36 months they are operated. After that, the tax increases to 7 percent for the remainder of the wells’ operational lives.

The current tax structure was created by the Legislature in 2014.

The proposal would make the tax a flat 7 percent for product from all oil and gas wells. The challengers also argue that’s unconstitutional because it would make that increase retroactive to 2015.

Additionally, they assert the constitutional amendment would alter the state’s separation of powers because it would give the state’s Board of Equalization the power to halt the legislative appropriation process for the entire government if the Legislature didn’t appropriate the raises it would require.

Regarding the filing that argues gist language on the proposal’s signature page (required language to inform signatories what they are supporting an election for) is misleading, challengers assert:

• It overemphasizes teachers will receive a pay raise when, in fact, the question would require $4,000 annual raises for all certified education employees, including administrators and supervisors.

• It engages in advocacy and partiality by using laudatory terms to describe the effect the approved state question would have.

• It fails to mention Oklahoma’s Department of Education would receive 10 percent of the proceeds the gross production tax change would generate.

• It fails to mention the tax increase would be retroactive to July 1, 2015.

• It fails to note the pay raise it would require would be the first time one was mandated by Oklahoma’s constitution.

• It fails to mention the raise would be given to all certified education employees, regardless of their performance.

• It fails to mention the tax couldn’t be amended by Oklahoma’s Legislature.

In a news release announcing the challenges, association executives called the proposal unprecedented and “bad public policy” since it specifically targets the oil and gas industry in the state.

“By setting such a precedent, this state question (if allowed to stand and if approved) could open the door to placing similar tax increases in the constitution on other Oklahoma industries like agriculture, manufacturing or aerospace,” said A.J. Ferate, the association’s regulatory affairs vice president.

Challenge expected

But Mickey Thompson, a former president of the Oklahoma Independent Petroleum Association, a longtime oil industry spokesperson and executive director of petition backer Restore Oklahoma Now Inc., issued a statement Wednesday that said the challenges were expected and that he believes his organization will prevail.

“We are disappointed but certainly not surprised that the oil barons who control our state politics have filed a protest to our initiative petition,” Thompson said in the statement. “It’s a blatant attempt to stop the people of Oklahoma from exercising our rights to direct democracy to reshape the future of public education.

“We trust the Oklahoma Supreme Court will see through the smoke screen and allow us to proceed in an expeditious manner,” he stated.

Tim Wigley, president of the Oklahoma Independent Petroleum Association, however, said members of that organization genuinely are concerned by the proposal.

“As we are starting to see our state revenues increase now that we’ve got long lateral legislation in place, and with the price of oil going up, I don’t know why we would want to do anything to thwart that,” he said.

Wigley said the association already is identifying companies that belong to the association and that will divert their drilling budgets to other states if something like what’s proposed is approved.

“When you have tax laws that are uncertain and continually changing, these oil and gas executives don’t like what they are seeing.”

Wigley said the state’s oil and gas industry is the largest contributor toward paying taxes in Oklahoma, and he appreciates state residents want to see teacher pay improved.

“We support teachers, and don’t want to see them leave. But what we are looking for is fairness in the process.”

When Thompson filed the petition, he said backers estimated the proposal, if approved, would raise $333 million, of which about $240 million would be used for raises.

He said the state question also would provide Oklahoma’s early childhood education programs with about $30 million a year, and that the remaining $63 million generated by the increase would be designated for use by the state’s public school systems to hire additional teachers.