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Gas Tax Breaks Costing Texas $1 Billion Each Year

February 13, 2012

AUSTIN, Texas - The original purpose of a state tax break that has been in place since 1989 was to encourage innovation and risk-taking by a struggling natural gas industry. Business boomed after new drilling techniques such as "fracking" became commonplace, tapping massive reserves of shale gas.

Still, the tax incentive remains, and it's depriving state coffers of more than $1 billion a year in revenues, according to state data analyzed by Dick Lavine, senior fiscal analyst with the Center for Public Policy Priorities.

"It's obviously no longer an incentive, but it has reduced the state's revenue from the natural gas tax by half. Nearly three-quarters of all natural gas in Texas gets some kind of tax break."

Thanks to the exemption, he says, about one-third of the state's wells pumped out zero tax dollars in the past few years. While the official tax rate is 7.5 percent of the value of a well's output, the true contribution averages less than 2 percent statewide, according to the Legislative Budget Board.

The Harris County director of the Texas Organizing Project, Christopher Young, says lost revenues from 2010 and 2011 were approximately the amount needed to keep up with public-school enrollment growth.

"We want to support new technologies, but these companies are now making monstrous profits. At a time when schools and state services are being cut, and working people seem to be paying more and more, there's just no reason to justify a giveaway to energy companies like this."

Lawmakers last year slashed education aid by $5 billion, while rejecting a measure to suspend the gas-tax exemption. Initially, the legislature had to renew the subsidy every few years, but it was quietly made permanent a decade ago, Lavine notes.

"It's a classic example of why it's important for the legislature to go through the tax code periodically and 'sunset' it. The natural gas operators, they need to chip in with everybody else to keep the state going."

A growing number of lawmakers from both parties agree the tax breaks are no longer necessary. Even some operators have said it might make more sense to allow market conditions to trigger incentives.

Peter Malof, Public News Service - TX