Dave Treen: Time to tap oil and gas tax revenue stream
Shreveport Times - October 7, 2007

         Foster Campbell, a candidate in the race for governor, recognizes the need to obtain revenue from oil and gas brought into Louisiana from foreign sources and produced offshore in the federal zone. His proposal deserves serious consideration. It makes sense to derive revenue from these sources.

         In 1982, during my term as governor. I proposed a revenue-raiser termed the Coastal Wetlands Environmental Levy. As most of us know, we cannot tax oil and gas production off our coast in the federal zone. That zone begins three miles off our coast. We cannot even impose a tax on material and supplies originating in Louisiana that is sent to rigs in the federal zone. CWEL received 58 votes in the House, a majority, but since it proposed a tax it required a two-thirds vote. We did not have a fiscal crisis at the time and a number of legislators were concerned about being tagged as "taxers" in the elections the following year.

         This is how CWEL would work: A tax would be imposed on oil and gas that crossed our Coastal Zone (a federally recognized area, roughly the area south of Interstate 10). That tax would apply to oil and gas produced in Louisiana's Coastal Zone as well as oil and gas produced offshore in the federal zone. In order to pass constitutional muster the levy must apply to oil and gas produced within the state. The Legislature under the previous governor, Edwin Edwards, passed what was called the First Use Tax, in an effort to gain revenue from production in the federal zone which was brought into Louisiana. The United States Supreme Court declared the tax unconstitutional because it exempted production in Louisiana. Thus, the CWEL proposal had to be even-handed with respect to production both offshore and inshore.

         The Louisiana coast has been eroded for years largely because of pipelines and canals along the coast constructed to provide infrastructure for offshore oil and gas production. This environmental harm can be mitigated, but at significant cost. Some of the revenue produced by CWEL would be utilized for this purpose.

         The amount of revenue produced by CWEL depends on the amount of the tax. I believe that a tax of $2 per barrel of oil and 30 cents per MCF of gas would be appropriate. Oil is now selling for over $80 per barrel and gas at over $6 per MCF. Thus, the rates I am suggesting are quite low. The tax on oil would produce approximately $700 million per year; the tax on gas would produce approximately $1,600 million per year. The two would total $2 billion $300 million per year!

         The producing companies would probably absorb the taxes because competition would prevent them for passing the cost of the taxes onto consumers. However, even if the cost were passed on to consumers, over 80 percent of that cost would be borne by consumers outside Louisiana.

         The revenue stream would permit us to finance a number of things of great importance to our state. We could meet the federal requirement of paying 10 percent of the cost of rebuilding our coastal area. We could abolish business taxes such as the tax on borrowed capital and the sales tax on the purchase of machinery and equipment.

         The elimination of these taxes would make us much more attractive for businesses to come to Louisiana. We could finance the backlog of highway and bridge projects, the capital needs of our colleges and universities, raise teacher salaries, lower personal and corporate income taxes, and much more.

         Whether it be Foster Campbell's processing tax or CWEL, it is time we take advantage of the stream of revenue which can be derived from the oil and gas industries. Those industries have had the advantage we have afforded them here in Louisiana for decades.

         Dave Treen of Metairie is former governor of Louisiana.