The 63rd Montana legislative session adjourned on April 24 having dealt with literally scores of oil and gas-related bills since the session convened on Jan. 7, passing some but killing many others. And of the oil and gas-related bills that did pass, several were ultimately vetoed by Gov. Steve Bullock. Some of those vetoed bills, however, passed by large enough majorities that legislators are automatically being polled on veto overrides. That polling continues until June 10.
To put this all into perspective, Montana Petroleum Association Executive Director Dave Galt spoke with Petroleum News Bakken on May 28 and shared industry views on the more important oil and gas bills, both pro-industry and anti-industry, as well as those bills that passed, failed and were vetoed.
Tax bills and vetoes
Petroleum News Bakken: To begin with, what is the MPA’s overall assessment of the session as it related to the oil and gas industry in Montana?
Galt: I think that we did pretty well actually. We’re obviously in a defense position. All of our offensive bills, so to speak, were vetoed. So from a perspective of did regulation and taxes get worse in Montana, the answer is no. Legislators were interested in what’s going on with our business, and I think they gave a lot of thought to the bills, and they failed to pass a lot of bills that would have been detrimental to the industry. So I’m pleased with the overall session.
Petroleum News Bakken: Which were the offensive bills that the Governor vetoed?
Galt: Senate Bill 240 and House Bill 408 dealt with taxes on pollution control equipment. One of the things we find particularly egregious is the continued taxation of pollution control equipment that’s required either by federal or state government.
SB 240 would put pollution control tax at zero for everything that came into service after Jan. 1, 2012, so we were just trying to prevent huge tax increases and property taxes based on pollution control equipment that we are being required to put in place.
And HB 408 was a similar bill that just started the reduction phase to bring the tax rate on existing pollution control equipment from the current 3 percent down to 1 percent over five years. Montana’s history on property tax on pollution control equipment has always been that it needs to be significantly less than a business property tax, and in the old days when business property was taxed at 12 percent, pollution control equipment was taxed at 3 percent. Over the years the legislature has brought the business equipment tax down to 3 percent, and we wanted to try to move the tax on pollution control equipment eventually over the long term to zero. We thought we had some good bills that didn’t really draw a fiscal impact, but the governor felt otherwise.
Why the vetoes?
Petroleum News Bakken: By how large of a majority did those two bills pass out of the legislature?
Galt: The final House vote on SB 240 was 92-8, and it passed the Senate 40-9. So there wasn’t a lot of opposition to that bill. HB 408 didn’t have quite as much support; it came out of the third reading in the House 72-28 and it passed the Senate 32-18 on final vote, so it was a lot closer.
And because the votes were over two-thirds, those bills are automatically sent out to poll for a veto override.
In the governor’s veto message on HB 408, he talks about having money in a rainy day fund. Well, neither HB 408 nor SB 240 had any impact in this biennium. His reason for vetoing SB 240 was that he didn’t think it was right to have two different tax rates on one class of property. And the governor’s veto message on SB 240 contains the same rainy day language, which is not applicable to our bills, so we don’t know why it’s even in the veto message.
We’re disappointed that those two bills didn’t move forward. They would have affected every part of the industry. There would have been some impact on the upstream side, but tax is a big issue on our downstream sector, like refineries and bigger pipelines.
Petroleum News Bakken: Do you think legislators will vote to override the vetoes?
Galt: It’s a new day when it comes to overriding a veto because you need members of the same party as the governor to vote to override the governor’s veto, and that’s really difficult. Just because they passed big when there was no confrontation, doesn’t mean they’re going to pass again with the same margins because the Governor now is exerting his authority.
Other tax bills
Petroleum News Bakken: What were other important oil and gas-related tax bills?
Galt: SB 295 would have removed the drilling incentive and was tabled in committee. There was bill to require the taxation of flared gas, and that bill died. We did not have any proactive tax bills other than the two pollution control equipment tax bills.
We did have a mediation bill, SB 280, to allow folks to go directly to district court rather than to the state tax appeal board if they had an appeal. The Department of Revenue didn’t like that and it was heavily amended. When it finally came out of the session, it did contain an option for the taxpayer to go through mediation.
We also got a study bill on evaluation of large industrial property. Yet again, what we’re trying to say is that we don’t believe property taxation on large industrial property is being done properly in Montana, and it is certainly a point of concern with a lot of different large facility owners. So we’re going to look at it again. Just think about it — in Yellowstone County, three refineries pay 25 percent of the property taxes of the county.
Little relief to impacted communities
Petroleum News Bakken: How do you believe the legislature dealt with relief to oil-impacted communities, including education?
Galt: The governor vetoed HB 218, which was the only impact bill that survived the session, and the governor vetoed it. In his veto text, he says that HB 11, the Treasure State Endowment program, currently allocates $15 million in infrastructure assistance for oil and gas cities and counties. Every year, HB 11 takes resource-based money, a lot of it is oil and gas money, some of it comes from the coal tax, and that’s allocated across the state based on need to help projects such as bridges, sewer and water. But it’s just not a lot of money, and it’s actually less money in 2013 than in 2011.
And the governor’s veto message refers to another bill, SB 175, which allocates funds to eastern Montana schools and changes some of the school funding restrictions put in place two years ago. That money will go toward addressing educational needs, and in some instances it can help with school construction, but that to me is still not addressing the needs that you have in Sidney and Culbertson.
The governor also said that he wanted to do that (funding) with bonding, but the legislature didn’t allow the bonding bill to pass. So frankly, you’ve got $300 million-plus in an ending fund balance that’s probably going to be closer to $400 million at the end of the fiscal year, and the governor didn’t want to send an additional $35 million to eastern Montana to deal with site-specific impacts, which HB 218 would have done.
Petroleum News Bakken: Isn’t HB 218 also out for a veto poll?
Galt: It is out for a veto poll, and if there was one bill that just might have the possibility of passing, that one might get overridden. In my conversations with legislators, there certainly are a lot of folks that are very upset about that veto. So that, in my mind, would be the one to watch.
We supported that bill, but of course you know the minute we come out and support it you get the backlash from the pro-tax people that say that if we had just paid our full share, they would have had plenty of money to do that. And I’m getting that from some legislators even when I point out that the bulk of those impacts that are occurring along the eastern edge of Montana are being driven by development in North Dakota and by people that are living in Montana and working in North Dakota. Our drilling activity in Montana isn’t even greater than it was in 2006. So saying we’re not paying our taxes, I think is disingenuous.
Eminent domain
Petroleum News Bakken: Eminent domain was addressed in numerous bills, most of which did not pass. How will the oil and gas industry be affected by the three bills that did pass, i.e., HB 45, HB 256 and HB 417?
Galt: HB 45 only requires that when you file the action for condemnation that you make sure that included in the record are the procedures and the laws and the process for eminent domain. There’s a handbook that’s published by the legislative council, and you have to make sure you give that handbook to the property owner at the time you file. That’s certainly not a problem.
HB 256 really impacts a major facility that’s under the Major Facilities Siting Act, such as a big transmission line or a large pipeline with over 25-inch diameter pipe. It requires more notice in a mile-wide corridor so people are paying attention. But it gets complicated if you think about trying to notify every single landowner in a mile-wide corridor. Now that might be just a few landowners in some large eastern Montana blocks, but at the same time it could be through a town or a more populated area, and there it could be hundreds of landowners. So there was some concern about that, but they (the legislature) felt that we have to let people know what’s going on and give them the opportunity to voice their comments before the final location is determined.
HB 417 essentially says that once you make a best and final offer, if you go to court on a condemnation procedure and the landowner gets more than the best and final offer, you have to pay for the attorney’s fees. There were some industry concerns, but we think it will be workable.
I think overall there were some real egregious and serious bills that would have made building a transmission line or a major pipeline extremely difficult. When the dust settled, we’ll be able to work with these bills that passed. It’s going to increase the cost of projects, but we’ll still be able to get the projects done.
Water issues
Petroleum News Bakken: Water was an issue with at least seven water-related bills introduced. Several of those bills passed, such as SB 346 and HB 37, others failed and several were vetoed. What are the MPA’s views on the water issues that the legislature addressed?
Galt: SB 346 creates a streamside protection zone, so if you find that an exempt well is too close to a stream and it’s having a negative effect on the stream, then the exempt wells get ratcheted back inside that stream depletion zone.
HB 37 allows somebody with a water right, particularly agricultural users, to temporarily lease that water right for no more than two years out of every 10 consecutive years, and the idea is that the leasing process would be a little bit faster and less expensive than a change of use. It was supported by landowners and by industry, and is a positive. It is another tool in the toolbox for industry when it comes to needing water.
