You are on page 1of 8

From:

NDDemNPL<
people@demnpl.com
>
Date:
March16,2015at6:55:23AMMST
To:
[REDACTED]
Subject:

CapitolLetters,March14thEdition
ReplyTo:

people@demnpl.com

CapitolLettersMarch14thEdition

Asweclosethebooks
onweek10ofthe64thLegislativeAssembly,wehereatCaptiolLettersare
dispensingwithourregularformatwithhopesofbringingyouaconversational
guidetoanissueyoullhearmuchaboutbetweennowandtheendofMay:Theoil
taxtriggerandits
potentialimpactonstaterevenues.

Butdontthinkthis
formatchangemeansDemNPLlegislatorstooktheweekofffromfightingthe
rightfights.Wediscussbelowthefighttoensureethicalbehaviorbylawmakers
(followingawhimsicaldiscussionofsomereallyinterestingactuarialtables).

Soaswesomewhat
anxiouslyawaitnextweeksbigrevenueforecast,wehopeyoulljoinusintaping
upthebridgeofyourglasses,pullingoutyoursliderule,crackingopenabottleof
Maalox,andenjoyingthisweeksCapitolLetters.

Trigger
Talk:OrHowILearnedtoStopWorryingandLovethePriceofWestTexas
IntermediateCrude[$2.50]

EachweekinCapitol
Letters,weaimtoinformandentertainaswediscusstheissuesfacingtheNorth
DakotaLegislature.Giventhatthefollowingparagraphsusewordslikeanalytics
andtaxtriggers,pleaseforgiveusifwerealittlelightintheentertainment
department.

Nextweek,theLegislature
willreceivethemuchanticipatedrevenueforecastfromMoodysAnalytics,the
greeneyeshadefolkswhocrunchnumbersandmakepredictionsaboutour
stateseconomyandtaxcollections.

Thisisabigdeal
formanyreasons,mainlybecausethedecisionswemakeinthecomingweeks
willdeterminehowstategovernmentisfundedforthenexttwoyears.Considering
ourlasttworevenueprojectionswereaboutsevenweeksand$4billionapart,
theonlything
thatiscertainisuncertainty.

YourDemNPLlegislators
haveadvocatedforcontingencybudgetinginthefaceoffluctuatingforecasts,and
wellhavemuchmoreonthatbetweennowandwhenwegavelout
sinedie
.Butfornow,
wewanttoeducateyouasophisticatedconsumerofnewsaffectingfiscal
policyaboutsomethingthathasbeenontheLegislaturescollectivemind(?)
nearlyeverydaythissession:Theoiltaxtriggers.

Therearevarious
triggers,butforthesakeofbrevity(andmercy)wellfocusonlyonthesocalled
largetrigger.Forthwith:

The
gist
:Ifoilpricesarelowforalongtime,taxincentivesaretriggeredintoeffect.
Basically,thestatesignificantlyreducestaxesonoilextraction
duringsustaineddownturnsinthemarkettoencouragecontinueddrillingand
production.

Theweeds:Thetrigger
priceissetbystatuteandindexedforinflation.For2015,thetriggerpriceis
$52.59.Butkeepinmindthatdifferentkindsofoilhavedifferentprices.West
TexasIntermediate(WTI)istherelevantpriceforpurposesofcalculatingthe
trigger.Ifthe
WTImonthlyaverageminus$2.50islessthan$52.59forfiveconsecutive
months,thethelargetriggerkicksinandprovidesanexemptionfromtheoil
extractiontaxforthefirst24monthsofproduction[,]assuccinctlystatedbythe
Fargo
Forum
.

The
CapitolLetterstriggerworkaround:

Thetriggerseemed
confusing,sowehereatCapitolLettershadsomeClevelmathematicsstudents
developthefollowingworkaround:

1)Justsaythetrigger
priceis$55.09.Ifyourspouseorsomeoneatalocalbarcallsyouonit,tellthem
yougotmeandconfessthatthetriggerpriceisactuallyasstatedintheabove
paragraph.

2)Ifthepriceof
WTIaverages$55.09orlessforamonth,thetriggerclockstartsticking.

3)If,duringeach
ofthenextthreemonths(includingMarch),thepriceofWTIaverages$55.09or
less,thetriggerwillbepulled.Ifitdoesntduringeachmonth,itwont.Tobeclear,
WTIcouldaverage$1.00perbarrelforJanuary,February,March,andApril,butif
the
pricerosetoanaverageof$55.10forthemonthofMay,thetriggerwouldnotbe
pulled.

4)Ifthetrigger
ispulled,newlyproducingwellsreceiveanexemptionfromthe6.5%extraction
tax(butnotthe5%productiontax)foruptothefirst24monthsofproduction.But
see5)below.

5)Tountrigger
andputthebulletbackinthechamber,sotospeak,theoppositemustoccur:
Pricesmustaverageabove$55.09foreachmonthduringafivemonth
consecutiveperiod.Thosenewlyproducingwellsthatbecameoperationalafter
thetriggerwaspulledwouldcontinue
tobenefitfromtheupto24monthexemptionfromtheextractiontax,butonlyuntil
theendofthefivemonthconsecutiveperiodwhenthetriggerprovisionsareno
longereffective.

The
triggerinreallife:

WTIaveragedbelow
$55.09inJanuaryandFebruary.Marchislookingtobeatriggerymonthaswell.
Thus,thereisaveryrealpossibilitythatthetriggergetspulledwhenweturnthe
pageofthecalendarfromMaytoJune.Keepinmind,however,thatifthemonthly

average
ineitherAprilorMay(wellwriteoffMarch)ismorethan$55.09,notrigger.

What
pullingthetriggerwouldmean:

TheLegislativeCouncil
has

estimated
thatpullingthetriggerwouldcostthestateapproximately$883millioninrevenue
basedontheJanuary2015revisedrevenueforecast.Hereswhy:
Newlyproducingwells,likethosethatcouldreceivea24monthexemptionfrom
theextractiontaxifthetrigger
ispulled,accountforabout70percentofthestatesoilproduction,asstatedby
theTaxDepartmentintheForum.

Ideas
fortalkingwithyourfriendsandfamilyaboutthetrigger:
DemNPLsenators
andeverymemberoftheGOPmajorityintheSenatevotedtoeliminatethe
triggerslastsession.Youcanviewthevoteforyourself

here
.
WhatalwaysconfoundedyourCapitolLetterscoauthors,however,waswhythe
GOPsponsoredbilltoeliminatethetriggerswasfusedtogetherprominentlywith
anallday,everyday,foreverandalltime,whopping30%cuttotheoilextraction
tax.Permanently
trading30%ofoilextractionrevenueoverthelifeoftheBakkeninexchangefor
gettingridofthetriggers,whichcancausesignificantbuttemporarylossof
revenue,wasnotagooddealforthestate.Whenitcametoavotetotakeitor
leaveit,
wesaidleaveit.Andaninterestingthinghappened:Themajorityagreedwithus.

Wearemorethanwilling
toworkwithourfriendsintheGOPtoenactamechanismthatincentivizestheoil
industrytocontinueinvestinginNorthDakotaduringdownturnsinthemarket
whilebeinglessdisruptivetoourtwoyearbudget.Butifsomeonesaysthat

DemNPLlegislators
opposedeffortstogetridofthetriggers,tellthemtheydontknowWTItheyare
talkingabout.

The
rightfights:Ethics

NorthDakotaprides
itselfonhonest,opengovernmentrunbyelectedofficialswhoarecitizensfirst.
ThegoldstandardisexemplifiedbyservantslikeArtLink,whohumblyand
squarelyfocusedonthebestinterestsofthestateandfuturegenerationsofNorth
Dakotans.

Thatsalegacywe
shouldzealouslypreserveinthefaceofachangingNorthDakota.Evenaswe
warmlywelcomehonestnewcomersseekingbetterlivesinourstate,wecan
makecleartothelessscrupulousthatweexpectourpoliticianstolookoutforfor
thepublicgoodrather
thangetwhilethegettingisgood.

Thatwasthegoal
ofRepresentativeCoreyMock,theHouseAssistantDemNPLLeaderfrom
GrandForks,whointroducedaconstitutionalresolutiontocreateanethics
commissioninNorthDakota.

Coreyhasmanystrengths,
nottheleastofwhichispersistence.Thisishisthirdrunatcreatinganethics
commission,andtheplanthistimewastogainlegislativeapprovalofa
constitutionalresolutionandultimatelyletthepeopledecidewhethertoestablisha
panelthathas
theauthoritytoaddressunethicalconductoflegislators[and]electedand

appointedstatewideofficials[,]astheBismarckTribunereported.

TheTribuneadded,
[l]awmakersinoppositionarguedwhetheraproblemexistsinthestatethat
warrantsthecreationofanethicscommission.Thisgetstheinquirybackwards,
asCoreyaptlynotedtotheTribune.Thelackofanethicscommissionitself
leavesthosequestions
hanging[.]

Further,consider
section12.12104oftheCenturyCode,whichmakesitacrimetocausea
catastrophe.Catastropheisalegaltermofartmeaningseriousbodilyinjuryto
tenormorepeopleorsubstantialdamagetotenormoreseparatehabitationsor
structuresorproperty
lossinexcessoffivehundredthousanddollars.

Thesecatastrophes
dontexactlyhappeneveryday.Hopefullynotever.Butwestillhavelawsonthe
booksshowingstatedisapprovalofsuchbehavior.Anditwouldbeacatastrophe
ofanotherfeatherifsomeseamyoutsideinterestgroupweretosurreptitiously
infiltrateour
lawmakingprocessthroughgraftandnobodyknewaboutitduetolackof
oversight.

Attheveryleast,
creatinganethicscommissionwouldhelpaverttheperceptionthatunethical
conductcouldoccur.Inthatregard,itcouldonlyhelp.Theworstthatcould
happenisthattheethicscommissionbecomestheequivalentofagroupofMaytag
repairmen,lacking
workashonestNorthDakotalawmakersmindtheirscruples.

Intheend,thecommittee
votewas104tonotpasstheresolution.Itwasntawinningfightthistime,butthat
doesntchangethefactthatitwastherightfightforNorthDakota.Andwhenit
comestothosefights,DemNPLlegislatorslikeCoreyneverquit.

Thank
you

Thanksforallowing
ustogetheavyonthepolicythisweek.WellbebackMondayforwhatisshaping
uptobethemostpivotalweeksofarthissession.Untilthen,keepthefaith,keep
upthefight,andlikeuson
Facebook
.