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Pickpockets at large: Fossil fuel interests bankrupting states

January 28th, 2013 · 3 Comments

This guest post Backlit Pollutioncomes from DWG and covers something that the vast majority of Americans are unaware is happening.  And, well, how many schools could be renovated, roads repaired, policemen hired, and other public services provided with the tax subsidies that the ever-so impoverished fossil fuel industries are pocketing?

NOTE:  Let us be clear, however, that this post focuses on financial subsidies and does not go into the much larger real of “externalities”.  The vast majority of subsidy for coal, oil, and natural gas comes from their ability to dump their pollution into our air, water, and soil without charge.  No other business arena is allowed to simply dump their trash into others’ lives for free — whether paying water sewage fees or trash collection or tipping fees at dumps, every other business arena in the United States must pay for its waste disposal.  The tax subsidies that DWG discusses below are only a fraction of the Social Cost of Carbon and the other costs that the extraction and burning of coal, oil, and natural gas imposed on all of us (all of the U.S.).

The Obama administration has proposed drastic cuts to federal subsidies and tax breaks for fossil fuels corporations for the past four years. It is a policy that both climate and fiscal hawks should find common ground. Most energy-related incentives go to carbon polluters at a time when cutting greenhouse gas emissions is critical to avoid a climate catastrophe. Since these are also the richest corporations in human history, Collecting Oily Wasteso-called fiscal hawks should be clamoring to end the unnecessary burden on taxpayers. Needless to say, those proposals have been rejected by Congress every year.

While federal subsidies for oil, gas, and coal are offensive and unnecessary, they are a drop in the proverbial bucket compared to the generosity of states to the carbon polluters. This toxic stupidity at the state level has been ignored for too long.

As part of international efforts to end global subsidies for fossil fuels, the Organization for Economic Co-operation and Development (OECD) has funded several studies to investigate fossil fuels subsidies at the state level in the US. Earth Track has just completed a comprehensive survey of climate-killing and budget-busting subsidies in Colorado, Kentucky, Louisiana, Oklahoma, and Wyoming.

The common denominator in all of these states is the betrayal of public trust. ExxonMobil: High Earnings, Low Taxes, No Ethics (g1a2d0029c1)Earth Track uncovered tax codes riddled with exemptions for fossil fuels industries. These massive revenue reductions were accompanied by lavish spending on infrastructure, particularly in the transportation sector, and economic development incentives that uniquely benefit the carbon polluters. The impact on state budgets is often hidden from the public by an assortment of accounting gimmicks and inadequate transparency. All of these gifts were on top of lax regulation and enforcement of environmental laws, jeopardizing public health.

To give you a taste of the folly of these corporate welfare schemes, consider Louisiana. To listen to Gov. Bobby Jindal, the state budget is in “crisis” and the poor, sick, elderly, and disabled need to suffer. Wringing his hands with well practiced concern, he says he has a moral imperative to cut debt for the good of future generations.

“I still believe in the American dream. I still believe our children can do better than us. But the only way to make that happen is to stop spending our children’s money.”

How touching! Perhaps someone pretending to be a journalist in Louisiana might ask why a state running a budget shortfall of over one billion dollars is giving away billions every year to the oil and gas industries. The state gave away $7 billion in tax breaks to the carbon polluters in FY 2010 alone. Here are some fun facts in the Earth Track report:

The Tax Exemption Budget for the US state of Louisiana, for example, runs more than 400 pages long. It contains a dizzying array of exemptions, exclusions and reductions that, all told, manage to forego more than 75% of the state’s corporate income tax revenue, 61% of its sales tax revenue, and 31% of its severance tax revenue. Severance tax breaks in Louisiana alone were worth more than $350 million in 2010, nearly all benefiting the fossil fuel sector.

Remember the sad saga of little storm named Katrina that struck Louisiana in 2005. You probably also remember the poor neighborhoods underwater, many of which have yet to be rebuilt. Well, here is disaster capitalism at its best:

Nearly two-thirds of the $7.8 billion in tax-exempt Gulf Opportunity Zone Bonds issued by Louisiana for rebuilding the state after damage from Hurricane Katrina in 2005 ended up with firms related to fossil fuel extraction, production, refining, transport and storage, or basic chemicals using fossil fuels as the key feedstock.

In theory, severance taxes are collected for the extraction of nonrenewable resources to offset the costs of infrastructure, oversight, hazardous material spills, and land reclamation. In practice, states find creative ways not to collect severance taxes or rebate them to the companies. For example, Colorado allows oil, gas, and coal companies to credit property taxes paid against severance taxes. In the process, 87.5% of severance tax revenues are not collected. Of course, without severance tax revenue, state fiscal hawks often claim they cannot afford environmental oversight and regulatory enforcement.Coal is big business in states like Wyoming and Kentucky. What these states spend on coal-related infrastructure exceeds what they receive in severance taxes. Instead of increasing severance taxes, state officials simply shift the cost burden to its citizens or cut funding for other services.

A review of state funding for coal haul roads in Kentucky by the Mountain Association for Community Economic Development, for instance, found subsidies of more than $230 million per year. This was one of the largest subsidies to coal in the state, and was larger than what Kentucky had collected in coal severance taxes. There are indications in press reports that road damage in Wyoming from energy operations is also a growing issue. The state has established a special fund to cover this type of damage, but has received more requests for compensation than there is money available.

Revenue losses in several states were more difficult to enumerate thanks to a lack of transparency and accountability.

Of the handful of US states that have no formal tax expenditure reporting process, two (WY and CO) were in our sample. Even where tax expenditure budgets existed, gaps remained. Often, states did not estimate revenue losses for all the provisions they listed. In other situations, multiple tax expenditures were aggregated into a single revenue loss line. The aggregation sometimes resulted from how information used was incorporated into state tax return filings; in other cases, however, the revenue departments did seem to have more discrete data than what was published. Nonetheless, the gaps reduced the number of specific tax expenditures for which we were able to report revenue loss data.

The fine folks in Oklahoma have taken an interesting approach to hide the decline in revenues from subsidies and tax breaks. In 2006, the Oklahoma Tax Commission stopped tracking tax exemptions related to oil and gas production. That does make it more difficult for inquiring minds to ask pointed questions.The Earth Track report contains more than a hundred pages of tables, footnotes, and data from the five states. Each entry siphons money from state treasuries while padding the profit margins of oil, gas, and coal companies. Most of these breaks are not available to other industries. Perhaps the toxins discharged by fossil fuel industries impairs the ability of state officials to perform simple math. Or perhaps the money generated from fossil fuels muddles the minds of our public servants.

These five states are hardly unique. in 2010, Downstream Strategies conducted acomprehensive study of the revenues and costs of coal to the state budget of West Virginia. While state officials talk up the benefits of the coal industry, they “forget” to count the costs.

Among the report’s findings were that the coal industry in 2009 paid $307.3 million in severance taxes, corporate net income tax, business franchise tax and other taxes. But the state spent $113.7 million to support units of government that regulate mining and for the repair of the state’s coal-haul roads. So, the report concluded that the industry in this respect provided a net benefit to the state budget of nearly $194 million.But the state provides a variety of a tax credits and subsidies that amounted to nearly $174 million in 2009 — all of which show up in the report as “expenditures,” or costs to the state budget of the industry.

So when all the costs, subsidies, and tax breaks are added up in West Virginia, the net benefit of coal to state coffers was a mere $20 million, a pittance considering that the market value of coal extracted from the state was $14 billion in 2009. That does not count the legacy costs of land reclamation, toxic waste management, and adverse health outcomes. Taking these negative future costs into consideration, coal is a drain on the state budget. Coal does generate plenty of wealth, but it does not trickle down to the state population.Subsidies and tax exemptions for fossil fuels undermines meaningful pricing of carbon and bankrupts state governments. We have a moral obligation to educate the American people about the true costs of fossil fuels. Since future generations will suffer from climate change, the least we can do is put an end to the freeloading by fossil fuels companies.

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Tags: carbon dioxide · climate change · emissions · Energy · guest post · tax

3 responses so far ↓

  • 1 Melody Carrillo // Feb 2, 2013 at 1:01 am

    The UK’s greater subsidies for fossil fuels mirrors the global situation, with the International Energy Agency recently showing that, in the 37 countries it analysed, oil, gas and coal received $409bn (£261bn) in 2010 compared with $66bn for renewable energy. Wooders noted the IEA analysis excluded support for the exploration and recovery of oil and gas, which he estimates to be worth about $100bn a year, and that fossil fuel subsidies have not been declining in recent years.

  • 2 John Egan // Feb 10, 2013 at 7:41 pm

    I think not.

    I live in Wyoming, I have researched the Wyoming coal industry thoroughly. There are plenty of things wrong with the Wyoming mineraies industry, but they contribute billions to Wyoming’s coffers – roughly $1B per year until the Great Recession kicked in. With a total state population of 1/2 million – that comes to $2000 per capita.

    I realize that there are difference cost accounting methods – but, for the time being, Wyoming offers to send any person with a “B” average from a Wyo high school to a Wyoming college tuition free – using mineral revenues. How many other states can make that claim?

    It would be nice if you refrained from such hyperbole.

    Perhaps looking at the actual study and taking up the implications of the subsidies documented by it might suggest some interesting things.

  • 3 John Egan // Feb 11, 2013 at 2:22 pm

    Perhaps if you looked at the actual conditions facing people in McDowell County, WV – you might be a little less cavalier about choices people face in economically-challenged regions.

    BTW, high school grads are making $80K-plus in North Dakota and a good hooker costs more in Williston than in Las Vegas. Talk about unfair.

    When you add a red crayon to your crayola box, then, perhaps, your arguments will have traction.