By Paul Williams

Law360 (May 11, 2020, 8:38 PM EDT) -- A Louisiana resolution that would suspend oil and gas industry taxes for about one year won approval from a House committee Monday after debate over whether the measure would help or hinder the state's economic recovery from the COVID-19 pandemic.

The House Ways and Means Committee approved H.C.R. 65 by an 11-5 vote, sending the measure forward for consideration before the full chamber. The resolution, which would not need the approval of Democratic Gov. John Bel Edwards, would suspend severance taxes on oil, natural gas, distillate and condensate through August 2021, according to its fiscal note. Severance taxes are imposed on extractions of nonrenewable natural resources intended for consumption in other states.

The fiscal note projects that suspending the tax could cost Louisiana $694 million, although committee members indicated the revenue drop would not be that stark, given the drop in oil prices during the spread of COVID-19, the respiratory illness caused by the novel coronavirus. Most oil is taxed at 12.5% of its value, and most gas is taxed at a rate based on prices in the previous year, according to the note.

The committee's chairman, Rep. Stuart Bishop, R-Lafayette, billed the measure as a tool to protect one of the state's largest industries that have been crippled by the pandemic. He also said that Louisiana has been losing oil and gas jobs for years to states with friendlier tax climates. If passed, he said, the measure would signal that the state is willing to encourage oil and gas businesses to stay in the state.

"They're not just staying here because we have the resources. They're doing business in places where it's cheaper to do business," Bishop said. "We've effectively driven these people out, and this is just one small way to keep them here."

According to the Louisiana Oil & Gas Association, an industry advocacy group, Louisiana's 12.5% severance tax rate is the highest in the country, whereas neighboring Texas has a 4.6% rate.

But several Democrats on the panel took issue with Bishop's characterization of the resolution, saying it would crater tax collections when the state's revenue is already likely to drop precipitously because of the pandemic.

Rep. Malinda White, D-Bogalusa, said she feared the measure would "blow a hole" in the state's budget and leave Louisiana scrambling to pay for health care. And Rep. Jason Hughes, D-New Orleans, asked Bishop how the state would offset the revenue reduction in its budget if the resolution was approved.

"We're going to have to make cuts," Bishop said, acknowledging that the pandemic had threatened the state's fiscal health. "But we also have to get businesses back to work."

Bishop added that he would be open to revising or even pulling the measure if oil prices recovered. He also noted that a different bill, H.B. 506, that would reduce the state's severance tax rate to 8.5% by 2028 had also passed the committee, but said he thought lawmakers should have several options on the table that could provide tax relief to the oil and gas sector.

After the bill's hearing, the state's Revenue Estimating Conference adopted a new forecast that estimates the pandemic will slash state general fund revenue projections by about $868 million for fiscal year 2021. The revised estimate projects a $351 million drop in severance tax collections and a $436 million overall decrease in mineral revenue.

The total drop in the state tax collections would be somewhat offset by a combined $58 million uptick in personal income tax and corporate income tax collections, which are still estimated to increase despite the pandemic. Greg Albrecht, the Legislature's chief economist, noted during the forecast presentation that while those numbers would be a net positive, the pandemic had tempered how high the figures would climb.

Albrecht attributed the expected increase in personal income tax receipts to the expansion of the state tax base from the 2017 federal Tax Cuts and Jobs Act  and the taxation of the unemployment compensation payments. Corporate income tax receipts, meanwhile, were projected at a low baseline level before the virus broke out, he said.

At a news conference later in the day, Edwards did not address the resolution but called the new revenue forecast "very challenging." He said he expects the state to enact a budget before the end of the fiscal year, June 30, but added that he also expects the Legislature would likely return for a special session in the fall to make any necessary adjustments to the spending plan as revenue projections become clearer.

Edwards' office did not respond to questions about the resolution.

Approximately 33,650 oil and gas wells currently operate in Louisiana, but as many as half could be closed down unless the industry is provided with some emergency relief, according to an April survey from the Louisiana Oil & Gas Association. A representative of the association did not respond to a request for comment about the resolution.

During the hearing, there was some uncertainty over whether the resolution would require a simple majority to pass or would need the normal two-thirds majority for a tax bill. Bishop said the bill could pass with a simple majority, while Hughes said he believed the bill would need the approval of two-thirds of members in each chamber to pass.

Michelle Fontenot, the House clerk, told Law360 that she had not yet analyzed the resolution, and said she had received several questions about how many votes it would need to pass. But Fontenot said, in general, the Louisiana Constitution states that a vote to suspend a law requires the same vote count that was required to enact the law, and another provision in the state Constitution requires a two-thirds vote to pass a new tax or a tax increase.

Representatives of Bishop and several committee members who voted against the bill did not respond to requests for comment.

--Editing by John Oudens.

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