By The Honorable Carole Keeton Strayhorn,
Texas Comptroller of Public Accounts

For decades now, the oil and gas industry has driven much of the Texas economy and I would like to thank the members of the Texas Oil and Gas Association for your commitment to keeping Texas strong.

As a former Texas Railroad Commissioner, I know first hand the important contributions you make to our state.

The oil and gas industry, including mining, petrochemical, refining, and oilfield machinery manufacturing, remains a major industry in Texas, employing about 299,000 people in December 2002, almost evenly split between upstream and downstream operations.

The needs of the Oil and Gas industry are the same they have always been: a tax structure that encourages exploration, regulations that level the playing field for independents, and reduced competition from foreign producers.

Oil and gas producers are good citizens. With severance and oil and gas production taxes, property taxes, franchise taxes and oil well servicing taxes, it’s a challenge for producers to stay in business.

The state taxes you for what you find underground, for buying a drillbit, for making a hole in the ground, for putting pipe down the well, for servicing that well, for pumping out the hydrocarbons, for buying a pumpjack, then for owning the pumpjack, the refinery and all the pipe in between.

And yet the resiliency this industry has shown is nothing less than remarkable.

For all the market challenges, environmental mandates and taxes faced by the industry, you remain one of the primary sectors from which Texas derives its vitality.

In 2001, you edged out high-tech as the largest base industry in the state. Last year, oil and gas was an estimated 8.8 percent of the gross state product. Your hard work is responsible for building our state’s Rainy Day Fund to a record balance of $1 billion.

In my office, we are working day and night to help the Legislature get through the current budgetary challenges.

State spending skyrocketed over the last decade. From 1990 through 2001, state spending went up by more than 131 percent--an enormous increase considering that our state’s population rose by just 23 percent over the same period.

Today, the bill is coming due.

Two years ago, Texas had a $3 billion surplus. Today, we have almost a $10 billion shortfall. Though I certified the last budget 2 ½ years ago because it was technically balanced, I warned that it would produce significant shortfalls in the future because the Legislature spent all the surplus, used one-time only funding sources, and left a “wish list” to boot.

Subsequently, this budgetary challenge collided with an anemic economy. We had an economic triple play: September 11 and the ongoing concern of terrorism and war, the high tech bubble bursting and the Enron and WorldCom scandals.

We will learn from this budgetary challenge. This is the time for leadership and a new direction in public policy. It is time for a new era of fiscal reform.

My 2003 E-Texas report has 179 recommendations for cost cutting and additional revenue—with no tax increases—that could save Texas $1.7 billion in general revenue and $3.7 billion overall for the next biennium..

Necessary changes will fly in the face of conventional wisdom and rock many boats. But my dad told me from a very early age, “Carole, if you don’t have somebody mad at you, you probably haven’t done anything.”

One of my recommendations has a direct impact on your industry. I have recommended that we combine the Texas Railroad Commission and the Public Utility Commission into a new agency, the Texas Energy and Communications Commission. The governor would appoint the chairman from the three members that would still be elected statewide. This proposal will not only save Texans almost $12.5 million in the next biennium and more than $37 million each biennium thereafter, but more importantly, it will be an efficient way to regulate and ensure the importance of your industry well into the 21st century.

Many will use the current shortfall to issue a call for higher taxes. Some will say this illustrates the need for a state income tax. I say either of those ideas will only dig a deeper hole for Texas taxpayers. I’m adamantly opposed to a state income tax and higher taxes, and I will fight against them both every day throughout this legislative session and for as long as I hold public office.

More taxes are not the answer. I am not only philosophically opposed, but study after study has shown that high tax states never match the economic growth of low tax states. And we’ve got 49 other states competing with us each and every day for new jobs.

What the oil and gas industry needs from government is what we all need from government — less, not more. Less mandates, less regulations, less government spending, less taxation. Every single decision I make is based on that philosophy.

I truly believe government is going to be seen as bigger, dumber and slower than ever before if it doesn’t become smaller, smarter and faster right now.

State government must budget and live within its means like every hard working Texas family. To do less would be a rejection of the mandate voters delivered last November, and a clear slap in the face to every working Texan.

Sam Houston is one of my heroes. We are in tough economic times and on the edge of war. Just before the battle of San Jacinto, Sam Houston said, “We are nerved for the contest; and we must conquer or we will perish.” We will conquer – we will not perish.

We Texans are made of strong stuff—we will come through this tough economy, and emerge both stronger and wiser for the effort. You are our modern day Texas pioneers and you are to be commended for your efforts to get our economy humming again. Our bootstrap mentality has served us well. I believe it will continue to do so in the future.

I continue to tell Mama in PTA meetings why we want to keep the rig count up. It is ad valorem taxes for our schools, severance taxes for our state and high-paying, high-skilled paychecks and jobs for our kiddos into the 21st century.

And my bottom line, is like Sam Houston’s — “Govern wisely – and as little as possible.”

SENATE APPROVES CARRILLO APPOINTMENT TO COMMISSION

County Judge Victor Carrillo was confirmed as Texas’ newest Railroad Commissioner on Wednesday. The confirmation was finalized in a unanimous vote in the Texas Senate.

Commissioner Charles Matthews immediately applauded Governor Rick Perry’s appointment and the Senate’s action, saying “I look forward to working with Judge Carrillo.” “He is experienced, knowledgeable, and well qualified to serve as Railroad Commissioner.” In joining Commissioner Matthews and Commission Chairman Michael Williams, Carrillo replaces Tony Garza, newly appointed Ambassador to Mexico.

Commissioner Carrillo is a lawyer and petroleum geophysicist with a law degree from the University of Houston Law Center, a master of science in geology from Baylor University and a bachelor of science in geology from Hardin-Simmons University.

WELL PLUGGING EFFORTS CONTINUE

As of January 27, 2003, the Railroad Commission has plugged 19,566 abandoned wells and remediated 2,170 oil field sites with over $104 million contributed by the Texas Oil & Gas Industry.

Monies from the Oil Field Cleanup Fund are used to plug wells and clean up sites. The Fund’s revenue is collected primarily from drilling permit fees, penalties from oil and gas violations, as well as a tax on oil and natural gas production.

PROPERTY TAX REPRESENTATIVES CLOSE SUCCESSFUL CONFERENCE

By Gavin Russo, chairman, Ad Valorem Tax Committee

 Once again the Arrangements Committee provided an interesting and productive agenda for this year’s successful Annual Property Tax Representatives Conference.

Held in the Marriott at the Capitol in Austin this Tuesday and Wednesday, February 18-19, approximately one hundred twenty attendees were on hand to hear The Honorable Tom Craddick, Speaker of the Texas House of Representatives, serve as the keynote speaker. He discussed how state government must reduce expenses and that we must change how we finance the states school system. Craddick also discussed higher education tuition flexibility, water, and healthcare issues.

John Kennedy of the Texas Taxpayers & Research Association reviewed the proposed legislation on mandatory renditions and limitations on increased valuations of residential homesteads.

Joe Mayorga of the Texas Railroad Commission discussed the cost of the clean up of abandoned well sites and what the commission recovered in the sale of field equipment. Mayorga’s presentation summarized the number of wells in the state and their level of production. Did you know that there are only 1,375 oil wells in the state of Texas that produce over 100 BOPD!!

Buddy Breivogel of the Comptroller’s Property Tax Division gave an overview on the state’s ratio study. Other areas of discussion dealt with royalty owners, the calculation of average oil and gas prices and a review of property tax court cases and decisions.

Jim Buckalew received the 2003 TXOGA Service Award in the Field of Property Taxation. Buckalew spent over 20 years in the property tax department of ExxonMobil and retired in 2000. He served 3 years as chairman of TXOGA’s Ad Valorem Tax Committee.

BILLS OF INTEREST

There are many bills which have been filed and are currently under consideration by the Legislature that impact the oil and gas industry. The Association's committees are monitoring all of them carefully. In the Legislative Digest we will highlight bills which we believe will have a dramatic effect, positively or negatively, on your business operations. For a complete listing of proposed legislation affecting the Texas oil and gas industry please click on www.txoga.org.

PROPOSED DEADLINE FOR AGREEMENT
WITH TxDOT ON UTILITY RELOCATION

The Texas Department of Transportation (TxDOT) would be given a significant negotiation advantage with utilities which must relocate certain facilities under a recently filed bill in the Senate. SB 487 would impose a 90-day deadline for a utility to reach an agreement with TxDOT for relocation of the utility's facilities when the agency provides written notice that such location is needed for a state highway system improvement. If agreement is not reached before the deadline, the bill would authorize TxDOT to proceed immediately with relocation of the utility's facilities at the sole cost and expense of the utility.

 ELECTRICIAN LICENSING AND REGULATION PROPOSED IN SENATE

SB 500 proposes a licensing and regulation program for electricians and would prohibit an unlicensed electrician from performing any electrical work unless specifically exempted. Under this legislation, knowingly performing electrical work without a license OR employing an individual, who does not hold the appropriate license, to perform electrical work, would be a Class C misdemeanor.

The bill would create several exemptions from the proposed licensing requirement. There is a limited exemption for electrical maintenance work involving the removal, maintenance, or repair of existing electrical equipment. Such work cannot involve the extension, relocation, alteration, or addition of electrical wiring and equipment. The exemption applies only if the work is performed as part of his normal duties by a person who is regularly employed as a maintenance person at the building or premises and who does not engage in electrical work for the public.

Also exempted would be the installation, maintenance, alteration, or repair of electrical equipment or associated wiring under the exclusive control of a gas utility and used for communications or metering or for the control, transmission, or distribution of natural gas.

To administer this program, the bill proposes creation of the Texas Electrical Licensing Board for the licensing and regulation of electricians. It authorizes collection of fees sufficient to administer the licensing program.

TXOGA plans to work with the author to try to develop a general exemption for any electrical work done at a commercial or industrial facility by an employee at the facility for the express benefit of the employer.