Gross production tax collections in Oklahoma have been down for four consecutive months, and a steep drop in oil prices could be to blame. Journal Record editor Russell Ray discusses what this downward trend could mean for 2020.
Drew Hutchinson: This is the Business Intelligence Report, a weekly conversation about business news in Oklahoma. I’m Drew Hutchinson. Joining me is Russell Ray, editor of The Journal Record. Today I’d like to discuss gross production tax collections. The GPT is a tax on the production of oil and natural gas in the state.And your reporter Daisy Creager wrote that GPT revenue was up for Oklahoma in 2019, but this overall gain comes as oil and natural gas production is trending downward. Russell, can you help us make sense of these contradictory numbers?
Russell Ray: The first three quarters of 2019 saw increases in gross production tax revenue. However, starting in September 2019 there was a downturn, with collections nearly 30 percent lower than a year prior. In November and then again in December, collections from the gross production tax were 40% below the same month in 2018.
Hutchinson: This all comes despite the fact that the state Legislature raised the GPT in 2018 from 2 to 5 percent. And we discussed previously in another episode that rig count numbers are down in Oklahoma, and State Treasurer Randy McDaniel cited this decrease in oil field activity, along with the steep drop in oil prices, as reasons that GPT revenue collections might have been lower.
Ray: That's right. Oil prices are roughly 20% lower than they were in October of 2018 and the state rig count is down more than 32%. As a result, McDaniel said the state is seeing both a direct and spillover effect on some tax collections due to lower energy prices.
Hutchinson: I mentioned this a bit earlier, but during the 2018 Oklahoma teacher walkout, educators pushed for a higher GPT to fund pay raises and money to education. And lawmakers responded by raising the GPT a few percentage points. But a report released by economic research firm RegionTrack said a study showed that instead of focusing solely on GPT, policymakers in Oklahoma should balance the GPT with business taxes levied on oil and gas companies.
Ray: Well that's right. Researchers have been saying Oklahoma’s tax policy makes the state's budget overly reliant on what is a very volatile industry.
Hutchinson: And of course Oklahoma is extremely dependant on oil and natural gas. The state is the sixth largest oil-producing state and accounts for nearly 5 percent of the nation’s annual crude oil production. In addition, the author of the RegionTrack report says that the state places too much emphasis on severance and ad valorem taxes when it comes to oil to gas.
Ray: That's right. The author of the report says that “not only is severance tax not the primary or single source of revenue in the industry when the industry is growing, it is also not the primary or single source of falling tax revenue when the industry is under pressure and shrinking.”
Hutchinson: Right. And the same study also found that an extended slowdown of oil and gas business in the state can result in a 25% net decrease in tax revenue. So what could these recent downward trends mean for 2020? Do you have any insight into that?
Ray: Well, the state rig count obviously has plunged over the last year to record low levels. We're on a downturn in oil and gas production in the state, and most of the people that we've talked to say that this is an indication of lower production for months to come, for the state and nationwide.
Hutchinson: Russell, thank you so much for your time today.
Ray: My pleasure. Thank you.
Hutchinson: Russell Ray is editor of The Journal Record. KGOU and The Journal Record collaborate each week on the Business Intelligence Report. You can follow us both on social media @journalrecord and @KGOUnews. You'll find links to the stories we discussed during this episode at JournalRecord.com. And this conversation, along with previous episodes of the Business Intelligence Report, are available on our website, KGOU.org. While you're there, you can check out other features and podcasts produced by KGOU and our StateImpact reporting team. For KGOU and the Business Intelligence Report, I'm Drew Hutchinson.
The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.
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