Potential Revenue Source for Economic Development

Senate Consumer Affairs & Technology Committee

By: J. Ronald Eldridge

The State of Louisiana

• Poor State

• Near Last in all Good Statistics

• Loosing Population & Congressional Seat

• Loosing Coast Line and Wetlands

To Turn Around

• Look at all Revenue Sources

• Use Innovative Revenue Sources

• Use Innovative Methods of Taxation

LA one of Richest States

• Over 80% of all offshore production is piped through Louisiana

• More than 1/3 of all US Energy Consumption is piped through Louisiana

Pipeline Volumes

• 4.5 Trillion Cubic Feet of Natural Gas

• 1 Trillion Cubic Feet of Other Gases

• 38 BILLION Gallons Crude Oil

• 25 Billion Gallons Refined Oil Products

Wow!!

• A tax of $.01 per gallon or cubic foot would generate

• 45 BILLION DOLLARS in Revenues to LA

Development

• Over 70 years building Infrastructure• 17 Refineries• 16 Chemical Plants• Over 35,000 miles of Pipelines• Leading to cheap oil, Natural Gas, Sulfur,

Plastics and other Gases

Rules of Taxation

• Louisiana Constitution

• US Constitution

• Supreme Court Decisions

Interstate Taxation Rules

• Complete Auto Transit v Brady• 1) It has substantial Connection (Nexus) to

the state• 2) It is fairly apportioned• 3) It doesn’t Discriminate Against Interstate

Commerce• 4) It is fairly related to the services

provided by the taxing state

Tried Before

• Taxing oil and gas was tried before• Twice by Governor Edwards• Once by Governor Treen• Once by Governor Roemer

• All were declared unconstitutional by the US Supreme Court because they didn’t follow the rules of taxation

Constitutional Method of Taxation

• Excise Tax on ALL PIPELINES (the primary reason for coastal erosion) based on the volume carried through them

• Exclude Potable Water, Sewage & Electricty

Why is it Constitutional

• It is a tax on pipelines not on oil, fuel oil, natural gas, carbon dioxide, etc.

• The pipeline is in Louisiana, not interstate commerce (the product is in interstate commerce)

• But even if the pipeline is judged to be in interstate commerce, it meets all the standards of Complete Auto Transit v Brady

Why an Excise Tax

• Income Tax and Sales Taxes are transactional• 1973 LA Constitution Eliminated the state

property tax. So a constitutional amendment would be required if it is a property tax

• LA Constitution Forbids Taxation of Oil or Gas• An Excise Tax can be used to change behavior.

Like the Excise Tax on Tobacco and Alcohol

Why Pipelines are in LA

• To put pipelines through AL, MS or TX requires EPA Studies and Corps of Engineers Approvals (This takes about 15 years)

• 70+ years of Pipeline Construction• To lay a pipeline next to another pipeline

requires only state and local permits (so it can be done in 1 year or less)

How Much Tax

• The Tax can be as little or as much as Louisiana desires

• Commonwealth Edison v Montana (Constitutional & Can be contrary to US Energy Policy)

• Taxed Coal, with 50% going to Strip mining Reclamation, some to alternative energy research and the rest to General Fund.

The Alaska Plan

• After beginning receiving Oil Royalties

• Eliminated Income Taxes• Eliminated Sales Taxes• Eliminated Property Taxes• After balancing State Budget, the remainder is

given to all Residents ($3,000-$6,000)

Overview ofLouisiana Self Help Plan

• Excise Tax on ALL Pipelines in Louisiana, over 3,000 feet long and 20” inside Diameter

• Rate of tax would be $.03 per cubic foot of gas or $.50 per gallon of liquids

• Exemption for potable water, sewage and Electricity or data

• Estimated Revenues $198 Billion• Amount paid for by LA Residents $4 Billion

Dedication of Revenues

• 50% of Tax Dedicated to a Fund for Barrier Island and Coastal Restoration, Hurricane Protection and Levee Construction and Maintenance (Approx. $99 Billion/yr)

• 10% of Tax Dedicated to Fund for Generation of Alternative Energy Sources. (Approx. $9 Billion/yr, to Louisiana Business, Industry and Universities)

Tax Changes

• Change the State Sales Tax Rate to Zero (don’t repeal tax)

• Require all Local Sales Taxes be filed with the Department of Revenue without payments. Department of Revenue will pay each local tax collector 125% of the taxes shown on the returns.

• Cost from Excise Tax approx. $8 Billion

Tax Changes Continued

• Require all Property Tax Assessors to file all assessments with the Department of Revenue

• Department of Revenue will pay each local tax collector 125% of the Property Taxes Due

• Estimated cost of $6 Billion

Tax Changes Continued

• Individual Income Tax Rate Change• Now Proposed• 1st Bracket 2% -10%• 2nd Bracket 4% - 8%• 3rd Bracket 6% - 6%

Tax Changes Continued

• Corporate Income Tax Rates• Now Proposed• 1st $25,000 4% -12%• Next $25,000 5% -11%• Next $50,000 6% -10%• Next $100,000 7% - 9%• Over $200,000 8% - 8%

Income Tax Changes

• Estimated Cost on Income Tax Changes would be approximately $15 Billion

• This will cause Massive Economic Growth• This would cause a population increase• Amount left for the General Fund• $57 BILLION

Miscellaneous Provisions

• Increase State Supplemental Pay for• Teachers by $3,000 per month• Police by $3,000 per month• Firemen by $3,000 per month• All State Employees (elected or nonelected) a

15% pay increase

Effect to Price of Commodies• Crude Oil would increase at least 40%• Gasoline & Diesel 50% to 100%• Natural Gas could Triple or more.• But if the Tax Changes Recommended are

done, almost $30 Billion will be given to LA Business & Residents, while the price increases will only cost them $4 Billion

• These price increases will make US Oil & Gas about the same Europe

Recap• Louisiana Can Tax Pipelines, Oil & Gas, etc if it

follows the Rules of Taxation• For over 70 yrs LA has provided cheap energy

for the rest of the nation at the detriment of Louisiana

• Louisiana Doesn’t have to beg the Federal Government to

• Restore our Barrier Islands or Coastline• Build or Maintain our Levees

Recap

• Louisiana can enact a $.01 Pipeline Tax and Generate over $45 Billion

• Louisiana Can enact the LA Self Help Plan proposed and generate $200 Billion, to restore the coast line, and draw business and population by eliminating other taxes