1 The 84th Legislative Session At A Glance The 84th Regular Legislative Session At A Glance 2 Texas Oil & Gas Association Champions Industry Priorities th The 84 Regular Legislative Session At A Glance The 84th Legislature was destined to be marked by the budget and the debate over how much tax relief the legislature would provide Texans. The debate centered on how much, not if, lawmakers would cut taxes thanks to Texas oil and natural gas. The Texas coffers were in fine condition because in 2014 the Texas oil and natural gas industry paid a record $15.7 billion in state and local taxes and royalties, the highest such collection from the oil and gas industry in Texas history. One thing was clear this legislative session: safe and responsible oil and natural gas production is unmistakably helping the state meet the needs of Texans. Even with this rosier budget environment, the State’s oil and natural gas industry faced serious challenges and legislative threats that would have harmed the industry’s ability to anchor the Texas economy. The Texas Oil & Gas Association (TXOGA) monitored approximately 1,206 of the 6,300 bills filed and successfully fended off scores of harmful bills that ranged from redundant regulation of hydraulic fracturing to ill-conceived proposals regarding water well permitting and various proposals on tax issues. The work on this legislation began well before the Legislature convened. In the fall of 2014, TXOGA surveyed its members to identify the most important legislative items for the 84th Regular Legislative Session. Below is a snapshot of significant legislation pertaining to each of the identified priorities. Local Regulation Taxes/ Budget Environmental/ Economic HB 40, HB 2595, HB 2991, HB SB 1, HB 32, HB 1, HB 7, HB Development 2993 2826 SB 709, HB 1794 Transportation Water Exploration & Production SJR 5, HB 4025 HB 30, HB 200,HB 655, HB HB 1392, HB 1481, HB 1552, HB 2207, 3324, HB 3413 HB 2521, HB 3291 Pipelines Seismicity* Electricity SB 474, SB 1812, HB 2256 HB 2 HB 1535 *Seismicity was not an original priority but was added as a priority mid-session. Several key victories included in this list are the tax legislation, SB 1, HB 32, HB 1, and HB 7, local regulation legislation HB 40, and many others. Three key bills, HB 2826, HB 4025 and HB 3291, were vetoed by Governor Abbott. In addition to providing unrivaled advocacy for its members on these issues in the Texas Capitol, TXOGA began a new phase of grassroots engagement that helped shape the debate at the Capitol and in communities across the state. Along with continued collaboration with the Joint Association Education Initiative to engage local decision makers in the process at the Capitol, TXOGA began an online education and activation campaign that encouraged everyday citizens to get involved. Despite multi-front challenges, TXOGA made tremendous headway in educating new and returning lawmakers about the good work of the oil and natural gas industry, its continued economic impact on the state, and the opportunities and revenues oil and natural gas operations deliver to communities statewide. 3 Local Regulation Local regulation issues were a top priority for TXOGA and its members this session. To address local regulation issues across the state, TXOGA provided crucial leadership to help pass legislation to clarify the role of cities and the state in the regulation of oil and natural gas production. TXOGA, member companies, and other trade associations worked together to explain the issue and make the case for more certainty and consistency in local regulations of oil and natural gas production. Lawmakers passed HB 40, which preserved local authority to reasonably regulate surface activity related to oil and natural gas operations and confirmed the state’s role in regulating oil and natural gas production. This legislation removes a statewide patchwork of fracking bans, establishes a rational local regulatory framework, and provides certainty and consistency to encourage safe energy production. HB 40 by Representative Drew Darby and Senator Troy Fraser, Local Control HB 40 provides that oil and natural gas operations are subject to the exclusive jurisdiction of the state. It explicitly preempts the authority of municipalities and other political subdivisions from regulating an oil and natural gas operation. However, it provides an exception which allows municipalities (but not any other political subdivision) to enact, amend, or enforce an ordinance or other measure that: (1) regulates only aboveground activity related to an oil and natural gas operation that occurs at or above the surface of the ground, including a regulation governing fire and emergency response, traffic, lights, or noise, or imposing notice or reasonable setback requirements; (2) is commercially reasonable; (3) does not effectively prohibit an oil and natural gas operation; and (4) is not otherwise preempted by state or federal law. In addition, lawmakers missed an opportunity to further protect the rights of private property owners by failing to pass HB 2595 by Representative Jim Keffer. TXOGA worked with landowner groups on this legislation which preserves the use of referendum and initiative to decide non-land use and wet/dry issues thus removing the usage of a referendum to limit the rights of property owners. Lawmakers also failed to pass HB 2991 and HB 2993 by Representative Chris Paddie, both of which related to a municipality’s ability to regulate the location of and setback requirements for mineral exploration and development activities. Although we are disappointed this package of bills did not become law, HB 40 provided the necessary relief for the industry. Taxes/ Budget Thanks in large part to the oil and natural gas industry, the legislature had sufficient revenue to consider expansive tax relief. The debate was not over if lawmakers would cut taxes, it focused instead on how much and in what manner tax relief would materialize. TXOGA worked tirelessly to ensure that the tax burden was not shifted to those that currently pay the largest share – businesses. Instead, TXOGA championed tax relief that would benefit all and included a broad-based reduction in the business franchise tax. Lawmakers passed HB 32 and SB 1, which deliver broad tax relief for businesses and homeowners. Two of the provisions that business taxpayers found most problematic – the automatic annual escalator in the homestead exemption and the removal of half of the companies subject to the franchise tax via a small business exemption – were removed, a significant improvement over where the tax package started. HB 7 and HB 1 were also passed, which addressed funding for the Texas Railroad Commission. 4 HB 32 by Representative Dennis Bonnen and Senator Jane Nelson, Franchise Tax HB 32 permanently cuts the basic rates of the franchise tax by 25%. The rate for retail/wholesale is reduced to 0.375%, and the rate for other industries is reduced to 0.75%. It also permanently cuts the E- Z tax rate by 42% to 0.331% of Texas receipts, and expands eligibility for the E-Z rate to companies with revenues of not more than $20 million, up from the current $10 million. It does not change the current $1 million small business exemption. The bill also requires the Comptroller to conduct a comprehensive study by September 30th, 2016, to identify the effects of economic growth on future state revenues. The report should identify revenue growth allocation options to promote efficiency and sustainability in meeting the revenue needs of this state, including revenues allocated to the property tax relief fund, upon repeal of the franchise tax. The estimated fiscal impact for the 2016-17 biennium is a reduction in revenue of $2.56 billion. SB 1 by Senator Jane Nelson and Representative Dennis Bonnen, Homestead Exemption SB 1 is contingent upon voter approval of SJR 1. It raises the school tax homestead exemption to $25,000 from the current $15,000 and lowers proportionately the tax freeze for over-65 homeowners. It also prohibits a school district, municipality, or county that had provided a local-option homestead exemption in 2014 from reducing or repealing it through 2019. The estimated fiscal impact is $1.24 billion for 2016-17. It will be labeled Proposition 1 in the November election. HB 7 by Representative Drew Darby and Senator Jane Nelson, RRC Funding HB 7 directs $13.4 million a biennium to the Oil & Gas Regulation and Cleanup Fund, which is the primary funding source for the Texas Railroad Commission to administer the Natural Resources Code and conduct well plugging operations. HB 1 by Representative John Otto and Senator Jane Nelson, RRC Funding HB 1 appropriates approximately $87 million in fiscal years 2016 and 2017 and 820 FTEs for the biennium to the Texas Railroad Commission. The funding includes the following exceptional items, with a focus on additional staff inspectors and IT program upgrades: (1) Provides $2.8 million in addition to the base budget; (2) Authorizes 20 additional FTEs and $2.2M to enhance safety inspections; (3) Includes $150,000 to replace microfiche readers for the Commission’s Central Record Department. HB 2826 by Representative Jim Murphy, Chapter 313. VETOED. HB 2826 addresses Chapter 313 projects that span the boundaries of up to three contiguous school districts. It also requires that the Comptroller verify a random sample of at least a third of the data submitted by Chapter 313 projects used in the Comptroller’s report to the Legislature and verify the data using information from the Workforce Commission, CADs or other reliable sources. Personal identifying information is not subject to disclosure. Environmental/ Economic Development TXOGA continued its work to make Texas more competitive by bringing certainty over the regulatory and permitting process.