LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session April 6, 1999 TO: Honorable Rene Oliveira, Chair, House Committee on Ways & Means FROM: John Keel, Director, Legislative Budget Board IN RE: HB2615 by Counts (relating to the application of the oil and gas severance taxes to high-cost gas production and inactive oil and gas leases), As Introduced ************************************************************************** * Estimated Two-Year Net Impact to General Revenue Related Funds for * * HB2615, As Introduced: impact of $0 through the biennium ending * * August 31, 2001. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2000 $0 * * 2001 0 * * 2002 0 * * 2003 (7,759,000) * * 2004 (14,341,000) * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Revenue Gain/(Loss) Probable Revenue Gain/(Loss) * * Year from General Revenue Fund from Foundation School Fund * * 0001 0193 * * 2000 $0 $0 * * 2001 0 0 * * 2002 0 0 * * 2003 (5,819,000) (1,940,000) * * 2004 (10,756,000) (3,585,000) * *************************************************************************** Fiscal Analysis The bill would extend the expiration dates for natural gas and crude oil tax relief under the high-cost gas program and the two-year inactive well program. The deadline to drill a qualifying gas well in the high-cost gas program would be extended to September 1, 2010 from September 1, 2002. The bill would extend the Railroad Commission's certification date for two-year inactive wells to February 29, 2010 from February 29, 2000, as well as the two-year inactive well application period to August 31, 2009 from August 31, 1999. Methodology This estimate is based on a fiscal impact analysis prepared by the Comptroller's Office. Extension of the high-cost gas program would result in a revenue loss from the wells that would have been drilled in fiscal 2003 and beyond (absent the program). Comptroller staff estimated the revenue paid by wells that would have been drilled and adjusted for the rate reduction to these wells from extension of the high-cost gas program. The adjustment represents a loss of revenue, since these wells would have paid the full severance tax (7.5 percent). An offset to this loss would be revenue from wells that would only be drilled in response to the extension of the high-cost gas program. Production from these wells would pay severance tax, albeit at a rate less than 7.5 percent. Extension of the two-year inactive well program creates a revenue loss to the state. Oil or gas wells would have to have been out of production for at least two years prior to application to qualify for the severance tax exemption. Production from such wells, therefore, is not included in the Comptroller's estimates. Local Government Impact No significant fiscal implication to units of local government is anticipated. Oil and/or natural gas wells drilled or kept in production by the provisions of the bill could provide local government with additional local property tax valuations and, ultimately, additional local property tax revenues. Source Agencies: LBB Staff: JK, BB, BR, CT