Louisiana governor vetoes oil and gas tax break from special session

The legislation would have cost the state over $38 million over the next five years

Louisiana Capitol Building
The Louisiana Legislature ended its regular session Thursday. (Photo by Julie O'Donoghue)

Gov. John Bel Edwards vetoed Wednesday an oil and gas industry tax break passed by the Louisiana Legislature that would cost the state over $38 million over the next five years.

Edwards said the bill contained technical errors that would have created difficulties for the oil well operators it was supposed to help as well as government workers tasked with applying the proposed tax exemption. 

He also questioned whether it would produce the jobs the oil lobbyists and the sponsor of the legislation, State Rep. Phillip Devillier, had said it would. 

“During a legislative session wrought with limited access for the public to meaningfully comment on bills, proponents of this new exemption averred that the exemption would increase oil production and create jobs. Yet no legitimate evidence or testimony supports this assertion, other than the testimony of those with a vested interest through enactment of a new exemption,” Edwards wrote in a letter to legislative leadership explaining his veto

Had it passed, the legislation would have provided a tax break to companies who own so-called “orphaned” oil and gas wells and wells that have undergone upgrades. The powerful oil and gas industry pressed hard for the bill during the lawmakers’ special session held in September and October. 

Devillier, a Republican from Eunice, had originally written this measure to provide a far more generous tax break — around $157 million over five years, but Senate Republicans couldn’t stomach that type of hit to the state’s finances. They insisted the exemption be scaled back significantly before it was approved.

The latest estimate of the cost of the proposed tax exemption — $38.1 million  — was determined by an independent economist who works in the Legislature’s nonpartisan fiscal office. Devillier and other supporters of the legislation complained that it was inaccurate. They said it didn’t incorporate tax revenue that would come into the state from the extra jobs the exemption was designed to produce.

In his veto letter, Edwards said he couldn’t be certain that the legislation would actually result in more jobs for two reasons. First, the backers of the bill never provided any evidence that the tax exemption would increase production and therefore jobs. Second, the bill — unlike other oil and gas tax exemptions in the state — did not require that the beneficiaries employ Louisiana residents. 

In his veto letter, the governor also expressed irritation that this bill was approved during a special session dedicated to COVID-19 issues and hurricane recovery, but had little to do with either of those challenges.

“There will be a fiscal session of the Legislature in the Spring of 2021, where this plan, and other tax measures can be fully debated and considered,” he wrote. 

Lawmakers do have the option to try to override Edwards’ veto, though that seems unlikely. The legislation did not pass with the two-thirds vote of each chamber in the Legislature that would be needed to overcome the governor’s rejection of it.