Trump Administration Abruptly Changes Migratory Bird Enforcement Policy

/in , , /by

For 100 years, the Migratory Bird Treaty Act (MBTA) has protected nearly 1000 bird species in the United States against being “taken” or killed except under prescribed circumstances. This statute prohibits hunters from intentionally killing birds without a permit, but has also been interpreted by courts and the Interior Department to prohibit incidental taking – the unintentional destruction of birds or nests through some instrumentality or activity like spraying pesticides or the erection of wind turbines. The MBTA is a strict liability statute. If a covered bird dies then misdemeanor liability is established despite the efforts or good will of the defendant.

The MBTA itself is silent about whether intent is a necessary element of the misdemeanor, but Congress has amended the statute several times without correcting the prevailing judicial interpretation that intent to harm birds is not required. In fact, the amendments carved out special areas where intent was necessary, strongly implying that in all other areas intent was unnecessary.

This interpretation was formally adopted by the Interior Department in a legal memo issued in the waning days of the Obama Administration. However, a new interpretive memo was issued in December 2017 by the Trump Interior Department reversing the Obama approach and essentially eliminating the enforcement of the MBTA against incidental taking.

This is an historic and meaningful about-face. Incidental taking cases are largely against the oil industry – the two largest prosecutions came after the Exxon Valdez spill and the Deepwater Horizon oil well disaster. Oil production activity is obviously not intentionally designed to kill birds, so without enforcement against incidental taking the overwhelming majority of large scale bird kills will have no legal consequences. Since private citizens have no right to file lawsuits to enforce the MBTA, the Trump Interior Department’s direction to Fish and Wildlife enforcement officials to lay off incidental taking cases is hugely significant.

The author of the new Trump enforcement memo is Dan Jorjani, a long-time advisor to billionaire oil man Charles Koch. The Obama interpretation also angered Harold Hamm, a billionaire backer of Donald Trump whose Continental Resources company was prosecuted for repeatedly failing to erect nets over waste oil pits. But seventeen former Interior officials, including Fish and Wildlife directors under Presidents Nixon, Bush I, Clinton, Bush II and Obama have repudiated Jorjani’s interpretation. And it is easy to pick apart Jorjani’s rationale. It is clear that in the Trump Administration good conservation policy and quality legal analysis has given way to rewarding small-government, libertarian political contributors.

The Trump memo justifies the enforcement change in two ways. First, three U.S. Courts of Appeals have ruled that prosecution of a corporation that unintentionally kills birds in the course of a business activity is inconsistent with the meaning of the word “take” as used in the statute. Two of these cases dealt with habitat destruction from cutting trees. The rationale in these cases was that when the statute was passed 100 years ago taking referred to hunting or capturing birds, clearly intentional conduct directed at birds. These courts were concerned with the unfairness of extending criminal liability to otherwise innocent business activity.

Several other Courts of Appeals have supported the Obama approach, but the Trump Administration has chosen to ignore those cases. The MBTA is an historic conservation statute with broad scope. It is the responsibility of the Interior Department to interpret the statute to give it broad effect. This is exactly what the Department has done for 100 years by considering as prohibited incidental taking without actual intent to harm birds. If Congress intended to exclude incidental taking from the scope of the statute, it could have said so on many occasions. But this issue seems beside the point. Since the statute also prohibits killing birds “by any means or in any manner” it is simply not necessary to resolve what the word “take” meant 100 years ago. Incidental, unintentional killing is clearly covered.

The second justification for the enforcement change is that the Obama interpretation was open-ended and could potentially have criminalized millions of Americans who merely have a large picture window into which a bird commits suicide, or whose cat behaves like a cat. This issue has been raised in many of the litigated cases but has never gotten judicial traction. One court explained that to get a conviction for incidental taking, the prosecution would still have to prove that the killing of birds should have been reasonably anticipated or foreseen from the nature of the defendant’s activity. This is not intent to cause a bird kill, but rather awareness that it could happen. The court said “[b]ecause the death of a protected bird is generally not a probable consequence of driving an automobile, piloting an airplane, maintaining an office building, or living in a residential dwelling with a picture window, such activities would not normally result in liability.”

Some commentators have remarked that the public has been whipsawed between an Obama enforcement approach that went too far and a Trump enforcement approach that doesn’t go nearly far enough. Clearly the Trump interpretation of the MBTA guts the statute and is unacceptable. But it is hard to escape the sense that interpreting a statute broadly to create potential (and actual) business liability without considering the intent of the business, or the efforts of the business to comply, is asking for trouble. Businesses caught up in MBTA enforcement have been frustrated and believe they have been treated unfairly. This has led them to seek political help, which they have now found.

Perhaps the best way through this mess is for Congress to amend the MBTA to confirm clearly that the statute reaches incidental taking, while requiring Fish and Wildlife inspectors to first warn a business with a structure or practice likely to harm birds, and allowing a substantial penalty reduction for good faith efforts to comply. Without this kind of balance the MBTA will simply be unstable, lurching from one enforcement interpretation to the next.

The Future of West Virginia’s Severance Tax

/in , , /by

In West Virginia a 5% tax is imposed on those engaging in the extraction of coal, oil, gas and other natural resources from the lands of the state. This is the “severance tax.” While the tax is ostensibly on the privilege of engaging in the business of extraction, the tax is calculated based on the volume of production. 

We depend on severance tax revenues for 10% to 12% of the general revenue budget of the state, making us more dependent on this revenue source than most other states. Our dependence subjects the state budget to boom and bust cycles caused by volatility in the price of the commodities. The state’s oil & gas industry is now booming even though coal is in the midst of a long-term decline. Most analysts believe both these trends are likely to continue for decades. So the future is bright for the state’s budget if we manage our oil & gas patrimony carefully.

West Virginia had no severance tax until 1987. Before that we taxed natural resource extraction at a higher rate through the “business and occupations tax” upon the gross receipts of the extraction business. Despite this, the extraction industries complain that the 5% severance tax rate is high relative to neighboring states. But this nominal 5% rate is reduced to an effective tax rate of around 3.2% by various exemptions and tax breaks created by the Legislature. One such break is a reduced tax rate on coal mined from thin seams. Another is a tax credit on oil & gas wells that produce a small volume. Our effective tax rate on severed natural resources compares favorably to our neighbors.

Historically the revenues from coal severance were often four times the revenues from all other severance taxes combined. Given the huge leap in gas production made possible by hydraulic fracturing, this is changing. Table 1 shows that as of 2015 tax revenues from oil and gas production represented more than half of the amount from coal production. By 2030, the revenues are expected to be roughly equal.

Table 1 – Severance Tax Revenue 2011 to 2015 (in 000s)

Source: WV State Tax Department   

Year 2011 2012 2013 2014 2015
Coal $526,817 $531,108 $451,646 $407,148 $375,558
Oil & Gas $72,947 $99,235 $115,014 $229,466 $215,362

How Severance Tax Revenues Are Allocated.

The West Virginia Center for Budget & Policy did a study of the severance tax in December 2011 that is quite helpful in understanding these issues. The CPB described how severance tax revenue was distributed in FY 2011, which is typical of distributions in later years. 

The first $24 million in severance tax revenue in FY 2011 went into an infrastructure fund to cover the externalized costs of extraction industries, such as damage to roads and bridges. This is required by law every year. 

The large bulk of the revenue, more than 86% in FY 2011, went into the general revenue fund with no spending strings attached. 

Finally 8.9% of the tax revenue was distributed to counties and municipalities. This happens in two ways. One formula directs a portion of the revenues to counties from which the resources are actually severed. There is a list of these counties for coal and one for oil & gas. For example, six counties (Marshall, Tyler, Harrison, Wetzel, Doddridge and Ritchie) principally benefitted from the formula for distributing oil & gas tax revenues.

But under a second formula all counties and municipalities benefit from direct distribution of severance tax revenues based on population. For example, in FY 2018 Martinsburg received $20,000 from oil & gas severance taxes, Charles Town received $5,000 and Shepherdstown $6,000.

Should We Increase the Severance Tax Rate on Oil & Gas?

There has been a lot of debate on this question recently. In the April 11, 2018 issue of the Spirit of Jefferson, former Delegate John Doyle argued that we should double the severance tax rate on oil & gas. Then in the Charleston Daily-Mail for April 14, 2018, the former President of the West Virginia Independent Oil & Gas Association (and current lobbyist) Philip Reale argued that we should be cautious in raising the tax and increasing production costs because oil & gas producers might choose to drill wells in other less costly states. In my opinion, Doyle gets the better of this argument.

First, as Doyle points out, if the state’s production of oil & gas continues to expand as predicted, doubling the severance tax could mean an additional $560 million in revenue for the state. That would be a huge shot in the arm for a state struggling to address daunting social and economic problems. The injection of that additional revenue into the state’s economy would also have a multiplier effect. A 2010 study from Penn State found that for every $100 million in severance tax revenue, Pennsylvania would see a net gain of 1,100 jobs from increased state spending in areas such as infrastructure and schools.

The beauty of the West Virginia severance tax is that, for the most part, West Virginians don’t pay it. The tax burden of a severance tax on oil & gas mainly falls out of state in increased consumer prices for gas and oil consumption. Furthermore, most of the companies involved in gas drilling and production upon which the tax would be levied are not West Virginia companies and their stockholders are spread world-wide. Think of the oil & gas severance tax like the hotel/motel tax that travelers to West Virginia pay on their hotel stay. They get the tax burden; we get the benefit.

But what about Reale’s point that raising production costs in West Virginia might discourage drilling activity here in favor of other states like Ohio and Pennsylvania? The empirical evidence does not support this concern. Severance and income taxes are only a small part of the overall cost of operating for an oil & gas company. Pennsylvania has no severance tax whatever, but still West Virginia gas & oil production set a new record in 2016, and our prime producing counties are a stone’s throw from the Pennsylvania border.

A 1999 study in Wyoming and a 2008 study in Utah both came to the conclusion that the severance tax rate had very slight effect on the level of industry activity. Different tax rates and structures between states seem to have little impact on amount of investment in each state.  In 2001 Montana reduced severance tax rates and while Wyoming increased rates. Both states had a boom, but Wyoming experienced better growth in production and revenue. Industry certainly did not flee Wyoming.

The West Virginia Future Fund

In my opinion, the only downside to increasing the oil & gas severance tax rate substantially is that it would make our budget even more exposed to the boom and bust cycle. As severance tax revenue becomes an ever larger proportion of our general revenue fund, the sudden loss of those revenues because of price volatility can wreck budgets. But we may already have a solution to this problem.

In 2014, the West Virginia Legislature exercised rare foresight when it established the West Virginia Future Fund. This is a sovereign wealth fund that is intended to capture and invest 3% of severance tax revenue that would otherwise go into the general revenue fund. The idea is to permit us to benefit over the long term from the interest in the invested funds. Several western states have taken the lead on this type of fund. Wyoming, a large coal producing state, created its Permanent Wyoming Mineral Trust Fund in 1974. As of 2015, the Fund had assets of $6.8 billion and had generated $4.7 billion in interest income for the state’s general revenue fund.

The Future Fund is different than our “rainy day” fund. We actually have two of these – one into which budget surpluses are deposited and the other into which the state’s tobacco litigation settlement payout was deposited. These rainy day funds have been used to make up budget shortfalls in the last two years.

The Future Fund is entirely empty at present because of restrictions on when severance tax revenues can be diverted to it. One restriction is that no deposit to the Future Fund can be made unless the rainy day fund is at least 13% of the state’s general revenue fund budget for the preceding year. Another is that no deposit can be made if the rainy day fund was called upon in the preceding year to make up a shortfall in the general revenue fund budget.

It is hard to quibble with these restrictions, but as anyone knows who is trying to save for retirement, putting money away for the future requires discipline. The Future Fund will never work as intended if the restrictions prevent a deposit most every year. If this continues, the restrictions will have to be revisited.

The interest from the Future Fund can, by law, only be spent on economic development and diversification projects, infrastructure improvements and “tax relief.” It cannot be used directly to smooth out the effects of the boom and bust cycle on the general revenue fund. However, once we begin drawing down interest from the Future Fund for these specified purposes, our tax dollars that would otherwise be spent on them can be freed up to deal with other spending needs — even during years when market conditions create a bust in severance tax revenue.

Increasing our oil & gas severance tax to take advantage of the current boom coupled with actual, sustained use of the Future Fund is smart business for West Virginia.   

 

    

  

The West Virginia Legislature Fails Its Budget Responsibility

/in , , /by

“Do Your Job!” This was a constant refrain heard from the thousands of citizens, many of them teachers, who filled the halls of the state capitol in late February and early March.

They were calling for investment in public education, and for decent salaries for themselves and thousands of other seriously underpaid public employees. The Legislature was dragged kicking and screaming into granting an average 5% raise.

This raise was critically important. But there is another critically important job the Legislature failed to do.

By essentially “rubber stamping” the proposed budget sent to it by the Governor, the Legislature failed to exercise proper stewardship of the public’s money. When it comes to the single most important document the Legislature produces each year, the State Budget, the Legislature did not do its job.

As to my bona fides, I served on the House of Delegates Finance Committee for 19 years (as Vice Chair for 10 years). Later, I was Deputy Secretary of Revenue for 3 years. I have learned the budget process from both the legislative and executive points of view.

Under our state constitution, it is the Governor’s responsibility to propose a budget. It is the responsibility of the Legislature to enact a budget. We on the House Finance Committee took that responsibility seriously and every year we went through the Governor’s proposal carefully, looking for places to economize.

Each of the members of the House Finance Committee was assigned individually to the proposed budget for one or more executive branch agencies to find money that might be cut or used elsewhere. It took us the first 30 days of each annual Regular Session to gather the information and about the next 20 days to compile and analyze it. We would make dozens of changes, sometimes over a hundred, to the Governor’s original proposal. When we reported our completed budget to the House floor during the last week of the session, we were confident that we had done our job up to that point.

But the job wasn’t finished. The Senate Finance Committee would send its budget to the Senate floor at the same time. A Budget Conference Committee for the two chambers would begin meeting as soon as the regular 60-day session was finished. It would usually take between five and seven days to finish. The Governor was always invited into the discussions. I served on this Committee for twelve straight years. The result would be a budget thoroughly vetted.

But that did not happen this year.

In recent years the Legislature has stopped being thorough in analyzing the Governor’s proposed budget. This year the Legislature didn’t even appoint a Budget Conference Committee to discuss ways to improve the budget.

This year’s final budget (FY 2019) included fewer than a dozen changes from the Governor’s proposal. And most of those changes were dictated by the decision (unanticipated when the Governor presented his proposed budget) to grant that 5% pay raise, which cost the state’s coffers about $150 million.

Either our present Governor is the smartest person ever to occupy the office, or the Legislature punted. I think the Legislature abdicated its responsibility to vet the governor’s budget proposal thoroughly. This was fiscally irresponsible.

The West Virginia Constitution permits the Governor to extend the Regular Session for as long as it takes to finish the budget. This is called the Extension of the Regular Session and is different than the Special Session that was required for the FY 2018 budget.  Each day of an extended regular session costs the state approximately $20,000. If this extension averages six days that would cost the taxpayers approximately $120,000. If that work can save at least $500,000 I argue it’s worth the expense. Every year I was on the Budget Conference Committee we saved at least several million dollars.

Because of this work we were able to significantly pay down the unfunded liabilities of the workers’ compensation fund and the various public employee retirement funds, and to establish the rainy day fund. We stabilized the public employee health care program, then called PEIB and now PEIA. The system was so behind in its payments in the 1990’s that medical providers were refusing to see state employees.

Through careful work and negotiation, West Virginia — a financial basket case in 1992 — became recognized as one of the half dozen most fiscally responsible states in the Union by 2012 when I left the Legislature. Our bond ratings were “junk” status in 1992, but had risen so much by 2012 that some were the highest rating (aaa-plus).

In the last four years the so-called “fiscal conservatives” in the Republican Party who lead the Legislature have raided our rainy day fund several times and have overseen a drop in our bond ratings. They have also slowed down paying off some unfunded liabilities. In my view this is fiscal irresponsibility. Their lack of budget scrutiny is another example of irresponsibility.

John Doyle resides in Shepherdstown. He is a Democratic candidate for the House of Delegates from the 67th District.