Thousands of teachers in Oklahoma have walked out in protest of low pay and budget cuts, just months after a statewide teachers strike in West Virginia resulted in a pay raise for educators in the state. But beyond illuminating the often dismal conditions under which teachers in this country are often forced to work, the walkouts in Oklahoma and West Virginia illuminate something else — what happens when states prioritize tax breaks for fossil fuel companies over education.
In both West Virginia and Oklahoma, years of sustained tax cuts for corporations and the rich have left the states struggling to maintain stable levels of annual revenue. But both states have gone beyond just giving tax cuts to corporations broadly — they have catered specifically to the fossil fuel industry that exerts a huge amount of political power.
“I feel like they’re choosing oil and gas over education,” Nancy Harrington, an Oklahoma public school teacher, told Tulsa World last week.
Oil and gas tax
In the 2000s, when the domestic oil boom was reaching its peak, Oklahoma legislators enacted precipitously low tax rates on oil production under the auspice of enticing producers to set up shop in the state.
According to Reuters, Oklahoma was taxing oil and gas production from horizontal wells as low as 1 percent. In comparison, North Dakota was taxing similar operations at 11.5 percent.
When oil prices were high, even low taxes on production meant that some money was siphoned back to social programs throughout the state. But starting in 2014, as oil prices began to go into free fall, Oklahoma’s low tax rate on oil production became a liability — taxes hadn’t been high enough during the boom to create the necessary nest egg for the impending bust.
According to Reuters, between 2008 and 2014 — when oil prices were high and production in Oklahoma was soaring — the state’s oil and gas production tax revenue declined by 32 percent, due to the increased prevalence of lower-taxed horizontal wells and declining natural gas prices.
To make matters worse, Oklahoma legislators have consistently refused to raise taxes on oil and gas production. Instead, they’ve locked in low tax rates, passing a law in 2014 that made Oklahoma’s oil and gas production tax rates — already the lowest in the nation — permanent.
The bill set tax rates for horizontal wells — an emerging technology in the 1990s which has become almost standard practice in many states — at two percent for the first three years of production, after which the tax rate jumps to seven percent. Oil companies lobbied hard for maintaining a lower tax rate for the wells’ early years, arguing that a low tax rate would incentivize production.
The two legislators leading negotiations over whether or not to raise the tax rate — House Speaker Charles McCall and Senate Pro Tem Mike Schulz — were both big recipients of oil industry donations throughout their career, bringing in $34,000 and $15,000 in political donations respectively from the oil and gas industry between January 2015 and March 2017.
A selection of signs from today's thousands-strong rally in Oklahoma. pic.twitter.com/aicyA2fOfJ
— Jacobin (@jacobinmag) April 3, 2018
Eventually, legislators agreed to maintain low tax rates for the first three years of a horizontal well’s production cycle, rather than the first four years, like the oil industry had originally wanted.
Rainy day fund
Taxing at a low rate during the well’s first years severely limits the amount of tax money that the state can collect from horizontal wells. This is because wells tend to produce the bulk of their oil during the first year or so. According to a report from Oklahoma’s State Treasurer, output in horizontal wells declines 70 percent after the first 12 to 18 months of production.
States like Oklahoma — which rely heavily on the fossil fuel industry for revenue — are used to the boom-and-bust cycle that often follows energy production. Fossil fuels are a finite resource, meaning that production is never guaranteed, and prices are tied to a large and volatile international market.
Certainly, part of Oklahoma’s budget woes can be attributed to a drop in oil prices. But low tax rates also cost the state money — according to the Oklahoma Policy Institute, tax breaks for the oil and gas industry accounted for $390.5 million in lost revenue for the state in 2016.
Other oil producing states — like North Dakota — have been able to weather the downturn in oil prices because, during boom years, they taxed oil production at a fairly high rate, siphoning that money into a rainy day fund that could be tapped into when energy production went bust.
‘Our folks are left with nothing.’
Not every fossil fuel-producing state has faced issues with funding education. In North Dakota, teacher salaries have increased by about 12 percent since 2009, and, during oil boom years, legislators used the revenue to approve an increase in education spending. Yet, in Oklahoma, per-student spending fell by 23.6 percent between 2008 and 2015.
Farther east, Kym Randolph, director of communications for the West Virginia Education Association, has seen a similar situation to Oklahoma take hold in her state, which has also been long dependent on energy industry revenues.
“The coal companies and now, the natural gas companies, [state lawmakers] have always been hesitant to tax them,” Randolph told ThinkProgress. “You look at the coal industry in southern West Virginia: Southern West Virginia is the most depressed area of our state, and yet that was where the majority of the coal was and where millions of dollars was made for people.”
Historically, public education in West Virginia has been highly dependent on revenue from coal production, which has taken a significant downturn in recent years due to falling natural gas prices and an increase in automation, which favors larger mines in the middle of the country over smaller mines in Appalachia.
But as West Virginia lost revenue from coal production, legislators in the state also began enacting a series of tax cuts, like cutting the corporate net income tax rate in 2009 from 9 percent to 6.5 percent, and phasing out the business franchise tax completely. At the same time, West Virginia lawmakers have resisted raising tax rates on natural gas companies that drill in the state, even as production boomed.
Like Oklahoma, education spending in West Virginia has been less of a priority for lawmakers than tax cuts for the rich or fossil fuel companies. Before this year, the state had not boosted the pay scale for teachers since 2014, and ranked 48th out of all states in teacher pay.
Currently, West Virginia levies a 5 percent severance tax on coal and natural gas. During the West Virginia teacher strike — which lasted four days in February and resulted in a five percent raise this year — educators asked lawmakers to consider raising the severance tax rate to 7.5 percent, which the West Virginia Center on Budget & Policy estimated would raise an additional $93 million in revenue in 2019.
West Virginia Governor Jim Justice (R), a millionaire who made much of his money in the coal industry, supported the idea, but Republican lawmakers in the state remained vehemently opposed. In the end, the West Virginia legislature chose to pay for the teachers’ raises by cutting the state budget, rather than raising taxes on fossil fuel companies.
For Randolph, the legislature’s reluctance to tax energy companies to pay for education exemplified the political power that fossil fuel has always wielded in West Virginia.
“We have allowed these out of state landowners to rape the state, take the money, and run,” Randolph said. “And when they are done they are done. And they are left with millions of dollars and a lifestyle and our folks are left with nothing.”
“All the great organizers say that power comes in two forms: money and people. And if you don’t have the money, you have to have the people,” Randolph said. “People have power too and they have the votes were these people have the money. Hopefully if they go to the polls on election day, they can have more of a say than these oil and gas lobbyists.”