Get your hands off my oil. That was my reaction when I read about a bill introduced into the North Dakota Legislature that would give 8 percent of the oil royalty payments from a pool to the surface property owners.
I have written before that those with mineral rights -- this writer included -- should pay the full cost of extracting the oil, including the costs borne by surface-rights holders. Because the wells are all over the Oil Patch, using oil-extraction taxes to help the government pay some of those costs and build the necessary infrastructure is only good government and good business.
As mentioned, the costs to be paid include those that the oil owners create for the surface owners. In fact, giving the surface owners the right to recover any costs created by the owners of the oil is so logical that a system has been in place for more than 100 years to do so.
Time passes and technology evolves, of course, so what worked yesterday may require some changes today. And it appears that today, there is disagreement between the oil property owners and the surface property owners.
But resorting to the power of government to settle this dispute by taking property -- namely, oil -- from one person and giving it to another was called tyranny by our forefathers. The North Dakota Senate has defeated a bill that tried to do just that. As we're often reminded, though, nothing ever is defeated until the Legislature has gone home "sine die" -- meaning until the start of the next session -- and the lawmakers haven't done that yet. We still must guard against this attack on property rights.
ADVERTISEMENT
I do not object to a fair level of oil taxation going into the state General Fund. But in North Dakota, that level is too high. (I will again remind Herald readers of my small ownership of mineral rights. If these taxes are reduced, I will gain a very small increase in my monthly payment.)
Collectively throughout the state, the tax level makes a difference. Given the current demand for oil, the companies are continuing their explorations; so, as many North Dakotans argue, that must mean the current level of taxation works.
How can I say these taxes are wrong if the system is working today? For one thing, the companies doing the drilling in the Bakken are the small companies, the wildcatters. There is not a single major oil company here.
If this is "the hottest play" today, and it supposedly will keep going, where are the majors?
For another thing, North Dakota is spending too much of its windfall from oil paying for the state's day-to-day spending. We soon will be back to having 35 percent of our General Fund budget coming from oil revenue. We were there once before, and when the oil market collapsed -- which all commodity markets do on a cyclical basis -- so did the North Dakota state budget.
I am surprised that anyone older than 40 doesn't remember. I am disappointed that anyone younger than 40 hasn't studied their North Dakota history. I'm also disappointed that no newspaper has run a series on that history.
What should be done? More of this money should be used on one-time expenditures, and more of it should be put in a rainy day fund for those days when the revenue dramatically declines.
Just as important, we should reduce our state oil taxes to a competitive level after allowing for differences in the systems among states. By those differences, I mean things such as property taxes on oil in some states and not in others.
ADVERTISEMENT
If we don't reduce the tax in this way, then when the oil market dramatically declines, the oil companies will shut down the wells in high-tax states such as North Dakota.
One of the bases for the founding of America was private property rights. The oil tax system in North Dakota is confiscatory, and it is a violation of those rights to private property. I am surprised at the violations to America's freedoms sometimes introduced into the North Dakota Legislature.
I am reminded of a political cartoon I saw once. An aide was reporting to a leader of the Continental Congress. He says, "Sir, Gen. Washington reports from Valley Forge that he is short of blood, bullets, and blankets." The Continental Congress leader responds, "Good. Let's tax all three."
Reach Kingsbury at kae@invisimax.com .
