Governor Says Surtax is Not a Tax

By Beacon Staff

HELENA – Gov. Brian Schweitzer took a stand against tax increases just a month ago — a position that appeared to change abruptly Wednesday night during his State of the State speech.

Schweitzer said he is backing a proposed “surtax” on oil production to increase teacher salaries. The plan, the biggest new initiative unveiled in the speech, would increase the taxes on each barrel of oil by $1 and raise perhaps $45 million.

But Schweitzer was adamant Thursday that the plan would not raise taxes. He said it would only partially undo a tax holiday that was granted to the oil industry a decade ago and is worth $100 million a year to the industry.

“At some point we gave a holiday to the oil companies,” Schweitzer said. “It isn’t a new tax if all we are doing is modifying the holiday. I don’t think anyone expects you can go on holiday forever.”

Schweitzer said his argument applies more to the overall taxes paid by the industry, and is not necessarily about undoing the tax holiday.

The proposed legislation from Rep. Kendall Van Dyk, D-Billings, does not even address the tax holiday, which applies to the first 18 months of a well’s production and was granted before Schweitzer became governor in 2005.

For his part, Van Dyk says the bill “decreases the subsidy” given oil companies.

Republicans said it clearly is a tax increase.

“If he’s going to raise taxes, he just needs to call it a tax increase,” said Scott Mendenhall, Republican floor leader in the Montana House.

Mendenhall said he’s not sure Schweitzer is serious about the proposal.

“It’s just Brian talking like he does,” Mendenhall said.

In 2007, Montana produced 35.3 million barrels of oil. Tax revenue from oil production has been a big part of the state’s budget picture.

Schweitzer has resisted signing “no new tax” pledges in the past. But he has over the years made strong statements against tax increases.

Most recently, in a Dec. 15 interview with The Associated Press, Schweitzer said the growing recession should not be cause to raise taxes to pay the bills.

“If people were expecting me to raise taxes because we are having a downturn, they elected the wrong governor,” Schweitzer said at the time.

Schweitzer is adamant he is not changing his position on tax increases — saying the proposed surtax is not a tax increase. Surtax is generally defined as a “an extra tax on something already taxed,” according to Webster’s New World College Dictionary.

“It’s not a tax increase,” Schweitzer said.

The bill would also impose a surcharge on natural gas production.

The proposal, overall, could raise money equal to an additional $3,500 in compensation per Montana teacher.

The governor suggested that failing to divert the oil revenue to teacher salaries would lead to increases in local property taxes to pay the teacher wage hikes.

He named a long list of Republicans who have advocated higher teacher salaries. Schweitzer said each would by default be forcing local property taxes to increase if they don’t endorse an alternate revenue source — the oil surtax.

“Of course the option would be to increase the local component of K-12 education property taxes,” Schweitzer said.

The governor has said for years that past Republicans are to blame for higher property taxes. He says dismal funding of state aid to school districts forced schools to make ends meet with property-tax increases.

The logic is not likely to win over the Republicans who control the Senate, legislators Schweitzer ultimately will need to win over if the surtax has any hope.

“I cannot see the Republicans in the Senate voting for a tax increase — period,” said Sen. Dan McGee, R-Laurel.

But Schweitzer said Republicans like McGee have in the past publicly voiced support for better teacher pay. And he said they also have lauded the Wyoming model of oil and gas development that sends more money to schools.

So the governor said he expects Republicans will naturally join Democrats to support the plan.

“We are saying, ‘Here is the mechanism to increase teacher salaries,'” Schweitzer said. “My assumption is that the support is already there.”

Schweitzer and Van Dyk said Montana’s oil and gas taxes still would be less than Wyoming’s.

Another point of contention with Republicans is Schweitzer’s assertion that oil production has increased 38 percent during his tenure. Schweitzer argues that’s proof enough that the industry can afford to pay for higher teacher salaries.

But Republicans point out that oil production has been dropping steadily since 2006.

“I challenge him to find new oil rigs coming to Montana now,” McGee said. “It’s not happening.”

Stay Connected with the Daily Roundup.

Sign up for our newsletter and get the best of the Beacon delivered every day to your inbox.