The Texas Legislative Update, Episode 13

[Follow us on Twitter at @JasonModglin and @EnergyAbsurdity]

In Episode 13 of the Texas Legislative Update, David Blackmon and Texas Alliance of Energy Producers President Jason Modglin cover the key energy-related events in Austin for the week ended 4.21.2023.

Run of Show:

– Today is San Jacinto Day! God Bless Texas!

– Ted Cruz picks up a “very likely” challenger in State Sen. Roland Gutierrez, from District 19 in San Antonio. Should Cruz be worried?

– The Senate passed its $308 billion budget plan, which is somewhat less than the plan passed by the House. What are the big differences between the two houses?

– Both the GROW and STRONG Bills pass out of committee in the House.

– House State Affairs: Long hearing on PCM guardrails. Power generators now appear to oppose the same language on the matter they supported in the Senate. Go figure.

– Grid Reform: Both SB 6 and 7 were referred on Monday to State Affairs.

– Rhetoric over property tax cuts heated up this week. Is compromise coming?

– HB 2127 passed the House. Would limit the ability of cities to regulate business, something the industry has generally supported in the past.

End

[Follow us on Twitter at @EnergyAbsurdity and @IPAAaccess]

IPAA is one of the industry’s oldest and most effective national trade associations, representing mainly the interests of small to mid-size independent producers.

The Texas Legislative Update, Episode 13

David Blackmon [00:00:02] Hello and Welcome to the Texas legislative update I’m David Blackmon, here with Jason Modglin the President of the Texas Alliance of Energy Producers. Jason, how’s it going in Austin today?

Jason Modglin [00:00:13] It’s good. It’s good. David, Happy to be with you and Happy Earth Day. We don’t be that often in the oil and gas business providing the the fuel and the resources needed to have a modern world.

David Blackmon [00:00:29] We turning out the lights for an hour tonight isn’t that what we usually do on Earth Day or something like that? No, that’s a different thing anyway.

Jason Modglin [00:00:40] I plan to enjoy my house and may do maybe even have a burger or something. So probably all the things that they don’t like. But yeah, it’ll be a nice, nice Friday.

David Blackmon [00:00:53] It’s also San Jacinto Day when we’re recording this God Bless Texas on our state, Independence Day 187 years ago today?

Jason Modglin [00:01:05] Well Done

David Blackmon [00:01:06] Yeah, I always have to acknowledge that as a lifelong Texan, my God, I’m an eighth-generation Texan. It’s crazy. My ancestors had babies get through that many generations in 180 years. Okay, well, let’s have enough of that.

David Blackmon [00:01:26] Let’s talk about what’s been happening in the legislature and well, let’s start, though, with the fact that it looks like Ted Cruz, our senator, our senior citizen senator. No junior senator, junior state of Texas is picked up a likely challenger and state Senator Roland Gutierrez, who represents District 19 in San Antonio. So I guess that means the Democrats aren’t going to let Beto O’Rourke become a three-time loser, huh? Yeah.

Jason Modglin [00:02:01] But that’s potentially the case you know, Betto is quite a force, but I think Roland could go it could give him a run for his money in the in the Democratic primary. Roland’s pretty dynamic,.

David Blackmon [00:02:15] Right,.

Jason Modglin [00:02:16] Attorney and and so it would be fun to see them go back and forth in that primary. And then a he he sounds pretty committed to running for the U.S. Senate and leaving leaving the Texas Senate.

David Blackmon [00:02:34] Well, you know, if nothing else, it make for some really strong debates between the two. You know, I agree with you. I think Mr. Gutierrez could be a pretty significant challenger. And so Senator Cruz will have to be on his game next year.

Jason Modglin [00:02:50] That’s right. That’s right.

David Blackmon [00:02:52] So in the in the legislature but you know, enough of that legislature. First thing on my list is the Senate passed its own version of a budget plan for the next biennium, $308 billion in total, which I believe is slightly less than what the House passed. What are the big differences between the two that they’re going to have to negotiate now?

Jason Modglin [00:03:16] Oh, there’s there’s not too many big differences I think there’s a lot of kind of placeholder conversations that are going to take place over the next four weeks or so through that conference committee where there’s been a lot of open questions.

Jason Modglin [00:03:34] Certainly education and how there is potentially school choice is certainly wrapped up in the budget. The House had voted, as they’ve done the past decade, on their opposition to state funds for any type of voucher program that passed this year again in the House. But but certainly by the narrowest margin that it’s ever passed.

Jason Modglin [00:04:02] And so that has the wind behind the sails, if you will, for school choice proponents. And that’s certainly a part of the budget and would be a big difference between the House and Senate. Both sides have appointed their conference committee. And so in the Senate, it’s Senator Joan Huffman who’s who’s the chair of the Finance Committee, Lois Cole Course, Brandon Creighton, Charles Fortner and Robert Nichols they’re all kind of divided up different parts of the budget.

Jason Modglin [00:04:33] Normally, we work pretty closely with Robert Nickels during the conference committee. He kind of has natural resources over his purview. Senator Kohl course traditionally does Health and Human Services that’s really been her strength going back to her days in the House.

Jason Modglin [00:04:52] Brandon Creighton will do education and then Charles Warner it’ll be interesting kind of how he and Nichols. Prof. Schwerner, of course, is chairman of the Business and Commerce Committee, which had purview over Public Utility Commission and ERCOT. And so it be an interesting dynamic to see how the two of them divide up some of the agencies that they have overlap with.

Jason Modglin [00:05:20] And then on the House side, this is kind of kind of shocking, but nice to see I think they did this last time as well. Their conferees are matched up with their subcommittee chair. So Chairman Greg Bond and chair of House Appropriations Mary Gonzalez, who has purview over general government and kind of the judicial system. Jesse Dutton is health care Gary Vandiver is education and then Armando Wally out of the Houston area is over the natural resources agencies.

Jason Modglin [00:05:58] And so that’s who we traditionally work with on on railroad Commission TCU type issues so we’re excited that now the conferees are in place. And it’s kind of a fascinating dynamic that but unfortunately the public doesn’t really get a viewpoint in. It’s usually just two members kind of working out the issues with the Legislative Budget Board and with staff kind of keeping the members on their toes and working through the process.

Jason Modglin [00:06:29] Lobbyist aren’t invited or allowed in the room either and so it’s a lot of telephone, if you will, hoping that you know what you start on one end ends up the same message on the other end. But it’s always a fascinating process and one I was honored to participate in several years ago. So look forward to the results there.

David Blackmon [00:06:59] Well, we also had on property taxes quite a lot of back and forth between the House and the Senate this week. I know it caught my attention on the newscast because the average property tax bill appraisal in the Tarrant County where I live this year is going to rise by 18% in a single year. That’s extraordinary that’s the most I’ve ever seen. And so this debate over cutting property taxes is pretty timely. We have any real progress on the issue or just a bunch of rhetoric flying around?

Jason Modglin [00:07:38] There was there was a lot of rhetoric flying back and forth this week and and well timed. As you said, those appraisal notices are hitting right now. Of course, people are reacting to that appraisal increase it does not have your tax bill on that they’re looking at your your appraisal.

Jason Modglin [00:08:01] And so, yeah, I saw some folks reacting to two Houston area appraisals that were up some 30%. I’ve been dreading going to look at mine this week in Austin of course, homeowners have the benefit of a 10% homestead exemption, which keeps your taxable value from growing more than 10%.

Jason Modglin [00:08:27] And so that that is a benefit for homeowners but businesses are not included in that. Certainly, if you have any investment property or lake house or something like that, you get no benefit there. Appraisals are able to drive your tax bill pretty considerably.

Jason Modglin [00:08:46] And so the Senate has passed. So some really good legislation to lower people’s property tax bills, compressing the school tax rate, increasing the homestead exemption, helping out seniors pretty considerably with a larger homestead exemption.

Jason Modglin [00:09:06] And there’s probably more money there for Texas homeowners in the Senate plan. And yet the House has said, what do we get phone calls about? We get phone calls about appraisals. And, you know, that’s really what people are fired up and angry about every year when they see that appraisal notice come. And so why don’t we address appraisals with a 5% across the board appraisal cap?

Jason Modglin [00:09:41] And so the House bill actually doesn’t help you as much on on dollars and cents. But certainly in our years, it will potentially save you a lot of money and avoid some of the just just heartbreaking, not heartbreak, but, you know, anger right now every time you see your appraisal and getting ready to to protest and challenge that appraisal.

Jason Modglin [00:10:08] So the House sent their bills over, the Senate sent their bills over to the House. As you mentioned, there was some some name calling back and forth this week between really just the lieutenant governor and some of the House leadership describing this plan as kind of a California tax plan. That’s true.

David Blackmon [00:10:37] Its an Insult!

Jason Modglin [00:10:39] It is true we do have to go back to the 1960s, though, when when Prop one passed there and really led to the Reagan revolution in the 1960s in California. I mean everything is true that I’m saying everything is true Thursday. It’s just our our arrows and our our what we’re arguing over are different things.

Jason Modglin [00:11:06] Of course, that California proposal was to cap property tax growth it at 1%, and it has been devastating to the California market. You have these bizarre trust that people set up so that they can transfer property so that they can avoid the tax bill.

Jason Modglin [00:11:25] And it resulted in a pretty stagnant real estate market there because people don’t want to to buy and sell for fear that your tax bill is going to get jacked up. And and and so, I mean, I’m right there with the lieutenant governor on. Yes. We need to avoid that.

Jason Modglin [00:11:46] So you know, it is a it is a strange dynamic right now. I ultimately think both sides will work it out. They’re in agreement on compressing the school property tax rate. If we can maybe get that up a little higher or maybe increase the homestead exemption a little bit and maybe there’s the opportunity to look at homestead appraisals.

Jason Modglin [00:12:10] It would be fantastic for businesses if we could somehow cap business appraisals. I cannot see that happening in the state of Texas. We are far too dependent on property taxes, on business property businesses pay the majority of the property tax roll in the state, and that would be a very short-term item.

David Blackmon [00:12:38] It sure would.

Jason Modglin [00:12:39] Yeah. You would not want to be in government?

David Blackmon [00:12:41] No, you would,.

Jason Modglin [00:12:42] You know, ten years trying to unwind that.

David Blackmon [00:12:45] Oh, let’s say it’s the only tax we have on the books that accounts for population and economic growth. And, you know, and to be fair to the taxing districts, much as I hate to do that, you know, I mean, in Tarrant County, property values have gone up by at least 18% in the last year.

David Blackmon [00:13:04] And, you know, when I look at what I could live less my home for, I look at my wife and think, why in the world are we still living here? Well, of course you’re still living here because you don’t want to get a six or 7% mortgage instead of the the 3% mortgage we have.

David Blackmon [00:13:20] But the property values have gone up by that amount and, you know, they’re basically trying to capture that in their appraisals. Anyway, anyway, enough of that. Go back to making fun of government. Now let’s look at some of the grow and strong bills that you talked about last week passed out of committee this week talk about that.

Jason Modglin [00:13:43] They did they did a very quick turn around they they were in House appropriations on Monday morning. Some some good testimony. I think I saw at the Permian Basin Petroleum Association, Ben Shepherd testified, and then James Law, who’s a tax consultant to Haines, Texas Oil and Gas Association.

Jason Modglin [00:14:06] I was out in Wichita Falls. We had a golf tournament out there for our members so I was running in that direction. But lots of good testimony in support of those bills. It it must have motivated the House Appropriations Committee because they turned around and voted Thursday morning for both grow and strong.

Jason Modglin [00:14:26] So now those head over to the House Calendars Committee and we’ll see ultimately which one they move forward. And then ultimately what the what the Senate decides to do with this, as we’ve covered before, kind of two different thought processes or game plans. Representative Craddick, who has had passed this out of the House the past two sessions, this will be the third time around and really focused on how many brains can we bring to the party.

Jason Modglin [00:14:58] And so now there’s nearly 220. It’s it’s not quite the through 20 counties in the state that generate oil and gas, severance taxes for oil and gas production. And so this program would benefit every single one of those counties.

Jason Modglin [00:15:17] Whereas Representative Landgraf has a different approach he’s trying to look at top 15% of those counties and really only benefit those counties because those counties have a higher impact, certainly from oil and gas production.

Jason Modglin [00:15:34] And so that doesn’t that doesn’t benefit the entire state it benefits about 30 counties pretty considerably. And then there’s some other items in there for budget and appropriators that might have some interest there in terms of emissions reduction programs at TCU, state highway funds, some of the other kind of priorities of of budget makers.

Jason Modglin [00:16:06] And so potentially, you know, there could be a tradeoff in the Senate where they say, actually, we’d like to shore up some of these other programs and this might be a way to do it while rewarding certain counties, but not all counties. And so kind of a two pronged approach. And we’ll be interesting what the Senate decides to do that they did not act on grow the past two sessions.

David Blackmon [00:16:34] Well, let’s move on to the grid reforms we had just a little tiny, slight bit of action on Senate bills and six and seven in the House they were both finally referred this week to the state affairs committee there in the House, but no hearing yet on those bills. Right and nothing scheduled yet?

Jason Modglin [00:16:53] No, no hearing on those. But good to see those who start to be referred to committee. And then that hopefully will will break some logjam and move some things on both sides of the building. State Affairs Committee did have a very long hearing on Wednesday evening to look at the PCM guardrails bill the PCM stands for Performance Credit Mechanism this is the what the PUC came up with in terms of shoring up our grid and enticing or inviting more capital investment in the state to build new generation.

Jason Modglin [00:17:35] And rather than going the capacity market route, which is what a lot of the rest of the country has done, this is kind of a a bolt on, if you will, to to what we currently have to hopefully pay for performance if they bring new resources to the market at a time of scarcity.

Jason Modglin [00:18:00] And so it obviously only people only get paid if they bring that to market rather than a capacity market paying them on the front end to have kind of standby service. So that that’s a key difference there.

Jason Modglin [00:18:16] But I think legislators on both sides, Senate and House, wanted to have some guardrails on the program to make sure that there weren’t cost overruns and things of that nature passed pretty quickly out of the Senate and then within the House.

Jason Modglin [00:18:33] I think the generators also supported it in the Senate and they were a little more critical in the House. And so I think that’s some of the the conversation or dynamic amongst those advocates and certainly House members is why the change of heart, what has happened in the course of the legislation? Was there an amendment added somewhere that may have changed their opinion of the legislation?

Jason Modglin [00:18:59] So I think as we’ve talked about before, the PCM is going to happen there’s no legislation out there that would prohibit the PUC from from doing that. And the governor has certainly endorsed that and called on that to occur at the Public Utility Commission.

Jason Modglin [00:19:21] The only thing that could pass from the legislature or the legislative standpoint is a guardrail or some type of of control over that program. And so if this bill doesn’t pass, you know, we’d have PCM without without the protections. And that’s probably not something that the legislature wants to allow happen. So I think they’re going to work through this pretty quick.

David Blackmon [00:19:48] Well, good then the question becomes whether the PCM is adequate, and that’s where Senate Bill 6 comes in and we’ll have that hearing and debate later in the session. But which, by the way, only has, what, about.

Jason Modglin [00:20:02] 40 days,.

David Blackmon [00:20:03] 39 days left as of this recording. So, yeah, 40 days that 40 days. Okay, so where are we? What about what have you testified to any testifying this week or what?

Jason Modglin [00:20:16] I didn’t do any test, but I did a lot of driving this week. So, you know, in my in my quest to keep up demand, I drove to Wichita Falls and had a great time, a golf tournament there with our members and then drove to Tyler, Texas on on Wednesday and we had a nice little dinner there for some of our members and board members. Tyler’s just beautiful right now.

David Blackmon [00:20:41] Oh, my gosh.

Jason Modglin [00:20:42] And so I highly recommend it. If anyone is thinking about a weekend road trip, it is very nice right now before it gets too hot. So I had a great time there and then have been around the legislature Tuesday, Thursday, and then actually this morning as well. But thankfully did not need to testify on anything.

David Blackmon [00:21:05] Well, it’s nice to get a break from that.

Jason Modglin [00:21:06] And it’s nice to get a break. Yeah. Yeah.

David Blackmon [00:21:09] Another bill I just wanted to ask you about, is this House Bill 2127, which would enact some restrictions on the ability of cities to regulate business within their city limits. And I know this is something that’s concerned the industry in the past, we had a House bill or was it House bill or Senate bill 40 several sessions ago that limited their ability to regulate downhole operations in the oil and gas business. But I just wonder if this is a bill the industry is is following closely.

Jason Modglin [00:21:49] Yes. You’re you’re recapping a lot of that perfectly there was House Bill 40 by Representative Darby by 2015 session. I was able and happy to work on that.

David Blackmon [00:22:05] That’s right. Yes.

Jason Modglin [00:22:08] And and so very much enjoyed enjoyed that and really, it was a testament to the legislature putting their stamp on things, passed some 130 to to a very small minority on the other side and really a great feat.

Jason Modglin [00:22:29] This is a different bill some some have called it the super preemption bill. And what it would do is it would prevent cities from adopting rules or ordinances that are in conflict or contrary to the state in in a variety of different codes. And it just calls out whole codes. So let me run through them really quick.

Jason Modglin [00:22:59] Agriculture, civil practices, finance, insurance, labor, natural resources and occupations of course, oil and gas is largely in the Natural Resources code, but we frequently interact with farmers and ranchers, and so that would be tied up in the agriculture code. And then occupations can be water well drillers or other types of businesses that are ancillary to oil and gas finance and insurance deals kind of right there with with banking and insurance as well and then obviously simple practices with your opportunity to go to the court.

Jason Modglin [00:23:44] So it was a very long debate Chairman Burrows is who’s carrying it he’s out of the Lubbock area, Dustin Burrows and really did a phenomenal job, kind of fending off amendments and then trying to push this forward.

Jason Modglin [00:24:05] There is a Senate bill by Brandon Creighton, but it has been pending in the Senate Business and Commerce Committee so unclear if the Senate would move forward on this legislation. But but very much it will be it will be new.

Jason Modglin [00:24:26] There has been a lot of growth in cities and counties, and I think that really came out in the debate. And certainly what we had seen during the House bill, 40 cities or really local advocates want to address an issue. The city, for whatever reason or the developer decides that they’ve got they’ve got no recourse at the state level to address those issues and they go to the city and rather than the city stating that that’s outside their purview or their ability, they start to engage.

Jason Modglin [00:25:12] And those types of. Actions by cities used to have to get ratified by the state. And so they would they would pass them and it would be conditional upon state ratification. And so they would come to the legislature in the seventies and eighties and even nineties and say, we’ve done this and will you sign off on it?

Jason Modglin [00:25:39] And actually there’s a committee in the House that is entirely for this purpose it’s called Urban Affairs. When I worked on it, it was called the Houston Committee because all we did was Houston. And so, you know, Houston would come in, they would say, We’ve got a labor agreement with our police or firefighters or, you know, we’ve done something else and we need the state to sign off on it and that would that would be what that committee was designed to do.

Jason Modglin [00:26:12] Somehow, that process has been broken and cities and counties have decided we’re just going to forge ahead. And so it’s resulted in in several conflicts that tend to break out, obviously, oil and gas in 2015, you may remember the Uber and Lyft issues from several years ago here in Austin, where, you know, we’re a bar city, you a live entertainment city.

Jason Modglin [00:26:40] And so one of the things that we have lots of problems with are DWI is DUI, and here comes Uber to help address that issue and the city decides we’re just going to ban it doesn’t make any sense.

Jason Modglin [00:26:55] And so, you know, those types of things that the legislature has injected themselves into these issues. And I think Chairman Burrows has said, why are we doing this piecemeal? Let’s just start to make it abundantly clear that these local governments can’t inject themselves in these types of arrangements.

David Blackmon [00:27:19] And that’s important for the business community, because if you don’t restrict that, then you end up with this patchwork of different regulations in different cities and counties. And, you know, you never know what the rules are until you go in and start doing business. And it’s, you know, you just it creates chaos in the business community. And you can’t you just can’t not just oil and gas, but any kind of business. So anyway, that is an interesting bill.

Jason Modglin [00:27:49] And we have lots of local governments and, you know, it’s not it’s not all in rural Texas where you’re only dealing with one, you know, particularly in the Metroplex. But this is also the case in Houston. You know, you cross the street and now you’re in a different jurisdiction and you go a little further and now you’re in a different jurisdiction. And so the ability to deploy capital, employ people and have some level of certainty in that process gets disrupted very quickly. If all of these little, little townships start doing different things.

David Blackmon [00:28:28] Yeah, well, let’s see here that’s all I’ve got on my agenda here anything else we need to cover for the good of the order here?

Jason Modglin [00:28:38] I think. And I left this off when we’re talking about property taxes. Well, the House has really taken one additional step, and that’s to look at business abatement programs. You may remember chapter 313, which was a program where capital intensive businesses could approach school districts and school districts being the largest portion of your property tax bill.

Jason Modglin [00:29:08] And say, can we secure an abatement for the level of capital we’re about to deploy into your district? You can still bring us on any bond payments, and we might even pay you to have almost a bonus, if you will, into your school foundation or we’ll build a road for you or something like that.

Jason Modglin [00:29:33] But we’re about to deploy tens or hundreds of millions of dollars in capital, and we don’t want to have that property tax bill hit before we actually open up the facility, whether it’s a refinery or a data plant or something like that, or wind turbine said. Really there was a lot of different types of capital projects that fit under this umbrella.

[00:29:59] That program actually expired at the end of 2022 it was not extended last session, not extended by the session before that either. They kind of had to bite at the apple and missed on both. And so I think there was a lot of concern that the program had had led to a proliferation of of wind farms in the state. And that was certainly true, although I think the federal government, the production and so.

David Blackmon [00:30:32] It had a little role.

Jason Modglin [00:30:32] Was really what was driving that this was kind of icing on top of that. But they were in the largest beneficiaries for sure. But there were other types of of businesses that that want to continue to attract capital investment to this state and and don’t have the ability to seek a school district, property tax abatement.

Jason Modglin [00:30:59] And so Todd Hunter, who’s the chairman of state Affairs Committee out of the Corpus Christi area, has brought House Bill 5, and he’s joined by a number of pretty important coauthors, Morgan Meyer, who’s the Ways and Means chairman, and then Dustin Burrows, as I mentioned earlier, who’s the calendar’s chairman, have signed on to this bill. And really it’s to recreate a property tax abatement program for school districts.

Jason Modglin [00:31:29] School districts are overwhelmingly supportive of this as a way to to continue to attract investment into their districts. There’s quite a bit of of changes made to the bill. It’s not the 313 program of yore they really put in a lot of guardrails and protections in place to kind of avoid almost a gaming of the program, if you will, to make sure that they are getting the capital investment, they are getting some job benefits out of the program, and we’re able to still kind of compete and attract that level of capital to the state.

Jason Modglin [00:32:15] So it’ll be interesting it was heard several weeks ago in the House Ways and Means. They made a big push this week to get north of of 7576 coauthors. I think they’ve done that they’ve secured that and they’re looking forward to moving the bill pretty quickly. As part of the House’s approach to property taxes.

Jason Modglin [00:32:44] It’s unclear if the changes that they’ve made are sufficient for the Senate to consider this. Hopefully they are and we continue to track some of these big capital projects. It’s tough going up against Louisiana areas.

Jason Modglin [00:33:03] Louisiana has really structured a lot of their incentives around capital investment and so they don’t have property taxes on very large capital investment for a period of time. And in Louisiana, they pay for a lot of the siting and some of the interconnection costs for these big sites.

Jason Modglin [00:33:28] And so they continue to attract refining, they continue to attract carbon capture some of these very big types of programs go to Louisiana. And so, you know, when we’re trying to attract that type of capital investment to the state, it’s tough to close those deals when when you essentially you’re turning down money going next door to Louisiana.

David Blackmon [00:33:59] Yeah. I mean, I think it’s fair to say, you know, Austin probably wouldn’t have Tesla sitting out there without that program right now. And part of the reason Musk moved part of his operation back to California was a was a big sweetheart, tax sensitive kind of deal that state of California was willing to give him.

David Blackmon [00:34:19] So, you know, it’s a competition between states and Texas has all sorts of wonderful natural attributes. But you still have to compete with all these surrounding states to get that business and it’s just the way of the world these days. So anyway, that’s. Yeah. So I think that’s everything for this week. How about that?

Jason Modglin [00:34:44] Perfect. Perfect.

David Blackmon [00:34:46] Well, thank you as always

Jason Modglin [00:34:48] Catch More rain this weekend and.

David Blackmon [00:34:50] Or I need to.

Jason Modglin [00:34:51] Enjoy the holiday.

David Blackmon [00:34:53] Yeah, we we got a little rain this week sure did need it, man. Well, have a good weekend and we’ll talk to you in a week.

Jason Modglin [00:35:02] Thanks, David.