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Story Archives: State can keep its gold rush bounty


State can keep its gold rush bounty
by John Maginnis - posted Thursday, August 14th, 2008 @ 10:12 pmE-mail Story E-mail Story | Print Story Print Story 
The still-high price of oil and a massive new natural gas play in Northwest Louisiana are building another big budget surplus in the state treasury. Better news still, word from Washington is that we can keep it.

One of the biggest breaks the state has caught since the 2005 hurricanes came last week when the White House decided that Louisiana can pay off its $1.8 billion share for New Orleans area levee improvements over 30 years instead of just three.

The real estate adage, "It's not the price, it's the terms," sums up the state's good fortune. President Bush's request to Congress for $5.8 billion to build up southeast Louisiana levees to the strength they were supposed to have been before Katrina will help to safeguard New Orleans' recovery. But the White House's initial three-year payback demand would have crippled state finances and touched off a political storm in the Legislature, again pitting New Orleans against the rest of the state.

That's all passed now, though some wonder what took so long for the president to agree to treat this state the same as others that have received rebuilding aid. Of course, Bush was sensitive about piling on to the half-trillion dollar deficit that his administration is leaving the country. Yet, politically, he might have recognized that the next Congress and/or president would probably grant relief to Louisiana, so why not do it now and share the credit with his loyal young governor friend?

Gov. Bobby Jindal said that having to come up with $1 billion in 2010 alone would force draconian cuts in education and healthcare. It was a good sob story, but more likely the money would have come from the bulging surpluses the state is accumulating.

As sales and income taxes on recovery spending begin to tail off, they are being more than replaced by severance taxes on high-priced oil and gas and, on top of that, bonuses and royalties on public lands in the newly discovered Haynesville Shale in the northwestern parishes.

The latter is causing what's been described as a "gold rush" at monthly meetings of the State Mineral Board, where companies bid on the rights to drill on lands owned by local and state government.

Breakthroughs in horizontal drilling have made it commercially feasible to tap the shale formation, which one drilling firm CEO claims could be the fourth largest natural gas field in the world.

Since March, millionaires have been minted overnight among small landowners in rural Red River and De Soto parishes, with the action moving up to subdivisions in south Shreveport. Land that might have leased for $200 per acre last year now commands up to $30,000 per acre, plus a 30 percent royalty on production.

In July, the De Soto Parish Police Jury received a check for $28.7 million, more than its entire annual operating budget. This week it's the state's turn. Companies have asked to bid on 4,400 state-owned acres, which, if lease offers match going prices, could net the state between $100 million and $130 million in one pop.

Last year, the lottery deposited $130 million in the state treasury.

That's just the signing bonus, with up to 30 percent royalties to last the life of the wells. "My lands, we're hooked up to the wagon now," exclaimed DeSoto Parish Police Juror J.O. Burch. So is Louisiana.

This means that the state's projected $1 billion surplus from the fiscal year just ended could be dwarfed next year. Yes, it's a grand thing that riches coming out of the ground in North Louisiana won't be shoveled right back into the federal levees around New Orleans.

What to do with the bounty instead? The current and previous legislatures and governors have set a pattern of plowing most of the new money into reducing the backlog of highway and coastal restoration projects. More of the same next year would be a wise use of the one-time money.

Tax cuts are another option, which legislators, eager to repent for their pay-raise sin this year, will be all hot for next spring. Or they may try to have it all, to spend more and tax less, which could wipe out Louisiana's future surpluses as fast as the federal government was about to.

John Maginnis is a Baton Rouge-based columnist who writes about Louisiana Politics. He can be reached by emailing lapolitics@cox.net.
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