LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 82ND LEGISLATIVE REGULAR SESSION Revision 2 April 28, 2011 TO: Honorable Jim Keffer, Chair, House Committee on Energy Resources FROM: John S O'Brien, Director, Legislative Budget Board IN RE:SB655 by Hegar (Relating to the continuation, functions, and name of the Railroad Commission of Texas.), Committee Report 2nd House, Substituted Estimated Two-year Net Impact to General Revenue Related Funds for SB655, Committee Report 2nd House, Substituted: a positive impact of $51,427,502 through the biennium ending August 31, 2013. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 82ND LEGISLATIVE REGULAR SESSION
Revision 2
April 28, 2011
Revision 2
Revision 2
TO: Honorable Jim Keffer, Chair, House Committee on Energy Resources FROM: John S O'Brien, Director, Legislative Budget Board IN RE:SB655 by Hegar (Relating to the continuation, functions, and name of the Railroad Commission of Texas.), Committee Report 2nd House, Substituted
TO: Honorable Jim Keffer, Chair, House Committee on Energy Resources
FROM: John S O'Brien, Director, Legislative Budget Board
IN RE: SB655 by Hegar (Relating to the continuation, functions, and name of the Railroad Commission of Texas.), Committee Report 2nd House, Substituted
Honorable Jim Keffer, Chair, House Committee on Energy Resources
Honorable Jim Keffer, Chair, House Committee on Energy Resources
John S O'Brien, Director, Legislative Budget Board
John S O'Brien, Director, Legislative Budget Board
SB655 by Hegar (Relating to the continuation, functions, and name of the Railroad Commission of Texas.), Committee Report 2nd House, Substituted
SB655 by Hegar (Relating to the continuation, functions, and name of the Railroad Commission of Texas.), Committee Report 2nd House, Substituted
Estimated Two-year Net Impact to General Revenue Related Funds for SB655, Committee Report 2nd House, Substituted: a positive impact of $51,427,502 through the biennium ending August 31, 2013. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
Estimated Two-year Net Impact to General Revenue Related Funds for SB655, Committee Report 2nd House, Substituted: a positive impact of $51,427,502 through the biennium ending August 31, 2013.
The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
General Revenue-Related Funds, Five-Year Impact: Fiscal Year Probable Net Positive/(Negative) Impact to General Revenue Related Funds 2012 $25,963,751 2013 $25,463,751 2014 $25,463,751 2015 $25,463,751 2016 $25,463,751
2012 $25,963,751
2013 $25,463,751
2014 $25,463,751
2015 $25,463,751
2016 $25,463,751
All Funds, Five-Year Impact: Fiscal Year Probable Savings/(Cost) fromGeneral Revenue Fund1 Probable Revenue Gain/(Loss) fromGeneral Revenue Fund1 Probable Savings/(Cost) fromOil-field Cleanup Acct145 Probable Revenue Gain/(Loss) fromOil-field Cleanup Acct145 2012 $22,963,751 $3,000,000 $27,500,000 ($55,201,000) 2013 $22,963,751 $2,500,000 $27,500,000 ($25,111,000) 2014 $22,963,751 $2,500,000 $27,500,000 ($25,268,000) 2015 $22,963,751 $2,500,000 $27,500,000 ($25,483,000) 2016 $22,963,751 $2,500,000 $27,500,000 ($25,696,000) Fiscal Year Probable Savings/(Cost) fromNew Other--Oil and Gas Regulation and Cleanup Probable Revenue Gain/(Loss) fromNew Other--Oil and Gas Regualtion and Cleanup Probable Savings/(Cost) fromAlter Fuels Research Acct101 Probable Revenue Gain/(Loss) fromAlter Fuels Research Acct101 2012 ($50,300,000) $80,500,000 $1,700,000 ($2,600,000) 2013 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000) 2014 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000) 2015 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000) 2016 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000) Fiscal Year Change in Number of State Employees from FY 2011 2012 (11.0) 2013 (11.0) 2014 (11.0) 2015 (11.0) 2016 (11.0)
Fiscal Year Probable Savings/(Cost) fromGeneral Revenue Fund1 Probable Revenue Gain/(Loss) fromGeneral Revenue Fund1 Probable Savings/(Cost) fromOil-field Cleanup Acct145 Probable Revenue Gain/(Loss) fromOil-field Cleanup Acct145 2012 $22,963,751 $3,000,000 $27,500,000 ($55,201,000) 2013 $22,963,751 $2,500,000 $27,500,000 ($25,111,000) 2014 $22,963,751 $2,500,000 $27,500,000 ($25,268,000) 2015 $22,963,751 $2,500,000 $27,500,000 ($25,483,000) 2016 $22,963,751 $2,500,000 $27,500,000 ($25,696,000)
2012 $22,963,751 $3,000,000 $27,500,000 ($55,201,000)
2013 $22,963,751 $2,500,000 $27,500,000 ($25,111,000)
2014 $22,963,751 $2,500,000 $27,500,000 ($25,268,000)
2015 $22,963,751 $2,500,000 $27,500,000 ($25,483,000)
2016 $22,963,751 $2,500,000 $27,500,000 ($25,696,000)
Fiscal Year Probable Savings/(Cost) fromNew Other--Oil and Gas Regulation and Cleanup Probable Revenue Gain/(Loss) fromNew Other--Oil and Gas Regualtion and Cleanup Probable Savings/(Cost) fromAlter Fuels Research Acct101 Probable Revenue Gain/(Loss) fromAlter Fuels Research Acct101 2012 ($50,300,000) $80,500,000 $1,700,000 ($2,600,000) 2013 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000) 2014 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000) 2015 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000) 2016 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000)
2012 ($50,300,000) $80,500,000 $1,700,000 ($2,600,000)
2013 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000)
2014 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000)
2015 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000)
2016 ($50,300,000) $50,300,000 $1,700,000 ($2,100,000)
Fiscal Year Change in Number of State Employees from FY 2011 2012 (11.0) 2013 (11.0) 2014 (11.0) 2015 (11.0) 2016 (11.0)
2012 (11.0)
2013 (11.0)
2014 (11.0)
2015 (11.0)
2016 (11.0)
Fiscal Analysis
The bill renames the Railroad Commission the Texas Oil and Gas Commission, retains the three, statewide elected Commissioners and continues the agency for twelve (12) years. The bill would eliminate the requirement that the agency employ a chief engineer and a chief petroleum engineer, as well as an administrative chief, i.e., the Executive Director. The bill maintains, but renames the Oil Field Cleanup Fund Advisory Committee as the Oil and Gas Regulation and Cleanup Fund Advisory Committee, but deletes the requirement that the Committee meet quarterly. Under the provisions of the bill, the Commission retains the authority to conduct hearings on enforcement and gas utility contested cases. The bill would create the Oil and Gas Regulation and Cleanup (OGRC) Fund as a special fund in the treasury outside of the General Revenue Fund. The OGRC would replace the existing General Revenue-Dedicated Oil Field Cleanup (OFCU) Account No. 145, with all balances in that account transferring to the OGRC Fund, and all current revenue streams to the OFCU Account No. 145, except penalties, accruing to the OGRC Fund. Penalties would be deposited to the credit of the General Revenue Fund. The bill would authorize surcharges on the agency's existing fees to provide that the OGRC Fund cover all of the agency's costs related to the regulation of oil and gas development. The bill would provide a specific methodology for the OGC to determine the amount of such surcharges. In addition, the bill would require that the Comptroller notify the OGC when the OGRC Fund has an unexpended balance of $20.0 million or greater, at which point the agency would cease collecting oil-field cleanup regulatory fees, until the unexpended balance of the OGRC Fund falls to $10.0 million. The bill would require the OGC to establish specific performance goals for oil and gas regulation through the appropriations process for: the number of orphaned wells plugged with the use of state funds; the number of abandoned sites to be investigated, assessed, or cleaned up; and the number of surface locations to be remediated. The OGC would also be required to submit quarterly reports to the Legislative Budget Board on OGRC Fund revenues and expenditures and progress towards the performance goals. Annually, the OGC would be required to report to the Legislature a review of the effectiveness of money provided in the OGRC Fund at enabling the agency to better protect the environment. The bill would abolish the Alternative Fuels Research and Education (AFRED) program and the General Revenue-Dedicated AFRED Account No. 101. Funds remaining in the AFRED Account No. 101 would be transferred to the undedicated portion of the General Revenue Fund.
The bill renames the Railroad Commission the Texas Oil and Gas Commission, retains the three, statewide elected Commissioners and continues the agency for twelve (12) years.
The bill would eliminate the requirement that the agency employ a chief engineer and a chief petroleum engineer, as well as an administrative chief, i.e., the Executive Director.
The bill maintains, but renames the Oil Field Cleanup Fund Advisory Committee as the Oil and Gas Regulation and Cleanup Fund Advisory Committee, but deletes the requirement that the Committee meet quarterly. Under the provisions of the bill, the Commission retains the authority to conduct hearings on enforcement and gas utility contested cases.
The bill would create the Oil and Gas Regulation and Cleanup (OGRC) Fund as a special fund in the treasury outside of the General Revenue Fund. The OGRC would replace the existing General Revenue-Dedicated Oil Field Cleanup (OFCU) Account No. 145, with all balances in that account transferring to the OGRC Fund, and all current revenue streams to the OFCU Account No. 145, except penalties, accruing to the OGRC Fund. Penalties would be deposited to the credit of the General Revenue Fund. The bill would authorize surcharges on the agency's existing fees to provide that the OGRC Fund cover all of the agency's costs related to the regulation of oil and gas development. The bill would provide a specific methodology for the OGC to determine the amount of such surcharges. In addition, the bill would require that the Comptroller notify the OGC when the OGRC Fund has an unexpended balance of $20.0 million or greater, at which point the agency would cease collecting oil-field cleanup regulatory fees, until the unexpended balance of the OGRC Fund falls to $10.0 million.
The bill would require the OGC to establish specific performance goals for oil and gas regulation through the appropriations process for: the number of orphaned wells plugged with the use of state funds; the number of abandoned sites to be investigated, assessed, or cleaned up; and the number of surface locations to be remediated. The OGC would also be required to submit quarterly reports to the Legislative Budget Board on OGRC Fund revenues and expenditures and progress towards the performance goals. Annually, the OGC would be required to report to the Legislature a review of the effectiveness of money provided in the OGRC Fund at enabling the agency to better protect the environment.
The bill would abolish the Alternative Fuels Research and Education (AFRED) program and the General Revenue-Dedicated AFRED Account No. 101. Funds remaining in the AFRED Account No. 101 would be transferred to the undedicated portion of the General Revenue Fund.
Methodology
This estimate assumes that the cost of changing the name of the agency could be absorbed using existing agency resources. Regarding the creation of the OGRC Fund, this estimate assumes that all balances in the OFCU Account No. 145 as of August 31, 2011 as reported in the Comptroller's Biennial Revenue Estimate (BRE) for 2012-13 of $30.2 million would transfer to the new special fund and effectively be a loss to the General Revenue Fund. Current revenues to the OFCU Account No. 145, estimated at approximately $25 million per year based on the Comptroller's BRE, minus an estimated $2.5 million in penalties, or $22.5 million per year, would begin to accrue to the new OGRC Fund, and is shown in the table above as a revenue gain, while a loss of $25.0 million per fiscal year is shown to the OFCU Account No. 145. The $2.5 million per year in penalty revenues is shown in the table above as a gain to the General Revenue Fund. The bill would require the OGC to cover all costs of oil and gas-related activities. Currently in the 2012-13 biennium, $18.9 million in annual expenditures for oil- and gas-related strategies are being paid out of the General Revenue Fund, along with an estimated $3.9 million in associated employee benefits, for a total of $22.8 million. This amount is shown as a savings to the General Revenue Fund in the table above. Based on the agency's 2012-13 Legislative Appropriations Request, the Railroad Commission's costs in 2010-11 out of the OFCU No. 145 of $27.5 million exceed revenues by $2.5 million, including benefits costs. Upon passage of the bill, $2.5 million in penalties would no longer be available, increasing that deficit to $5.0 million per year. This estimate assumes that the agency would have to set fees sufficient to cover that deficit, along with the $22.8 million amount to replace current General Revenue appropriations. It is therefore estimated that the OGC would have to set surcharges sufficient to raise $27.8 million in new revenue per fiscal year. Because the agency would spend all of the new revenue stream plus amounts covered by revenues to the OFCU Account No. 145 ($22.5 million per fiscal year that would transfer to the new OGRC Fund), the OGRC would have total annual estimated costs of $50.3 million. As shown in the table above, this estimate assumes that revenue to the new OGRC Fund would be equal to total costs out of the Fund. The elimination of the AFRED program would result in balances in the AFRED Account No. 101 being deposited to the General Revenue Fund. Although the Comptroller's Biennial Revenue Estimate for 2012-13 reports a projected balance in the account of $10.0 million on September 1, 2011, the Railroad Commission reports that the majority of these cash balances will, in fact, be spent prior to the end of fiscal year 2011. Therefore, this estimate assumes only $500,000 in AFRED Account No. 101 balances will actually move to the General Revenue Fund. In addition, $2.1 million in annual revenues to the AFRED Account No. 101 will be lost, partially offset by an estimated $1.7 million in annual expenditures, based on 2010-11 expenditure levels. Elimination of the marketing and education program would also result in 10.0 fewer FTEs being needed, as compared to 2010-11. It should be noted that FTEs in House Bill 1, As Introduced, were reduced by 4.8 FTEs to reflect recommended reductions to funding for the AFRED marketing and public education program. Because the bill deletes the requirement of an administrative chief at the OGC, this estimate assumes that the new agency would begin operations without an executive director. The savings associated with the elimination of the executive director is estimated to result in a savings of $163,751 per fiscal year out of the General Revenue Fund and a reduction of 1.0 FTE. This estimate assumes that the agency would continue to require a chief engineer and chief petroleum officer or the equivalent. Thus, no additional savings are estimated as a result of the elimination of the requirement of those positions.
This estimate assumes that the cost of changing the name of the agency could be absorbed using existing agency resources.
Regarding the creation of the OGRC Fund, this estimate assumes that all balances in the OFCU Account No. 145 as of August 31, 2011 as reported in the Comptroller's Biennial Revenue Estimate (BRE) for 2012-13 of $30.2 million would transfer to the new special fund and effectively be a loss to the General Revenue Fund. Current revenues to the OFCU Account No. 145, estimated at approximately $25 million per year based on the Comptroller's BRE, minus an estimated $2.5 million in penalties, or $22.5 million per year, would begin to accrue to the new OGRC Fund, and is shown in the table above as a revenue gain, while a loss of $25.0 million per fiscal year is shown to the OFCU Account No. 145. The $2.5 million per year in penalty revenues is shown in the table above as a gain to the General Revenue Fund.
The bill would require the OGC to cover all costs of oil and gas-related activities. Currently in the 2012-13 biennium, $18.9 million in annual expenditures for oil- and gas-related strategies are being paid out of the General Revenue Fund, along with an estimated $3.9 million in associated employee benefits, for a total of $22.8 million. This amount is shown as a savings to the General Revenue Fund in the table above.
Based on the agency's 2012-13 Legislative Appropriations Request, the Railroad Commission's costs in 2010-11 out of the OFCU No. 145 of $27.5 million exceed revenues by $2.5 million, including benefits costs. Upon passage of the bill, $2.5 million in penalties would no longer be available, increasing that deficit to $5.0 million per year. This estimate assumes that the agency would have to set fees sufficient to cover that deficit, along with the $22.8 million amount to replace current General Revenue appropriations. It is therefore estimated that the OGC would have to set surcharges sufficient to raise $27.8 million in new revenue per fiscal year. Because the agency would spend all of the new revenue stream plus amounts covered by revenues to the OFCU Account No. 145 ($22.5 million per fiscal year that would transfer to the new OGRC Fund), the OGRC would have total annual estimated costs of $50.3 million. As shown in the table above, this estimate assumes that revenue to the new OGRC Fund would be equal to total costs out of the Fund.
The elimination of the AFRED program would result in balances in the AFRED Account No. 101 being deposited to the General Revenue Fund. Although the Comptroller's Biennial Revenue Estimate for 2012-13 reports a projected balance in the account of $10.0 million on September 1, 2011, the Railroad Commission reports that the majority of these cash balances will, in fact, be spent prior to the end of fiscal year 2011. Therefore, this estimate assumes only $500,000 in AFRED Account No. 101 balances will actually move to the General Revenue Fund. In addition, $2.1 million in annual revenues to the AFRED Account No. 101 will be lost, partially offset by an estimated $1.7 million in annual expenditures, based on 2010-11 expenditure levels. Elimination of the marketing and education program would also result in 10.0 fewer FTEs being needed, as compared to 2010-11. It should be noted that FTEs in House Bill 1, As Introduced, were reduced by 4.8 FTEs to reflect recommended reductions to funding for the AFRED marketing and public education program.
Because the bill deletes the requirement of an administrative chief at the OGC, this estimate assumes that the new agency would begin operations without an executive director. The savings associated with the elimination of the executive director is estimated to result in a savings of $163,751 per fiscal year out of the General Revenue Fund and a reduction of 1.0 FTE. This estimate assumes that the agency would continue to require a chief engineer and chief petroleum officer or the equivalent. Thus, no additional savings are estimated as a result of the elimination of the requirement of those positions.
Local Government Impact
No significant fiscal implication to units of local government is anticipated.
Source Agencies: 116 Sunset Advisory Commission, 360 State Office of Administrative Hearings, 455 Railroad Commission, 304 Comptroller of Public Accounts
116 Sunset Advisory Commission, 360 State Office of Administrative Hearings, 455 Railroad Commission, 304 Comptroller of Public Accounts
LBB Staff: JOB, SZ, ZS, TL, SD, KM
JOB, SZ, ZS, TL, SD, KM