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Tax breaks for refineries: Kansas law draws critics

The bill provides a 10 percent income tax credit, accelerated depreciation and property tax relief to energy companies expanding or locating new facilities in Kansas on projects up to $500 million. The credit moves to 5 percent if the project exceeds that cost.

TOPEKA — State Rep. Nile Dillmore couldn’t understand why his colleagues were about to approve a big tax break for three oil refineries at the same time the refineries were reaping record profits.

Before voting on the bill ended earlier this month, the Wichita Democrat tried to encourage more votes against it.

“How do you explain this in the fall to voters when we’re paying $2.95 a gallon at the pump?” Dillmore asked.

His speech didn’t have much effect. The measure passed 105-15 in the House and 36-2 in the Senate.

The bill provides a 10 percent income tax credit, accelerated depreciation and property tax relief to energy companies expanding or locating new facilities in Kansas on projects up to $500 million. The credit moves to 5 percent if the project exceeds that cost.

It is the most sweeping energy incentive offered by any state, according to Rep. Carl Holmes, a Republican from Liberal and chairman of the House Utilities Committee.

Holmes, the bill’s main sponsor, and supporters believe the measure will spur refinery expansion and increase production of all types of energy in Kansas.

It does come with a price, however, for state government. State officials estimate that the tax relief could... more [truncated due to possible copyright]  
TOPEKA — State Rep. Nile Dillmore couldn’t understand why his colleagues were about to approve a big tax break for three oil refineries at the same time the refineries were reaping record profits.

Before voting on the bill ended earlier this month, the Wichita Democrat tried to encourage more votes against it.

“How do you explain this in the fall to voters when we’re paying $2.95 a gallon at the pump?” Dillmore asked.

His speech didn’t have much effect. The measure passed 105-15 in the House and 36-2 in the Senate.

The bill provides a 10 percent income tax credit, accelerated depreciation and property tax relief to energy companies expanding or locating new facilities in Kansas on projects up to $500 million. The credit moves to 5 percent if the project exceeds that cost.

It is the most sweeping energy incentive offered by any state, according to Rep. Carl Holmes, a Republican from Liberal and chairman of the House Utilities Committee.

Holmes, the bill’s main sponsor, and supporters believe the measure will spur refinery expansion and increase production of all types of energy in Kansas.

It does come with a price, however, for state government. State officials estimate that the tax relief could cost the state about $85 million in lost revenue over the next 10 years. Legislators also approved $128 million in other business tax cuts over the next three years, while increasing funding for schools by $466 million over that time.

But major beneficiaries are the state’s three small, independent oil refineries — Coffeyville Resources at Coffeyville, Frontier Oil Corp. at El Dorado and the National Cooperative Refinery Association at McPherson. Kansas City area motorists most likely are filling their tanks with gasoline produced at one of these refineries.

Holmes said he also hopes the legislation will encourage a new refinery project.

Two of the three — Frontier and Coffeyville — already were planning major expansions. Coffeyville, which has headquarters in Kansas City, Kan., announced in January a $92 million expansion at its southeast Kansas facility, and Frontier’s board of directors approved a $140 million expansion in November. State revenue officials said they were aware of a $500 million refinery proposal but could not divulge any details yet.

All three refineries are reporting record incomes, according to company reports.

That prompted some lawmakers, like Dillmore, to wonder why these refineries needed a tax break. Dillmore said oil companies decided years ago that limiting refinery capacity was a way of controlling the price of gasoline during rising demand.

“That’s been their strategy and it’s been very, very profitable,” he said. “I’m not about to reward that with a tax break.”

So, why did the vast majority of lawmakers back the bill?

Rep. Tom Sloan, a Lawrence Republican, said lawmakers were told that supplies of crude oil from some countries, such as Nigeria, Venezuela and Iran, might not be stable sources and U.S. refineries needed to look at Canada for a more stable supply. However, that oil is considered “heavy” crude and many refineries, including the three in Kansas, need to make improvements before their current supply of heavy crude gets even larger.

Tim Rens, Coffeyville Resources chief finance officer, said obtaining the tax credit was vital to the company’s expansion plan.

“The tax credit allows us to reduce the (investment) risk on the front end by reducing the amount of capital outlay, which is critical to any of the financial decisions we make,” he said. “How much capital do I put out front and put at risk?”

Rens said passage of the tax credit will allow the expansion to move forward.

Cindy Gordon, refining manager for the American Petroleum Institute, said refining heavier “sour” crude takes more equipment to make oil-based products. She said the amount of heavy crude being refined nationwide is increasing while the processing of lighter crude oil is being reduced. She said refining companies are adapting to that change.

She also disputed Dillmore’s contention that the industry had failed to expand in an effort to drive up gasoline prices. She said refineries have increased refining capacity by 2 million barrels of oil per day over the last 10 years and plan to add $1.3 million barrels over the next five years.

However, she said those increases still haven’t been able to catch up with the growing worldwide demand for gasoline. She said the price of crude oil has a lot more to do with the price of gasoline at the pump than refining capacity.

About one-third of the oil refined in Kansas comes from wells in the state. Holmes said the state produces about 90,000 barrels of oil a day. The refineries are processing about 300,000 barrels a day.

When Kansas Gov. Kathleen Sebelius signed the bill last week, she noted that projects potentially eligible for incentives also include crude oil and natural gas liquids pipelines, integrated coal or coke gasification nitrogen fertilizer plants, cellulosic alcohol plants, and integrated coal gasification power plants.

“The goal is to create jobs in Kansas by promoting investment in energy projects; projects which will also hopefully increase supplies and reduce prices,” she added.

The refinery expansions will produce a few jobs but not a lot, according to company officials. About 25 new jobs will be created by the Coffeyville expansion but none at the El Dorado facility. Hundreds of workers will be needed, however, during construction of the projects.

Holmes, who serves on numerous national energy boards, said his vision is to make the state a major energy processor, not only of oil but electricity, ethanol, wind energy and coal gasification. He said that would be a huge economic boon to rural areas, where many of the facilities would be located.

He said the public shouldn’t equate the Kansas refineries with “big oil,” which has no intention of building a refinery in Kansas.

“What we have in Kansas is little oil,” he said. “They own no production or filling stations. They’re a middle man.”


Source: http://www.kansascity.com/m...

MAY 30 2006
http://www.windaction.org/posts/2865-tax-breaks-for-refineries-kansas-law-draws-critics
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