January 29, 1974
Page 1172
Mr. KENNEDY. Mr. President, I would appreciate the opportunity to explore some of the details concerning the conference provisions related to the Clean Air Act with the distinguished manager of the bell and with the distinguished Senator from Maine.
These provisions concern the people of my State and I have been extremely disturbed by them. I have received communications from the Governor of the State of Massachusetts and from the mayor of the city of Boston on this subject.
I hope that the clarification of the two distinguished Senators well resolve my problem.
On page 8, the report states:
The Administrator shall, to the extent practicable and consistent with the objectives of the Act, by order, after balancing on a plant basis the environmental effects of the use of coal against the need to fulfill the purposes of this legislation, prohibit, as its primary energy source, the burning of natural gas or petroleum products by any major fuel burning installations.
I interpret this "plant-by-plant balancing" to mean that, first, a prior determination must be made whether a major fuel burning installation is prohibited from burning natural gas or petroleum and converted to coal would endanger the public health. Second, a prior determination must be made that the plant is unable to directly secure those necessary clean fuels for operation and is unable to secure such fuels through the qualitative allocation authority granted under this act and the Emergency Petroleum Allocation Act of 1973 before it can be prohibited from burning natural gas or petroleum.
Is that the understanding of the Senators?
Mr. MUSKIE. That is correct.
Mr. KENNEDY. There is a second question that I would raise with the manager of the bill which refers to section 106. Does the manager of the bill assume that this is designed to provide for the allocation of low sulfur fuels, including coal, to those areas where there would be a health danger if high-sulfur fuels were burned and if such low-sulfur fuels are available. In other words, the
EPA Administrator would have the power to require the allocation of low-sulfur fuels away from an area where burning high-sulfur fuels would have a minimal health effect to an area such as the high density areas in Massachusetts and the Northeast were burning such fuels could have a very damaging effect?
Mr. MUSKIE. The Senator is correct. That is what is intended.
THE ENERGY CRISIS AND PROPERTY TAX REFORM
Mr. President, as debate over the energy crisis has taken shape in recent weeks, it has become more and more clear that crucial to any solution of the problem is information – information which could tell us how bad the crisis really is, but which we are told is simply not available for those in government who are trying to define a national energy policy.
The optimists believe this information would tell us that there is no energy crisis.
The confirmed skeptics believe the information would prove that the crisis is a hoax.
And the pessimists insist that information would show that the crisis is worse than the most dire predictions we have heard.
No doubt, the truth lies somewhere in between. Just where is a factor which will affect the everyday life of this country for a long time to come. In the meantime we continue to operate in a partial vacuum, a situation which is clearly intolerable.
In the midst of all these charges and countercharges over the scope of the energy crisis, a new and interesting idea has been put forth by Ralph Nader and Jonathan Rowe, of the Tax Reform Research Group, which I would like to share with my colleagues.
Nader and Rowe draw a very credible connection between the need for information about energy reserves in this country and the issue of property tax reform. They point out that there is a body of public officials – the local property tax assessors – who should have at their command very detailed information about the size and value of energy reserves such as oil, coal, and natural gas in every State in the Nation. Mineral reserves are very much real property, and assessors are supposed to locate and value them accurately.
The fact of the matter, of course, is that many assessors are not performing this function, for a number of reasons ranging from a simple lack of resources for such complex assessments to collusion with the owners of mineral property. There is no shortage of examples of tax assessors simply accepting the valuation figures given them by the local mineral company instead of conducting their own assessment of the property. The result of such poor assessment practices is triply negative – no information, artificially low property taxes acting as an incentive for mineral companies to keep their reserves in the ground, and local communities cheated out of tax revenues needed to support local services.
By comparison, in those States where property tax assessment practices are sophisticated and up to date, the assessor's records can be the source of highly reliable information on energy reserves which serve the public need in a number of ways, as the following article from the Los Angeles Times demonstrates.
The call for property tax reform has gone unheeded for a very long time. We now have a compelling new argument in its favor.
I ask unanimous consent that the following items on the energy crisis and property tax reform be printed in the RECORD at this point: "Tax Bribes Won't Work," from the January 12 issue of the Nation, "Less Talk, More Action," from the January 20 edition of the Washington Star-News, January 18 letter from Ralph Nader to William E. Simon, Administrator of the Federal Energy Office, "Pull the Oil Tax Lever," from the January 11 edition of the Boston Globe, and Tax Windfall Seen for Oil-Producing Counties," from the Los Angeles Times of January 18, 1974.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
TAX BRIBES DO NOT WORK
"We need the tapes," lamented ecologist Barry Commoner on The Dick Cavett Show the other night. He was saying that to chart our way out of the energy shortage, we need to know what the oil companies have, and where. But the companies aren't telling.
What Mr. Commoner and most others seem to forget is that at this very moment, all over the country, there are public officials with the legal mandate to get precisely this information. They are state and local property tax assessors. Energy resources like coal and oil are as much property as a house and its furniture. Assessors are supposed to locate and value them accurately.
In fact, of course, the mineral owners have co-opted the property tax system, just as they have every other facet of government with which they intersect. In Texas, local assessors contract out the task of appraising oil property to an engineering firm that frequently works for the oil companies themselves. A preliminary survey by Texas law students in 1970 found that much oil was either grossly undervalued or not on the tax rolls at all. Throughout Appalachia, assessors dutifully list on the tax rolls the figures the mineral companies give them. One assessor in Claiborne County, Tennessee, saved himself the trouble by just pasting in the coal company's submission.
When Tennessee began a statewide reappraisal, it contracted the work out to "mass appraisal" firms like Cole-Layer-Trumble [see "The Appraisal Conglomerates: What's Wrong with the Property Tax" by Peter Gruenstein, The Nation, May 7, 1973], whose sister firm, American Appraisal, Inc., does appraisals for many top corporations on the Fortune Five Hundred list. Coal and mineral property, though worth millions, was specifically excluded from the contracts. Had our states been more diligent in their property tax assessing, we would already have the "tapes."
But there is more. The energy shortage should make us rethink our popular notions about the property tax. It was political cant in both camps in 1972 to condemn the levy (Nixon was much more successful in avoiding income than property taxes – could that be a reason?). The way we apply the tax to homeowners and renters of modest means may indeed need revision.
Nevertheless, the property tax can be made to work as one of the best antimonopoly tools around.
The economics are simple. When you tax an asset – any asset – you make it expensive to hoard. The owner is moved to use the asset to generate revenue to pay the taxes. When there is no property tax, or when the assets are grossly under-assessed, just the opposite occurs. Owners hoard their assets until the "price is right." It's cheap to do so. And they buy up as much as they can – monopolize supply – without fear of incurring holding costs.
As we confront energy monopoly, and possibly contrived shortages, perhaps we could take a cue from the Australians. Around the turn of the century they devised a progressive property tax – rates increasing with size of holdings – to help break up large estates and give more people a chance to own land. We could use the same device to control the energy monopoly.
Would we endanger the environment by encouraging resource owners to use instead of hoard? We have learned the hard way that not taxing these owners fails to protect anything – except themselves. Strip mining is rampant; land use is a disaster. Only direct controls can stop them. Tax bribes just don't work.
In short, one way to attack the energy shortage is through a dose of tax law and order; to start enforcing the state laws that say property should be assessed and taxed (strengthening the laws where necessary). We would get information on what resources are where. We would urge more supply onto the market. We would encourage more diverse ownership of energy resources. And hard-pressed state and local governments would get a revenue bonus as well.
JONATHAN A. ROWE,
Director, Property Tax Project,
The Tax Reform Research Group,
Washington, D.C.
LESS TALK, MORE ACTION
(By Ralph Nader)
Now that the people are accurately telling members of Congress that the present energy shortage was orchestrated by the oil industry and condoned by the big businessmen running the government, what will Congress do about it?
Here is a suggested program which senators and representatives could support that would go a long way toward providing justice for consumers, workers and small businessmen being squeezed so mercilessly.
Oil prices must be rolled back. Domestic oil costs have not increased so much and this oil supplies 70 percent of the nation's needs.
To permit energy chief William Simon to use foreign oil prices as a reason to allow domestic oil prices to skyrocket amounts to unarmed robbery of billions of dollars from the public. An export tax would prevent a speculative outflow of oil.
Legislation is needed to require a reluctant federal government to obtain the full facts about the energy situation.
This means obtaining and giving to the people the information about oil and gas reserves in this country (much higher than the industry claims), refinery output, storage levels, distribution policies, average production costs and profit rates of return from wellhead to retail.
Americans should realize that the ex-industry chiefs now fashioning federal energy policy do not even disclose the extent of oil and gas found on federal lands which belong to the people.
To insure that the giant multinational American oil companies do not desert this country and its consumers for higher profiteering abroad, the federal incorporation of these companies is necessary.
These companies now are chartered in states like Delaware which will not and cannot make them accountable. Federal chartering was supported for all national companies by Presidents Roosevelt and Taft early in this century. It is still a good idea.
Strong antitrust action is a high priority to make the oil industry less concentrated and more competitive.
Greater competition will break the monopolistic hold over the industry by the big seven oil companies and encourage smaller producers, refiners and retailers to get petroleum products to market cheaper and more consistently.
The Federal Trade Commission and several state attorneys general have such antimonopoly cases under way. But Simon and his aides are strongly against such action.
A major portion of new oil and gas is situated on federal lands – offshore and onshore. These natural resources belong to the people. As proposed by Sen. Adlai Stevenson, a federal oil and gas company, to explore and produce such resources under strict environmental controls, would be highly beneficial.
Such a company would assure the nation of adequate fuel supplies in emergencies whether they are real or contrived. It would help stimulate competition in the oil industry – as much as TVA did for the electric power industry.
It would also provide independent gas stations and heating oil distributors with supplies when the big oil companies cut them off in order to replace them with their wholly owned outlets.
With a very small expenditure, Congress could provide technical assistance to state and local taxing districts to reassess the value of oil, gas and coal in the ground.
Minerals companies have historically underestimated the amount and value of their minerals in order to keep their property taxes unconscionably low.
The desperate needs of these poor localities have gone unmet because of this gross underpayment of property taxes by the companies that exploit their wealth.
There now are more compelling reasons than ever to reassess these lands and resources from West Virginia to Texas and recover hundreds of millions of dollars of uncollected property tax revenues.
Both directly and indirectly, through the "multiplier effect," this leap of fuel prices will jolt the economy into another inflationary spiral and an increasing inability to compete in world markets.
How many more devaluations can a further weakened dollar absorb under such circumstances in the future?
If such programs as noted above are not adopted, the created energy crisis of 1972-74 will become the trillion dollar economic trauma over the next twenty years.
JANUARY 18, 1974.
Hon. WILLIAM E. SIMON,
Administrator,
Federal Energy Office,
Washington, D.C.
Dear Mr. SIMON: Your proposed fact-finding trip to Texas, Louisiana, and other energy- producing areas will avail little if you rely solely on carefully-packaged industry and even official information once you get there. It will take independent digging on your part to get to the truth regarding the energy management fiasco. To this end I would urge you to explore such sources as the following, among others.
A first, and basic, step would be to establish the source of information which purports to be "official." For example, do the Texas Railroad Commission and the other state bodies concerned with the oil and gas industry conduct their own investigations? Or do they rely on the data and reports of industry and industry backed organizations like the Texas Research League, to which the Texas state government often turns for information? These are hardly the unbiased, disinterested sources your office needs for guidance in this critical period.
Here are some other suggestions:
1. Private Engineering Firms. – Firms such as Pritchard and Abbott Valuation Engineers do extensive appraisal work, for property tax purposes, under contract with Texas taxing jurisdictions. In 1970 Pritchard and Abbott alone had contracts to appraise approximately 60% of the state, including oil and gas property. Such firms may do private appraisal work for oil and gas companies as well. They certainly have information that would be most pertinent to your inquiry.
2. Property Tax Assessors.– You should consult assessors not just in the oil-field areas, but in cities like Houston as well. In such places the oil companies have major installations and storage facilities, which in Texas are subject to the property tax along with the oil inventories they contain. As the price of oil skyrockets, the assessed value of oil reserves, processing facilities and inventories should go up accordingly. Millions of dollars in property tax revenues are at stake in local taxing units such as Houston and Harris County, Texas, in which reside petrochemical plants of firms like Exxon, Arco, and Texaco. The property tax assessors in these areas, if they are doing their jobs, have been keeping close tabs on oil production and inventories within their jurisdictions.
3. The Texas Attorney General.– Texas has strong anti-trust laws, and the Attorney General may as a result have gathered, or be gathering, useful information on the oil industry.
4. Dallas, Houston and New York Banks. – Oil companies, especially the large independents, may well have used their reserves as collateral for loans and for other financing purposes. The banks, along with investment and financial advisors, quite possibly have as yet undisclosed information on what the energy companies have, and where.
5. Dallas Office of the Interior Department's Bureau of Mines.– This office may have done, or be doing, studies on such subjects as the extent of energy reserves and of untapped production potential. The Interior Department does not always see fit to make such studies public, but certainly it could not withhold them from your office.
6. Texas Railroad Commission. – I would urge you to request whatever raw data it has, rather than rely on conclusions drawn from that data. The mission of your office is not the same as the Texas Railroad Commission's. Thus it is fitting for you and your staff to interpret the data according to your own lights.
I would urge you to pay particular attention in your travels to the condition of property tax administration as it relates to energy resources, and to how your office and the federal government generally can help to make this property tax administration more effective. This issue is not peripheral but is of crucial importance for getting information on energy reserves as well as for prompting a greater supply to reach the market. These are the reasons:
1. Energy Resource Information. If the states and localities were assessing mineral resources properly – as their laws and constitutions in many cases already mandate – then the country would not have been caught in a sea of ignorance, notwithstanding the federal government's past derelictions herein. We would already know much more about how much coal, oil, gas and other resources we have.
At present the assessing of these resources is in an abominable condition – even more abominable than is property tax administration in general. In 1970 a pilot study in Rotor County, Texas by Texas University law students found that much oil property was appraised either at a nominal value or not at all. Four hundred thousand dollars worth of Texaco oil leases in that single county were not even on the tax rolls! Throughout Appalachia property tax assessing is so decrepit that coal, oil and gas owners literally tell the assessor how much they have and how much it is worth. The assessor of Knott County, Tennessee told the St. Louis Post Dispatch:
"We have no system for finding what they (the mineral companies) own. Like they may tell us they own 50 acres at a certain place when they actually own 500 acres. Companies just send in what they say they owe, and a check."
And that is one main reason we know so little about our energy reserves.
It is important to note that the energy companies are as tight-lipped as they are in part to foil the property tax assessor. Frank Barnett, chief executive of Union Pacific (which has extensive mineral holdings), was quoted by Peter Barnes, the West Coast editor of the New Republic, as stating, "We don't even care to guess what (our minerals) are worth. If we did, we'd have tax assessors all over the place."
It is time to end the energy information anarchy. And the local assessor's office is one place to start.
2. Increase Energy Supply.– If the property tax were administered properly, it would be a most effective device for getting more energy resources onto the market. Simply stated, the property tax imposes a cost on the owners who do not tap their reserves, who try to hold them off the market waiting for prices to rise. It gives the owners an economic incentive to sell or use instead of hoard.
To date most talk of incentives has been mired in the ever-expanding bog of bonuses and bribes for the oil and energy industry. The public is expected to bear the cost of these tax breaks and other benefits and then cross their fingers and hope. The property tax balances out the bribe approach with an incentive from the other end, one that imposes costs on the companies that do not produce.
In short, the property tax, if well-administered, would be a consumer-oriented market force that could replace battalions of federal bureaucrats. And unlike the plethora of income tax loopholes for the energy industries, it would relieve, rather than increase, the tax burdens of ordinary taxpayers at the local level.
3. Help Federal Treasury. – Areas of the country that are literally groaning in mineral wealth – like Appalachia – have become the objects of expensive federal spending programs. A main reason is that their property tax administration is so weak. Would it not be far better – both for the people in those areas and for federal taxpayers generally – for the areas to meet their own needs by more fully using their own tax resources?
How your office can help is as simple as it would be effective. Express statutory authorization already exists for the federal government to share tax information with state and local officials, under 26 U.S.C.A. § 6103 (b). In addition, your office will no doubt be coordinating and expanding the ongoing information gathering activities of the IRS, the Department of the Interior, the Census Bureau, the Department of Defense, and of other federal agencies as they relate to energy. All that remains is to set up a system for sharing this data with the relevant state property tax authorities.
You could start to lay the groundwork for such a system in your travels.
In addition you could urge the Administration to support such measures as S. 1255, now pending in Congress, which would help and encourage the states to improve the way they administer their property taxes.
Such steps would be inexpensive – considering the potential returns. They would be in line with Congressional and Administration momentum, both for fuller disclosure of energy information and for more power and self-sufficiency for the governments closest to the people. They are in line too with the recommendation of the Advisory Commission on Intergovernmental Relations that federal agencies do more to share their property-tax related information with state and local tax officials. And perhaps most important, they could mean more energy supplies on the market and a better value for consumers and property taxpayers.
Sincerely,
RALPH NADER,
PULL THE OIL TAX LEVER
As long as petroleum supplies were plentiful and prices more or less stable no one thought very much about the way the industry worked. There were no cries for precise data on how much oil was where because no one had any particular need to know. The largest single complaint about the industry centered on its mineral depletion allowance, set at 27½ percent until its reduction to 22 percent in 1970.
But now with shortages or fears of shortages there are increasing demands for audits of oil company prices, profits and supplies if for no other reason than to improve the general level of understanding of an industry that has rather suddenly become an object of fear, if not loathing.
It appears inevitable that Congress will examine tax incentives and disincentives when it reconvenes on Jan. 21 and that it will look in particular for ways to discourage hoarding of petroleum supplies in the interests of pushing up prices.
The hoarding process can be a complicated one. The householder with a 273-gallon tank in his cellar is hardly a potential hoarder if he uses 2000 gallons a heating season. But if he owns three such tanks, it is possible he is standing on the borderline.
A corporation acting alone in its attempt to protect itself against vagaries of supply may only think of itself as protecting its best interests if it adds sharply to storage facilities and stocks up. But it is surely pushing up demand beyond "normal" levels and actually helping to bring about the shortage it fears.
A petroleum company sloshing oil from tank to tank or country to country may be a different matter altogether. There may be no need at all for oil companies to collude with each other to recognize the utility of keeping the flow of oil exactly at demand levels. As prices climb, the supplies on hand become noticeably more valuable.
In the past couple of weeks industry figures on supplies have come under increasing criticism. Without even doubting the veracity of the reporting system, some of the numbers are rather large.
There are, for instance, more than 200 million barrels of distillate-heating and diesel oil. There are another 212 million barrels of gasoline and 238 million barrels of crude, according to figures supplied by the industry's American Petroleum Institute.
It has been suggested by the Tax Reform Research Group of Washington that property taxes be imposed on such inventories at the state and local level. Congress itself may want to look at the issue of whether taxes on inventory might be levied in ways that would discourage hoarding as opposed to taxing normal warehousing transactions designed to cope with fluctuations in demand for various fuels. Such a tax scheme would be complex, having to differentiate between precaution and predatoriness. Since this has implications about the length of holding reserves, the season, and perhaps the actual form of inventory, a great deal of information will be needed to build an appropriate tax structure.
But we have a feeling that a thorough investigation by Congress of the potential of such a tax system would by itself have a beneficial effect on the industry. The mere possibility of a tax system designed to discourage hoarding and withholding of oil from market would tend to make oil company executives reexamine their own practices. Congress should waste no time before inspiring that kind of self-criticism in the oil industry.
TAX WINDFALL SEEN FOR OIL-PRODUCING COUNTIES
(By Lee Dye)
The rising value of crude oil will mean at least a small tax windfall for oil-producing California counties, and it could mean a significant boost in income for school districts and small cities.
The increase will be offset slightly by the decline in the assessed valuation of closed service stations, and possibly by declining real estate values in outlying areas, but the gain will be much greater than the loss, according to Los Angeles County Assessor Philip E. Watson.
Oil reserves beneath the ground are taxed as though they were land, and in the past year the value of oil has increased substantially – in some cases as much as 50%.
J. S. Taylor, chief of the oil division in the assessor's office, estimates that the market value of Los Angeles County's oil reserves has increased by about $300 million over last year.
That means the assessed valuation has increased by about $75 million, and that, in turn, California should bring in around $8 or $9 million in additional tax revenues this year, Taylor estimates.
Since oil fields are not spread evenly over the county, some cities and some school districts will profit more than others.
In Los Angeles County, for instance, major oil fields are concentrated in the Long Beach City school district and the South Bay area. The latter lies mainly in the Los Angeles school district.
School district taxes represent about half of the total county tax rate, so those two districts will share a substantial portion of the anticipated $8-$9 million windfall.
The Los Angeles school district's budget this year is more than $1 billion, so the windfall hardly means the district has struck it rich.
But the district is anticipating a $20 million deficit next year, so the increase may prove significant.
In the months ahead, the county will probably gain in oil-related capital improvements as a result of a rejuvenated oil industry, Taylor believes.
The rising value of crude oil makes marginal operations more appealing, and reservoirs that were not worth developing in the past may be profitable at today's prices.
In addition, the industry can make more money off oil resulting from new wells or increased production than it can off existing wells at past production levels.
New wells and increased production result in what the federal Cost of Living Council classifies as "new oil.
"Old oil," or oil produced from existing wells at no greater than 1972 production levels, is priced according to its quality, but generally sells for around $4 a barrel.
"New oil" can be sold at the free market price, now about $7.80 a barrel.
So companies that produce more oil than they produced last year stand to gain an extra margin of profit from their "new oil."
That fact should stimulate oil production in the county. That means more equipment and facilities will be required to produce and refine the oil and that, in turn, means more tax money for the county.
Watson said industry officials have informed the assessor's office that many service stations in the county are being closed as a result of fuel shortages.
Oil companies have opened some stations in the past because of the "exposure" value rather than the opportunity to sell their product, according to Morton Frishman, director of real property appraisals for the assessor's office.
"Some stations have been opened at bad sites just because they wanted to be there," Frishman said.
Many stations on Wilshire Blvd. fit into that category, according to Watson.
"They build them there for advertising," Watson said. "There's no way you can pump enough gas to pay for the location."
And that, Watson believes, will change. Bad locations that don't carry their own weight will be phased out by the industry, and that, in turn, will mean fewer gas stations.