Oct. 3, 2016 11:25 AM

Congressional candidate Scott Angelle’s term as secretary of the Department of Natural Resources was a free ride for the oil and gas industry, and it cost the state dearly in lost revenue.

Scott Angelle, the leading candidate for Louisiana's 3rd Congressional District, speaks at the Rally for Economic Survival at the Cajundome in July 2010.
Photo by Robin May

When Scott Angelle took the stage at the Rally for Economic Survival in the Cajundome on July 21, 2010, he was a full-throated advocate of the industry he once regulated as Department of Natural Resources secretary. As interim lieutenant governor, Angelle was the front man for the tightly coordinated war the state and the industry waged against the Obama administration’s deep water drilling moratorium imposed in May after the BP Gulf gusher.

What few realized then was that Angelle and Gov. Bobby Jindal had already executed the first step of a two-part plan that effectively gave control of the state’s severance tax collections to the oil and gas industry, costing the state hundreds of millions if not billions in revenue and abetting a budget crisis that led to devastating cuts to higher education and health care for the poor and disabled.

In late 2009, Angelle, who is now a public service commissioner vying to replace U.S. Rep. Charles Boustany in Louisiana's 3rd Congressional District, engineered a shift in severance tax audit authority that favored the interests of the industry over the interests of Louisiana taxpayers. It came under the auspices of the Commission on Streamlining Government. Angelle and DNR, with the administration’s backing, hijacked a recommendation of the commission in mid-process, leaving the details of what actually occurred hidden from most commission members.

On July 1, 2010, a cooperative endeavor agreement moved severance tax audit authority from the state’s chief tax collector, the Louisiana Department of Revenue, to DNR. DNR Secretary Angelle had initiated negotiations on the agreement with Louisiana Department of Revenue Secretary Cynthia Bridges who, like Angelle, was a hold-over appointee from Gov. Kathleen Blanco’s administration.

The idea that DNR should be in the business of auditing severance tax revenue from the oil and gas industry raised red flags even among supporters of the industry.

“Having DNR audit the industry would not pass the smell test,” Roy O. Martin III, Jindal’s appointee as vice chair of the Commission on Streamlining Government, tells The Independent. “And I’m in the oil and gas business.”

The eight-page LDR/DNR agreement, finalized on June 17, 2010, proved to be a disaster for the state but a bonanza for the oil and gas industry.

“Having DNR audit the industry would not pass the smell test. ... And I’m in the oil and gas business.” — Roy O. Martin III, Jindal’s appointee as vice chair of the Commission on Streamlining Government

A November 2013 report by the Louisiana legislative auditor found that during the three years that the agreement was in place (July 2010 to July 2013), the state failed to conduct a single severance tax audit on oil and gas produced from privately held lands in Louisiana. There are approximately 50,000 oil and gas wells in Louisiana, more than 95 percent of them located on privately owned lands.

The other part of the plan was to eliminate the Department of Revenue’s ability to readily identify non-payers of severance tax. That 2013 legislative auditor’s report on severance tax audits noted that the Department of Revenue was forced to shut down its GenTax software in September 2010. The software automatically flagged companies that had paid taxes in a prior year or period but had not paid taxes in the current cycle. In the two fiscal years prior to the GenTax shutdown, the program had identified 1,096 instances of companies not paying severance taxes, resulting in the recovery of $11.7 million.

Karen LeBlanc, director of performance audits for the legislative auditor’s office, says the lack of severance tax audits was stunning, but consistent with findings of other audits of DNR’s operations that reflect on Angelle’s tenure during the Jindal years.


The eight-page LDR/DNR agreement, finalized on June 17, 2010, proved to be a disaster for the state but a bonanza for the oil and gas industry.

“I think what they show is that industry was telling the department what to do instead of the other way around,” LeBlanc says in a telephone interview for this story.

By moving primary severance tax audit authority away from the state’s chief tax collector, the Department of Revenue, and giving it to the department that had as at least part of its mission to promote the development of the oil and gas industry, Jindal — with Angelle’s help — had eliminated oversight of 10 percent of the state’s general fund revenue. Together they allowed the oil and gas industry to operate on an honor system on severance tax payments during a time when state programs were being regularly cut.

Photo by Robin May

A devotee of conservative economist Milton Friedman, who believed his radical free-market principles could only be put in place amid a crisis, Jindal inherited a state government that was decidedly not ready for radical change when he took office in 2008. The massive influx of public and private disaster relief dollars after the great storms of 2005 had, according to Jan Moller of the Louisiana Budget Project, artificially inflated the state’s economic performance. Jindal inherited a $1 billion budget surplus from Blanco.

No startling initiatives emerged in Jindal’s first regular session (2008), but the seeds of crisis were planted when legislators unanimously approved repeal of the income tax portions of The Stelly Plan, a tax swap plan voters approved during Mike Foster’s tenure as governor. The plan reduced sales taxes on some food, drugs and utilities in exchange for higher income taxes on those making more than $80,000 per year. Even though it was not his idea, Jindal signed the repeal. It was a gift that would keep on giving by creating continual budget shortfalls.

By early 2009, it was clear that repeal of that portion of Stelly had cut a gaping hole in state finances. The LBP’s Moller says repealing Stelly has cost the state in excess of $300 million each year. Mid-year revenue shortfalls (and the accompanying budget cuts) would become fixtures for the remainder of Jindal’s tenure.

Friedman recognized that crises could not always be predicted, but advocated that leaders stockpile ideas to be ready to implement when the opportunity arose. Jindal put that advice into practice in the 2009 regular session when the Legislature approved the creation of his Commission on Streamlining Government.

The new commission began its work shortly after the start of the new fiscal year on July 1. Chaired by Republican state Sen. Jack Donahue of Mandeville, the commission was to identify duplications of effort and consolidate them within government where necessary, or privatize them if possible.

Of the 238 recommendations the commission made in its final report on Jan. 4, 2010, one stands out: Recommendation 152 called for DNR’s field audit program for royalties from state-owned lands to be transferred to the Louisiana Department of Revenue, at a minimum savings of 2 percent to the state. What actually happened was completely different.

The recommendation was Treasurer John Kennedy’s idea. He headed one of the commission’s advisory groups. At the Oct. 19, 2009, meeting of Kennedy’s Efficiency and Benchmarking Group, he asked Revenue Secretary Bridges about the possibility of concentrating all severance tax and royalty audit authority in her department. Up until then, DNR’s Office of Mineral Resources was tasked with auditing severance taxes and royalties on state-owned lands, which represent less than 5 percent of all drilling activity in Louisiana. Bridges said her office could handle the additional responsibility.

By the time the full commission met on Nov. 23 to act on Kennedy’s recommendation, DNR was working to reverse that decision. DNR officials told the commission that discussions had been underway to shift severance tax audit authority from the Louisiana Department of Revenue to DNR prior to the creation of the commission. In the video of that meeting, Kennedy says to DNR’s reps, “Y’all keep trying to explain how this will work to me, and every time I think I understand it, I don’t.”

Robert Harper, a DNR administrator who would later succeed Angelle as interim DNR secretary when Angelle became interim lieutenant governor, told commission members that the administration had already included the shift from the Louisiana Department of Revenue to DNR in its budget planning process, something Bridges had not mentioned a month earlier.

Commission Chairman Donahue urged the commissioners to “let the departments work it out between them.” That carried the day. The language in the recommendation remained unchanged, but it was clear from that meeting that DNR was going to get audit authority.

Commission Vice Chairman Roy O. Martin III of Alexandria says it was not clear to him what the outcome would be. Martin points out that the commission’s work effectively ended when it submitted its final report in early 2010. There was no opportunity for follow-up.

On Dec. 1, eight days after the commission approved Recommendation 152, Angelle pounced, opening negotiations with the Department of Revenue’s Bridges to take severance tax audit authority over privately owned land — more than 95 percent of drilling activity in the state — away from the Department of Revenue and give it to DNR’s Office of Mineral Resources.



In an email response to questions submitted by The IND through his congressional campaign’s communications director, Angelle says the severance tax audit shift originated with the Commission on Streamlining Government but that he was “not sure of their timeline.”

Angelle’s recollection does not jibe with the facts. According to the minutes of the commission’s Nov. 23, 2009, meeting, both Monique Edwards of DNR’s Office of Mineral Resources and Robert Harper said severance tax transfer talks had begun between the two departments well before the issue was considered by the panel.

Edwards, according to the minutes and the video of the meeting, told commissioners that talks between the Department of Revenue and DNR on the subject had begun before the commission was formed. Harper’s comments about the shift already being included in budget planning for Fiscal Year 2010-11 also contradicts Angelle’s assertion that the idea originated with the commission.


On Dec. 1, eight days after the commission approved Recommendation 152, Angelle pounced, opening negotiations with the Department of Revenue’s Bridges to take severance tax audit authority over privately owned land — more than 95 percent of drilling activity in the state — away from the Department of Revenue and give it to DNR’s Office of Mineral Resources.

Angelle, in his email response to questions, also tries to downplay his role in the cooperative endeavor agreement between the Department of Revenue and DNR covering the severance tax audit authority transfer.

“The Cooperative Endeavor Agreement merging the audits, and outlining the procedures for the audits, was signed by DNR Secretary Robert Harper, and Revenue Secretary Cynthia Bridges in June of 2010 while I was interim lieutenant governor,” Angelle writes.

The opening paragraph of the cooperative endeavor agreement obtained through a public records request through the Department of Revenue puts Angelle squarely in the thick of it. “LDR is represented herein by its duly appointed Secretary, Cynthia Bridges, and DNR is represented herein by its duly appointed Secretary, Scott Angelle.”

The negotiations began around Dec. 1, 2009, and lasted more than six months. They were finalized with Bridges’ signature on June 17, 2010. Angelle served as DNR secretary until becoming interim lieutenant governor. According to Angelle’s page in Wikipedia, he took office as lieutenant governor on May 17, 2010, one month before the cooperative endeavor agreement was finalized. Angelle, then, was leading DNR in the negotiations with the Department of Revenue until they neared completion. Interim DNR Secretary Harper signed the agreement on June 10.

In Angelle’s response, he says the cooperative endeavor worked as designed.

“During the tenure of the agreement, DNR audited every payor of royalty for severance, and DNR also audited the two companies that Revenue requested DNR audit during the tenure of the agreement,” Angelle writes.

The key word there is “royalty.” OMR’s jurisdiction is over state-owned lands and water bottoms. In its capacity as property and mineral rights owner, the state collects royalty payments on oil and gas produced from leases on its properties. The state also collects severance taxes on oil and gas produced under leases from those properties.

The state collects severance taxes on all oil and gas produced in Louisiana, including wells drilled under agreements on privately owned lands (unless a severance tax exemption applies). The problem for the state with the cooperative endeavor agreement that Angelle negotiated was that it had the effect of shutting down severance tax audits on production from private leases, which constitute more than 95 percent of the wells in production in Louisiana.

The cooperative endeavor agreement is explicit that it applies to auditing of all severance taxes in Louisiana, not just those connected to leases on state-owned lands and water bottoms: “The main purpose of this cooperative endeavor agreement is to make all field audit and examination of taxpayer records, for the purpose of determining and/ or verifying the severance tax due the State of Louisiana, more efficient and less costly by establishing a severance tax field audit framework, outline the scope and responsibility of each State agency with regard to severance tax field audit examination of all oil and gas minerals severed from the soil or water in the State and to designate DNR as an agent and/or representative of LDR for purposes of this project.” (emphasis added)

Angelle notes that the Department of Revenue only referred two severance tax cases to OMR for audit during the three years the agreement was in place. That small number of referrals was, according to the legislative auditor’s 2013 Severance Tax Audit report, linked to the Department of Revenue losing access to its best tool for identifying potential non-payers of severance taxes, the GenTax software. During the two years prior to 2010, the auditor found that GenTax “had identified an average of 1,096 instances of non-filed severance tax returns.” With GenTax shut down, the Department of Revenue was flying blind in identifying companies to be audited.


The problem for the state with the cooperative endeavor agreement that Angelle negotiated was that it had the effect of shutting down severance tax audits on production from private leases, which constitute more than 95 percent of the wells in production in Louisiana.


The Department of Revenue refused to produce any records in response to public records requests regarding the complaints that the legislative auditor cited as the reason GenTax was shut down in 2010, citing taxpayer privacy.

DNR’s Office of Mineral Resources is responsible for leasing mineral rights on state-owned lands and water bottoms, and collecting the royalty payments resulting from oil and gas produced from those leases. The office’s website says it is one of the largest receivers of state revenues due to those roles.

According to reports by the legislative auditor, OMR has been a less than vigilant watchdog of the state’s oil and gas royalty money. Less than a month after it was handed severance tax audit authority in July 2010, the legislative auditor reported, OMR had not conducted a desk audit of volume comparing the amount of oil and gas sold by state leaseholders compared to that reported on royalty reports in a decade. “By not conducting these volume audits,” the auditor’s report said, “DNR could be missing opportunities to identify extra royalty payments that are owed to the state.”

In 2013, the legislative auditor found that total royalty audits by OMR had declined even further since its 2010 report. The report said that Mineral and Energy Board (of which Angelle was a member as DNR secretary) had established a pattern of waiving some penalties and interest payments on leaseholders that had filed late or inaccurate royalty payments.

Greg Albrecht, the chief economist for the Legislative Fiscal Office, says that during the Jindal years, “we were grubbing for every nickel” to make ends meet on state budgets. OMR and the Mineral and Energy Board did not share that sense of budgetary urgency.

OMR also sits at the heart of whistleblower Dan Collins’ successful lawsuit against DNR. It was OMR that nominated state water bottoms on Bayou Postillion for leasing but mislabeled the bayou and the location of the prospective lease. Collins, a landman, contends that the misdirection was intentional, designed to throw off environmentalists who would have recognized that an Atchafalaya Basin Program project was an oil and gas project rather than a water quality project. He also believes the deception threw off others who might have been interested in bidding on the lease.

News accounts on the legislative auditor’s 2013 severance tax report put the potential loss of state revenue in the hundreds of millions of dollars during the three years when the audit shift was in place. One attorney who has examined the reports but would not speak for attribution put the potential losses in the billions of dollars. The methodology used to come up with the figure involved small under-reporting of production across a large number of wells. The legislative auditor’s 2013 severance tax report noted that the Department of Revenue processes about 500,000 severance tax payments each year.

That severance tax report also found evidence of gaming the horizontal drilling exemption system by companies in ways that cost the state still more money.

The 2014 session of the Legislature was the first session after the legislative auditor’s 2013 report on severance tax audits. It was also the session in which Jindal and the industry fought to kill the Southeast Louisiana Flood Protection Authority-East’s lawsuit for coastal damages against more than 90 oil and gas companies.

Former Ruston state Sen. Rick Gallot

Then-Sen. Rick Gallot of Ruston introduced Senate Concurrent Resolution 142, which would have directed the Department of Revenue, DNR and the legislative auditor to develop a means to fully audit oil and gas production in the state for the purpose of ensuring that Louisiana was getting the severance tax and royalty money it was owed. Gallot’s resolution sailed through the Senate but failed to win the majority needed for passage in the House. The Jindal administration and the industry fought furiously against its passage. They did not want legislators or the public to know if the state had been getting paid the severance taxes and royalties it was owed.

In August 2012, when Angelle stepped down as DNR secretary in preparation for his campaign for a seat on the Public Service Commission and amid the unfolding crisis of the salt dome collapse at Bayou Corne, Jindal sang his praises for implementing many of the ideas developed by the Commission on Streamlining Government.


Then-Sen. Rick Gallot of Ruston introduced Senate Concurrent Resolution 142, which would have directed the Department of Revenue, DNR and the legislative auditor to develop a means to fully audit oil and gas production in the state for the purpose of ensuring that Louisiana was getting the severance tax and royalty money it was owed. Gallot’s resolution sailed through the Senate but failed to win the majority needed for passage in the House.

“Scott has worn a lot of different hats for our administration and been a warrior for the people of Louisiana,” Jindal said. “He has helped shepherd critical reforms through the Legislature, including landmark education and pension laws.”

Jindal did not mention the real work Angelle had done on Recommendation 152. The spectacle of the anti-moratorium campaign that Angelle fronted on behalf of the industry he sometimes regulated diverted attention from the real work he had done to undermine Louisiana citizens’ connection to our mineral wealth. In that sense, Angelle was Jindal’s full partner in destabilizing the state’s finances, which paved the way for the governor’s radical and reckless remaking of state government.

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