President’s Message: Texas Budget Battle Reaches House Floor

TCC President & CEO Hector L. Rivero

Last Friday, the members of the Texas House of Representative begin the arduous task of attempting to pass a two-year budget (House Bill 1) with deep spending cuts. The proposed new budget is $23 billion smaller than the current one, partly because the House Appropriations Chairman can’t get support for additional spending. With more than 370 pre-filed amendments to the appropriations bill, lawmakers worked well into the night and on Sunday.

Political pundits think that the 49 House Democrats will not support this budget and that passage will depend on the 101 House Republicans. The conventional wisdom is that many House Republicans are committed to Tea Party constituencies and fear retribution in the next election if they vote for additional spending or new taxes.

Over in the Senate, the Senate Finance Committee seems committed to spend billions more than the House. Senate Finance Committee Chairman Steve Ogden (R-College Station) has appointed a subcommittee to find $5 billion in non-tax revenue through increased fines, new fees and permanently or temporarily removing sales tax exemptions.

In order to get the votes he needs to pass the budget through the Senate, Chairman Ogden indicates that he needs to spend money not included in the House budget.

Ogden says he cannot get support in the Senate for deeper cuts so the Senate is clipping coupons and digging for pennies, hoping to find enough money to cover its bigger budget without inciting the anti-tax furies in the House. 

House Appropriations Committee Chairman Jim Pitts (R-Waxahachie) said that his colleagues in the Senate would have to lower their expectations if they want to pass a budget this session and force a summer special session.

House budget writers passed a budget out of committee that allocates significantly less for public education and Medicaid than what some Senators may find acceptable. But Pitts noted that many House freshmen feel like they were elected to make cuts and that the budget emerging from the House reflects what their constituents want. “The Senate’s going to have to come way down,” said Pitts.

He said that some of his colleagues in the House are uncomfortable even with using payment deferrals, a budget balancing tool that lawmakers have historically used in the past.

Complicating the debate, a report from the Legislative Budget Board (LBB) set off a small firestorm last week when it projected that the proposed House budget would leave the state with 335,000 fewer jobs in the public and private sectors than if state expenditures stayed the same over the next two years.

Dale Craymer, President of the Texas Taxpayers and Research Association (TTARA), sent a letter to lawmakers that was highly critical of the report, saying, “it compares the impacts of the proposed level of spending to that of the current budget in place. That is not a valid comparison.”

Craymer – who was the state’s chief revenue estimator under then-Comptroller Bob Bullock and budget director for Governors Ann Richards and George W. Bush – said, “in our current economic times, the state does not have the revenue to continue to spend at current levels.”

If you haven’t noticed in your community, local school districts are bracing for the worst – cutting expenses, pushing employees into early retirement and laying off administrators and teachers – even threatening to close underperforming schools.

The size of the budget depends on how much money is available. Budget leaders in both chambers have agreed to use $3.2 billion from the Rainy Day Fund to cover the shortfall in the current biennium, but do not have support to use the remaining $6 billion left in the Rainy Day Fund toward the budget for the next two years.    Gov. Rick Perry has said he wants to leave that for an even rainier day, fiscally speaking, than this one.

Some are hopeful that, with the economy continuing to recover, Comptroller Susan Combs may be able to forecast a higher revenue estimate in the coming weeks, making more budget dollars available to the Legislature.

State leaders continue to insist that tax increases and new taxes are off the table. The Texas Chemical Council will continue to monitor the process closely and defend against any tax proposals that unfairly impact our industry’s investment and the thousands of industry related jobs in our communities.

TCEQ Sunset Hearing Tentatively Scheduled for This Week

The bill to reauthorize the Texas Commission on Environmental Quality (TCEQ) is scheduled for a hearing on April 6th in the House Committee on Environmental Regulation.

The “TCEQ Sunset Bill” – House Bill 2694 (click here for the bill text) by State Representative Wayne Smith (R-Baytown) – would continue the functions of the agency for 12 years. TCC is working closely with the members of the House and Senate towards passage of this legislation.

Success at the TCC/ACIT Chemicals Day 2011 at Texas Capitol

More than 150 chemical industry executives, site leaders, and environmental, health and safety personnel attended the TCC/ACIT Chemicals Day at the Texas Capitol on March 9th.

Chemicals Day 2011 gave industry representatives the opportunity to meet with elected officials to discuss the importance of the chemical industry in Texas, and promote how our industry enhances the daily lives of Texans.

Attendees were briefed on key industry issues, and heard from Senate Natural Resources Committee Chairman Troy Fraser (R-Horseshoe Bay) and House Environmental Regulation Committee Chairman Wayne Smith (R-Baytown). The group also heard from Governor Rick Perry’s Legislative Director Ken Armbrister and House Speaker Joe Straus’ General Counsel Jesse Ancira.

We thank all our Chemicals Day 2011 sponsors including:
Platinum Sponsors – Dow Chemical; LyondellBasell
Gold Sponsors – BP; Shell Chemical; Turner Industries Group, LLC
Silver Sponsors – Air Liquide; AMCHEM, Inc.; BASF; Bayer MaterialScience; Providence Critical Infrastructure Protection; The Infinity Group; The Lubrizol Corporation; TPC Group
Corporate – Bay Area Economic Partnership
Breakfast Sponsors – East Harris County Manufacturers Association and Economic Alliance -Houston Port Region

A special thanks to The Mundy Companies who hosted a legislative dinner for all legislators and industry representatives. “Mundy has hosted this event in conjunction with Chemicals Day for the last three sessions,” stated TCC President & CEO Hector Rivero. “We thank Mundy for their unsurpassed support for TCC and ACIT.” The legislative dinner was attended by more than 70 state legislators and provided Chemicals Day attendees with an excellent venue to network and meet with their state elected officials.

Finally, thanks to our member companies who donated consumer products containing materials made at their Texas facilities.  These products were distributed to every legislative office by members of the TCC Outreach Committee:
Product Sponsors - INEOS, Eastman, Texas Brine, TOTAL, Lubrizol, Invista, LyondellBasell, BASF Corporation, Dow Chemical, DuPont, Kaneka, Alcoa, TPC Group, ExxonMobil, OxyChem, Chevron Phillips Chemical, Huntsman Corporation, and Formosa Plastics.

Federal Lawmakers Urge EPA to Settle Permitting Fight with Texas

A House subcommittee urged the Environmental Protection Agency (EPA) on March 24th to resolve its differences with Texas over the way the state regulates industrial air emissions.

The bipartisan push came at the end of a hearing in Houston convened by a House Energy and Commerce subcommittee to review the impact of the Environmental Protection Agency's recent actions in Texas.

The EPA and Texas are at odds over several issues, but much of the talk focused on the federal agency’s rejection of the state’s use of flexible permits for refineries, chemical and plastics makers and other facilities.

Rep. Gene Green, a Democrat whose district includes the Houston Ship Channel, said industry needs regulatory certainty to grow, not lawsuits. “They just can’t have fighting between the EPA and the state,” he said.

Rep. Joe Barton, R-Arlington

“These issues should be resolved,” agreed Rep. Joe Barton, R-Arlington. “I can't stress enough that we have an environmental program at the state and federal level that people can believe in.”

The permits in question require refineries, chemical plants and other facilities to meet an overall emissions cap but allows them to choose how to do so.

The single overall cap, the EPA argues, makes the Texas permits unenforceable and allows plants to emit more than similar facilities in other states. But Texas officials maintain that the current state permitting program which was approved 16 years ago has worked for Texas and significantly reduced pollution without violating federal law.

Texas has filed suit to block the EPA’s disapproval of flex permits, asserting that there is no legal or technical justification for the agency's action, which affected about 130 facilities statewide.

All but a few companies have informed the EPA that they will bring the state-issued flexible permits into compliance with federal law within the next year.

Dr. Bryan Shaw, chairman of the Texas Commission on Environmental Quality, told the subcommittee he is concerned that the change in permits may hamper the state’s efforts to improve air quality. He noted that Texas reduced emissions despite gaining population during the 16-year history of flexible permits.

Shaw also told the panel there is “not a lot of fertile ground for negotiation” with the EPA over the permits.

Gina McCarthy, the EPA’s air chief, said the agency wants a resolution with the state, but the differences are philosophical — not just over wording in the permits.

McCarthy said, “the state’s emissions limits are based on generous, industry-supplied estimates that allow a plant to make major modifications without public scrutiny. The EPA requires the use of actual emissions in writing permits,” she said.

“Texas rules have allowed some industrial sources to say ‘trust us’ to protect public health without giving EPA, Texas or citizens the chance to verify,” she said. “No other state allows this.”

McCarthy also told the subcommittee that EPA doesn’t believe the state’s improved air quality can be attributed to flexible permits.

U.S. House Committee Votes to Block EPA’s GHG Regulation

The House Energy and Commerce Committee voted 34-19 on March 15th to approve legislation that would block the Environmental Protection Agency from regulating greenhouse gas emissions and repeal new clean air mandates for refineries.

Although the issue looms large in Texas – where Attorney General Greg Abbott has challenged EPA’s new greenhouse gas permitting requirements – it divided lawmakers from the Lone Star State on Capitol Hill.

On one side: Texas Republican Reps. Joe Barton, Michael Burgess and Pete Olson, who insist the EPA’s regulations on carbon dioxide and other heat-trapping gases amount to a costly backdoor energy tax.

On the other: Texas Democrats Charlie Gonzalez and Gene Green, who generally oppose the EPA’s plans – but said the bill was designed to score political points and is unlikely to ever be signed into law.

“This is a message piece,” Green said. “There is some way we can do this reasonably, but the new majority is set on doing this.”

Burgess called that viewpoint “defeatist.” “Our chances of getting something passed would be considerably greater if there were more of a bipartisan vote on this,” he said.

The House is set to consider the EPA-blocking bill before its Easter recess in April. Senate leaders were preparing to vote on a similar proposal later this week.

The manufacturing industry launched a series of television and radio advertisements this week blasting EPA regulations aimed in part at a handful of senators facing tough reelection bids.

Even if both congressional chambers passed the legislation and sent it to the White House, President Barack Obama would likely veto it.

The legislation, sponsored by committee chairman Fred Upton (R-Michigan) would block the EPA from regulating carbon dioxide and six other greenhouse gas emissions. It would repeal a host of related agency mandates, including a just-implemented requirement that companies secure greenhouse gas permits before building or modifying power plants and refineries.

The measure also would undo the EPA’s 2009 determination that greenhouse gas emissions threaten the public health and welfare, the legal underpinning for the agency’s regulation of the substances under the Clean Air Act.

Green said he was talking with other lawmakers about drafting separate legislation that would impose at least a three-year pause on the EPA's greenhouse gas regulation, giving the agency time to study what available technology can even be used to control carbon dioxide emissions while not permanently stripping its power.

Right now, “we don't know how to control carbon except lowering our use of energy,” Green said. “We’re looking at an alternative to what the Republicans are trying to do” that can pass and give certainty to business.

Republicans turned back 10 Democratic amendments, including three focusing on the science surrounding climate change that aimed to put the GOP members in a tough spot politically.

Republicans prevailed on party-line votes in rejecting proposals that would affirm conclusions that global warming is real, jeopardizes the public and, at a minimum, is exacerbated by human behavior.

“Pretending problems aren’t real doesn’t make them go away,” the energy panel’s top Democrat, Rep. Henry Waxman of California, said. Waxman said the votes illustrated “the official science-denying position of the Republican Party.”

But Barton (R-Ennis) said the EPA never did a “real scientific analysis” of global warming. “We are opposed to pseudo-science,” he said. “We should not put the U.S. economy in a straitjacket because of a theory that hasn't been proven.”

Three Democrats broke party lines and joined Republicans in voting for the bill: Rep. Mike Ross of Arkansas, Jim Matheson of Utah and John Barrow of Georgia.

Gonzalez missed the final vote on the legislation, but a spokesman said he would have joined Green in voting against the measure. Both Green and Gonzalez face heavy political pressure on any legislation touching the hot-button topic of climate change – including the Upton bill on Tuesday.

Both lawmakers represent congressional districts with heavy refining interests. Green’s territory includes refining operations and petrochemical plants along the Houston Ship Channel. The headquarters of refiners Tesoro Corp. and Valero Energy Corp., are in San Antonio, which Gonzalez represents.

Natural Gas Boom Helps Petrochemical Industry

The Gulf Coast’s petrochemical industry is benefiting from the recent boom in U.S. natural gas supplies, which has lowered feedstock costs and improved odds that the region will get new plants and jobs in coming years, an economist for a leading industry group said.

“Capital investment is now being reconsidered,” said Kevin Swift, chief economist with the American Chemistry Council. “Ten years ago, it was largely being written off.”
 
In recent years, the U.S. — and the Gulf Coast in particular - had been forecast to lose ground to the Middle East, where new chemical plants were being built near huge natural gas fields and major consuming markets like China.

The economic downturn dealt another blow, killing demand for products derived from chemicals and tipping several companies into bankruptcy.

But the discovery of shale rock formations, rich with natural gas and natural gas liquids, has changed the picture dramatically. Ethane, one of those liquids, is a primary feedstock for chemical makers on the Gulf Coast. It is used to make ethylene, a raw material for plastics.

Gas production from shale formations could double by 2035, the Energy Department estimates.

If U.S. output of ethane also rose 25 percent, it could spur $16 billion in new investment on U.S. chemical plants and create 17,000 jobs, Swift said, and Texas could be a big winner.

Today, the chemical industry employs 70,000 people in the state, nearly a tenth of the industry’s total U.S. workforce, according to Labor Department figures. About half of those jobs are in the Houston region, spread across more than 430 chemical plants and refineries.

“Houston is the Jerusalem, the Mecca of the chemical industry,” Swift said in a luncheon presentation to the Houston Economics Club at the Houston branch of the Federal Reserve Bank of Dallas.

But nearly 90,000 industry jobs have been lost in the U.S. since 2005 – including about 3,000 in Texas – as the economic downturn forced plants to close and new competition in the Middle East took market share.

Chemical makers including Bayer, Chevron Phillips and Eastman Chemical Co. have said recently they may put mothballed U.S. production units back into service because of low ethane costs. Nova Chemicals Corp. has even proposed building a new ethane-cracking unit in West Virginia.

Swift said such announcements herald a “new wave of petrochemical investment.”

Stephen Pryor, president of ExxonMobil Chemical Co., predicted at an energy conference in Houston earlier this month that investment will be incremental and will depend on the rate and pattern of North American ethane production and other factors.

Other industry leaders have said that before investing in new U.S. chemical capacity, they’ll want resolution of regulatory uncertainty around U.S. shale gas development.

The Environmental Protection Agency is in the early stages of studying hydraulic fracturing, the leading technique for unlocking natural gas from shale fields nationwide.

The process involves injecting mixtures of water, sand and chemicals deep underground and under high pressure to crack open the dense rock formations and release natural gas.

Texas Unemployment Rate Down to 8.2 Percent

The Texas Workforce Commission has reported that the state added 22,700 non-farm jobs last month with the seasonally adjusted unemployment rate down slightly to 8.2 percent.

The professional and business services sector set the pace last month on job gains, according to TWC numbers, adding 14,500 positions. The trade, transportation and utilities sector added 7,500 jobs while mining and logging sector jobs increased by 5,400.

The areas of biggest job losses were in construction (4,300 jobs lost) and financial activities sector jobs (2,200 jobs lost).

“Hiring in the professional and business services industry expanded in February, as employers added 14,500 jobs – that’s a total gain of 51,200 positions from a year ago,” said TWC Chairman Tom Pauken. “Businesses in this industry include temporary help services and employment placement agencies, as well as law offices and tax preparation services.”

Texas has added 254,200 jobs over the past year. Despite those job creation numbers, the state’s unemployment rate has remained in the 8.1 to 8.3 percent range for the entire year. The state unemployment rate, however, remains below the 8.9 percent national unemployment rate.

The Comptroller’s Office estimates that the state lost 430,000 jobs during the recession and now believes that those job losses won’t be offset until the second half of fiscal year 2012.

NPRA: U.S. Energy Policy Should Not Count Out Petrochemicals

The U.S. needs an energy policy that recognizes the importance of the jobs and the products provided by petrochemical and refining industry, said National Petrochemical & Refiners Association Pres. Charles Drevna at a March 20th news conference that kicked off NPRA’s annual meeting in San Antonio.

Drevna said the world will rely on fossil fuels for the rest of this century and probably well beyond, and that U.S. policymakers must realize that the refining and petrochemical business is part of the solution to meeting the country’s energy needs rather than part of the problem.

Also, in light of the country’s current high unemployment rate, the U.S. needs the jobs that refineries and petrochemical plants provide, he said.

There is room for all sources of energy, including new “green” sources, Drevna said, adding that after the research and development phases of these new sources conclude, they should be required to compete in the marketplace without government subsidies.

NPRA supports legislation introduced by Sen. James M. Inhofe’s (R-Oklahoma) and House Energy and Commerce Committee Chairman Fred Upton (R-Michigan) that would stop the EPA from using the Clean Air Act to regulate greenhouse gas emissions.

Considering the major world events grabbing headlines currently, including the U.S. budget deficit debate and unrest in the Middle East and North Africa, Drevna doesn’t expect a U.S. energy policy in the next 2 years, though, and opposes the notion of energy independence.

The NPRA president cited Hurricanes Katrina and Rita, which in 2005 led to a surge of oil product imports to meet energy needs in certain parts of the country that refiners on the Gulf Coast could not meet.

Rather, Drevna favors energy security to ensure that energy needs are met, and he said the refining and petrochemical industry needs to do a better job of communicating this message.

Addressing recent events that have cut crude exports from Libya, Drevna said he opposes a withdrawal from the Strategic Petroleum Reserve at this point. The SPR is not designed as a price-control mechanism and only should be used in a shortage of supply, which refiners are not seeing now, he said.

ACIT Houston Ship Channel Breakfast Hosts Houston Mayor

Mayor Annise Parker

The ACIT Houston Ship Channel Region, and the East Harris County Manufacturers Association (EHCMA) hosted a Political Breakfast on March 3rd featuring invited guest speaker Houston Mayor Annise Parker.  The sell-out event was held at Brady’s Landing in Houston with nearly 200 attendees.

Other organizations who participated include ABC Houston Chapter, Bay Area Houston Economic Partnership, Economic Alliance Houston Port Region, Baytown West Chambers County Economic Development Foundation and The Houston Business Round Table. 

Event sponsors included:

Over 100 Attend ACIT Golden Triangle Region’s Crawfish Boil

The ACIT Golden Triangle Region’s Crawfish Boil was held on March 24th at the Compro Event Center in Beaumont and brought over 103 attendees. 

Upcoming TCC & ACIT Events

April 6th – ACIT Mid Coast Economic Outlook Breakfast. Click here for details.

April 20th – ACIT South Texas Political Forum Luncheon. Click here for details.

April 21st – ACIT Houston Ship Channel Clay Shoot. Click here for details.

May 12th – ACIT Houston Ship Channel Crawfish Boil. Details to follow.

May 13th – ACIT Golden Triangle Golf Tournament. Details to follow.

June 6 -9, 2011 – TCC/ACIT EHS Seminar at Moody Gardens in Galveston.
 
All 2011 TCC and ACIT events are now listed on the website; click here.

Upcoming Member Events

For a listing of TCC & ACIT Member promotions and events, please click http://www.acit.org/categories/Events/Upcoming-Member-Events/.
(These events are not organized or endorsed by TCC or ACIT.)