Delaware Tax Haven: The Other Shale Gas Industry Loophole
By Steve Horn
Most people think of downtown Houston, Texas as ground zero for the oil and gas industry. Houston, after all, serves as home base for corporate headquarters of oil and gas giants, including the likes of BP America, ConocoPhillips and Shell Oil Company, to name a few.
Comparably speaking, few would think of Wilmington, Delaware in a similar vein. But perhaps they should, according to a recent New York Times investigative report by Leslie Wayne.
Wayne's story revealed that Delaware serves as what journalist Nicholas Shaxson calls a "Treasure Island" in his recent book by that namesake. It's an "onshore tax haven" and an even more robust one than the Caymen Islands, to boot.
The Delaware "Island" is heavily utilized by oil and gas majors, all of which are part of the "two-thirds of the Fortune 500" corporations parking their money in The First State.
“Delaware is an outlier in the way it does business,” David Brunori, a professor at George Washington Law School told The New York Times. “What it offers is an opportunity to game the system and do it legally.”
The numbers are astounding. "Over the last decade, the Delaware loophole has enabled corporations to reduce the taxes paid to other states by an estimated $9.5 billion," Wayne wrote.
"More than 900,000 business entities choose Delaware as a location to incorporate," explained another report. "The number…exceeds Delaware's human population of 850,000."
Marcellus Shale Frackers Utilize the "Delaware Loophole"
The New York Times story also demonstrated that the shale gas industry has become an expert at utilizing the "Delaware Loophole" tax haven to dodge taxes, just as it is a champion at dodging chemical fluid disclosure and other accountability to the Safe Drinking Water Act, thanks to the Halliburton Loophole. The latter is explained in great detail in DeSmogBlog's "Fracking the Future."
Utilization of the "Delaware Loophole" is far from the story of a few bad apples gone astray for the industry. As Wayne explains, the use of this "onshore tax haven" is the norm.
More than 400 corporate subsidiaries linked to Marcellus Shale gas exploration have been registered in Delaware, most within the last four years, according to the Pennsylvania Budget and Policy Center, a nonprofit group based in Harrisburg that studies the state’s tax policy.
In 2004, the center estimated that the Delaware loophole had cost the state $400 million annually in lost revenue—and that was before the energy boom.
More than two-thirds of the companies in the Marcellus Shale Coalition, an industry alliance based in Pittsburgh, are registered to a single address: 1209 North Orange Street, according to the center.
These fiscal figures, as Wayne points out, predate the ongoing shale gas "Gold Rush" in the Marcellus. Service Employees International Union of Pennsylvania has calculated $550 million/year in lost tax revenue in the state from the shale gas industry due to the loophole.
The Pennsylvania House of Representatives set out to tackle the Delaware Loophole quagmire in the spring of 2012, but merely offered half-measure legislation that would have allowed corporations—including the frackers—to continue gaming the system. Coryn S. Wolk of the activist group Protecting Our Waters summarized the bill in a recent post:
In March, 2012, the Pennsylvania House of Representatives created a bipartisan bill, HB 2150, aimed at closing corporate tax loopholes. However, as the Pennsylvania Budget and Policy Center noted in their detailed opposition to the bill, the bill would have cost Pennsylvania more money by soothing corporations with major tax cuts and leaving the loopholes accessible to any clever accountant.
Tax cheating in Delaware goes far above and beyond the Marcellus Shale. All of the oil and gas majors, with operations around the world, take full advantage of all Delaware has to offer.
If things in this sphere were only limited to shale gas companies operating in the Marcellus Shale, the battle would seem big. Big, but not insurmountable.
Yet, as the Norway-based NGO, Publish What You Pay points out in a recent report titled, Piping profits: the secret world of oil, gas and mining giants, the game is more rigged than most would like to admit.
How rigged? Overwhelmingly so.
The report shows that ConocoPhillips, Chevron and ExxonMobil have 439 out of their combined 783 subsidiaries located in well-known tax havens around the world, including in Delaware. All three companies maintain fracking operations, as well, meaning they benefit from both the Halliburton and Delaware Loopholes.
Adding BP and Shell into the mix, Publish What You Pay revealed that the five majors have 749 tax haven subsidiaries located in Delaware out of a grand total of 3,632 global tax haven subsidiaries. This amounts to 20.6-percent of them, to be precise.
These figures moved Publish What You Pay's Executive Director, Mona Thowsen, to conclude, “What this study shows is that the extractive industry ownership structure and its huge use of secrecy jurisdictions may work against the urgent need to reduce corruption and aggressive tax avoidance in this sector."
Tax Justice Network: $21-$32 Trillion Parked in Offshore Accounts
A recent lengthy report titled The Price of Offshore Revisited by the Tax Justice Network reveals just how big of a problem tax havens are on a global scale, reaching far beyond Delaware's boundaries.
As Democracy Now! explained,
[The] new report…reveals how wealthy individuals and their families have between $21 and $32 trillion of hidden financial assets around the world in what are known as offshore accounts or tax havens. The conservative estimate of $21 trillion—conservative estimate—is as much money as the entire annual economic output of the United States and Japan combined. The actual sums could be higher because the study only deals with financial wealth deposited in bank and investment accounts, and not other assets such as property and yachts.
The inquiry…is being touted as the most comprehensive report ever on the "offshore economy."
The Democracy Now! interview below is worth watching on the whole, as oil and gas industry "offshoring" is but the tip of the iceberg.
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By Eric Tate and Christopher Emrich
Disasters stemming from hazards like floods, wildfires, and disease often garner attention because of their extreme conditions and heavy societal impacts. Although the nature of the damage may vary, major disasters are alike in that socially vulnerable populations often experience the worst repercussions. For example, we saw this following Hurricanes Katrina and Harvey, each of which generated widespread physical damage and outsized impacts to low-income and minority survivors.
Mapping Social Vulnerability<p>Figure 1a is a typical map of social vulnerability across the United States at the census tract level based on the Social Vulnerability Index (SoVI) algorithm of <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1540-6237.8402002" target="_blank"><em>Cutter et al.</em></a> . Spatial representation of the index depicts high social vulnerability regionally in the Southwest, upper Great Plains, eastern Oklahoma, southern Texas, and southern Appalachia, among other places. With such a map, users can focus attention on select places and identify population characteristics associated with elevated vulnerabilities.</p>
Fig. 1. (a) Social vulnerability across the United States at the census tract scale is mapped here following the Social Vulnerability Index (SoVI). Red and pink hues indicate high social vulnerability. (b) This bivariate map depicts social vulnerability (blue hues) and annualized per capita hazard losses (pink hues) for U.S. counties from 2010 to 2019.<p>Many current indexes in the United States and abroad are direct or conceptual offshoots of SoVI, which has been widely replicated [e.g., <a href="https://link.springer.com/article/10.1007/s13753-016-0090-9" target="_blank"><em>de Loyola Hummell et al.</em></a>, 2016]. The U.S. Centers for Disease Control and Prevention (CDC) <a href="https://www.atsdr.cdc.gov/placeandhealth/svi/index.html" target="_blank">has also developed</a> a commonly used social vulnerability index intended to help local officials identify communities that may need support before, during, and after disasters.</p><p>The first modeling and mapping efforts, starting around the mid-2000s, largely focused on describing spatial distributions of social vulnerability at varying geographic scales. Over time, research in this area came to emphasize spatial comparisons between social vulnerability and physical hazards [<a href="https://doi.org/10.1007/s11069-009-9376-1" target="_blank"><em>Wood et al.</em></a>, 2010], modeling population dynamics following disasters [<a href="https://link.springer.com/article/10.1007%2Fs11111-008-0072-y" target="_blank" rel="noopener noreferrer"><em>Myers et al.</em></a>, 2008], and quantifying the robustness of social vulnerability measures [<a href="https://doi.org/10.1007/s11069-012-0152-2" target="_blank" rel="noopener noreferrer"><em>Tate</em></a>, 2012].</p><p>More recent work is beginning to dissolve barriers between social vulnerability and environmental justice scholarship [<a href="https://doi.org/10.2105/AJPH.2018.304846" target="_blank" rel="noopener noreferrer"><em>Chakraborty et al.</em></a>, 2019], which has traditionally focused on root causes of exposure to pollution hazards. Another prominent new research direction involves deeper interrogation of social vulnerability drivers in specific hazard contexts and disaster phases (e.g., before, during, after). Such work has revealed that interactions among drivers are important, but existing case studies are ill suited to guiding development of new indicators [<a href="https://doi.org/10.1016/j.ijdrr.2015.09.013" target="_blank" rel="noopener noreferrer"><em>Rufat et al.</em></a>, 2015].</p><p>Advances in geostatistical analyses have enabled researchers to characterize interactions more accurately among social vulnerability and hazard outcomes. Figure 1b depicts social vulnerability and annualized per capita hazard losses for U.S. counties from 2010 to 2019, facilitating visualization of the spatial coincidence of pre‑event susceptibilities and hazard impacts. Places ranked high in both dimensions may be priority locations for management interventions. Further, such analysis provides invaluable comparisons between places as well as information summarizing state and regional conditions.</p><p>In Figure 2, we take the analysis of interactions a step further, dividing counties into two categories: those experiencing annual per capita losses above or below the national average from 2010 to 2019. The differences among individual race, ethnicity, and poverty variables between the two county groups are small. But expressing race together with poverty (poverty attenuated by race) produces quite different results: Counties with high hazard losses have higher percentages of both impoverished Black populations and impoverished white populations than counties with low hazard losses. These county differences are most pronounced for impoverished Black populations.</p>
Fig. 2. Differences in population percentages between counties experiencing annual per capita losses above or below the national average from 2010 to 2019 for individual and compound social vulnerability indicators (race and poverty).<p>Our current work focuses on social vulnerability to floods using geostatistical modeling and mapping. The research directions are twofold. The first is to develop hazard-specific indicators of social vulnerability to aid in mitigation planning [<a href="https://doi.org/10.1007/s11069-020-04470-2" target="_blank" rel="noopener noreferrer"><em>Tate et al.</em></a>, 2021]. Because natural hazards differ in their innate characteristics (e.g., rate of onset, spatial extent), causal processes (e.g., urbanization, meteorology), and programmatic responses by government, manifestations of social vulnerability vary across hazards.</p><p>The second is to assess the degree to which socially vulnerable populations benefit from the leading disaster recovery programs [<a href="https://doi.org/10.1080/17477891.2019.1675578" target="_blank" rel="noopener noreferrer"><em>Emrich et al.</em></a>, 2020], such as the Federal Emergency Management Agency's (FEMA) <a href="https://www.fema.gov/individual-disaster-assistance" target="_blank" rel="noopener noreferrer">Individual Assistance</a> program and the U.S. Department of Housing and Urban Development's Community Development Block Grant (CDBG) <a href="https://www.hudexchange.info/programs/cdbg-dr/" target="_blank" rel="noopener noreferrer">Disaster Recovery</a> program. Both research directions posit social vulnerability indicators as potential measures of social equity.</p>
Social Vulnerability as a Measure of Equity<p>Given their focus on social marginalization and economic barriers, social vulnerability indicators are attracting growing scientific interest as measures of inequity resulting from disasters. Indeed, social vulnerability and inequity are related concepts. Social vulnerability research explores the differential susceptibilities and capacities of disaster-affected populations, whereas social equity analyses tend to focus on population disparities in the allocation of resources for hazard mitigation and disaster recovery. Interventions with an equity focus emphasize full and equal resource access for all people with unmet disaster needs.</p><p>Yet newer studies of inequity in disaster programs have documented troubling disparities in income, race, and home ownership among those who <a href="https://eos.org/articles/equity-concerns-raised-in-federal-flood-property-buyouts" target="_blank">participate in flood buyout programs</a>, are <a href="https://www.eenews.net/stories/1063477407" target="_blank" rel="noopener noreferrer">eligible for postdisaster loans</a>, receive short-term recovery assistance [<a href="https://doi.org/10.1016/j.ijdrr.2020.102010" target="_blank" rel="noopener noreferrer"><em>Drakes et al.</em></a>, 2021], and have <a href="https://www.texastribune.org/2020/08/25/texas-natural-disasters--mental-health/" target="_blank" rel="noopener noreferrer">access to mental health services</a>. For example, a recent analysis of federal flood buyouts found racial privilege to be infused at multiple program stages and geographic scales, resulting in resources that disproportionately benefit whiter and more urban counties and neighborhoods [<a href="https://doi.org/10.1177/2378023120905439" target="_blank" rel="noopener noreferrer"><em>Elliott et al.</em></a>, 2020].</p><p>Investments in disaster risk reduction are largely prioritized on the basis of hazard modeling, historical impacts, and economic risk. Social equity, meanwhile, has been far less integrated into the considerations of public agencies for hazard and disaster management. But this situation may be beginning to shift. Following the adage of "what gets measured gets managed," social equity metrics are increasingly being inserted into disaster management.</p><p>At the national level, FEMA has <a href="https://www.fema.gov/news-release/20200220/fema-releases-affordability-framework-national-flood-insurance-program" target="_blank">developed options</a> to increase the affordability of flood insurance [Federal Emergency Management Agency, 2018]. At the subnational scale, Puerto Rico has integrated social vulnerability into its CDBG Mitigation Action Plan, expanding its considerations of risk beyond only economic factors. At the local level, Harris County, Texas, has begun using social vulnerability indicators alongside traditional measures of flood risk to introduce equity into the prioritization of flood mitigation projects [<a href="https://www.hcfcd.org/Portals/62/Resilience/Bond-Program/Prioritization-Framework/final_prioritization-framework-report_20190827.pdf?ver=2019-09-19-092535-743" target="_blank" rel="noopener noreferrer"><em>Harris County Flood Control District</em></a>, 2019].</p><p>Unfortunately, many existing measures of disaster equity fall short. They may be unidimensional, using single indicators such as income in places where underlying vulnerability processes suggest that a multidimensional measure like racialized poverty (Figure 2) would be more valid. And criteria presumed to be objective and neutral for determining resource allocation, such as economic loss and cost-benefit ratios, prioritize asset value over social equity. For example, following the <a href="http://www.cedar-rapids.org/discover_cedar_rapids/flood_of_2008/2008_flood_facts.php" target="_blank" rel="noopener noreferrer">2008 flooding</a> in Cedar Rapids, Iowa, cost-benefit criteria supported new flood protections for the city's central business district on the east side of the Cedar River but not for vulnerable populations and workforce housing on the west side.</p><p>Furthermore, many equity measures are aspatial or ahistorical, even though the roots of marginalization may lie in systemic and spatially explicit processes that originated long ago like redlining and urban renewal. More research is thus needed to understand which measures are most suitable for which social equity analyses.</p>
Challenges for Disaster Equity Analysis<p>Across studies that quantify, map, and analyze social vulnerability to natural hazards, modelers have faced recurrent measurement challenges, many of which also apply in measuring disaster equity (Table 1). The first is clearly establishing the purpose of an equity analysis by defining characteristics such as the end user and intended use, the type of hazard, and the disaster stage (i.e., mitigation, response, or recovery). Analyses using generalized indicators like the CDC Social Vulnerability Index may be appropriate for identifying broad areas of concern, whereas more detailed analyses are ideal for high-stakes decisions about budget allocations and project prioritization.</p>
By Jessica Corbett
Sen. Bernie Sanders on Tuesday was the lone progressive to vote against Tom Vilsack reprising his role as secretary of agriculture, citing concerns that progressive advocacy groups have been raising since even before President Joe Biden officially nominated the former Obama administration appointee.