As Gas Prices Tumble, States Feel Pinch of Less Tax Revenue
Rob Nikolewski /
Reduced gasoline prices are good news for drivers across the country, but they’re causing headaches for budget directors in oil-producing states who are now revising their numbers downward and hoping prices stabilize quickly.
“I haven’t seen anything this rapid in my time,” Oklahoma Finance Secretary Preston Doerflinger said. “I don’t think we’ve seen anything in recent history this dramatic.”
The budgets in oil-rich states count on revenue generated from the oil and gas industry. In addition to the money generated from sales taxes resulting from the boom times created by horizontal drilling and fracking, the industry also kicks in millions of dollars each year in severance taxes.
For example, a recent study showed that 31.5 percent of the general fund in New Mexico is attributed to taxes, royalties and fees generated each year by the oil and gas industry.
But with the price of a barrel of oil plummeting from $107 a barrel to under $60 in just five months, states that had been counting on a nice chunk of change from energy companies are now expecting less money coming their way.
“Maybe as equally important as oil price and the ramifications of depressed prices on our economy is the possible ripple effect if the energy industry were to shrink in our state,” Doerflinger said.
“When I say that, I’m talking about income taxes and other types of revenue sources that can be affected by not having as many energy jobs in the state.”
The boom in the U.S. has led to a greater supply of oil in the global market, which has put downward pressure on prices. But the most recent nose dive is attributed to a decision made Nov. 27 by OPEC to keep on pumping.
That’s increased the supply even more.
Even though OPEC leader Saudi Arabia denies it, the move has been widely interpreted as an attempt to starve off U.S. shale producers by drastically undercutting the price and preserving the Saudis’ market share.
“In my opinion this is very definitely an attempt to disrupt the energy renaissance that’s happening in this country,” Doerflinger said.