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Energy & Environment

Drop In Oil Tax Revenue ‘Not Going To Be Pretty’ For Texas

The falling price of oil doesn’t just mean less money for energy companies. It means millions of dollars less for the state of Texas; tax money that pays for everything from roads to education. How bad is it?


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Truck on I-10 in Colorado County hauling drilling pipe in 2013
Dave Fehling
Truck on I-10 in Colorado County hauling drilling pipe in 2013

Taxes on oil and gas mean a lot to Texas. Consider that for every 5-buck drop in the price of oil, the state loses about $200 million dollars in oil production taxes. And as recounted last week in testimony at the Texas statehouse, that price per barrel has only gotten lower in the past year.

Texas Comptroller Glenn Hegar told the Texas House Select Committee on Transportation that just since he was elected a year ago, he watched the price per barrel fall from $74 to $60 then to $39 "and of course here we are today with high 20s and wondering where the new floor is."

Oil's decline means production taxes have plummeted by about 50 percent which Hegar told lawmakers has a lot of people fearing the state's economy will collapse as it did in the 1980s when oil prices took a similar tumble.

"Obviously there's a lot of people I'd say almost hyperventilating with concern. I've thought about carrying around with me brown paper bags to hand out to everybody, " said Hegar.

But Hegar told lawmakers Texans shouldn't be hyperventilating.

"Texas is not the 1980s, we're a much more diverse economy than we were in the 1980s. Is oil and gas important to this state? Absolutely. It's 14 percent of our economy but it's not the 20-plus percent it was in the 1980s," Hegar said.

Watching how the state is handling all this is Bernard Weinstein, an economist at Southern Methodist University in Dallas.

"Everyone says we're more diversified today and that's true but it's still a big chunk of economic activity," Weinstein said.

Weinstein figures Texas will have maybe $5 billion less than it estimated to cover a 2 year budget that totals $209 billion.

"What's going to happen, will this necessitate a special session? If so, will the legislature dip into the rainy day fund? It's hard to say at this point. But it's not going to be pretty going forward," said Weinstein.

The Rainy Day Fund is a $16 billion reserve built largely from oil & gas taxes. The legislature doesn't meet again in regular session till next year so a special session could be called if things get really bad. But at least one lawmaker has doubts that'll be necessary.

Sen. Paul Bettencourt: "The good news is we left money in a kind of checking account."
Sen. Paul Bettencourt: “The good news is we left money in a kind of checking account.”

"I don't hear any talk of a special session at this point," said Paul Bettencourt, a Republican state senator from Houston who serves on the senate finance committee.

Bettencourt said the legislature passed a conservative budget last year and didn't give-in to the urge to spend big when oil revenues were pouring in.

"The good news is we left money kind of in a checking account and my expectation is that will be gone but we will not be in the rainy day fund by the time we get back to the session. But we'll see," Bettencourt said.

Whatever eventually happens in Texas, it may be less bad than what's already happening in other oil-producing states. Robert McManmon is an analyst with the Energy information Administration in Washington.

"Texas has a more diversified economy that Alaska, North Dakota and Wyoming which were above 40 percent as a share of their revenue sources," said McManmon.

In other words, in those states oil & gas taxes make up 40 percent or more of all their tax revenue. By contrast in Texas, those taxes account for only about 9 percent of all revenue.

Alaska is already talking about imposing an income tax. North Dakota is considering budget cuts for state agencies.

All that said, there is more to the tax story than what's happening at the state level: cities and counties in areas where oil & gas drilling has surged could see big decreases in what they get from sales and property taxes said Bernard Weinstein, the economist at SMU.

"So we're looking at a fiscal crunch for a lot of local governments and counties and school districts across the Texas oil patch in addition to a decline in state revenues," said Weinstein.

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