Oil is a risky revenue source
‘Extreme volatility’ of field makes it a poor financier, comptroller warns
AUSTIN — Comptroller Glenn Hegar is sounding the alarm as state leaders eye oil and gas tax revenue as one way to fund a multibillion-dollar plan that would reform public school funding and seek to slow growth of local property taxes.
Amid a drilling boom in the Permian Basin, revenue from state taxes on oil and gas production has surged in recent years, reaching over $4.8 billion in the 2018 fiscal year. But the tax is a volatile funding source because collections can swing wildly from year to year with shifts in the global energy market.
Collections, for example, shot up 83 percent in the 2001 fiscal year and then fell by over 50 percent in the next, according to data from the Comptrol-
ler’s office.
“Anything is more reliable than oil and gas,” Hegar said. “If you count on that revenue to be there and it’s not, you have a problem pretty quickly.”
Right now, much of the tax revenue is funneled into the state’s savings account, known as the rainy day fund. State lawmakers have been reluctant to tap the fund, which has now grown to $12.5 billion.
Republican Gov. Greg Abbott and other lawmakers have suggested a portion of state oil and gas taxes could help fund a proposal to cap what local school districts can raise in property taxes, with the state making up the difference.
The proposal could cost the state over $3 billion by 2023, according to an analysis by the Texas Commission on Public School Finance. Abbott has said funding the plan will ultimately fall to lawmakers.
“As the Governor has made clear, utilizing the oil severance tax revenue is one potential funding strategy,” said Abbott spokesman John Wittman in a written statement. “The Governor is committed to providing more state funding for our schools and he will work with the Legislature this session to do just that.”
Lawmakers will get a better idea of what they can spend in the next two-year budget today when Hegar presents the state’s financial outlook. The legislative session begins Tuesday.
Sen. Paul Bettencourt, RHouston, said instead of further padding the rainy day fund, he would like to see some of the revenue used for property tax relief. “The Legislature is really going to have to decide when enough is enough,” he said.
While Hegar said he expects the state to keep drawing “significant” revenue from oil and gas taxes, growth may slow as oil prices start to fall.
Unlike the state’s sales tax collections, which tend to grow or drop slightly from year to year, oil and gas tax revenue has seen enormous spikes and dips within the past decade.
Revenue peaked at $5.7 billion in the 2014 fiscal year, then sunk two years later to $2.2 billion.
It’s not clear whether lawmakers would try to temper those swings by siphoning the cash into an endowment fund that could be tapped to cover the proposal’s cost. Other states that rely on oil and gas tax revenue to pay for day-to-day operations have seen credit downgrades when collections slowed, Hegar said.
“Using it as a direct funding source is not a very wise idea because of the extreme volatility in oil and gas severance taxes,” Hegar said.
Abbott’s proposal is one of several floated this session and others also call for hefty investment. Outgoing House Speaker Joe Straus, R-San Antonio, said he will leave behind a budget blueprint that would inject over $5 billion into public education over the next two years. It’s not clear where the money would come from. amorris@express-news.net