High Energy Prices Are Benefiting Some States

Published June 13, 2011

As gasoline prices rise, most Americans cringe. But two oil-producing states are reaping benefits from higher gas prices, as rising oil prices translate to billions of dollars in tax revenue for Alaska and Texas.

Revenues Flow into Alaska, Texas
Gasoline prices have more than doubled since President Barack Obama took office. According to the U.S. Energy Information Administration, retail gasoline prices have risen from $1.83 per gallon to $3.73 since January 19, 2009. While all Americans are paying more for gas at the pump, much of that money is returning to residents of states that encourage oil production. 

In Alaska, 90 percent of state government revenue comes from oil production taxes, which alleviate the tax burden on state residents. Oil taxes have filled the state’s Permanent Fund, which currently has a balance of $40 billion. The state expects $3.4 billion in windfall taxes this year, according to Alaska’s Revenue Commissioner Bryan Butcher.

Alaskans also get a financial break when the Permanent Fund pays out annual dividends to state residents. Last year, every man, woman, and child received $1,300.

In Texas, a percentage of the price of every barrel of oil produced in the state goes into the state’s Economic Stabilization Fund. R.J. DeSilva, a spokesman for Texas state comptroller Susan Combs, says the state expects an $8.2 billion balance in the Economic Stabilization Fund at the end of the fiscal year this August. The state will take $3.2 billion from the fund to pay for state budgetary programs, taking a substantial burden off state taxpayers while still leaving a healthy $5 billion in the fund.

Government Shackling Potential Revenue
Simmons points out high oil prices do not have to translate to economic stress.

“When politicians summon the CEOs from oil companies to Capitol Hill to testify about high oil prices, the politicians forget to mention the high oil prices can result in much higher government revenues if government doesn’t actively shut [production] down,” Simmons explained. “People tend to forget that energy production on government lands result in billions of dollars in tax revenues for state and federal governments and can substantially benefit our nation if government removes the shackles on domestic energy production.”

“It is not surprising that the six states without budget shortfalls in 2011 are all energy-producing states with significant oil and gas resources,” said Clint Woods, director of the Energy, Environment, and Agriculture Task Force at the American Legislative Exchange Council.

Energy Policies Have Consequences
Simmons noted Alaskans are not burdened by a state sales tax or state income tax, a direct result of energy production revenues.

Alaska’s budget figures are a far different story from what most other states are experiencing.

“The use of horizontal drilling and hydraulic fracturing to develop shale gas and oil has greatly expanded the map for energy production and, in turn, state-level competition for domestic drilling dollars,” Woods explained. “States should take a hard look at whether their tax rates, labor requirements, and overall business climate are competitive in this growing market.

“While states like New York and Maryland are seeking economically suicidal moratoria on oil and gas development, many other states are seeking fundamental regulatory and tax reform to attract the thousands of jobs that accompany energy production,” Woods added.

Location plays a factor in oil production revenue, of course, but Woods points out an annual analysis from the American Legislative Exchange Council describes how every state is situated to benefit from oil and gas development, which can stimulate jobs and revenue in each state.

“The location of these natural resources is obviously important, but as ALEC’s annual analysis of state economic competitiveness, “Rich States, Poor States,” shows clearly, policy decisions on tax burdens, pensions, liability, environmental regulations, and right-to-work play a crucial role in determining employment and fiscal outcomes. In other words, if you build a free market-oriented system for responsible oil and gas development, jobs and revenue will come,” said Woods.

Alyssa Carducci ([email protected]) writes from Tampa, Florida.