How much do Western state budgets rely on extractive industries?

Resource-reliant states feel pinch as fossil-fuel revenue dwindles.

 

Oil money runs Alaska. Residents don’t pay sales tax and the state income tax was abolished in 1980, after the completion of the Trans-Alaska Pipeline. Each year, Alaskans receive a check based on earned interest from the Alaska Permanent Fund, which invests pooled oil and mineral royalties. (Last year’s disbursement was a record high of $2,072 per person.)

It’s a formula that has served the state well for many years, but with oil prices tanking, the state is now grappling with a multi-billion dollar deficit in its budget, prompting calls for sweeping changes in how the government is funded. Petroleum revenues  plunged to a 21.3 percent share of the state general fund in the last fiscal year – down from 48.0 percent just one year prior, and 59.6 percent the year before that. The general fund itself has dwindled over the same interval, falling from $10.3 billion in 2013 to just under $4.9 billion in 2015.

An oil rig looms in the distance in Prudhoe Bay, Alaska. The state is facing a massive budget deficit due to falling oil prices.

Alaska’s plight is not unique. Western states — particularly Alaska, North Dakota and Wyoming — are among those most reliant on extractive industries, and are thus the hardest hit by recent crashes in the price of oil, coal and natural gas. In Wyoming, for instance, extractive industries accounted for over a third of the state’s GDP in 2013 — the highest proportion in the nation. The industries provide more than just jobs. Associated revenue from severance taxes — taxes on non-renewable resource extraction — is a pillar of each state’s general fund, supporting schools and other essential services.

That dependence on boom-and-bust industries makes for a lot of economic uncertainty. A Pew analysis showed that Alaska, North Dakota and Wyoming have three of the four highest levels of tax revenue volatility in the nation. Other Western states like California, Colorado, Arizona and New Mexico hold many of the top spots, due to a variety of factors not limited to severance taxes.

Here’s a breakdown of the role severance taxes played in Western state budgets in 2014.

Sources:

+Analysis from Pew Charitable Trusts using U.S. Census data.

++Totals for Selected State Government Tax Collections.

Note: Though severance taxes are a strong proxy for extractive industries’ state-level financial clout, they are just one of the revenue streams that state and local governments receive from resource extraction. They also collect gross receipt and sales taxes, property taxes and royalties when drilling occurs on state land.

Bryce Gray is an editorial intern for High Country News. He tweets at @_BryceGray.

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