Texas Oil and Gas Generate $900 Million in New Tax Revenue
Last Wednesday, Texas Comptroller Susan Combs announced some good news: the state’s severance tax receipts have exceeded prior estimates by $900 million for Fiscal Year 2013. In January of this year, in her biennial revenue estimate, Combs predicted oil and gas severance taxes would generate nearly $3.4 billion, which means the updated figures are a 27 percent increase in taxes generated from oil and gas production. A copy of Combs’ letter here.
So, what does the sudden increase in tax revenue mean for Texans?
By state law, three quarters of oil and gas severance taxes are deposited into the Rainy Day Fund, meaning $675 million will be dedicated to the fund and $225 million will be available for general-purpose spending. The additional taxes mean more funds available for roads, schools, and other infrastructure.
The state did not waste any time putting the money to use, either. Just yesterday, after three special sessions, the Texas Legislature finally passed a measure to increase transportation funding by $1.2 billion per year. If approved by voters in 2014, the legislation calls for the state to begin diverting some oil and gas production tax revenue currently earmarked for the Rainy Day Fund to road construction and maintenance.
The continued and impressive growth of production in Texas was expected, but not at these levels. As we’ve noted before, Texas is producing at record high levels, the best showing in more than 31 years. And by all accounts, it does not seem to be slowing down. According to the latest Baker Hughes rig count, Texas has 832 drilling rigs at work — about 47 percent of all rigs in the United States and 25 percent of the rigs in the world. In recent years, oil output has increased so much in Texas that if we were a separate country, we would be the 11th largest oil-producing state in the world.
Various analysts note that Texas’ oil production is remarkable, vital, and unprecedented. Mark Perry at the American Enterprise Institute points out that production in Texas “more than doubled in only 27 months.” Perry adds that the increase “has to be one of the most significant increases in oil output ever recorded in the history of the U.S. over such a short period of time.”
Also according to Dr. Perry:
“Texas produced an average of 2.525 million barrels per day (bpd) of crude oil in May, which is the highest average daily output in the state in any month since April 1982, slightly more than 31 years ago. Compared to a year earlier, oil output in Texas increased by almost 31% in May, posting the 20th straight month starting in October 2011 that the state’s oil output has increased by more than 30% on a year-over-year basis.”
In addition to new tax revenue, that increased development also translates to employment for many Texans. As Perry also observes:
“[O]ver the last 12 months through June, payrolls in the state of Texas increased by 303,000 jobs, which was a 2.8% annual increase in the state’s employment level, or close to twice the national increase in payroll employment of only 1.72% over that period.”
The booming oil and gas industry in Texas is continually evolving, and the scope is yet to be fully appreciated. Nonetheless, Combs’ announcement of a dramatic increase in severance tax receipts is certainly a welcomed piece of good news. Increased production translates to significant increases in tax revenue, meaning the energy boom in Texas provides enormous benefits to taxpayers and communities across the state.