In the United States, states struggle to replace tax revenues from fossil fuels

May 16, 2022

By MORGAN LEE and MEAD GRUVER Associated Press

SANTA FE, NM (AP) — Government budgets are booming in New Mexico: Teacher salaries are up, residents can go to state college tuition-free, mothers will get medical care for a year postpartum and criminal justice initiatives are funded to reduce urban violence.

The reason behind the spending spree – oil. New Mexico is the second largest producer of crude oil among US states and the top recipient of US remittances for fossil fuel production on federal lands. But a budget filled with oil cash has a side effect: it also highlights how difficult it is to turn state rhetoric about fighting climate change into reality.

State governments in key regions of the country for oil, natural gas and coal production have by far the highest per capita reliance on fossil fuels – led by Wyoming, North Dakota, Alaska and the New Mexico. Revenue funds essential public services, from road maintenance to prisons. In Carlsbad, New Mexico, property taxes on oil infrastructure are securing a high school performing arts center, expanded sports facilities and elementary school renovations.

None of this would be possible without oil revenue, said schools superintendent Gerry Washburn.

“We can’t slow down on this and what we’re doing to fund schools until we have a legitimate replacement” for oil and natural gas revenue, he said. “Whether you’re in the middle of the oil patch or in an area with no oil and gas drilling, these policies will impact the revenue of every school district in the state.”

Federal, state and local governments receive about $138 billion a year from the fossil fuel industry, according to a study by nonpartisan Washington-based economics group Resources for the Future, which does not advocate energy policies. This equals the annual spending of New York State and Texas combined.

Cash flow is dominated by retail taxes on gasoline and diesel in each state, but energy-producing states are most dependent on fossil fuel revenues through a range of taxes, levies, rental and fee sales. Because these revenues help pay for government services, they tend to tax residents less, said Daniel Raimi, a fellow at Resources for the Future and co-author of the study.

“It’s a really tough dynamic if you’re thinking about moving away from fossil fuels,” he said. “They are going to be faced with the question: are we going to increase our taxes on our residents or do we have to reduce the level of services that we provide? »

In New Mexico, oil and gas make up 42% of state government revenue, a share rising amid war in Ukraine and record oil production in the Permian Basin that stretches across southeastern New Mexico and western Texas. Additional oil revenues are paid into a new interest-bearing trust for early childhood education.

Soaring fossil fuel industry profits have also given the Democratic-controlled New Mexico Legislature a chance to try to tackle the nation’s highest unemployment rate and the persistence of a high poverty. Lawmakers gave $1.1 billion in tax breaks and direct payments of up to $1,500 per household to offset inflation.

At the same time, lawmakers have balked this year over climate initiatives that could curb oil production. They rejected a bill to limit pollution linked to global warming in the production and distribution of transportation fuels, a measure taken by West Coast states. New Mexico also avoided a state constitutional amendment for the right to clean air.

Democratic Governor Michelle Lujan Grisham, re-elected in November, said her administration was working to contain methane pollution from oilfields and diversify the economy. New mandates provide for the production of electricity from solar, wind and other renewable sources. But she warned the federal government against deep restrictions on oil exploration and production, which are still the cornerstone of the state budget.

“We can work very effectively with oil and gas producers to meet clean energy standards…while managing some pretty incredible fossil fuel exploration to meet the world’s current energy demands,” the governor said in April.

Preserving revenue from oil, natural gas or coal production while acting on climate change can be especially tricky in blue states where Democrats often campaign to fight global warming.

Colorado Democratic Governor Jared Polis is pursuing an ambitious clean energy plan while trying to preserve $1 billion in annual tax revenue from oil and gas production. To justify air pollution restrictions, Polis cited real-time evidence of climate change, drought and fires.

But Polis, a wealthy tech entrepreneur, threatened last year to veto a proposal that could impose a per tonne emissions fee on polluters. William Toor, executive director of the governor’s Colorado Energy Office, said the state is not targeting fossil fuel production, only emissions from industry.

On the plains of northeastern Colorado, Weld County Commission Chairman Scott James said state regulations are stifling new drilling needed to support production and government revenues, especially for the schools. The county is centered on a vast oil field stretching from the Denver area to Wyoming and Nebraska.

“I agree with the overall mission to reduce greenhouse gases, but there is an environment that exists in the State Legislature that we have to electrify everything, we have to mandate it, we have to do now,” James said. “And these technologies are not ready for prime time yet. We just don’t have the capacity to do that.

Rural and economically isolated communities may have a harder time adjusting to a low-carbon economy, said Kristin Smith, a Montana-based Headwaters Economics researcher and economist who studies public finance in the Bakken oil region. in North Dakota. She anticipates “very difficult decisions” about cutting back areas such as public health care and the police.

Some major oil-producing states are moving forward with their climate programs.

Pennsylvania in April became the first major fossil fuel state to adopt a carbon pricing policy, joining an 11-state regional consortium that sets a falling price and limits on carbon dioxide emissions from power plants.

Democratic Gov. Tom Wolf’s move comes without the approval of the Republican-controlled legislature in the nation’s No. 2 state for natural gas production — and a major exporter of gas-generated electricity. A per-well drilling royalty on the booming Marcellus shale gas industry has rained cash on rural counties and municipalities for nearly a decade.

South of Pittsburgh, Washington County has raised more than $100 million over the past decade. That equates to $500 per capita – a “game changer,” said County Council Chairwoman Diana Irey Vaughan. The manna paid, among other things, for the improvement of parks and bridges.

Democratic State Representative Greg Vitali, an advocate for stronger action on climate change, said local governments dependent on gas drilling money will simply have to use traditional tools such as property taxes to make it out.

Republican-dominated Wyoming, the top coal-producing state, has bold goals to cut greenhouse gas emissions to below zero, even though fossil fuels make up more than half of its revenue.

This vision hinges on eventually capturing carbon dioxide from coal and gas-fired power plants and pumping it underground, possibly to increase oil production in aging fields in the center of the state. Wyoming leaders are also turning to alternative fuels like hydrogen and nuclear power, using reactors that produce less waste.

Meanwhile, a decade of declining coal demand has sapped government revenue. Republican Gov. Mark Gordon signed a coal tax cut in March, forgoing about $9 million a year to help the coal industry remain economically viable.

The state – one of only two that does not tax personal income, corporate income or gross receipts – must eventually come to terms with its dependence on fossil fuel money, said Jennifer Lowe, executive director of the Equality State Policy Center, a government watchdog group.

“At some point there is going to have to be a time for Jesus to come,” Lowe said.

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Gruver reported from Cheyenne, Wyoming. Associated Press writers Jim Anderson in Denver and Marc Levy in Harrisburg, Pennsylvania, contributed to this report.

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