MuniLand

The promise and peril of energy tax revenues

Of the $763 billion in tax revenues that states collected in 2011, only $14.6 billion – less than 2 percent – came from severance taxes on coal, gas and oil. Energy production is very concentrated in the United States: Just nine states receive over 5 percent of their tax revenues from energy producers. Currently, the bulk of severance revenues comes from oil production. Alaska, a state floating on an ocean of oil, gets 76 percent of its revenues from a handful of big oil companies that have drilling rights on the North Slope of the state.

Although there has always been natural gas production in America, hydraulic fracking has given rise to substantial drilling activity in several Northeastern states along the Marcellus and Utica shale formations. Pennsylvania, West Virginia and Ohio have substantial reservoirs of natural gas, but the impact this boom will have on state finances is not yet known. These new supplies have come to market when demand is down and have swamped the nation’s usage and storage capacity, driving gas prices down to record lows. States that rely on, or plan for, revenues from energy severance taxes will face a lot of volatility from demand and price changes. Natalie Cohen, head of municipal research at Wells Fargo, sketched it out in a recent report:

Wyoming, for example, collects severance tax based on the taxable value of current-year production. With the drop in natural gas prices, it has had to reduce its forecast on severance tax revenue. The state is now looking to cut 4% out of next year’s budget, despite a current-year budget surplus. According to the state’s Economic Analysis Division, each dollar drop in natural gas prices costs the state about $226 million in revenue.

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State severance taxes may be volume-based, value-based, or a hybrid of the two. When prices are high and the demand for commodities like oil and gas is robust, it is no coincidence that states with rich mineral deposits that tax extraction have weathered the economic downturn better than others.

Texas has managed to survive price fluctuations over the years and is one of the few states that does not impose an income tax. Texas, like New Mexico and Alaska, has created an endowment that was originally based on mineral lands to support K-12 and higher education. Some of the “newer” shale gas states, such as Pennsylvania and Ohio are concerned that severance taxes might chase away producers. But, high severance taxes have not hampered exploration in Texas, which levies the highest tax rate.

Muni sweeps: Important deals for CA and NJ

New Jersey municipal employees to pay more for benefits

The Wall Street Journal is reporting that New Jersey Governor Chris Christie and the state Democratic leadership have reached agreement on reducing employee benefits:

In the face of heavy opposition from unions, the Democratic leadership of the New Jersey legislature and Gov. Chris Christie reached an agreement on major cuts to public-worker pensions and benefits…

…Democrats worked into Wednesday evening to get union support, offering weaker proposals, to no avail, a person familiar with the negotiations said. Instead, top lawmakers went ahead with a comprehensive bill submitted earlier this week that requires workers to pay more toward their pensions and new hires to work longer to reach retirement age, while eliminating annual cost-of-living increases for current and future retirees, among a slew of other changes.

Muni sweeps: Happy “Bike to Work” day

House Committee launches ‘YourWitness’ program

From YouTube:

The [House] Financial Services Committee has launched a new program, Your Witness, which allows Americans to submit questions they want to ask a witness during a hearing. During an Oversight and Investigations Subcommittee hearing on the Stanford Financial Ponzi scheme, Rep. Randy Neugebauer asks the first question of Julie Preuitt.

From the House Financial Services Committee website:

@RandyNeugebauer asks question at a hearing using #YourWitness, our new program that allows Americans to get involved

California goes after it’s “wall of debt”

From the Bond Buyer:

[Governor] Brown released a revised budget Monday that dramatically reduces planned bond issuance as part of an effort to curb overall borrowing by the state that he termed the “wall of debt.”

Muni sweeps: Connecticut may issue layoff notices

Connecticut issues layoff notices

The governors are getting it done. And it’s painful.

From the Wall Street Journal:

After months of closed-door talks with state employee unions, Connecticut Gov. Dannel Malloy announced that no deal could be reached to garner $1 billion annual concessions needed to close a $3.5 billion budget gap.

“The state employee representatives have thus far not offered enough,” Malloy said in a statement Tuesday morning.

To balance the two-year $40.1 billion budget and comply with contractual layoff notice requirements, Malloy said layoff notices would go out Tuesday to “the first 4,742 state employees,” resulting in an estimated savings of $455 million. The remaining $545 million in savings would be achieved by cuts to government programs, which could result in additional layoffs.

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