State oil, gas revenue & the big picture

Louisiana state government continues to experience budget ups and downs because of its heavy reliance on oil and gas revenues. Texas has weaned its everyday operations from those sources and put that money into a special fund.

The problem has been the rapidly changing oil and gas prices. The New Orleans Times-Picayune in a recent story talked about how that has presented problems for state budget planners and financial forecasters.

“When prices are up, the thinking is, ‘Let’s live off our resource endowment. Why should we tax ourselves’?” Greg Albrecht told the newspaper. He is chief economist with the Legislative Fiscal Office.

Albrecht said he thought he was being conservative a year ago when he based his revenue forecast on oil selling at $84 a barrel. Oil was selling at $147 a barrel last July. However, when the fiscal year ended, the price was $34.

Natural gas had gone from $13 per million BTU to $4 per BTU. That was one of the reasons the state had to grapple at this year’s legislative session with a $1.3 billion budget shortfall.

Every $1 drop in oil revenue translates to an annual loss of $10.7 million in revenues. A $1 drop in natural gas prices costs the state $81.3 million.

Oil and gas provided the state with 40 percent of its revenues in 1982. That dropped to 15 percent last fiscal year.

Rep. Bodi White, R-Central, sponsored a bill at the recent legislative session that would have created a trust fund for excess oil and gas money. It didn’t get far.

The Times-Picayune said Texas moved in that direction in 1987. It capped the amount of oil-and-gas money that could go into the state’s general fund, and that money is dedicated to education. Anything above that goes into a rainy-day fund.

Louisiana doesn’t rely as much on oil and gas as it did in earlier years, but it’s still a factor in budget planning. Speaker of the House Jim Tucker, R-Algiers, told the newspaper he would like to fix that.

“We really have set restrictions in place to keep oil and gas from becoming a real problem,” he said.

Tucker added, “In an ideal world, I’d like to see us restructure the entire tax package in this state so that we took all oil and gas revenues out of the budget and put it in a trust fund … and used interest off the trust fund for education or transportation or health care.”

“Think about where we would be today if we had done that years ago.”

White said he will be back with his trust fund bill in the 2011 legislative session, and Tucker said he supports the concept.

Budget problems expected over the next two years will delay a move in that direction. Sales taxes, income taxes and gambling revenues won’t be able to pick up the slack.

Despite that drawback, legislators shouldn’t delay any moves that might take rapidly fluctuating oil and gas revenues out of the budget picture. A trust fund looks like the right approach.

– The American Press, Lake Charles, La.