Bubblin' Crude: Oil's Effects on Oklahoma's Budget
Learn the latest on how oil is affecting gross production taxes.
December 3, 2018
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Learn the latest on how oil is affecting gross production taxes.
Oklahoma’s budget is dependent on the value of petroleum products and the amount of petroleum products produced. Gross production tax increases during the FY18 Legislative session raised the questions: what really drives the amount of gross production taxes Oklahoma receives, and should we expect a big jump in taxes? After visiting with several different experts, we went to the Energy Information Administration and took a simplistic look at the cause and effect in revenues collected for gross production taxes.
The first graph is the total revenue by month from gross production collections paid to schools in the fiscal years listed. The bottom graph is the spot price of crude oil at Cushing. These graphs show that collections follow a similar pattern. We can also see several historical peaks and valleys in the collections and prices, to be expected with any commodity. When the actual data comes out this month, we can expect to see a dip in taxes because there is a cyclical dip in prices.
While price does have a significant effect on taxes, there is one factor that we don’t often discuss. The amount of production being achieved in Oklahoma is exceptional. The graphs below clearly show the amount of oil being produced may have been slowed by price somewhat. However, it has risen significantly since 2012. This occurred even when prices were low.
There isn’t a clear-cut conclusion to answer our questions, but even if the price does drop, the sheer volume of oil being produced will probably allow for collections to still move forward. The question will be what effect do we see on sales and income tax revenues? The rise of oil prices to the levels earlier this year did help to revive sales and income tax revenues. The Board ofEqualization meeting in December will give us a clear signal on what the state is expecting. OPSRC will get these items published as quickly as possible. Our current advice is to closely monitor the budget to maintain budget integrity. We will have a deeper discussion of this data in our December Finance Report.
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