Don’t expect taxes on fossil fuel production to improve Oklahoma’s financial situation much anytime soon, according to some predictions.
— Oklahoma Watch (@OklahomaWatch) July 6, 2016
Oklahoma State Treasurer Ken Miller laid out grim news this week about declining tax collections again for the month of June, but he did note the gross production taxes on fossil fuels “…have risen slightly for two months in a row…”. This led at least one local media outlet to herald that news as an “industry turnaround.”
But not so fast. Some analysts are predicting oil could go under $40 a barrel after the summer driving season, and peak oil demand—the concept the world has reached the summit of its fossil fuel use—means Oklahoma faces a major financial structural crisis that could conceivably linger for years. I remain unsure why more people aren’t discussing this.
Miller’s numbers continue to stagger. June collections were down 7.4 percent or $74 million compared to last year. Miller noted that this is the 14th consecutive month that tax revenues declined from the previous year. Oklahoma, Miller pointed out, is officially in a recession. Overall, 2016 receipts declined by 7.2 percent or $860 million, according to Miller. This is in a state with an approximate $7 billion annual budget.
The declining revenues have led to major cuts to state agencies. Funding for higher education, for example, was cut nearly 16 percent. Funding for K-12 education took a smaller hit, but this came after years of cuts. State agencies, such as the Department of Human Services, have taken drastic measures to survive the budget crisis, including a freeze on child care subsidies, which has now been lifted. In short, the state remains in a financial free fall.
The larger picture, however, is what should really concern anyone trying to make their future here in Oklahoma. If oil prices remain in the $50 a barrel or so range indefinitely, what does that mean to the overall economy? The oil and gas industry here already gets major tax breaks. New tax breaks won’t spur production. What will replace a structural decline in gross production taxes? No one really has an answer to that.
Today's COG – global news for the exceptionally well informed.
— Prof Kemp (@Prof_Kemp) July 7, 2016
Let me add more on the concept of peak oil demand. Some energy analysts and environmentalists believe the world will continue a decline in its overall use of fossil fuels as more green-energy, such as solar and wind power, becomes available. Electric and hybrid vehicles, and cars that get high gas mileage, also reduce fossil-fuel demand. The fracking boom in the United States has only complicated this situation by glutting the market with oil, driving down prices.
Peak oil demand is admittedly a relatively slow process, however, and fossil-fuel use will remain a part of the world’s overall energy foundation for years to come.
But the question locally is why our state leaders aren’t talking much about diversifying the Oklahoma economy given these circumstances. It’s all mostly reactionary. A temporary spike occurs in oil prices, and people want to declare the worst is over, but that doesn’t address the long-term stability of Oklahoma’s economy. Of course, a major world event, such as war, could increase production and prices of fossil fuels, but that, too, would be temporary on some level, and no one can justly hope for a war.
How will Oklahoma stay viable if oil prices never reach much above $50 or even $60 a barrel ever again? It’s a question worth asking even if that isn’t the case.