No overstating oil-gas industry's impact on Oklahoma
As Oklahoma continues working to diversify its economy, a report from the State Chamber Research Foundation provides a reminder of the impact of our heritage industry, oil and gas. Long story short: It remains significant.
The report looked at the period from late 2014 through late 2016, a particularly rough stretch for the industry and, in turn, for Oklahoma’s treasury. During that time, the report found, total state revenue fell by $1.5 billion (15.4 percent) and came in $2.25 billion below what had been projected.
The oil and gas industry lost 21,500 jobs and a whopping $8.9 billion in earnings during that two-year time frame. And, the study estimates, throughout the state’s economy another 48,300 jobs and $22 billion were lost.
The study noted that the two-year downturn “provided a rare opportunity to isolate the effects of fluctuations in the oil and gas sector on both state tax revenue and the broader state economy.” The authors called it a “near-controlled experiment” for weighing the industry’s economic influence.
Two things came through, they said. One is that “state tax collections and the overall economy remain highly sensitive to changes in oil and gas industry activity.” The other is that “the severity of the collapse in taxes underscored the importance of examining more than simply production taxes when forming oil and gas tax policy in Oklahoma.”
That’s important, because the primary focus in recent years at the Legislature has been on the increasing the gross production tax rate, now at 5 percent after being bumped from 2 percent in 2018. The authors note, however, that oil and gas companies “make substantial business tax payments across nearly every state tax stream,” and that personal income taxes and sales taxes paid by industry workers have a major impact.
The state’s oil and gas companies paid $2.43 billion in corporate taxes in 2016 — about one-fifth of all corporate taxes paid by state businesses. As a share of production value, the study found, the corporate tax burden for Oklahoma oil and gas companies was third-highest among the top 16 producing states. Sales tax payments and personal income tax payments were high on that list, too.
The state’s effective gross production tax for fiscal year 2019 is now 5.1 percent, according to the study, which places Oklahoma at No. 5 among the top 16 states.
The study’s authors found that Oklahoma “remains a top-tier energy state” but that an extended slowdown can produce a net 25 percent drop in total state tax revenue below budget projections and that, “Overall state tax revenue remains highly sensitive to changes in activity in the oil and gas sector.”
This is something lawmakers should remember as they prepare future budgets and consider tax policy. Oklahoma continues to need a vibrant oil and gas industry.