Governor Mary Fallin approved the creation of a Revenue Stabilization Fund (RSF) this week in an effort to protect Oklahoma from future energy busts and price drops.
The fund, as outlined in the original House Bill 2763, would serve as a rainy day fund during the bust portions of the boom and bust cycles of the state’s energy sector. The fund would be filled with 100 percent of the money from oil and natural gas gross production taxes and 75 percent of corporate taxes when tax revenues from those sources exceed the most recent five year average.
Other energy states like Texas, Louisiana and North Dakota, which boomed alongside Oklahoma during the beginning of the natural gas fracking boom in the early 2000s, started putting money away immediately, which economists say helped those states avoid fiscal problems similar to those in Oklahoma.
“Since this is a particularly volatile revenue source this would tie stabilization to that particular source; oil and gas boom and bust cycles,” Dr. Cynthia Rogers said. Rogers is a professor of economics at Oklahoma University who said she has previously advocated for a RSF. She added the RSF is generally viewed as a policy “best practice.”
During 2015, the price of oil plunged from $108 per barrel to $26 per barrel at its lowest, helping create the $1.3 billion shortfall facing the state. Nearly 25 percent of Oklahoma’s tax revenue is tied in some fashion, according to the state Office of Management and Enterprise Services.
It's not clear how much money will be stored away, according to the Oklahoma Tax Commission fiscal impact report for HB2763, but those in the industry say it doesn't matter, having a safety net for the state helps curb talks about adding more taxes.
“I think it's a great idea! I wish they'd had it ten years ago,” Bill Price, CEO of Price Oil and Gas Co. said, adding, “It’s sound fiscal policy.”
But the measure may be too little too late, the state's budget is still expected to fall short next year, no matter how much foresight this law may bring.
“Forward looking, it can help with planning and budgeting with the revenue from that source, but it doesn't make up the gap,” Rogers said.