TIPRO News Releases and Statements

"Oil and Gas Tax Revenue Critical in Supporting Texas Budget Priorities"

By Ed Longanecker, president of the Texas Independent Producers & Royalty Owners Association (TIPRO)

According to an updated economic forecast released by Texas Comptroller Glenn Hegar on July 20, the state is projected to end the current fiscal cycle with a $4.58 billion budget shortfall. In a revised Certification Revenue Estimate (CRE), the comptroller said the coronavirus (COVID-19) pandemic and volatility in energy prices have taken a heavy toll on revenue streams that government coffers rely upon to fund the budget cycle. Consequently, Comptroller Hegar is now advising that Texas should have approximately $110.19 billion in General Revenue-related (GR-R) funds available for general-purpose spending for the 2020-21 biennium, that runs through August 2021. These figures are down roughly $11.5 billion, or 9.5 percent, from the $121.76 billion in funding initially projected in the last CRE issued by the comptroller this past October.

In the latest economic report, the comptroller has warned that the Economic Stabilization Fund, known as the state’s “Rainy Day Fund,” will also experience a significant drop in future balance transfers, which will have large implications to our state-managed savings account. The Rainy Day Fund as well as the State Highway Fund (SHF) are fed by taxes on the production, or severance, of oil and gas in Texas, which totaled $5.5 billion in 2019. Between 2010 – 2019, total state taxes and state royalty payments paid by the oil and gas industry equaled approximately $120 billion. These important revenue sources fuel all aspects of our state economy, including transportation and infrastructure investment, schools and education, and first responders, to name a few.

With a slowdown in drilling operations and other E&P activities in Texas this year, revenue from severance taxes has fallen substantially. As a result, funding transfers for the Rainy Day Fun and the SHF will both decrease, observed the comptroller in his new analysis. In fiscal 2021, both funds each will receive $1.1 billion in transfers from the General Revenue Fund for severance taxes collected in fiscal 2020, the comptroller estimates. For fiscal year 2022, transfers for the funds are likely to total $620 million each.

As our state faces uncertainty while the economic recovery from COVID continues, use of the Rainy Day Fund to spur an economic rebound will undoubtedly be a topic of lively debate in the next legislative session. While the comptroller is expected to release another official revenue estimate showing the state's financial condition before the legislative session begins in January, the latest figures from the revised CRE make it clear that lawmakers will have their work cut out in addressing funding shortfalls and managing appropriations for state programs and services.

Despite facing a multitude of challenges, Texas oil and natural gas will continue to be a key economic driver for our state. We are incredibly fortunate to be the leading state for oil and gas production and to have access to billions of dollars the industry generates each year, which will be a critical revenue source in addressing budget priorities over the next biennium. TIPRO will continue to educate policymakers and stakeholders on the importance of oil and natural gas, and remains committed to protecting the industry from any attempts to increase taxes or fees. Additional priorities for the association next session include transportation funding and infrastructure investment, a balanced approach to eminent domain legislation, and ad valorem taxes.

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