DALLAS--While talk of higher oil prices by the organization of Petroleum Exporting Countries last week rattled the financial markets and made consumers cringe, some officials in petro-rich states saw dollar signs.
Reports that Saudi Arabi and other OPEC nations might seek an increase of up to $3 per barrel could mean added pennies to a gallon of gas at the pump. But such a rise would generate an estimated $732 million a year in new revenue for five states that already fund major portions of their budgets from oil and gas revenues.
Without increasing production, every $1 increase in a barrel of oil would generate, on an annualized basis, millions in general fund revenues for those states: Alaska. $150 million; Louisiana, $22 million, New Mexico, $4 million; Oklahoma, $6 million; and Texas, $62 million according to officials in the different states.
While oil-rich states welcome new revenues, they say the real economic boom could come six months to a year later if higher prices trigger an increase in domestic oil production-a move that would help recover thousands of jobs lost after the 1986 collapse of global energy prices. oil prices to go out of sight. It's managing director at standard & Poor's Corp.
Jay Abrams, a vice president at the rating agency, said, "The states have tried to insulate their budgets from the fluctuations in the price of oil. As long as they are not banking on oil revenues that may never appear, we're not concerned."
In fact, states specifically in the Southwest,learned about over-dependence on the energy sector in the 1980s when their economies and state budgets were crushed with the collapse in the global oil tried new controls to keep the state from gorging on oil revenues even if the price rises above the current $21.88-a-barrel composite.
"We're never going to be over reliant on oil again," said Tom Plaut, chief revenue estimator for Texas comptroller John Sharp. "We won'nt let that happen."
To avoid a repeat of 1987, the year the state budget and oil prices bottomed out Texas lawnmakers have established controls so that three-fours of surplus oil and gas revenues above a certain level would automatically go into a rainy-day fund. While the state now receives $1.1 billion a year from oil and gas revenues, those levies are only 8% of all taxes, one-third of what they once represented. Oklahoma and Louisiana also now use a fraction of the oil and gas revenues they once had in budgets. For a state such as New Mexico, a price increase would mean little for the general fund, but would raise revenues to dedicate sources, including reserves that retire the states severance tax-backed bonds.
Even though Louisiana expects to receive $664.5 million, or 15% of its general fund budget this year from oil and gas revenues, that is nearly one-third of what it was just five years ago when 42% of the state budgets came from taxes and royalties paid to the state.
And where state officials were once overly optimistic when forecasting oil revenues, they are today ultra-conservative.
For instance, Louisiana expects to gain $22 million in direct revenues for every $1 a barrel increase in oil prices. Unlike in the past, that calculation does not include an estimate of the ripple effect higher prices would have in the economy.
"It would be premature to assume a higher oil price than we now do," said David Hoppenstedt, economist in the Louisiana governor's office. "I don't think the state should assume a higher price because of rumors."
But as most oil-rich states have weaned themselves from oil revenues, Alaska is the notable exception. The state draws 85% of its oil and gas revenues they once had in budgets.
For a state such as New Mexico, a
"The rating agencies don't view that extreme dependence on one source of revenue as a plus," said Tom Boutin, debt manager for the Alaska Department of Revenue.
"The need to diversify has been talked about."
Indeed, the size of the state's budget rises and falls with oil prices. For instance, in fiscal 1987 the Alaska general fund budget plunged to $1.8 billion, down nearly 50% from the previous year, after oil prices dropped.
"They are the most dependent state on energy," said George Leung, vice president and managing director of state ratings at Moody's Investors Service. "Most states have been working to wean dependence on energy taxes."
While state officials are not yet counting a long-term rise in the cost of oil, they know from recent experience that such an increase is good for the bottom line. In fact, the temporary surge to nearly $40 a barrel last year that was prompted by the Persian Gulf War pushed new cash into state coffers.
However, the greatest impact that a price increase by OPEC could have would be to trigger new domestic oil production that has been idle for the past six years.
"If oil prices rise, a lot of it flows directly through the economy," said Claire Cohen, executive managing director at Fitch Investors Service. "The real impact comes from a sustained, higher level of oil prices."
If oil prices move up and remain at higher levels for at least six months, many interviewed believe that would prompt economic activity in energy-related industries, such as companies that service oil wells or sell equipment. An OPECled increase in energy prices could also trigger new exploration, but most expect new wells to be drilled abroad.
"Most producers are looking overseas, not here," said William Gilmer, a senior economist with the Federal Reserve Bank of Dallas and an expert on the energy industry.
"A price increase would be good for production in the short-term, but there would need to be some feeling that it was going to stick."