Oil and Gas Fuels Texas Revenue Growth
OIL AND GAS FUELS TEXAS REVENUE GROWTH
But what global demand gives, global demand can also take away.
State sales tax collections were up a strong 15.9 percent in October, reflecting continued strength in the oil and natural gas sectors, Comptroller Susan Combs said this afternoon. The $1.87 billion in sales tax revenue was higher than previous peak October collection of $1.73 billion in 2008. It also marked the 19th consecutive month of gains in the key revenue source for the state.
“Strong growth in business sectors such as the oil and natural gas industry boosted sales tax revenue for yet another month,” Combs said. “State sales tax revenue has now increased for 19 consecutive months. Sales tax also grew in the manufacturing industry, as well as consumer sectors such as the restaurant industry and retail trade.”
Today’s sales tax figure is another in a lengthening set of data points that show the importance of high energy prices to the state’s economic recovery. The Comptroller’s annual cash report, which was issued Monday, showed that FY’11 revenue collections were $2.5 billion higher than what was called for in the biennial revenue estimate (or $2.2 billion if you subtract the $300 million of anticipated sales tax revenue that Combs added to the revenue estimate during session).
The biggest gains were found in sales tax revenue collections, which ended $1.2 billion over estimate (or $900 million if you take out the mid-session adjustment). The second and third biggest revenue over performers were natural gas and oil production taxes. They were $488 million and $469 million over estimate, respectively.
And since high energy prices usually have a positive impact on sales tax collections due to economic activity thrown off by oil and gas exploration, it could reasonably inferred that high energy prices account for perhaps half or more of the revenue gains over what was estimated at the beginning of the year.
Overall, the Comptroller reported that the consolidated General Revenue Fund finished the fiscal biennium with a $2.6 billion balance. She notes that the balance, which was up $678 million from the close of the previous fiscal year, was buoyed by the Lege’s decision to spend $3.2 billion of the Rainy Day Fund as well as higher tax collections. It also reflects the state’s longstanding practice of counting unexpended cash balances in dedicated GR accounts – roughly $5.3 billion – toward the GR fund balance.
At this point, sales tax collections in FY’11 are ahead of what the Comptroller had estimated would be collected in the current FY’12. But as one revenue expert told us today, it’s a good idea not to get too excited about present revenue gains given the storm clouds on the horizon in the guise of the European debt crisis. It’s probably worth emphasizing that with Texas more integrated into the global economy than ever, a European recession would likely affect Texas’ bottom line as well.
And it’s also worth noting that with so much of the current recovery here pegged to high energy prices, the last few years have demonstrated that small changes in global demand for oil and gas can have a big effect on commodity prices. In other words, the boom that is working out well now for Texas can deflate in a hurry. But, of course, that’s a lesson that Texas is very familiar with.
by John Reynolds