Trusting in the future: The re-emergence of state trust funds in the shale era

Leaving Money on the Table: Pennsylvania Exceptionalism in Resisting Energy Severance Taxes

“…Their high political feasibility also translates into durability across various stages of implementation and multiple shifts of political leadership. No state has ever repealed an oil or gas severance tax that has been adopted and relatively few have undertaken major rate reductions after initial adoption (Rabe and Hampton 2015). This has even endured into the shale era, when overall production has soared and states might be expected to consider repeal or rate reduction to lure or retain drilling within their boundaries, given increasing interstate competition to sustain and expand production.…”

“…But despite changes in energy production throughout the United States, many states that engaged in the industry preserved the status quo, especially regarding their fiscal regimes (Rabe and Hampton 2015). More specifically, states mostly maintained existing taxes on the extraction of their oil and gas resources.…”

“…This resulted in significant tax reductions in 2013, though these proved highly controversial and contributed to Parnell's re-election defeat in 2014. But in fact, there is little evidence that states have pursued less aggressive taxes in the shale era (Rabe and Hampton 2015), and some studies suggest that arguments that reducing severance taxes will result in increased industry investment and production have little empirical foundation (Kunce 2003).…”

“…Most prominently, several oil-a nd gas-producing states allocate severance tax revenues to what are known as trust-or permanent-funds, following on the pioneering effort in Texas from the early twentieth century. These funds are traditionally protected by state constitutions and thus are designed to feature greater longevity than other state funds created only through statute (Rabe and Hampton 2016). States that use trusts funds include Texas, New Mexico, Wyoming, Montana, Alaska, and most recently, North Dakota, Utah, and West Virginia.…”

“…Such development created significant growth in the state's economy as its gross domestic product rose and unemployment rates dropped. The state's population grew for the first time in decades (Rabe and Hampton 2016), with particularly significant growth in localities near shale development. Other states, such as Colorado, Oklahoma, and Texas, also fit this pattern.…”