Think of the children.
That’s been a core message of the oil and gas sector, and its Capitol Hill allies, in attacking President Joe Biden’s pause on new oil and gas leases on federal lands.
Opponents of the move point to billions in tax revenues that flow from those operations into state coffers, where they help fund K-12 education. One advocacy group’s television spot dramatically depicts a family waiting for an approaching school bus that simply vanishes as it pulls up.
The potential impact on school funding could influence where the Biden administration takes its federal leasing policy and what, if anything, Congress does about it.
But the moratorium is likely to have less than dire consequences for education funding in the short term, even for those states most affected.
New Mexico is among those facing the biggest potential impact, as its state budget relies heavily on tax revenue from oil and gas operations on the federal lands that make up about a third of the state.
But analysts there upgraded their budget forecasts last week, with Taxation and Revenue Secretary Stephanie Schardin Clarke specifically addressing Biden’s executive orders.
“As these things stand right now, we don’t expect them to have dramatic impact on oil or gas production in New Mexico for the short term,” Clarke told state lawmakers. She cautioned that the state is still seeking clarification from the federal government about the policies. And if the orders are extended or expanded, analysts said, that could change things.
But for now, the forecasts indicate flat oil and gas production.
Moratorium opponents have warned of big state revenue drops resulting from the pause. They point to a University of Wyoming study last year that predicted a drop of more than $8 billion over five years for tax revenues across eight states as a result of the moratorium. That study indicated New Mexico and Wyoming would see the biggest hits, with $946 million and $304 million in lost annual revenue, respectively. But critics have questioned the assumptions and methodologies underlying that assessment.
Leases vs. production
And supporters of the pause note that many leases don’t lead to actual production. Even when they do, it can take years for royalties to flow, suggesting any major revenue impact would come well into the future.
Companies built up an inventory of permits during the previous administration, and ongoing operations are not affected by the pause on new leases.
Charles Mason, chair in petroleum and natural gas economics at the University of Wyoming, noted that the pause could more quickly affect some state revenues that come from the upfront bids paid by companies on new leases. Those bonus bids, along with other revenues from oil and gas operations on federal lands, are split almost equally between Washington and states outside of Alaska, which has its own formula.
From an overall perspective, Mason said the moratorium is more likely to just shift production around rather than greatly curtail it, but some individual states could see losses.
Wyoming relies on its three big natural resources — coal, oil and gas — and coal is having a rough time.
New Mexico also faces the unique challenge that companies can move next door to Texas and extract essentially the same oil on private lands if the federal restrictions become too tight.
“New Mexico’s got a big stake in this, and if folks go across the state line, they’re out a lot of money,” Mason said.
Nicole Gentile, deputy director for public lands at the left-leaning Center for American Progress, said if those operations do flee to private lands in Texas, they will find the royalty payments significantly higher than what they are charged on federal lands. One reason for the moratorium is to evaluate and consider higher rents and royalties on par with private lands, Gentile noted.
Raising those royalties could mean a lot of additional funding for states for education.
Gentile also highlighted proposals that would hand states a lump sum payment in exchange for future oil and gas revenues so they don’t have to rely on the ups and downs of oil and gas markets.
“We have to address this unsustainable tie between state budgets and an industry that is actually very well known for its boom and bust nature,” Gentile said.
More to come
Expect to hear more from moratorium opponents about the effect on schools. New Mexico teacher of the year Jessica Sanders joined state oil and gas associations on a call with reporters last month warning about Biden’s orders.
“New Mexico’s children are the future, and without vital funding from New Mexico’s oil and gas industry, our students will not have access to the tools and resources they need to enter the workforce,” Sanders said.
Jillian Balow, Wyoming’s superintendent of public instruction, last week sent a letter to Biden objecting to the moratorium. She was joined on the letter by state officials representing North Dakota, Montana, Alaska and Utah.
During the Senate budget resolution amendment voting marathon, Sen. John Barrasso, R-Wyo., offered a proposal allowing for money to support schools that lose revenues from the moratorium.
“One of the many crushing consequences of the moratorium is eliminating hundreds of millions of dollars for K-12 education for students,” Barrasso said on the floor.
Sen. Martin Heinrich, D-N.M., spoke up in bipartisan support of the proposal.
“My friend from Wyoming and I disagree on many things,” Heinrich said. “We disagree on the impact of this policy in the immediate and we disagree on the speed of the energy transition to a zero-carbon economy. What we do not disagree about is that these communities, we support. We support their schools, and throughout this transition we should support the people who have kept the lights on and made this country the greatest energy country on the face of the earth.”
The amendment, which was not binding since the budget resolution is not a law, was adopted 98-2.
Mason noted that while Western states have drawn a direct line from oil and gas production to education funding, there’s nothing sacred about that arrangement.
Wyoming, for example, has eschewed other options such as implementing a state income tax that could help fund education and other priorities.
“That’s a political decision by the state,” Mason said. “God didn’t come down and say, ‘Oh, the only way you can fund education is to extract oil.’”