US oil-producing states could profit doubly from decontrol
San Francisco — The decontrol of domestic oil prices in the United States could mean whopping windfalls for a few major oil-producing states at the expense of the rest of the country.
As Congress works out the details of how to prevent oil companies from reaping unearned profits, this lesser-known but potentially disruptive side effect of oil-price decontrol raises the possibility of more than a minor skirmish in the regional battle between Sunbelt and "frost belt." It could also cause a examination of the way in which federal aid programs -- particularly revenue sharing -- are distributed among states.
The US Treasury Department estimates that price decontrol over the next decade would bring oil states an additional $128 billion in royalties, severance taxes, and other forms of business, income, and property taxes. Some 90 percent of this would go to the top eight oil producers (Alaska, Texas, California, Louisiana, Oklahoma, Wyoming, New Mexico, and Kansas), with 83 percent going to the top four.
Ironically, this also could mean a greater chunk of revenue sharing and other forms of federal aid flowing to these already enriched states. Such oil taxes are counted as part of a state's "tax effort" (taxes collected divided by personal income) in computing revenue-sharing formulas. This means that while politically unpopular taxes (such as that on personal income) could be lowered, for purposes of distributing general revenue sharing, a state's "tax effort" could appear to be more.
"The conventional measure of tax effort is a very poor measure for certain states," says John Shannon, assistant director of the Advisory Commission on Intergovernmental Relations. "It overstates the real tax effort of resource-rich and tourist-rich states and, as a result, it tends to understate the tax effort of those states not in a position to export much of their taxes to outsiders."
At the request of Sen. Daniel P. Moynihan (D) of New York, the Treasury Department figured out what the revenue sharing redistribution would have been if oil prices had been decontrolled last year.
Alaska's share would have jumped 177 percent (from $22.3 million to $61.7 million), Texas would have seen its revenue- sharing jump 29 percent to $428 million, and Louisana's portion would have gone up 41 percent. The other oil-producing states would likewise have garnered considerable revenue- sharing increases, but since the total revenue-sharing amount is held to $5.9 billion a year, the other 42 states would have lost $227 million.
These figures assume that oil-revenue states would not have lowered other taxes, and that the new oil income would not have been sent out of state to stockholders or parent corporations. But shares without oil are clearly worried nonetheless.
"It's simply perverse that the federal government should be pouring more money into states which will already be getting more," complained one Capitol Hill source from New York. Critics point out that oil-poor states not only will have to pay more for their oil from this "domestic OPEC," but also could lose new industry and jobs to oil-producing regions that can now afford to lower corporate and income taxes.
"It really hurts those states which don't have much under the ground," said Shelly Amdur, deputy director of the Northeast-Midwest Congressional Coalition, an organization of 18 "frost belt" states.
When the windfall-profits tax was being debated in the Senate, Sen. John Danforth (R) of Missouri proposed an amendment (also favored by the Carter administration) that would have levied a federal tax on state oil royalties. Oil- producing states beat back the proposal, and it was defeated.
One key to redressing at least part of the potential imbalance may come later this year when federal revenue sharing comes up for renewal. There is little doubt that the program, which benefits 39,000 communities, will be extended, including the one-third that goes directly to states.
But as a price for their support, key legislators (including Senator Moynihan) may insist on revising the "tax effort" part of the revenue-sharing distribution formula.
"This could develop into one of the major square-off battles of the 1980s," Mr. Shannon says.