Growth in oil and gas production has led to major new revenues for US state and local governments. This brief examines the top 16 oil and gas producing states, showing substantial variation in how these revenues are collected and allocated.
- US state and local governments collect revenue from oil and gas production through a variety of sources, ranging from a low of 1 percent of production value to a high of nearly 40 percent.
- Severance taxes make up the largest source of oil and gas revenues for state and local governments, followed by state oil and gas leases, local property taxes, and federal leases.
- Revenue allocation varies substantially across states. On average, most revenue goes to state expenditures and education. Smaller shares flow to local governments and long-term trust funds.
- Some policy designs, such as those that allocate a large share of revenue to current operational expenditures, can generate windfalls in periods of high prices or production and create budgetary challenges when prices or production decline.