Biden’s Pause on Oil Leases Could Squeeze State Budgets

The sun sets behind an idle pump jack near Karnes City, Texas, during April 2020.

The sun sets behind an idle pump jack near Karnes City, Texas, during April 2020. AP Photo/Eric Gay, File

 

Connecting state and local government leaders

But experts caution that it’s hard to know at this point what the financial toll could ultimately look like.

The handful of states that see substantial revenue from oil and gas production could lose funding because of the Biden administration’s pause on new drilling leases on federal lands.

As part of a set of executive actions to address climate change on Wednesday, President Biden temporarily halted the leasing program. Environmentalists and many Democrats cheered the move as a significant step to addressing climate change and protecting public lands. But it also raises questions for the budgets of some western states that count on billions of dollars in revenue from the industry.

Wednesday’s order applies only to new leases on federal lands. The order does not specify how long the pause will continue.

The Bureau of Land Management, an agency within the Interior Department, auctions oil and gas leases quarterly. Several economists said the order would likely not have a significant near-term impact on states, though that could change the longer it stays in effect. 

“If it’s just a couple months, it’s probably not a big deal,” Wenlen Liu, Wyoming’s chief economist, said. “But if it’s long term, it will have a devastating impact on Wyoming’s revenue.”

Of the 1,840 new leases issued in fiscal 2019, 1,050 were in Wyoming.

A University of Wyoming study, conducted by energy economics professor Timothy Considine and funded at least partially by the state’s energy commission, projected Wyoming would lose more than $300 million in average annual tax revenues if a leasing moratorium was in place for the next five years.

Republican leaders in the state, including Gov. Mark Gordon and Sens. John Barrasso and Cynthia Lummis, slammed Biden’s order. 

Gordon called it “disingenuous, disheartening and a crushing blow to the economies of many Western States, particularly Wyoming.” Barrasso and Lummis cosponsored a bill with two dozen other Senate Republicans to reverse the ban.

New Mexico, which would lose out on nearly $950 million a year in the five-year timeframe Considine looked at, was the only state that would take a bigger tax revenue hit than Wyoming based on the professor’s estimates. Considine’s study also included Colorado, Utah, North Dakota, Montana, California and Alaska. In total, the eight states could lose $8.1 billion over the five years, according to the report.

While the potential loss of revenue has raised concerns, officials are still in the process of determining just what the pause will mean for their states. The ranking Republican on New Mexico’s Senate Finance Committee, Bill Sharer, declined an interview request Thursday because he was busy being briefed on the issue.

“It’s just too early to tell what the bigger impact will be,” said Henry Gomez, a spokesman for the New Mexico Department of Finance and Administration. “But it is something that the state needs to review, and hopefully the federal government is analyzing the economic impact as well.” 

Oil and gas royalties account for nearly one-third of recurring state expenditures in New Mexico, Gomez said. About half the state’s oil and gas production is on federal land, according to a 2018 legislative fact sheet.

The reaction from western Democrats, who have largely supported policies to address climate change, was more positive, though they still noted the possible fiscal implications.

New Mexico Gov. Michelle Lujan Grisham, a Democrat, praised the Biden order in a Wednesday statement. She said government must prioritize climate change, but also supported “a balanced national policy that acknowledges and incorporates the important lessons from an all-of-the-above energy state like ours…that, crucially, takes into account the individual circumstances and near-term financial reality of states like ours.”  

Fellow-Democrat, Colorado Gov. Jared Polis also released a statement supporting much of the order and committing to working with the administration on a review of energy policy. 

“As long as the review is completed expeditiously we don’t expect an economic impact in the short-term,” Polis said.

Chance to Diversify

Even without the leasing pause, oil-rich states have seen declining revenues from the sector recently. Last year, with global demand and prices down, was especially difficult

Oil has traditionally been the main source of revenue for Alaska, but that has been shifting in recent years, said Ted Hampton, a vice president with Moody’s Investors Service and an expert on the state's finances.

“The challenge Alaska faces in any event is adjusting to a revenue base that is somewhat different from the oil-dependent approach that has predominated since production began on the North Slope in the 1970s,” Hampton explained

Recent trends show states that depend on oil and gas revenues should be looking for ways to break that dependence, said Lucy Dadayan, a senior researcher with the Urban-Brookings Tax Policy Center. As the country moves away from fossil fuels and toward renewable energy sources, reworking public budgets to reflect the change could also be beneficial. 

“Probably, these states should be looking at diversifying in general,” Dadayan said. “States should be looking into the future rather than holding onto an oil industry that is not sustainable in the long run.”

The pause could have some positive effects on state economies, too. 

Only about 35% of federal land leased to oil and gas developers is actually under production, according to an analysis by conservation group The Wilderness Society. But even idle sites can’t be used for outdoor recreation – a booming industry in many of the same western states with substantial oil and gas reserves.

The pause could open the door for more federal lands to be used for hiking, hunting, fishing and other outdoor activities, said Marne Hayes, the executive director of the coalition Business for Montana’s Outdoors.

“We should be elevating the other positive benefits of the economics of public lands in this conversation, and one of them is outdoor recreation,” she said, adding that the $2.5 billion industry accounts for 5% of Montana’s economic output. 

“If we’re making sure that all these public lands aren’t tied up in unproductive oil and gas leases, then what are the opportunities for these public lands to be managed in other ways that open up access to recreation, in ways that then would contribute to that industry?”

Jacob Fischler is a state policy reporter based in Portland, Oregon.

NEXT STORY: The Cities That Finished Last Year With Steep Declines in Rent Prices

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.