Background: Brett A. Perlman serves as the CEO of the Center for Houston’s Future, a nonprofit organization working to address matters of highest importance to the long-term future of the greater Houston region. His career has spanned senior positions in business, government and community service organizations. Perlman served for four years as a Commissioner on the Public Utility Commission of Texas, where he was appointed in 1999 by then-Governor George W. Bush. He holds advanced degrees in public policy from Harvard University and in law from the University of Texas, and was a Phi Beta Kappa graduate of Northwestern University.
Abstract: For more than a century, oil and gas production has been an anchor of the Texas economy and government revenues; but, an increasingly volatile, global energy market could impact the price of oil, which could significantly impact Texas’s economy and government revenues. In 2019, for example, oil and gas exploration and production activity generated $13.4 billion in public finances in Texas — about $6 billion of that for public K-12 school funding, or 20 percent of the $32 billion annual expenditure, the report said. Our report seeks to answer a fundamental question about what would happen to Texas’ economy and state and local government revenues under specific world oil price scenarios over the next 15 years, given the volatility of global markets. Completed in late 2020, this study is the first that seeks to bring together the various revenue streams supporting state and local government in Texas to consider what would happen if certain world oil price scenarios occur. To assess the economic implications of oil price scenarios through 2036, Center for Houston’s Future brought together a panel of energy experts, which developed the four oil price scenarios. We then projected production and revenues under each, using data from the University of Texas at Austin’s Bureau of Economic Geology and estimated the amount that energy production would generate in local property taxes, state royalties, severance and income taxes, and other revenue sources that support public education. Among the key findings, the report found that if world oil prices experience a steady decline between 2021 and 2036 and reach $30 per barrel:
- Texas’ economy could shrink by an aggregate of $1.6 trillion during that 15-year period, compared to maintaining constant at 2019 levels. Gross state product linked to oil and gas exploration and production in 2036 could be $155.6 billion less than a 2019 baseline of $281 billion, which reflects a more than 55 percent decline.
- Texas state and local tax collections, including taxes and royalties derived from oil and gas exploration and production, could shrink by an aggregate of $128.9 billion during that 15-year period, compared to remaining constant at 2019 levels. Annual revenues, including taxes and royalties linked to oil and gas exploration and production in 2036, will be $9.7 billion less than a 2019 baseline which was 13.4 billion, which reflects a 73 percent decline.
- Texas K-12 education funding derived from oil and gas exploration and production could shrink by an aggregate $29.0 billion during that 15-year period, compared to maintaining constant at 2019 levels. Annual K-12 revenues, including taxes and royalties linked to exploration and production in 2036, could be $1.8 billion less than a 2019 baseline, which was $5.8 billion or a decline of 31 percent.
To prepare for these challenges, the study makes multiple recommendations for the Texas Legislature some of which were adopted during the last Legislative session. View the full report here, or visit the Center for Houston's Future website. To view the findings related to education funding, click here.