A recent Montana legislative report says tax revenue from oil and natural gas production is expected to drop more than 28 percent this fiscal year, which will impact state and county budgets.
This week’s Legislative Fiscal Division report predicts the state will collect almost $39 million in oil and natural gas tax revenue in fiscal year 2020, about 32 percent less than initially forecast.
A division analyst said about half of that money goes into the state’s general fund and the other half is distributed to counties and school districts where the oil and gas was extracted.
Sen. Tom Richmond, a Republican from Billings, is a member of the legislative Energy and Telecommunications Committee. He says this is one of the steepest drops in oil and gas revenue he’s seen in a decade.
“The effect on the general fund of course, is that it reduces the availability of that revenue. And it has to be made up, backfilled from some place, or there has to be cuts in spending,” Richmond says.
The fiscal division forecast is primarily driven by low oil prices worldwide. It suggests prices dropped to a level that makes it unprofitable to pump from open wells in Montana.
Legislative analysts say less travel under lockdown conditions is likely impacting the cost of oil. But Richmond says global oversupply has also impacted prices over the last three years.
Counties and school districts that receive oil and gas taxes are expected to see $34 million less than expected through fiscal year 2021. The fiscal division report says hotels, restaurants and bars will also be impacted from the drop in oil and gas production.
“I drive by our hotels, and they’ve had some pretty empty parking lots,” Republican State Rep. Joel Krautter says.
Krautter serves Richland County in eastern Montana. It received the most oil and gas tax revenue of any county during the last quarter reported: $5.4 million.
Krautter says a slowdown will hurt all of his constituents, tied to extractive industries or not.
“It’s really just agriculture and oil and gas, energy development that is big for our economy. And agriculture’s struggling right now as well. So it is a tough time across the board.”
Krautter says Richland County has previously froze hiring, essentially in response to oil and gas price fluctuations over the last three years.