State and Local-Level Fiscal Effects of the Offshore Petroleum Industry

David Dismukes Funded by the U.S. Department of the Interior, Minerals Management Service. Project Funding: $241,216.

The fiscal consequences of the OCS program are the most direct and significant way in which the program affects states and communities. These effects are largely shaped by the interaction of federal law and each state's revenue and allocation mechanisms. There are also a number of indirect fiscal impacts on local communities that are shaped by their economic composition and position in supporting oil and gas activities along the Gulf of Mexico (GOM). Currently, Minerals Management Service (MMS) lacks a systematic understanding and analysis of the direct and indirect fiscal effects at state and local levels. This study will strengthen Agency assessments by addressing this oversight, support our continued improvements to the projections of the indirect effects of the program, and provide information to the State of Louisiana, local communities, and other stakeholders concerning the cumulative effects of the program.

The evaluation of fiscal effects is an important aspect of socioeconomic assessment. The tax receipts and other revenues generated by OCS-related activities are a major program benefit to counties/parishes, states, and the nation. Likewise, public expenditures which are required to accommodate OCS-related demands on public infrastructure and services are also a program burden to counties/parishes and to states. The net effect of these two processes (revenues less expenditures) provides, at least from a public finance perspective, the net overall benefits associated with OCS-related activity.

Equally important are the trends and changing nature of the overall fiscal effects on state and local communities. OCS activity, for instance, can be cyclical and commonly follows the price of crude oil and natural gas produced in the region. The growth and contraction of this activity can have impacts on the distribution of the industry's onshore activities, which in turn can impact the fiscal position of state and local government. The speed at which these changes occur can also create short run structural problems which also need to be recognized.

The primary purpose of this study is to provide a detailed description of the various fiscal effects, while the secondary goal is to actually estimate the magnitude of these effects.