April 19, 2011 05:47 PM UTC

Gaspatch Economics--Tax Policy Matters

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• by: ClubTwitty

( – promoted by Colorado Pols)

Edited on request…

Headwaters Economics has new report out that details the differences sound tax and fiscal policy can make in the gaspatch to prepare for the next of the inevitable busts that are systemic to economies heavily dependent on resource extraction.

Dennis Webb at the Grand Junction Daily Sentinel is reporting:

Proper tax and other policies can help both states and local governments maximize the benefits of fossil-fuel development while minimizing the challenges posed by its volatility, a new report concludes.

The report, released by the Montana-based Headwater Economics nonprofit research group, points to both Colorado policies, and more specifically those in Garfield and Mesa counties, to make its point.

From the Headwaters release (pdf):

“Fossil fuel development involves enormously valuable resources, but employment and revenue are driven by price which can change rapidly,” said Julia Haggerty Ph.D., the report’s author. “This volatility poses obstacles to stability and long-term economic growth, and the local costs and benefits of fossil fuel energy

development are experienced unevenly.

“Fortunately, policy reforms at the state and local level can help ensure that the public receives a lasting benefit from energy production.”

The Sentinel article contrasts Garfield County, where voters ‘de-bruced’ with Mesa County where TABOR limits remain in force, and the abilities of the two neighboring counties to respond to the recent decrease in commodity prices and thus extraction activity.

Specifically, the report uses Mesa County to provide the counter-point to Garfield’s stronger position, as the Sentinel notes:

The TABOR restrictions remain in place in Mesa County, which barred it from collecting revenue during the time of rapidly growing economic activity, the report said.

The report makes three basic findings, according to the Headwaters release:

First, fossil fuel extraction plays a limited role in state economies, and energy-related jobs, except for Wyoming, provide less than three percent of both total employment and total personal income.

Second, price-not policy-is the primary driver of oil and gas development activity, making it highly volatile. Employment and income from mining, including energy development, in the five-state region follow commodity price trends, and income compensation from mining shrank by the largest percent-16.1 percent from 2008 to 2009-of any economic sector.

Third, tax revenue from fossil fuel extraction-rather than jobs-is the longest-lasting economic legacy of fossil fuel development. While energy revenue varies because of price volatility it continues to accrue long after most jobs have left a region. By maximizing collection of fossil fuel revenue and ensuring it is adequately distributed, states increase the benefits of energy development.

The fact is that energy commodities will remain one of the more volatile sectors of our economy. Designing policy to maximize drilling now as a fix to economic instability does little to prolong or prepare for the next bust.  The better approach, the report seems to suggest, is to design policy that maximizes the more stable (long term) revenue from this activity, to smooth out the troughs that plague resource-dependent economies and which, overtime, hamper their long-term economic health.

Expect the Colorado GOP, it’s legislators, and congressional members to ignore this sound advice.