The Pew Charitable Trusts

The past several months found lawmakers in most states lowering their legislative sights as the slowing U.S. economy drained dollars from state coffers. But a handful of states are bucking this trend as they ride a wave of higher than average oil and gas prices to better fiscal health.

Alaska, Louisiana, Montana New Mexico, Oklahoma and Wyoming are all enjoying an unexpected windfall from taxes on the oil and gas industries in their states. Analysts caution, however, that just as in the past, the wave of high prices won't last long. Already there are signs it is petering out.

"The oil and gas states seem to be doing well," says Nick Jenny, fiscal analyst at The Nelson A. Rockefeller Institute of Government. "They're thinking about tax cuts and spending increases and so forth."

Oklahoma exceeded revenue estimates by $260 million for fiscal year 2001, which closed June 30.

"It was basically all gross production on natural gas, a gross production tax," says Russ Maile, state economist for Oklahoma.

But the days of surpluses in the state may be fleeting.

"Gas is back down, storage is running well ahead of last year, and oil has pretty much stabilized," says Reese Womack, head of economic research at Oklahoma's Tax Commission. Womack adds that the state has old oil fields, with production declining every year. Alaska saw a surplus of $87 million for the recently closed fiscal year. The state is more dependent than any other on oil and gas, with roughly 75 percent of its revenue culled from this sector.

"We live off oil," says Larry Persily, deputy commissioner of Alaska's Department of Revenue.

Oil and gas money flows into Alaska's coffers through a property tax, a corporate income tax and a production tax. Alaska also claims one-eighth of everything that is pumped out of the ground. The state has no personal income tax and no sales tax.

For most of the 1990's, Alaska was forced to draw from its savings account to balance its budget. As recently as fiscal year 2000, when oil prices were way down, the state feared it would face a string of $1 billion deficits. Despite its recent surplus, the state is predicting a $490 million deficit for the 2002 fiscal year that started July 1.

The instability of oil and gas prices and the state's dependence on the sector has spurred many efforts to diversify Alaska's revenue sources by instituting a sales or personal income tax. But agreement on a tax plan has been hard to come by.

"There are 630,000 people in the state and we have 630,000 different plans. Well, maybe 620,000. A few people don't care," says Persily. Much of the resistance comes from a population all too comfortable paying no individual taxes to the state. In fact, most Alaskans receive fat dividend checks every year from the state's Permanent Fund, a $26 billion fund started in 1976 to save some of the looming oil bonanza from Prudhoe Bay.

"A lot of people are saying, 'Hey, don't tax me, just go drill more,'" says Persily.

Alaska and Oklahoma are joined by a handful of other oil and gas states experiencing windfalls.

New Mexico saw its largest budget reserve in a decade -- nearly $450 million. Louisiana Gov. Mike Foster estimated his state's budget surplus at $200 million. Other officials say it might be even higher. Wyoming lawmakers had the politically pleasing task of deciding what to do with the state's $695 million surplus. A surplus is predicted for this year as well. And Montana closed its two-year budget cycle on June 30 roughly $123 million in the black.