State-level choices for non-renewable resources revenue funds

Abstract

There are 11 major oil, natural gas, coal and mineral producing states in the United States. Over time, each has experienced the boom and bust cycle associated with severance revenues derived from non-renewable resources traded in an open market. This paper asks: What are the differential outcomes of establishing a revenue stabilization fund versus a permanent fund for non-renewable resource severance revenues? Since these revenues are “non-renewable,†many states (and nations) chose a permanent fund to promote intergenerational equity. However, Oklahoma and Louisiana recently created a revenue stabilization fund. We model the effect of revenue stabilization and permanent fund using historical data in Oklahoma. A revenue stabilization fund provides short-term gains while a permanent fund creates a long-term endowment for future generations. Public officials considering strategies for revenue allocation can benefit by understanding the predicted short and long-term fiscal effects of their choices